Obacelo Pty Ltd v Taveraft Pty Ltd

Re: OBACELO PTY LIMITED and RICHARD THOMAS MOON
And: TAVERAFT PTY LIMITED and GEOFFREY RAYMOND STONE
No. G7 of 1984
Trade Practices - Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.

CATCHWORDS

Trade Practices - Alleged misleading conduct - Sale of caravan park - Representations as to takings and profits - Representations as to application for closure of adjoining public road - Whether representations made - Damages.

Practice and Procedure - Application that Court call witness to enable cross-examination by both parties - Power of judge to call witness over objection by one party - Circumstances in which power should be exercised - Evidence of false income tax returns - Reference of matter to taxation authorities - Incompetence by solicitor handling transaction - Reference to Law Society.

Trade Practices Act 1974 ss.52, 53A, 59(1) and (2), 75B, 82(1)

Local Government Act 1919 (NSW) s.317A

Petera Pty Limited v E A J Pty Limited (1985) ATPR 40-605, Coulson v Disborough (1894) 2 QB 316, Re Enoch and Zaretzky, Bock and Co's Arbitration (1910) 1 KB 327, Titheradge v The King (1917) 24 CLR 107, The King v Jenkins; Ex parte Morrison (1949) VLR 277, (1949) VLR 296, (1949) 80 CLR 626, R v Damic (1982) 2 NSWLR 750, R v Apostilides (1984) 53 ALR 445, Whitehorn v The Queen (1983) 152 CLR 657, "Court Witnesses - A Desirable or Undesirable Encroachment on the Adversary System?" 56 ALJ 234 referred to.

HEARING

SYDNEY

#DATE 13:6:1986

Counsel for the Applicants: Mr B C Oslington QC with Mr G R Barr and Mr B Kops.

Solicitors for the Applicants: Messrs Moray & Agnew.

Counsel for the Respondent: Mr T J Clarke

Solicitors for the Respondents: Messrs Anderson & Sjoquist.

ORDER

1. Judgment be entered in favour of the applicants against each of the respondents in the sum of one hundred and ninety six thousand seven hundred and twenty-five dollars and ninety-seven cents ($196,725.97).

2. The respondents pay to the applicants their costs of these proceedings.
AND THE COURT DIRECTS THAT:

3. The Principal Registrar of the Federal Court of Australia forward to the Attorney-General of the Commonwealth of Australia a copy of the reasons for judgment herein and of the evidence of the respondent Geoffrey Raymond Stone and thereafter make available, as may be required, the full transcript of proceedings and the exhibits for inspection by anyone authorized in that behalf by the Attorney-General or by the Commissioner of Taxation.

4. The Principal Registrar of the Federal Court of Australia forward to the President of the Law Society of New Sough Wales a copy of the reasons for judgment herein and of the evidence of Phillip Julius Baxter and thereafter make available, as may be required, the full transcript of proceedings and the exhibits for inspection by anyone authorized in that behalf by the said President or by the President of the Law Society of Queensland.

The exhibits be returned after the expiration of twenty-one (21) days, unless a notice of appeal shall have been filed in the meantime, but only upon receipt by the Principal Registrar of notifications from:

a) either the Attorney-General or the Commissioner of Taxation; and

b) the President of the Law Society of New South Wales;

that the exhibits will not be required, or further required, for their purposes.

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

JUDGE1

These proceedings arise out of the sale to the first applicant, Obacelo Pty Limited, by the first respondent, Taveraft Pty Limited, of land at Bilambil, near Tweed Heads on the New South Wales north coast. The claim is based upon ss.52, 53A, 59(1) and 59(2) of the Trade Practices Act 1974 but it also includes an allegation of breach of the contract for sale of the land. Obacelo and Richard Thomas Moon, who is managing director of Obacelo and the second applicant in the proceedings, claim damages against Taveraft and also against the second respondent, Geoffrey Raymond Stone, a director of that company. The contention is that Mr Stone was knowingly concerned in the various contraventions of the Trade Practices Act, within the meaning of s.75B of that Act, and is therefore liable for damages pursuant to s.82(1) of the Act.

