Commonwealth Bank of Australia v Groves - [2012] SASC 110

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
COMMONWEALTH BANK OF AUSTRALIA v GROVES
[2012] SASC 110
Judgment of The Honourable Justice Blue
3 July 2012
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - FALSE REPRESENTATIONS GENERALLY
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - CHARACTER OR ATTRIBUTES OF CONDUCT OR REPRESENTATION - RELIANCE, INDUCEMENT AND CAUSATION
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - ACTIONS FOR DAMAGES - CAUSATION
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - ACTIONS FOR DAMAGES - ASSESSMENT OR AVAILABILITY OF DAMAGES - WHAT LOSS OR DAMAGE RECOVERABLE - LOST COMMERCIAL OPPORTUNITY
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - OTHER ORDERS OR RELIEF - COMPENSATORY ORDERS
The plaintiff claims $7.9 million principal and interest payable by the defendant. The defendant counterclaims for damages of $7.5 million and other relief for misleading conduct.
In September 2006, the plaintiff lent to the defendant $4 million (later $5 million) on an unsecured basis to fund the purchase of the Adelaide Dome. In February 2008, the defendant lost his major asset (shares in ABC Learning Centres which he had jointly founded). The plaintiff asked the defendant for security. The defendant told the plaintiff that he intended to sell the Dome and asked the plaintiff to prepare a mortgage over the Dome. In May 2008, the defendant granted a mortgage over the Dome to the plaintiff.
The defendant alleges that two representations induced him to enter into subsequent facility agreements with the plaintiff, grant the mortgage and not to refinance the loan under a secure long term facility with an alternative financier which he would otherwise have done.
The first alleged representation was that in March 2008 the defendant told the plaintiff’s executive manager that he would need a 3 to 5 year facility if he could not sell the Dome and the manager responded that it would not be a problem subject to security and valuation of the Dome.
The second alleged representation was that in May 2008 the defendant told the executive manager that he would need a longer term facility if he did not sell the Dome and the manager responded that the plaintiff’s credit officers saw no problem with this and there was no danger that he would not be granted a longer term facility in the future if he needed it.
In September 2008, the defendant lost his employment. In early 2009 his prospect of selling the Dome fell through and he ceased paying interest to the plaintiff.
The defendant claims damages of $7.5 million, comprising:
(a) $1.5 million in additional interest incurred to the plaintiff compared to an alternative facility;
(b) loss of the opportunity to earn $1.5 million in additional revenue which the defendant would have earned between 2009 and 2012 if he had had certainty of tenure under an alternative facility;
(c) loss of the opportunity to avoid a capital loss of the value of the Dome of $4.5 million.
Held:
(1) The alleged representations were not proved to have been made.
(2) If the representations had been made, they would have comprised misleading conduct.
(3) If the plaintiff engaged in misleading conduct, the defendant failed to demonstrate that he would otherwise have sought and obtained alternative long term finance or that he has in fact been unable to pay out the plaintiff since September 2008.
(4) If the plaintiff engaged in misleading conduct which caused the defendant not to seek and obtain alternative finance, the defendant has suffered a loss by way of:
(a) a difference in interest of $1.3 million;
(b) the value of the lost opportunity to earn additional revenue being $270,000 and interest thereon;
but failed to prove a loss of opportunity in respect of the capital value of the Dome.
(5) If the defendant has suffered a loss of opportunity in respect of the capital value of the Dome, the value of that loss is $850,000.
The plaintiff is entitled to judgment for $7,951,024.65 plus interest calculated from 29 February 2012 to the date of judgment. The plaintiff is entitled to an order that the defendant produce to the plaintiff the duplicate certificate of title to enable the plaintiff to register its mortgage.
Trade Practices Act 1974 (Cth) s51A, 52; Competition and Consumer Act 2010 (Cth) s82, 87, referred to.
Wardley Australia Limited v Western Australia (1992) 175 CLR 514, applied.
Trio Insulations Pty Ltd v Metal Deck Roofing Pty Ltd [2002] NSWCA 294, discussed.
Gould v Vaggelas (1985) 157 CLR 215; Henville v Walker (2001) 206 CLR 459; Hungerfords v Walker (1989) 171 CLR 125; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324; Territory Sheet Metal Pty Ltd v Australia and New Zealand Banking Group Ltd (2010) 237 FLR 197, considered.

COMMONWEALTH BANK OF AUSTRALIA v GROVES
[2012] SASC 110
Table of Contents
1.    Overview
2.    Witnesses
Lay witnesses
Expert witnesses
Mr Groves
Mr Flude
3.    Background facts to December 2007
Commonwealth Bank personnel
Mr Groves
ABC Learning Centres
Mr Groves’ businesses
Brisbane Bullets
Adelaide Dome
Helicopter business
Rental properties

Mr Groves’ shares & investments
ABC Learning Centres shares
Austock shares
Quantum, Funtastic & Elmm shares
Woodlots investment
Property development ventures
Other investments

Mr Groves’ personal assets
Commodore Trusts
4. The Adelaide Dome
The Dome as at 2006
Zoning
Acquisition by Mr Groves
Operation of Adelaide Dome
Dr Hemmerling/ADPL September 2006 to October 2009
Mr Bell/ADPL November 2009 to January 2010
CBA January to March 2010
Mr Bell/ADPL & Mr Groves March to September 2010
Lifestyle October 2010 onwards

Agreements and prospective agreements with tenants/users/sponsors
Hutchison Telecommunications
Distinctive Homes
Other tenants and users
Adelaide 36ers
BASA, Adelaide Lightning and Woodville Warriors
Imagine Education

Improvements to the Dome
Attempts to sell the Dome
Financial performance
2007
2008
2009
2010
2011
2012

Valuations
Knight Frank valuation November 2006
CBRE valuation January 2009
Knight Frank valuation March 2010

5. Dealings between Mr Groves and CBA and events of 2008 & 2009
Margin lending for ABC shares
Financing the Dome
Knight Frank valuation
Financing additional Austock shares
Asset rationalisation
Request for $20 million standby loan
26 February
27 February
Aftermath of events of 26 February
7 March
March to May
29 May
June to October
13 October
14 October
The last extension
17 November
10 December
January to April 2009
May 2009 to February 2010
6. Existence of Representations
Mr Groves’ case
Mr Groves’ pleaded case
Mr Groves’ evidence
Mr Groves’ case at trial

Mr Flude’s evidence
My finding
Nature of the alleged representations
27 February emails and 7 March discussion
Information available to Bank at 29 May
Subsequent conduct of the parties
Conduct of Mr Groves in February
Earlier versions of representations
Position of Mr Flude
Position of Mr Groves

Conclusion
7. Falsity: misleading
8. Causation of loss: hypothetical scenario
Causation as a whole
Causation involving the hypothetical scenario
Would Mr Groves have sought finance approval & accepted/drawn down
Mr Groves’ confidence in selling
Expectation of change
Competing demands
Actual conduct post-September 2008
Question 1: would Mr Groves have sought finance approval?
Question 3: would Mr Groves have accepted and implemented finance approval?

Question 2: would Mr Groves have been granted finance approval
Serviceability of loan
Security
Conclusion
Payment out of CBA loan

Question 4: provision of mortgage to Commonwealth Bank
Conclusion
9. Causation: actual scenario
Onus of proof
Ability to refinance post September 2008
Serviceability of loan
Security

Ability to repay post September 2008
Failure to pay interest from February 2009
Conclusion
10. First head of loss: additional interest
Heads of loss
Quantum of interest loss
Start date
Actual Commonwealth Bank interest
Hypothetical alternative finance interest
11. Second head of loss: opportunity to earn additional revenue
Approach to assessment
Pre-existing tenants & users
Adelaide Lightning
Woodville Warriors
Others
Conclusion

Casual events and functions
Apollo room
Stadium events
Conclusion

Imagine Education
Causation of loss
Valuation of opportunity lost
Development Approval
Certification and registration as approved education provider
Prospect that Imagine Education would have commenced and remained
Lifestyle
Timing
Overall assessment

Sponsorship revenue
Naming rights sponsor
General sponsorship
Conclusion

Ticketing agency income
High Stakes Hoops
Causation
Valuation of opportunity lost

Residual Assessment
Quantum
Loss of use of monies
12. Third head of loss: opportunity to avoid loss of capital value
Quantification
Actual current market value
Hypothetical current market value
Differential between actual and hypothetical current market value

Causation: the existence of a capital loss
Value of lost opportunity
13. Remedies on counterclaim
Damages
Set aside orders
Facility agreements
Mortgage

Preclusion orders
Default interest
Compound interest

Variation order
14. The Bank’s claim
15. Conclusion
Civil
BLUE J.

