Dalrymple Holdings Pty Ltd v Gohl, Martin Andrew

[1990] FCA 678

4oD I t )

JUDGMENT No. ("?G-

) NO. QG 290 of 1988

BETWEEN: pALRYMPLE HOLDINGS PTY LTD

First Applicant

AND: W E PTY LTQ

Second Applicant

AND: =TIN ANDREW GOHL and WENDY GOH4

First Respondents

AND: -1NCS PTY LTQ

Second Respondent

AND: S;WVE VINCENT O'KELLX

Third Respondent

AND: W D R A O ' w

Fourth Respondent

AND: m ANDREW a and H E W Y G O U

Cross-claimants

AND:

First Respondent to

Cross-claim

AND:  VIN-

Second Respondent to

RECEIVED	Cross-claim
FBNRILCOURI~	AND :

AU-

PRINaPU	Third Respondent to
REOIW*	Cross-claim

(l)	The document communicated by the second, third and fourth respondents to the applicants was in the form of Exhibit "JPM4" to the affidavit of Mr. J. Murphy
of 16 June 1988.

-

-1	Spender J.
22 November 1990
WHERE:	BRISBANE

COURT FINDS THAT:	--
(2) The contents of that document were communicated to	b

the applicants prior to the execution of the
contract of sale referred to in the pleadings.

(1) The applicants' costs thrown away by the amendments to the defence of the second, third and fourth respondents to be paid by the second, third and fourth respondents on a solicitor/client basis.

(2) Otherwise the second, third, and fourth respondents are to pay the costs of the applicants in respect of the hearing and determination of the preliminary issues, including the costs reserved by Pincue J. on 13 August 1990.

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

THE FEDERAL COURT OF AUSTRALIA	1
1 No. QG 290 of 1988
BNERAL DIVISION	)

BETWEEN:  DALRYMPLE HOLDINGS PTY LTD

First Applicant

AND :  MILGLADE PTY LTD

Second Applicant

AND :  W T I N ANDREW GOH4 and WENDY GOHI,

First Respondents

AND t Y HOLDINCS PTY LTP

Second Respondent

AND r U I V E VINCENT O'HEIJiY.

Third Respondent

AND r SANDRA 0' KELLY

Fourth Respondent

AND t W T I N ANDREW GOHI and WENDY G O m

Cross-claimants

AND r 9'KELLY HOLDINGS PTY

First Respondent to

Cross-claim

AND :  U I V E VINCENT O'KELLY

Second Respondent to

cross-claim

AND r SANDRA O'KELLY

Third Respondent to

Cross-claim

SPENDER J.

BRISBANE

22 November, 1990.

REASONS FOR JUDGMENT

The application in these proceedings concerns claims by the first applicant that it was induced by misrepresentations concerning the income, expenees, and profitability of a boarding house, "Linden Lodge" 91 Hampstead Road, Highgate Hill, to enter

into a contract to purchase that boarding house from the first respondents, Mr. and Mrs. Gohl, for $170,000.00. The first applicant retired as trustee managing "Linden Lodge" on 31 March 1988 and was replaced as trustee on that day by the second applicant.

The case for the applicants is that, prior to executing the contract for the purchase of the boarding house, a document which became Exhibit 1 before me was delivered to the home of Mr. Murphy who is n director of the first applicant company, as is his wife. This document shows two tables with a breakdown of expenses both per month and per annum and underneath those tables, under the heading "Income", the following appears:

"16 R00US X $70.00 p.w. = $1106.00 p.w. - $4755.00 p.m. - $57069.60 P.A.

