Girgis v Poliwka [No 6]
[2019] WASC 230
•2 JULY 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: GIRGIS -v- POLIWKA [No 6] [2019] WASC 230
CORAM: VAUGHAN J
HEARD: 11 MARCH - 3 APRIL 2019
DELIVERED : 2 JULY 2019
FILE NO/S: CIV 2425 of 2014
BETWEEN: SHERIF ELHAMY WADIE GIRGIS
First Plaintiff
GIRGIS NOMINEES (WA) PTY LTD
Second Plaintiff
AND
WASIL NICHOLI POLIWKA
First Defendant
POLIWKA GROUP PTY LTD
Second Defendant
FIRST WESTERN ADMINISTRATION PTY LTD
Third Defendant
Catchwords:
Trade practices - Misleading or deceptive conduct - Whether defendants engaged in misleading or deceptive conduct over course of adviser / advisee relationship - Alleged oral representations - Proof of oral representations and advice as to due diligence - Whether adequate due diligence conducted by defendants - Turns on own facts
Trade practices - Misleading or deceptive conduct - Whether conduct of first defendant was conduct engaged in on behalf of the second and third defendants - Whether conduct as representative or for second and third defendants or in the course of second and third defendants' business, affairs or activities - Turns on own facts
Tort - Negligent misstatement - Adviser / advisee relationship between first plaintiff and first defendant - Whether first defendant owed a duty of care in advising the plaintiffs in relation to the investment of money or alternatively investment of money in and managing investments of real estate - Whether known reliance or dependence or assumption of responsibility or combination - Whether first defendant breached duty to exercise reasonable care, skill and diligence in advising the plaintiffs on various investments - Whether plaintiffs contributorily negligent - Turns on own facts
Corporations law - Whether in making representations and advising the plaintiffs the defendants were carrying on a business of providing financial services in contravention of s 911A of the Corporations Act 2001 (Cth) - Whether defendants' advice financial product advice -Turns on own facts
Contract law - Written agency agreement between second plaintiff and second defendant - Concurrent duty - Whether second defendant breached express term of obligation to conduct due diligence and use best endeavours - Turns on own facts
Contract law - Contract formation - Whether oral agreement between shareholders - Whether agreement inferred from conduct - Whether parties agreed to make equal contributions to jointly owned entity - Whether term implied into shareholder agreement - Whether breach of implied term by plaintiffs - Whether reasonable notice required to terminate agreement - Turns on own facts
Damages - Assessment of damages - Assessing diminution of plaintiffs' economic position - Advances made by plaintiffs - Turns on own facts
Legislation:
Australian Consumer Law (WA), s 18
Australian Consumer Law s 18
Australian Securities and Investments Commission Act 2001 (Cth), 12DA
Corporations Act 2001 (Cth), 911A
Fair Trading Act 1987 (WA), s10
Trade Practices Act 1974 (Cth), s 52
Result:
Plaintiffs' claim allowed in part
Counterclaim allowed in part
Category: B
Representation:
Counsel:
| First Plaintiff | : | D H Solomon |
| Second Plaintiff | : | D H Solomon |
| First Defendant | : | C Chenu & N van Hattem |
| Second Defendant | : | C Chenu & N van Hattem |
| Third Defendant | : | C Chenu & N van Hattem |
Solicitors:
| First Plaintiff | : | Solomon Brothers |
| Second Plaintiff | : | Solomon Brothers |
| First Defendant | : | Vogt Graham Lawyers |
| Second Defendant | : | Vogt Graham Lawyers |
| Third Defendant | : | Vogt Graham Lawyers |
Case(s) referred to in decision(s):
3meg.com Pty Ltd v TM & SM Pike Pty Ltd [2012] WASCA 128; (2012) 43 WAR 350
Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; (2017) 348 ALR 1
AGC Industries Pty Ltd v Karara Mining Ltd [2019] WASC 140
Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1
Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682
Axon v Axon [1937] HCA 80; (1937) 59 CLR 385
Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [2019] WASC 5
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Cackett v Keswick [1902] 2 Ch 456
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd [1997] ATPR 41-550
Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307
Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11110
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Lahoud v Lahoud [2006] NSWCA 169
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
Middleton v Aon Risk Services Australia Ltd [2008] WASCA 239
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (Miller) [2010] HCA 31; (2010) 241 CLR 357
Neat Holdings Pty Ltd v Karahan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449
New Cap Reinsurance Corp Ltd v Daya [2008] NSWSC 64; (2008) 216 FLR 126
Owston Nominees (No 2) Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011) 248 FLR 193
Paltara Pty Ltd v Dempster (1991) 6 WAR 85
Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2016] FCAFC 78; (2016) 250 FCR 136
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; 77 ALJR 768
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd (No 2) [2009] WASCA 183; (2009) 261 ALR 179
TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; (2014) 232 FCR 361
Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1
The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1
Townsend v Roussety & Co (WA) Pty Ltd [2007] WASCA 40; (2007) 33 WAR 321
Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627
Watson v Foxman (1995) 49 NSWLR 315
Williams v Pisano [2015] NSWCA 177; (2015) 90 NSWLR 342
Wyzenbeek v Australasian Marine Imports Pty Ltd (No 2) [2018] FCA 1517
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661
Table of Contents
Overview
The pleaded case
(1) General observations
(2) Plaintiffs' pleaded case - preliminary and general matters
(3) Plaintiffs' pleaded case - recovery as to advances and payments: the Midland Hotel, the Pub business, the Moonlight Express and the Charter business
Initial Midland Hotel and Pub business (August to October 2008)
Further Midland Hotel and Pub business (February to May 2009)
Moonlight Express and its Charter business (October to December 2008)
Money lent and liabilities assumed (October 2008 to September 2012)
External administration of Sunriver, Bold Gem and Girpol
The causes of action relied on
(4) Plaintiffs' pleaded case - recovery as to the Joondalup Property
The purchase of the Joondalup Property
The replacement of the tenants to the Joondalup Property
(5) The defendants' counterclaim
The issues for adjudication
Approach to the evidence
The witnesses
(1) The plaintiffs' witnesses
Sherif Girgis
Milena Rahaman
Ross Thomson
Clinton McNally
Xavier Martinez
Gregory Hart
Duncan Cameron
(2) The defendants' witnesses
Russell Poliwka
Beverly Ridgway
Graeme Pickrell
Melissa Patience
Ryan Blood
Factual findings
(1) The initial meetings between Mr Girgis and Mr Poliwka
(2) The ongoing dealings between Mr Girgis and Mr Poliwka
(3) The initial transactions as to the Midland Hotel and the Pub business
The Midland Hotel and the Pub business
Mr Poliwka's initial meetings as to the Midland Hotel and the Pub business
Mr Pollock's and Mr Errichetti's status as bankrupts
Mr Poliwka's 16 September 2008 meeting with Mr Girgis
The position of the Midland Hotel and the Pub business in mid-September 2008: Sunriver, Bold Gem and the relevant prevailing factual context
The Burgess Rawson Valuation
19 September 2008: Mr Girgis and Mr Poliwka inspect the Midland Hotel
Second inspection of the Midland Hotel
Events leading to the purchase of the Midland Hotel and the Pub business
Preparation for and completion of purchase of the Midland Hotel and Masterline Investments Pty Ltd's interest in the Pub business
Preparation for and completion of purchase of Bambu Hotels Pty Ltd's interest in the Pub business
Post-transaction ASIC lodgements
The accounting treatment of the two transactions
The value of the Midland Hotel in mid-October 2008
The post-acquisition operations of the Midland Hotel and the Pub business
Have the alleged misrepresentations been established?
(4) The Moonlight Express and its Charter business
(5) The Joondalup Property and the Watermans Bay Property
(6) Taking over Management of the Pub business
(7) Surrender of the Bajo Lease and entry into the JEPL Lease
(8) Funding of Girpol and Bold Gem
(9) Termination of the relationship between Mr Girgis and Mr Poliwka
(10) The aftermath
The material representations, advice and non-disclosures as found
Disposition: Did the defendants carry on a financial services business in contravention of s 911A of the Corporations Act 2001 (Cth)?
Disposition: Did the defendants owe the plaintiffs a duty of care as pleaded?
Applicable legal principles: Misleading or deceptive conduct
The statutory provisions
Trade or commerce
Misleading or deceptive
Disposition: Recovery as to advances and payments - the Midland Hotel, the Pub business, the Moonlight Express and the Charter business
Misleading or deceptive conduct
Negligence
Causation and damages
Contributory negligence
Conclusion
Disposition: Recovery as to the Joondalup Property
(1) The purchase of the Joondalup Property
(2) The replacement of the tenants to the Joondalup Property
Contractual claim: breach of the Agency Agreement
Misleading or deceptive conduct / Negligence
Causation and damages
Contributory negligence
Conclusion
Disposition: Counterclaim
Conclusion and orders
Glossary
Schedule 1
VAUGHAN J:
Overview
In mid-October 2007 Mr Girgis was a 23 year old university student who had been working part-time as a trainee property valuer. Mr Girgis was preparing for his final university exams. On 23 October 2007 Mr Girgis won $30 million in Oz Lotto. Shortly after that stroke of good fortune an acquaintance referred Mr Girgis to Mr Poliwka. Mr Poliwka, then 57 years old, operated a real estate business called 'First Western Realty' (FWR) in Joondalup through the company Poliwka Group.
Thereafter, until mid to late 2012, there was an ongoing relationship between Mr Girgis and Mr Poliwka.
The precise nature of the parties' relationship is in dispute in these proceedings. However, it is common ground that Mr Girgis' and Mr Poliwka's dealings involved purchasing together (through various entities) in late 2008 and early 2009 what are described as the Midland Hotel, the Pub business and a vessel called the Moonlight Express together with its associated Charter business. At around the same time one of Mr Girgis' entities, Girgis Nominees, also purchased properties - the Joondalup Property and the Watermans Bay Property - from a seller who used FWR as the selling agent. Later FWR (ie Poliwka Group) became managing and leasing agent in relation to the Joondalup Property.
Between October 2008 and September 2012 Mr Girgis, and entities associated with him, made advances to meet liabilities incurred in connection with the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. According to Mr Poliwka this was done pursuant to a shareholder agreement whereby trusts associated with the two of them would contribute equally to the acquisition and all ongoing costs associated with the Moonlight Express, its Charter business and the Pub business.
At the time the relationship between Mr Girgis and Mr Poliwka ended there was a substantial amount of unrecouped advances on the part of Mr Girgis and his entities. Legal costs were incurred seeking to recover those amounts. And in 2016 Mr Girgis had to make payment to ME Bank under a guarantee he had provided in connection with borrowings related to the Midland Hotel. In total Mr Girgis pointed to alleged losses of $3,441,815.03 (unrecouped advances of $2,451,350, costs of $135,598.88 and $854,866.15 as to the guarantee payment).
Mr Girgis and Girgis Nominees brought these proceedings against Mr Poliwka and two entities associated with him (Poliwka Group trading as FWR and FWA) seeking to recover the $3,441,815.03. It was alleged that the defendants had:
•engaged in misleading or deceptive conduct in trade or commerce in contravention of various statutory provisions; further or alternatively
•made actionable negligent mis-representations in breach of a duty to exercise reasonable care, skill and diligence in advising the plaintiffs in relation to matters concerning the investment of money.
Mr Poliwka and the other defendants denied the allegations. The Poliwka parties also counterclaimed claiming that, in breach of the shareholder agreement, the Girgis parties had stopped making contributions for their 50 per cent share of the costs associated with the Moonlight Express, its Charter business and the Pub business. In opening their case on the counterclaim the Poliwka parties alleged that their contributions exceeded those of the Girgis parties by $805,378. The Poliwka parties counterclaimed to recover half of that amount ($402,689). FWA also claimed $29,180.52 based on having to make an additional advance to cover interest and bank fees incurred as a result of the Girgis parties allegedly not making a timely payment to a third party financier.
