Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd

[2002] FCA 1018

FEDERAL COURT OF AUSTRALIA

Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2002] FCA 1018

TRADE PRACTICES – NEGLIGENCE – misleading or deceptive conduct – applicants having a course of dealing over many years with respondent estate agent – acquisition and sale of various properties – respondent oversaw management of some of applicants’ businesses – respondent acted as project manager on behalf of applicants in respect of certain property developments – respondent subsequently acted as agent for vendor of a city building – applicants allege respondent made false representations before they entered contracts with vendor interests for purchase of building and carrying out of major refurbishment works to the property – whether respondent misled or deceived relevant applicants in relation to acquiring the building and guaranteeing obligations in respect of the purchase and major refurbishment costs of the building – disputes with vendor interests before settlement of those contracts – applicants settled those disputes and accepted further guarantee obligations – subsequent litigation between vendor interests and applicants – those disputes settled in mid-hearing – respondent had provided valuation of building prior to first settlement of disputes – whether respondent negligent in preparing that valuation – whether respondent made representations negligently in breach of common law duty of care – whether applicants relied on respondent’s representations when purchasing the building and entering into the guarantees – whether applicants relied on those representations and the valuation when entering into the subsequent settlement transactions – whether respondent and relevant applicants in a fiduciary relationship in respect of acquisition of the building.

EQUITY – fiduciary duties – whether respondent real estate agent, in the particular circumstances, owed any relevant fiduciary duty to applicant purchaser and applicant guarantors of the purchaser’s obligations.

Trade Practices Act 1974 (Cth), s 52
Fair Trading Act 1987 (WA), s 10

R v Saffron (1988) 17 NSWLR 395 referred to
Jones v Dunkel (1958) 101 CLR 298 referred to
Hanave Pty Ltd v Lfot Pty Ltd (1999) ATPR 41-687 referred to
McKenzie v McDonald [1927] VLR 134 applied
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied
Gonsalves v Debreczeni [1998] NSWSC 588 referred to

CORDELIA HOLDINGS PTY LTD & ORS v NEWKEY INVESTMENTS PTY LTD
W106 of 2000

CARR J
14 AUGUST 2002
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRLIA DISTRICT REGISTRY	W106 OF 2000

BETWEEN:

CORDELIA HOLDINGS PTY LTD
First Applicant

VENDOMATIC PTY LTD
Second Applicant

GETUM PTY LTD
Third Applicant

ABRAHAM GILBERT SAFFRON
Fourth Applicant

ABRAHAM GILBERT SAFFRON AS THE EXECUTOR
OF THE ESTATE OF DOREEN SAFFRON
Fifth Applicant

AND:

NEWKEY INVESTMENTS PTY LTD (ACN 060 259 930)
Respondent

JUDGE:	CARR J
DATE:	14 AUGUST 2002
PLACE:	PERTH

THE COURT ORDERS THAT:

1.        The application be dismissed.

2.        The applicants pay the respondent’s costs.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

TABLE OF CONTENTS

Introduction

Factual and Procedural Background

An Overview of the Pleadings

Did Mr Morrone make the First Royal Representations?

Did Mr Morrone make the Second Royal Representation?

Did Mr Morrone repeat the Second Royal Representation on the occasions referred to in paragraphs 16A and 24G of the Statement of Claim?

An Evidentiary Issue

Credibility Problems

Findings of Fact

The First Royal Representations

The Second Royal Representation

Reliance

Whether any of the First Royal Representations, the Second Royal Representation, or their Repetition was a cause of the applicants’ execution of the Settlement Documentation

The Royal Valuation

Was the Royal Valuation carried out negligently?

Findings of Fact

Room Rates, Occupancy Rates and Consequent Room Yields

Discount Rates for the Cash Flow

Rates and Taxes

Use of Comparable Sales

What would have been a reasonable valuation?

Whether the respondent’s negligence, breach of contract, and misleading and deceptive conduct in relation to the Royal Valuation was a cause of the losses claimed by the applicants

The Fiduciary Claim

Findings of Fact in Relation to the Prior Transactions

The Warwick Hotel

The Cloverdale Hotel

Merriwa

Dunlop House

South Lakes Tavern

Hilton Park Tavern

Re-development of the Raffles Hotel site

Other Duties Undertaken by the Respondent

The Proposed Purchase of the Property

My reasoning on whether a fiduciary relationship existed between the respondent and Arcadia and Cordelia in relation to the acquisition of the Property

Conclusion

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W106 OF 2000

BETWEEN:

CORDELIA HOLDINGS PTY LTD
First Applicant

VENDOMATIC PTY LTD
Second Applicant

GETUM PTY LTD
Third Applicant

ABRAHAM GILBERT SAFFRON
Fourth Applicant

ABRAHAM GILBERT SAFFRON AS THE EXECUTOR OF THE ESTATE OF DOREEN SAFFRON
Fifth Applicant

AND:

NEWKEY INVESTMENTS PTY LTD (ACN 060 259 930)
Respondent

JUDGE:	CARR J
DATE:	14 AUGUST 2002
PLACE:	PERTH

REASONS FOR JUDGMENT

INTRODUCTION

1. In this matter the applicants seek damages from the respondent for losses sustained by them as a result of entering into transactions which included the purchase and major refurbishment of a building at 12 Victoria Avenue in Perth (“the Property”).  They also seek other relief.  The first, second and third applicants are companies controlled by Mr Abraham Saffron, who is the fourth applicant in his own right and is also the fifth applicant as executor of the will of his late wife.  During the course of these proceedings there was very little, if any, distinction made between Mr Saffron and his various companies.  They were regarded and treated (in my view, correctly) as each being, on any relevant occasion, Mr Saffron’s alter ego.  Accordingly references in these reasons to Mr Saffron may be taken, where appropriate, as including a reference to the particular Saffron company involved in any relevant transaction.  The respondent [in these reasons sometimes referred to as “Royal”, because its business name is “Royal International (W.A.)”], carries on business as a real estate agent and valuer.  Until the tenth day of the hearing of the application there were three other respondents (two of whom were cross-claimants against the applicants), but at that stage of the proceedings those parties settled their disputes.  The involvement of those former respondents in the matter will, where necessary, be described later in these reasons.

   FACTUAL AND PROCEDURAL BACKGROUND

2. On 12 December 1996, a company then called Broadoak Holdings Pty Ltd bought, through the agency of the respondent (i.e. the respondent acted as purchasing agent), a building at 12 Victoria Avenue, Perth for $1.8 million.  The building was then in use as an office block with a Chinese restaurant on the ground floor.  Broadoak Holdings Pty Ltd later changed its name to KPG Pty Ltd (“KPG”). 

