Hill v James - [2004] NSWSC 55

No judgment structure available for this case.

CITATION: Terry Donald Hill v David Anthony James & Ors [2004] NSWSC 55

HEARING DATE(S): 3,4,5,6,10,11,12,13 & 25 November 2003, 5 & 12 February 2004

JUDGMENT DATE:
20 February 2004

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Bergin J

DECISION: See paragraphs 287 - 289

CATCHWORDS: [Commercial Contracts]- identification of terms -contract in which defendant, through a corporate vehicle, exchanged contracts for purchase of certain assets (including the wine business) from the liquidator to be owned by the plaintiff, via a shareholding in the corporate vehicle, if the plaintiff able to fund the settlement- obligation on the defendant to provide contract with liquidator to the plaintiff for his approval/whether the plaintiff required to pay purchase price that the defendant paid the liquidator or some other amount [Breach] -falsification of documents provided to the plaintiff for his approval- requiring the plaintiff to pay higher price for purchase than the defendant paid the liquidator for the wine business - [Damages] - whether the plaintiff suffered damage by reason of breaches - whether the plaintiff had the capacity to settle the contract in any event - [Misleading and deceptive conduct] - representation that document provided for approval by the plaintiff contained the true terms of the contract between the liquidator and the defendant - reliance -payment of money based on amounts in false documents - [Agency/Fiduciary] - whether fiduciary obligations imposed by use of the words in the contract that the defendant would purchase the wine business "on behalf of" the plaintiff - [Tort] - deceit - elements- whether exemplary damages available -whether an award of exemplary damages should be made.

CASES CITED: A.B. & Ors v South West Water Services Ltd [1993] QB 507
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Briginshaw v Briginshaw (1938) 60 CLR 336
Broome Cassell & Co. Ltd [1972] AC 1027
Coghlan v Pyoanee Pty Ltd [2003] QdR 636
Gray v Motor Accident Commission (1998) 196 CLR 1
Hospital Products Limited v United States Surgical Corporation & Ors (1984) 156 CLR 41
Jones v Dunkel (1959) 101 CLR 298
Kuddus v Chief Constable of Leicestershire Constabulary [2001] 2 WLR 1789
Lamb v Cotogno (1987) 164 CLR 1
Mehmet v Benson (1965) 113 CLR 295
Metall und Rohstoff A.G. v ACLI Metals (London) Ltd [1984] 1 Lloyd's Rep 598
Musca & Ors v Astle Corporation Pty Ltd & Anor (1988) 80 ALR 251
New Zealand and Australian Land Co. v Watson (1881) 7 QBD 374
Romanos v Pentagold Investments Pty Ltd [2003] HCA 58, (2003) 201 ALR 399
Rookes v Barnard [1964] AC 1129
Tanwar Enterprises Pty Ltd v Joseph Cauchi & Ors [2003] HCA 57, (2003) 201 ALR 359
Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118
XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448

PARTIES :
Terry Donald Hill (Plaintiff)
David Anthony James (First Defendant)
Bearing Traders Pty Ltd (Second Defendant)
David George Brooks (Third Defendant)
Liquor National Pty Ltd (Fourth Defendant)
Wine National Pty Ltd (Fifth Defendant)

FILE NUMBER(S): SC 50149/02

COUNSEL: MR Aldridge SC and RD Glasson (Plaintiff)
CR Newlinds SC and DA Allen (Defendants)

SOLICITORS: Eddy & Moloney Solicitors (Plaintiff)
Catalyst Partners (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

20 FEBRUARY 2004

50149/02 TERRY DONALD HILL v DAVID ANTHONY JAMES & ORS

JUDGMENT

1 This litigation arises out of the liquidation of the Hill Wine Group of companies (the Group) in 2002 and the attempted purchase back of some of the assets of the Group by the plaintiff, Terry Donald Hill in conjunction with the first defendant, David Anthony James. The evidence establishes a level of commercial skulduggery that each of these vignerons pursued as if it were their normal or usual way of doing business. Unfortunately a member of the legal profession, the third defendant, was also involved in this trickery.

2 This matter was heard on 3, 4, 5, 6, 10, 11, 12 and 13 November 2003 when Mr M Aldridge SC leading Mr R Glasson appeared for the plaintiff and Mr CRC Newlinds SC leading Mr D Allen appeared for all defendants. A matter relating to the issue of the terms of the contract between the plaintiff and the first defendant arose after I reserved my judgment and the parties were invited to make further submissions on that matter. Those submissions were made on 5 and 12 February 2004.

Background

3 In 1984 the plaintiff purchased a liquor distribution business and began trading as Blue Hills Liquor Distributors Pty. Limited (Blue Hills). Blue Hills expanded its business operations and acted as exclusive distributor for a number of wine companies including Marienberg in South Australia. In 1990 the plaintiff became a director and shareholder of Marienberg Wine Company Ltd (Marienberg) which acquired the Marienberg wines brand intellectual property. In 1991 the plaintiff contracted with the wine maker, Grant Burge, in South Australia to make the Marienberg wines.

4 Between 1992 and 1998 another company of which the plaintiff was a director and shareholder, Lymall Pty Limited (Lymall) traded as Hill International Wines operating a fine wine distribution business selling McGuigan Wines throughout Australia. In 1994 another company within the Group, Saidwick Pty Limited (Saidwick) purchased the Thomas Fernhill Wines and changed the name to Fernhill Estate. In 1996 another company in the Group, Basedow Wines Pty Limited (Basedow) purchased Basedow Wines which had been established in 1896 by Johann Basedow and was later owned by Grant Burge. In October 1998 Hill Wine Group Vineyards Pty Limited (HWG Vineyard) acting as trustee for the Hill Family Trust No. 2 purchased the Douglas Gully Vineyard in McLaren Vale, South Australia.

5 Prior to 11 February 2002 the Group consisted of a number of companies that conducted what has been referred to as the “wine business”, the “distribution business” and “the Fernhill Winery” situated in McLaren Flat, South Australia. The wine business was a grape growing and grape production business carried on by Marienberg and Basedow and conducted primarily in McLaren Vale and Tannunda, South Australia. It included the Limeburners Restaurant. This distribution business consisted of the wholesaling of liquor and exclusive agency distribution of wines and alcoholic beverages carried on by BHL Holdings Pty Limited (BHL) and Lymall. The Group also owned a number of residential properties in New South Wales and Queensland.

6 On 11 February 2002 George Georges and Peter McCluskey of Ferrier Hodgson were appointed as joint administrators of BHL, Lymall, HWG Logistics Pty Limited (HWG Logistics) and Docvin Pty Limited (Docvin). On the same day Mr McCluskey and Bruce Carter were appointed as joint administrators of Marienberg, HWG Vineyard, Basedow, Saidwick and another company in the Group, TD and RJ Hill Investments Corporation Pty Ltd.

7 The first defendant, David Anthony James is the sole director and shareholder of each of the second, fourth and fifth defendants, being Bearing Traders Pty Limited (Bearing Traders), Liquor National Pty Limited (Liquor National) and Wine National Pty Limited (Wine National). The third defendant, David George Brooks is a solicitor of Catalyst Partners and was the other defendants’ solicitor at the relevant times. I shall refer to David Anthony James as “the defendant”.

8 The defendant has had quite a deal of business experience since he purchased Bearing Traders in 1987. In 1990 he acquired a similar business in Queensland from liquidators and it was during this negotiation and transaction that he observed what he thought to be a preference of liquidators for prospective purchasers to bid for all of the assets of the company in liquidation. He noted that in this way a prospective purchaser might be able to negotiate a discount.

9 In December 1997 through a company, Sundara Pty Limited, the defendant acquired the Serenella Estate at Sandy Hollow in the Upper Hunter Valley, New South Wales. This consisted of a small vineyard, a large parcel of land and a small winery. The defendant said he was attracted to this acquisition because it “had all the elements of being an integrated wine manufacturer in that it could grow grapes, make the wine and bottle and label the wine”. The defendant also gave evidence that the wine industry appealed to him because it had greater sales opportunities than his other businesses, particularly overseas.

10 In 1998 the defendant changed the name of the vineyard at Sandy Hollow to James Estate and began planting more grapes and increasing the production, bottling and labelling of wine. Late in 1998 the defendant launched the James Estate wine brand through James Estate Wines Pty Limited. In 2000 James Estate opened an office in San Luis Obispo in California, USA and the James Estate label is apparently sold in fourteen states throughout the USA to fine wine shops, wine clubs and a variety of small and large outlets. In 2002 James Estate Wines opened an office in London and sells wines in the United Kingdom and throughout the European Union.

Defendant Registers an Interest

11 It was early in February 2002 that the defendant became aware that Blue Hills Liquor in Sydney had gone into administration. Shortly after this he noticed an advertisement in the Australian Financial Review seeking expressions of interest for the business of the Group. He registered his interest with Ferrier Hodgson and received an information memorandum. He also inspected a property at Newington in Sydney from which Blue Hills operated. The defendant then had discussions with the representatives from Ferrier Hodgson relating to the materials required for the due diligence process. He gave evidence that he discovered that the Group had attempted to refinance their debts with GE Capital. He had also dealt with GE Capital and had what he described as a good payment history with them and felt that any possible acquisition might be able to be funded by GE Capital.

12 Prior to February 2002 the defendant had been discussing with Ian Brierley of Access Corporation Pty Limited, the possibility of creating a wine bond for James Estate Wine. He had a meeting with Mr Brierley in early March 2002 when Mr Brierley informed him that he had been asked to assist the plaintiff to help to put finance together to buy the Group back. Mr Brierley asked the defendant whether he would be interested in meeting the plaintiff and seeing if there was any common ground. The defendant informed Mr Brierley that he would prefer not to be involved in ventures with others but that there would be no harm in having a meeting.

Defendant Meets with the Plaintiff

13 In early March 2002 the defendant, Mr Brierley, Rick Hodgson, the Financial Controller for the defendant’s Group of companies, Trent Hancock, an Accountant of Stockfords, the plaintiff and the plaintiff’s solicitor Michael O’Neill of Nash, O’Neill Tomko, met at the offices of Stockfords Accountants in Sydney. The plaintiff provided some background of the Group and informed the meeting that he was looking to refinance the debt of the Group and seek equity investors to effectively buy the Group back.

14 The defendant also gave the meeting a general outline of James Estate Wines and its history. The plaintiff gave evidence that at this meeting the defendant said:

James Estate has been operating out of the Upper Hunter in New South Wales since the late 1990’s, and although we have a small domestic market for our product around the Newcastle and Northern Rivers area, with some minor sales in Brisbane and the ACT, the bulk of our wine is exported predominately to the USA, where we sell it to the supermarket outlets in some twelve or so states.

I am interested in some of the divisions of the Hill Wine Group, particularly the broad range wholesaler, Blue Hills Liquor Distributors, and the agency company, Hill International Wines. I think that these divisions of the Hill Wine Group would compliment our current operations.

My own view is that with the anticipated appreciation of our Aussie dollar, compared to the US dollar, my margins are going to get tighter and tighter in the USA supermarkets, meaning that I should aim to have substantially more sales into the Australian market. This is one of the reasons why I’m interested in Blue Hills and Hill International Wines.