BUDGET FOR 95s OCCUPANCY m DISCOUNT 2 R w n s FOR 4 WEEKS X'UAS	PERIOD
THEY PAY $45.00 P.W. WHILE ON HOLIDAY. RWW/BOARD RATE WILL NOW INCREASE TO $75.00 P.W."
In paragraph 11 of the most recently amended Statement of Claim the applicants allege:

M	In about early April, 1987 and prior to the 3rd day of April, 1987 the third respondent and the fourth respondent represented to Murphy that -
(a) based upon the income and expense figures for the property for the period December,

1986 to March, 1987 inclusive the property

was then yielding a nett income of about

$30,600 per annum or about $2,600 per

month:

(b ) the p r o p e r t y was t h e n g e n e r a t i n g an

average g ros s	r e n t a l	income o f $4,755	per
month	when	f u l l y	t e n a n t e d ;

( c ) t h e f irst a p p l i c a n t c o u l d r e a l i s t i c a l l y

budge t f o r -

( 1 ) a 95% occupancy r a t e w i t h a d i s c o u n t

f o r t w o rooms d u r i n g t h e f o u r week

Chr i s tmas p e r i o d , such occupancy r a t e

h a v i n g been s u s t a i n e d i n the p a s t ;

( i i ) an i n c r e a s e i n r e n t a l from $70 per

room per	week t o $75 per	room per
week;

( d ) t h a t had the f irst r e s p o n d e n t s charged $75

per week r e n t a l pe r room the n e t t income from the board ing house would have been $35,580 for the preced ing y e a r , b e i n g

e q u i v a l e n t t o an average n e t t m o n t h l y

income f o r t h a t pe r iod o f $2,965, such

n e t t i.?cene re,resenti .?g r n e t t y i e l d n f

a p p r o x i m a t e l y 20% per annum on a purchase

p r i c e f o r the p r o p e r t y o f $170,000, e v e n

t a k i n g in to account a:=.:; d u t y , l e g a l fees

and	expense s	payable	i n	c o n n e c t i o n	w i t h
the	s a l e .

The	r e p r e s e n t a t i o n s	p leaded	i n	t h i s
paragraph	were	made	i n o r a r e	t o be

i n f e r r e d from a document headed "L inden Lodge, 91 Hampstead Road, Highgate H i l l " w h i c h document was prepared by the second r e sponden t by i t s a g e n t s the t h i r d

r e sponden t and t h e f o u r t h r e sponden t and

d e l i v e r e d	t o Murphy	i n e a r l y A p r i l ,	1987,
and p r i o r	t o the 3rd d a y o f A p r i l ,	1987.	"

By the most r e c e n t v e r s i o n o f t h e d e f e n c e t h e

second , t h i r d and f o u r t h r e sponden t s say :

" W i t h respect t o paragraph 11 o f the S t a t e m e n t

o f Claim, the Respondents d e n y t h a t the T h i r d	Respondent and /o r the Fourth Respondent i n or
about e a r l y A p r i l 1987 and p r i o r t o t h e 3rd d a y o f A p r i l , 1987 made a n y o f the r e p r e s e n t a t i o n s
to Murphy set o u t i n paragraph 11 o f the
S ta t emen t o f Cla im and s a y t h a t t h e Fourth
Respondent d i d prepare the document r e f e r r e d to
i n paragraph 11 b u t t h a t the w r i t i n g under and
i n c l u d i n g t h e word ' Income' on t h a t document
was n o t p laced there by or on b e h a l f o f the
Respondents . "

The applicants thus contend that they were induced to enter into the contract by the representations contained in the document which is Exhibit 1 before me. The poeition of the respondents was that any document given to Mr. Murphy did not contain the information appearing under the heading "Income" as set out above, and that that part of the document came into existence by the work of persons other than the responaenrs. Furrher che respondenrs were asserting thaL any details of the income, costs or profitability of "Linden Lodge" were not communicated to anybody on behalf of the applicants until after the execution of the contract for the purchase of that boarding house.

In those circumstances, it was ordered by Pincus J.

on 13 August 1990:

" 1 . Tha t the f o l l o w i n g q u e s t i o n s be heard and

de termined a s p r e l i m i n a r y i s s u e s , p r i o r t o the

h e a r i n g and d e t e r m i n a t i o n o f a l l other i s s u e s

i n the a c t i o n ; t h a t i s t o s a y whe ther :

( 1 ) The document r e f e r r e d t o i n paragraph

11 o f the S ta t emen t o f C la im and

paragraph 7 o f the Defence o f the	Second, Th i rd and Fourth Responden ts ,
a t the t i m e when i t was prepared by
the Second, Th i rd and Fourth
Respondents and s u b m i t t e d by them to
the A p p l i c a n t s -
( a ) Was i n the form o f the document which i s e x h i b i t JPM-4 to the