3. On 24 April 1997, KPG entered into a contract to sell the Property to WA Enterprises Pty Ltd for the sum of $3 million, as part of a transaction which included an obligation on the vendor’s part to cause the building to be comprehensively refurbished into what has been described as a “boutique hotel” for a building contract price of $8 million i.e. the total consideration under that contract was $11 million.  The respondent acted as the selling agent for KPG in that transaction.  The contract came to an end a few months later, for reasons which it is not necessary to explain. 

4. On 25 September 1997, KPG and its related corporation Keywest Constructions Pty Ltd (“Keywest”) entered into very similar contractual arrangements with City Inn Pty Ltd, (“City Inn”) a related corporation of WA Enterprises Pty Ltd, in respect of the Property.  There were two contracts (one with KPG whereby City Inn purchased the Property for $3 million and one with Keywest for the construction of the hotel for the fixed lump sum of $8 million), but it is convenient to refer to this transaction as “the City Inn Contract”.  The respondent was the selling agent for KPG. 

5. On 7 November 1997, a company called Arcadia Securities Pty Ltd (“Arcadia”), which is a related corporation of the first applicant, entered into a contract with City Inn to purchase the Property and to have constructed upon it the same building works (“the Arcadia Contract”).  The consideration expressed in the Arcadia Contract for the land was $4.5 million and the consideration for the building works was $8 million, i.e. the total consideration payable by Arcadia to City Inn under the Arcadia Contract was $12.5 million.  

6. As events transpired, City Inn was unable to satisfy certain conditions in the City Inn Contract.  That contract was terminated in July 1998.  It would appear that City Inn and Arcadia thereafter treated the Arcadia Contract as being at an end. 

7. A few months later, the first applicant (“Cordelia”) entered into two contracts in respect of the Property, each of which was dependent upon the other.  The first contract, dated 9 November 1998, was with Keywest.  That contract was for the construction of a hotel for a price of $8.5 million (“the Building Contract”).  The second contract, dated 10 November 1998 and made with KPG, was to purchase the Property for $3 million (“the Land Contract”).  A deposit of $250,000 was payable under that contract.  Settlement of the Land Contract was conditional upon practical completion of the building works at which point Cordelia was liable to pay the balance of the consideration under both contracts.  I shall refer to the two contracts together as “the Cordelia Contracts”.   Mrs Saffron (since deceased) entered into a personal guarantee of Cordelia’s obligations under both contracts.  The third applicant, Getum Pty Ltd (“Getum”) also joined in that guarantee, to a limit of $750,000, an obligation which was secured by a registered first mortgage over real property which it owned in Adelaide. 

8. From the terms of the Building Contract it would appear that the parties contemplated that the building works would take about a year to complete.  But practical completion, and the concurrent obligation for Cordelia to pay the balance of the moneys under both the Building Contract and the Land Contract, occurred much earlier than anticipated. 

9. In about July or August 1999 Cordelia, on the one hand, and KPG and Keywest, on the other hand, fell into dispute over matters arising out of the Building Contract and the Land Contract.  KPG and Keywest asserted that the building works had reached practical completion but Cordelia disagreed.  At that stage Cordelia did not have the funds with which to pay the balances owing at settlement under the two contracts.  Amongst other things (and one of the other things will assume a degree of importance which emerges later in these reasons), Cordelia contended that KPG and Keywest had repudiated both contracts and that they were at an end.

10. In November 1999 the three parties to those disputes negotiated and reached a settlement which was recorded formally in various documents (“the Settlement Documentation”).  The first was a facility agreement (“the Facility Agreement”) under which Cordelia acknowledged that the sum of $11,425,000 was immediately due and payable to KPG and Keywest pursuant to the terms of the Land Contract and the Building Contract.  It was also a term of the Facility Agreement that KPG and Keywest would advance that sum to Cordelia and that Cordelia would pay those companies interest at a specified rate until 30 June 2000, when all moneys due under the Facility Agreement would be paid by Cordelia to KPG and Keywest.  There were various other moneys payable, to which, at this stage, it is not necessary to refer.  There were express terms of the Facility Agreement defining the rights and obligations of the parties if Cordelia did not on-sell the Property, respectively, by 31 March 2000 and 31 May 2000.  The second applicant, Vendomatic Pty Ltd (“Vendomatic”) and Getum executed mortgages over real property in Sydney and Adelaide respectively to secure Cordelia’s compliance with the terms of settlement.  Mr Saffron also gave a personal guarantee to secure Cordelia’s compliance with the terms of settlement. 

11. Cordelia had not on-sold the Property by 31 May 2000, despite various efforts to do so, including an auction on 3 May 2000 at which no real bids were made.  On 2 June 2000, KPG and Keywest served notices on Cordelia that it was in default under the terms of the Land Contract and the Building Contract.  They also gave notice of their intention to terminate those contracts.  The notice from KPG included notice of forfeiture of the deposit under the Land Contract.  Further notices were served on 6 June 2000. 

12. Initially in this application the applicants sought relief against KPG and Keywest, including rectification of the documents which evidenced the terms of settlement.  KPG and Keywest cross-claimed against the applicants for payment of moneys which, in aggregate, amounted to $7,862,160.80.  The calculation of that amount included the net proceeds of sale of the Property which KPG sold (after a further unsuccessful auction) in November 2000 for a price of $6 million. 

13. On 15 April 2002, on the tenth day of the hearing of this application, the applicants, KPG and Keywest settled their disputes by entering into a deed of compromise and release (“the April Deed”).  Under the terms of the April Deed the applicants agreed to pay to KPG and Keywest $6,500,000 by instalments over a period ending on 31 December 2003 together with interest on the balance outstanding from 1 January 2003.  Getum also agreed to assign the rents of its Adelaide property to KPG and Keywest.  On the same date consent orders were made whereby:

    ·     The applicants’ claims against KPG and Keywest were dismissed;

    ·     In the cross-claim, judgment was entered in favour of KPG and Keywest in the sum of $6.5 million inclusive of interest and costs, Vendomatic was ordered to deliver up possession of its Sydney property to KPG and Keywest, and Getum was ordered to deliver up possession of its Adelaide property to them.

14. On 16 April 2002, orders were made by consent that the application against what was then the fourth respondent [Colliers Jardine (WA) Pty Ltd] be dismissed and that the applicant pay the fourth respondent its costs agreed at a fixed amount.  The fourth respondent was the third of the three other respondents referred to in paragraph 1 above.