The plaintiff, Commonwealth Bank of Australia (“CBA” or “the Bank”) sues the defendant, Mr Groves, for monies lent of $5 million plus interest and for production of the duplicate certificate of title to enable registration of a mortgage granted to secure payment of the monies lent.
Mr Groves sues CBA, by way of counterclaim, for misleading conduct and seeks damages and other orders pursuant to the Trade Practices Act 1974 (Cth).[1]
[1] Now the Competition and Consumer Act 2010 (Cth). The Trade Practices Act as in force before 1 January 2011 continues to apply to conduct (eg the subject of section 52) occurring before 1 January 2011 (presumably as in force at the time of the conduct pursuant to section 7 of the Acts Interpretation Act 1901 (Cth)) pursuant to item 6 of schedule 7 to the Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010. The Trade Practices Act as in force before 1 January 2011 continues to apply to proceedings instituted before 1 January 2011 pursuant to item 7 of schedule 7 to the Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010 (there were no material changes to sections 82 and 87 between 2008 and 2010 so it is not necessary to consider the application of section 7 of the Acts Interpretation Act to section 82 and 87. I refer to the Act as the Trade Practices Act.
1. Overview
At the beginning of 2008, Mr Groves was a founder, director, substantial shareholder and chief executive officer of ABC Learning Centres Limited. The Commonwealth Bank was one of the principal lenders to ABC, having provided facilities totalling $740 million.[2] Mr Flude was the executive within the Bank responsible for the relationship with ABC.[3]
[2] Dollar figures are rounded to the nearest $1,000, $5,000, $10,000, $50,000, $100,000, $500,000, $1 million or $5 million as the case may be.
[3] There is a dispute on the evidence between Mr Flude and Mr Groves concerning the extent to which Mr Klein had been responsible for that relationship but in any event Mr Klein left the Bank in December 2007.
Mr Groves and his first wife owned 37.2 million shares in ABC which, based on a share price at the time of $5.18, had a market value of $193 million. They had borrowed $85 million from several financiers under margin lending facilities secured over their ABC shares.
On 26 February 2008, ABC released its half yearly report. Its share price dropped dramatically from an opening price of $3.74 to a low of $1.15 before closing at $2.14. This brought the market value of the Groves’ shares below the amount owing to their margin lenders. This triggered calls for repayment and entitled the margin lenders to sell shares in default of repayment. By 7 March 2008, the Groves had sold all of their 37.2 million shares in ABC.
The Commonwealth Bank had granted to Mr Groves a facility of $5 million[4] on an unsecured basis[5] which had been originally provided to finance the purchase of the Adelaide Dome[6] by Mr Groves in September 2006. The term of that facility was to expire on 31 May 2008.
[4]    The original facility was $4 million, but had become $5 million in December 2007 for reasons which appear below.
[5]    Subject only to a deed of negative pledge.
[6]    Then known as the Distinctive Homes Dome and now known as the Adelaide Arena.
On 27 February 2008, triggered by the events of the day before, the Bank asked Mr Groves for a mortgage over the Dome to secure the $5 million facility. Mr Groves replied that he planned to sell the Dome and asked the Bank to prepare a mortgage over the Dome.
Mr Groves gave evidence that on 7 March he told Mr Flude that, if he did not sell the Dome, he would need a three to five year facility and Mr Flude replied that that would not be a problem but the Bank would want security and a valuation of the Dome. Mr Flude denied that a discussion to that effect occurred. This is the first representation alleged by Mr Groves.
On 29 May, Mr Groves signed an acceptance of a letter of approval for extension of the $5 million facility to 30 June together with a mortgage over the Dome to secure the facility. Mr Groves gave evidence that, before signing, he reiterated his need for a longer term facility if he did not sell the Dome and Mr Flude responded that the Bank’s credit officers saw no problem with that and there was no danger that a longer term facility would not be granted if he did not sell the Dome. Mr Flude denied that a discussion to that effect occurred. This is the second representation alleged by Mr Groves.
On 30 June, a further three month extension of the facility to 30 September was offered and accepted. On 30 September, Mr Groves lost his employment as chief executive officer and his position as a director of ABC.
Two further short extensions of the facility to 21 October were offered and accepted. At that point, Mr Groves had a prospect of selling the Dome to a syndicate (headed by Mr Lott) for approximately $4 million but this prospect fell through in February 2009.
From the beginning of February 2009, Mr Groves ceased paying interest on the $5 million facility and in March-April his solicitors wrote to the Bank alleging misrepresentation.
Ultimately, in December 2009 the Bank instituted this action against Mr Groves. Mr Groves counterclaimed alleging that the March and May 2008 discussions amounted to a contract for a long term facility and in the alternative that the Bank had engaged in misleading conduct. Ultimately, in closing address Mr Groves abandoned the contract claim.
The Bank’s case is that Mr Groves owes to the Bank principal and interest totalling $7.9 million as at 29 February 2012. Mr Groves does not dispute that he owes this amount, subject to the effect of his counterclaim.
Mr Groves’ case is that the Bank engaged in misleading conduct by the making of the representations by Mr Flude in March and May 2008 which caused loss totalling $7.5 million as follows:
1.$1.5 million in higher interest incurred on the Bank’s facility compared to an alternative facility which Mr Groves could and would otherwise have obtained in March 2008;
2.loss of the opportunity to earn $1.5 million in additional revenue which Mr Groves would otherwise have earned between July 2009 and June 2012 if he had obtained such an alternative facility and not been faced with the uncertainty caused by the Bank’s claims hanging over his head;
3.loss of the opportunity to avoid a loss of capital value of the Dome of $4.5 million caused by the loss of the opportunity to earn that additional revenue.
The principal questions which arise are as follows:
1.Did Mr Flude make the alleged representations?
2.Were they misleading?
3.Did they cause Mr Groves to stay with the Bank and not seek and obtain an alternative long term facility and/or pay out the Bank which he would otherwise have done before 30 September 2008?
4.Was Mr Groves in fact unable to obtain alternative long term finance or otherwise pay out the Bank after 30 September 2008?
5.Has Mr Groves suffered a loss caused by the misleading conduct of the Bank being the difference between interest incurred on the loan from the Bank and interest which would have been incurred under an alternative long term facility?
6.Has Mr Groves suffered a loss of the opportunity to earn additional revenue due to the state of uncertainty which has pertained since July 2009 which in turn was caused by the misleading conduct of the Bank?
7.Has Mr Groves suffered a loss of the opportunity to avoid a loss of the capital value of the Dome as a result of loss of the opportunity to earn additional revenue due to such uncertainty?
8.What is the quantum of the loss suffered by Mr Groves?
9.What is the quantum of the monies owing (subject to his counterclaim) by Mr Groves to the Bank?
10.What remedies ought to be granted?
2. Witnesses
Lay witnesses
The Bank proceeded first on its claim. It called Mr Hampton to prove its claim. He gave evidence principally by affidavit and was not cross-examined. His evidence was not challenged. Mr Groves does not dispute that he owes the Bank $7.9 million as at 29 February 2012 in accordance with Mr Hampton’s evidence other than by reason of his counterclaim for misleading conduct.
Mr Groves proceeded next on his counterclaim. He gave evidence on his own behalf concerning ABC Learning Centres, the Adelaide Dome, his dealings with the Bank, the financial position and performance of the Dome and of himself, representations made to him by Mr Flude and steps which he actually took and would but for Mr Flude’s representations have taken in relation to the Dome.
Mr Groves also called:
1.Mr van Groningen, who gave evidence concerning work he did for Mr Groves dealing with tenants and users of the Dome in mid 2009 and concerning the High Stakes Hoops basketball competition which he ran at the Dome in April 2010;
2.Mr Adler, who gave evidence concerning proposals for his company Imagine Education to use the Dome to teach further education courses, communications with Mr Groves about those proposals and why they did not ultimately proceed;
3.Mr Sedgwick, who gave evidence about finance markets and the likelihood of Mr Groves obtaining finance secured over the Dome in early and late 2008.
The Bank then proceeded with its defence to the counterclaim. It called:
1.Mr Flude, who gave evidence concerning finance to ABC and Mr Groves and his dealings with Mr Groves;
2.Mr Davies and Mr Olsen, who gave evidence of their dealings with Mr Groves and his facilities.
There was no challenge by either party to the credibility of the various lay witnesses, with the exception of Mr Groves and Mr Flude. I address their credibility below.
Expert witnesses
Each party called an accountant to give evidence concerning the financial performance of the Dome over time and its hypothetical performance if Mr Groves had pursued certain opportunities, which on his case he did not pursue due to the conduct of the Bank. Mr Groves called Mr Morris and the Bank called Mr Ferguson. On the one hand, Mr Morris was asked to make assumptions concerning both the actual and hypothetical revenue derived by Mr Groves from the Dome and accordingly, by and large, the accountants do not express opinions on financial performance as opposed to making arithmetical calculations. On the other hand, the accountants express opinions on issues which it is my responsibility to decide (for example Mr Morris expresses opinions on the risk of the hypothetical revenue not being established or maintained and Mr Ferguson expresses an opinion on whether Mr Groves was prevented from entering into long term leases). Accordingly, I make limited reference herein to their evidence beyond their arithmetical calculations.