Liquidators appointed

15 The plaintiff with Trent Hancock and Michael O’Neill prepared a Deed of Company Arrangement Proposal that was forwarded to the administrators. On 15 April 2002 a meeting was held with the administrators in Melbourne, at which the plaintiff was advised that if he improved his proposal by an amount of approximately $3 million - $4 million the administrator would be recommending the Deed proposal to the National Australia Bank and to the creditors. Following the meeting with Ferrier Hodgson, the plaintiff increased the amount payable under the Deed from an aggregate of $21 million to an aggregate of $24.2 million.

16 On 22 April 2002 a meeting of creditors took place chaired by the administrator. Mr O’Neill addressed the meeting, summarising the Deed proposal and explaining to creditors the benefits of the proposal. The proposal failed and the administrators were appointed as liquidators of the companies in the Group of which they had been the administrators. Mr Georges advised Mr O’Neill that he intended to sell the Group’s assets as a matter of urgency and that if the plaintiff wished to make an offer for any or all of the assets he should do so by 5:00pm on 24 April 2002.

17 Immediately after the meeting on 22 April 2002 the plaintiff had a discussion with the defendant and advised him that he would certainly be making an offer to the liquidators and asked him whether he was still interested in the distribution business. The defendant advised the plaintiff that he still had an interest and the plaintiff promised to get back to him within a short timeframe as the liquidator had given only forty-eight hours to submit an offer.

18 On 24 April 2002 the plaintiff attended a meeting with Mr O’Neill and Mr Brierley at which meeting they telephoned the defendant on a conference call. During this conversation Mr O’Neill advised the defendant that he and Mr Brierley had been working through the various options available to the plaintiff and that they were interested in having the defendant involved in taking on the distribution business. Mr Brierley advised that the Newington property, from which Blue Hills operated, may be able to be obtained for a good price as part of an overall package. The defendant said that he remained interested in the distribution business and would give consideration to joining with the plaintiff in any deal that might enable him to acquire that business for a good price. He said that he did not have any interest in the wine business or the wine brands.

19 Mr O’Neill advised the defendant that if he was going to be involved the plaintiff would be looking to him taking on the distribution business on an understanding that there would be some ongoing commercial arrangement between the wine business, to be owned by the plaintiff, and the distribution business, to be owned by the defendant. Mr O’Neill advised that he was happy to set those options out in writing on a confidential basis and send it to the defendant. He suggested that they should talk again if the defendant remained interested.

Plaintiff seeks funding

20 Between late February and 24 April 2002 the plaintiff had been having discussions with Sigvald Wehrle, a person resident in Switzerland with whom he had been dealing for a number of years and who had acted as a consultant to the company that imported the Group’s wines into Switzerland. Mr Wehrle had expressed an interest in an investment in the Australian wine industry, in particular, in Basedow, Marienberg and Fernhill Estate. Mr Wehrle was advised that the plaintiff was preparing a proposal for the Deed of Company Arrangement and in early April the plaintiff forwarded to Mr Wehrle a draft of the business plan of the Group. Mr Wehrle advised that he would review the information that was sent to him but that he expected to commit about “USD 5 to 7 million” (Ex. 1:181).

21 Although the plaintiff’s evidence was that his preferred choice of equity investor was Mr Wehrle by reason of the amount of his proposed investment, he also had preliminary discussions with a business acquaintance, Wayne Adsett, an accountant in Auckland, New Zealand. Mr Adsett advised the plaintiff that he had engaged in “firm discussions” with a group of investors in New Zealand who would be interested in an equity investment in the proposed wine company, subject to due diligence. He advised that the equity investment would be up to a level of “AUD 4 million” (Ex. 1:120). After the liquidators were appointed the plaintiff advised Mr Wehrle of the outcome of the creditors’ meeting and Mr Wehrle advised he still wished to be involved in a proposal.

Chocmalt/Perbold Offer to Liquidators

22 The plaintiff, through Mr O’Neill, submitted an offer to the liquidators on 24 April 2002. That offer was made by nominee companies of which the plaintiff was a director, Chocmalt Pty Limited (Chocmalt) and Perbold Holdings Pty Limited (Perbold). Chocmalt offered to purchase the distribution business for $3 million and Perbold offered to purchase the wine business for $10.9 million. Offers were also made to purchase residential properties and the property at Newington. The offer was supported by letters of commitment from Mr Wehrle’s group of companies for US$4 million, from PayNow Pty Limited (PayNow) offering finance of AU$4 million and from Custom Finance Group offering AU$2.5 million.

23 Negotiations commenced but broke down on 29 April 2002. On 1 May 2002 the plaintiff, Chocmalt and Perbold commenced proceedings against the liquidators in the Equity Division of this Court claiming that an agreement had been concluded (Ex. 1: 325-332). An application for interlocutory relief restraining the liquidators from treating with others, heard by Windeyer J on 2 May 2002, was unsuccessful, however the plaintiff instructed Mr O’Neill to proceed to a final hearing as soon as possible.

24 On 3 May 2002 Mr O’Neill wrote by facsimile to the liquidators’ solicitors, Clayton Utz, in the following terms:

We are instructed to write to you and give your client Liquidators notice that, following a series of briefings with Mr Hill’s advisers, the writer is meeting this afternoon with the managing director of a substantial privately owned Australian company (which conducts its banking operations with the NAB), with a view to that company making an unconditional offer to your client Liquidators to acquire all of the assets of the Hill Wine Group (with the possible exception of the residential properties).

The precise amount of the purchase price is yet to be determined, however, discussions to date have proceeded on the basis that the purchase price shall be equivalent to, or in the region of, the offers made to the Liquidators in our facsimile transmission dated 24 April 2002.

The parties are likely to be working this afternoon and over the weekend, with a view to a written offer being made to the Liquidators by not later than 11.00 am on Monday 6 May 2002. In these circumstances, we urge the Liquidators to delay the execution of contracts for sale of any of the assets of the Hill Wine Group pending their consideration of the foreshadowed offer.

(Ex. 1: 262)

25 It is apparent that Clayton Utz responded to Mr O’Neill’s fax on 3 May 2002, although that document does not appear to be in evidence. On 6 May 2002 Mr O’Neill wrote once again to the Liquidators by facsimile in the following terms:

We refer to your fax dated 3 May 2002, timed at 6.05 pm that day, which was not seen by the writer until he arrived at the office at about 9.45 am this morning, following a meeting with Mr Mark Newham of B H Newham Pty Limited, the representative of the Australian company referred to in our fax to you dated 3 May 2002.

We note our fax dated 3 May 2002 was sent at the invitation of your client’s Counsel, the morning after the hearing of our clients’ application. We further note your Counsel’s concession that existing offers were less than the offers by Chocmalt and Perbold, and therefore less than the amount of the offer currently being formulated.

This Australian company will decide today whether to submit its offer. Any offer will therefore be submitted by close of business today.

We trust your client has taken care not to enter into any binding agreement for the sale of Hill Wine Group assets, pending execution of formal contracts.

(Ex. 1: 278)

26 Clayton Utz responded to Mr O’Neill’s facsimile by a further facsimile of 6 May 2002 which stated:

We refer to your facsimile transmission received this afternoon.

The writer has spoken with Mr Newlinds who denies extending any “invitation” to either you or your client regarding this matter. Mr Newlinds has advised the writer that he did say to you words to the effect of “if I was you, mate, I would put in an unconditional offer”. That comment was made without instructions from either this office or our client and, in any event, can hardly be construed as an “invitation”.

We repeat our instructions in our facsimile transmission to you of Friday last, that our client is already committed to the sale of the business assets in question, to other purchasers. Accordingly, there is no need for any offer to be submitted either by close of business today or at any future time.

(Ex. 1: 276)

27 The plaintiff was locked in litigation with the liquidators and there appeared to be some tension between the Group’s bankers, the National Australia Bank, Ferriers and the plaintiff, at least from the plaintiff’s perspective. Mr Brierley suggested to the plaintiff that in the circumstances it may be helpful if the defendant would consider “fronting the deal” for him.

28 On 6 May 2002 the plaintiff attended a meeting held in the boardroom of Nash O’Neill Tomko. Also present were Mr Brierley, Mr O’Neill, the defendant and an employee from Bearing Traders. Mr O’Neill advised the defendant of recent developments, including the rejection of Chocmalt’s offer made to the liquidators and the subsequent commencement of legal proceedings against the liquidators. The versions given by the plaintiff and the defendant in respect of the discussions of this meeting differ slightly, but the defendant gave evidence that Mr O’Neill said words to the following effect:

Now as you can probably appreciate from what has happened, there would be difficulty in Terry being a party to any joint bid because I suspect that the NAB won’t want to be involved in any deal with Terry. However, if you were to acquire all the assets you could then transfer the wine business to Terry via a back to back arrangement. As a sweetener, Terry can pay the deposit for all the assets so you are affectively getting gifted the deposit for the non wine business assets. This will compensate you for the risk of Terry not completing the transaction and you having to complete the acquisition of the wine business as well.

29 There does not seem to be any issue that at this meeting the defendant was informed that the plaintiff believed that the distribution business would be good value at about $2 million and that the wine business would be good value at about $12 million. The defendant gave affidavit evidence that he informed the meeting that he proposed putting in a bid of $14 million if the plaintiff was going to pay $12 million for the wine business. He said that he would do that anyway “just to test the waters” because if there was not much interest from Ferriers at that price he did not think there would be any point in continuing to consider any arrangement with the plaintiff.

30 The defendant was informed of Mr Wehrle’s interest and wanted to know how reliable he was. Mr O’Neill informed the defendant that from the telephone calls he had with Mr Wehrle he seemed very well connected. Mr O’Neill also advised the defendant that they would have to reach a formal agreement to ensure that the company purchasing the assets, in particular the wine business, could be easily transferred to the plaintiff. The defendant agreed that in principle it sounded “okay”, but he would have to talk to his advisers.

31 On 6 May 2002 Mr O’Neill, on the plaintiff’s instructions, wrote to the defendant in the following terms:

The deal is as follows:

1. David James makes an offer to the liquidator to acquire the wine business ($12 million) and the distribution business ($2 million) for $14 million.

4. Each of Terry Hill and David James takes a 20% interest in each others’ businesses.

5. Terry Hill will need administrative support i.e. use of part of Sydney premises (office and warehouse) and sharing admin, credit and IT.

(Ex. 1: 264-265)

32 On the same day, Mr O’Neill forwarded to the defendant a copy of the offer that had been made by Chocmalt/Perbold to the liquidators on 24 April 2002. In that letter Mr O’Neill advised that the offer was to “assist the defendant in formulating the offer for the wine and distribution businesses” (Ex. 1: 267).

The Defendant makes an offer

33 By letter dated 6 May 2002 the defendant, on behalf of the Bearing Traders Group, wrote to the liquidators in terms which included the following:

Following on from our discussion yesterday we would like to propose an alternate offer in case your current negotiations are not proceeding as planned.

The Bearing Traders Group of companies would like to put forward a proposal to acquire all the assets that are in the “Hill Group Companies” on a walk in/walk out basis. We intend to continue to operate the business in its current form benefiting current staff, suppliers and customers. The Assets of the group will be purchased by Companies within our group or new entities insuring (sic) a clean start for the new business.