    AN OVERVIEW OF THE PLEADINGS

15. The statement of claim runs to some 24 pages.  At this point I shall try to summarise the applicants’ allegations and, where appropriate, the respondent’s responses. 

16. Cordelia relies upon a series of real property transactions and other associated transactions in which Mr Saffron and various of his companies were involved, together with certain other matters, as establishing that Royal was in a fiduciary relationship with both Arcadia and Cordelia.  [Cordelia also relies upon the nature and extent of the business relationship said to have arisen out of those transactions between Mr Saffron and the respondent over the years leading up to 1997-1998 as making it more probable that the representations referred to below were made and repeated by the respondent and were relied upon by Mr Saffron].  Cordelia says that there were certain specific incidents of that fiduciary relationship which Royal breached, thus causing Cordelia loss and damage in respect of which it seeks equitable compensation. 

17. The next complaint arises out of what has been termed “the First Royal Representations”.  The applicants say that in about October 1997 Mr Charles Joseph Morrone, a director of Royal, orally made the First Royal Representations to Mr Saffron.  [In much the same way as Mr Saffron was identified with his various companies in the proceedings, Mr Morrone was identified with the respondent.  Accordingly, unless the context otherwise requires, references to Mr Morrone in these reasons can be taken to include the respondent.]  The relevant parts (for present purposes) of the First Royal Representations were, in summary, alleged to have been that:

·     City Inn proposed to develop a hotel at 12 Victoria Avenue, Perth;
·     City Inn owned the freehold of the Property;
*	·     when the hotel was complete, the Property would have a value in the order of $15-$16 million; [paragraph 5.5 of the statement of claim]
*	·     the purchase of the Property was a bargain at the price of $12.5 million; [paragraph 5.6]
*	·     the hotel could be completed by about August 1998 and that by that date Royal would be able to on-sell the Property on behalf of Arcadia for about $16 million; [paragraph 5.7] and
·     (impliedly) each of the three opinions set out immediately above (which I have marked with an asterisk) was genuinely held, on reasonable grounds, and was the product of reasonable care and skill within the range of latitude normally permitted for a valuation of the sort advanced.

1. The respondent denies making the First Royal Representations and gives (in paragraph 5 of its defence) its version of what took place between Mr Saffron and Mr Morrone.  In summary, the respondent says that in or around March 1997 Mr Morrone had told Mr Saffron about the proposal to develop a hotel on the Property.  The respondent’s case is that on the occasion upon which the applicants allege Mr Morrone made the First Royal Representations what happened was that Mr Saffron asked Mr Morrone whether the Property was on the market for sale, Mr Morrone responded by saying that the asking price for the Property was $12.5 million and also said that if Mr Saffron wanted to buy the Property he should use Arcadia as the vehicle for that purpose.  The respondent otherwise denies each and every other particular of the alleged First Royal Representations.

2. Part of the applicants’ case is that by making the First Royal Representations, the respondent engaged in misleading conduct or conduct which was likely to mislead or deceive contrary to s 52 of the Trade Practices Act 1974 (Cth) and s 10 of the Fair Trading Act 1987 (WA). They say that each of the representations which I have set out above was false.

3. Further and alternatively, the applicants contend that the respondent owed a duty to them to take reasonable care to ensure it did not cause any of them avoidable economic loss, and that the First Royal Representations were made negligently (in breach of Royal’s fiduciary duties and its common law duty of care) in that the likely value of the Property when the hotel was completed was in the order of $7 million. 

4. The applicants allege that Arcadia entered into the Arcadia Contract in reliance on the First Royal Representations.

5. The applicants’ next complaint arises out of the making (on their case) by Mr Morrone, on behalf of Royal, of what has been termed “the Second Royal Representation”.  The applicants say that Mr Morrone made the Second Royal Representation in or about February 1998 at a time when it appeared that the Arcadia Contract was about to lapse.  The Second Royal Representation is said to have comprised: 

   ·     The failure to withdraw or otherwise amend the three representations against which I have placed an asterisk above and thereby (by necessary implication) repeating and affirming each of them.  (Paragraph 11.5 of the statement of claim)

   ·     Telling Mr Saffron orally that:

   o   There was a lot of interest in the Property;

   o   He (Mr Morrone) had buyers willing to pay $14 to $15 million for the Property;

   o   When the hotel was complete the Property would have a value of, in the order of, $16 million; and

   o   That Royal would be able to sell the Property on behalf of Cordelia by the time the hotel was complete.  (Paragraph 11.6)

   ·     A statement of opinion (constituted by the foregoing representations) into which were implied representations that:

   o   the opinion was genuinely held, based on reasonable grounds, was the product of reasonable care and skill and within the range of latitude normally allowed for an opinion of that sort;

   o   the valuations advanced by the First Royal Representations, i.e. that the value of the Property when the hotel was completed would be in the order of $15 to $16 million and that the purchase was a bargain at the price of $12.5 million, remained current and could be relied on and would remain current until Mr Saffron or a company related to him made contracts to purchase the Property and to have the hotel built;  

   o   if the valuations ceased to be current or not capable of being relied on prior to entry into such contracts, Royal would so inform Mr Saffron.

1. The applicants say that, by making the Second Royal Representation, Royal engaged in misleading conduct or conduct which was likely to mislead or deceive in contravention of the same provisions mentioned above, because what was represented was false. 

2. The applicants make a further or alternative claim based upon an allegation of Royal’s negligence in making the Second Royal Representation.  The applicants say that Mr Morrone repeated the Second Royal Representation on several occasions between February and November 1998. 

3. It is part of the applicants’ case that in reliance upon the Second Royal Representation and its repetition, and in ignorance of a then existing valuation by another firm of real estate agents (which valued the Property upon completion of the hotel at $11.5 million) which the applicants allege the respondent had in its possession, Cordelia entered into the Cordelia Contracts and Mrs Saffron entered into a personal guarantee of the obligations of Cordelia under those contracts. 

4. The applicants complain that in breach of its fiduciary duties the respondent failed to disclose certain facts to Arcadia or Cordelia at any time prior to the Arcadia Contract or the Cordelia Contracts.  Those facts, to which I return below, included the purchase price ($1.8 million) paid by KPG for the Property in December 1996 and certain valuations of the Property made by the respondent in 1997.  The applicants say that had the respondent disclosed those facts and/or not made the First and/or Second Royal Representations then Arcadia would not have made the Arcadia Contract, Cordelia would not have made the Cordelia Contracts and Cordelia would not have suffered any losses. 