Each party called a planner to give evidence concerning the prospect that the precinct comprising the Dome might have been rezoned to permit its use for education purposes and how long that was likely to take. Mr Groves called Mr Batge and the Bank called Mr Rumsby.
Each party called a valuer to give evidence concerning the value of the Dome over time and its hypothetical value in certain scenarios. Mr Groves called Mr Fudali and the Bank called Mr Smithson. Like Mr Morris, Mr Fudali was asked to make assumptions concerning both the actual and hypothetical revenue derived by Mr Groves from the Dome and accordingly by and large the valuers do not express opinions on sustainable net income and their evidence is directed principally to the appropriate multipliers. Accordingly, I make limited reference herein to their evidence beyond their opinions concerning multipliers.
There was no challenge by either party to the credibility of the expert witnesses. Each party invited me to accept the opinions expressed by their own witness in preference to the opinions expressed by the witness called by the opposing party.
Mr Groves
The Bank invited me to make a general adverse finding as to the credibility of Mr Groves. Ultimately, I am required to make a finding on the direct conflict of evidence between Mr Groves and Mr Flude on the content of their discussions. For that purpose, acceptance of the evidence of one necessarily involves rejection of the evidence of the other. Leaving aside the content of the discussions between Mr Groves and Mr Flude (which I consider specifically in Section 6 below),[7] I do not make a general adverse credibility finding in relation to Mr Groves’ evidence.
[7] and Mr Groves’ evidence about his actions and hypothetical actions addressed in section 11 below.
The Bank contends that Mr Groves’ evidence was unreliable because he said initially in his evidence in chief that a mortgage over the Dome had not been discussed or agreed with Mr Flude until 7 March 2008,[8] but, on being shown the newly discovered emails of 27 February 2008, he conceded that his earlier evidence was wrong.[9] I reject the contention that his evidence must necessarily be rejected because he accepted that his earlier evidence was wrong. I have no doubt that, both when he gave his evidence in March 2012 and when he swore his affidavit in April 2010, Mr Groves had forgotten the existence of the 27 February emails. The mere fact that he had forgotten the emails does not mean that his evidence is dishonest or that his memory generally is unreliable.
[8] T212/30-T214/32.
[9] T522/7-523/34.
The Bank contends that Mr Groves acted dishonestly in granting to Mr Zullo a mortgage over the Dome and a mortgage over his Austock shares without first telling the Bank in circumstances in which that conduct breached his negative pledge. While grant of these mortgages did breach his negative pledge, I am not satisfied that I should reject Mr Groves’ evidence that the negative pledge did not occur to him when he granted those mortgages.[10]
[10] T531/18-532/30.
The Bank contends that Mr Groves deliberately misled the Bank concerning the existence and location of the duplicate certificate of title to the Dome. I reject that contention. The relevant communications between Mr Groves and the Bank were as follows.
1.On 17 November 2008, Mr Groves told Mr Olsen (confirmed by Mr Olsen’s email of the same day) that the duplicate certificate of title had been lost and his solicitors were trying to locate it. There is no evidence that this statement was not true.
2.On 9 December, Mr Groves’ solicitors sent an email to Mr Olsen advising that they had now located the duplicate certificate of title, it being in the possession of Mr Groves’ previous lawyers. This tends to corroborate what Mr Groves had said on 17 November.
3.On 5 January 2009, Mr Groves’ solicitors sent an email to the Bank’s Adelaide counsel saying that they were waiting for Mr Groves to return a written authority addressed to his previous lawyers to release the duplicate certificate of title. There is no evidence that this statement was not true.
Mr Groves gave the following evidence concerning the duplicate certificate of title.
1.His solicitors obtained the duplicate certificate of title early in 2009.[11] This is consistent with his solicitor’s email of 5 January 2009 referred to above, and there is no evidence that it is not true.
2.At one point in cross-examination, Mr Groves said that by 17 November 2008 he had given an authority to his solicitors to obtain the duplicate certificate of title. In this respect, he was manifestly mistaken as this did not occur until January. However, this answer immediately followed answers[12] from which it was clear that he did not recall precisely when he provided his authority and he described it as being “around this sort of December period”.
3.Mr Groves gave evidence that, in his own mind, by early 2009, he had decided not to produce the duplicate certificate of title to the Bank even if it came into his possession.[13] While Mr Groves did not make this explicit until his solicitors wrote to the Bank on 9 February 2009, this does not demonstrate that Mr Groves was lying to the Bank.
[11] T263/17.
[12] T556/5-15.
[13] T556/16-36.
Mr Flude
Mr Groves invited me to make a general adverse finding as to the credibility of Mr Flude. Leaving aside the content of the discussions between Mr Groves and Mr Flude, I do not make a general adverse credibility finding in relation to Mr Flude’s evidence.
Mr Groves refers to the following conflicts between Mr Flude’s evidence and Mr Groves’ evidence.
1.Mr Flude gave evidence that he did not recall seeking Mr Groves’ personal margin lending business and thought that Mr Klein may well have done so.[14] Mr Groves’ own evidence was that it was Mr Flude who approached him seeking his margin lending business.[15]
2.Mr Groves contends that Mr Flude generally tried to distance himself from dealings by the Bank with Mr Groves or ABC by suggesting that Mr Klein was the principal contact before Mr Klein’s departure in December 2007.
3.Mr Flude gave evidence that his recollection was that he spoke to Mr Waugh at ABC’s offices on 29 May before speaking to Mr Groves.[16] Mr Groves’ own evidence was that Mr Flude saw him first and then Mr Waugh came in to witness Mr Groves’ signature.
[14] T1175/34-1183/24.
[15] T182/26-183/4.
[16] T1147/3-10.
In each case, there is no particular reason to prefer the version of either witness and the fact that one is mistaken or does not recall does not reflect adversely on their credibility or recollection.
Mr Groves contends that Mr Flude had a poor recollection which was not plausible concerning:
1.the details of the facilities provided by the Bank to ABC and the basis on which the Bank attracted ABC’s learning business in the first place;
2.his involvement in the briefing paper for the chief executive officer prepared at the end of February 2008, initially saying that he believed he had limited contribution, but later accepting (when shown relevant documents) that he had had a significant input into it;
3.a telephone discussion in March 2008 with Mr Groves in respect of which he was evasive;[17]
4.more generally his responses to the effect “I can’t recall” 86 times over the course of his evidence.
[17] T1143/8-23.
Mr Flude was being questioned about one aspect of his dealings with one of his clients, which occurred approximately four years ago. I do not consider that his evidence was evasive. It is not surprising that Mr Flude now has a relatively limited recollection of discussions or other matters where there are no contemporaneous documents to refresh his memory.
On 13 October 2008, Mr Flude sent an internal email to Mr Cook and others within the Bank saying that he preferred to have the security documents (doubled sided mortgage) back from Mr Groves before intimating to him that the Bank would not further extend his facility. I do not consider that this reflects adversely on Mr Flude’s honesty any more than Mr Groves’ conduct in not disclosing to the Bank in late 2008/early 2009 that he had decided not to produce the duplicate certificate of title to the Bank once it was in his possession.
3. Background facts to December 2007
Commonwealth Bank personnel
The Institutional Banking division was at the material times the division within the Commonwealth Bank responsible for listed companies and large private companies.
Personnel dealing with clients were divided into three areas.
1.The Relationship or Sales area was responsible for the relationship with clients. Sales personnel determined the terms (including fees and interest rates) and recommended the grant, extension or renewal of facilities to clients.
2.The Risk area was responsible for assessing credit risk and making the ultimate decision on the grant, extension or renewal of facilities to clients.
3.The Credit Management area was responsible for troublesome and impaired loans referred by the Sales/Risk areas.
In the normal course of business, personnel in the Sales and Risk areas worked together in relation to a given client. If a client’s facilities were transferred to the Credit Management area, that area took over the entire responsibility for that client within the Bank.
Within the Relationship area:
1.Mr Klein was a Relationship Executive based in the Sales area of Institutional Banking in Queensland (until December 2007).
2.Mr Klein (and two other Relationship Executives) reported to Mr Flude, who was an Executive Manager in the Sales area of Institutional Banking in Queensland (until December 2008). Mr Flude was initially the Executive Manager and later was one of two Executive Managers in Queensland.
3.Mr Flude reported to Mr Allen, who was Head of Institutional Banking Queensland (from May 2007 onwards). Approximately five Relationship Executives reported directly to the Head of Institutional Banking Queensland until the appointment of the second Executive Manager.
4.Mr Allen reported to Mr Green, who was General Manager Institutional Banking (Australia-wide and based in Sydney).
Within the Risk area:
1.Mr Hallinan and (from 2007 onwards) Mr Davies were Risk Executives in the Risk area of Institutional Banking in Queensland.
2.Mr Hallinan and Mr Davies reported to Mr Cook, who was Executive Manager Risk Queensland. Mr Cook was responsible generally for Risk in Queensland.
3.Mr Cook reported (from February 2007) to Mr Williams, who was General Manager Risk Management (Australia-wide and based in Sydney).
Within the Credit Management area:
1.Mr Olsen was a Senior Manager based in Queensland and Mr Gugerly was a Senior Manager based in New South Wales.
2.Mr Olsen reported to Mr Watts, who was Executive Manager, Credit Management Queensland and was generally responsible for credit management in Queensland.
Mr Groves
Mr Groves was born in 1966. While working for a bank, he purchased a milk run in 1985 which he operated outside bank hours. Over the next few years, he acquired several milk runs and started working in the business full time. He initially undertook all of the work including sales, deliveries, management and accounting.
From 1993, Mr Groves incorporated a company, Queensland Milk Distribution (later called Quantum Food Services), expanded the milk run business and diversified into refrigerated and non-refrigerated food and drink distribution. He sold the business in 2007.
ABC Learning Centres
In 1988, Mr Groves and his first wife opened a child care centre. Over the next few years, they expanded to encompass other child care centres. In 1993, they commenced trading as ABC Learning Centres. They then expanded into other States of Australia and in due course to New Zealand and overseas. Their banker was Westpac Banking Corporation.
In 2001, ABC Learning Centres Limited became listed on the Australian Stock Exchange.
In July 2005, a syndicated multi‑option facility for $300 million was granted by Westpac and CBA (divided equally into $150 million each). ABC granted a debenture charge in favour of Westpac and CBA to secure the facilities (and other facilities which were to be provided by either Westpac or CBA to ABC). At that time, ABC operated approximately 700 child care centres.
By March 2006, ABC had expanded to approximately 1300 child care centres (including 330 in the United States) and the multi‑option facility had increased to $630 million.
In June 2006, ABC undertook a capital raising, reduced the multi-option facility to $310 million and the banks relinquished their debenture charges in return for negative pledges and cross‑company guarantees within the ABC group.
By early 2007, ABC had expanded further and the multi‑option facility had increased to $1.655 billion. CBA’s share was $512 million and the balance was provided by Westpac and other financiers.
In mid 2007, ABC made a public offering of $600 million in convertible notes. CBA underwrote the issue and ended up acquiring $450 million convertible notes when the issue was undersubscribed.
As at December 2007, as a result of the issue of convertible notes, the multi‑option facility had decreased to $1.31 billion. CBA’s share was $250 million and the balance was provided by Westpac and other financiers.
In June 2008, ABC granted fresh debenture charges in favour of the syndicated banks including CBA.
On 30 September 2008, Mr Groves was asked to resign as director and chief executive officer of ABC and did so.
On 6 November 2008, ABC was placed into administration and subsequently receivership.
Mr Groves’ businesses
Brisbane Bullets
In 1999 Mr Groves acquired the Brisbane Bullets. The Brisbane Bullets were one of the teams competing in the National Basketball League. Their “home” stadium was the Brisbane Convention Centre.
Mr Groves conducted the Brisbane Bullets business in his own name, and it was generally a loss making business at material times. He incurred significant losses in 2006, 2007 and 2008.
Adelaide Dome
In September 2006, Mr Groves purchased the Adelaide Dome (“the Dome”) for $3.85 million. He financed its acquisition by borrowing $4 million on an unsecured basis from the Commonwealth Bank. By December 2007, the borrowing had increased to $5 million.
Mr Groves incurred losses on the Dome (after interest and insurance) in 2007 and in 2008. The company operating the Dome (Adelaide Dome Pty Ltd (“ADPL”)) reported a loss in 2007 and a profit 2008.
Helicopter business
In November 2006, Mr Groves purchased a second helicopter fully financed by a loan from Westpac. He incurred significant losses in 2007 and 2008 on helicopter operations.
Rental properties
Mr Groves owned several rental properties in Brisbane and Labrador in Queensland. He sold them all by December 2007.
He incurred losses of in 2006, 2007 and 2008.
Mr Groves’ shares & investments
ABC Learning Centres shares
As at December 2007, Mr Groves and his first wife owned 37.2 million shares in ABC which had a market value of $193 million.[18]
[18] Asset costs and liabilities quoted herein are derived from his asset and liability spreadsheets provided to the Bank unless otherwise specified.
They had margin lending facilities from several financiers. Each margin lending facility had a fixed dollar ceiling as well as being limited to a prescribed percentage (70 per cent with a 5 per cent leeway) of the market value of the shares against which it was secured. The total limit of their margin lending facilities was $115 million and the total amount drawn was $85 million.
Mr Groves made a significant profit in 2006 and incurred significant losses in 2007 and 2008 on dividends on his ABC shares after interest expenses.[19]
Austock shares
[19] Disregarding franking credits which increased taxable income but were credits against any tax payable.
As at June 2006, Mr Groves owned the equivalent of 4.5 million shares in Austock Limited at a market value of $4.5 million.
In May 2007, Mr Groves purchased a further 7 million shares. He borrowed $10 million from CBA on the security of the shares. In December 2007, he sold 6.5 million shares and repaid $9 million.
In December 2007, Mr Groves held 5 million Austock shares with a market value of $10.5 million.
Mr Groves made a modest profit in 2006, 2007 2008 on dividends on his Austock shares after interest expenses.[20]
Quantum, Funtastic & Elmm shares
[20] Disregarding franking credits which increased taxable income but were credits against any tax payable. Interest charged by the Bank on the $14 million loan was apparently wholly allocated to the Dome and none to the Austock shares, but should have been allocated aprroximately 50 per cent between the Dome and Austock shares.
Mr Groves owned shares in Quantum Food Services which he sold in 2007. In 2007, he received dividends on those shares.
In November 2006, Mr Groves purchased shares in Funtastic which he sold in April 2007. In the 2007 year, he received modest dividends and a significant capital gain on the disposal. In the 2007 year, he received modest dividends of on his shares in Elmm.
Woodlots investment
Mr Groves acquired Great Southern woodlots in 2005 and 2006. The purchases were initially fully funded by loans from Great Southern. Mr Groves was repaying the 2005 loan by regular instalments.
As at December 2007 Mr Groves had repaid the 2005 loan.
Mr Groves made significant losses on these investments (after interest and other expenses) in 2007 and 2008.
Property development ventures
As at December 2007, Mr Groves was a participant in a joint venture in a property development in Melbourne in respect of which he had lent $2.9 million (to the developer, Iconic Properties).[21]
[21] Shown in Mr Groves' December 2007 spreadsheet as a loan by Mr Groves but most of this was a loan by a company, ABC Investments No 1 Pty Ltd, owned by Mr Groves.
As at December 2007, Mr Groves was a participant in a joint venture in a property development in the USA in respect of which he had lent US$1.1 million (to the developer, Castle Development Group).
Other investments
As at December 2007, Mr Groves:
1.owned shares in and had made loans to System Golf and associates;
2.owned units in and had made loans to Bet Worldwide;
3.owned shares in four companies;
4.had interests in various investments, partnerships and loans;
which collectively had a cost of $11 million.
In addition, he had $1 million cash on term deposit with Bankwest.
Mr Groves’ personal assets
As at December 2007, Mr Groves owned:
1.three adjoining properties at Poinsettia Avenue which were mortgaged to Bankwest (upon which he had originally intended to construct a house in which to live, but had decided to sell instead);
2.jointly with his wife a property at Chantilly, France;
3.a property at Henderson, Nevada (USA);
4.properties at Toucan and Camino in the USA;
5.two yachts which were mortgaged to Westpac for 90 per cent of their cost;
6.various motor vehicles and like personal assets.
Commodore Trusts
Mr Groves created the Commodore Property Trust (“Commodore 1 Trust”) and the Commodore Property Trust No 2 (“Commodore 2 Trust”). Mr Black was the trustee of each trust and the beneficiaries were Mr Groves and his family. The Trusts owned residential properties which were funded externally by loans from Bankwest and the balance was funded by Mr Groves personally (characterised in the balance sheets of the trusts as either liability loans or equity loans).
As at December 2007, the Commodore 1 Trust owned a property at Commodore Drive. Mr Groves had been living in this property but had moved by December 2007.

