Koh v Tay
[1999] WASC 197
KOH & ANOR -v- TAY & ANOR [1999] WASC 197
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASC 197 | |
| Case No: | CIV:1332/1994 | 22-25 MARCH, 21-22, 25 JUNE & 3 SEPTEMBER 1999 | |
| Coram: | SCOTT J | 15/10/99 | |
| 22 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for the first plaintiff against the first defendant with damages to be awarded in accordance with the orders set out | ||
| PDF Version |
| Parties: | ANDREW KEE SUAN KOH KT & T DEVELOPMENTS PTY LTD (ACN 009 379 471) RICHARD AH BOEY TAY COTSWOLD HOLDINGS PTY LTD (ACN 009 332 138) |
Catchwords: | Contract law Fraud Misrepresentation as to term of contract Misrepresentation as to purchase price of land and value of land Knowingly making untrue representations to induce party to contract Express term of contract Buy back clause Acquisition of share in commercial development Offer and acceptance documents not the same as those initialled by party to contract Fiduciary duty of care owed by director Discharge of fiduciary duty Evidence Credibility of witness Accuracy of valuation Damages Remoteness of damage Proceeding with development after revelation of fraud Duty at law to mitigate loss |
Legislation: | Nil |
Case References: | Briginshaw v Briginshaw (1938) 60 CLR 336 Gould v Vaggelas (1983-1985) 157 CLR 215 Helton v Allan (1940) 63 CLR 691 Jubilee Cotton Mills Ltd v Lewis [1924] AC 958 Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25 March v Stramare (1991) 71 CLR 506 Snarski v Barbarich [1969] WAR 46 Toteff v Antonas (1952) 87 CLR 647 Van den Esschert v Chappell [1960] WAR 114 Commonwealth Bank v Smith (1991) 102 ALR 453 Daniels v Anderson (1995) 37 NSWLR 438 Derry v Peek (1889) LR 14 App Cas 337 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Hawkins v Clayton (1988) 164 CLR 538 Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1999) 33 FCR 1 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Wardley Australia v The State of Western Australia (1992) 175 CLR 514 York v Lucas (1983-1984) 158 CLR 661 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- First Plaintiff
KT & T DEVELOPMENTS PTY LTD (ACN 009 379 471)
Second Plaintiff
AND
RICHARD AH BOEY TAY
First Defendant
COTSWOLD HOLDINGS PTY LTD (ACN 009 332 138)
Second Defendant
Catchwords:
Contract law - Fraud - Misrepresentation as to term of contract - Misrepresentation as to purchase price of land and value of land - Knowingly making untrue representations to induce party to contract - Express term of contract - Buy back clause - Acquisition of share in commercial development - Offer and acceptance documents not the same as those initialled by party to contract - Fiduciary duty of care owed by director - Discharge of fiduciary duty
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Evidence - Credibility of witness - Accuracy of valuation
Damages - Remoteness of damage - Proceeding with development after revelation of fraud - Duty at law to mitigate loss
Legislation:
Nil
Result:
Judgment for the first plaintiff against the first defendant with damages to be awarded in accordance with the orders set out
Representation:
Counsel:
First Plaintiff : Mr N W McKerracher QC & Mr P Redding
Second Plaintiff : Mr N W McKerracher QC & Mr P Redding
First Defendant : Mr P G Clifford & Mr B P Wheatley
Second Defendant : Mr P G Clifford & Mr B P Wheatley
Solicitors:
First Plaintiff : Williams & Hughes
Second Plaintiff : Williams & Hughes
First Defendant : Murfett & Co
Second Defendant : Murfett & Co
Case(s) referred to in judgment(s):
Briginshaw v Briginshaw (1938) 60 CLR 336
Gould v Vaggelas (1983-1985) 157 CLR 215
Helton v Allan (1940) 63 CLR 691
Jubilee Cotton Mills Ltd v Lewis [1924] AC 958
Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25
March v Stramare (1991) 71 CLR 506
Snarski v Barbarich [1969] WAR 46
Toteff v Antonas (1952) 87 CLR 647
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Van den Esschert v Chappell [1960] WAR 114
Case(s) also cited:
Commonwealth Bank v Smith (1991) 102 ALR 453
Daniels v Anderson (1995) 37 NSWLR 438
Derry v Peek (1889) LR 14 App Cas 337
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Hawkins v Clayton (1988) 164 CLR 538
Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1999) 33 FCR 1
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449
Wardley Australia v The State of Western Australia (1992) 175 CLR 514
York v Lucas (1983-1984) 158 CLR 661
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1 SCOTT J: This action concerns Lot 50 on Strata Plan Certificate No 15461 in an area known as Pelican Cove ("Pelican Cove").
2 The evidence establishes that Lot 50 was originally owned by Gunpat Pty Ltd ("Gunpat") and was part of a large strata plan subdivision involving many lots. The history of the development of Pelican Cove is of no great significance until, in 1988, units 16, 19, 20 and 49 were developed as display units. The evidence is that each of those units was furnished and well presented.
3 In August and September 1998, contracts were entered into by the then owner, Domenico D'Annunzio, ('D'Annunzio") to sell units 17 and 20. The purchase price for unit 17 was $325,000 and the purchase price for unit 20 was $230,000.