A separate claim was made by Girgis Nominees in relation to the Joondalup Property. Essentially two matters were the subject of complaint. First, the initial purchase of the Joondalup Property. Second, a late 2009 change in tenant (here Girgis Nominees relied in part on FWR's role as managing and leasing agent in the surrender of a pre-existing lease and the introduction of a new tenant). As to the latter, Girgis Nominees alleged a contractual breach of an obligation to conduct due diligence and use best endeavours. More generally the claim is again put in terms of alleged misleading or deceptive conduct, further or alternatively, tortious negligent mis‑statement in breach of a duty of care.
The loss alleged in relation to the Joondalup Property was opened on two alternate bases. First, on a 'no transaction' basis, in an amount of $1,246,514.78. This sought recovery of the difference between all the costs of purchasing, holding and selling the Joondalup Property and the income from and eventual proceeds of sale of the Joondalup Property. Second, based on what Girgis Nominees should have received for surrender of the initial lease and a new lease to another tenant. The losses on this alternative were initially quantified at $1,131,745.06, but post-trial were increased slightly.
For the reasons that follow I have concluded that the plaintiffs succeed in part.
I consider that there was both misleading or deceptive conduct, and negligence, in relation to the purchase of the Midland Hotel and the Pub business. That conduct caused or materially contributed to the plaintiffs suffering loss. However, the compensable loss is less than the amount claimed by the plaintiffs. The outcome in relation to the new lease of the Joondalup Property is effectively the same. Here, however, Girgis Nominees also succeeds in contract.
The counterclaim also succeeds in part.
The pleaded case
General observations
The parties' pleadings are dense and impenetrable. The fault for that lies in the oppressive prolixity of the statement of claim. It runs for 125 pages. Most of that was never referred to by counsel for the plaintiffs in 16 days of trial. The pleading is bedevilled by an insistence of the pleader to refer to multiple permutations of alleged conduct which is said to continue in operative effect throughout the near five years of Mr Girgis' and Mr Poliwka's relationship, giving rise to a pleaded case of unnecessary complexity - and, as so constructed, a pleaded case unlikely to be reflective of Mr Girgis' actual complaint.
For example, by my calculations the statement of claim attempts to plead at least 448 potential misleading or deceptive conduct causes of action as to the alleged losses in respect of the Midland Hotel, the Pub business, the Moonlight Express and the Charter business.[1] There is a similar multiplicity of pleaded causes of action due to the pleader referring to representations and advice in a generic fashion in relation to the Joondalup Property.
[1] Calculated in this way: in par 21A SOC there are 10 alleged positive misrepresentations and the alleged non-disclosure (as to 64 different matters); in par 31A SOC there are three alleged positive mis‑representations and the alleged non-disclosure (as to 53 different matters); in par 26A SOC there are seven alleged positive misrepresentations and the alleged non-disclosure (as to 50 different matters); in par 38A SOC there are eight alleged positive misrepresentations and the alleged non-disclosure (as to 56 different matters). Those 32 distinct misleading or deceptive conduct cases must be applied to the four statutory provisions relied on as to Mr Poliwka for primary liability and the five statutory provisions relied on as to each of the other defendants. This analysis: (1) ignores pleas as to Mr Poliwka being involved in contraventions of one or both of Poliwka Group and FWA (SOC, par 51.3); and (2) the possibility that - as appeared to be contended by counsel for the plaintiffs in opening at ts 467 - 467 - the misleading or deceptive conduct claims as to non-disclosure needed to be considered by reference to which of the various non‑disclosure matters were established. The latter expands the number of pleaded causes of action exponentially given the very large number of pleaded non-disclosure matters.
It is regrettable that the pleader never heeded the observations of the plurality in Forrest v Australian Securities and Investments Commission.[2] The present is a case in which the plaintiffs (more correctly the plaintiffs' legal representatives) advanced a forest of forensic contingencies and spent little time in identifying the essential legal and factual nature of the complaint.
[2] Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 [27].
Matters were not assisted by the statement of issues that the parties filed in accordance with pre-trial directions. Extending over about 50 pages, the statement purported to identify at least 390 discrete pleaded issues. At trial, while counsel for the defendants did direct attention to the pleaded representations and non-disclosures in the SOC,[3] no attempt was made by the parties to deal with each such identified pleaded issue. Instead, quite broadly, emphasis was placed on what I should make of the voluminous evidence coupled with an understanding of the nature of the parties' cases as outlined in written opening submissions and amplified in opening addresses.
[3] Referring to the Fourth Further Re-amended Statement of Claim dated 16 January 2019.
Given the parties' casual approach to forensic examination of the pleaded case at trial I intend to address the pleadings in a truncated fashion. I certainly do not intend to make findings on each of the so-called 'agreed issues' in the statement of agreed issues. That is all the more so where, in closing, counsel for the parties did not address me by reference to those issues or identify the findings they sought by the issues as articulated in the statement of issues. To my mind many of the 'agreed issues' are false issues arising simply because the SOC advanced numerous matters that were not matters of material fact that were necessary to establish a claim. This being the position I will structure my reasons, and make findings, to answer the way the case was fought at trial by reference to the matters advanced in written and oral openings and closings.
One other matter needs to be mentioned.
In advance of the plaintiffs' closing address I requested that I be provided with a note of the evidence relied on as to the various pleaded representations, matters of non-disclosure and reliance thereon. The evidentiary note was to identify which of the pleaded matters was continued to be relied on for the plaintiffs' case in light of the evidence as it fell out at trial.[4] The plaintiffs' evidentiary note was not provided until after the trial completed. It is, however, a valuable record of how the plaintiffs say they met their pleaded case. In some respects it demonstrates that the case was not made out; it also shows, by omission, parts of the pleaded case that are not relied on following the evidence at trial. Where either scenario is the position I will not consider that part of the pleaded case at all.
Plaintiffs' pleaded case - preliminary and general matters
[4] ts 1378.
In providing an overview I have already outlined the parties and their background. I should, however, clarify the position of Girgis Nominees and FWA. Girgis Nominees is a company associated with Mr Girgis. It is the trustee of the Girgis Property Trust (a trust associated with Mr Girgis). FWA is a company associated with Mr Poliwka. It is the trustee of the Poliwka Investment Trust (a trust associated with Mr Poliwka). These two companies and trusts were involved in some of the joint purchases and were, on the defendants' case, the entities through which Mr Girgis and Mr Poliwka were to contribute further funding in accordance with the shareholder agreement.
It was common ground that before Mr Girgis won Oz Lotto he had no substantial net assets and no experience managing or investing large sums of money (SOC, pars 12 ‑ 13; DAC,[5] pars 12 ‑ 13).
[5] Referring to the Third Further Re-amended Defence and Counterclaim dated 11 February 2019.
There is agreement that Mr Girgis and Mr Poliwka met after Mr Girgis won Oz Lotto. There is disagreement as to when that meeting occurred. There is a more significant disagreement as to what was said at the meeting. In terms of the pleaded case Mr Girgis contends that he requested Mr Poliwka's advice on how to invest the $30 million won in Oz Lotto (SOC, par 15.2). The plaintiffs alleged that Mr Poliwka made five representations (SOC, par 15.3) and advised in nine separate ways (SOC, par 15.4). These include that Mr Poliwka could and would advise Mr Girgis (SOC, par 15.3.4) and that Mr Poliwka would advise Mr Girgis in relation to matters concerning the investment of money and that Mr Girgis should not make any investment decision without first consulting Mr Poliwka (SOC, par 15.4.4).
A key matter of alleged advice was that, as an investment strategy, Mr Poliwka allegedly advised Mr Girgis that the best way to invest his money was one-third in businesses, one-third in real estate and one-third in cash or other liquid investments (SOC, par 15.4.1).
Setting out, individually, all of the alleged initial representations and matters of advice at this juncture will make it harder to understand the pleaded narrative. That is all the more so when it is evident from the plaintiffs' post-trial evidentiary note that a number of the alleged representations and matters of alleged advice are no longer relied on. For ease of exposition I have summarised the remaining alleged representations and alleged advice in Schedule 1 to these reasons (adapting this from the plaintiffs' post-trial evidentiary note). The same approach will be taken for all other alleged representations, alleged advice and alleged matters of non-disclosure.
As pleaded the plaintiffs claimed that the alleged representations and alleged advice were made and provided by Mr Poliwka. But there is a general plea that conduct by Mr Poliwka was conduct by him personally and, through Mr Poliwka, also by Poliwka Group and FWA (SOC, par 8). That plea was not admitted by the defendants (DAC, par 8). In opening the defendants specifically denied that any of the conduct alleged in relation to the Midland Hotel, the Pub business, the Moonlight Express and the Charter business was engaged in on behalf of the corporate defendants.[6]
[6] Defendants' Opening Submissions dated 11 March 2019, par 6.
The plaintiffs said that, in reliance on the initial representations and alleged advice, Mr Girgis adopted the advice, engaged Focus Accounting (Mr Poliwka's accountants) and established a group of companies and trusts (SOC, pars 16.1 - 16.3). This included appointing Mr Poliwka as a director of Girgis Group (SOC, pars 16.3.2).
Another preliminary matter as pleaded was whether in making representations to and advising the plaintiffs as pleaded the defendants carried on a financial services business. It was common ground that none of the defendants held an Australian financial services licence (AFSL) or were exempted from carrying on a financial services business without holding an AFSL. The plaintiffs alleged that in making representations and giving advice to the plaintiffs as pleaded the defendants carried on a financial services business in contravention of s 911A of the Corporations Act2001 (Cth) (SOC, par 10).
The plaintiffs relied on the alleged contravention as a non-disclosure matter which, if known, meant that they would not have entered into the transactions and dealings concerning the Midland Hotel, the Pub business, the Moonlight Express, the Charter business and the Joondalup Property (SOC, pars 21, 26, 31A, 40, 61, 89).
Plaintiffs' pleaded case - recovery as to advances and payments: the Midland Hotel, the Pub business, the Moonlight Express and the Charter business
The plaintiffs alleged that the defendants made numerous representations and provided advice which resulted in Mr Girgis investing (through various entities) in the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. This is alleged to have resulted in loss in the form of unrecouped advances, legal expenses and guarantee payments.
Common to all aspects of the alleged co-investing is a plea that in reliance on the various alleged representations and alleged advice the plaintiffs caused or permitted Mr Poliwka to oversee all aspects of the investments in the Midland Hotel and the Pub business (SOC, par 23.2.1) and the Moonlight Express and its Charter business (SOC, par 28.2.1).
Initial Midland Hotel and Pub business (August to October 2008)
The first series of alleged representations and advice is said to have occurred during mid-August to early October 2008 (SOC, par 17). There are 23 alleged representations and two matters of alleged advice. Some of the alleged representations were self-evidently true; for example the description of the land on which the Midland Hotel was situated (SOC, par 17.1.2) and that the Midland Hotel was for sale (SOC, par 17.1.3).
The more material contentious alleged representations were that:
•the Midland Hotel was a 'good opportunity' to invest in some land (SOC, par 17.1.1);
•the Midland Hotel was for sale at a price ($3 million to $3.5 million) which was substantially less than its then market value (SOC, par 17.1.6) - an amount of $4.5 million to $5 million (SOC, par 17.1.8);
•Mr Poliwka had conducted due diligence investigations and was satisfied with his findings (SOC, par 17.1.15); and
•investing in the Midland Hotel would be profitable (SOC, 17.1.16).