A f f i d a v i t o f John Paul Murphy

sworn t h e 1 6 t h d a y o f June ,

1 9 8 9 ,	and	f i l e d	herein
( i ncorpora ti n g	the	w r i t i n g	under

and	i n c l u d i n g the word	"Income"
on	t h a t	document ) ;

(b) Was i n the form o f the document numbered 73 [ a m i s d e s c r i p t i o n o f

document 931 i n the L i s t o f

Documents h e r e i n o f the Second,

Th i rd and Fourth Respondents

sworn the 2 0 t h d a y o f February

1989 ( e x c l u d i n g the w r i ti n g

under and i n c l u d i n g the word

"Income" on t h e document

r e f e r r e d	t o i n sub-paragraph	( a )
h e r e o f ) ;	or

( C ) Was i n some o t h e r , and i f so,

what , form.

( 2 ) Whether such document came i n t o the

p o s s e s s i o n	o f John	Paul	Murphy before
o r a f t e r the	first	a p p l i c a n t	e x e c u t e d

the c o n t r a c t	o f s a i e menrioned	i n che
p1 e a d i n g s .

2 . The t r i a l i n r e l a t i o n to the q u e s t i o n s

r e f e r r e d	to	i n paragraph	1	hereof	t a k e
p l a c e	i n Br i sbane	on a	d a t e	to be	f i x e d .

3 . T h a t , s a v e a s prov ided i n r e l a t i o n t o

e x p e r t e v i d e n c e i n paragraph 4 hereof, the

e v i d e n c e a t the t r i a l i n r e l a t i o n to t h o s e

q u e s t i o n s s h a l l be g i v e n o r a l l y .

4 . T h a t , a t such t r i a l , the p a r t i e s may

adduce the f o l l o w i n g e x p e r t e v i d e n c e -

( a ) In the c a s e o f the A p p l i c a n t , the

e v i d e n c e c o n t a i n e d i n the A f f i d a v i t
o f Gregory Kei th Marheine sworn the

3 0 t h d a y o f May, 1989, and f i l e d

h e r e i n , t o g e t h e r w i t h the exhibits

t h e r e t o , and a n y f u r t h e r report or

r e p o r t s o f t h e s a i d Gregory K e i t h

Marheine provided t h a t c o p i e s o f such

report or reports a r e f u r n i s h e d t o

the s o l i c i t o r s f o r t h e Respondents on

o r b e f o r e the 2 7 t h d a y o f August

1990;

(b) I n t h e c a s e o f Respondents , a n y

f o r e n s i c	e x p e r t	prov ided	t h a t	a
r e p o r t	or	s t a t e m e n t	c o n t a i n i n g	the

e v i d e n c e proposed t o be adduced from

such e x p e r t be f u r n i s h e d t o the

s o l i c i t o r s	for	t h e	A p p l i c a n t s	not
l a t e r	t han	t h e	1 0 t h d a y of	September

1990; and

( c ) I n the c a s e o f each s i d e , no more

t h a n one e x p e r t s h a l l g i v e e v i d e n c e .

Provided f u r t h e r t h a t n o p a r t y s h a l l be

penni t t e d to adduce a n y such e v i d e n c e

u n l e s s t h e w i t n e s s i s produced f o r cross-

examina t i on , s a v e w i t h the l e a v e o f the

Judge or the c o n s e n t o f a l l other p a r t i e s .

5 . That the F i r s t Respondents may p a r t i c i p a t e

i n the h e a r i n g o f such t r i a l t o such

e x t e n t a s they may be a d v i s e d , b u t have

l e a v e t o wi thdraw and a b s t a i n from

p a r t i c i p a t i n g i n such h e a r i n g .