4 The first plaintiff, Andrew Kee Suan Koh ("Dr Koh") qualified as a medical practitioner in 1960 from the University of Dublin and subsequently became a surgeon. Dr Koh commenced private practice in surgery in early 1970 and was a practising surgeon in Ipoh, Malaysia, until 1986 when he gave up his surgical practice and migrated to Perth with his then wife and two children. At that time his wife was suffering from cancer and she subsequently passed away towards the end of 1986, leaving Dr Koh looking after his two children. Dr Koh met his present wife, Christine Koh ("Mrs Koh"), in 1987 and they married in February 1990.
5 Prior to his marriage to Mrs Koh, Dr Koh, had been living at 48 Jutland Parade, Dalkeith, and he moved address whilst renovations were completed. Mrs Koh assisted in the design of the house and the selection of some of the items, such as floor tiles. Eventually Dr and Mrs Koh visited a company called Indo Expo in Osborne Park where they met the proprietor Tanto Adi Pramoko ("Tanto"). It was through Tanto that they were introduced to the first defendant, Richard Ah Boey Tay ("Tay").
6 After Tanto introduced Dr and Mrs Koh to Tay, they became involved in some discussions with Tay, who showed them plans of a substantial development that he said he had undertaken with Tanto in Geelong, Victoria. Tay told Dr Koh that it was easy to make money in Australia through property investment.
7 After some further discussions, Tay arranged to take Dr and Mrs Koh to see Lot 50 Pelican Cove. There is some dispute as to when that occurred and as to what was then discussed, but I accept the evidence of
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- both Dr and Mrs Koh that Tay told them that he and Tanto had bought the land approximately two years earlier for $800,000 and that the cost of building eight, three-storey town houses would be a further $100,000 each. I also accept both Dr and Mrs Koh's evidence that they were told that the likely profit from the development and sale of those three-storey units would be approximately $1M.
8 I accept Dr Koh's evidence that in the course of the discussions he was told by Tay that as Tay and Tanto had to travel overseas frequently, they wanted a local partner to come in to the project to look after the expenses and the signing of cheques. Dr Koh's evidence, which I accept, was that Tay told him that he would sell him half the project, based upon the original purchase price of the land of $800,000.
9 It should be noted that Dr Koh at that stage, in my opinion, had little or no experience in business or investment. During the time he was practising medicine in Ipoh, Dr Koh's father, who was then alive, was responsible for Dr Koh's investments. I accept the evidence of Dr Koh that his father was a successful and conservative investor who carefully managed Dr Koh's investments for him. It was only after his father died that Dr Koh had to take responsibility for his own investment portfolio. At that time he had not been involved in a project of this type.
10 In any event, in my opinion, Dr Koh was very cautious about, and reluctant to become involved in the project. Mrs Koh was also very hesitant about either Dr Koh or herself becoming involved in such an investment.
11 Dr Koh was told by Tay that townhouses had been designed by a firm of architects called Dryka Szyjan, who had prepared the designs for approval.
12 At the initial discussion, Dr Koh made no commitment because he was hesitant to become involved in the project. At that early stage, both Dr and Mrs Koh testified that Mrs Koh asked Tay whether they would get their money back if the development did not go ahead. I accept their testimony that Tay agreed to the insertion of a buy-back clause into any contract. At that stage, Tay proposed that a new company would be incorporated to hold the title to Lot 50 and he indicated to Dr and Mrs Koh that the project was ready to go ahead and that there would be a show house ready by Christmas 1989.
13 Dr Koh's evidence was also that Tay had told him, not only had they bought the land two years previously for $800,000, but that the current
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- value of the land was $1.2M, and that there was no impediment to the construction of the townhouses which were ready to go ahead. Tay said the expected profit would be $1.4M. In addition, Dr Koh's evidence was that if the project did not go ahead, the agreement between he and Tay was that the moneys to be put in by the Dr and Mrs Koh would be refunded.
14 After some discussions with Mrs Koh, it was agreed between Dr and Mrs Koh that they would take a 20 per cent interest in the project. After a meeting at Dr Koh's house in Dalkeith Road, Nedlands on 3 February 1989, Dr Koh agreed to take a 50 per cent interest in the project. It is common ground that the agreed price to be paid by Dr Koh, and indeed the amount that he did pay, was $400,000 plus $20,000 towards stamp duty and fees for his 50 per cent interest in the project.
15 As I indicated previously, Tay had told Dr and Mrs Koh that a new company would be incorporated for the purpose of holding the land and as the corporate vehicle to carry out the development.
16 Following that agreement, Dr Koh testified that on 14 April 1989, Tay visited his house and advised him that he had incorporated a company to hold Lot 50. That company was called Echo Point Holdings Pty Ltd ("Echo Point") and Dr Koh became a director.
17 On 18 April 1989, Tay and Tanto came to Dr Koh's house. It was on that occasion, after telling Tay that he was only interested in a 20 per cent share of the project, that Dr Koh ultimately agreed to take a 50 per cent interest in the land via a 50 per cent shareholding in the company. It was agreed that the price for that share was $400,000 (being half of what was said to have been the original purchase price of $800,000) plus $20,000 for stamp duty fees and other expenses.