Whether all 23 of the alleged representations were required to be pleaded is unclear. Only nine of them are pleaded to have been misleading (SOC, par 21A). With the exception of the due diligence plea, none of them are directly falsified,[7] although there are a vast array of later pleas as to the then alleged prevailing factual position in relation to the Midland Hotel and the Pub business (SOC, pars 18, 18A - 18K, 19, 19A - 19I, 20, 20A). These include: (1) the circumstances of Sunriver (the then registered proprietor of the Midland Hotel) and Sunriver's acquisition of and funding for the purchase of the Midland Hotel; (2) various prior registered proprietors and their transactions as to the Midland Hotel; and (3) the circumstances of Bold Gem and its conduct of the Pub business as Sunriver's tenant including its acquisition of the Pub business. Considerable information was also pleaded as to the financial position of Sunriver and Bold Gem, the terms of secured borrowings with ME Bank and Walthamstow and existing defaults under those loan agreements. It was also pleaded that the Midland Hotel was being renovated and that while that was being undertaken the Pub business was not trading and Bold Gem was not paying rent.
[7] Although par 50 of the SOC alleges that the Pub business (as distinct from the Midland Hotel) was unprofitable (SOC, par 50.1) and that the plaintiffs have received no return and have incurred losses from investing in, among other things, the Midland Hotel (SOC par 50.3).
The material alleged advice was that Mr Girgis and Mr Poliwka should together invest in the Midland Hotel by acquiring the assets and assuming the liabilities of Sunriver as the entity that owned the Midland Hotel by becoming the beneficial owners of that entity (SOC, par 17.3). In substance this was advice to purchase the shares in Sunriver and the units in the unit trust of which Sunriver was trustee (the Junction Unit Trust) rather than purchasing the freehold. As to this the plaintiffs pleaded that, in direct contradiction of Mr Poliwka's alleged advice, on 30 September 2008 Mr Poliwka had been advised by Focus Accounting that Mr Girgis' and Mr Poliwka's entities should purchase the Midland Hotel by acquiring the freehold interest in it (SOC, par 20.9C).
After Mr Girgis informed Mr Poliwka that he, Mr Girgis, was interested in joining Mr Poliwka in investing in the Midland Hotel there is pleaded to have been a further series of representations and advice in around October 2008 (SOC, 17A). This was in connection with an additional potential investment in the Pub business rather than simply investing in the Midland Hotel. Of the four additional alleged representations only one is material: that investing in the Pub business (as distinct from the Midland Hotel) would be profitable within six to 12 months (SOC, par 17A.1.3). The earlier alleged advice is said to have been repeated, although now as to investment in the Pub business; two further aspects of advice as to the structuring of the acquisition are also alleged (SOC, par 17A.3).
There is agreement that in mid-October 2008 purchases proceeded in relation to the Midland Hotel and the Pub business (SOC, par 23; DAC, par 23). Relevantly:
•Girpol was incorporated on 8 October 2008. Mr Girgis and Mr Poliwka became directors of Girpol. On behalf of Mr Girgis' and Mr Poliwka's respective trusts the shareholding in Girpol was held equally by Girgis Nominees and FWA.
•Girgis Nominees and FWA became equal shareholders in Sunriver and also took a transfer, equally, of the units in the Junction Unit Trust.
•On about 23 October 2008 Girpol became an 80 per cent shareholder of Bold Gem. Girpol also took a transfer of 80 per cent of the units in the Bold Gem Unit Trust. Mr Girgis and Mr Poliwka were appointed as directors of Bold Gem.
At trial, however, there was considerable confusion as to how and to who payment of some $1 million was made in relation to the Midland Hotel for the shares in Sunriver and the units in the Junction Unit Trust.
The plaintiffs pleaded that the transactions occurred in reliance on the defendants' various representations and advice (SOC, par 23). In total 10 of the alleged representations are pleaded to have been misleading or deceptive or likely to mislead or deceive (SOC, 21A). Three of the representations were pleaded to have been made without reasonable grounds (SOC, par 22).
The plaintiffs also pleaded that there were numerous matters known to Mr Poliwka which were not disclosed to, and were not known by, the plaintiffs before entry into the transactions involving the Midland Hotel and the Pub business (SOC, 21.1A, 21.2). Including the various sub-pleas 64 separate non-disclosed matters were pleaded (see SOC, par 21). The significance of some of the pleaded non-disclosed matters escapes me. Why, for example, does it matter that Sunriver had net assets of $2 in its own right? (SOC, par 20.5). Sunriver was a trustee company and held the Midland Hotel as trustee for the Junction Unit Trust. Non-disclosure of that matter, and many others, could have no impact on what followed, was simply irrelevant and should never have been pleaded.
The non-disclosure matters are identified in Schedule 1 so far as relied on by the plaintiffs in their post-trial evidentiary note.
The plaintiffs pleaded that had the various non-disclosed matters been disclosed to them they would not have proceeded with entry into the transactions involving the Midland Hotel and the Pub business (SOC, 21.3). It is then alleged that the non-disclosure of those matters was misleading or deceptive or likely to mislead or deceive (SOC, par 21A). For their part - as with the non-disclosure matters in general - the defendants said that to the extent the non-disclosure matters were known to Mr Poliwka they were also known to Mr Girgis,[8] ie there was no possible misleading or deceptive conduct case by reason of non-disclosure.
[8] Defendants' Opening Submissions dated 11 March 2019, par 4; ts 459; Defendants' schedule headed 'Amended Schedule of Matters alleged in the SOC to have not been disclosed to Mr Girgis by Mr Poliwka'.
There is an alternate plea to the extent that Mr Poliwka did not know certain of the non-disclosed matters. The plaintiffs contend that if Mr Poliwka did not know those matters then he had not conducted due diligence investigations, alternatively, he had not conducted adequate due diligence investigations, into the Midland Hotel and the Pub business contrary to the positive representation that he had conducted due diligence and was satisfied with his findings (SOC, par 20.13; see also SOC pars 22.B, 22.J).
This 'either / or' approach is replicated in other aspects of the plaintiffs' pleaded case whenever there are allegations as to due diligence. It is said that either: (1) Mr Poliwka knew of certain non-disclosed matters (because he had carried out due diligence); or (2) Mr Poliwka did not know those matters because - contrary to his representation - he had not carried out due diligence or adequate due diligence. See for example pars 25.2 - 25.3, 30.5 - 30.6, 31.7 - 31.7A, 60.2 - 60.2A and 86.9 - 86.10 of the SOC.
In written closing submissions counsel for the plaintiffs explained that the pleaded case as to due diligence was put in the alternative. It was said that:
The plaintiffs plead that either due diligence was in fact performed by Mr Poliwka and Mr Girgis was not informed about the true position as a result of Mr Poliwka having carried out due diligence or alternatively, despite Mr Poliwka informing Mr Girgis that he had conducted due diligence, no due diligence, or inadequate due diligence, was in fact undertaken.[9]
Further Midland Hotel and Pub business (February to May 2009)
[9] Plaintiffs' Closing Submissions dated 2 April 2019, par 66.
Another series of alleged representations and alleged advice over late February to May 2009 are pleaded in the context of taking over management of the Pub business (SOC, par 29). Chief among these are: (1) alleged representations that the value of the Midland Hotel was approximately $5 million (SOC, par 29.1.1) and it would be profitable (alternatively not unprofitable) to take over the conduct of the Pub business (SOC, par 29.1.4); and (2) alleged advice that Mr Girgis and Mr Poliwka and their respective trusts should take over the management of the Pub business (SOC, par 29.2). There are, however, another six pleaded representations (SOC, par 29.1) and three other matters of alleged advice (SOC, par 29.2).
The plaintiffs' pleading then follows a similar pattern to the earlier pleaded case. It:
(1)without directly falsifying the alleged representations (other than so far as par 50 of the SOC makes allegations as to alleged unprofitability, lack of return and losses), alleges various factual matters said to exist as at the time of the alleged further representations and advice (SOC, pars 30, 30A), including two further matters said to be known to Mr Poliwka which were not disclosed to and were not known by the plaintiffs (SOC, par, 30A, 31.1A, 31.1). Otherwise it is said that, the Pub business having only recommenced trading after completion of renovations in February 2009 (SOC, pars 30.1 ‑ 30.2), the Bold Gem Unit Trust had not been paying and was unable to pay rent for occupying the Midland Hotel (SOC, par 30.3);
(2)alleges that in reliance on the further representations and advice - and also in reliance on all of the 27 earlier representations pleaded in pars 17 and 17A of the SOC (not just the 10 earlier pleaded to have been relied on in proceeding with the initial Midland Hotel and Pub business transaction) ‑ the plaintiffs caused the Pub business to be conducted by Bold Gem under the control of Girpol (who became the sole shareholder of Bold Gem and the sole unitholder in the Bold Gem Unit Trust) (SOC, par 31); and
(3)alleges that the plaintiffs would not have done so had the various non-disclosed matters been disclosed to them. Here the plaintiffs refer to most, but not all, of the earlier alleged non-disclosed matters and also the two further non-disclosed matters (SOC, par 31). In total 53 non-disclosed matters are raised.
In this way the plaintiffs' case proceeds on a premise that the earlier alleged representations and non-disclosed matters continue to have operative effect. The alleged representations and matters of non-disclosure which are said to be misleading or deceptive are aggregative over the course of the parties' relationship. As will be seen, this feature is repeated throughout the pleading. Alleged 2008 representations are pleaded to continue in operative effect until mid to late 2012.
Despite the alleged reliance on all of the alleged representations only three of the further representations and the non-disclosure of the two additional matters are claimed to be misleading or deceptive or likely to mislead or deceive (SOC, par 31A). The three positive alleged representations are pleaded to have been made without reasonable grounds (SOC, par 32).
Moonlight Express and its Charter business (October to December 2008)
Between the investments concerning the Midland Hotel and the Pub business (in October 2008), and taking over management of the Pub business (in late May 2009), Mr Girgis and Mr Poliwka caused Girpol to purchase the vessel known as the 'Moonlight Express' and to commence to operate its Charter business. It is common ground that Girpol purchased the Moonlight Express for $800,000 on or about 1 December 2008 and thereafter commenced to operate its Charter business (SOC, par 28; DAC, par 28).
Another bout of alleged representations and advice - together with non-disclosed matters - is pleaded as to the acquisition of the Moonlight Express and the operation of its Charter business.
Ten positive representations are alleged to have been made between late October 2008 to early December 2009 (SOC, par 24.1). These include that:
(1)the vessel could be purchased at a price substantially less than its then market value (SOC, par 24.1.3) which was $1.2 million (SOC, par 24.1.4);
(2)Mr Poliwka had conducted due diligence investigations and was satisfied with his findings (SOC, par 24.1.6); and
(3)investing in the vessel and the Charter business would be profitable and the worst case scenario as to return on investment was 'break-even' (SOC, par 24.1.7).
It is alleged that, among some five matters of alleged advice, Mr Poliwka advised the plaintiffs that Mr Girgis and Mr Poliwka should together invest in the Moonlight Express and its Charter business by causing Girpol to purchase the vessel and take over the conduct of the Charter business (SOC, par 24.2.2). In any case that is what happened in early December 2008. It is common ground that Girpol purchased the Moonlight Express for $800,000 plus GST and thereafter took over the conduct of the Charter business (SOC, par 28.2; DAC, par 28). The plaintiffs pleaded that this was in reliance on all of the earlier alleged representations and alleged advice (SOC, par 28), ie the five initial pleaded representations, the first two sets of pleaded representations as to the Midland Hotel and its Pub business (sub-totalling 27 representations), the ten representations as to Moonlight Express and its Charter business and the 24 matters of advice.