As at December 2007, the Commodore 2 Trust owned:
1.a house property at Jefferson Lane, Palm Beach mortgaged to Bankwest;
2.a unit property at Castlebar Cove, Kangaroo Point mortgaged to Bankwest;
3.two (related) unencumbered house properties at Currumbin;
4.three further house properties at Currumbin mortgaged to Bankwest;
5.a property at Mudgeeraba mortgaged to Bankwest;
6.a property at Toowoomba.
4. The Adelaide Dome
The Dome as at 2006
The Adelaide Dome is a purpose-built basketball stadium at Findon which opened in 1991. It was constructed by its then owner, Basketball Association of South Australia (“BASA”). It has a capacity of approximately 8,000 spectators.
In 2006, the Adelaide Dome was the “home” stadium for:
1.the Adelaide 36ers (the South Australian team playing in the National Basketball League);
2.Adelaide Link Lightning (the South Australian team playing in the Australian Women’s Basketball League);
3.the Woodville Warriors (a local team playing in the local Basketball League).
The Dome was also used regularly by South Australian Country Basketball, Salvation Army Basketball and other basketball and possibly netball clubs.
In 2006, offices within the Dome were used as the offices of BASA, the Adelaide 36ers, Adelaide Lightning, the Woodville Warriors and SA Country Basketball. There were no formal leases, licences or agreements between BASA and the external tenants and users of the Dome. However, they each paid an agreed monthly rent for the offices and agreed hourly or daily stadium hire fees for use of the stadium for training and matches.
A telephone carrier, Hutchison 3G Australia, leased part of the land on which was situated a telecommunications tower pursuant to a registered lease dated September 2003. It was for a term of five years from July 2002 with three rights of renewal of five years each.
BASA used the oval adjoining the Dome for car parking for the purpose of events at the Dome pursuant to a licence agreement with the City of Charles Sturt dated February 1996. It was for a term as long as BASA should remain in occupation of the Dome and provided for a starting rental of $15,000 per annum. BASA assigned the benefit of this license to Mr Groves by deed dated 26 September 2006.
In 2006, the Dome was known as the Distinctive Homes Dome pursuant to a sponsorship agreement between BASA and Distinctive Homes dated September 2004. It was renamed the Adelaide Dome in 2009 and the Adelaide Arena in 2010.
Zoning
In 2006, the Dome fell within the City of Charles Sturt’s Public Purpose (Recreation) Zone. The objective of the Zone was to accommodate “a range of sporting, recreational, entertainment, cultural and exhibition events excluding concerts”.
BASA had entered into Land Management Agreements with the Council and the Minister. The Agreement with the Minister included an agreement by the owner not to use the land for any indoor event other than a sport related event, but provided that this did not prevent use for a non-concert event attended by less than 750 persons or not more than 18 events per annum attended by more than 750 persons and less than 6,500 persons.
The Agreement with the Council contained a covenant not, without the prior consent of the Council (not to be unreasonably withheld in relation to occasional temporary use for purposes permitted in terms of planning approvals), to use the land for purposes other than as a multi-function stadium.
Each of the Land Management Agreements was registered as an endorsement on the title to the land pursuant to section 57 of the Development Act 1993 (SA). Pursuant to section 57(7) of the Act, the Agreements became binding on Mr Groves upon his becoming owner of the land.
Acquisition by Mr Groves
In July 2006, Mr Groves agreed with BASA to purchase the Dome together with the Adelaide 36ers for $3.85 million.
In September 2006, settlement took place on the purchase. Mr Groves retained the Dome and immediately transferred the Adelaide 36ers to Dr Hemmerling for no consideration.
Operation of Adelaide Dome
Dr Hemmerling/ADPL September 2006 to October 2009
From settlement of the purchase by Mr Groves in September 2006, ADPL operated the stadium. ADPL received all revenue generated by the stadium, including rent and usage fees paid by the tenants, users and sponsors. ADPL met all expenses incurred in operating the stadium.
Mr Groves personally received no revenue as a result of his ownership of the Dome, and met the costs of interest on the CBA facility together with building insurance (and sometimes rates and taxes).
While Mr Groves was initially the director and shareholder of ADPL, in practice he left the management of ADPL and therefore of Adelaide Dome to Dr Hemmerling. In May 2007, Mr Groves transferred the shares in ADPL to Dr Hemmerling and Dr Hemmerling replaced him as the director.
Mr Groves gave evidence, which I accept, that the informal arrangement between Dr Hemmerling and himself was that any profit or loss of ADPL in operating the Dome would be to the account of Mr Groves (rather than Dr Hemmerling). This was reflected in Mr Groves’ writing off a “loan” of $200,000 to ADPL in the 2008 year.
Mr Bell/ADPL November 2009 to January 2010
In November 2009, Mr Bell acquired ADPL from Dr Hemmerling. He took over the effective management of the Dome.
On 1 November 2009, Mr Groves and Mr Bell signed a memorandum of understanding. It provided for Mr Groves to grant a lease to ADPL and to procure the current tenants to enter into subleases with ADPL. In the first year of the lease, Mr Groves was to pay a cash rental incentive of $100,000 to ADPL. It was agreed that Mr Bell would become the sole shareholder and director of ADPL and that ADPL would pay him a salary of $60,000 per annum plus bonuses (and implicitly that any profit generated by ADPL would be to the account of Mr Groves rather than Mr Bell).
Mr Groves gave evidence, which I accept, that the informal arrangement between Mr Bell and himself was that any profit or loss of ADPL in operating the Dome would be to the account of Mr Groves (rather than Mr Bell), subject to the arrangements for remuneration to Mr Bell reflected in the memorandum of understanding. This explains what otherwise appear to be very confused provisions of the memorandum of understanding.
CBA January to March 2010
On 8 January 2010, CBA went into possession of the Dome as mortgagee. It appointed Messrs Kidman and Hart of Ferrier Hodgson as agents for the mortgagee.
The agents for the mortgagee negotiated short term periodic agreements with the tenants and users of the Dome.
On 25 March 2010, CBA relinquished possession of the Dome back to Mr Groves.
Mr Bell/ADPL & Mr Groves March to September 2010
After CBA relinquished possession, Mr Bell and Mr Groves in conjunction assumed management of operations at Adelaide Dome. This was accounted for, in part, in the name of ADPL and, in part, in the name of Mr Groves (although no financial statements were prepared in any form for revenue received or expenses paid by Mr Groves).
Mr Groves gave evidence, which I accept, that the informal arrangement between Mr Bell and himself in relation to this period was that any profit or loss of ADPL in operating the Dome would be to the account of Mr Groves (rather than Mr Bell).
Lifestyle October 2010 onwards
In September 2010, Mr Groves’ second wife incorporated Lifestyle Investments (No 2) Pty Ltd. Her company was sole shareholder and she was the sole director.
From 1 October 2010, Lifestyle took over the management of the Dome. Mr Groves gave evidence, which I accept, that the arrangement between himself (as owner) and his wife (as Lifestyle) was that Lifestyle would receive all revenue generated at Adelaide Dome and would pay all expenses (except interest on the CBA loan). Lifestyle would pay the amount of the profit otherwise generated at the Dome subject to a minimum of $120,000 and a maximum of $600,000 per annum. Lifestyle would retain any balance of profit generated over $600,000. It appears that in fact Mr Groves met all rates and taxes on the Dome.
On 26 September 2011, Mr Groves and Lifestyle executed a formal Licence and Management Agreement. The Agreement provided for Mr Groves to licence the whole of the land to Lifestyle (subject to the pre-existing rights of existing tenants such as the Adelaide 36ers) for five years from 1 October 2010 with two further rights of renewal of five years each. The licence fee was expressed to be $120,000 per annum. Like the memorandum of understanding referred to above and the two memoranda of lease with the Adelaide 36ers referred to below, the Agreement is drafted in a confused and contradictory manner. I am satisfied that it does not reflect the true arrangement, which is set out above and was the subject of Mr Groves’ evidence.
Agreements and prospective agreements with tenants/users/sponsors
Hutchison Telecommunications
In July 2007, Mr Groves entered into a formal registrable lease with 3 GIS Properties (No 1) Pty Ltd to lease the portion of the land on which the telecommunications tower was erected for five years with two further rights of renewal of five years each. This merely implemented the terms of the registered lease of February 2003 (with an updated rental commencing at $16,884).
Distinctive Homes
On 22 September 2004, BASA and Distinctive Homes had entered into a heads of agreement. BASA granted naming rights in favour of Distinctive Homes with various ancillary rights for two years from 30 September 2004 to 30 June 2006, with an option to Distinctive Homes to extend the term for a further three years. It provided for sponsorship payments by Distinctive Homes of $80,000 per annum.
ADPL’s financial statements show sponsorship income of $41,648 in 2007 and $45,000 in 2008. No executed agreement was tendered for this period.
On 3 March 2008, ADPL and Distinctive Homes entered into an agreement for one year from 1 July 2008 to 30 June 2009 (with a right of last refusal to Distinctive Homes thereafter) for sponsorship of $75,690 per annum.
Other tenants and users