18 Tay's evidence was that the agreement was that Dr Koh was to put in the $420,000 by way of a loan to a company to be formed, with that sum to be used to pay the total capital cost of the land on the basis that Tay would get 25 per cent for his co-ordination and management of the project and that Tanto would get 25 per cent for his contribution of building materials to the project. I do not accept Tay's version of the agreement which, in my view, makes little commercial sense and which a conservative investor such as Dr Koh would have been most unlikely to have accepted.
19 I would add that in my view, the evidence of Dr and Mrs Koh is greatly to be preferred to that of Tay. In the course of his
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- cross-examination, Tay admitted that he had told lies on oath and on another occasion, had, through counsel, misled a court in Singapore. Tay was generally evasive under cross-examination, particularly as to the assets situation of the second defendant Cotswold Holdings Pty Ltd ("Cotswold") which he was clearly in a position to know, and would have been expected to know. In addition, in my view, Tay's evidence was quite unsatisfactory in many respects because although he understood and answered questions in evidence-in-chief with little difficulty, in cross-examination he frequently said he did not understand questions when it was apparent that he was having difficulty in answering them. Generally speaking, I reject Tay as a credible witness.
20 The evidence of Dr Koh, supported by Mrs Koh, was that when agreement was reached to take a 50 per cent interest in the project, Tay expressly agreed that if the project did not go ahead, their money would be refunded. Whilst Tay vehemently denied that such a term was ever agreed, and whilst no written contract has ever been produced which reveals such a term, I accept the evidence of Dr and Mrs Koh that it was an express term of the agreement between them that a buy-back clause reflecting such an agreement was to be inserted in the written contract. Indeed, both Dr and Mrs Koh testified that ultimately they saw a written offer and acceptance, which contained such a clause, and they signed the offer and acceptance with that term in it. The document has never been seen since and was not discovered in the course of these proceedings. I nonetheless accept the evidence that it was an express term of the contractual relationship between Dr and Mrs Koh and Tay and Tanto that an express agreement in those terms was reached. Both Dr and Mrs Koh testified that they never saw that document again.
21 Eventually, three further hand-written offer and acceptance documents were prepared, by which Echo Point was to purchase Lot 50 from three vendors, namely, Cotswold (the owner of 20 per cent of the land), D'Annunzio (the owner of 32 per cent of the land), and Oxley Holdings Pty Ltd ("Oxley") (the owner of the remaining 48 per cent of the land).
22 The original purchase price to be paid to Cotswold was $80,000; the original purchase price to D'Annunzio was $120,000; and the original purchase price to Oxley, $220,000. In my opinion, it is no coincidence that the total amount of the proposed purchase price was $420,000 which was exactly the amount that Dr Koh was to pay for his acquisition of a 50 per cent share in the project. As it turned out, both D'Annunzio and Oxley counter-offered. D'Annunzio counter-offered at $128,000 and
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- Oxley counter-offered at $250,000. Whilst Dr Koh initialled and signed the original offer and acceptances in relation to each of those transactions, it is clear from the documents themselves that Dr Koh never initialled the counter-offers made by each of the vendors. Had he done so, it would have become apparent that the land was being purchased by Echo Point for more than $420,000, which was the amount that he was then contributing for his half-share. It is not clear why the offer and acceptances were presented to Dr Koh in the manner in which they were, although it must have been plain to him that for the project to go ahead, Echo Point would have to purchase 100 per cent of the land. It should also be pointed out that it is common ground that Cotswold, was one of Tay's companies, so that the consideration payable to Cotswold would effectively have been paid to Tay's control. As such, it was therefore not necessary for Tay to fund any of the purchase price to Echo Point. It is also of some significance that of the $128,000 payable to Mr and Mrs D'Annunzio by arrangement between the D'Annunzios and Tay, only $60,000 of that money was to go to the D'Annunzios with the balance to Tay. The balance of the purchase price owing to the D'Annunzios was to be sorted out with the D'Annunzios after a further unit owned by Tay had been sold. As a consequence of Dr Koh's $420,000, a substantial proportion was to go directly to Tay.
23 After Dr Koh entered into the agreement, his evidence, which I accept, was that Tay took all the offer and acceptance documents away. Dr Koh understood that he signed a number of offer and acceptances because copies were required for each of the parties and he had thought when he signed them that all of the offer and acceptances contained the buy-back clause which he had originally read in the document. In fact, of the three offer and acceptances produced in evidence, none of them contained a buy-back clause, and the three related to the individual contracts by which Echo Point purchased Lot 50 from Cotswold, D'Annunzio and Oxley.
24 Dr Koh's cheque for $420,000 was paid to the credit of Echo Point and from that amount Dr Koh signed cheques to finalise the settlement. It is common ground that Dr Koh signed a cheque in the sum of $80,000 made payable to Benjamin & De Lestang, Solicitors, in settlement of the Cotswold contract; $128,000 to Benjamin & De Lestang in settlement of the D'Annunzio contract and $250,000 to Benjamin & De Lestang in settlement of the Oxley contract.
25 It is not clear on the evidence exactly how Dr Koh thought this transaction would be settled, but having entered into those offer and
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- acceptances and having signed the cheques, he believed that he was then the holder of 50 per cent of the share capital of Echo Point, which in turn was the owner of 100 per cent of Lot 50.