5. The next, discrete, complaint arises out of a valuation of the Property made by the respondent on or about 5 July 1999 which put the value of the Property (on the basis of the hotel being completed) at $13 million.  This valuation has been described as “the Royal Valuation”. 

6. The applicants say that implied in the Royal Valuation was a representation that, insofar as the valuation was a statement of opinion, the opinion was genuinely held on reasonable grounds, was the product of the exercise of due care and skill and, after making due allowance for its nature as an opinion as to the value of real estate, safe to be relied on and not outside the range of latitude normally allowed for an opinion of that sort. 

7. The applicants complain that by providing the Royal Valuation and making those implied representations the respondent engaged in conduct which was misleading or likely to mislead or deceive in that the value of the Property (on the basis of completion of the hotel) was substantially less than $13 million and that the implied representations concerning the opinion were false. 

8. Further and in the alternative, the applicants complain that the respondent performed the Royal Valuation negligently thereby breaching its contract of retainer with Cordelia and its common law duty, said to be owed to all of the applicants, to take reasonable care not to cause the applicants any economic loss. 

9. The applicants say that Mr Morrone repeated the substance of the Second Royal Representation to Mr Saffron, between November 1998 and November 1999, both orally and in two written “sales reports”.  They allege that such repetition also constituted misleading or deceptive conduct, negligence and breach of the respondent’s fiduciary duties. 

10. The applicants allege that they relied on the Second Royal Representation and on its repetition and on the Royal Valuation when they entered into the documents which recorded the terms of settlement of the disputes which arose, in about July and August 1999, being the disputes and the documentation which I have described in paragraphs 9 and 10 above (“the Settlement Documentation”). 

11. The applicants say that they entered into the April Deed to mitigate the losses which, in summary, were sustained by entering into the Cordelia Contracts and the Settlement Documentation.  They claim damages quantified by the amount of those losses as so mitigated. 

12. I shall not attempt to summarise the remainder of the respondent’s defence at this stage.  I shall refer to it when outlining the matters in issue.  I intend to approach the matters in issue initially by asking a number of questions.  They are as follows:

    Did Mr Morrone make the First Royal Representations?

    Did Mr Morrone make the Second Royal Representation?

    Did Mr Morrone repeat the Second Royal Representation on the occasions referred to in paragraphs 16A and 24G of the Statement of Claim?

13. Mr Saffron, in his witness statement, said that in about September or October 1997 he received a telephone call from Mr Morrone.  Mr Morrone told him that he had a proposition to put in relation to the purchase of a property at 12 Victoria Avenue, Perth and that he wished to have a meeting with Mr Saffron. 

14. Mr Saffron’s further evidence-in-chief (again through his witness statement) was that in mid October 1997 he had a meeting with Mr Morrone at Royal’s office in Hay Street, West Perth.  No-one else was present.  Mr Morrone said words to the following effect:

    “City Inn Pty Ltd (City Inn) is the freehold owner of 12 Victoria Avenue.  Frances (sic) Choy, a prominent Singaporean businessman, is the principal of City Inn.  There is an office block built on the land.  There is a proposal to convert the building to a hotel.  Mr Choy is looking for a buyer.  I can get the land and hotel for Arcadia for $12.5 million.  It is a bargain at that price.  The property will be worth $15-$16 million when the hotel is completed.  Settlement will occur when the hotel has been completed.”

15. Mr Saffron’s evidence was that he and Mr Morrone discussed the details of the transaction.  In particular, they discussed stamp duty and arranged that the vendor would pay the stamp duty.  Mr Morrone then, according to Mr Saffron, said words to the effect:

    “Work on the hotel should be completed by about August 1998.  I will have it onsold for around $16 million before the hotel is completed.”

16. Then Mr Saffron said to Mr Morrone words to the effect:

    “I am relying on you to find a buyer.  I have no intention of operating the hotel myself.”

17. To which Mr Morrone replied:

    “No problem”. 

18. Mr Morrone, in his witness statement, said that in around March 1997 he had told Mr Saffron about the hotel development proposal for the Property during a general discussion with him at the respondent’s office about projects with which Mr Morrone was involved at that time.  Mr Morrone agreed that he had a meeting with Mr Saffron at Royal’s offices in West Perth in October 1997.  He said that at that meeting he showed Mr Saffron the plans for the proposed hotel development on the Property and an artist’s impression of the finished building.  Mr Saffron had asked whether the Property was on the market for sale.  He told Mr Saffron that the asking price for the Property, as so developed, was $12.5 million.  He gave Mr Saffron a copy of some sales and property reports which he had previously prepared for Mr Choy, which showed the asking price for the Property when refurbished as $12.5 million.  Mr Saffron said that he was interested in the Property.  Mr Morrone said that he suggested to Mr Saffron that, if he wanted to purchase the Property, he use Arcadia as the purchaser because he (Mr Morrone) knew that Arcadia had previously held a liquor licence in Western Australia.

19. Mr Morrone denied making any representations to Mr Saffron or giving him any advice regarding the value of the Property once the hotel development was completed, during the October 1997 meeting or at any other time.  He said that the only figure which he mentioned to Mr Saffron in discussion at the meeting was to say that $12.5 million was the firm asking price.  In particular, he did not make any representation to Mr Saffron that the purchase of the Property was a bargain at the price of $12.5 million. 

20. Mr Morrone’s evidence was that he did not tell Mr Saffron that City Inn owned the freehold of the Property and proposed to develop the hotel.  According to Mr Morrone, Mr Saffron did not ask who the vendor of the Property was.  Mr Morrone’s evidence was that he made no reference to City Inn during his discussion with Mr Saffron at that meeting. 

21. Both witnesses were extensively cross-examined on this and many other points.  Generally speaking, throughout cross-examination both witnesses stuck to their version of what took place.  But there were some significant exceptions to that. 

    AN EVIDENTIARY ISSUE

22. During the course of cross-examining Mr Morrone, Mr D M Stone, leading counsel for the applicants, showed him a five-page photocopy document (“the Document”).  The Document was similar to other documents in evidence which were called “Sales Reports”.  On the first page there was reference to “12 Victoria Avenue, Perth, Western Australia”, and a statement that Royal International (WA) was privileged to be involved in the selling of “this unique 3½ star refurbished boutique hotel in the central CBD of Perth, Western Australia”.  There then followed some 24 paragraphs of description of the Property, the proposed refurbishment and the asking price.  Each of the first four pages of the document has in type script at its foot the notation “Prepared by Royal International (WA)”.  The last page has at its foot simply the words “Royal International (WA)” below a statement, in large bold type, “For further details contact David Ross office: 9322 4848 mobile: [phone]”.