Mr Groves did not enter into or apparently seek to negotiate or enter into any formal leases, licences or agreements with the tenants and users of the Dome, including the Adelaide 36ers, Adelaide Lightning, Woodville Warriors or BASA, up to May 2009. However, they each continued to pay an agreed monthly rent for the offices and agreed hourly and daily stadium hire fees for use of the stadium for training and matches.
Adelaide 36ers
In May 2009, a syndicate headed by Mr Hill negotiated with Dr Hemmerling to acquire the Adelaide 36ers.
In May 2009, the Hill syndicate requested of Mr Groves a formal five plus five year lease over the Dome if they acquired the Adelaide 36ers from Dr Hemmerling. Mr Groves asked Mr van Groningen to conduct the dealings with the syndicate.
Mr Groves and Mr van Groningen negotiated with the Hill syndicate to grant two registrable leases to the syndicate’s company for five years from 1 July 2009 with a right of renewal for a further five years. Each lease was executed on 5 June 2009.
One lease was expressed to be over the whole of the land but was intended to give the syndicate the right to use certain offices contained within the building. The annual rental was $48,000 subject to annual CPI adjustments. There was a concessional 50 per cent rental in the first year of $24,000.
The other lease was also expressed to be over the whole of the land but was intended to give the syndicate the right to use the stadium on match days and parts of the stadium for training and associated purposes. The annual rental was $192,000 from 1 July 2010 subject to annual CPI adjustments. There was a concessional 50 per cent rental in the first year of $96,000. While expressed to be a “lease”, the reality of the arrangement (which was not reflected in the terms of the document) was that it gave the 36ers a licence to use certain parts of the stadium when needed for training and matches. The arrangement between Mr Groves and the syndicate did not give exclusive possession of the Dome (which was subject to use by others such as the Adelaide Lightning and Woodville Warriors). The arrangement was not capable in law of comprising a lease as opposed to a licence. Like the memorandum of understanding with Mr Bell and the agreement with Lifestyle which came later, the terms of the lease documents did not reflect the commercial terms agreed.
The two leases were not registered but caveats were lodged by the syndicate’s company on 19 March 2010.
BASA, Adelaide Lightning and Woodville Warriors
In May 2009, Mr van Groningen also had discussions with BASA, who informed him that they also wished to enter into a formal agreement. Mr van Groningen had limited discussions with Adelaide Lightning. Mr van Groningen did not have any further communications with BASA or Adelaide Lightning or any communications with the Woodville Warriors.
Over the next few months, Adelaide Lightning and BASA were apparently sent licence agreements (Mr Groves says they were sent by Mr van Groningen but Mr van Groningen did not corroborate this) but no further steps were taken to enter into formal agreements. The leases sent to them were not tendered.
Imagine Education
As at May 2009, Mr Groves’ second wife was one of three director shareholders of Imagine Education Australia Pty Ltd. A proposal was discussed that Imagine Education use the facilities within the Dome to teach courses, including cooking, hospitality, English and motor vehicle mechanics.
Between May and October 2009, a number of communications passed between Mr Adler and Mr Groves in relation to that proposal. The proposal was that Imagine Education would ultimately pay rent of $300,000 per annum, but would first receive the equivalent of 15 months’ rent free (six months’ rent free and then $75,000 for the next 12 months). Imagine Education would obtain naming rights if an acceptable price could be negotiated. Ultimately, in October 2009, Mr Groves informed Mr Adler that he could not proceed with the proposal at that stage.
In August 2010, discussions resumed between Mr Groves and Mr Adler. On 29 September 2010, Mr Groves sent a letter to Mr Adler purportedly setting out a heads of agreement and later a template lease. Mr Groves did not take any further substantive steps and the matter did not proceed.
Improvements to the Dome
In 2007, Queensland Maintenance Services (a company owned by Mr Zullo – brother in law of Mr Groves) undertook improvements and maintenance to the Dome for a cost of $1.2 million.
Attempts to sell the Dome
Mr Groves did not give any substantive evidence at trial of his efforts to sell the Dome beyond what he told or sent to the Commonwealth Bank in emails over the period from February 2008 to February 2009. Those emails were as follows.
On 27 February 2008, Mr Groves told Mr Flude that he intended to sell the Dome after the season finished in three weeks’ time, provided he could achieve an acceptable price.
On 20 March, Mr Groves told Mr Flude that he had a few interested parties and that potential buyers were being told around $10 million but he would sell it for $6.5 million and was aiming to have it concluded by the end of June.
On 13 June, Mr Groves told Mr Flude that, when he returned from an imminent trip to the USA, he would be actively trying to sell the Dome.
On 25 September, Mr Groves told Mr Flude that he was pushing to get an offer and they kept telling him that it was coming.
On 22 October, Mr Groves told Mr Flude that he was expecting a final offer that day on the basis of the purchaser being a 50/50 joint venture between Mr Groves and the buyers. Later that day, an offer letter was apparently sent by Mr Lott but it was not tendered nor evidence given of its contents. I infer that the offer was $5.25 million for both the Dome and the Adelaide 36ers, was not legally binding and was subject to conditions including financial due diligence. Mr Lott’s company Venuetix was the ticketing agency for the Dome at that time.
On 30 October, Mr Groves sent an email to Mr Lott saying that Dr Hemmerling was prepared to accept $750,000 for the Adelaide 36ers, leaving a balance from his offer of $4.5 million for the Dome. He proposed a joint venture of 51 per cent to Mr Lott’s syndicate and 49 per cent to Mr Groves to purchase the Dome.
In mid December, Mr Groves told Mr Olsen that he had an offer for the Dome for $4 million from the Lott syndicate.
On 9 January 2009, solicitors for the Lott syndicate sent to Mr Groves a term sheet containing an offer to purchase the Dome for $4.05 million. The term sheet was expressed to be non-legally binding and it was conditional upon satisfactory due diligence, a satisfactory valuation, obtaining sufficient finance and other matters.
The Lott syndicate was using CBA in Adelaide as its banker. CBA Adelaide obtained a valuation from CBRE dated 15 January 2009 which valued the Dome at $3.3 million. CBA Adelaide informed the Lott syndicate of the valuation, which in turn informed Mr Groves. Thereafter, the Lott syndicate did not proceed further with negotiations for purchase.
Mr Groves foreshadowed to the Bank in November 2008 that he intended to place the Dome on the open market if the negotiations with the Lott syndicate fell through, but he did not ultimately do so. He did not give evidence of any steps he took to attempt to sell the Dome after February 2009 when the Lott syndicate negotiations fell through.
Financial performance
2007
Mr Groves’ tax return for 2007 (as amended) showed a loss of $315,000 made up of interest of $208,000, insurance of $62,000 and council rates of $45,000.[22]
[22] ADPL included rates and taxes of $39,000 in its financial statements as quoted by CBRE. It may be that rates and taxes are double counted between Mr Groves’ tax return and ADPL’s financial statements.
Dr Hemmerling provided to CBRE in January 2009 a set of financial statements for ADPL for 2008 (presumably prepared by ADPL’s external accountants Bentleys), with comparative figures for 2007. The financial statements themselves were not tendered but CBRE set out the figures in their report, which was received into evidence.
On the basis of the CBRE report, in 2007 total income was $461,000, total expenses were $624,000 and ADPL incurred a net loss of $162,000. Coupled with insurance met by Mr Groves, this gives combined earnings before interest and tax of a $224,000 loss.
2008
Mr Groves’ tax return for 2008 showed a loss of $441,000 made up of interest of $372,000 and insurance of $70,000.
The financial statements of ADPL for 2009 prepared by Bentleys show comparative figures for 2008. The comparative figures show income of $1,047,000, expenses of $887,000 and a profit of $160,000. Coupled with insurance met by Mr Groves, this gives combined earnings before interest and tax of $90,000.
Dr Hemmerling provided to Mr Groves a spreadsheet showing a different set of figures for 2008. The spreadsheet showed $904,000 income, $895,000 expenses and a profit of $9,000 (although it contained arithmetical errors such that it should have showed a loss of $7,000). Mr Fudali, the valuer engaged by Mr Groves, used the Hemmerling figures rather than the Bentleys figures.
Dr Hemmerling did not give evidence and there was no explanation of the figures in his spreadsheet including their source, how they were derived, why they differ from the Bentleys figures and whether they are accurate or complete. Mr Groves said that he had no idea whether the figures were accurate. Because Dr Hemmerling controlled both ADPL and the Adelaide 36ers, the figures do not necessarily represent the position which would pertain under arms length circumstances. Dr Hemmerling’s spreadsheet did not include the building insurance expense met by Mr Groves.
2009
The financial statements of ADPL for 2009 prepared by Bentleys show income totalling $533,000, expenses totalling $746,000 and a loss of $213,000. They do not include any significant figure for rates and taxes and it appears that council rates and land tax were met by Mr Groves. They did not include building insurance or interest which were met by Mr Groves. Mr Groves did not lodge a tax return or adduce evidence of payments he made for rates and taxes or building insurance.
2010