26 I also accept the evidence of both Dr and Mrs Koh that on completion of the offer and acceptances, they sought to photocopy the documents but were told by Tay that it was not appropriate for the documents to be photocopied at that time as the documents still had to be sealed by Echo Point. As a consequence, all of the documents were returned to Tay, who promised to provide copies to Dr and Mrs Koh, once they had been sealed.
27 I should add for the sake of completeness that at this stage of the transaction, Dr Koh realised that the cheques that he had written against the account of Echo Point were greater than the amount of $420,000 he had paid into the company. He queried Tay about that matter, and was told by Tay that both he and Tanto had put money into the company so that the cheques would be met on presentation. He was not told, however, by Tay as to exactly what amount it was that he and Tanto had paid into the company's bank account.
28 Dr Koh also agrees that he signed authority to enable Benjamin & De Lestang to make payment to three vendors. Those authorities were produced in evidence.
29 Eventually, Echo Point changed its name to KT & T Developments Pty Ltd ("KT & T") (the initials of Koh, Tay and Tanto) and so far as Dr Koh was concerned the project was ready to proceed.
30 I would add that in my view, Dr Koh totally trusted Tay and believed that he was in control of an advancing project. I accept Dr Koh's evidence that after making the investment, he received very little information from Tay and that when he did raise the subject, he was told by Tay that he was to trust him and that the project was under control.
31 I accept Dr Koh's evidence that in September 1989, Tay delivered a file to him and told him that the file contained all of the documents pertaining to Lot 50. Dr Koh's evidence was that because of his trust in Tay at that stage, he never bothered to look at the documents and accepted Tay's word as to what the file contained.
32 At this point in the history of KT & T, it is to be noted that Tay had arranged for his accountant, Ian Yzelman ("Yzelman"), to act as the accountant for KT & T. On 19 June 1990, Dr and Mrs Koh met Yzelman
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- for the first time, but the purpose of the visit was not connected with the project at Lot 50. At that stage, Dr Koh had other business interests with Tay.
33 Dr and Mrs Koh sought to inspect the books of KT & T but the books of account were not at that office. A further meeting was called on the next day, 20 June 1990 and was attended by Yzelman, Tay, Tanto, Dr and Mrs Koh. At that stage, Dr Koh's concern was in relation to another project, but in the course of discussions he asked about the progress of Lot 50 and was told by Tay that everything was finally okay and that they would be calling for tenders to build the townhouses shortly. Dr Koh also testified that he asked his own builder to put his name in as a tenderer.
34 On 13 August 1990, Dr and Mrs Koh visited the offices of Yzelman for the purpose of inspecting the books of KT & T but the books were still not there.
35 On 17 August 1990, a critical meeting occurred when Dr and Mrs Koh attended the offices of a real estate firm, Hillier Parker, in St George's Terrace, Perth. Hillier Parker was the managing agent for a further project that Dr and Mrs Koh and Tay were involved in at Marangaroo.
36 As they were leaving the office of Hillier Parker, they bumped into Tay who was surprised to find them at the office of his estate agents. Tay accused Dr and Mrs Koh of doing things behind his back. As a consequence, all three returned to the conference room where a further conference was held. During the course of the discussion Christine Koh was concerned to know the whereabouts of the certificate of title for Lot 50 Pelican Cove.
37 The evidence establishes that there was then some acrimony between Dr and Mrs Koh and Tay. The evidence of Dr and Mrs Koh, which I accept, is that on that occasion Tay told them that he had lied about purchasing Lot 50 Pelican Cove for $800,000 and that he had lied about he and Tanto owning the land. It was also their evidence, which I accept, that Tay apologised for telling lies to them about the progress of the development at Lot 50 and promised to make amends as to his conduct. Tay offered to take Dr and Mrs Koh to the office of Benjamin & De Lestang, Solicitors, so that they could be told the whole story as to what was going on in relation to Lot 50.
38 At the office of Benjamin & De Lestang, the Kohs discovered for the first time that before the townhouses could be constructed, it was
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- necessary to obtain the unanimous consent of all the unit holders in the Pelican Cove subdivision. The evidence of Dr and Mrs Koh was that, before that time, they had absolutely no knowledge of that requirement.
39 I also accept the evidence of Dr and Mrs Koh that they went with Tay to the office of the architect, Dryka Szyjan and on that occasion were told by Mr Dryka ("Dryka") that the three-storey townhouses that were proposed for the site were not financially viable.
40 Following that meeting with Dryka, Dr Koh's evidence was that Mrs Koh told Tay that as a consequence of that information she and Dr Koh wished to invoke the buy-back clause. In response Tay said that if they did, because Tay and Tanto had not purchased the land at the price they had originally said they had, they would not be refunded in full for the money that had been contributed.
41 Dr Koh's evidence is that following those meetings he returned home and for the first time had a look at the documents contained in the file that he had been provided by Tay. For the first time Dr Koh noted the counter-offers on the offer and acceptances for Oxley and D'Annunzio and noted that he had not initialled those counter-offers. In addition, and for the first time, Dr Koh said that he became aware that a swimming pool had to be constructed on Lot 50 and this was the first time that he had become aware of that requirement. Dr Koh's evidence, which I accept, was that he was very puzzled about these documents as to his mind they were not the documents that he had originally signed and read through when the offer and acceptances were originally presented to him.