Only seven of the alleged representations are said to be misleading or deceptive or likely to mislead or deceive (SOC, par 26A). Three are pleaded to have been made without reasonable grounds (SOC, par 27). Apart from the par 50 plea, as to lack of profitability (SOC, par 50.2) and losses (SOC, par 50.3), the most that is put as to falsification is that the performance of the Charter business had been in decline and there was no plan to improve performance (SOC, par 25.1). It is pleaded that this, together with some 49 earlier other alleged undisclosed matters as to Mr Poliwka's businesses and the Midland Hotel and its Pub business, was not disclosed and the non-disclosure was misleading or deceptive (SOC, pars 26, 26A).
Money lent and liabilities assumed (October 2008 to September 2012)
A further set of more general alleged representations (eight in total) and alleged advice (four separate matters) are pleaded to have been made over the near four year period of October 2008 to September 2012 (SOC, par 34).
The material alleged representations - which were essentially replicated in the alleged advice (SOC, par 34.2) - were that:
•It was necessary or desirable in making and holding the investments that the plaintiffs lend money to the Bold Gem Unit Trust and Girpol, and provide guarantees and other security to assist them in obtaining bank finance, in order to meet ongoing expenses of the Pub business and the Charter business (SOC, par 34.1.2).
•It did not matter how the money so lent was treated (in the sense of the respective lending and borrowing entities) (SOC par 34.1.4).
•The Pub business and the Charter business would produce sufficient profits to repay all the money so lent (SOC, par 34.1.5).
Each of the further eight representations were said to be misleading or deceptive or likely to mislead or deceive (SOC, par 38A). The plaintiffs also pleaded out 56 alleged non-disclosure matters in respect of which, had they been disclosed, the plaintiffs said they would not have acted as they did, three of which were new (SOC, pars 36, 37.2, 38). The plaintiffs alleged that the non-disclosure of those matters was also misleading or deceptive or likely to mislead or deceive (SOC, par 38A).
The plaintiffs alleged that, in reliance on all the alleged representations (now totalling 57 representations across the various subjects) and all the alleged advice (now totalling 28 separate matters of advice) (SOC, par 40), and because of the alleged non-disclosures (SOC, pars 38.2 and 40), the plaintiffs took various steps which resulted in loss.
Two distinct acts of alleged reliance are pleaded:
(1)First, the circumstance that, in March 2009, Mr Girgis provided a guarantee to ME Bank in respect of Sunriver's obligations to ME Bank (SOC, par 40.1). (The fact that a guarantee was provided is common ground.)[10] The plaintiffs alleged that in March and April 2016 this resulted in Mr Girgis making payment to ME Bank of $1,709,732.29, half of which has already been recovered as against Mr Poliwka (SOC, pars 51A, 52D).
(2)Second, the making of numerous advances by Mr Girgis to the Bold Gem Unit Trust (totalling not less than $134,625) and Girgis Nominees to Girpol (totalling not less than $2,399,792) (SOC, par 40.3). The advances are particularised in pars 52.2A and 52.2B of the SOC (although they total slightly less than the amounts referred to in par 40.3 of the SOC).
External administration of Sunriver, Bold Gem and Girpol
[10] DAC, par 40.1.
It is agreed that Mr Girgis resigned as a director of Sunriver, Bold Gem and Girpol on about 24 September 2012 (SOC, par 42; DAC, par 42). It is also agreed that the plaintiffs later sought to recover the advances as made (SOC, par 48; DAC, par 48). The plaintiffs alleged, and the defendants admitted, that expenses were incurred in so doing (SOC, par 48.2; DAC, par 48). These are later particularised in an amount of $135,598.88 (SOC, par 52.2C).
There is agreement that the three companies entered administration on about 17 June 2014 and have subsequently become the subject of a creditors' voluntary winding up (SOC, par 45; DAC, par 45).
The causes of action relied on
The plaintiffs alleged that: (1) the Pub business was not profitable (SOC, par 50.1); (2) the Charter business was not profitable and performed worse than break-even (SOC, par 50.2); and (3) the plaintiffs had received no return, and had incurred losses, from investing in the Midland Hotel, the Pub business, the Moonlight Express and the Charter business (SOC, par 50.3).
Based on the alleged representations, the alleged advice, and the alleged non-disclosure matters - referred to compendiously as the 'contravening conduct' (SOC, par 51.A), the plaintiffs alleged that the defendants engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive in contravention of various statutory prohibitions (SOC, pars 51.1, 51.2).
In closing the plaintiffs said that to succeed in their various claims it was not necessary for them to make out each alleged representation as pleaded. The plaintiffs' contention was that the court should give judgment based on the pleaded elements which were established.[11]
[11] Plaintiffs' Closing Submissions dated 2 April 2019, par 148.
There was no attempt - either in the pleading or in submissions - to isolate which of the various statutory formulations applied to the alleged contravening conduct. Rather, there was reliance on each of the following on a 'further or alternatively' basis:
•s 10 of the Fair Trading Act 1987 (WA);
•s 52 of the Trade Practices Act1974 (Cth);
•s 18 of the Australian Consumer Law (WA) (as applying by s 19(2) of the Fair Trading Act 2010 (WA));
•s 18 of the Australian Consumer Law (as applying by virtue of pt X of the Competition and Consumer Act 2010 (Cth)); and
•s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).
From 1 January 2011 the Act formerly known as the Trade Practices Act1974 (Cth) has been named the Competition and Consumer Act 2010 (Cth). That date is also the relevant date for application of the State and Commonwealth versions of the Australian Consumer Law. I infer that the plaintiffs rely on the earlier Fair Trading Act 1987 (WA) and Trade Practices Act1974 (Cth) regime for any pre‑1 January 2011 conduct and the Australian Consumer Law and the Australian Consumer Law (WA) for conduct from 1 January 2011. Section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) continued to apply across all material times.
The defendants accepted that any conduct in relation to the purchase of the Midland Hotel was conduct in trade or commerce. But it was denied that was the case as to conduct in relation to the Moonlight Express, its Charter business and taking over the management of the Pub business.[12]
[12] ts 1403 - 1404.
The plaintiffs sought loss or damage comprised of:
•$2,316,350 being the unpaid balance of the alleged loan to Girpol (SOC, par 52.A).
•$135,000 being the unpaid balance of the loan to the Bold Gem Unit Trust (SOC, par 52.B).
•$135,598.88 being expenses incurred in seeking to recover the loans and participating in the windings-up of Girpol and Bold Gem (SOC, par 52.C).
•$854,866.15 as to the unrecovered amount of the guarantee payment to ME Bank (SOC, par 52.D).
The defendants put the plaintiffs to proof as to loss. In submissions the defendants propounded that the plaintiffs had failed to prove that the losses as identified had been caused by or because of the alleged conduct in contravention of the statutory prohibitions.[13] The defendants also alleged that there had been contributory negligence on the part of the plaintiffs and there should be an apportionment of responsibility as between the parties (DAC, par 52A).
[13] Defendants' Opening Submissions dated 11 March 2019, par 8. See also ts 400.
A separate claim was made in negligence (SOC, pars 53 - 54).
The plaintiffs repeated the plea that they had no experience with - and also said they had minimal understanding of - investing large sums of money (SOC, par 53.1.1). The plaintiffs also pleaded that they relied on the defendants to advise them in relation to matters concerning the investment of money (SOC, par 53.1.2) and accepted and acted on such advice (SOC, par 53.1.3). The plaintiffs contended that they were not advised to seek any separate or specialist advice and as a result assumed there was no reason to obtain such advice (SOC, par 53.1.4). It was said that the defendants knew or ought to have known of these matters (SOC, par 53.2.1).
The plaintiffs alleged that each of the defendants owed them a duty to exercise reasonable skill, care and diligence in advising them in relation to matters concerning the investment of money (SOC, par 53.2.2).
The advice as alleged was said to have been in breach of the duty and to have resulted in loss (SOC, par 54). The same alleged loss and damage was relied on as with the misleading or deceptive conduct causes of action (SOC, par 54.3).
Plaintiffs' pleaded case - recovery as to the Joondalup Property
It is agreed that Girgis Nominees as trustee of the Girgis Property Trust was the registered proprietor of the Joondalup Property between 2 February 2009 until 23 January 2014 (SOC, par 55; DAC, par 55). It is also agreed that Girgis Nominees purchased the Joondalup Property pursuant to a contract dated 1 December 2009 for $2.565 million (SOC, par 63.2; DAC, par 63).
The claim as to the Joondalup Property was advanced in two different ways. First, the plaintiffs complained as to alleged conduct and alleged advice in connection with the purchase of the Joondalup Property around October and November 2009. Second, the plaintiffs complained as to alleged conduct and alleged advice in connection with the surrender of and entry into a lease in respect of the Joondalup Property in late 2009 to February 2010.
The purchase of the Joondalup Property
The plaintiffs alleged that during October and November 2009 Mr Poliwka made various representations and gave them advice in relation to the Joondalup Property (SOC, par 56).
There are 19 different pleaded representations (SOC, par 56.1). Only five are said to have been misleading or deceptive (SOC, par 61A). These are that:
•the Joondalup Property was a 'good opportunity' to invest in some land (SOC, par 56.1.1);
•the Joondalup Property was leased to a good tenant (SOC, par 56.1.8);
•Mr Poliwka had conducted due diligence investigations in relation to the Joondalup Property and the nightclub business conducted on the property and was satisfied with his findings (SOC, par 56.1.12); and
•investing in the Joondalup Property would be profitable (SOC, par 56.1.13) because of the rental income that would be received (SOC, par 56.1.14).
In substance the alleged advice was to invest in the Joondalup Property by purchasing it for $2.565 million and thereafter to appoint FWR as exclusive managing and leasing agent (SOC, par 56.3).
The plaintiffs did not expressly falsify the alleged representations. They did, however, plead certain factual matters including that the Joondalup Property had been purchased some 17 months earlier for $1.2 million (SOC, par 58). Reference was also made to the tenancy arrangements (SOC, pars 59 - 59A). It is said that Mr Poliwka knew of these matters, by having carried out due diligence, or - if he did not know of them ‑ Mr Poliwka had not carried out due diligence or adequate due diligence (SOC, par 60). The plaintiffs alleged that had some 11 non-disclosure matters been disclosed to them Girgis Nominees would not have purchased the Joondalup Property (SOC, par 61.2).
That latter plea is very hard to accept at face value, at least as to each of the alleged non-disclosure matters. The alleged non-disclosure matters include such things as the identity of the earlier registered proprietors of the Joondalup Property (SOC, pars 57, 57A) and the term of an earlier lease of the Joondalup Property (SOC, par 59A).
The plaintiffs alleged that they purchased the Joondalup Property at the price of $2.565 million in reliance on the alleged representations and advice (SOC, par 63). It was said that the identified representations were misleading or deceptive or likely to mislead or deceive (SOC, par 61A). The profitability representations were said to have been made without reasonable grounds (SOC, par 62). Alternatively the plaintiffs alleged that the non-disclosures were misleading or deceptive or likely to mislead or deceive (SOC, par 61A).
The alleged misrepresentations and non-disclosures were said to found a claim that the defendants engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive. The claim relied on the same statutory prohibitions as the claim in respect of the Midland Hotel, the Pub business, the Moonlight Express and the Charter business (SOC, par 112). There was an alternate claim in negligence (SOC, pars 114 ‑ 115). This relied on the same sort of alleged duty, but confined to investment of money in real estate (SOC, par 114.2.2). Breach was said to arise from both Mr Poliwka's initial alleged advice and then the alleged advice in the context of the Joondalup Property purchase (SOC, par 115).
The claimed loss was advanced in a number of alternate ways in the SOC (par 113).
Two of those alternatives were not mentioned in opening or closing submissions. The first alternative was to claim $680,000 as the difference between the price paid for the Joondalup Property ($2.565 million) and the price realised on its eventual sale in January 2014 ($1.885 million)[14] (SOC, par 113.A). The second - more conventional ‑ alternative was to claim $565,000 as the difference between the price paid for the Joondalup Property ($2.565 million) and its alleged market value ($2,000,000) (SOC, par 113.AB).