During 2010, operations at Adelaide Dome were conducted by four different entities:
1.from July to October 2009: ADPL under the control of Dr Hemmerling;
2.from November 2009 to 8 January 2010: ADPL under the control of Mr Bell;
3.from 8 January to 25 March 2010: CBA under the control of Messrs Kidman and Hart;
4.from 26 March to 30 June 2010: ADPL and Mr Groves under the control of Mr Bell and Mr Groves.
Mr Groves attempted to compile the income and expenditure recorded by the three entities operating under the name ADPL referred to above. He did not include income or expenditure for the period when the Dome was operated by CBA. Mr Groves’ compilation shows income of $461,000, expenses of $636,000 and a net loss of $175,000. The figures do not include building insurance or interest. Mr Fudali was given Mr Groves’ consolidated figures and used them in his report to denote what he called “09-10 actuals”. Mr Morris was given the same figures.
2011
During July to September 2010, income and expenditure in respect of operations at the Dome were (like the period from March to June) accounted in part in accounting records maintained by Mr Bell in the name of ADPL and in part by Mr Groves issuing invoices to tenants and users and paying expenses. In respect of this period:
1.a profit and loss printout in the name of ADPL was tendered, but it shows only $4,000 in office rent and $10,000 in expenses;
2.no profit and loss statement for Mr Groves in any form was tendered showing income or expenses;
3.invoices rendered by Mr Groves to the Adelaide 36ers for stadium and office rent (issued pursuant to the June 2009 leases) for July to September totalling $61,000 were tendered but not records of payments by the Adelaide 36ers in respect thereof and Mr Groves gave evidence that they only paid $28,000 in cash for the period April to September and offset the balance against claims of their own;
4.invoices rendered by Mr Groves to the Adelaide 36ers for electricity and car parking contributions including the period July to September totalling $25,000 and for catering commission for an unknown period for $6,000 were tendered but not records of payments by the Adelaide 36ers in respect thereof and there was no evidence they were recognised or paid by the 36ers;
5.invoices rendered by Mr Groves to BASA for office rent for July to September and court hire for July and August totalling $15,000 were tendered but not records of payments by BASA in respect thereof;
6.an invoice rendered by Mr Groves to Link Lightning for court hire for August of $300 was tendered but not records of payments by Link Lightning in respect thereof.
During October 2010 to June 2011, income and expenditure in respect of operations at the Dome were accounted in part in accounting records maintained by Lifestyle. In respect of this period, a MYOB profit and loss printout in the name of Lifestyle (supported by a general ledger printout) was tendered showing:
1.fee income of $274,000 and expense reimbursement income of $78,000 giving total income of $352,000;
2.expenses of $178,000 plus $180,000 paid to Mr Groves by way of rent, giving total expenses of $358,000;
3.net profit excluding rent expense of $175,000 and a net loss overall of $5,000.
The Lifestyle figures do not include rates and taxes (council rates, water rates, land tax and emergency services levy) or apparently building insurance. These expenses presumably were met by Mr Groves personally.
Mr Groves prepared a spreadsheet which was given to Mr Fudali, which Mr Fudali described as “10/11 actual”. It showed revenue of $643,000, expenses of $394,000 and net profit of $248,000. Most of the revenue figures are round to $10,000 and the expense figures are round to $1,000. It is not a consolidation of the Lifestyle figures summarised at [149] above with the Groves and/or ADPL figures summarised at [148] above. For example, the figures given to Mr Fudali include:
1.$460,000 in office rent and stadium hire, which substantially exceeds the $350,000 included at [148] and [149] above;
2.$30,000 for non-compliant events, $25,000 for catering commission and $110,000 for ticketing agency income, whereas there is no suggestion in the above that such revenue was received in 2011 and Mr Groves’ case (as reflected in Mr Morris’ reports) is that he was deprived of such revenue by the Bank’s conduct;
3.expense amounts which do not correspond with the figures summarised at [148] and [149] above.
Mr Groves prepared a spreadsheet which was given to Mr Morris, which Mr Morris described as “actual”. It showed revenue of $395,000, expenses of $243,000 and net profit of $152,000. This spreadsheet contains figures quite different to those in the spreadsheet given to Mr Fudali.
The Lifestyle figures and in some cases the spreadsheets given to Mr Fudali and Mr Morris show very low expenses in some categories compared to expenses incurred in previous years as shown in the financial statements referred to above. These include:
1.cleaning (Lifestyle $11,930, Mr Morris $15,906, Mr Fudali $27,500) compared to Bentleys $46,634 in 2007, $100,273 in 2008 and $110,544 in 2009 and Mr Groves’ consolidation for 2010 of $76,631;
2.security (Lifestyle $888, Mr Morris $1,183, Mr Fudali $1,500) compared to Bentleys $27,949 in 2007, $57,388 in 2008 and $42,501 in 2009 and Mr Groves’ consolidation for 2010 of $28,322;
3.repairs and maintenance including fire protection (Lifestyle $20,268, Mr Morris nil, Mr Fudali $74,300) compared to Bentleys $49,842 in 2007, $67,533 in 2008 and $64,311 in 2009 and Mr Groves’ consolidation for 2010 of $47,506.
Mr Smithson commented on these differences and expressed the opinion that the Dome could not have been operated for the costs set out in the Lifestyle figures. Mr Groves gave general evidence that the Adelaide 36ers were to be responsible for cleaning and security. However, this does not apply to repairs and maintenance, the Lifestyle figures and figures produced by Mr Groves which were given to Mr Morris and Mr Fudali include costs for cleaning and security (albeit differing between themselves and lower than historical figures) and it would be expected that costs for cleaning and security would still be incurred by Lifestyle and then recovered under a formula from those users who have agreed to pay a contribution.
2012
During July 2011 to February 2012, income and expenditure in respect of operations at the Dome were accounted in part in accounting records maintained by Lifestyle. In respect of this period, a MYOB profit and loss printout in the name of Lifestyle (supported by a general ledger printout) was tendered showing:
1.fee income of $429,000 and expense reimbursement income of $81,000 giving total income of $510,000;
2.expenses of $295,000 plus $180,000 paid to Mr Groves by way of rent, giving total expenses of $475,000;
3.net profit excluding rent expense of $216,000 and a net profit overall of $36,000.
The Lifestyle figures do not include rates and taxes or apparently building insurance. These expenses presumably were met by Mr Groves personally.
The Lifestyle figures are subject to similar observations concerning expenses such as cleaning, security and maintenance as apply to 2011.
Valuations
Knight Frank valuation November 2006
In November 2006, Knight Frank valued the Dome for the Bank. The valuation report contained the following statements.
1.Dr Hemmerling was to manage the Dome for Mr Groves.
2.A series of licence agreements were to be put in place with stadium users, drafts of which Knight Frank sighted but none of which had been finalised.
3.Dr Hemmerling told Knight Frank that he was budgeting annual income of $700,000 and expenses of $350,000 but Dr Hemmerling expected a break even to marginal profit in year one.
4.Knight Frank expressed the opinion that the budgeted costs were conservative and true operating costs may well be in excess of $600,000.
5.Nevertheless, Knight Frank used a net income of $350,000 per annum as a sustainable net income and applied to this a capitalisation rate of 10 per cent. This gave a valuation of $3.5 million.
6.Knight Frank valued the land on the alternative assumption that the Dome were used as a stadium but not for basketball at $3 million (calculated as a slight premium over the $2.6 million figure).
7.Knight Frank valued the land on the alternative assumption that the stadium were demolished and the land redeveloped as industrial space to give a net value of $2.6 million.
CBRE valuation January 2009
In January 2009, CBRE valued the Dome for the Bank’s Adelaide branch as potential lender to the Lott syndicate. CBRE valued the Dome on the same three bases as Knight Frank.
1.CBRE used a net income of $400,000 per annum as a sustainable net income (based on their own experience) and applied to this a capitalisation rate of 12 per cent to give a valuation of $3.3 million on the basis of existing use.
2.CBRE valued the land on the alternative assumption that the Dome were used as a stadium but not for basketball at $2.3 million.
3.CBRE valued the land on the alternative assumption that the stadium were demolished and the land redeveloped as industrial space to give a net value of $2.1 million
Knight Frank valuation March 2010
In March 2010, Knight Frank valued the Dome for Ferrier Hodgson on behalf of the Bank. Knight Frank valued the Dome at:
1.$1.0 million for sporting use;
2.$1.5 million for sporting use with relaxed zoning conditions;
3. $2.0 million for non-sporting use with relaxed zoning conditions.
None of these figures was derived from an assessment of maintainable earnings or from comparable sales.
Knight Frank also valued the Dome at $1.3 million for industrial use and $1.67 million for residential use.
5. Dealings between Mr Groves and CBA and events of 2008 & 2009
Margin lending for ABC shares
Around July 2006, Mr Flude and/or Mr Klein had discussions with Mr Groves concerning a proposal by the Commonwealth Bank that it provide to Mr Groves a $60 million margin lending facility which Mr Groves would use to discharge several of his existing margin loan facilities. While mentioned again from time to time, this never transpired.
Financing the Dome
In September 2006, when settlement of the purchase of the Dome from BASA was only days away, it was proposed that the Bank provide a facility for $4 million to fund the purchase (plus incidental costs). Mr Groves provided to the Bank balance sheets showing his personal assets and liabilities. They showed a net worth of $186 million. His principal asset as shown was the ABC shares owned by Mr Groves and his first wife.
On 22 September, Mr Klein and Mr Flude recommended, and Mr Hallinan approved, the grant of a $4 million facility on an unsecured basis but subject to a letter of negative pledge. The term of the facility was six months to 31 March 2007.
On 25 September, Mr Klein gave to Mr Groves a letter of approval. Mr Groves signed the acceptance of offer attached and gave it back to Mr Klein. The term of the loan was half a year and the interest rate was 1.3 per cent below the bank’s standard variable base rate. The security item read as follows.
Unsecured. Negative Pledge that Edmund Stuart Groves can use existing limits but may not pledge any additional security or increase limits without the Bank’s consent.
The $4 million facility was in the nature of a “Better Business Loan” account. Interest was charged monthly towards the end of the month on the balance. The interest was (until April 2009) debited to an ordinary transaction account in Mr Groves’ name entitled a “Streamline” account.
Knight Frank valuation
In November, Knight Frank prepared a valuation report in respect of the Dome for the Bank. Knight Frank valued the Dome at $2.6 million for industrial redevelopment, $3.0 for non-basketball stadium use and $3.5 for non-basketball stadium use as set out above. Accordingly, Mr Flude and the Bank generally were aware that the value of the Dome was less than the $4 million advanced for its acquisition.
Financing additional Austock shares
In May 2007, Mr Groves purchased a further 7 million Austock shares at a cost of $10 million. He asked the Bank if it wished to provide him with a facility for $10 million to purchase the additional Austock shares. Mr Klein prepared a recommendation and it was approved by Mr Davies. The approval was for a facility of $14 million to 31 May 2008 on the basis of the negative pledge and a charge over the Austock shares being purchased.
On 29 May, Mr Klein and Mr Davies wrote a letter of approval to Mr Groves. On 1 June, Mr Groves signed the acceptance, a deed of negative pledge and a charge over his new shares in Austock. The term of the facility was one year with expiry on 31 May 2008. The interest rate was reduced to 1.8 per cent below the Bank’s standard variable base rate.
In December, Mr Groves sold approximately 6.5 million Austock shares for over $10 million. He asked Mr Flude if the Bank would agree to his repaying $9 million (rather than $10 million) upon the sale of the Austock shares and discharge of the Bank’s charge over them. Mr Flude submitted this request to Mr Davies, who approved it. Accordingly, the facility was reduced to $5 million and reverted to being unsecured (subject to the negative pledge).
On 6 December, Mr Flude and Mr Davies sent a letter of approval to Mr Groves, and he signed the acceptance of offer on the same day. The term schedule showed the amount of the loan at $5 million, expiry remaining at 31 May 2008 and the interest rate remaining at 1.8 per cent below the Bank’s standard variable base rate. Security was shown as a negative pledge.
Asset rationalisation
In the second half of 2007, Mr Groves began to rationalise his assets. He sold his six rental properties. At the end of 2007, he put the Commodore Drive and Poinsettia Avenue properties on the market for sale and entered into contracts of sale at the end of 2007 or early in 2008. Between December 2007 and May 2008, he apparently sold the Toucan and Camino, USA properties referred to at [78] above and sold, wrote off or removed from his spreadsheet of assets and liabilities all of the investment referred to at [77] above except four items at a collective cost of $500,000.
Request for $20 million standby loan
At the beginning of February 2008, ABC shares had fallen from $7 in April 2007 to $4.49. Mr Groves and his first wife held 37.2 million shares with a market value of $167 million.
Mr Groves owed approximately $85 million to his margin lenders. It was a term of each of the margin loans that the debt not exceed 75 per cent (with a 5 per cent buffer) of the market value of the shares. If the shares fell below $3.00, the loan to value ratio would fall below 70 per cent and Mr Groves would be required to reduce debt or sell ABC shares.
Mr Groves telephoned Mr Flude asking the Bank for an unsecured line of credit as a standby facility to reduce his margin loans in the event that the ABC share price fell below $3.00. This would enable him to reduce the margin loans to $65 million and mean that he would not be called upon to further reduce them or sell ABC shares unless the ABC share price fell below $2.33.
Mr Flude told Mr Groves that it was difficult enough to raise unsecured finance to that level at any time but in the present market it would be exceedingly difficult. Mr Flude requested an updated asset and liability statement to see if a solution could be found and Mr Groves agreed to provide one.
Mr Groves informed Mr Flude that he had decided to liquidate some assets and cash up in any event. He told Mr Flude that he had sold the Commodore Drive property for $5.8 million with settlement due on 5 March and the Poinsettia properties for $11 million with settlement due on 26 March. The combined sales would generate $9.8 million in cash after clearance of the Bankwest mortgage of $7 million. Mr Groves said that he proposed to use $7.6 million of the cash generated by the Commodore Drive and Poinsettia Avenue sales to retire the Bankwest debt and mortgages over the Jefferson Lane and Castlebar Cove properties. This would leave surplus cash of $2.2 million. Three of these four properties were owned by the Commodore Trusts but, in discussion with Mr Flude, Mr Groves apparently treated them as his own.
Mr Groves informed Mr Flude that the Jefferson Lane and Castlebar Cove properties were worth about $5.5 million and $6.5 million. It was proposed that he provide mortgages over those properties and over his remaining Austock shares (present market value $8.15 million) as security for the standby facility for $20 million which he was seeking. The total value according to Mr Groves of those three assets was approximately $20 million. In addition, Mr Groves would have cash of about $2.2 million generated from the Commodore Drive and Poinsettia Avenue sales after retiring the Bankwest debts.
On 4 February, Mr Groves’ bookkeeper sent by email to Mr Flude a consolidated listing of the assets and liabilities of Mr Groves and the two Commodore Trusts as at December 2007.
On 12 February, Mr Groves telephoned Mr Flude. Mr Flude told him that the Bank was struggling to get to his request due to other matters related to the present market which were severely impinging on their time. By this, Mr Flude was referring to the recent releases by companies of their half yearly reports to 31 December 2007 which were below market expectations. Mr Groves referred to the fact that the price of ABC shares had fallen further to $4.05.
Mr Flude told Mr Groves that the most likely option to look at was some form of short term advance against property rather than against the Austock shares and that Mr Flude would attempt to have an initial discussion with others in the Bank the next day.
On 13 February, Mr Flude sent an email to Mr Davies, copied to Mr Cook, seeking an initial chat to determine a potentially palatable plan in a risk sense. He suggested that the Bank give consideration to a standby facility for $11 million secured against the four properties initially and against the Jefferson Lane and Castlebar properties after settlement of the sale of the other two properties. Assuming the other two properties were valued at $12 million, this would give a loan to value ratio of 91.7 per cent which was bullish but account could be taken of Mr Groves’ considerable financial substance leaving aside the properties. He suggested that Mr Groves could obtain further protection himself by selling his Austock shares.
On 13 February, Mr Cook sent a reply email saying that his initial reaction was to inform Mr Groves that the Bank was unable to assist in the current market. He said there may be some scope to assist in the short term with a facility secured against the Commodore Drive property (which Mr Groves had said was under contract for sale at $5.8 million, was unencumbered and was due to settle on 5 March 2008) with makeweight security over the Austock shares and agreement to sell ABC shares and reduce the debt at a certain trigger level. Alternatively, he said that a CommSec margin loan against the Austock shares could be considered. He said, however, that it would take time to present the case and he would be obliged in the present market to discuss it with his superior Mr Willliams.
The proposal was not apparently discussed further before 26 February 2008.
26 February
By 26 February, ABC released its half yearly report to 31 December 2007. It showed net profit after tax of $37 million, being a 42 per cent fall from the same half of the 2006 year of $63 million. The share price dropped from an opening price of $3.74 to a low of $1.15 before closing at $2.14. Trading in ABC shares was suspended due to an expression of interest by Morgan Stanley in purchasing a controlling interest in the USA business of ABC (although this was not made public).