6 . T h a t , whe ther o r n o t the F i r s t Responden ts

wi thdraw and a b s t a i n from p a r t i c i p a t i n g i n

the t r i a l o f the i s s u e s r e f e r r e d t o i n

paragraph 1 o f t h i s Order , they and a l l

o t h e r p a r t i e s to t h i s a c t i o n s h a l l be

bound by the d e t e r m i n a t i o n o f such i s s u e s

i n a l l r e s p e c t s a s i f the same	were	heard
and de termined a t a	t r i a l i n which	they
p a r t i c i p a t e d .

7 . Tha t the costs of and i n c i d e n t a l t o t h i s

d i r e c t i o n s h e a r i n g s h a l l be r e s e r v e d to

the p r e s i d i n g judge a t the t r i a l r e f e r r e d

to i n paragraph 2 hereof.

8 . Tha t d i s c o v e r y be g i v e n by t h e a p p l i c a n t s

o f t h e c o n t r a c t o f s a l e and a n y o t h e r

r e l e v a n t documents i n r e l a t i o n t o the

proposed r e s a l e for $410,000.00,	on or
b e f o r e 20 August	1990.

9 . Any f u r t h e r d i r e c t i o n s be ad journed to the

d a t e o f t r i a l .

When the question of the determination of the preliminary iesues as so defined was called on, W . G. Martin of counsel for the second, third and fourth reepondente indicated that leave would be sought further to amend the Amended Defence to withdraw the denial of the allegation in paragraph 7 of the Statement of Claim and to substitute a non- admission of that fact, and to indicate that further affidavits would be filed, the effect of which would be, where previously they swore that the document handed over to Mr. and Mrs. Murphy was unlike Exhibit 1, they would say that, after considering the expert's reports, they can no longer maintain that claim, and they would say that they are no longer sure.

Consistent with the directions of Pincus J. covering the adducing of expert evidence, a further affidavit of Gregory Keith Marheine was filed by the applicants. NO affidavit of any forensic expert was filed by the second, third and fourth respondents.

In the result Mr. Marheine gave oral evidence but was not crose-examined by counsel for the second, third and fourth respondents. Hie evidence concerning the disputed documents was dispassionate, thorough and convincing.