[14] The disposal price was common ground (SOC, pars 110 - 111; DAC, par 110 - 111).
At trial, however, the plaintiffs sought to recover the whole of the amounts paid to purchase, hold and sell the Joondalup Property, ie the difference between all associated cash outlays and cash inflows over the whole of the time the Joondalup Property was held (SOC, par 113.AA). It was said this was claimed on a 'no transaction basis'.[15] This resulted in a claim of $1,246,514.78.[16]
[15] Plaintiffs' Outline of Opening Submissions dated 8 February 2019, par 61.
[16] Plaintiffs' Outline of Opening Submissions dated 8 February 2019, par 62.
The defendants sought to put the Joondalup Property transaction in a different context.
The defendants said that, to the knowledge of Mr Girgis, Mr Poliwka through FWR was acting as the selling agent for the seller of the Joondalup Property (DAC, par 56.3.3). According to the defendants, the seller, Allundy, required any prospective purchaser to also purchase the Watermans Bay Property for an aggregate price of $4.165 million. The purchaser was able to allocate that between the two properties as the purchaser saw fit (DAC, par 56.3.4). The defendants then said that the contract to purchase the Joondalup Property was subject to, and conditional on, the simultaneous sale and settlement of the Watermans Bay Property to Girgis Nominees - Girgis Nominees having entered into a contract to purchase the Watermans Bay Property from Allundy for $1.6 million (DAC, par 63.2 - 63.3). The plaintiffs accepted that the two agreements were subject to and conditional on the simultaneous sale and settlement of the two properties (Reply, pars 44 ‑ 45).
On the defendants' case Mr Girgis determined the allocation of the $4.165 million between the Joondalup Property contract and the Watermans Bay Property contract (DAC, par 63.4).
The defendants claimed that (particularly as the plaintiffs sought to claim loss on a no transaction basis) any loss must be determined on the basis that the Joondalup Property purchase and the Watermans Bay Property purchase was a single transaction.[17] Even accepting that the market value of the Joondalup Property was $2 million this would mean that Girgis Nominees suffered no loss because - on the defendants' case ‑ the market value of the Watermans Bay Property was in the region of $3.65 million to $3.7 million. Accordingly, the combined purchase price of $4.165 million was considerably less than the combined market value of $5.65 million to $5.7 million.
[17] Defendants' Opening Submissions dated 11 March 2019, par 81.
To the extent there was claimable loss the defendants pleaded contributory negligence on the part of the plaintiffs (DAC, pars 113A.4 ‑ 113A.5, 115A).
The replacement of the tenants to the Joondalup Property
It is common ground that in about February 2009 Girgis Nominees appointed FWR to be its exclusive managing and leasing agent in relation to the Joondalup Property (SOC, par 63.3; DAC, par 63). There was a written agency agreement. Those terms of the agency agreement were also agreed on the pleadings (SOC, par 64; DAC, par 64). The contractual obligations undertaken by FWR included a covenant to use due diligence and best endeavours on behalf of Girgis Nominees to negotiate surrender of leases and new leases in relation to the Joondalup Property (SOC, par 64.2.2; DAC, par 64).
FWR was paid fees by Girgis Nominees for its work under the agency agreement (SOC, par 66; DAC, par 66).
When Girgis Nominees became the registered proprietor of the Joondalup Property the premises were leased to Bajo (SOC, par 59; DAC, par 59). Bajo conducted a nightclub business on the premises. The provisions of Bajo's lease were agreed on the pleadings; the lease was for a term of 2 years and 11 months and was to expire on 30 June 2011 (SOC, pars 59, 67; DAC, pars 59, 67). However, Bajo surrendered its interest with effect from 30 September 2009. The deed of surrender entered into in May 2010 released Bajo and its guarantor, Hamish Sprague, from all claims in relation to the Bajo lease post-30 September 2009 (SOC, pars 72 ‑ 73; DAC, pars 72 ‑ 73). By a deed dated 25 February 2010 Girgis Nominees entered into a new lease with a new tenant (JEPL) and its guarantors with effect from 1 November 2009 for a term of 3 years (SOC, pars 76, 90; DAC, pars 76, 90).
The plaintiffs alleged that the rent payable under the JEPL lease was slightly less than the rent payable under the Bajo lease (SOC, pars 67 - 71, pars 77 - 81). The plaintiffs also alleged that Girgis Nominees did not receive any consideration for providing the releases under the surrender of the Bajo lease (SOC, par 74).
The plaintiffs complained as to the defendants' alleged conduct and alleged advice concerning the surrender of the Bajo lease and the entry into the JEPL lease. The structure of the pleaded claim followed a similar pattern to the earlier pleaded claims as to alleged representations, alleged advice and alleged non-disclosures.
Initially there was a plea that between late 2009 and February 2010 Mr Poliwka made various representations to the plaintiffs (SOC, par 84.1). Nine representations are enumerated. Five of those representations are eventually alleged to have been misleading or deceptive (SOC, par 87A). These alleged representations are that:
(1)it would be better to replace Bajo with another tenant (SOC, par 84.1.2);
(2)JEPL would be a better tenant than Bajo (SOC, par 84.1.6);
(3)Mr Poliwka had conducted due diligence investigations in relation to JEPL and was satisfied with his findings (SOC, par 84.1.7);
(4)it was not necessary for Mr Girgis to obtain legal advice as Mr Poliwka was acting in Mr Girgis' interests (SOC, par 84.1.8); and
(5)the terms of the JEPL lease would be not less favourable to Girgis Nominees than the terms of the Bajo lease (SOC, par 84.1.9).
The first, second and fifth of those alleged representations was pleaded to have been made without reasonable grounds (SOC, par 88).
The plaintiffs alleged that Mr Poliwka advised the plaintiffs: (1) to cause the Bajo lease to be terminated and the Joondalup Property leased to a new tenant on terms that Mr Poliwka thought fit; and (2) thereafter to agree to the surrender of the Bajo lease and entry into the JEPL lease (SOC, par 84.2). There are also pleas that Mr Poliwka and FWR failed to advise the plaintiffs of some 11 other matters including the financial consequences of the proposed transactions and that Girgis Nominees could and should obtain legal advice (SOC, par 85).
JEPL and its guarantors were said to have negligible net assets (SOC, par 86). It was also pleaded that, due to the lesser rent, the terms of the JEPL lease were less favourable than the terms of the Bajo lease (SOC, par 85.7). Mr Poliwka and FWR were pleaded not to have conducted any, or any adequate, due diligence into the financial position of JEPL and its guarantors (SOC, par 86.8).
A litany of 40 alleged non-disclosure matters were pleaded (SOC, par 87). The plaintiffs pleaded that, had those matters been disclosed, they would not have agreed to the surrender of the Bajo lease and entry into the JEPL lease and would have sought legal advice (SOC, pars 87.2, 89). Otherwise it is said that the plaintiffs relied on the alleged representations and alleged advice in surrendering the Bajo lease, entering into the JEPL lease and not seeking legal advice (SOC, par 89).
It is agreed on the pleadings that the JEPL lease was terminated on 4 April 2012 following default on the part of JEPL in payment of rent from January 2012 (SOC, pars 91 - 92; DAC, pars 91 ‑ 92). However, possession was not provided until 14 September 2012 (SOC, par 94; DAC, par 94). When possession of the premises was yielded up the premises were not in good and substantial repair, or fit for use as a nightclub, as fixtures and fittings had been damaged and removed in breach of the JEPL lease (SOC, pars 96 ‑ 97; DAC, pars 96 ‑ 97). Girgis Nominees sought to recover the loss and damage so suffered from JEPL and its guarantors (SOC, pars 98 ‑ 108; DAC, pars 98 - 108). However, recoveries were minimal (SOC, par 109 ‑ 109B).
The plaintiffs alleged that a reasonable estimate of the costs to carry out works to rectify the premises as if JEPL had performed its obligations under the JEPL lease was not less than $578,507.50 plus GST in a total of $636,358.25 (SOC, par 100.A).
Three separate causes of action were alleged to give rise to liability. The first two followed the other pleaded claims: (1) alleged contravention of the misleading or deceptive conduct statutory norms (SOC, pars 112 ‑ 113); and (2) alleged negligent breach of a tortious duty of care (SOC, pars 114 ‑ 115). The third was a contractual claim against Poliwka Group (trading as FWR) alleging breach of the term of the agency agreement pleaded at par 90 above (SOC, par 115.1).
In opening submissions the plaintiffs quantified the alleged loss or damage suffered as to this part of the claim at $1,131,745.06.[18] This appeared to consist of:
•$20,861.05 as to the difference in rent under the Bajo lease and the JEPL lease (SOC, par 113.B);
•$636,358.25 as to a reduction in the sale price of the Joondalup Property - which was apparently quantified by reference to the costs of carrying out all works reasonably necessary to put Girgis Nominees in the position it would have been had JEPL not breached the repair and maintenance and make good obligations under the lease (SOC, par 100.A);
•$193,292.30 by way of legal costs and expenses as to proceedings involving JEPL and its guarantors (SOC, par 113.F); and
•$281,233.46 as to rent that would otherwise have been received between the termination of the JEPL lease and the sale of the Joondalup Property (SOC, par 113.DA).
[18] Plaintiffs' Outline of Opening Submissions dated 8 February 2019, par 64.
However, post-trial the plaintiffs clarified that: (1) the second amount was not $636,358.25, but $680,000, which was the amount by which the price to purchase the Joondalup Property exceeded its eventual sale price (SOC, par 113.A rather than SOC, par 100.A); and (2) the damages claim was thus quantified at $1,177,386.81, not $1,131,745.06.[19]
[19] See Solomon Brothers' emails dated 15 and 16 May 2019.
To the extent that there is claimable loss the defendants again pleaded contributory negligence on the part of the plaintiffs (DAC, pars 113A.4 - 113A.5, 115A).
The defendants' counterclaim
The defendants counterclaimed alleging a shareholder agreement between Mr Girgis and Mr Poliwka arising from a number of discussions in October and November 2008 (DAC, par 16.4.3). The alleged agreement was that:
(1)a company, Girpol, would be formed in which Mr Girgis' and Mr Poliwka's trusts would each own 50 per cent of the issued shares;
(2)Girpol would purchase and operate the Moonlight Express with the two trusts each contributing half of the acquisition costs and any ongoing costs; and
(3)when Mr Girgis and Mr Poliwka joined together to buy any other properties, businesses or assets the same arrangement would prevail.
The defendants alleged that the Pub business was also purchased pursuant to, with ongoing costs to be contributed in accordance with, the shareholder agreement (DAC, par 118). Thus it was said that two trusts were required to make equal contributions to Girpol to fund the acquisition and ongoing costs of the Moonlight Express and the Pub business (DAC, par 119). Implied terms were alleged as to providing funds in a timely manner and an obligation to make equalising contributions where one party's contributions exceeded the other party's contributions (DAC, par 120).
The plaintiffs denied the alleged shareholder agreement. In the alternative the plaintiffs said that the parties could bring any such an agreement to an end if Girpol was suffering ongoing losses (Reply, pars 8.1, 51).
The defendants alleged that FWA's contributions pursuant to the shareholder agreement exceeded those of Girgis Nominees (DAC, pars 121 ‑ 122). Although a higher amount was pleaded, in written submissions the differential was said to be $805,378.[20] The defendants sought to recover half of that amount, ie $402,689 (see DAC, par 123). To the extent that the plaintiffs took an extra seven months to repay a BankWest loan and Girpol incurred additional liabilities for interest and bank charges the defendants sought to recover a further $29,180.52 alleging breach of the implied term (DAC, pars 129 ‑ 135).