Mr Morris calculated that total gross revenue would have been $150,000, giving a 50 per cent share for Mr Groves of gross revenue at 75,000.
Causation
Mr van Groningen gave evidence that in September 2009 he entered into a verbal agreement with Mr Groves to hire the Dome for one week in April 2010 to conduct a competition called High Stakes Hoops. He gave evidence that he agreed to pay to Mr Groves 50 per cent of the gross revenue received from paying patrons attending the games.
Mr van Groningen gave evidence that in December 2009 Mr Groves told him that there were potential difficulties with Mr van Groningen dealing with Mr Groves in relation to the proposed event and that instead Mr van Groningen should deal with Mr Bell’s company ADPL.
As a result, Mr van Groningen and Mr Bell on behalf of their respective companies executed a letter of lease agreement dated 23 December 2009. The agreement provided for Mr van Groningen’s company to conduct High Stakes Hoops during the week ended 11 April 2010 and to pay to ADPL $3,000 per day hire together with 5 per cent of the net profit. Mr van Groningen said that this was a renegotiation of the verbal arrangement he had originally reached with Mr Groves and that he would have complied with the original arrangement with Mr Groves but for Mr Groves telling him that there were now difficulties.
On 8 January 2010, the Bank went into possession of the Dome. On 20 January, Mr van Groningen met with the Bank’s agents Messrs Kidman and Hart. He was told that they could not guarantee the availability of the Dome for his booking. They confirmed this in a letter to Mr van Groningen dated 3 February, but went on to request certain details so that they could further consider his tentative booking. He responded on 6 February.
On 15 February, Messrs Kidman and Hart wrote to Mr van Groningen saying that they were prepared to confirm the booking on certain terms (based on the van Groningen/Bell agreement of 23 December 2009). The terms included a fee of $3,500 per day plus a bump fee of $800. They enclosed an invoice for $20,130 payable by 1 April. The letter included a disclaimer, saying that there was a small chance that the Bank may not be in control of the Dome as at the week ending 11 April and that a term of the booking was that Mr van Groningen would not make a claim against them if that occurred. On 18 February, Mr van Groningen signed an acknowledgement agreeing to the terms set out in the letter.
However, Mr van Groningen gave evidence that, due to the identified risk that he might not be able to proceed with the event, he decided he ought not to engage in any promotion of the event. Ultimately, he promoted the event only in the week before the event. He gave evidence that this resulted in very poor attendance and that he made a very substantial loss on the event. While his decision not to promote the event appears objectively irrational, I do not consider it was so bizarre as to break the chain of causation.
The Bank contends that any loss was that of ADPL due to the agreement executed by Mr van Groningen and Mr Bell on behalf of ADPL in December 2009. This is no answer because in the hypothetical world Mr Groves would not have referred Mr van Groningen to Mr Bell in the first place.
In these circumstances, Mr Groves has proved that the loss of the opportunity to earn 50 per cent of the revenue from High Stakes Hoops was caused by the Bank’s misleading conduct. It is appropriate to assess the value of that opportunity on traditional loss of opportunity principles and this was common ground between the parties if this point were reached.
Valuation of opportunity lost
Mr van Groningen gave evidence that he estimated 3,000 paying patrons would have attended on each day from Wednesday to Saturday and 5,000 paying patrons would have attended the final on the Sunday. He said that he proposed an admission price of $20 for adults and $10 for children. Mr van Groningen’s figures would (if accurate) have produced revenue of $255,000. Mr Groves gave evidence that he estimated revenue of $200,000 without giving a breakdown how it was calculated.
By comparison, Mr Bell negotiated with Mr van Groningen a hiring fee of $3,000 per day ($15,000) plus 5 per cent of net profit.
I consider a large discount should be applied to a starting figure of $130,000 based on Mr van Groningen’s figures to reflect the likelihood that the numbers and/or entrance fees would not have been achieved and that Mr van Groningen would have realised he was being too generous in his verbal deal with Mr Groves. I assess the value of the lost opportunity at $40,000.
Residual Assessment
Mr Groves contends that a global assessment should be made of the opportunities which were not specifically identified but may well have arisen if he had been in a position of certainty at the Dome.
I consider it is appropriate to make a modest allowance for the value of such opportunities and in so doing include the possibility that Mr Groves may have obtained additional basketball or other sports users at the stadium, additional revenue in the Apollo room or stadium from casual events and functions and additional naming rights and general sponsorship (each of which I have regarded as not being proved on causation principles and because Mr Groves failed to prove the basis for an assessment of the loss of opportunity in respect of these).
For this purpose, I assess a global figure of $30,000 per annum over the three years 2010 to 2012.
Quantum
I assess the value of the loss of opportunity as follows:
Imagine Education revenue $100,000
Naming rights sponsorship revenue $40,000
High Stakes Hoops $40,000
Residual assessment $90,000
Total$271,670
Loss of use of monies
Mr Morris discounted the revenue lost between 2009 and 2012 back to a value as at 31 May 2009 and then applied compound interest at 8.6 per cent per annum to bring it up to March 2012. This approach is artificial, arbitrary and unnecessarily complex. It is preferable to apply a conventional loss of use of monies approach.[83]
[83] Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125.
The losses which I have assessed were spread over the 2010 to 2012 years as follows:
April 2010   High Stakes Hoops             $40,000
July 2009 to June 2010               Residual assessment          $30,000
April to June 2011  Imagine licence fee            $12,500
April to June 2011  Imagine naming rights       $8,334
July 2010 to June 2011               Residual assessment          $30,000
July 2011 to June 2012               Imagine licence fee            $87,500
July 2011 to June 2012               Imagine naming rights       $33,333
July 2011 to June 2012               Residual assessment          $30,000
If Mr Groves had earned this revenue, he could have retired some of the debt owed to the Bank. However, the interest payable to the Bank has already been effectively adjusted to the interest rate of 9.1 per cent per annum which would have been payable to an alternative financier by reason of the assessment of loss in Section 10 above. Accordingly, I adopt the interest rate of 9.1 per cent per annum (compounded monthly) to calculate the value of the loss of use of monies.
The value of the loss of use of monies calculated to 30 June 2012 is $27,720.
12. Third head of loss: opportunity to avoid loss of capital value
Mr Groves claims that the Bank’s misleading conduct caused him to lose the opportunity to earn additional revenue which in turn caused a consequential loss of opportunity to avoid a loss of capital value of the Dome as at March 2012.
As Mr Groves has claimed revenue losses to 30 June 2012, there would potentially be double counting in relation to April to June by using a capital valuation date of March 2012. Mr Fudali said in evidence that his valuation is effectively to the end of June 2012 in any event and I will treat all “current” valuations as being at 30 June 2012 rather than at March 2012.
Mr Groves claims that the value of the lost opportunity is an appropriate percentage of the difference of $4.5 million between:
1.the actual value of the Dome being $1.55 million; and
2.the hypothetical value if all of the additional revenue had been earned on a sustained basis being $6.07 million.
Quantification
Actual current market value
Mr Fudali valued the Dome at $1.55 - $1.7 million. He calculated this based on an assumption provided by Mr Groves that the net profit generated by the Dome in 2011 was $248,400 and this is the sustainable net profit before marketing costs. Mr Fudali allowed $60,000 for marketing costs, giving a balance of $188,400 per annum. Mr Fudali then applied market capitalisation rates of 11 per cent to give a value of $1.7 million and 12 per cent to give a value of $1.55 million.
Mr Fudali’s valuation is entirely reliant on the assumption that the Dome generated a net profit in 2011 of $248,000. This assumption is unproven. As observed at [148] to [154] above, the figures used by Mr Groves for both revenue and expenses are not demonstrated to have been sourced from original business records, they have not been demonstrated to be a consolidation of figures for Lifestyle’s 9 months with Mr Groves’ 3 months, they apparently include revenue which on Mr Groves’ case he was unable to earn, they differ from figures prepared by Mr Groves given to Mr Morris and they comprise round figures. Some of these matters are identified in the reports of Mr Ferguson and Mr Smithson.
I am unable to accept Mr Fudali’s valuation for this reason.
Hypothetical current market value
Mr Fudali valued the Dome on a hypothetical basis at $6.07 million. This was based on an assumption that, but for the misleading conduct of the Bank, Mr Groves would have procured additional revenue streams at the Dome and would have achieved a sustainable net income of $750,000 per annum before marketing costs in accordance with a projection prepared by Mr Groves for 2013. Mr Fudali deducted marketing costs at 15 per cent to give net property rental income of $637,500. Mr Fudali then applied a capitalisation rate of 10.5 per cent to give a value of $6.07 million.
Mr Smithson had undertaken or been involved in previous valuations by Knight Frank in November 2006 and March 2010. Mr Smithson expressed scepticism concerning a number of assumptions made in the 2013 projections of Mr Groves. These included the projection of $75,000 per annum for naming rights sponsorship given that Mr Smithson said that there had been a dramatic fall in large scale sponsorships between 2007 and 2009 due to the global financial crisis and he considered that a purchaser would be sceptical about achieving $75,000 per annum. He expressed scepticism concerning an ability to obtain $2 per ticket service fee on all ticket sales at the Dome.
Mr Smithson did not undertake his own valuation based on Mr Groves’ projected 2013 net profit. However, he expressed the view that a capitalisation rate of 12 per cent would have been more appropriate than a rate of 10.5 per cent. CBRE used a capitalisation rate of 12 per cent in January 2009. I accept Mr Smithson’s opinion in this respect. There is no reason why a higher multiplier should be applied to a forecast earnings than is applied to an “actual” earnings figure. If anything, the multiplier applied to the former should be smaller to reflect the increased risks that the forecast would not be achieved. Applying a multiplier of 12 per cent to the adjusted earnings forecast of $637,500 would give a valuation of $5.31 million.
Mr Fudali’s valuation is entirely reliant on the assumption that the Dome would have generated a net profit in 2013 of $750,000 (before marketing costs) and that this would have been sustainable. This assumption is unsupported. While Mr Groves engaged Mr Morris as an expert accountant, he did not ask him to assess the sustainable net profit in 2013 or beyond. The 2013 forecast is entirely the work of Mr Groves. Mr Groves has not demonstrated that he has the expertise to make an assessment of a forecast capable of being relied on to produce a value by the application of a multiplier to a sustainable net profit (earnings before interest and depreciation) figure.
A forecast capable of being relied on for such a valuation should begin with proven accurate and reliable historical figures and then make a justified forecast taking into account specific justified adjustments based on identified differences between the actual and hypothetical worlds. Mr Groves’ forecast for 2013 does not begin with proven accurate and reliable historical figures. This was essentially the evidence of Mr Ferguson and Mr Smithson and it was not contradicted by evidence from Mr Morris or Mr Fudali.
Mr Groves’ forecast is based on:
1. 2011 figures described as actual but which suffer from the defects identified at [148] to [154] above;
2.2010 figures described as actual but which suffer from the defects identified at [146] to [147] above;
3.2008 figures described as actual but which suffer from the defects identified at [141] to [144] above
4.forecasts for 2009 to 2012 inclusive which themselves are unsupported.
In addition, Mr Groves’ 2013 forecast embodies as assumptions that the Dome would have made revenue gains which I have found in Section 11 have not been proved.
I am unable to accept Mr Fudali’s valuation for these reasons.
Differential between actual and hypothetical current market value
Mr Fudali has not factored into his differential between actual and hypothetical market value any allowance by a potential purchaser for the enhancements which Mr Groves contemplated and which a purchaser with security of tenure could implement. I address this further below.
Causation: the existence of a capital loss
Leaving aside the multiplier, the difference between Mr Fudali’s two valuations is that one is based on 2011 “actual” earnings whereas the other is based on a 2013 forecast based on hypothetical actions in a world in which Mr Groves had certainty of tenure. The valuations in this respect are not based on inherent and immutable characteristics of the land and buildings but simply on the current assessment of the profitability of the rental business conducted by the landlord using the land and building.
There was no evidence adduced that the Dome could not generate the 2013 forecast earnings if Mr Groves (or a potential purchaser) had certainty of tenure. For example, there was no evidence that Imagine Education would not with certainty of tenure still establish a teaching business at the Dome or that circumstances affecting the prospect of this have materially changed. Similarly, if it had been proved that casual bookings for the Apollo Room and the stadium had been depressed due to uncertainty, there is no evidence that they would not increase in future to the levels forecast by Mr Groves if that uncertainty were removed. To the extent that the market value of the Dome is currently depressed due to Mr Groves’ state of uncertainty, there is no evidence of anything more than a transitory depression.
Mr Groves’ case is, in the main, that the loss of revenue he has suffered was due to his own decision not to enter into long term agreements with Dome users or sponsors (due to his uncertainty caused by the Bank) rather than their own refusal to do so. Nothing objectively tangible has occurred at the Dome to depress its value as opposed to management decisions made by Mr Groves due to the state of uncertainty in which he has found himself. Nor have I have found it proved that Mr Groves has lost any established tenants, users or sponsors of the Dome due to uncertainty engendered by the Bank’s conduct: he has merely failed to attract new tenants, users or sponsors of the Dome due to that uncertainty.
If Mr Groves in fact retains the Dome and ceases to be in a state of uncertainty due to the claimed debt due to the Bank, there is no evidence that he will in fact suffer any capital loss on the Dome. In those circumstances, he could implement his proposed enhancements and the capital value of the Dome would, on Mr Fudali’s approach, increase commensurately. In that event, he would have been delayed in establishing new and additional revenue streams but none of them would have been lost.
At the time of trial in March 2012, Mr Groves had not realised a capital loss in relation to the Dome. He will only realise a capital loss (on the assumption that its hypothetical value would have been greater than its actual value but for the Bank’s conduct) if the Dome is sold following judgment in this action.
Mr Groves contends that he has already suffered a capital loss as at March 2012 due to the diminution in the market value of the Dome as a result of the Bank’s conduct which is to be valued using loss of opportunity principles and that it is irrelevant to the existence or assessment of this loss whether the Dome will be sold following judgment or he retains it.
If the Bank’s conduct had caused a permanent diminution in the market value of the Dome, such diminution would be recoverable as a consequential loss. The position is analogous to the loss recoverable in tort for permanent damage to goods or land or to the loss recoverable on the purchase of a business induced by deceit whose true value was less than the purchase price.[84] Similarly, if he retains the Dome but has been permanently deprived by reason of the Bank’s conduct of the opportunity of enhancing the capital value of the Dome, the value of that lost opportunity would be recoverable. In those situations, it would not matter whether Mr Groves sold the Dome for its current market value or retained the permanently impaired asset.
[84] See for example Gould v Vaggelas (1984) 157 CLR 215.
Mr Groves relies on the decision of the Court of Appeal in Trio Insulations Pty Ltd v Metal Deck Roofing Pty Ltd.[85] In that case, physical damage was caused to the plaintiffs when their roof collapsed due to the negligence of the defendant and third party involved in repairing it. The plaintiffs were printers with established large customers. The trial judge found that the consequential disruption to supply of printing to three of its major customers caused the loss of those customers and a diminution in the value of the goodwill of the business accordingly. The trial judge capitalised the lost profits of $750,000 at 22 per cent to give a loss of goodwill of $3.4 million. The defendant and third party argued that there was no loss of goodwill because the plaintiffs could attract new customers to replace those lost. This argument was dismissed by the Court of Appeal. Young CJ in Eq (Meagher JA and Giles JA agreeing) said:
The argument that lost customers are just replaced by new customers is just a fallacy. A business does not have to lose customers in order to gain new ones, at least unless special circumstances apply. The present business suffered a loss of customers whether or not it attained new customers.[86]
[85] [2002] NSWCA 294; followed by Olsson AJ in Territory Sheet Metal Pty Ltd v Australia and New Zealand Banking Group Ltd [2010] NTSC 3; (2010) 237 FLR 197 at [125]-[130].
[86] [2002] NSWCA 294 at [27].
The Court also observed that the capitalisation rate adopted meant that the plaintiffs were being compensated for four and a half years’ lost profits which was not much greater than the defendant’s case based on two years.[87]
[87] [2002] NSWCA 294 at [24].
In the present case, Mr Groves did not adduce any evidence that the value of the Dome has been impaired on any more than a purely transitory basis due to the Bank’s conduct. Given that he has not established the loss of any existing customers and there was no tangible or objective effect on the business beyond that caused by Mr Groves’ state of uncertainty, there is no basis to find that there has been a loss of value of the Dome which is compensable in the absence of Mr Groves being obliged to sell it now at the temporarily depressed value.