34 The offer included assumptions as to the approximate level of wine stocks based on previous figures supplied by the liquidators. It also included proposed purchase of real estate assets including the residential properties in New South Wales and Queensland, the Douglas Valley and Fernhill vineyards, the Marienberg cellar door and Limeburners Restaurant and a part-share in the Schoenthal Vineyard. The offer was an inclusive offer for $14 million for all Group assets including any licence fees. A deposit of 10% at $1.4 million was offered to be paid when copies of sale contracts were received and it was assumed the deposit would be non-refundable. The defendant advised Mr O’Neill that he was making the offer to the liquidators in the amount of $14 million for the wine business and the distribution business.

Further offers to the Liquidators

35 On 7 May 2002 the plaintiff met with Mr O’Neill and Mr Brierley and had a further conference telephone call with the defendant. The defendant confirmed that he had made the offer to the liquidators who had requested further information and then said: “at least he has not said no”. Mr O’Neill said that it sounded encouraging and that, “we should think how we can formalise an agreement between you and Terry”. Mr O’Neill informed the defendant that he would give it some thought and get back to him. The defendant said that it sounded “okay” and that Mr O’Neill should fax the agreement to him and that he would have a look at it.

36 There was a further telephone conversation on 7 May 2002 between Mr O’Neill and the defendant. In paragraph 75 of his affidavit the defendant claimed that Mr O’Neill asked him for a copy of his “bid” and that he said to Mr O’Neill:

I would rather keep any bid between George and me. Don’t take it the wrong way but I would rather not have my bid circulated around since I am concerned about Terry telling everyone that he is going to buy the company back. The last thing I would want is for Terry to destroy my credibility with the liquidator by turning up with a copy of my bid in his hand.

37 The defendant claimed that Mr O’Neill replied that was “fair enough” and that he never again asked him for a copy of the bid.

38 On 8 May 2002 there was a further meeting between the plaintiff, Mr O’Neill and Mr Brierley at which a conference telephone call was made to the defendant. There was discussion about funding in which it appears the need to have funding in place if agreement was reached with the liquidators was mentioned. On the same day the defendant sent an offer of $11.8 million to the liquidators as an inclusive offer for all Group assets. The defendant gave evidence that after this offer was submitted the liquidators advised him that the Douglas Valley and Fernhill vineyards were no longer for sale. The defendant then had a discussion with the plaintiff in which the plaintiff said that he really wanted to keep the Douglas Valley and Fernhill vineyards. The defendant’s evidence was that he advised the plaintiff that the liquidator had told him that it was “off the table and that’s it”. The plaintiff then advised him that if those vineyards were not available he would only be prepared to pay $10.3 million.

39 On 9 May 2002 the defendant made a further offer to the liquidators in the amount of $10.3 million and a proposal for a side agreement in relation to the 10% share in the Schoenthal vineyard for $100,000 together with confirmation that the amount of $1.5 million for the trademark and brand name of Basedow wines was included in the $10.3 million offer. The defendant also confirmed that a deposit of $1.03 million would be paid and the contracts would be settled in 4 weeks. He requested heads of agreement by 5.00pm on 10 May (Ex. 1: 303-307).

40 The liquidators responded to the defendant’s further offer of 9 May 2002 advising him that “at this stage” the offer had not been accepted and that they wanted to continue discussions with him and others. Some concern was expressed about the defendant’s capacity to fund the offer and/or settle it in four weeks and it was suggested that a 10% deposit “be made available as soon as possible to demonstrate your commitment”

41 A further conference call conversation took place between Mr O’Neill and the defendant on 9 May 2002. Although the versions of what was said differ, the defendant’s affidavit evidence was that Mr O’Neill said that the way in which the transaction was to be structured would involve the plaintiff acquiring shares in the company that was purchasing the wine business. Mr O’Neill advised the defendant that he would send him a document setting the transaction out.

Letter of 9 May 2002

42 On 9 May 2002 Mr O’Neill faxed to the defendant a letter bearing that date, signed by him with provision at the foot of the last page for the signature of the plaintiff and the defendant (the 9 May letter). It was in the following terms:

The purpose of this letter is to record, in summary form, the arrangements reached between you and Terry Hill, concerning the proposed acquisition of the Wine Business and the Distribution Business of the HWG.

To better understand the arrangement, I believe it would be helpful to set out some of the relevant background facts, namely:

1. Terry Hill wishes to acquire the Wine Business assets from the Liquidators of HWG, however, for reasons unknown, the Liquidators refuse to deal with Terry Hill (we suspect the NAB’s view has a lot to do with the Liquidators’ attitude);

2. You wish to acquire the Distribution Business of the HWG, but not the Wine Business of the HWG.

3. The Liquidators’ preferred option is to sell the Distribution Business, together with the Wine Business (or substantial portions of it), as a package, to the highest bidder, subject to the Liquidators being satisfied as to the financial capacity of the highest bidder to complete the transaction.

4. Terry Hill, in these circumstances, has proposed the arrangement set out below, with a view to each of you achieving your respective business purposes, namely, for you to acquire the Distribution Business and Terry Hill to acquire the Wine Business.

5. You have each determined that the means to achieve your respective aims is for you alone to proceed to negotiate and conclude a deal for the acquisition of the Wine Business and the Distribution Business, on the understanding that the Wine Business is to be bought by you on behalf of Terry Hill.

The arrangement between you and Terry Hill shall be as follows:-

(a) You shall enter into contracts with the Liquidators of the HWG as follows:

(i) Newco No. 1 shall acquire the Distribution Business of the HWG (more particularly described in our faxed offer to the Liquidators dated 24 April 2002) for a total purchase price of $2 million; and

(ii) Newco No. 2 shall acquire the Wine Business of the HWG (as more particularly described in the offer of 24 April 2002, however, excluding the Douglas Gully property and the Fernhill Winery/brand) for a total purchase price of $10.3 million.

(b) You or your nominee shall be the legal and beneficial owner of all of the issued capital in Newco No. 1. You or your nominees shall be directors of Newco No. 1.

(c) The legal and beneficial ownership of the whole of the issued capital in Newco No. 2 shall be held by Newco No. 3. The legal and beneficial ownership of the whole of the issued capital in Newco No. 3 shall be held by Terry Hill or his nominee. The reason for this corporate structure is to minimise stamp duty, as explained below.

(d) The Liquidators require a 10% deposit ($1.23 million) to be paid by you at the time of entering into contracts for the acquisition of the Wine Business and the Distribution Business of the HWG.

(e) Terry Hill shall pay the deposit of $1.23 million, on behalf of Newco No. 1 and Newco No. 2. These monies will be deposited into your solicitor’s trust account, to enable the deposit of $1.23 million to be paid by you at the time of execution of the Asset Sale Contracts.

(f) You shall provide Terry Hill with copies of all draft Asset Sale Contracts relating to the acquisition by Newco No. 2 of the Wine Business, for approval by Terry Hill.

(g) Newco No. 1 and Newco No. 2 shall thereafter enter into and exchange Asset Sale Contracts for the Distribution Business and the Wine Business respectively.

(h) Newco No. 1 shall thereafter complete the Asset Sale Contract for the Distribution Business. You shall provide the balance of the purchase price, namely $1.8 million. Whilst Terry Hill shall have paid the deposit of $200,000 at the time of execution of the Distribution Business Contract, Terry Hill shall not require this deposit to be repaid, and instead seeks from you the transfer of certain surplus plant and equipment (specifically the leased motor vehicles used by his sons Chris and Luke Messer) and a favourable arrangement with you for ongoing administrative support of the Wine Business by the Distribution Business in relation to the balance of the deposit monies paid by Terry Hill in respect of the Distribution Business.

(i) Terry Hill shall cause to be paid, on behalf of Newco No. 2, the balance of the purchase price payable by Newco No. 2 for the acquisition of the Wine Business ($9.27 million). Terry Hill shall provide bank cheque or cheques in this amount to you immediately prior to completion by Newco No. 2 of the Asset Sale Contract for the Wine Business, so as to enable Newco No. 2 to complete the acquisition of the Wine Business.

(j) Following completion by Newco No. 2 of the acquisition of the Wine Business, you or your nominees shall forthwith resign as directors of Newco No. 2 and Newco No. 3.

(k) In the (unlikely) event that Terry Hill or nominee fails to provide the amount of $9.27 million to enable Newco No. 2 to complete the acquisition of the Wine Business, then:-

(i) Terry Hill or nominee shall forthwith transfer to you or your nominee the legal and beneficial ownership of the shares in Newco No. 3. Terry Hill, at the time of exchange of contracts, shall execute the share transfers to be held by you in escrow.

(ii) You or your nominee shall not be required to resign as directors of Newco No. 3;

(iii) Terry Hill shall have no claim against Newco No. 1 for the return or refund of the deposit of $200,000 paid by Terry Hill at the time of execution of the Heads of Agreement document;

(iv) Terry Hill shall have no claim against you or Newco No. 2 for the return or refund of the deposit paid by Terry Hill of $1.03 million paid under the Heads of Agreement document.

(l) The terms of this Agreement shall remain confidential between the parties. In particular, you and your nominee shall not disclose to the Liquidators of HWG the details of this Agreement, including the identity of the Terry Hill nominee holding the legal and beneficial ownership of all of the issued capital in Newco No. 3.

(m) The purpose of incorporating Newco No. 3 and it owning all of the issued capital in Newco No. 2 is to facilitate the transfer of the Wine Business to Terry Hill or nominee, and, at the same time, avoid the need for the Terry Hill nominee to pay stamp duty on the transfer of the business assets (payable by Newco No. 2 on completion) as well as the subsequent stamp duty payable by Newco No. 2 to Terry Hill or nominee of either the shares in Newco No. 2 or the sale of the business assets in Newco No. 2 to Terry Hill.

(n) Following the completion of the acquisition by Newco No. 1 of the Distribution Business and the acquisition by Newco No. 2 of the Wine Business (with Terry Hill’s funds), the Wine Business and the Distribution Business shall enter into commercial arrangements for the mutual benefit of the respective businesses, upon terms to be agreed between you and Terry Hill. Obviously, this will involve Terry Hill’s Wine Business distributing its product through your Distribution Business supporting Terry Hill’s brands. Terry Hill will also use his contacts and influences with other winery businesses to support your Distribution Business.

(o) Terry Hill’s Wine Business, as previously discussed, shall require the ongoing administrative support of the Distribution Business, namely, the use of some of the business premises of the distribution premises (office and warehouse) and the sharing of administrative facilities.

(p) The parties acknowledge that these terms are a summary of the arrangement to be entered into between each other and that the parties must at all times act in good faith to ensure the outcome is achieved, namely, Terry Hill or nominee owning and controlling the Wine Business and David James or nominee owning or controlling the Distribution Business.

I trust the above summary accurately sets out the arrangement between the parties. If so, each of Terry Hill and David James should sign at the foot of this letter, confirming this agreement.