[20] Defendants' Opening Submissions dated 11 March 2019, par 93.
The issues for adjudication
Based on that review of the parties' pleadings the issues for adjudication may be broadly stated as follows.
In general as to the plaintiffs' pleaded claims:
(1)What was the nature of the relationship between the Girgis parties and the Poliwka parties?
(2)Did the defendants owe the plaintiffs a duty as pleaded, namely, a duty to exercise reasonable care, skill and diligence in advising them in relation to matters concerning investment of money?
(3)Did the defendants carry on a financial services business in contravention of s 911A of the Corporations Act2001 (Cth) in making the alleged representations and giving the alleged advice to the plaintiffs?
(4)Was the conduct of Mr Poliwka attributable to the corporate defendants?
Among other things, consideration of these matters requires review and determination as to what alleged representations and alleged advice, if any, were made at a particular time. It also requires consideration of what occurred over the course of the relationship.
As to the purchases involving the Midland Hotel, the Pub business, the Moonlight Express and the Charter business:
(1)Was the following conduct in 'trade or commerce', namely, conduct in relation to: (a) the purchase of the Moonlight Express and its Charter business; and (b) taking over the management of the Pub business?
(2)What material representations or advice did Mr Poliwka make or provide to Mr Girgis? (Only the alleged representations said to be misleading conduct and the alleged advice as pleaded can give rise to liability.) As to the material representations as found there is also a question of characterisation: were they matters of fact (as contended by the plaintiffs) or merely aspirational or opinion (as contended by the defendants)?
(3)What material non-disclosures were there on the part of Mr Poliwka? (Only the alleged non-disclosures as pleaded can give rise to liability.)
(4)Was there conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive in contravention of one or more of the statutory prohibitions?
(5)Did the plaintiffs suffer loss or damage 'by' or 'because of' any such contravention? If so, in what amount? And ought there to be apportionment due to any contributory negligence on the part of the plaintiffs?
(6)If a duty of care was owed, did the defendants breach that duty? (If so the issues in sub-par (5) above then arise.)
The issues as to the Joondalup Property are broadly the same. Here, however, no issue arises as to whether the alleged conduct was in trade or commerce. There is also an additional issue as to the surrender of the Bajo lease and entry into the JEPL lease: did Poliwka Group breach the terms of the agency agreement?
On the defendants' counterclaim the issues are:
(1)Was there a shareholder agreement as alleged?
(2)If so, were there implied terms as alleged by: (a) the defendants; or (b) the plaintiffs?
Approach to the evidence
There was a substantial contest between the parties as to what had been said and agreed between Mr Girgis and Mr Poliwka over the period from late 2007 to mid to late 2012. The more material alleged conversations occurred more than ten years before trial. Almost all of the alleged representations were oral. So too the alleged advice and the alleged shareholder agreement was oral.
In those circumstances it is unsurprising that counsel for the defendants relied on the often quoted words of McLelland CJ in Eq in Watson v Foxman:
Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.[21]
[21] Watson v Foxman (1995) 49 NSWLR 315, 318 - 319.
In determining whether there was an agreement - and, if so, its terms - the matters referred to in that passage speak equally as to the difficulties in proof that arise where, in the absence of a reliable contemporaneous record or other corroboration, a party relies on spoken words to found a claim.[22]
[22] Lahoud v Lahoud [2006] NSWCA 169 [91] - [92]. See also John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 [94].
Watson v Foxman does not lay down a rule of universal application. It sets out considerations to which a trier of fact should have regard in determining whether misleading or deceptive conduct by oral representation - or the making of an oral agreement - is established in the circumstances of the particular case. The appropriateness of those considerations cannot be doubted. The many occasions on which this passage has been recited with approval is testament to its enduring accuracy.
The central task for me as a trier of fact is to assess whether the plaintiffs have proved, on the evidence adduced, that the pleaded alleged representations and alleged advice occurred. The standard of proof is the balance of probabilities. But a mere mechanical comparison of probabilities, independent of any belief in the reality of a fact, cannot justify a finding that the alleged fact occurred.[23] I must feel an 'actual persuasion' of the occurrence of existence of the disputed representation or advice.[24] The evidence as a whole must establish a reasonable satisfaction on the preponderance of probabilities so as to sustain the relevant factual finding.[25]
[23] Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 361.
[24] Briginshaw v Briginshaw (361).
[25] Axon v Axon [1937] HCA 80; (1937) 59 CLR 385, 403.
Whether I am so reasonably satisfied ought not to be considered independently of the nature and consequence of the fact in issue, ie the seriousness of the allegation, its inherent unlikelihood and the gravity of the consequences arising from the finding.[26]
[26] Briginshaw v Briginshaw (361). See also Neat Holdings Pty Ltd v Karahan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449, 450.
In order to better assess the credibility and reliability of the witnesses, pre-trial directions were made that required oral evidence of all conversations said to ground a representation, advice or an agreement. So too any evidence as to reliance was to be given orally. Those portions of the various witness statements that had been prepared and exchanged before trial were redacted. Accordingly, both Mr Girgis and Mr Poliwka gave substantial oral evidence in the course of their evidence-in-chief. While I accept that memory is a constructive and reconstructive process,[27] and I must be careful to identify issues of the type referred to in the passage quoted from Watson v Foxman, having the witnesses recount the substance and effect of their recollections - even so long after the events - was of assistance in forming a view as to the reliability of the witnesses' evidence.
[27] Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [2019] WASC 5 [26(i)].
It is, however, still necessary to assess the oral testimony in the context of the contemporary materials, objectively established facts and the apparent logic of events.[28] As Tottle J has recently observed, reliance on contemporaneous documents is preferable in cases involving events which occurred long before the litigation; contemporaneous statements and documents are likely to be a more accurate reflection of events than later statements when false memories can intrude.[29]
[28] Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 [31].
[29] Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [26(f), (g)].
The witnesses
It is convenient to make some general observations about the witnesses before addressing the events that are the subject matter of the litigation.
The plaintiffs' witnesses
The plaintiffs adduced evidence from six lay witnesses: Mr Girgis, Milena Rahaman, Ross Thomson, Clinton McNally, Xavier Martinez and Gregory Hart. The plaintiffs also called an expert valuer, Duncan Cameron.
Sherif Girgis
Mr Girgis was the key witness for the plaintiffs.
I will shortly address my conclusions as to Mr Girgis as a witness. I am conscious, however, that it is also necessary to assess Mr Girgis' relative experience and dependence when he first dealt with Mr Poliwka back in 2008 and 2009. That is when the purchases the subject of these proceedings occurred. There is, in my view, a difference between the Mr Girgis as presented to me as a witness at trial in March 2019 and the 23 or 24‑year-old young man who first dealt with Mr Poliwka after winning Oz Lotto. Mr Girgis has obviously matured and has acquired a degree of sophistication ‑ both commercial and otherwise - that he would not have had in 2008 and 2009. In part that is likely to be due to Mr Girgis' exposure to commerce and the world of business in the formative years of his twenties.
Mr Girgis referred to himself as being a 23‑year-old 'kid' at the time[30] - thus explaining why he would defer to Mr Poliwka's more substantial 30 plus years business experience. I consider that to be an accurate summation of the then position.
[30] ts 627.
It is the case that Mr Girgis was a university graduate. Mr Girgis' degree - a Bachelor of Commerce majoring in property - coupled with his part-time work as a trainee property valuer, demonstrated that Mr Girgis had an interest in the property sector. Undoubtedly Mr Girgis knew more about that area than the normal 23‑year-old. He was intending to pursue a career as a property valuer.[31] Indeed, even before winning Oz Lotto Mr Girgis had identified and registered an expression of interest in relation to a commercial property investment opportunity.[32] Mr Girgis had also undertaken formal studies in property and valuation related units at university, eg valuation methodology and valuation practice.
[31] ts 681.
[32] ts 700, 849 - 850.
Mr Girgis was, however, without significant assets or investment experience. Before winning Oz Lotto Mr Girgis owned a modest car and had a mere $8000 in the bank. The fact that at this time Mr Girgis was essentially a student, rather than a young professional, is made obvious by the circumstance that Mr Girgis continued to maintain a casual job at Grand Cinemas in Currambine and Joondalup until he won Oz Lotto.
In cross-examination counsel for the defendants sought to make much of Mr Girgis' formal studies. The truth is that Mr Girgis was an indifferent student. Mr Girgis failed an accounting unit three times and did not complete the degree at the university he had initially enrolled in.[33] Mr Girgis' work experience as a part-time trainee valuer was at a relatively low level; his main role was to obtain data for the actual valuers.[34] The reality is that in 2008 and 2009 there was a significant gulf in the practical business and property investment experience and understanding of Mr Girgis and Mr Poliwka. Mr Girgis was little more than a beginner in the property industry with book learning at an undergraduate level.
[33] ts 681.
[34] ts 683 - 694.
In oral submissions counsel for the plaintiffs argued that these matters were not discrete and severable. It was said that, as there was a single relationship between Mr Girgis and Mr Poliwka, there was in substance a single contest and all the matters were part and parcel of the narrative. I reject that submission. It is plain that some of the matters were claims in their own right (eg the Moonlight Express / Charter business and the acquisition of the Joondalup Property). Apart from that the discrete nature of the issues is readily apparent from the pleadings and the way in which the trial was run. For example, the witness statements addressed the narrative by topics that were consistent with many of the issues identified in par 78 above. So too, in large part, the cross-examination of the principal witnesses (Mr Girgis and Mr Poliwka) addressed the various matters by topic corresponding with the major issues. That was then reflected in closing submissions and the structure I adopted for the primary Reasons.
This is a case where the plaintiffs failed on discrete and severable issues.
Counsel for the plaintiffs also contended that the issues on which the plaintiffs lost did not take up a lot of time at trial. I accept that the topic which occupied the most time at trial was the Midland Hotel and the Pub business. But I do not accept that it can be said that the issues on which the plaintiffs lost were minor and did not add to costs in a significant way. Taken as a whole, having reflected on the course of the trial and having had to work through all of the issues to produce the primary Reasons, I am satisfied that the identified issues on which the plaintiffs were unsuccessful added to the costs of the trial in a significant and discernible way. They introduced distinct evidence not otherwise relevant (eg the value of the Watermans Bay Property), required cross-examination and re-examination, and saw time taken in opening and closing. The fact that a significant portion of the primary Reasons addresses why the plaintiffs lost on those identifiable issues is reflective of the fact that the issues were substantial and occupied a not immaterial portion of the trial. Moreover, the costs incurred in relation to the issues is not just concerned with the time taken at trial. Costs would have been incurred in preparing to deal with those issues.
The plaintiffs lost on the issues and associated causes of action identified in par 78 above. In the main those issues are discrete and severable from the part of the case on which the plaintiffs were successful. They added to the costs of the proceedings in a significant and readily discernible way. To do justice between the parties, so far as awarding costs is concerned, the costs orders made must take those matters into account.
However, I consider that little weight should be given to the circumstance that the plaintiffs failed on most of the alleged representations and non-disclosure matters as part of the ultimately successful case as to the Midland Hotel and the Pub business. Those matters were properly canvassed at trial and might well have been material to the proper determination of the case. They cannot be disentangled from the plaintiffs' case as to the Midland Hotel and the Pub business.
The defendants made a more general submission as to the plaintiffs' conduct of the case. That submission has merit in three respects. First, there are other aspects of the case on which the plaintiffs failed.[1050] Second, the nature of the plaintiffs' statement of claim has already been the subject of criticism in the primary Reasons.[1051] So far as the prolix and aggregative approach of the pleading resulted in many false issues there was, in my view, an unnecessary degree of complication which added to the time at trial and the preparation that would have been required for trial. Third, I accept a number of forensic excursions were embarked on unnecessarily on behalf of the plaintiffs.[1052]
[1050] See eg primary Reasons [251] (the representation that Mr Poliwka had a net worth of $160 million); [252] - [253] (the alleged 'one-third, one-third, one-third' investment strategy advice); [254] (whether Mr Poliwka recommended that Mr Girgis set up a particular company structure).