The effect of Mr. Marheine'e evidence is that Exhibit 1 is an authentic document and that Exhibit 2, being the document propounded by the second, third and fourth reepondente on the present state of the pleadings as the	document given to Mr. Murphy, was not bona fide and has been	subjected to manipulation. Mr. Marheine was of the opinion
that all the typing on Exhibit 1 was typed with the same model 'daisy wheel', a Prestige 1012 'daisy wheel' used in the Brother electric typewriter for models AX and CE.
I am aatiaf ied on the evidence of Mr. Marheine and the evidence of Mr. Murphy that, when any document concerning costs, income or profitability was first received by anybody on behalf of the applicants, that document was in the form of the document which is Exhibit "JPM4" to the affidavit of Mr. Murphy sworn 16 June 1989. I am satisfied that it was in that form when it was submitted by the second, third and fourth respondents to the applicants and that the document numbered 93 in the List of Documents of the second, third and fourth respondents (which excludes the word "Income" and the subsequent typing) ie an altered version of the document
Exhibit JPM 4.
Counsel for the second, third, and fourth reepondents submitted in respect of the second question that, independently of what the document concerning costs, expenses and profitability contained, that document was not produced or delivered to Mr. Murphy on behalf of the applicants until after the execution of the contract of sale of the boarding house "Linden Lodge".
Both Mr. Murphy and Mrs. Murphy swear in oral evidence before me that the document Exhibit 1 was received at their home on 31 March 1987 and was discussed by them prior to the
execution by them of the contract of eale for the purchaee of "Linden Lodge" later that day, 31 March 1987, at the premises of West End Real Estate, being the real estate agency conducted by the second, third, and fourth reepondents.
Mr. O'Kelly, on the other hand, says that on 30 March 1987, he conducted a tour of investment properties in the West End area of Brisbane with Mr. Murphy and there were general discussions about returns of rooming houses, the discussion being based on a gross return of $40.00 per week for a room in a rooming houee. He expressly swears that prior to the execution of the contract on 31 March 1987 he had not discussed or communicated to Mr. Murphy or anybody else on behalf of the applicants any financial detail concerning any aspect of the operation of the boarding house, "Linden Lodge". He says that on 31 March 1987 he had met Mr. and Mre Murphy at "Linden Lodge' where an inspection of that boarding houee took place. They then returned to the West End real estate agency premieee, which were locked (Mrs. O'Kelly having departed), and there Mr. and Mre. Murphy executed the contract of sale which had been previously typed by Mrs. O'Kelly on that day, instructions having been given to her by Mr. O'Kelly after a conversation between Mr. O'Kelly and Mr. Murphy that occurred at about lunchtime on Tuesday, 31 March 1989.
Mrs. O'Kelly eays that she would have left the premises of Weet End Real Estate Agency at about 5 'clock on that day and she did not see Mr. and Mrs. Murphy or her husband nor was she present when the contract of sale wae executed on 31 March 1987.
Mr. Murphy eays that after the inspections of 30 March 1987, which included discussions concerning the yield to be expected from "Linden Lodge", he asked Mr. O'Kelly to forward to him in writing the financial details of the performance of the boarding house, that he received that document, which was in the form of Exhibit 1, on the afternoon of 31 March 1987 at
his home, either in the post which arrived at about 1 o'clock or by courier. He says that when his wife returned to their home from her employment, which was with Schweppes on Monday, Tuesday, Thursday and Friday of each week from 8 a.m. to 2 p.m., they diacussed the financial details contained in that document and then travelled to the West End Real Estate
Agency, where they travelled in Mr. O'Kelly's car to inspect the boarding house.
Mrs. Murphy says that she recalls indicating that neither she nor her husband wished to be involved in the direct management of the boarding house, that there was a discussion concerning the hot water system of the boarding house and of the maintenance of the flowers and gardens generally of that house, but there was no discussion
concerning financial performance. Both Mr. and Mrs. Murphy say that, on their return to the premises of West End Real
Estate at West End, Mrs. O'Kelly typed up the contracts of sale, and that a deposit of $2,000.00 was paid. They executed the contract on behalf of Dalrymple Holdings Pty Ltd on that day. By the contract a further $3,000.00 was to be paid some fourteen days later. Both Mr. and Mrs. Murphy swear that the
financial information contained in Exhibit 1 was communicated
to them and relied on by them in the decision to execute the contract on 31 March 1987.
Mrs. O'Kelly says that some 5 to 10 days after the execution of the contract Mr. Murphy came to the premises of West End Real Estate and she, in the presence of Mr. Murphy, prepared a document relating to financial figures for "Linden Lodge". She now says that she cannot say whether or not the information concerning income as appears on Exhibit 1 was in fact typed by her at that time. Both Mr. O'Kelly and Mrs. O'Kelly suggest that the information was sought by Mr. Murphy in association with the financing of the project either directly from financiers or in connection with some partnership proposals.
There are, of course, very serious questions of credit that call for resolution, but on analysis the factual situation advanced by either side of the record is in stark contrast.
If the contending accounts had been other than diametrically opposed, questions such as the likelihood of a document posted on Monday, 30 March 1909, presumably late in the day, being delivered at Clayfield on 31 March 1909 at about 1 p.m. would loom as important. If it was common ground that there had been oral discussion covering income and expenses of the boarding house prior to the execution of the contract, then the question of whether the document Ex. 1 was

delivered before execution, or brought into existence afterwards for financing or other purposes, would be more difficult.

It is not the case that Exhibit 2 is an earlier version of Exhibit 1, with the portion under the heading "Income" added later to Exhibit 2 to produce Exhibit 1. The effect of Mr. Marheinera evidence is that Exhibit 2 is later than Exhibit 1, coming into existence by the masking-out of the portion dealing with income which appears on Exhibit 1. Against the background of that unchallenged conclueion, the accounts of the O'Kellya and the Murphys are so opposed as to leave no room for reconciliation on the basis of mistaken recollection.