42 As can be appreciated from what had happened, the relationship between Dr and Mrs Koh and Tay had deteriorated. Dr Koh's evidence, which I accept, is that the following day Tay came to Dr Koh's house and apologised for what had happened in relation to Lot 50 and offered to settle the problems by permitting Dr and Mrs Koh to take over the whole of his interest in the Marangaroo Shopping Centre (being a further joint project) in exchange for Tay taking over the whole of the Lot 50 Pelican Cove project.
43 Dr Koh's evidence, which I accept, is that Tay wrote some figures on a piece of paper setting out the way in which that transaction was to operate. Ultimately, that proposal did not come to fruition, but in my opinion it supports the evidence of Dr and Mrs Koh as to the situation that had then arisen and as to their discussions with Tay at that time. Tay had, of course, become aware of Mrs Koh's involvement and in particular the
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- fact that she had investigated this transaction and Tay was anxious that Mrs Koh should not be involved further.
44 Significantly, also, Dr Koh became angry with his wife as a result of her making inquiries without reference to him concerning the development at Lot 50 Pelican Cove. Relations between Dr Koh and Mrs Koh deteriorated and they separated for a short period. At that stage, Dr Koh had permitted Tay to use the title to Lot 50 Pelican Cove for the purpose of borrowing $500,000, to be on-lent to the company involved in the development of the Marangaroo Shopping Centre.
45 Eventually Dr and Mrs Koh obtained information through Yzelman that the $420,000 that Dr Koh had paid to Echo Point had been treated as a loan and was shown as a loan in the books of KT & T. I would add that it was Dr Koh's evidence that the $420,000 was not paid by way of a loan but as his injection of 50 per cent of the paid up capital of the company which was to be the owner of Lot 50.
46 Be that as it may, Dr Koh sued for the return of the sum shown as a loan in the books of account of KT & T.
47 Because of the difficulty in obtaining the unanimous approval of the strata owners of Lot 50 Pelican Cove, an application was made to the Supreme Court and ultimately approval was given for the strata development. Attempts were made by Dr and Mrs Koh to sell Lot 50 around that time but a suitable purchaser could not be found. The significance of that evidence will become apparent on the question of damages.
48 It is not necessary to descend into the details of what subsequently occurred, but eventually Dr Koh decided to issue further shares in KT & T and Tay resigned as a director of that company. The end result of that transaction was that Dr Koh owned a substantial controlling interest in the company, so that both Tay and Tanto's interests were very substantially reduced in terms of the issued capital of KT & T.
49 It is common ground that, having attempted to sell, and having been unable to sell Lot 50 Pelican Cove at a price to recover their investment, Dr and Mrs Koh proceeded to develop and sell units on Lot 50. The development was done by KT & T in conjunction with Andrew Koh Nominees Pty Ltd (one of Dr Koh's companies) and other companies associated with Dr and Mrs Koh and the accounting was done in such a way that there was no profit in the project available to be distributed to
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- KT & T. I will refer to that evidence in greater detail when I come to the question of damages.
50 To complete Dr Koh's evidence, it is necessary to refer to his understanding as to how the project funding was to be derived. On his evidence, the $420,000 that he paid entitled him, via KT & T, to a 50 per cent interest in Lot 50 Pelican Cove. He accepted, and it is common ground that he would have been required to find further funds to pay for his half-share of the development costs of the units to be built on the land. On his version of the evidence, from the profits obtained from the sale of the units, he would have recouped his investment and have made a significant profit.
51 After Tay resigned as a director, and after the further shares were issued in KT & T, Dr and Mrs Koh decided to proceed with the development of Lot 50 Pelican Cove in the manner that I have described. Dr Koh's evidence was that he had little choice, as he could not sell Lot 50 Pelican Cove for a price that would recoup his investment and so he was forced to proceed with the development and sale of the units.
52 The plaintiffs plead in the amended statement of claim that each of the defendants was guilty of deceit in that the first defendant, acting within the scope of his authority as a director of the second defendant, made false representations to the plaintiffs, either knowing them to be false and untrue, or recklessly not caring whether they were true or false. The representations pleaded are:
"7.1 Lot 50 was purchased in or about 1986 for the sum of $800,000.
7.2 The value of Lot 50 (as at November 1988) was $1,200,000.
7.3 Melville City Council had given planning approval to commence the construction of eight townhouses on Lot 50.
7.4 Construction of the eight townhouses could commence immediately or in the near future."
53 Those representations are pleaded as having occurred in November 1988 at 240 Burke Drive, Attadale.
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54 The plaintiffs also plead against the first and second defendants further oral representations made to the first plaintiff on or about 3 February 1989 at Dalkeith Road, Nedlands, namely:
"10.1 Melville Council had given a revised planning approval for the construction of 7 townhouses on Lot 50 in accordance with plans drawn by Dryka Szyjan Cheng which plans Tay produced to the plaintiff.
10.2 Construction of the 7 townhouses could commence immediately or in the near future.
10.3 The projected profit from construction of the 7 townhouses was in the order of $1,400,000."
55 It is also pleaded that the representations concerning the purchase price of Lot 50 was false because Lot 50 had not been purchased in 1986 for $800,000 but that the total price for Lots 17, 20 and 50 was $636,000 under agreement made in or about January 1988.
"11.2 Melville City Council had not granted planning approval for the construction of 8 townhouses or 7 townhouses.