(Ex. 1: 308-312)

Another bidder

43 It is apparent that the defendant formed the belief that the liquidators were also treating with Mr Michael Hope of Hope Estate in respect of the sale of the assets of the Group. On 10 May 2002 the plaintiff and Mr O’Neill had a conference call with the defendant in which the defendant advised them that things were “looking ok with George Georges” but that he kept talking about other offers. The defendant warned that if the deposit monies were not available when the liquidator wanted to exchange “we might lose the deal to the next guy and I think that is Michael Hope”.

44 The plaintiff’s affidavit evidence was that the defendant asked Mr O’Neill if there was any way that he could write a “legal letter to slow things up with Michael Hope”. Mr O’Neill responded: “Terry can ask me to write to Michael Hope to tell him that we have taken action against Georges & Co outlining the reasons for the proceedings and advising him that he continues at his own risk. I will have a crack at writing a letter”. The defendant then said: “That’s good, it will make Hope ask some questions and hopefully will give me a bit more time”.

45 Mr O’Neill’s affidavit evidence was that his recollection of the conversation was consistent with the plaintiff’s recollection but in addition he recalled that the defendant had telephoned him earlier that day or the previous afternoon “with the suggestion that a legal letter be sent to Michael Hope”. On 10 May 2002 Mr O’Neill wrote to Mr Hope advising him that on 1 May 2002 Chocmalt, Perbold and the plaintiff had commenced proceedings in the Supreme Court against the liquidators. He enclosed the pleadings and advised that his clients would be seeking declarations and orders at a final hearing including a declaration that a binding agreement existed between his clients and the liquidators for the sale of the distribution business and the wine business (Ex 1: 323-333).

46 The defendant’s affidavit evidence was that on 10 May in a telephone call with the plaintiff he informed him that he had spoken with the liquidator who had informed him that the bid was “up there”. There was discussion about the need to have the deposit monies organised and the defendant emphasised that he did not want his reputation tarnished because of any delays in obtaining the deposit. He claimed he did not recall any discussion about sending Mr Hope “a threatening letter regarding the Hill proceedings against the liquidators”.

Liquidator likes the defendant’s bid

47 Mr O’Neill gave affidavit evidence that during a meeting later on 10 May 2002 in his boardroom with the plaintiff and Mr Brierley, at which the defendant was present for approximately half an hour, the defendant advised: ”I think it is good news. Whilst nothing is certain in this world, I think we have the deal. George Georges is sending me a contract, the lawyers are working on it, and I will let you have a copy”. The defendant advised that the liquidator wanted to “do the deal in a big hurry” and that “we have to get this deposit organised”. Mr O’Neill’s evidence was that after Mr Brierley said that the defendant should not worry because the deposit was organised, the defendant said:

Good, but I have got to tell you I am getting nervous. As I have already mentioned, the deposit is one thing, but I do not want to be left with the whole deal, and coming up with a lot, it’s a lot of money, we are talking $10 million odd, just for the Wine Business. Have we heard anything from the Swiss investor?

48 There was then some discussion about the proposed trip to Zurich to meet with Mr Wehrle after which Mr O’Neill advised the defendant that he had sent a letter to Mr Hope “as we discussed earlier today”. He also advised that the letter “reads well and is a letter that ought to have been sent on behalf of Terry in any event” and that “it does no more than protect Terry’s legal rights in the event that he comes first in the case against the liquidators”. Mr O’Neill’s evidence is that the defendant then said: “Well, hopefully, it causes Hope to have second thoughts about the deal. I reckon his lawyers must be talking to the liquidators by now about it all, wondering what the hell Terry’s case is all about”.

Defendant says 9 May letter is “the deal”

49 Mr O’Neill claimed that in the same meeting on 10 May 2002 the following exchange then took place:

O’Neill: You are probably right, but we won’t really know. In the meantime as far as I am concerned, it’s all systems go. Did you get my 9 May 2002 fax setting out our deal and do you have any problems with it?

Defendant: Yes I got the fax, and it looks okay to me. As far as I am concerned that is the deal. My major worry is whether or not Terry can come up with the money needed for the Wine Business, otherwise there are big problems.

O’Neill: We are on track with our finance, but I agree, much depends upon our friend in Switzerland, and we will report back to you as soon as we have met with the guy.

50 Although the defendant does not directly deny that he said that as far as he was concerned the 9 May letter was the “deal “, his evidence is otherwise suggestive of such a position. That includes evidence referred to later of him informing Mr Brierley that he had not had a chance to look at what Mr O’Neill had sent him and of the discussion he claimed to have had with his solicitor, Mr Brooks, the third defendant.

51 The defendant’s affidavit evidence is that the liquidator rang him on 10 May 2002 and advised, “we like your bid” and informed him that he was going to e-mail a contract to him. The defendant claimed that later that day or on 11 May he rang Mr O’Neill and advised him that “my bid is the frontrunner at the moment”. He also claimed that he informed Mr O’Neill that the liquidator was sending through a contract and that: “I will forward that contract and your proposed agreement between me and Terry to my lawyer for him to have a look at”.

52 At some stage, either on 10 or 11 May 2002 the defendant advised the plaintiff and/or Mr O’Neill that he would like to have someone represent him on the trip to Zurich to meet Mr Wehrle.

A ruse for the liquidators

53 Mr O’Neill gave affidavit evidence that on 11 May 2002, a Saturday, he telephoned the defendant “to check the latest developments”. Mr O’Neill claimed that during this conversation the defendant said that things were “looking good”, the liquidator was pushing for the contracts to be signed immediately and that:

I am doing what I can to delay things, however it is not easy. The one thought that I have had, that might help delay things, to give Terry the time to raise the deposit. Why not get you to send me a letter, similar in terms that you sent to Michael Hope. I can then send it down to George Georges and ask him what the hell is going on. It should buy us some time if nothing else.

54 Mr O’Neill’s evidence was that he informed the defendant that he could not see “why not” and that he would “organise things on Monday for you”. On 13 May 2002 Mr O’Neill sent a letter to the defendant in identical terms to that which he had sent Mr Hope on 10 May 2002.

55 The defendant’s affidavit evidence claimed he could not “recall ever asking Mr O’Neill to send me a threatening letter regarding Mr Hill’s claim against the liquidators” but then claimed that the faxed letter from Mr O’Neill did not come to his attention until 15 May 2002 when he contacted Mr Brooks and said:

David, I have just received a fax from Terry Hill’s solicitor regarding their claim against the liquidator. I am not sure why it has been sent to me given that I have been negotiating with Terry Hill regarding the sale of the wine business to him. Can you have a look at it and see what impact it has.

56 The defendant claimed that Mr Brooks asked him to fax the letter to him and said: “I may need to contact the liquidators about it and see what they say. It must be just a fax Michael O’Neill has sent to you to try and pressure you into concluding a deal with Terry Hill”. The defendant then claimed: “At no time prior to receiving that facsimile had I ever had any discussion that I would receive any fax in the terms set out”.

A request to create false documents

57 The defendant gave affidavit evidence that on 11 May 2002 he had a discussion with Mr Brierley in words to the following effect:

Brierley: David, I am putting together a business plan for the Swiss investor, Sigveld Wehrle. I need to have a copy of any draft agreement that you have with the liquidators.

Defendant: I will get that agreement to you on Monday. That is when I expect to receive a copy from the liquidator.

Brierley: What we are going to show the Swiss Investor is the proposed contract that you have with the liquidators and then the proposed contract that you have with Terry. Michael O’Neill has sent me a copy of the proposed agreement. You will need to make sure that the prices all match up otherwise it won’t look good.

Defendant: I haven’t really looked at what Michael O’Neill has sent me yet and I don’t know what prices will be in the contract as my offers have all been for just lump sums but if you want I can put the prices in Michael’s letter in the contract from the liquidators.

Brierley: Yes, that would be good.

58 Mr Brierley denied the last three exchanges in this conversation in paragraph 12 of his affidavit of 12 May 2003 and continued:

13. At no time did David James, in any of the conversations I had with him in the period March 2002 to June 2002, ever say to me words to the effect that he was proposing to or had, in fact, altered figures contained in the draft Sale Deeds which he had received from Clayton Utz, whether generally or for the specific purpose of forwarding them on to Sigvald Wehrle or ensuring that the figures in those draft Sale Deeds reflected those in the Back to Back Agreement.

59 Mr Brierley was cross-examined and it was not put to him that his denial was either inaccurate or false. What was put to him was that he had prepared a business plan to show to Mr Wehrle and at the time it was prepared it had attached to it a copy of the 9 May letter and a copy of the contract between the liquidator and the defendant (tr. 123-124). Mr Brierley agreed that the letter and the contract were removed from the business plan when it was given to Mr Wehrle and gave evidence that Mr Wehrle did not ask about the price (tr. 125). Although this cross- examination establishes that Mr Wehrle was not given the documents originally destined for him it does not detract at all from Mr Brierley’s denial that he requested the defendant to “make sure the prices all match up or it wont look good”.

The defendant instructs Mr Brooks

60 On 13 May 2002 the defendant received an email from David Landy, solicitor of Clayton Utz, enclosing a draft Sale Deed on instructions from the liquidators. That letter stated that Clayton Utz had been instructed to, inter alia:

(c) advise you that the sellers require you to pay a deposit of $1,020,000.00 (initially refundable), by electronic funds transfer direct to the Clayton Utz trust account.

(Ex. 1: 552)

61 The draft deed defined deposit as “$1,020,000” and “completion payment” as the “amount of $8,180,000 as adjusted in accordance with clause 8.2(a)”. The defendant gave evidence that after receiving these documents he emailed the contract to the third defendant, Mr Brooks. That email advised Mr Brooks that the defendant was coming to see him about the contract on 13 May at 4.30pm (Ex. 1:510). The defendant gave affidavit evidence that he met with Mr Brooks at “around 5pm” on 13 May at which time they “reviewed the contract” and he informed Mr Brooks that he had “an offer” from the plaintiff “to buy back from me the wine business”. He informed Mr Brooks that the plaintiff “is supposed to pay me $1.23 million to use as a deposit for the businesses which will be forfeited if he can’t complete the deal”. The defendant claimed that Mr Brooks asked him if he had “any proposed agreement” with the plaintiff and he advised him that he would fax it to him later that day. The defendant sent Mr Brooks a copy of the 9 May letter later that day (Ex.1: 554).

62 The defendant’s evidence in his affidavit of 28 April 2003 was:

90. Later that day I changed the definitions of completion price and the deposit in the contract and the reference to the deposit in the covering letter in accordance with my discussion with Mr Ian Brierley. I then emailed the amended contract and covering page to Mr Ian Brierley at 4:32 pm that afternoon and again at 7:28 pm.

91. Had I not had the discussion referred to in paragraph 89 (where it first appears) I would not have changed the prices but instead would have deleted any reference to the amount of the price or the deposit. I would have done this because at all times I believed that Mr Hill was proposing to purchase the wine business for a fixed price irrespective of what my bid was for that business.

63 The changes made to the contract were that the deposit was changed from $1.02 million to $1.23 million and the completion payment was changed from $8.18 million to $11.07 million (Ex. 1: 516 compared to Ex. 1: 472). The Clayton Utz letter was also changed by deleting therefrom the amount “$1,020,000.00” and inserting in its place “$1, 230,000”.