[1051] Primary Reasons [13] - [17].
[1052] See eg primary Reasons [318] (the suggestion that the advice as to the Currambine property was calculated to encourage Mr Girgis to invest in the Midland Hotel and the Pub business); [319] (the 'grooming' and 'big favour' allegations); [337] - [338] (whether units held on behalf of Mr Pollock and Mr Errichetti); [340] - [343] (various matters raising false issues).
These matters, taken individually, had some perceptible effect on the length of the time at trial. Collectively their impact was greater, but far from significant in the context of the trial as a whole. The overall effect of these three matters should, I consider, be taken into account in determining what is just as concerns the disposition as to costs. But in taking them into account I do not intend to accord them a significance out of proportion to the effect I ascribe them as having had to the length of the trial. They should be taken into account but are less significant, and have far less weight, than the plaintiffs' failure to succeed on the discrete and severable issues I have identified.
The defendants sought that there be no order as to costs. I am not satisfied that such an order would be open as a matter of discretion. It must be remembered that the plaintiffs are the successful party and the parts of the case on which they are successful occupied more time at trial than any other single issue. While, for the reasons I have given, there has been some disentitling conduct on the part of the plaintiffs, I am not satisfied that the disentitling conduct is of a type that it would be open to me to deprive the plaintiffs of costs altogether. To my mind that would be manifestly unreasonable and unjust.
I am not minded to provide for an order that the plaintiffs recover costs on some issues and the defendants on others. That will create a difficult and costly taxation. By far the better solution is an order as suggested by counsel for the plaintiffs in the alternative, ie an order that the plaintiffs recover a portion of their costs. In so apportioning costs I take into account that the defendants have incurred costs as a result of the manner in which the case was conducted and the defendants should not have been put to those costs. Otherwise apportionment should be made to reflect the fact that the plaintiffs were not wholly successful and, by their conduct of the case, unnecessarily and unreasonably increased costs. The latter factor is, however, of much lesser significance as, in my assessment, it had a much lesser impact on the length of the trial.
The apportionment is undertaken as a matter of impression rather than mathematical precision.
The plaintiffs are the generally successful party. Numerically the plaintiffs have recovered $2,526,301.79 (before interest) of a total amount claimed of $4,688,329.81.[1053] Recovery has been successful in relation to unrecouped advances, costs and guarantee payments made in relation to the Midland Hotel and the Pub business and losses following the re-letting of the Joondalup Property under the JEPL lease. The plaintiffs did, however, fail on a number of discrete issues. As I reflect on the trial, and my post-trial review of the witness statements, documents, transcript and submissions, I consider that those issues - individually and collectively - were significantly lesser contributors to the overall length of the trial than the parts of the case on which the plaintiffs were successful. (I include in that part of the case on which the plaintiffs were successful the associated evidence which cannot properly be disentangled from the plaintiffs' case as to the Midland Hotel and the Pub business and the re-letting of the Joondalup Property.) So too, while aspects of the plaintiffs' conduct of the case unnecessarily and unreasonably increased costs, the effect on the trial - although not immaterial - was not notable.
[1053] Comprising $3,441,815.03 as to the unrecouped advances, costs and the guarantee payment (see primary Reasons at [67]) and $1,246,514.78 as to the Joondalup Property (see primary Reasons at [84]). (The alternate claim in relation to the Joondalup Property was quantified at $1,177,386.81: primary Reasons at [104].)
In the circumstances of the case I consider that the just result as to costs is that the defendants pay 70 per cent of the plaintiffs' costs of the action. I reach that conclusion as a matter of broad impression based on the matters I have set out as to the degree of the plaintiffs' success, in a context where the Midland Hotel and the Pub business occupied more time at trial than any other single issue, and conscious that - to a relatively small degree - the plaintiffs unnecessarily and unreasonably increased costs by their conduct of the case.
The plaintiffs also sought an order that certain reserved costs follow the event. Those were costs reserved on 8 and 10 August 2017 in respect of an application made by the plaintiffs as to the defendants' proofing process. Apparently there was a concern that Mr Poliwka's son, a legal practitioner, was involved in the preparation of Mr Poliwka's witness statement. I was not case manager of the action at that time. I am not satisfied, however, that the plaintiffs' success in the action is a relevant event by which to determine the reserved costs for the application as described. The reserved costs concern an application which was never finally heard and determined. I am not in a position to assess whether it can be determined that one party would inevitably have been successful on the application. In those circumstances the costs should lie where they fall. Each party should bear its own costs as reserved on 8 and 10 August 2017.
Finally, to the extent that they were awarded their costs of the action, the plaintiffs sought an order that those costs be taxed without regard to the limits imposed by the applicable costs determinations. The plaintiffs relied on the 'unusual difficulty' criteria under s 280(2) of the Legal Profession Act 2008 (WA).
I set out my understanding of the applicable principles on an application for a special costs order under s 280(2) in Blatchford v Laine.[1054] I will not repeat what I stated in that case. I simply adopt and apply the principles set out in Blatchford v Laine.
[1054] Blatchford v Laine [2018] WASC 207 (S) [35], [38] - [53].
In summary:
(1)The court must form an opinion that the costs otherwise allowable would be inadequate. If that hurdle is met, the court must form an opinion that such inadequacy arises because of the unusual difficulty, complexity or importance of the matter.
(2)The requirement of inadequacy will be satisfied if the applicant shows that there is a fairly arguable case that the bill to be presented to the taxing officer may tax out at an amount which is greater than the limit that would be imposed by the relevant costs determination.
(3)The court approaches the enquiry as a matter of impression rather than a matter of detailed evaluation, precision or science. That is necessarily so as the determination is ordinarily made in advance of taxation.
(4)The word 'unusual' in s 280(2) of the Act qualifies 'difficulty' only.
(5)The characteristics of unusual difficulty, complexity or importance are to be assessed by reference to the 'matter' before the court rather than the work done or services provided in respect of each applicable item of the costs determination.
(g)There must be a causal connection between the unusual difficulty, complexity or importance of the matter brought before the court and the inadequacy of the costs allowable under the relevant determination.
There was no draft bill of costs before me. Nor did the plaintiffs adduce any evidence as to the fees charged and time spent by the plaintiffs' legal representatives. However, having been case manager of the action for some nine months pre-trial and having then presided over the trial I am in a position to deal with the issues arising under s 280(2) as a matter of impression. I am well familiar with the way in which the case was conducted and the issues were litigated.
The issues for consideration are evaluative rather than quantitative. It is, however, instructive to remind myself that:
•the pleadings occupied over 200 pages and a statement of issues prepared by reference to the pleadings occupied 46 pages;
•discovery was substantial (eg the electronic trial bundle consisted of some 3377 documents);
•the witness statements were voluminous. Mr Girgis had two statements ranging over 300 pages. Mr Poliwka's witness statement totalled 130 pages. In total, as to the other witnesses that were called, there were another 9 witness statements of varying lengths. In addition there were three valuation expert reports (totalling 218 pages). The witness statements provoked disputes as to admissibility which resulted in the need for conferral, argument and evidentiary rulings;
•due to the bulk of the likely documentary evidence the trial proceeded as an electronic trial. The parties arranged for documentary references in the witness statements to be hyperlinked to the electronic documents. Ultimately there were over 724 documentary exhibits admitted at trial;
•the parties filed comprehensive written opening submissions (45 pages for the plaintiffs and 34 pages for the defendants);
•the trial went for 16 days. There was additional oral evidence as to conversations relied on to ground alleged advice and representations. There was extensive cross-examination - particularly of Mr Girgis and Mr Poliwka;
•the plaintiffs prepared comprehensive written closing submissions (68 pages). In oral closing submissions counsel for the plaintiffs spoke to those submissions. That had the result of reducing the plaintiffs' oral closing to one day compared to two days for the defendants; and
•post-trial the plaintiffs prepared the evidentiary note as to the alleged representations, advice and non-disclosure matters that were continued to be relied on as is recorded in the primary Reasons (46 pages).
I am not so far removed from practice to fail to recognise that these things, especially when considered together, required the plaintiffs' legal representatives to undertake extensive preparation for trial. I am comfortably satisfied by reference to these things - and the conduct of the trial more generally - that there is a fairly arguable case that on taxation costs may properly be allowed in an amount greater than the limit imposed by the relevant costs determinations. For example, the costs determinations provide an allowance of 10 hours for giving discovery, 120 hours for the solicitors' preparation for trial and 3.5 days for counsel in preparation for trial.[1055] In the circumstances of the case run before me it is fairly arguable that the time necessarily and reasonably incurred by the plaintiffs' lawyers on these items will have exceeded those limits by a very considerable margin. When it is appreciated that these three items are likely to constitute a significant part of the overall costs incurred by the plaintiffs the result is that the requirement of inadequacy is satisfied. This is not to suggest that the inadequacy is demonstrated simply by those three items. Given the significance of those three items they inform inadequacy more generally.
[1055] Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA), Table B items 7(b), 18, 21(a). The two costs determinations that immediately proceed the 2018 determination provide for the same allowance.
The defendants argued that the inadequacy was not because of the unusual difficulty of the matter. Counsel for the defendants contended that whether there should be an uplift should be determined based on the case that the plaintiffs should have brought. The suggestion was that, when the plaintiffs' case was shorn of things on which the plaintiffs were unsuccessful or otherwise ought not have been pursued, the core matter was not unusually difficult.
In Strzelecki Holdings Pty Ltd v Jorgensen the Court of Appeal left open whether a special costs order could be made under s 280(2) where a party is awarded only a proportion of its overall costs having regard to the fact that it was not successful on all the issues it raised.[1056]
[1056] Strzelecki Holdings Pty Ltd v Jorgensen[113].
In principle I see no reason why such an order cannot be made. Section 280(2) is concerned with whether the costs allowable in respect of a 'matter' is inadequate and whether the inadequacy arises because of the unusual difficulty, complexity or importance of the 'matter'. The 'matter' is the matter in respect of which legal services were provided.[1057] Consideration is given to the dispute as a whole. Whether the two integers under s 280(2) are satisfied is not determined having regard to the issues on which the party seeking a special order won or lost. All the more so it is not determined by concluding that there were issues on which a party failed that justify apportionment as to costs. If it were otherwise the power provided by s 280(2) would be unjustifiably circumscribed. Section 280(2) would not be able to fulfil its statutory purpose of facilitating the operation of the general principle that a successful party is entitled to its costs of the litigation. Neither the text nor the purpose of s 280(2) justify limiting the power to make a special costs order such that the order is excluded where a party is awarded only a proportion of its overall costs.
[1057] Electricity Generation and Retail Corporation trading as Synergy v Woodside Energy Ltd [2014] WASC 469 (S) [8], [10] - [11].
In practical terms an order that the successful party only recover a portion of its costs will appropriately adjust costs entitlements as between the paying and receiving parties should a special costs order be made under s 280(2)(c) to remove limits. It should also be remembered that there is a residual discretion as to whether to make an order under s 280(2). If the qualifying conditions in s 280(2) are met the court 'may' do all or any of the things listed in sub-paragraphs (a) to (d). Accordingly, in a particular case it may be that the reasons a party is awarded only a proportion of its overall costs militate against any order under s 280(2).