11.3 Lot 50 did not have a value of $1.2M but was valued at $325,000 or thereabouts.
11.4 Construction of 8 townhouse units or 7 townhouse units could not proceed on Lot 50 without the approval of the owners of the lots on Strata Plan 15461, which approval had not been given.
11.5 Construction of 8 townhouse or 7 townhouses could not in the premises commence in the proximate future and there was no realistic prospect of a profit of $1,400,000."
56 As I have already said, it is alleged that the representations made by Tay on behalf of Cotswold were known by Tay to be untrue when they were made or else were made recklessly, not caring whether they were true or false.
57 Having dealt with the facts, to which I have earlier referred, in my view the evidence is clear that Lots 17, 20 and 50 were purchased for $636,000 under an agreement made in or about January 1988. In my opinion, the evidence also supports the view that Tay represented to Dr Koh that Lot 50 had been purchased for $800,000 some two years
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- earlier. That representation was clearly false and known by Tay to be false at the time it was made. I also accept Dr Koh's evidence that Tay told him that the land was valued at $1.2M but that he was prepared to sell a half-share to Dr Koh for $400,000 on the basis that this represented half of the purchase price that he and Tanto had paid for the land when they purchased it. In my opinion, such a representation was undoubtedly false and well known by Tay to have been false at the time it was made. In reaching this conclusion, I have taken into account the seriousness of such a finding cf Helton v Allan (1940) 63 CLR 691; Briginshaw v Briginshaw (1938) 60 CLR 336.
58 Dr Koh's evidence that he was told by Tay that he could purchase the land for $800,000, being the price that Tay and Tanto had originally paid for the land, is supported to some extent by the value that Tay had placed upon the land in applications for finance relating to other projects. In a statement of position (exhibit 308 in vol 2 of the Document Book) an application for finance for the purchase of El Caballo Blanco, Tay listed one of his assets as being Lot 50 Pelican Cove and its value at $800,000. He valued his share at $200,000. It is clear from that document that it was prepared some time prior to August 1990 when the settlement of the El Caballo Blanco project was expected.
59 As to the second representation that the townhouses could commence immediately, or in the near future, having reviewed all of the evidence, I have come to the conclusion that Tay believed that to be the case. His evidence in that respect was supported by the evidence of his then solicitor, Robin Ezra Benjamin ("Benjamin"), who supported the evidence of Tay that at the time he entered into the contract with Dr Koh, he believed that he had the necessary approvals to enable the development to proceed. Having reviewed the evidence, I have come to the conclusion that neither Benjamin nor Tay realised that the unanimous approval of all the shareholders of the strata units was required before the development of Lot 50 could proceed, until the detail of the strata agreement was perused. At that stage, the consent of those parties became a matter of concern because of the difficulty involved in obtaining the unanimous consent of the large number of strata holders to the proposed development. The difficulties that were subsequently encountered were as a consequence of that requirement.
60 It may well be that the first defendant had not inquired as to whether the approvals had been given by the relevant local authority at the time he made the representation to Dr Koh, but nonetheless, looking at the evidence overall, I am not satisfied either that he knew this representation
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- was false at the time he made it, or that he was reckless, in the relevant sense, in making such a representation to Dr Koh. The zoning of the land was such that either seven or eight units were permissible on the land and the ultimate proposal, which included a swimming pool for the use of all of the strata unit holders, was in part the mechanism by which the ultimate approvals were obtained. However, as I have already indicated, an order of the Supreme Court was required before the development could be undertaken. I am not persuaded that this oral representation which I accept was made was either knowingly false or recklessly made: Fleming JG The Law of Torts 9th ed 1998 at 699: Van den Esschert v Chappell [1960] WAR 114; Snarski v Barbarich [1969] WAR 46.
61 The third of the representations was that the projected profit from the construction of the seven townhouses was in the order of $1.4M. As to this representation, I again accept that the first defendant did make the representation to Dr Koh as an inducement for him to enter into the project. The evidence establishes that Tay explained to Dr Koh that the land cost was $100,000 per unit for eight units and that the construction cost would be $100,000 for each of the eight townhouses, making a total investment of $1.6M. It was anticipated that the units would sell for $300,000 to $350,000, being the basis upon which it was said that a profit in the order of that represented could be made. Whilst in hindsight it may be said that such a representation was over optimistic, I am not persuaded that at the time the representation was made, Tay knew the representation was false or made it recklessly, not caring whether it was true or false.
62 In reaching these conclusions on what have been called "the planning representations", I have taken into account the evidence of the defence witness, Dryka in relation to his conversations with Dr Koh prior to the payment of the $420,000. In addition, the representation as to the projected profit was not a representation as to a past or present fact, but a representation as to a future anticipated profit. Whilst it may be said that Tay's expectations were optimistic, I am not persuaded that he had no basis for such a view or that he positively did not believe that such a profit was possible or likely.
63 In my opinion, therefore, so far as the pleadings are concerned, the first plaintiff has made out his case against the defendants in relation to the representation that the land had been purchased approximately two years earlier for $800,000 when such a representation was knowingly false.
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64 I accept that Dr Koh was induced to enter into the contractual arrangement with the first defendant as a result of the false representation because, on his evidence, it was fundamental to his acceptance of the proposal that he was buying Lot 50 Pelican Cove, on the basis of the value that Tay had paid for it some two years earlier, and that this false representation was a significant factor in inducing Dr Koh to enter into the contractual arrangement: cf Gould v Vaggelas (1983-1985) 157 CLR 215; March v Stramare (1991) 71 CLR 506 at 509.