64 On 15 May 2002 Mr Brooks wrote to the liquidators’ solicitors Clayton Utz suggesting that certain changes be made to the draft contract sent to the defendant on 13 May 2002 (Ex. 1: 576). By this time the defendant had been informed by Mr Brierley that he was dealing with the “fast track funders” to get “the cash in the bank” for the deposit to be paid to the liquidators. Mr Brierley also informed the defendant that although all stops were being pulled out, the funding would not be available until at least 15 May 2002 (Ex. 1: 561-563). At the end of Mr Brooks’ letter to Clayton Utz the following handwritten note appeared:

I also note that there are issues relating to litigation by the former directors of the company which will need to be resolved prior to completion.

65 It is more probable than not that this handwritten note was able to be added by reason of the letter Mr O’Neill sent to the defendant and it appears to have been used for the very reason for which Mr O’Neill suggested the defendant claimed it would be used – to delay matters.

66 During 16 May 2002 the defendant received many telephone messages to contact Mr Georges. In order to delay the matter further because the deposit monies were not in place, the defendant sent an email to Mr Georges apologising that he had been called away on a personal matter and also advising that Mr Brooks was attending to other matters with Ferriers in Newcastle. The email claimed that the defendant had shown that the deposit was available with funds coming off term deposit that day, but that he believed that the liquidator was keeping him on ice and “playing us against another party to increase the price”. The defendant requested the liquidator to advise whether “we are in or out – if we are out that is OK – if we are in please indicate in writing that you will accept our offer on receipt of the deposit – the deposit is a substantial figure which we don’t treat lightly” (Ex. 1: 659). The defendant gave evidence in cross- examination that he wrote this email because of his experience with liquidators in issuing a number of contracts and he was not confident “we were in the position we wanted to be in” (tr. 175).

67 On 16 May 2002 Clayton Utz wrote to Mr Brooks responding to his letter of 15 May 2002 in terms which included the following:

We are instructed that Hill (referring to the companies in liquidation) agrees to the terms of the Bearings Offer subject to the following conditions:

1. receipt by Hill of a deposit of $1,020,000 from Bearings by midday tomorrow, Friday 17 May,2002:

2. agreement by Bearings and Hill of the commercial and legal terms of the documentation required in order to effect the sale of the assets and business listed above. This documentation will reflect the draft contract sent to you on 13 May 2002.

The trip to Zurich

68 Between 16 May 2002 and 21 May 2002 the plaintiff, Mr O’Neill, Mr Brierley and Frank Fabrizio, a representative of the defendant, travelled to Zurich and met with Mr Wehrle. There was quite a deal of cross-examination of both the plaintiff and Mr O’Neill relating to the provision to Mr Wehrle of the business plan prepared by Mr Brierley and the removal of the copy of the 9 May letter and the draft contract between the defendant and the liquidator.

69 Both the plaintiff and Mr O’Neill gave evidence consistently with that of Mr Brierley that during the meeting in Zurich, Mr Wehrle did not ask about the price to be paid to the liquidator. The only other person present at that meeting was the defendant’s representative, Mr Fabrizio, who was not called as a witness. The conclusion that Mr Wehrle did not ask about the price at that meeting is therefore inescapable.

70 The plaintiff gave evidence that the reason he did not tell Mr Wehrle what he was paying for the wine business was that he thought it was none of his business because Mr Wehrle had indicated he would invest “up to” US$7 million for a 45% shareholding, based on the business plan that was provided to him (tr. 25). The business plan that was given to Mr Wehrle (tr. 4: Ex. A; 169) included figures that suggested net assets of the wine business at $24 million and total shareholders equity at the same amount. The plaintiff gave evidence that he informed Mr Wehrle that what was going to be purchased was worth $24 million (tr. 25).

71 Mr Brierley was negotiating, on the plaintiff’s behalf, with a financier for funds totalling $1,030,000 for the deposit. The defendant was to provide $200,000 directly to Clayton Utz by way of loan to the plaintiff bringing the total amount the plaintiff understood he was required to pay up to $1,230,000. Because there was a delay in the plaintiff providing the deposit, the defendant arranged a loan through a company, Yellik Holdings, a landlord of one of the commercial office spaces occupied by the defendant’s companies. That loan had to be guaranteed by the defendant and required a Deed of Indemnity back to the defendant from the plaintiff.

Amendment to the 9 May letter

72 Mr Brooks was also advising the defendant in relation to the 9 May letter. In an e-mail dated 15 May 2002 at 9.11am, Mr Brooks wrote to the defendant in the following terms:

In relation to the Nash O’Neill Tomko letter, I advise as follows using the same clauses as set out in that letter:

5(a)(i) The clause should be changed so that Newco No. 1 shall enter into a contract for that business for a price to be agreed between the liquidator and James. You should explain this on the basis that there are some items still to be negotiated which will have a bearing on the price but which you don’t want to jeopardise the validity of this agreement simply because the price is different.

5(a)(ii) similarly as in (i) – the price will not be known. However we should be putting in a clause that Hill will pay $10.3 million regardless of the prices less any deduction for employee entitlements that may be available. Those monies are to be paid direct to the liquidator.

5(j) this should be subject to any requirement to stay on due to tailing obligations (ie dealing with hire purchase goods for the 2 months afterwards etc).

(Ex. 1: 564)

73 This e-mail was sent to the defendant two days after the false documents had been created and sent to Mr Brierley and to Mr O’Neill in which the higher figures were contained (Ex. 1: 464 – 476).

74 On 22 May 2002, the day after Mr O’Neill returned from Zurich, he received a telephone call from the defendant. The defendant informed him that it was difficult to talk because he was outside the Newington premises where he had been looking at matters relating to the due diligence process. He said that he was under a lot of pressure to execute the contracts and that he had made “a few changes to the back to back agreement and signed it” and had arranged for it to be faxed through to him. Mr O’Neill gave evidence that the following conversation then took place:

Defendant: The negotiations with the liquidators are just about finalised, there may need to be some minor changes as to how the purchase price is to be apportioned, as a result of discussions I am having with the people from Ferriers about what stock belongs to what company. As well, the Schoenthal joint venture can’t be done yet. George says he has to offer the joint venture partners the 10% interest, before he can sell it, which seems to me to be fair enough. George proposes to drop the price for the Wine Business by a hundred grand.

O’Neill: That is probably right, as the joint venture partners must have pre-emptive rights. I think Terry puts a bigger number on that asset. You’ll have to talk to Terry when he gets back. Just let me know of any of the changes with the stock numbers.

…

Defendant: We can’t muck around any longer with the deposit. I have given up on Ian, who has had plenty of time to raise the deposit money, and is still stuffing around. I’ve fixed it all up in a few calls, to my solicitor, who has a client who will do one million, on short term finance, which I’ve had to guarantee. If necessary, I’ll lend Terry the $200,000 provided I get it back on the Kremnizer refinance, when it happens.

O’Neill: Good, David Evans will look after that deal. Get the Newcastle solicitor to talk to him.

75 Shortly after this conversation on 22 May 2002 Mr O’Neill received a facsimile from the defendant enclosing a copy of the 9 May letter with certain marked-up changes that was signed by the defendant (the amended letter) (Ex. 1: 926-930). There were no changes made to the “relevant background facts” recorded on the first page and part of the second page in which it was recorded that the “Wine Business” was to be bought by the defendant “on behalf of Terry Hill” (Ex 1: 309 and 927). Changes were made to paragraphs (a) (h) and (i) as set out below with the paragraph as it appeared in the 9 May letter first and in the amended letter with italics immediately following:

(a) You shall enter into contracts with the Liquidators of the HWG as follows:

(i) Newco No. 1 shall acquire the Distribution Business of the HWG (more particularly described in our faxed offer to the Liquidators dated 24 April 2002) for a total purchase price of $2 million; and

(a) You shall enter into contracts with the Liquidators of the HWG as follows:

or such other price as agreed between the Liquidators and Newco No. 1

or such other price as agreed between the Liquidators and Newco No 2

or such other varied amount as agreed with the Liquidators

(i) Terry Hill shall cause to be paid, on behalf of Newco No. 2, the balance of the purchase price payable by Newco No. 2 for the acquisition of the Wine Business ($9.27 million). Terry Hill shall provide bank cheque or cheques in this amount to you immediately prior to completion by Newco No. 2 of the Asset Sale Contract for the Wine Business, so as to enable Newco No. 2 to complete the acquisition of the Wine Business.

the sum of $9.27 million to allow completion of the Asset Sale Contracts and of the acquisition of the Wine Business.

(Ex. 1: 928)

76 The plaintiff returned from overseas on 23 May 2002 and was given a copy of the amended letter. The plaintiff gave evidence that Mr O’Neill advised him: “I got his fax just after I spoke to David. He said he had altered our letter of 9 May 2002 and signed it as altered by him as he wanted to get this fixed prior to signing contracts with Ferriers”.

More false documents

77 The defendant gave evidence in paragraph 129 of his affidavit of 28 April 2003 that he had a conversation with Mr O’Neill on 22 May 2002 in the following terms:

O’Neill: Good. Also, if you can send me a copy of the draft contract so that I can check to make sure that Terry is happy with the terms of the contract.

Defendant: I will change the prices like they were in the contract I provided to you for insertion into the Sigvald Wehrle contract since the prices have changed.

O’Neill: Sure.

78 The defendant also claimed in this paragraph of his affidavit that Mr O’Neill did not query what price was being paid by Wine National to acquire the liquor business. He claimed he did not consider it “important to inform Mr O’Neill, Mr Hill or Mr Brierley of the prices being paid and their apportionment since Mr Hill, in my view, was always going to be paying, at that stage, the fixed sum of $10.5 million for the wine business”. He also claimed that it was a short time after this conversation with Mr O’Neill that he went to Mr Brooks’ office and reviewed with him the proposed contract with the plaintiff prior to it being sent to Mr O’Neill. He then gave the following evidence:

132. In accordance with the discussion with Mr O’Neill myself and Mr Brooks went through the contract and changed the prices for the wine and distribution businesses to reflect the figures stated in the agreement between myself and Mr Hill. Exhibit TDH 333 to TDH 378 is a copy of the email sent by Mr Brooks to Mr Evans containing the amended contract. I do not recall which version of the agreement from Clayton Utz had been varied. The Winery Price referred to in the contract sent was $9.5 million, not $10.3 or $10.2 million with the total amount being paid set at $11.5 million, and not $12.3 million or $12.2 million.

133. When reviewing the contract sent by the liquidator and also the one sent to Mr Evans, I noticed that there had been no specific provision for the sale of the real estate in South Australia. I had Mr Brooks send to Mr Evans a further contract with amended prices this time including provisions regarding the acquisition of the South Australia land for $700,000, bringing the total price referred to in the contract sent to Mr Evans for the purchase of the wine business to $10.2 million. Exhibited TDH 379 to 433 of the Hill affidavit is a copy of that email.

79 The email dated 22 May 2002 from Mr Brooks to Mr Evans of Nash O’Neill Tomko enclosing the contract with the false figures stated: “Please find attached a copy of the Clayton Utz contract. We understand that there are to be some further minor changes to the contract which we will advise you of” (Ex. 1: 970).