23. If the Document is authentic, its date can be placed as being between 14 March 1997 and March 1998.  That is because it refers to an approval having been obtained on 14 March 1997 and also refers to an expected commencement date for the refurbishments as being in March 1998.  Under the heading of “Asking Price” the following appears:

    “The asking price on a turnkey basis is Fourteen Million Dollars ($14,000,000.00).”

24. When the Document was put to Mr Morrone he said that he could not recall anything about its preparation.  He also said that he did not know how the asking price of $14 million got into the Document.  He agreed that Mr Stone would have to ask Mr Ross about it. 

25. When the Document was shown to Mr Ross in cross-examination he said that he had never seen the Document before. 

26. The Document was apparently not a document discovered by the respondent.  I was not told the source of the Document and nor was there any evidence about the source of the Document. 

27. Mr Stone tendered the Document.  He told me that one of the uses which the applicants wished to make of it was the very point that neither Mr Morrone nor Mr Ross could identify it.  Mr Stone submitted that the Document had significance, whether or not it was admitted into evidence, because it was a sales report or part of a sales report showing the $14 million asking price which neither Mr Morrone nor Mr Ross could explain or was prepared to explain.  However, he said that the applicants wanted the Document in evidence because it showed that at some stage, probably at an earlier stage, the respondent was thinking in terms of an asking price for the Property of some $14 million.  At paragraph 11.6.2 of the statement of claim the applicants had pleaded, as part of the Second Royal Representation, that Mr Morrone had said to Mr Saffron that he then had buyers willing to pay $14-$15 million for the hotel.  Mr Stone submitted that the Document was relevant because it made it more likely that the representations comprising the Second Royal Representation, and the representation in paragraph 11.6.2 in particular, were made. 

28. Mr D M B Derham QC, senior counsel for the respondent, submitted that the Document was inadmissible for the following reasons:

    ·     it had not been authenticated.  The Document had not been authenticated by either of the principals of the respondent, it had not been discovered by the respondent and was thus not shown to be a business record of the respondent;

    ·     it was not known when the Document was produced, who produced it, to whom it was given, for what purpose and on whose behalf;

    ·     Mr Saffron had not identified it as something given to him on the basis of which he had acted;

29. The tender of the Document and the submissions made in relation to it, took place on the last day of the hearing.  I reserved my ruling on the question of the admissibility of the Document.

30. With considerable reservations, I have decided to admit the Document into evidence. It will henceforth be Exhibit A31 instead of merely having been marked for identification under that description. I shall give short reasons for taking that course. First, I examined the Document with a view to proceeding in accordance with s 58(1) of the Evidence Act 1995 (Cth) (“the Act”). That section relevantly provides as follows:

    “58(1)  If a question arises as to the relevance of a document or thing, the court may examine it and may draw any reasonable inference from it, including an inference as to authenticity or identity. 

    (2)  Subsection (1) does not limit the matters from which inferences may be properly drawn.”

31. The first matter which I considered was the question of authenticity i.e. was it a document prepared by the respondent?  I was conscious of the possibility that the Document was a fabrication.  However, I thought that the chances of it being a fabrication were not all that great.  The Document was very similar to a draft document prepared by the respondent  on which Mr Morrone identified an alteration as having been made in his handwriting.  The alteration was to change the asking price for the Property from $12.5 million to $13.5 million. 

32. I decided that there was a reasonably good chance that the Document was not fabricated and that it was what it appeared to be i.e. part of a draft property report prepared by the respondent at some time between 14 March 1997 and March 1998.  As such, and subject to the possibility that it was a fabrication, I considered that it was relevant to the question whether that part of the Second Representation, made in paragraph 11.6.2 of the statement of claim had been made.  However, I was not prepared to give the Document any real substantial weight on the issue in respect of which it was tendered.  This was principally because there was no evidence about the circumstances in which it was created, who created it, whether it was only a draft, whether it was created for any particular purpose and whether it was used for that purpose.  All that I inferred from the document was that there was a reasonably good chance that at some time between the dates mentioned above someone in the respondent’s organisation thought fit to prepare a document which showed an asking price for the Property of $14 million.  That “someone” would probably have been Mr Ross because he was named as the contact person.  That circumstance was unusual because Mr Ross is a valuer and Mr Morrone was always in charge of selling the Property.  Perhaps Mr Morrone was away from his office at the relevant time. 

    CREDIBILITY PROBLEMS

33. I have some reservations about the evidence of both Mr Saffron and Mr Morrone. 

34. Mr Saffron was in the witness box during the course of seven sitting days.  He was 82 years of age at the time.  Mr Saffron had considerable hearing difficulties which were initially dealt with by a hearing aid and later by a more sophisticated device which included the use of a headset.  I am satisfied that Mr Saffron eventually heard and understood the hundreds of questions which were put to him.  Nobody suggested otherwise.  But many questions had to be repeated and the process was very slow.  Many younger persons would, in my view, quite naturally have wilted under such a strain. Mr Saffron did not do so.  I was impressed by the physical and intellectual stamina which Mr Saffron demonstrated in the witness box and I said as much when he concluded the bulk of his evidence.  While Mr Saffron was giving evidence there was nothing in his demeanour or in the content of his oral evidence (save for the matters to which I refer below) which at that stage led me to think that he was deliberately seeking to mislead the Court on what had transpired between him and the respondent.  However, towards the end of the trial I started to have substantial doubts about accepting Mr Saffron’s evidence.  Even then I was inclined to accept the possibility that Mr Saffron (as witnesses sometimes do) had, at some stage fairly late in the piece, convinced himself that Mr Morrone did make the First Royal Representations.  Now, after an intensive examination of the evidence, and the submissions (including about 180 pages of written closing submissions) I am less inclined to accept that possibility, and my doubts about accepting his evidence on this and other issues in the case are far more substantial.   