65 As I have already indicated earlier in these reasons, following the meeting at Hillier Parker, Tay confessed to Dr Koh of his wrongdoing and admitted his falsity in relation to the purchase price of the land. By then, no doubt, Tay was aware of the fact that Mrs Koh had carried out the searches at the Titles Office and was aware of the price that Cotswold, D'Annunzio and Oxley had originally paid for the land. After Tay admitted that falsity to Dr and Mrs Koh, Dr Koh was left in a position where he had a difficult decision to make. He had outlaid $420,000 on the project, in the manner that I have earlier described, and his evidence and that of Mrs Koh was that after they had taken control of KT & T by way of the further issue of shares, they endeavoured to sell Lot 50. There is little evidence as to their attempts at sale but there is evidence which suggests that Dr Koh was trying to recoup his investment in the property. I will later refer to the valuation evidence which establishes the value of Lot 50 Pelican Cove at the time the representations were made.
66 As I have indicated, Dr Koh, after having failed to sell the land for an acceptable price, decided to proceed with the development of the units. It is common ground that KT & T developed and sold each of the seven townhouses.
67 In my opinion the plaintiffs had a clear duty at law to mitigate their loss and had Lot 50 Pelican Cove been sold at the stage at which the fraud was revealed by Tay, the loss sustained by the plaintiffs would have been kept to a minimum. The plaintiffs, however, elected to proceed with the development, believing that they could minimise their loss by proceeding in that way. I will refer later to the way in which the plaintiffs' claim is formulated in relation to the loss which it is said was sustained. In my opinion, once the plaintiffs elected to proceed by way of continuing with the development in an attempt to recover their losses, any damage which was sustained by reason of their proceeding in that way was too remote in law to be recoverable.
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68 The principles surrounding the recovery of damages in these circumstances have recently been discussed by the High Court in Kenny & Good Pty Ltd v MGICA(1992) Ltd [1999] HCA 25 (17 June 1999) unreported. In that case, McHugh J said at [35]:
"Speaking generally, the valuer is liable only for such losses as a reasonable person would regard as flowing naturally from the negligent valuation or which are of a kind that should have been with the valuer's contemplation. In the absence of a contrary undertaking or special circumstances, the aggrieved party cannot recover any part of the difference between the true value of the property and the price recovered at the time of the sale. The aggrieved party's damages are confined to the difference between the price paid for the property and the price that would have been paid on the basis of a true valuation together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that they were within the reasonable contemplation of the parties to the valuation contract or arrangement."
69 In the same case, Kirby and Callinan JJ said at [123 - 124]:
"There can be no rigid rules to govern all cases. If an example is required of the flexibility with which these questions need to be approached, Gould v Vaggelas provides it. There the Court allowed as damages trading losses incurred some time after the giving of a false inducement. It did so on the basis that it was reasonable, in the particular circumstances, for the purchasers to continue to carry on business as they did.
The loss which the primary judge found the respondent to have sustained in this case was caused by the negligence of the appellant. The appellant was therefore liable for the loss which was suffered by the respondent in entering into the insurance transaction. That loss was readily foreseeable. It was not in any way remote."
70 As I have said, in my view, however, in this case, once the first and second plaintiffs elected to proceed with the construction, development and sale of the units, any damages sustained on the sale of those units was too remote in law to be recoverable, applying those principles.
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71 Whether ultimately there was a profit or a loss from the sale of the units, is a matter of accounting. The development was progressed by KT & T obtaining funding through Andrew Koh Nominees Pty Ltd and other entities related to Dr Koh in the development phase of the project. The accounts reveal that both Dr and Mrs Koh took directors' fees from the company during the course of construction. There have also been substantial interest payments to the lenders. It is difficult to say whether a profit or loss has been incurred on a proper accounting basis but the evidence of Dr Koh is that there was no profit available for distribution to KT & T and from which his $420,000 could be refunded.
72 It is common ground that Tay became a director of KT & T on 11 April 1989 and was a director together with Dr Koh and Tanto. It is pleaded against Tay that as a director he owed a fiduciary duty of care to KT & T. I accept that such a duty of care was owed by Tay to the second plaintiff: cf Jubilee Cotton Mills Ltd v Lewis [1924] AC 958 at 964; and Jacobs' Law of Trusts in Australia 6th Ed Meagher and Gummow at 7. That being the case, however, the question arises as to the way in which it is said that Tay was to discharge his fiduciary duty to the second plaintiff. As I have already said, following the meeting between Dr Koh, Mrs Koh and Tay at the office of Hillier Parker, Tay admitted to telling lies to Dr Koh. Following the meeting at the office of Benjamin & De Lestang, Dr Koh became aware of the true position, and armed with that knowledge the second plaintiff ultimately decided to continue with the development. In my opinion, it follows that had the first defendant discharged his fiduciary duty to the second plaintiff, no different course of action would have ensued so that there is no additional damage which followed from his breach of fiduciary duty in that respect, if such a breach can be said to have been established.