80 Mr O’Neill denied that he had agreed that the defendant should change the figures in the contract. In cross-examination Mr Newlinds SC suggested to Mr O’Neill that he was a party to the changing of the figures in the contract in a conversation with Mr Brooks:

“Since if we show it to the Swiss guy who is providing Terry funds, there won’t be any questions”.

81 This cross-examination occurred during the third day of the trial. By that stage Mr Newlinds SC had informed the Court that he was reading Mr Brooks’ affidavit of 28 April 2003 and objections to that affidavit had been ruled upon on the first day of the trial (tr. 14). On the fourth day of the trial Mr Newlinds SC advised that he would not be calling Mr Brooks (tr. 208) and on the seventh day of the trial it was noted that Mr Brooks’ affidavit of 28 April 2003 was not relied upon (tr. 244). Mr O’Neill’s denial of the suggestion that he had a conversation with Mr Brooks in the terms suggested by Mr Newlinds SC therefore remains unchallenged.

Contracts are exchanged with the liquidator

82 During the course of the negotiations just prior to exchange of contracts with the liquidator on 24 May 2002 Mr O’Neill had a number of conversations with Mr Brooks and the defendant. During those conversations Mr O’Neill suggested that clause 12 should be deleted from the contract with the liquidator. There was also confirmation that the Yellick funds were available for the payment of the deposit and Mr O’Neill informed the defendant that the plaintiff was appreciative of the work the defendant had done to organise those funds. Mr O’Neill also sought confirmation that the “deal” was in place to have Newco No. 3 own all of the shares in Wine National. The defendant advised Mr O’Neill that he would organise Mr Fabrizio to sign the necessary documents. It is apparent that Newco No. 3 had not been incorporated and Mr Fabrizio was asked to execute share transfers and hold them in escrow.

83 During 24 May the defendant telephoned the plaintiff and informed him that the liquidator had advised that Fernhill was once again available as the other sale had fallen through. The plaintiff and the defendant then discussed price and the defendant negotiated with the liquidator pursuant to the plaintiff’s instructions and secured a sale at $575,000. The defendant advised the plaintiff that he would have to pay a separate deposit of $57,500 to be paid into Bearing Traders’ account.

84 A further set of contract documents was sent to Mr O’Neill at about 4.40 pm on 24 May. This contract included different figures again, this time with the deposit listed as $1,150,000 and the completion amount as $10,350,000. The apportionment of the distribution business and the wine business was $2,000,004 and $9,499,996 respectively (Ex. 1: 1684–1696). Mr O’Neill was not sure what was happening with his suggested deletion of clause 12 and when he could not contact Mr Brooks he spoke to the defendant at about 7pm. The defendant informed Mr O’Neill that clause 12 was still included because they had no choice and that the contracts had been exchanged. There was then some discussion about Mr Wehrle and Mr O’Neill expressed the view that he seemed serious and that he had said that he could get the money to them in time for settlement. Mr O’Neill’s evidence was that the defendant then said:

Yes, I have talked with Frank, but that doesn’t mean I am still not nervous. We are talking about big money here, the Wine Business involved a $10 million deal, and I do not want to be the one to have to find the money to pay for it. I suspect, if pushed, I can get the facilities organized, but that is not what I want to do. I will be wearing out my welcome at AMP and PIBA, and at the moment, I have a great relationship with them.

85 Mr O’Neill informed the defendant that the plaintiff had been speaking with Mr Wehrle and that he would keep an eye on things as well.

Alternative funding

86 The defendant gave evidence that after exchange he became increasingly nervous that the plaintiff would not come up with the monies for completion. On 31 May 2002 the defendant sent a funding proposal to Primary Industry Bank of Australia Limited (PIBA) that included the following:

The current arrangement with this purchase is we have arranged a back to back sale on the shares and assets of Wine National Pty Ltd leaving us with the assets bought by Liquor National and the three residential properties. The sale is being made to an overseas wine wholesaler based in Switzerland who has been distributing the companies three wine brands for the last few years. The price for the wine business sale is equal to what we are paying for the whole business - $10.875 M.

Therefore we will own the distribution businesses and the residential properties for no outlay and we will fund off the residential properties to add cash flow funds to go forward in the distributing business.

We are very confident that the overseas sale will happen because they have put up a non-refundable deposit of $1.2M. Our export manager Frank Fabrizio has been over to visit them 2 weeks ago and they are very positive about the future potential of their three brands. The investor showed Frank where he had the funds and he only needs to have them released to finalise the sale.

…

The only possible down side is that the back to back sale doesn’t occur or doesn’t occur quickly enough. The settlement date is the 14 June which doesn’t leave much time so we need to consider some fallback positions.

…

We may not need all this funding if our Swiss investor gets the balance of his funds in place in time. The way the deal is set up James Estate has no down side except the loss of the “great deal” and credibility with the Administrator if we cant complete.

Brooks requests execution of the amended letter

87 On 3 June Mr Brooks wrote to Mr O’Neill in the following terms:

We note that our client executed and returned a letter dated 9 May 2002 from yourselves setting out the arrangement between your client and our client.

Could you please provide by way of return a copy of the letter executed by your client for our client’s records.

(Ex. 1: 2029)

88 Mr O’Neill gave affidavit evidence that he received this letter but did not give evidence about what if anything he did in respect of that letter. However there is some correspondence in evidence between Mr O’Neill and Mr Brooks dated 14 June 2002 which is dealt with below (14 June 2002 Correspondence).

The Creation of “a Document for Mr Wehrle”

89 On 3 June 2002 Mr Wehrle telephoned Mr O’Neill and informed him that he had asked the plaintiff on a number of occasions for a copy of the back to back agreement between the plaintiff and the defendant and had not received it. He asked Mr O’Neill to speak with the plaintiff to make sure that he received a copy of it. The plaintiff requested Mr O’Neill to send Mr Wehrle what he described as “an amended version of the Back to Back Agreement, deleting the details setting out the proposed purchase price and amending the section of the Back to Back Agreement to take into account the absence of “Newco No. 3” and the consequential need for Mr Fabrizio to execute share transfers in relation to the issued capital in Wine National”. Mr O’Neill said that “for those reasons”, presumably meaning because the plaintiff requested him to do so, he prepared a revised agreement for the purpose of sending to Mr Wehrle.

90 After he had prepared that document, Mr O’Neill sent it by email to Mr Brooks on 5 June 2002 with a covering document that stated that Mr O’Neill had spoken to the defendant who was expecting the “revised document” and that “If ok, please have David sign off. Terry has already signed off. I can then send to Switzerland” (Ex. 1: 2043). The attached document was a fax from Mr O’Neill to the defendant dated 5 June 2002 (the 5 June letter). The background facts as they appeared in the 9 May letter were unchanged except for the inclusion of some words that suggested that the defendant had “agreed” with the arrangement set out in the letter (par 4) (Ex. 1: 2045). There were other substantial changes to the 9 May letter so that the purchase price was deleted.

91 Mr O’Neill gave evidence that on the afternoon of 5 June 2002 he had a telephone conversation with the defendant in terms that included the following:

Defendant: Michael, I am just ringing about your document, that you need to send to Sigvald.

O’Neill: Yes, as you know, Sigveld has asked for a copy of the Back to Back Agreement. At the time that we met with Sigvald in Switzerland, we removed the Back to Back Agreement because Terry regarded it as none of Sigvald’s business to know the prices that we are paying the liquidator. Nevertheless, we have to send Sigvald the Back to Back Agreement, hence my email to David. It does not change the deal between us, it is merely a document to be sent to Sigvald to comply with his request.

Defendant: I understand, and I have read it, and I am generally happy with it. At the moment the draft still refers to Newco No. 1 and Newco No. 2. We should insert the names Liquor National and Wine National in it.

92 After this conversation with the defendant, Mr O’Neill made the suggested amendments to change Newco No1 and Newco No 2 to Liquor National and Wine National respectively. The letter did not include a clause equivalent to clause (f) that was in the amended letter requiring the provision of the draft Asset Sale Contracts with the liquidator to the plaintiff for his approval. This is perhaps not surprising, as contracts had already been exchanged. The letter included clauses (f) and (g) in the following terms:

(f) Terry Hill shall cause to be paid the balance of the purchase price to allow completion of the Asset Sale Contract by Wine National Pty Ltd for the acquisition of the Wine Business. Terry Hill shall provide bank cheque or cheques in this amount to you immediately prior to completion by Wine National Pty Ltd of the Asset Sale Contract for the Wine Business, so as to enable Wine National Pty Ltd to complete the acquisition of the Wine Business

247 It seems to me that when the whole of the contract is considered, the parties intended the words “on behalf of” in the background facts to indicate that although the defendant would deal directly with the liquidator and purchase both the wine business and the distribution business through Wine National and Liquor National respectively, the purchase of the wine business was for the purpose of making it available to the plaintiff, through his shareholding of Wine National, if he was able to provide the amount “to enable” Wine National to complete the acquisition of the wine business.

248 The scope of the commercial “agency” was limited by the terms of the contract. Clause (f) of the 9 May letter and the amended letter imposed the obligation on the defendant to provide to the plaintiff the draft Asset Sale Contracts with the liquidator for the plaintiff’s approval. Far from trusting or relying upon the defendant to purchase the wine business at the figure suggested by the plaintiff, there was imposed on the defendant a contractual obligation to show the plaintiff the contract so that he could approve it. The defendant had a contractual obligation to show the plaintiff the actual contract and in my view was not in a fiduciary relationship with the plaintiff. He was required to act in good faith by reason of the contract but not because of any fiduciary relationship.

249 I am not satisfied that the wording of paragraph 5 or the parties’ conduct imposed a fiduciary obligation on the defendant. He was obliged to comply with the terms of the contract, but had no fiduciary obligation to the plaintiff. This aspect of the plaintiff’s claim fails.

Return of the deposit/relief against forfeiture

250 The 9 May letter, the amended letter and the 6 June letter each provided that if the plaintiff failed to provide the funds to enable the corporate vehicle to complete the contract, amongst other things, the plaintiff would have “no claim” against the relevant entities to which the deposits were paid “for the return or refund of the deposit”.

251 The plaintiff submitted that the deposits paid by the plaintiff were calculated at 10% of the price at which the plaintiff believed the defendant was purchasing the wine business, the distribution business and the Fernhill Winery and not the actual purchase price, some $3.4 million less.

252 The plaintiff submitted alternatively that if under the contract he was to forfeit the deposits, he is entitled to equitable relief against forfeiture. It was submitted that equity would provide that relief where unconscionable conduct of one party has caused the default of the other party who risks the forfeiture, including whether forfeiture would result from the insistence on legal rights.

253 The defendant submitted that on no construction of the contract could it be suggested that the plaintiff’s obligation to pay the deposit was in any way dependent upon him having the opportunity to see the draft contracts with the liquidators. The plaintiff agreed in cross-examination that the amended letter was the basis upon which he paid the deposit. The amended letter required the defendant to provide the draft contracts for the plaintiff’s approval. The draft contracts provided were the documents upon which the deposits were calculated amounting to $10.3 million. The plaintiff entered into a contract believing it to be a contract based upon the contract the defendant had purchased the wine business from the liquidator and on that basis agreed to the forfeiture of the deposit.