Shortly put, Mr. 0'Kelly says that the contract of sale was executed on 31 March prior to any document containing figures concerning "Linden Lodge" or any information concerning the financial performance of "Linden Lodge" being communicated to Mr. Murphy or anybody else on behalf of the

Mr. Murphy (and his present position is that he is not sure

applicant. He says that the communication which was made to

whether it was in terms of Exhibit 1 or Exhibit 2 ) , did not occur until after the contract of sale for the purchase of the boarding house had been executed. The contention by Mr. and Mrs. Murphy, on the other hand, is that the details of the financial performance of the boarding house in the form of Exhibit 1 was received by them and considered by them prior to the execution of the contract of sale for the acquisition of the boarding house and the representations contained in that document were a material part of their reasons for entering into the contract for purchase.

Having seen Mr. and Mrs. Murphy and Mr. and Mrs. O'Kelly give their evidence, I simply say that I prefer the evidence of Mr. Murphy, and of his wife in so far as she corroborates his account, to that of Mr. O'Kelly and Mrs. O'Kelly. I find the account qiven by Mr. OtKelly, independently of any question of credit that arises as a result of the contention concerning Exhibits 1 and 2, quite implausible. It is inherently improbable that prior to the execution of the contract no financial information concerning the performance of the boarding house, "Linden Lodge", would be conununicated by the vendor's agent to the purchaser. On

. O'Kelly's account, not even the most basic of information as to rates, let alone income or costs of operating a boarding house including components such as food, milk, bread and

vegetables was even discussed, let alone detailed. This scenario is so unlikely, in my view, as really to reinforce acceptable evidence given by persons who, it would seem to me,

while they have a clear interest in the outcome of the matter, did not overstate their position and who frankly acknowledge that there were mistakes in some significant respects in some earlier affidavits they had made.

In relation then to the two preliminary issues that I have to decide, I find first that the document communicated by the second, third and fourth respondents to the applicants was in the form of JPM4 to the affidavit of Mr. Murphy of 16 June

1988, and I further find that the contents of that document

were communicated to the applicants prior to the execution of
the contract of sale referred to in the pleadings.

I gave leave to amend the pleadings as asked for by counsel for the second, third and fourth respondents.

I earlier reserved the quea~ion of the costs thrown away as a consequence of any such amendment. Couneel for the applicants sought those costs on a solicitor-client basis. I have given close attention to the report of Mr. Marheine and to the pleadings. The document Exhibit 1 or a copy thereof was communicated by letter of 4 February 1988 to the solicitore for the second, third and fourth respondents. The first suggestion that that document did not contain the

defence filed October 1988 . It was only at the hearing on 1 information concerning the income of "Linden Lodge" was in the

November 1990 that the second, third and fourth respondents through their counsel sought to resile from their position as reflected in the present state of the pleadings so as by amendment to withdrew the denial that the document communicated to the applicants was Exhibit 1 .

It is understandable that a party, after reflection or on being appraised of further evidence, might wish to withdraw a denial, and such a change in position need not ordinarily be visited with costs on a solicitor-client basis. However, where the denial raises an implication of fraudulent conduct, the position is not so clear cut, because an allegation of fraud or dishonest conduct is not one that should be made except after the most careful consideration. Here, the circumstances have a further dimension.

Quite simply, the effect of Mr. Marheine's evidence is that Exhibit 2 ie a fabrication and he was not challenged on this aepect of the matter. I find it impossible to avoid the conclusion that it came about as a result of the efforts of

. O'Kelly and/or Mrs. O'Kelly. In all the circumetances, I

order that the costs thrown away by the need to replead ought
be on a eolicitor/client basis.

Otherwise as to costs, the second, third and fourth
respondents are to pay the costs of the applicants in respect

of the hearing and determination of the preliminary issues, including the costs reserved by Pincus J. on 13 August 1990.

I certify that this and the 14 preceding pages are a true copy of the reasons for judgment herein of his Honour Mr. Justice J.E.J. Spender.

L 6JLUL, Associate

22 November 1990.

Counsel for the applicants r Mr. A. Morris instructed by r Feee Ruthni ng

Counsel for the second,

third and fourth respondents: Mr. G. Martin

instructed by	r Lees Marshal1 6 Warnick
Date of Hearing	r 1 November 1990