35. One major difficulty I have with Mr Saffron’s evidence arises as follows.  My observation of him in the witness box over such a long time gave me the impression that he was a very shrewd, practical and highly intelligent businessman.  There was evidence to similar effect, including some in answers on that matter from Mr Saffron himself.  There was also evidence that, over some fifty years, Mr Saffron had established an extensive and diverse commercial and property enterprise which involved dealing with real estate agents at various times.  He was not only the controller of that enterprise, but managed it and made the major decisions.  Despite Mr Saffron’s repeated assurances of continuous reliance upon what he said were Mr Morrone’s oral representations, I do not believe that he did so rely.  I return to that subject below.  I formed the impression, and I so find, that Mr Saffron was not telling the truth about this alleged reliance upon his part on the matters which he said had been orally represented to him by Mr Morrone.  That impression and finding caused me to have serious doubt about accepting other aspects of Mr Saffron’s evidence, and, in particular in the present context, whether all of the representations, said to constitute the First Royal Representations, had in fact been made.  There were other difficulties in accepting Mr Saffron’s evidence on this (and other issues on which the veracity of his evidence depends).  I now turn to some of those.

36. Mr Saffron was prepared to swear, and did swear, to the truth of some material parts of his witness statement which were false.  I shall give some examples of this. 

37. In Mr Saffron’s witness statement, when referring to the period between June 1999 and August 1999, he said that although he was concerned that he was unable to raise the necessary finance to settle the purchase of the Property he:

    “… continued to accept that 12 Victoria Avenue would be sold soon and that a sale price of about $12-$13 million would be achieved.  This I considered to be the effect of the FRI Report, the Collier’s Report and the Royal Valuation”.

38. Mr Saffron’s oral evidence was to the effect that as late as early September 1999 he was still expecting a sale price of $16 million to be achieved.

39. In cross-examination Mr Saffron was referred to the fact that in September 1999 he had made a complaint through his solicitors about a misrepresentation made by Mr Morrone concerning the strata titling of the Property.  There was then the following exchange:

    “But you don’t complain about anything else that Mr Morrone said to you, do you? – No.

    For example, you don’t complain that Mr Morrone told you that when completed the hotel would be worth between $15 and $16 million? – No.

    Was there any reason that you didn’t complain about that when you were on the subject of misrepresentations made by Mr Morrone – well, I still expected him to achieve it.

    Is your honest answer, Mr Saffron, that as at the beginning of September 1999 you were still expecting to obtain a sale of the hotel for 16 million – I was continually told by Charles I could expect that.

    Is it an honest answer, Mr Saffron, that by the beginning of September 1999 you were expecting to receive or to obtain a sale price of $16 million for the hotel? – That’s what Charles told me. 

    I’ll ask you again, were you expecting at the beginning of September 1999 to receive a sale price of $16 million? – Based on what Mr Charles said, yes.

    Even although you had accepted an offer of $13 million in July? – That is right.”

1. Again in his witness statement in relation to the purchase of a tavern at Hilton Park through the agency of the respondent represented by Mr Morrone, Mr Saffron said that it was only when he executed the contract that he realised that the registered proprietor was Astle Corporation Pty Ltd, a company controlled by Mr Morrone.  A company search was annexed to the statement to confirm that connection.  In my view, the main purpose (if not the only purpose) in making that statement was to cast Mr Morrone in a bad light. 

2. In cross-examination Mr Saffron acknowledged that he knew before he decided to buy the tavern at Hilton Park, that it was owned by an entity controlled by Mr Morrone.  He confirmed that paragraph 26 of his witness statement was wrong. 

3. In the earlier part of Mr Saffron’s written statement he set out his version of various transactions entered into by some of his companies in which transactions Mr Morrone was involved.  Part of the significance of this evidence (a major part, but not its only significance), is that it forms the basis for the applicants’ assertion that the respondent owed fiduciary duties first to Arcadia and then to Royal. 

4. One of those transactions related to what was known as the Merriwa Tavern.  Mr Saffron dealt with this in paragraphs 13 onwards of his witness statement.  The impression one gains from reading those paragraphs is that Mr Morrone advised Mr Saffron in relation to the wisdom of that purchase and then negotiated on Mr Saffron’s behalf with the vendor.  In cross-examination a somewhat different picture emerged.  Mr Saffron had seen an advertisement for the Merriwa Tavern site (he mentioned this in his amended witness statement) inserted by Messrs Knight Frank as agents for the vendor.  He took that advertisement to Mr Morrone, and suggested that he (Mr Morrone) might get a share of the commission from Messrs Knight Frank.  He instructed Mr Morrone to make an offer of $315,000 for the property.  It further emerged from the cross-examination and the relevant documentation comprising three offer and acceptance forms on which various purchase prices had been inserted as offer and counter-offer were made, that Mr Morrone’s role was simply to relay those offers and counter-offers back and forth between the vendor and Mr Saffron. 

5. Also in relation to the Merriwa Tavern, Mr Saffron said in his witness statement that when delays occurred in obtaining approval to the transfer of a liquor licence from the Cloverdale Hotel to the tavern site, Mr Morrone advised him that it would be quicker simply to obtain a new provisional liquor licence for that site, that he accepted that advice and that Mr Morrone successfully arranged for the grant of that new liquor licence.  In cross-examination Mr Saffron said that the change from applying for a transfer of the existing Cloverdale Hotel licence to an application for a new licence, was a decision made by Mr Morrone, which he did not discuss with him.  Mr Saffron said that he was told about that decision after the event. 

6. In Mr Saffron’s witness statement he said that the respondent was paid commission of about $124,000 on the sale of Dunlop House.  Mr Morrone’s evidence was that at the time of signing the contract of sale, Mr Saffron took him outside the respondent’s boardroom and told him that he would only “do the deal” if the respondent’s commission were reduced to $100,000.  Later, when Mr Morrone mentioned this incident to Mrs Saffron, she made a telephone call to Mr Saffron and insisted that he pay the respondent an additional $10,000 by way of commission.  In cross-examination Mr Saffron accepted that this had taken place.  I am satisfied that Mr Saffron would have been aware of these circumstances when he signed and subsequently swore to the truth of his witness statement.  He was prepared to swear that a commission of $124,000 was paid to the respondent, when in truth that was not the case and $110,000 had been paid. 

7. I interpolate at this stage to say that I do not accept the applicants’ submission that the nature of the business relationship between Mr Saffron and Mr Morrone, as at 1997-1998, made it more probable that the representations alleged in the statement of claim (i.e. the First Royal Representations and the Second Royal Representation), were made, repeated and relied upon by Mr Saffron.  My impression of the relationship is very different to that which the applicants advanced.  At this stage, I think that it is sufficient for me to note that I consider that these were two businessmen dealing at arm’s length and that Mr Saffron backed his own business judgment, rather than placed any substantial trust in Mr Morrone.  I return to this subject when considering the claims that a fiduciary relationship was created between the respondent on the one hand and Arcadia and Cordelia on the other. 