254 The defendant with the assistance of his solicitor engaged in conduct that was designed to trick the plaintiff into believing that the contract the defendant had entered into with the liquidators containing the figures upon which the deposit to be paid by the plaintiff was calculated, was the real contract. The defendant induced the payment from the plaintiff by that trickery.

255 The defendant submitted that if under the contract the deposit was non-refundable, as each of the letters provided it was, “there is no jurisdiction of a court of equity to interfere with that contractual arrangement and order the deposit be repaid in any event”. I disagree. If it is necessary for a court of equity to intervene to avoid injustice, so long as such intervention is in line with appropriate equitable principles, then there is ample jurisdiction.

256 The relief against forfeiture that the plaintiff pursues is the relief against the forfeiture of the deposit paid pursuant to the contractual obligation, that is, 10% of the lower figure as I have found the contract between the parties to be. The higher amount of the deposit paid was induced by the trickery to which I have referred. The plaintiff’s remedy in respect of the difference between the deposit required and the deposit paid is dealt with elsewhere, however equity would find it difficult to allow the defendant to be unjustly enriched and pocket that difference. However on this aspect of the plaintiff’s claim I am only dealing with the relief against the forfeiture of the contracted amount.

257 I am satisfied that the appalling trickery engaged in by the defendant would make the insistence on his legal rights in this regard quite unconscientious: Romanos v Pentagold Investments (2003) 201 ALR 399; Tanwar Enterprises Pty Ltd v Joseph Cauchi & Ors (2003) 201 ALR 359. I am satisfied that the plaintiff is entitled to relief against forfeiture of the deposits.

Deceit

258 French J in Musca and Ors v Astle Corporation Pty Limited and Anor (1988) 80 ALR 251 said of the tort of deceit, at 264 - 265:

Historical Foundations of the Common Law

Pasley v Freeman

259 JG Fleming in The Law of Torts, 9th ed., wrote at page 694-695 (excluding footnotes):

Pasley v Freeman

260 McGregor on Damages, 15th edition, at par [1718], issues a caution that the tort of deceit needs careful handling as far as damages are concerned. That is so because in the great majority of cases the action induced by the deceit is the entering into a contract by the plaintiff, either with the defendant tortfeasor or with a third party. In the same paragraph the difference between the measure of damages based on tort principles and contract principles is emphasised:

Thus the correct measure of damages in the tort of deceit is an award which serves to put the plaintiff into the position he would have been in if the representation had not been made to him, and not, as with breach of condition or warranty in contract, into the position he would have been if the representation had been true. In other words, if the plaintiff has been induced by the deceit to conclude a contract he is not entitled, as he is in contract, to recover in deceit for the loss of his bargain.

261 The plaintiff has to prove the falsity of the representation, the defendants’ knowledge of that falsity, the defendant’s intention that the plaintiff would rely upon or be induced by the representation, and pecuniary loss so caused. The relief I have granted against forfeiture of the deposit at the true price leaves the plaintiff with pecuniary loss for the difference between the deposit paid and the deposit required.

262 There is ample evidence to establish that the defendant made a representation to the plaintiff in the draft Asset Sale Contracts which was a false representation of fact and that the defendant knew the representation to be false and intended that the plaintiff would rely upon the false figures to pay the deposit. There was no deposit payable at 10% of $10.3 million. The deposit was 10% of $6.9 million and the balance the plaintiff was induced into paying was to be the profit for the deceitful defendant.

263 I do not intend to reiterate the defendant’s evidence as to how and why he changed the documents that are referred to earlier in this judgment. The defendant’s explanation in evidence that he did it to make it “simple” was quite appalling and I do not believe that evidence. The defendant stumbled closer to the truth when he gave evidence that he had made the changes the first time and therefore continued to do it. His claim that he wished he had not done it and that he regretted it came only in the witness box with what I believe to be a false claim that he “now” understood it was wrong. I am satisfied that at the time he was creating these false documents he knew it was wrong. However the whole charade of claiming that he was asked to make the changes continued even in his oral evidence. His admission that he was hoping the plaintiff would not “tumble” to what he was up to came closer to the truth. He intended the plaintiff to rely upon these false representations and the plaintiff fell for it and paid the deposit at 10% of the false price.

264 The plaintiff has to establish that he was induced to act upon the false representation whereby he suffered pecuniary loss. I am satisfied that the combination of the draft Asset Sale Contracts and the 9 May letter (and the amended letter) contained the false representation and were both relied upon by the plaintiff to induce him to pay the deposit. I am satisfied that the plaintiff has established the essential elements of the tort, including pecuniary loss so that he is able to recover from the defendant the amount paid less the deposit actually required.

The case against Mr Brooks

265 Mr Brooks’ conduct has had to be assessed in the absence of any evidence from him after his affidavit was withdrawn. Mr Newlinds SC’s submission that the Court would find that Mr Brooks only changed the contracts because his client informed him that the plaintiff wanted the contracts changed to that figure, is not supported by the evidence. The defendant’s evidence was that Mr Brooks changed the Asset Sale Contracts at the defendant’s request (tr. 181). The defendant did not give evidence that he informed Mr Brooks that the plaintiff and/or Mr O’Neill had asked that such changes be made.

266 No objection was taken on behalf of Mr Brooks to the admission into evidence of his e-mail to the defendant or to the defendant’s evidence as to how the false contracts were created. I expressed concern about Mr Brooks position during submissions (tr. 322) and Mr Newlinds SC submitted that I should apply the standard in Briginshaw v Briginshaw (1938) 60 CLR 336 in deciding whether there is evidence that Mr Brooks knew the contracts contained the false representation and intended that the plaintiff and Mr O’Neill would rely upon and thus be deceived by those representations. Mr Newlinds SC submitted that in the absence of evidence from Mr Brooks there are two equally competing inferences in relation to these two matters.

267 Before the Court was advised that Mr Brooks was not to give evidence and his affidavit was to be withdrawn, Mr Newlinds SC cross-examined Mr O’Neill and put to him that he had a conversation with Mr Brooks in which the following occurred:

“Since if we show it to the Swiss guy who is providing Terry funds, there won’t be any questions”.

268 This evidence was not withdrawn and it is appropriate to find that this question was put on instructions from Mr Brooks. The fact that Mr Brooks did not give evidence in line with that cross-examination is a factor to be taken into account in dealing with this aspect of the plaintiff’s claim. At least on the day of this cross-examination there was a case being propounded on Mr Brooks’ behalf that the plaintiff, via Mr O’Neill, had requested the changes to the contract. As I have said earlier I accept Mr O’Neill’s denial that such a conversation occurred.

269 The evidence establishes that Mr Brooks was receiving requests from the plaintiff through Mr O’Neill for changes to various aspects of the draft Asset Sale Contracts, other than the false provisions, to be negotiated with the liquidators. The evidence also establishes that Mr Brooks received those requests and in the main, sought those changes in negotiations with the liquidators. The irresistible inference is that Mr Brooks knew that the plaintiff and Mr O’Neill believed that the draft contracts were the true negotiated terms reached between the defendant and the liquidators.

270 Without finding that the Briginshaw test must be applied in this instance I will apply it and I am comfortably satisfied that Mr Brooks was well aware of clause (f) of the contract whereby there was a requirement for the plaintiff to approve the draft contract with the liquidators. After the false documents were sent for the plaintiff’s approval pursuant to clause (f), Mr Brooks engaged in a process with Mr O’Neill as he requested changes to the contract with the liquidator. The submission that there is no evidence to prove to the Briginshaw standard that Mr Brooks intended the plaintiff to rely on the content of the draft contract as being the real terms of the contract is in my view to ignore the reality of Mr Brooks’ role in the matter. Here is a solicitor dealing with the plaintiff’s solicitor who is requesting that he negotiate with the liquidator to effect changes to the document that contains the false figures, knowing that the document that the plaintiff’s solicitor has, ensures that, as he advised in his e-mail, the “price will not be known”. The only way that was achieved was with Mr Brooks’ involvement.

271 A further matter about which there was some controversy was whether Mr Brooks actually changed the content of the letter from Clayton Utz in the paragraph in which the true amount of the deposit was contained. The defendant’s evidence was that he changed the letter and the draft contract before he sent the original copy across to Mr Brierley. There is no direct evidence that Mr Brooks had a hand in changing the Clayton Utz letter. I do not intend to make a finding that he changed that particular letter. However there were additional documents that the plaintiff submitted that Mr Brooks changed to give the plaintiff the false impression that the purchase price for the wine business was $10.3 million. Having regard to the documents in evidence it is difficult to believe that Mr Brooks did not at least know of the changes to the Clayton Utz letter.

272 On 24 May Mr Brooks wrote a letter to Mr David Landy, solicitor at Clayton Utz in relation to the proposed contracts (Ex. 1: 1243-1248). On the same day Mr Brooks forwarded to Nash, O’Neill, Tomko, what he claimed was a “proposed” letter to Clayton Utz together with copies of the “side agreement” and contract conditions for the sale of land (Ex. 1: 1262-1267 & 1306-1308). A comparison of these documents demonstrates that the letter to Mr O’Neill deleted any reference to one of the purchasers being “Trudy Douglas” and the purchase price of “$700,000” that was contained in the letter to Clayton Utz as well as the deletion of other paragraphs.

273 It was submitted that the deletions from the letter were made for the purpose of concealing from the plaintiff that the defendant was purchasing the residential properties as well as the wine business for no cost greater than $10.3 million. Although the total amount to be paid to the liquidators would be $10.3 million such amount was not the purchase price for only the wine business but included all the assets that the defendant had negotiated to purchase from the liquidators, including the distribution business and the residential properties. This seems to me to be the irresistible inference from this evidence.

274 Mr Brooks could have given evidence that he understood that the plaintiff had wanted the changes made to the draft Asset Sale Contracts and that he gleaned that understanding from his client, the defendant. He could have given evidence that he honestly believed that what he was doing in changing the documents was pursuant to an agreement between the plaintiff and the defendant, irrespective of whether he had gleaned such understanding from his client the defendant. He did not do so. I am satisfied that in the circumstances an inference adverse to Mr Brooks is warranted: Jones v Dunkel (1959) 101 CLR 298. However I should point out that this adverse inference does not play a decisive role in the comfort I have in the finding that the plaintiff has proved its case against Mr Brooks in deceit.

275 I am satisfied that Mr Brooks knew that the representation that the draft Asset Sale Contracts were the real contracts (by the provision of those contracts in the circumstances described above) was false. I am also satisfied that Mr Brooks intended that the plaintiff would rely upon those figures in the contracts as one of the bases upon which the deposit would be and was paid. The plaintiff was deceived by Mr Brooks’ conduct into believing that the contracts were real and paid the deposit. The plaintiff is entitled to recover from Mr Brooks the pecuniary loss he suffered by reason of Mr Brooks’ deceit – the difference between the deposit he paid and the deposit he was required to pay under the contract.