In the latter respect I should record that counsel for the plaintiffs submitted that once the integers under the chapeau to s 280(2) were met there was no residual discretion. According to counsel for the plaintiffs, the court must then make one of the orders under s 280(2)(a) to (d). I reject that submission. It is contrary to authority.[1058] Putting aside prior authority, the use of the word 'may',[1059] coupled with the fact that it is well-established that powers granted to a court as to costs confer a broad discretion to be exercised judicially,[1060] compel the conclusion that satisfaction of the qualifying conditions in the chapeau to s 280(2) simply enlivens a discretion as to whether or not to make one or more of the orders as specified in sub-paragraphs (a) to (d). There is a residual discretion as to whether to make a special costs order once the party seeking the order establishes the things provided for under s 280(2).
[1058] Cockburn Cement Ltd v The Minister for the Environment (WA) [2011] WASC 260 (S) [60] - [61].
[1059] See Interpretation Act 1984 (WA), s 56(1).
[1060] See eg Strzelecki Holdings Pty Ltd v Jorgensen[48].
I am satisfied that the matter in the present case was unusually difficult within the meaning and for the purpose of s 280(2). Further, answering the defendants' point, I am satisfied that - even if the the plaintiffs' case had excluded those things on which the plaintiffs were unsuccessful or ought not have been pursued - the matter was unusually difficult. There was an extremely large body of evidence covering a relationship and dealings that spanned nearly five years. I accept that the legal issues involved were relatively standard. But the case for the special costs order was not advanced on the basis that the matter was complex. Judged by reference to the length and nature of the parties' relationship - and their multiple commercial and personal dealings - both the matter as a whole and the core part of the case on which the plaintiffs succeeded was unusually difficult. In no way could either be considered to fall within the usual run of civil cases in this court or the District Court of Western Australia (the latter being relevant as the relevant costs determinations are applicable to both courts).
The causal question remains. I must be satisfied that the inadequacy of the costs allowable in respect of the matter under the costs determination arises because of its unusual difficulty. I am so satisfied. The unusual difficulty of the matter - reflected in the extremely large body of evidence I have referred to - plainly affected the amount of work necessarily and reasonably done in preparing for and presenting the case at trial.
While, for the reasons I have given, I consider there is a residual discretion to refuse a special costs order under s 280(2), this is not a case where it would be appropriate to refuse to make a special costs order altogether. The disentitling conduct of the plaintiffs is not of such a character that such a response would be just or reasonable. It would be disproportionate and capricious to penalise the plaintiffs in this way. The relevant failings on the part of the plaintiffs have been adjusted for and taken into account in depriving the plaintiffs of a portion of their costs.
It follows that the plaintiffs have made out a case for a special costs order under s 280(2)(c) of the Legal Profession Act 2008 (WA). The precise terms of the order then need to be considered.
I will make an order removing limits fixed for certain items within the costs determinations rather than all limits. I also propose only to remove the limit created by the maximum daily and hourly allowances for time spent on the relevant items rather than removing the maximum daily and hourly rates prescribed by the costs determinations. I received no evidence nor submissions to suggest that the daily and hourly rates - as distinct from the daily and hourly allowances - as fixed by the costs determinations were inadequate. Accordingly, taxation should proceed on the basis that the costs determinations establish the maximum allowable daily and hourly rates.
I will remove the limits on the daily and hourly allowances for those items where the size of the dispute results in prima facie inadequacy in relation to the limits imposed by the relevant costs determinations. Those items are:
•item 7(b) - giving discovery;
•item 18 - preparation of case; and
•item 21(a) - fee on brief (but only as to the 3.5 day limit on preparation for trial).
To the extent that limits were removed by item, rather than across the board, the plaintiffs sought that there be removal of the limit in relation to item 1(c), ie the statement of claim. The costs determinations provide for a maximum 10 hours by way of allowance. I am not prepared to remove the limit in relation to the statement of claim. The primary Reasons addressed the oppressive prolixity of the statement of claim.[1061] Given the observations made as to the statement of claim it is inappropriate that this aspect of the work performed on behalf of the plaintiffs see a lifting of the limit fixed by the costs determination. The deficient nature of the statement of claim militates against a favourable exercise of discretion in this regard.
[1061] Primary Reasons [13] - [17].
While I will remove certain daily and hourly allowances limiting recovery under the costs determinations it will nonetheless remain the task of the taxing officer to consider the reasonableness of and necessity for the work undertaken; the taxing officer will make a judgment about the remuneration reasonably required.[1062] He or she will undoubtedly do so having regard to the observations I made in the primary Reasons as to the manner in which the plaintiffs' case was prepared and presented.
[1062] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [11] - [12].
The costs of the counterclaim
The costs on the counterclaim should be minimal. As I recorded in the primary Reasons, at trial the defendants' counterclaim attracted little attention. There was little by way of evidence and little by way of submissions.[1063] Most of the evidence relevant to the counterclaim was evidence that was required for the purpose of the plaintiffs' case in any event. However, there will be discrete and severable costs for the counterclaim. For example, the pleadings and legal argument in relation to the counterclaim. No doubt there will also be disbursements.
[1063] Primary Reasons [1177].
The defendants were the successful party on the counterclaim. However, the recovery was modest: a mere $25,000 against an amount of $431,869.52 as sought. The defendants failed as to the plaintiffs' implied term defence.
The plaintiffs claimed that they were largely successful in defending the counterclaim. For that reason - and the intertwined nature of the claim and counterclaim - the plaintiffs contended that the defendants should pay their costs of the proceedings generally, ie the defendants should pay the plaintiffs' costs of the counterclaim. I consider that is inappropriate given that the defendants are the successful party. The defendants should have a costs order in their favour as to the counterclaim. But the defendants should only receive a portion of those costs. The plaintiffs were successful on the issue of whether the shareholder agreement contained an implied term permitting the plaintiffs to bring the shareholder agreement to an end if Girpol was suffering losses.
I will apportion costs. In my opinion it is just and reasonable that the defendants receive 50 per cent of their costs on the counterclaim. The relatively substantial discount is warranted given that: (1) the defendants' success was very limited in monetary terms; and (2) while the defendants established the alleged shareholder agreement, the plaintiffs established the alleged implied term to that agreement.
Conclusion and orders
The orders to give effect to these reasons will be to the following effect:
(1)On the plaintiffs' action judgment is entered:
(a)in favour of the first plaintiff, against the first and third defendants, in a further amount of $14,250 together with interest on the $14,250 calculated at the rate of six per cent per annum from 13 October 2014 to today's date;
(b)in favour of the second plaintiff, against the first and third defendants, in a further amount of $476,000 together with interest on the $476,000 calculated at the rate of six per cent per annum from 13 October 2014 to today's date.
(2)On the defendants' counterclaim judgment is entered in favour of the first defendant, against the first plaintiff, in an amount of $25,000 together with interest on the $25,000 calculated at the rate of six per cent per annum from 23 December 2014 to today's date.
(3)The defendants are to pay 70 per cent of the plaintiffs' costs of the action, to be taxed if not agreed. However, each party is to bear its own costs so far as costs were reserved on 8 and 10 August 2017.
(4)Pursuant to s 280(2)(c) of the Legal Profession Act 2008 (WA) the maximum daily and hourly allowances for time spent as fixed by the relevant costs determinations are removed for the purpose of the taxation conducted under order (3) above in relation to:
(a)item 7(b) - giving discovery;
(b)item 18 - preparation of case; and
(c)item 21(a) - fee on brief (but only as to the 3.5 day maximum limit on preparation for trial.)
(5)The plaintiffs are to pay 50 per cent of the defendants' costs of the counterclaim, to be taxed if not agreed.
These reasons will be provided to the parties as advance reasons. If any party wishes to be heard on the precise form of the orders then the matter will be re-listed before me at the earliest opportunity. If, however, no party gives notice that they wish to be heard by 4 pm on 18 September 2019, then orders will be entered administratively on 18 September 2019 in the terms provided for in the preceding paragraph. These reasons will be published at the time that the orders are entered.
Annexure A
Defendants' Tables as to Alleged Realisable Assets and Competing Claims
Table 1: Junction Unit Trust Realisable Assets as at 30 June 2010
| Junction Trust | Per balance sheet | Realisable value | |
| Assets | |||
| Cash on hand | 4 | 4 | |
| Rental income receivable | 590,000 | 590,000 | |
| Midland Hotel - historic WDV | 2,638,920 | 2,638,920 | |
| Midland Hotel - WDV of 2009 renovations | 545,296 | 545,296 | |
| Midland Hotel - WDV of Fixtures & Fittings | 36,980 | 36,980 | |
| Hyundai i30 Motor Vehicle WDV | 13,207 | 13,207 | |
| Preliminary and borrowing costs | 6,036 | - | |
| 3,830,443 | 3,824,407 | ||
| Priority Liabilities | |||
| Tax liability | 202 | 202 | |
| GST liability | 54,750 | 54,750 | |
| Bank overdraft | 314 | 314 | |
| 55,266 | 55,266 | ||
| ME Bank Loan (discharged by guarantors) | 1,956,461 | 246,729 | |
| Related party loans | |||
| Girpol | 877,524 | 877,524 | |
| Bold Gem Trust | 679,527 | 679,527 | |
| 3,513,512 | 1,803,780 | ||
| Net Assets | 261,665 | 1,965,361 | |
Table 2: Bold Gem Unit Trust Realisable Asset Values as at 30 June 2010
| Bold Gem Trust | Per balance sheet | Realisable value | |
| Assets | |||
| Cash balances | 30,513 | 30,513 | |
| Tax receivable | 5,425 | 5,425 | |
| GST receivable | 16,506 | 16,506 | |
| Inventory | 120,592 | 120,592 | |
| Loan - Junction Trust | 679,527 | 679,527 | |
| Leasehold improvements - WDV | 69,573 | - | |
| Plant & Equipment - WDV | 62,161 | - | |
| Office Equipment - WDV | 6,568 | - | |
| Goodwill | 427,000 | - | |
| Preliminary costs | 2,046 | - | |
| 1,419,911 | 852,563 | ||
| Priority Liabilities | |||
| Trade creditors | 666,849 | 666,849 | |
| Tax liability | 4,456 | 4,456 | |
| Bank overdraft | 22,877 | 22,877 | |
| Superannuation payable | 6,055 | 6,055 | |
| 700,237 | 700,237 | ||
| Related party loans | |||
| Girpol | 1,708,234 | 137,326 | |
| Wasil Poliwka | 37,508 | - | |
| Sherif Girgis | 39,625 | 15,000 | |
| 1,785,367 | 152,326 | ||
| Net Assets | -1,065,693 | - | |
Table 3: Girpol Realisable Asset Values as at 30 June 2010
| Girpol | Per balance sheet | Realisable value | |
| Assets | |||
| Cash balances | 11,029 | 11,029 | |
| Trade debtors | 43,070 | 43,070 | |
| Security bond | 9,091 | 9,091 | |
| Investments | 40,131 | - | |
| Loan - Junction Trust | 877,524 | 877,524 | |
| Loan - Bold Gem Trust | 1,708,234 | 137,326 | |
| Plant & Equipment - WDV | 2,559 | 2,559 | |
| Moonlight Express - WDV | 624,668 | 624,668 | |
| Preliminary and borrowing costs | 8,991 | - | |
| 3,325,297 | 1,705,267 | ||
| Priority Liabilities | |||
| Trade creditors | 6,577 | 6,577 | |
| Tax liability | 4,251 | 4,251 | |
| Superannuation payable | 2,007 | 2,007 | |
| 12,835 | 12,835 | ||
| BankWest Loan (discharged by guarantors) | 1,450,000 | - | |
| Related party loans | |||
| Poliwka Investment Trust | 1,069,442 | 1,069,442 | |
| Girgis Property Trust | 1,069,442 | 1,069,442 | |
| 3,588,884 | 2,138,884 | ||
| Net Assets | - 276,422 | - 446,452 | |
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EP
Research Associate to Justice Vaughan
18 SEPTEMBER 2019
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