73 It follows, in my opinion, that the second plaintiff does not have a separate cause of action against the first defendant in the manner contended for in the statement of claim. In any event, in my opinion, any damage which it could possibly be said was sustained by KT & T would duplicate the damages which I have found were sustained by the first plaintiff. In other words, any damage sustained by KT & T as a result of the fraudulent conduct of the first defendant as set out in these reasons would be the same damage as sustained by the first plaintiff, and the damage could not be recovered by both parties.
74 It may be of little consequence whether the damages are awarded to the first or second plaintiff, but in my opinion the appropriate course is for damages to be awarded to the first plaintiff.
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75 I would add that in my opinion, whilst the plaintiffs' case against the first defendant is made out, the plaintiffs have not established a case against the second defendant. I would add that in my view, the second defendant was properly joined as a party. The plaintiffs' claim against the second defendant will be dismissed.
76 As I have earlier indicated, in my view once Dr Koh decided to develop the project through KT & T and with the financial assistance of Andrew Koh Nominees Pty Ltd and his other companies without reference to the defendants, any damages sustained in that process were too remote in law to be recoverable by the plaintiffs. The evidence establishes that Dr Koh invested $420,000 for a half-share in a project which he understood had been purchased by the first defendant for the sum of $800,000 two years earlier. For reasons which I will come to, in my opinion, the land at the time Dr Koh purchased it was worth $325,000, so that a half share was 50 per cent of that amount. The first plaintiff is entitled to be put into the position he would have been in had he not acted on the fraudulant inducement: cf Gould v Vaggellas (supra). The true damage sustained by the first plaintiff is the difference in value between the $400,000 that he paid for the land and half its then value of $325,000 plus interest: Toteff v Antonas (1952) 87 CLR 647 per Dixon J at 650:
"In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant. When what he has been induced to do is to make a purchase from the defendant and part with his money to him in payment of the price, then, if the transaction stands and is not disaffirmed or rescinded, what is recoverable is 'the difference between the real value of the property, and the sum which the plaintiff was induced to give for it' per Abbott LCJ Pearson v Wheeler (1825) Ry & Mood 303 at 304. As Sir James Hannen P in Peek v Derry (1887) 27 Ch D 541 pointed out, the question is how much worse off is the plaintiff than if he had not entered into the transaction. If he had not done so would he have had the purchase money in his pocket. To ascertain his loss you must deduct from the amount he paid the real value of the thing he got."
77 In the same judgment, Dixon J went on to say at 651:
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- "But he cannot recover the entire price he has paid unless the thing prove wholly worthless. If the thing has any appreciable value the damages must be reduced pro tanto: per Cockburn LCJ Twycross v Grant (1877) 2 CPD at 543."
78 Dr Koh has already sued KT & T for the return of the money which it was said that he loaned to that company. I accept, however, that Dr Koh's investment was not a loan. That position is supported by the company's accountant Yzelman, who gave evidence that he spoke with Tay following Dr Koh's investment of $420,000. Tay asked Yzelman to reflect the acquisition of Lot 50 Pelican Cove at $800,000. Yzelman refused to do so, because the property had been acquired by KT & T for the sum of $458,000 and it would have been improper of him to reflect the value at $800,000 without a director's re-valuation. As a consequence of his refusal to reflect in the books of account the value requested by Tay, Yzelman was instructed by Tay to record the investment as a loan by Dr Koh. The reality is that Dr Koh did not invest the money as loan funds, but by way of share capital in KT &T.
79 Whether KT & T will ever be in a position where it can satisfy the judgment in favour of Dr Koh for the loan recorded in the books of account is irrelevant to, and does not fall for, determination in these proceedings. As I have already indicated, in my view, the investment by Dr Koh in KT & T was not by way of a loan in any event.
80 In the end result, in my view, the appropriate award of damages to the first plaintiff is the difference between the price paid for the land, namely, the sum of $400,000 for a 50 per cent interest in Lot 50 and its then value of $325,000, half of which is $162,500, making the difference $237,500. Accepting, as I do, that Dr Koh would have otherwise invested his money in blue chip share investments, so far as the loss of use of that money is concerned, the plaintiffs' tendered guide of the All Ordinaries Index for the relevant period should be used as the basis of the calculation of the present value of that sum. I will leave it for the parties to calculate the amount of judgment based upon exhibit "O", which reflects the valuation method for the relevant period. The interest figure should be based upon compound interest compounded annually.
81 In reaching the view as to the appropriate award of damages, I have accepted the evidence of the plaintiffs' valuer, Ross Alan Hughes, in preference to the defendants' valuer, Peter Goodchild. In my view, the plaintiffs' valuation evidence was more comprehensive and more accurately reflected the true value of the land at the date in question. The
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- defendants' valuer, Mr Goodchild, appears to have valued Lot 50 Pelican Cove, on an optimistic basis rather than true market value and has selected as the basis for his valuation figures at the top end of the range of comparative sales for a lot of this size. In particular, Mr Hughes' evidence as to the profit risk factor involved in a market sale at the date of this valuation was, in my view, more realistic than the comparable figures provided by Mr Goodchild.
82 The difference between the two valuers appear to revolve around the development constraints in relation to Lot 50, including the strata title complications, the provision of land for a swimming pool, and the provision of service roads to access the units. In addition, I accept Mr Hughes' evidence that Mr Goodchild took insufficient account of the complexities of being involved in a strata title subdivision with a potential of 57 different owners.
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