Exemplary damages

276 In Rookes v Barnard [1964] AC 1129, Lord Devlin, in explaining the nature of exemplary and aggravated damages, referred to the categories of cases in which an award of exemplary damages “can serve a useful purpose in vindicating the strength of the law and thus affording a practical justification for admitting into the civil law a principle which ought logically to belong to the criminal” (at 1225). The limitation to those categories was rejected in Australia in 1966: Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118: Australian Consolidated Press Ltd v Uren [1969] 1 AC 590. In Rookes v Barnard Lord Devlin said at 1227:

Where a defendant with a cynical disregard for a plaintiff’s rights has calculated that the money to be made out of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity. This category is not confined to money making in the strict sense. It extends to cases in which the defendant is seeking to gain at the expense of the plaintiff some object-perhaps some property which he covets-which either he could not obtain at all or not obtain except at a price greater than he wants to put down. Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay.

277 In answering the question, “Did Rookes v Barnard extend exemplary damages to fresh torts?”, in Broome v Cassell & Co Ltd [1972] A.C. 1027, Lord Hailsham of St. Marylebone L.C. said at 1076:

It is true, of course, that actions for deceit could well come within the purview of the second category. But I can see no reason for thinking that Lord Devlin intended to extend the category to deceit, and counsel on both sides before us were constrained to say that, though it may be paradoxical, they were unable to find a single case where either exemplary or aggravated damages had been awarded for deceit, despite the fact that contumelious, outrageous, oppressive, or dishonest conduct on the part of the defendant is almost inherently associated with it. The explanation may lie in the close connection that the action has always had with breach of contract.

278 Lord Diplock expressed the rather firm view that Rookes v Barnard had not extended the power to award exemplary damages for the tort of deceit, on the basis that such damages had not been awarded previously for the tort (at 1130-1131). In Metall Und Rohstoff A.G. v ACLI Metals (London) Ltd [1984] 1 Lloyd’s LR 598, Purchas LJ accepted that the tort of deceit or fraud had never been considered to fall within the category of cases in respect of which exemplary damages may be awarded (at 612). In 1993 the English position that an award of exemplary damages could only be made where the case fell within the two categories propounded by Lord Devlin in Rookes v Barnard and was founded on a tort for which such damages had been awarded before Rookes v Barnard was endorsed: A.B. & Ors v South West Water Services Ltd [1993] Q.B. 507 per Sir Thomas Bingham MR at 530.

279 In 1988 in Musca v Astle Corporation Pty Limited French J considered whether an award of exemplary damages is available for the tort of deceit in Australia. After referring to the history of the award of exemplary damages in England and Australia and observing that there was then no Australian decision of which he was aware relating to the availability of exemplary damages in cases of deceit, his Honour considered whether an award of such damages for deceit would be an “illogical and anomalous remedy” (at 267). His Honour said that “viewed against its conceptual ancestry, it is difficult to dismiss the remedy as either anomalous or illogical” and, after referring to Brennan J’s statement in XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia)Pty Ltd (1985) 155 CLR 448 at 472 that “it is now beyond argument that, by the law of this country, it is proper to award exemplary damages by way of punishment of the tortfeasor”, continued at 268:

There are of course trenchant and powerful critics of the remedy and the force of their arguments must be acknowledged. However, in my opinion, there is nothing that is so anomalous or illogical about exemplary damages as to prevent their logical application, to deceit. Indeed that tort is a paradigm case for their application.

280 Essential elements of the tort of deceit include the falsity of the representation, the defendant’s knowledge that the representation is false and the defendant’s intention that the plaintiff will rely upon or be induced to act upon the false representation. This kind of conduct, essential for the proof of the tort, may fit within the descriptions of the type of conduct that has been found to warrant the award of exemplary damages – “contumelious disregard for the plaintiff’s rights”, “conscious wrongdoing”, “high-handed” and “reprehensible”: Gray v Motor Accident Commission (1998) 196 CLR 1; Lamb v Cotogno (1987) 164 CLR 1.

281 Does the fact that the conduct essential to prove the tort may fit within descriptions of conduct that lays the foundation for an award of exemplary damages prevent an award for the tort of deceit? I think not. It will depend upon the circumstances of each case. For instance the defendant may have committed the tort by a solitary act of trickery that may not warrant the award of such damages. However the defendant may commit the tort in a manner demonstrating a level of high handedness and reprehensibility that warrants the disapprobation of the court over and above the finding that the tort of deceit has been committed, as bad as that finding may be for the particular defendant, in any event. Even worse, the trickery may be perpetrated by people with legal authority, such as a solicitor, and perpetrated by a co-defendant using the legal authority of the solicitor, as sadly was the case here. That is conduct of a very reprehensible kind.

282 The position in England has now changed and is more in line with the approach adopted by French J. In Kuddus v Chief Constable of Leicestershire Constabulary [2001] 2 WLR 1789, a case of misfeasance in public officer, the House of Lords finally rejected the pre-1964 rule as too rigid and an inappropriate limitation on the future development of the law and contrary to the normal practice of the courts: per Lord Slynn of Hadley at [22], see also Lord Mackay of Clashfern at [44], Lord Nicholls of Birkenhead at [68], Lord Hutton at [89] and Lord Scott of Foscote at [118].

283 Lord Mackay referred to the tort of deceit at [43]:

Broome v Cassell & Co Ltd

284 Lord Scott said at [122]:

It will be noticed that I have not included deceit among the nominate torts where, on authority, exemplary damages cannot be claimed. This is because if, which I regret, exemplary damages are to be retained and reformed, rather than abolished, deceit practiced by a government or local authority official, all by a police officer, on a citizen, it seems to me to be allowed in a suitable case to attract them.

285 It seems to me that the facts of this case warrant an award of exemplary damages. The conduct of the defendant and Mr Brooks in deceiving and changing the terms of the draft Asset Sale Contracts was quite appalling. A businessman and a solicitor, both obviously intent upon trickery, changed the contracts not once but numerous times. The conduct of the defendant and Mr Brooks was both high handed and reprehensible such that an award of exemplary damages is warranted against both defendants. The reprehensibility of the conduct of Mr Brooks is increased by reason of his position as a solicitor, an officer of the Court.

286 I award exemplary damages as against the defendant in the amount of $75,000. I award exemplary damages against Mr Brooks in the amount of $125,000.

Conclusion

287 The plaintiff’s case for damages for breach of contract fails as does his claim for breach of fiduciary duty. The plaintiff is entitled to relief against forfeiture of the deposit required under the contract at the lower figure. The plaintiff is entitled as against the defendant and Mr Brooks to damages for misleading and deceptive conduct and for the tort of deceit in the amount equal to the difference between the deposit paid and the deposit required under the contract at the lower price. Thus the plaintiff is entitled to the whole of the amounts he paid by way of deposit.

288 I have awarded exemplary damages as against the defendant in the amount of $75,000 and as against Mr Brooks in the amount of $125,000.

289 The parties are to prepare Short Minutes of Order to reflect these findings for filing in Court on 26 February 2004 at 9.30 am. That Order should include an agreed order for costs and interest, however if the parties are unable to agree on those orders I will hear argument on 26 February 2004 when the matter is listed for the entry of orders.

********************

Last Modified: 02/27/2004

Actions

Download as PDF Download as Word Document

Citations

Hill v James [2004] NSWSC 55

Most Recent Citation

Ikosidekas v MWL Finance Pty Ltd [2022] VCC 633

Cases Citing This Decision

9

Care A2 Plus Pty Ltd v Pichardo [2024] NSWCA 35

Brooks v Prothonatory of the Supreme Court of New South Wales [2008] NSWCA 31

Galati v Deans [2021] NSWSC 1094

Cases Cited

17

Statutory Material Cited

0

Gogard Pty Ltd v Satnaq Pty Ltd [1999] NSWSC 1283

Romanos v Pentagold Investments Pty Ltd [2003] HCA 58

Mills v Walsh [2022] NSWCA 255

CITATION:	Terry Donald Hill v David Anthony James & Ors [2004] NSWSC 55
HEARING DATE(S):	3,4,5,6,10,11,12,13 & 25 November 2003, 5 & 12 February 2004
JUDGMENT DATE:	20 February 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Bergin J
DECISION:	See paragraphs 287 - 289
CATCHWORDS:	[Commercial Contracts]- identification of terms -contract in which defendant, through a corporate vehicle, exchanged contracts for purchase of certain assets (including the wine business) from the liquidator to be owned by the plaintiff, via a shareholding in the corporate vehicle, if the plaintiff able to fund the settlement- obligation on the defendant to provide contract with liquidator to the plaintiff for his approval/whether the plaintiff required to pay purchase price that the defendant paid the liquidator or some other amount [Breach] -falsification of documents provided to the plaintiff for his approval- requiring the plaintiff to pay higher price for purchase than the defendant paid the liquidator for the wine business - [Damages] - whether the plaintiff suffered damage by reason of breaches - whether the plaintiff had the capacity to settle the contract in any event - [Misleading and deceptive conduct] - representation that document provided for approval by the plaintiff contained the true terms of the contract between the liquidator and the defendant - reliance -payment of money based on amounts in false documents - [Agency/Fiduciary] - whether fiduciary obligations imposed by use of the words in the contract that the defendant would purchase the wine business "on behalf of" the plaintiff - [Tort] - deceit - elements- whether exemplary damages available -whether an award of exemplary damages should be made.
CASES CITED:	A.B. & Ors v South West Water Services Ltd [1993] QB 507 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Briginshaw v Briginshaw (1938) 60 CLR 336 Broome Cassell & Co. Ltd [1972] AC 1027 Coghlan v Pyoanee Pty Ltd [2003] QdR 636 Gray v Motor Accident Commission (1998) 196 CLR 1 Hospital Products Limited v United States Surgical Corporation & Ors (1984) 156 CLR 41 Jones v Dunkel (1959) 101 CLR 298 Kuddus v Chief Constable of Leicestershire Constabulary [2001] 2 WLR 1789 Lamb v Cotogno (1987) 164 CLR 1 Mehmet v Benson (1965) 113 CLR 295 Metall und Rohstoff A.G. v ACLI Metals (London) Ltd [1984] 1 Lloyd's Rep 598 Musca & Ors v Astle Corporation Pty Ltd & Anor (1988) 80 ALR 251 New Zealand and Australian Land Co. v Watson (1881) 7 QBD 374 Romanos v Pentagold Investments Pty Ltd [2003] HCA 58, (2003) 201 ALR 399 Rookes v Barnard [1964] AC 1129 Tanwar Enterprises Pty Ltd v Joseph Cauchi & Ors [2003] HCA 57, (2003) 201 ALR 359 Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448
PARTIES :	Terry Donald Hill (Plaintiff) David Anthony James (First Defendant) Bearing Traders Pty Ltd (Second Defendant) David George Brooks (Third Defendant) Liquor National Pty Ltd (Fourth Defendant) Wine National Pty Ltd (Fifth Defendant)
FILE NUMBER(S):	SC 50149/02
COUNSEL:	MR Aldridge SC and RD Glasson (Plaintiff) CR Newlinds SC and DA Allen (Defendants)
SOLICITORS:	Eddy & Moloney Solicitors (Plaintiff) Catalyst Partners (Defendants)