If Mr Groves had given evidence of the current value of his assets, the amount of his liabilities and income and expenditure, he might have established that he does not now have the capacity to attract additional tenants or users to the Dome. Alternatively, he might have established that he will be obliged to sell the Dome regardless of the amount of any net judgment in favour of the Bank.
Mr Groves did not give evidence as to what his plans for the Dome are in future (depending on judgment in this matter) or of the valuation of all of his assets which he might realise to pay out the amount of any net judgment which might be awarded in the Bank’s favour. The most recent spreadsheet of assets and liabilities tendered was the spreadsheet provided by Mr Groves to the Bank in September 2008, which showed net assets at cost in his own name of $17 million and in the Commodore 2 Trust of $17 million. There is no evidence or basis on which I could conclude that it is now inevitable or likely that Mr Groves will be prevented after judgment from implementing his enhancements or that he will be obliged to sell the Dome. In the absence of such evidence, I have no basis on which to find that Mr Groves will in fact suffer a capital loss of the type claimed.
Mr Groves argues in the alternative that the onus on this issue lies on the Bank to prove that Mr Groves is in a financial position to pay the Bank’s debt and hence to avoid a forced sale of the Dome. I reject that submission. It is necessarily an integral part of Mr Groves’ claim under this head of loss that he will in fact suffer a capital loss if he is obliged to pay the Bank’s debt.
Accordingly, the claim in relation to capital value of the Dome fails on causation.
Value of lost opportunity
I now assess the value of the lost opportunity on the assumption that this head of loss were to succeed on causation.
I have rejected Mr Fudali’s valuations as a basis for valuing the lost opportunity in respect of the capital value of the Dome because they are reliant on earnings figures which have not been established. It is necessary to adopt some other basis to value the lost opportunity.
In Section 11, I found that Mr Groves had been deprived of the following opportunities:
1.the opportunity to gain Imagine Education as a licensee which would have paid $300,000 per annum for the right to use the Dome for its educational courses;
2.the opportunity to gain Imagine Education as a naming rights sponsor which would have paid $50,000 per annum for the naming rights.
The likelihood that Imagine Education would have both begun and remained long term as a user and sponsor of the Dome is less than the likelihood it would merely have begun but not remained. I assess the likelihood that Imagine Education would have becoming sustainable long term user and sponsor at 50 per cent, giving a value of the loss of opportunity at $175,000 per annum.
In addition, in Section 11, I assessed the value of the residual opportunity to gain revenue at $30,000 per annum. This gives a total of $205,000 per annum.
Applying a capitalisation rate of 12 per cent gives a prima facie capital valuation of the loss of that income stream at $1.7 million. However, this assumes that a potential purchaser would not take into account any potential for increase in the profitability of the Dome as an income producing asset. I consider that a potential purchaser would only buy the Dome for its existing use as a stadium if it did see the potential to increase those earnings. I therefore discount the figure of $1.7 million for potential enhancements recognisable by a potential purchaser by 50 per cent to give a value of the lost opportunity at $850,000.
As a check on this assessment, I have considered the valuations of the Dome over time as follows.
1.Mr Smithson valued the Dome on the basis of its use as a stadium at $3.5 million in November 2006 and CBRE valued it on the same basis in January 2009 at $3.3 million. CBRE disregarded the actual financial performance of the Dome and relied on their experience. Given CBRE’s approach and the coincidence between their valuation and that of Mr Smithson in November 2006, I consider that the value of the Dome is in the order of $3.3 million.
2.By contrast, Mr Smithson valued the Dome at $1.0 to $2.0 million in March 2010 for use as a stadium and $1.5 million in February 2012. None of these figures was derived from an assessment of maintainable earnings or from comparable sales.
3.If I were to use these respective sets of values, it would suggest that the Dome suffered a dramatic fall in value from $3.3 million in January 2009 to $1.5 million in March 2010 and prima facie the difference of $1.8 million might be regarded as the measure of capital loss suffered by Mr Groves. The valuers did not identify anything inherent in the Dome (as opposed to its transient financial performance at particular times) to account for such a dramatic fall in value and I do not accept that the inherent value of the Dome has in fact suffered such a dramatic fall.
4. Moreover, on the evidence before me, the uncertainty faced by Mr Groves accounts for only part of the difference in value and other factors (which include Mr Groves’ own management of the Dome) must account for part of the difference. If I were to begin with the figure of $1.8 million referred to in 3 above, it would be necessary to discount it for other causes beyond the uncertainty engendered by the Bank’s conduct. I consider an appropriate discount would be 50 per cent. This would give a value of the lost opportunity at $900,000 which is comparable with my assessment at $850,000.
Accordingly, I assess the value of the loss of the opportunity to avoid a loss of capital value of the Dome (assuming contrary to my conclusion that such a loss has been proved as a matter of causation) at $850,000.
13. Remedies on counterclaim
Damages
My assessment of the quantum of Mr Groves’ loss (assuming he had succeeded on the existence of the representations and causation) is $1,585,529 made up of:
$1,286,139 interest differential;
$271,670 loss of opportunity to earn revenue;
$27,720 loss of use of monies.
In addition, if he has suffered a loss of opportunity in respect of the capital value (which I have found unproven), I assess its quantum at $850,000.
These amounts would have been offset against the debt to the Bank if Mr Groves had been successful on his counterclaim.
Set aside orders
Facility agreements
Mr Groves seeks an order under section 87 of the Trade Practices Act that the facility agreements embodied in the Bank’s letters dated 4 April, 30 June, 30 September and 15 October 2008 be set aside. This would leave the contractual relationship to be governed by the facility agreement embodied in the Bank’s letter dated 6 December 2007, which provided for an interest rate 1.8 per cent below the Bank’s standard variable rate.
I would decline to make such an order. First, Mr Groves conducted his case on the basis that he seeks damages based on the difference between the rates actually charged by the Bank pursuant to the facility agreements embodied in the Bank’s letters dated 4 April, 30 June, 30 September and 15 October 2008 and the rate charged by an alternative financier. If those agreements were set aside, Mr Groves would not be entitled to the damages of $1,286,139 which I have assessed on that basis and he did not formulate the damages to which he would be entitled.
Secondly, it is a precondition to making an order under section 87 that:
the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.[88]
[88] See Tenji v Henneberry & Associates Pty Ltd [2000] FCA 550; (2000) 98 FCR 324 at 333 per French J.
The loss or damage suffered by Mr Groves is the difference between the position he is actually in (under the facility agreements) and the position he would have been in under finance from an alternative financier. It is not the difference between the position under the later versus the earlier CBA facility agreements. The correct measure of loss is already addressed by the damages calculated under section 82.
I note that the practical effect of the order sought by Mr Groves would be limited to the period before Mr Groves was in default (February 2009) or at least before the Bank charged “default interest” (April 2009) pursuant to clause 8.13 of the Bank’s Commercial Lending Facilities Terms & Conditions which imposes interest at a rate independent of the rate specified in the particular facility agreement.
Mortgage
Mr Groves seeks an order under section 87 of the Trade Practices Act that the mortgage dated 29 May 2008 be set aside. This would leave the Bank unsecured.
I would decline to make such an order. If Mr Groves had borrowed from an alternative financier, he would still have granted a mortgage over the Dome to that financier (and indeed he would have granted collateral security as well) and the Bank would have been fully repaid. The damages awarded under section 82 will compensate Mr Groves for his loss and an order setting aside the Bank’s mortgage would not compensate him for or prevent or reduce loss and damage within the meaning of section 87.
Preclusion orders
Default interest
Mr Groves seeks an order under section 87 of the Trade Practices Act that the Bank not be entitled to interest at the default rate.
The provision for such interest is contained in clause 8.13 of the Bank’s Commercial Lending Facilities Terms & Conditions which operates under all of the facility agreements between Mr Groves and the Bank. Mr Groves does not seek the setting aside of the earlier facility agreements which incorporate this condition.
I would decline to make the order sought for the same reasons as I would decline to set aside the later facility agreements.
Compound interest
Mr Groves seeks an order under section 87 of the Trade Practices Act that the Bank not be entitled to compound the interest.
The provision for such interest is contained in clause 8.9 of the Bank’s Commercial Lending Facilities Terms & Conditions which operates under all of the facility agreements between Mr Groves and the Bank. Mr Groves does not seek the setting aside of the earlier facility agreements which incorporate this condition.
I would decline to make the order sought for the same reasons as I would decline to preclude the Bank charging default interest.
Variation order
Mr Groves seeks an order pursuant to section 87 of the Trade Practices Act that the terms of the agreement between the Bank and Mr Groves be varied by extending the time for repayment of the $5 million by one year.[89]
[89] See for example Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 298 per Brennan, Deane, Dawson, Gaudron and McHugh J; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at [38] per McHugh, Hayne and Callinan JJ; [112]-[119] per Gummow J.
I would decline to make the order. Mr Groves has not established that such an order will compensate him for damage or prevent or reduce damage suffered by him within the meaning of section 87 (given the award of damages under section 82).
14. The Bank’s claim
The Bank tendered the bank statements for the better business loan account to 2 February 2012. Mr Hampton gave evidence that the balance of that account at 29 February 2012 was $7,746,818.99.[90] Mr Hampton was not cross-examined and his evidence was not challenged.
[90] This comprised $5 million principal plus interest for April 2009-February 2012 on the balance of the Better Business Loan plus some facility fees.
The Bank tendered the bank statements for the streamline account to 1 February 2012. Mr Hampton gave evidence that the balance of that account at 29 February 2012 was $204,842.66.[91] Mr Hampton was not cross-examined and his evidence was not challenged.
[91] This essentially comprised the January-March 2009 interest on the Better Business Loan together with interest accrued thereon since April 2009.
Mr Groves accepted that, subject to the contentions addressed above premised on success of his counterclaim, the amount owed to the Bank as at 29 February 2012 was the total of those two amounts, namely $7,951,024.65. If Mr Groves were unsuccessful in his counterclaim, he accepted that the agreement embodied in the Bank’s letter dated 15 October 2008 is binding and that the interest rates charged by the Bank pursuant to that agreement (as reflected in the bank statements and Mr Hampton’s affidavit) are payable pursuant to that contract.
The Bank also seeks an order that Mr Groves produce the duplicate certificate of title to enable the Bank to register its mortgage. If Mr Groves were to be unsuccessful in his counterclaim, he did not resist an order that he produce the duplicate certificate of title for that purpose. Clause A18.1 of the standard terms incorporated into the mortgage executed by Mr Groves contains a covenant that the mortgagor will deposit with the Bank any documents of title relating to the property. Subject only to Mr Groves’ counterclaim, it is appropriate to make an order that Mr Groves produce the duplicate certificate of title to enable the Bank to register its mortgage.
15. Conclusion
I find that Mr Groves has not proved on the balance of probabilities that Mr Flude made the alleged representations.
If (contrary to my conclusion) the representations were made, they would have been misleading and made in trade or commerce within the meaning of section 52 of the Trade Practices Act.
If (contrary to my conclusion) the representations were made, Mr Groves had not proved on the balance of probabilities that they caused him loss and in particular caused him to stay with the Bank and not seek an alternative long term facility or that he would otherwise have obtained such a facility before 30 September 2008.
If (contrary to my conclusion) the representations were made and caused Mr Groves to stay with the Bank and not seek an alternative long term facility which he would otherwise have obtained, Mr Groves has suffered a loss of:
1.$1,286,139 by way of interest differential; and
2.$271,670 loss of opportunity to earn revenue plus $27,720 loss of use of monies;
but has not proved he suffered any loss of opportunity in respect of the capital value of the Dome.
If (contrary to my conclusion) the representations were made and caused Mr Groves not to seek an alternative long term facility which he would otherwise have obtained and Mr Groves has suffered a loss of opportunity in respect of the capital value of the Dome, the value of the loss of opportunity is $850,000.
The Bank is entitled to judgment for $7,951,024.65 plus interest calculated from 29 February 2012 to the date of judgment.
The Bank is entitled to an order that Mr Groves produce the duplicate certificate of title to enable the Bank to register its mortgage.
I will hear the parties in relation to final orders.