8. There are other examples of what I consider to be lesser inconsistencies referred to in the respondent’s outline of closing submissions.  However, I shall refer to one more example which I consider involves a further significant inconsistency. 

9. Mr Saffron, in his witness statement, in the course of describing what took place at a meeting on 28 October 1999 with a Mr Abrusci of Keywest, said:

   “I told Mr Abrusci that I could obtain $7 million from the Wyllie Group within a month.”

10. The context in which this meeting was held was the need to arrange settlement of the Cordelia Contracts.  KPG and Keywest had by that time served notices of default and notices of termination of the two contracts which constituted the Cordelia Contracts.  I infer that Mr Saffron made that statement to Mr Abrusci in order to give the latter the impression that Cordelia was prepared to avail itself of the Wyllie Group finance offer in order to facilitate settlement within the month. 

11. In cross-examination, Mr Saffron agreed that at the time of this meeting he had decided not to accept the Wyllie Group offer.  In earlier cross-examination Mr Saffron had sworn that he did not tell lies in business. 

12. After taking into account the matters to which I have referred above, I decided that it would not be safe, generally, to rely on Mr Saffron’s evidence unless it was inherently likely or corroborated by reliable documentary evidence or other reliable evidence. 

13. I have examined the documentary and other evidence which, in the applicants’ submissions is said to corroborate Mr Saffron’s evidence about the First Royal Representations and the Second Royal Representation.  I do not think that it does so.  I do not propose to give details of all of that evidence, but I shall refer to a few examples. 

14. The various sales reports and other associated documents, some showing asking prices as high as $16.5 million, were relied upon.  In my view, an asking price in such brochures and the like is insufficient corroboration of the representations referred to in paragraphs 5.5 and 5.7 of the statement of claim.  The same applies to documents such as authorities to sell or list the Property for sale. 

15. Mr Maurice Chippindale’s evidence was also relied upon for corroboration.  Mr Chippindale has acted as manager of some of Mr Saffron’s business affairs in Western Australia since early 1998.  Mr Chippindale’s daughter is married to Mr Saffron’s nephew.  I considered that Mr Chippindale was an honest witness, but my strong impression was that despite the contents of his witness statement he had virtually no recollection of the key matters in issue.  For that reason I decided, after hearing his evidence in cross-examination, that he was not a witness upon whom I should place reliance on any critical matter.

16. I also had doubts about accepting much of Mr Morrone’s evidence.  First, I formed a clear impression that any part of his evidence which depended upon a particular date was not to be relied upon because he seemed to me not to have a good memory for dates.  Subject to that, my impression was that Mr Morrone had a reasonably good memory.  Secondly, Mr Morrone was on occasion, prepared not to tell the truth in the witness box.  Like Mr Saffron, Mr Morrone swore to the truth of his witness statement which, in cross-examination, he admitted was untrue in several respects.  For example, in paragraph 174 of his witness statement Mr Morrone said that in a telephone conversation with Mr Saffron in September 1998 he had told Mr Saffron that he had some parties interested in buying the Property/hotel development if Mr Saffron did not want to proceed.  In cross-examination Mr Morrone said that that part of his statement was wrong. 

17. In cross-examination, Mr Morrone gave answers which suggested that the respondent’s role in relation to the management of South Lakes Tavern was confined to his authority to sign cheques and to an employee (Mr Aldrich) keeping the accounts.  In further cross-examination and from a contemporaneous document (the minutes of a meeting held on 3 October 1997), it emerged that the respondent’s involvement in the management of the South Lakes Tavern was far more extensive and was concerned with matters of detail, at least at that stage. 

18. The impression which I formed of Mr Morrone during the course of cross-examination was that he was evasive and an unsatisfactory witness.  I did not base that impression from his demeanour in the witness box, but from the nature and content of his answers.

19. I decided to treat Mr Morrone’s evidence, generally, in the same manner as I treated Mr Saffron’s evidence i.e. generally not to rely on it unless it was inherently likely or corroborated by reliable documentary evidence or other reliable evidence.  The course which I adopted, generally, was to consider the respective evidence of Mr Saffron and Mr Morrone in conjunction with other pieces of evidence together with my assessment of the inherent likelihood or unlikelihood of a particular thing happening, when deciding whether to accept one or other of the two versions presented to me. 

    FINDINGS OF FACT

    THE FIRST ROYAL REPRESENTATIONS 

20. I start with the matter of City Inn.  I accept Mr Morrone’s evidence that he did not identify the vendor as being City Inn and in particular did not mention City Inn either at the meeting in mid-October 1997 or at any time before Mr Saffron (on behalf of Arcadia) signed the offer.  My reasons for so finding are as follows.  It is apparent from the Arcadia Contract, which took the form of an offer and acceptance, that Mr Saffron signed the offer on behalf of Arcadia on 6 November 1997.  It also appears from that document that Mr Choy caused City Inn to accept the offer on 7 November 1997.  The common seal of City Inn appears in two places in that document, possibly because it was first placed over printed text and was not decipherable.  Someone, possibly Mr Choy whose signature appears three times on the relevant page, has also handwritten (in print) the name of City Inn, its address and particulars of its settlement agent.  Those circumstances alone would, in my opinion, justify an inference (which I make) that there was no mention of the name of the vendor in the document which Mr Saffron signed on 6 November 1997. 

21. Furthermore, part of the impression which I formed of Mr Morrone when he gave evidence was that he would have preferred not to disclose to Mr Saffron the identity of the proposed vendor, if that could be avoided.  As the applicants suggested in their written opening submissions, to disclose the fact that the vendor was not the freehold owner would have probably been to have disclosed to Mr Saffron the possibility or even likelihood that he was being asked to pay more than the vendor had contracted to pay the owner.  Also, Mr Morrone impressed me as an estate agent who would keep to an absolute minimum any possible risk of negotiations between a would-be purchaser and a would-be vendor which might, to the slightest degree, jeopardise his commission.  My assessment is that Mr Morrone would not be so foolish as to tell Mr Saffron an outright lie (that City Inn was the owner of the freehold of the Property) when the risk of detection was so high and the truth could be revealed by a simple Titles Office search.  I do not think Mr Morrone would take such a risk of jeopardising a valuable business connection. 

22. I find on a balance of probabilities that Mr Morrone decided to say nothing about City Inn when he secured Arcadia’s offer i.e. that he did not make the representations referred to in paragraph 5.1 and 5.2 of the statement of claim.  I think that Mr Saffron probably thought that he was making an offer (on Arcadia’s behalf) to the owner, but I find that he was not told that the vendor was City Inn and that City Inn was the owner of the Property. 

23. In relation to the remaining representation pleaded in paragraph 5.1 and the representations pleaded in paragraphs 5.3 and 5.4 of the statement of claim, I find that Mr Morrone told Mr Saffron that the vendor proposed to cause the hotel development to take place, that he suggested that Arcadia should be the purchaser (this latter point was common ground) and that the contract should be drawn in such a manner that settlement would not take place until the hotel was completed.  I find that the suggestion that Arcadia be the purchaser was made in the sense that the respondent nominated Arcadia as the particular company in Mr Saffron’s group to be the purchaser because Arcadia already had at least one approval to hold a liquor licence.  That is, it was not a recommendation to make the purchase.

24. I now turn to the three alleged representations, set out at paragraph 17 above, against which I have placed asterisks.  That is, the matters pleaded in paragraphs 5.5, 5.6 and 5.7 of the statement of claim. 

25. My impression of Mr Morrone was that if he was acting as an agent for the sale of a property, he would present the property in the best possible light.  That comment is not intended to be any form of criticism – it was probably Mr Morrone’s legal duty to do this.  I have to decide whether, in so doing, Mr Morrone made these three representations. 

26. I do not accept Mr Saffron’s evidence that Mr Morrone told him that when the hotel was completed the Property would have a value in the order of $15 to $16 million or that he told Mr Saffron that Royal would be able to on-sell the Property at that stage for about $16 million.  I think that it is more likely, and I so find, that Mr Morrone was not as specific as that.  I think that he would have said something along the lines that the purchase price of $12.5 million represented good value from a purchaser’s viewpoint, and I so find.  I also think, and so find, that Mr Morrone would have said something to the effect that the respondent would probably be able to on-sell the Property on behalf of Mr Saffron at an unspecified higher price before settlement.  I do not think that Mr Morrone gave any kind of assurance to the effect that the respondent would be able to effect an on-sale before settlement.  My impression of Mr Morrone is that he is not the sort of person who would give such an assurance i.e. that he has had enough experience in the real estate industry not to make such a commitment. 

27. I consider that it was inherently likely that Mr Saffron would have asked Mr Morrone how much profit he thought there would be in the on-sale.  My assessment of Mr Morrone is that he would have responded by saying words to the effect that there would be a good profit to be made.  I do not believe, for the various reasons which I set out below, that Mr Morrone said that when the hotel was complete the Property would have a value in the order of $15-$16 million or that Royal would be able to on-sell the Property for about $16 million.  I think it unlikely that he would have been specific about an achievable sale price, but if he mentioned a figure, I find that it was not either in the order of $15 to $16 million or about $16 million.  As will be seen, one of my main reasons for this conclusion is that, if such a representation had been made, Mr Saffron would have complained about it when he fell into disputes with KPG and Keywest in July/August 1999 and instructed his solicitor to obtain advice from Queens Counsel about his contractual position.  But those events occurred some considerable time after the Arcadia Contract had come to an end and the Cordelia Contracts had been made.  I return to the allegations of what took place in October 1997. 

28. Both men would have had fresh in their minds the sale by Arcadia (through the agency of the respondent) some three months previously, of a property known as Dunlop House at a profit of about $1 million in a transaction which involved virtually no cash outlay on Arcadia’s part because, as events transpired, the property was on-sold before settlement.  I think that Mr Morrone would probably have sought to convey to Mr Saffron that this was a deal which would have a similar or slightly more profitable outcome, but it is not necessary for me to make a finding to that effect.

29. One of the reasons why I do not think Mr Morrone was any more specific was that he would have known that if he quoted specific figures, particularly in the order of $15 to $16 million, Mr Saffron would have sought the basis of such a calculation. 

30. My assessment of Mr Saffron, based principally on the evidence to which I refer below but to some extent on my observation of him in the witness box is that he is (and was at all relevant times) very shrewd, astute and well-versed in financial calculations relating to real estate.  Mr Morrone knew that.  In that context, I think that it was very unlikely that Mr Morrone would have quoted any specific figures without having some basis upon which to justify to Mr Saffron such an assessment.

31. I find that it is more probable than not that Mr Morrone made a selling point out of the fact that settlement would be postponed until the hotel had been developed.  But I am not persuaded, on a balance of probabilities, that he told Mr Saffron that the Property would be worth between $15 to $16 million when the hotel was completed and that by the completion date the respondent would be able to on-sell the Property for about $16 million. 

32. I accept that in the Dunlop House transaction, in which Mr Morrone played a significant part, the respondent had been able to on-sell Dunlop House on behalf of Arcadia before it was obliged to pay the balance due at settlement, a settlement which was considerably deferred (the contract, by way of a put and call option, was made on 22 May 1996 with settlement on 1 July 1997).  The Dunlop House transaction had started with a contract dated 22 March 1996 whereby Arcadia purchased the property on terms which included an option for the vendor to purchase a nightclub business (“Rumours Nightclub”) conducted on part of the premises and to lease that part for an unspecified period, but the transaction was restructured two months later.  I do not think that the evidence establishes, on a balance of probabilities, that in the Dunlop House transaction Mr Morrone gave Mr Saffron any assurance that the respondent would be able to on-sell Dunlop House before 1 July 1997.  I do not accept Mr Saffron’s evidence to that effect.  He acknowledged in cross-examination that one of his purposes in acquiring that property was to run a nightclub in Dunlop House.  Another purpose was to remove the source of an objection to a liquor licensing application then being made by Arcadia in respect of another nightclub conducted by it in Wellington Street.  Mr Saffron said that he had learned that the vendor of the Rumours Nightclub was only interested in selling the nightclub with the building.  The events which transpired in that transaction were that the respondent found a purchaser who signed an initial offer to purchase at a price of $3.85 million on 30 July 1996, which was not accepted, and entered into a contract of sale with Arcadia on 10 October 1996 at a price of $4.450 million with settlement to be on 1 July 1997. 

Associate:

Dated:                14 August 2002

Counsel for the Applicants:	Mr D M Stone with Mr P D C Robinson
Solicitors for the Applicants:	Messrs Williams & Hughes
Counsel for the Respondent:	Mr D M B Derham QC with Mr P G McGowan
Solicitors for the Respondent:	Messrs Phillips Fox
Date of Hearing:	2-5 April, 8-12 April, 15-19 April, 23 April, 27-31 May and 14 June 2002
Last Submissions Filed:	11 July 2002
Date of Judgment:	14 August 2002