There was previously a cross claim brought by the respondents against the members of the firm of solicitors, now known as P R Whitehead, Baxter and Associates, who acted in the transaction on behalf of Taveraft and also on behalf of Obacelo and its financiers. However, this cross claim was struck out for want of jurisdiction: see (1985) 59 ALR 571.
The subject land contained 5217 square metres. It lay on the edge of the village of Bilambil and in close proximity to Bilambil Creek, from which it was separated by a strip of land apparently vested in the local council, the Council of the Shire of Tweed. This strip was in law a public road, although apparently not physically suitable for vehicular traffic. I shall use the term adopted by the witnesses and refer to it as "the closed road"; but it is important to bear in mind its true legal status. The subject land was, at all material times, used as a caravan park. At the time of the sale there was only one permanent structure on the land, a concrete block amenities building containing showers and toilets. This structure, however, encroached onto the closed road to a maximum distance of 6.6 metres. Fences and notices had been constructed in such a manner as to exclude the general public from a part of the closed road and so as to give the impression that that part was within the caravan park itself. The council had approved the use of the land as a caravan park but subject to a requirement of adherence to its code. The effect of the code was that, with the available amenities, the park was restricted to accommodating a maximum of 25 caravans at any one time.
The applicants rely upon a number of representations said to have been made to Mr Moon by Mr Stone. There is a major issue between the parties as to whether those representations were made. It is, however, conceded by the respondents that, if the representations claimed by Mr Moon were in fact made, they were false. It is also conceded that, if the Court finds that the representations were in fact made, it would be appropriate to accept the evidence of Mr Moon that the representations induced him to cause Obacelo to enter into the purchase.
The course of negotiations: the Moon version
Mr Moon was engaged in the motor trade in Sydney for about 20 years. In 1981 his wife died, leaving him to care for their three young daughters. He decided to move to the country in order to be able to spend more time with the children. In mid-1982 the family moved to Tweed Heads, initially sharing a duplex home with Mr Moon's sister-in-law, Yvonne Simms, and her husband, Mike. Mr Simms, the only person to have heard any of the critical conversations between Mr Moon and Mr Stone, has since died.
Late in 1982 Mr Moon purchased a small farm near Tweed Heads, at Duranbah, and moved to that property an old house which he purchased in Brisbane. His only other significant asset was a Mercedes Benz motor car. Obacelo also owned a Mercedes Benz car and had $100,000 on deposit with Barclays Australia (Finance) Limited.
Mr Moon first met Mr Stone on Sunday, 20 March 1983. On that day he attended a pony club meeting with his children and Mr and Mrs Simms. Mr and Mrs Stone also attended the pony club meeting and they were amongst a number of people who adjourned after the meeting to the nearby Cabarita Hotel where Mr Simms introduced Mr Moon and Mr Stone. Mrs Stone, whom Mr Moon may have met at the pony club, was also present, along with others.
During the time at the hotel, according to Mr Moon, he had a conversation with Mr Stone and Mr Simms in which he explained to Mr Stone his circumstances and his plans for the farm. He said in evidence that Mr Stone referred to his own position, saying: "I am selling my caravan park. Do you think I would have any trouble getting $250,000 for a business that brings in $1,000 net per week?". Mr Stone elaborated, saying: "I have got an average of 30 sites let down there at $32.50 a site and it is not a bad little business". Mr Moon said in evidence that, without thinking much about it, he agreed that Mr Stone would not have any trouble selling the park at that price. Mr Simms asked Mr Stone why he was selling the park. Mr Stone replied that he had previously been involved in panel beating and had found another panel beating business, which he preferred to the inactivity of a caravan park.
Some days later, according to Mr Moon, he telephoned Mr Stone; he having thought about that conversation in the meantime. He asked Mr Stone whether he had been serious in what he had said about the caravan park bringing in $1,000 net per week. Mr Stone said that he had been. Mr Moon arranged to inspect the park over the ensuing Easter weekend.
Upon arrival at the park, according to Mr Moon, he again sought confirmation from Mr Stone of his claim that the park returned $1,000 per week net. He asked for evidence to confirm that income. Mr Stone replied:

"Look, Richard, this is a terrific cash flow business. I get all my payments in cash and I am not about to declare that for the benefit of the Taxation Department under any circumstances. I keep no books whatsoever and the only way I can evidence my income from the park is to show you the number of occupied sites we have and show you how much money we make, how much cash money I make."

As the two men walked to the rear of the caravans Mr Stone pulled out of his pocket, and showed to Mr Moon, a bundle of bank notes. After further conversation about Mr Stone's reasons for selling the park, Mr Moon asked about the number of sites. Mr Stone replied that there were 34 sites altogether, 32 permanent sites with full facilities and 2 sites used on a casual basis. Mr Moon commented that there appeared to be a number of vacant sites at the moment and Mr Stone replied that, at the moment, 23 sites were occupied. He said that they mainly had permanent tenants but that permanent tenants looked for certain facilities within a park and that the park was at present unable to provide those facilities. He said that extra facilities were required because the council code permitted only 30 sites for the existing toilet and shower facilities and that the park could be made up to a capacity of 50 sites by adding one additional male and female shower and toilet. He also referred to the desirability of a swimming pool and told Mr Moon that he had approached the council to purchase part of the closed road, which he identified in general terms. Mr Stone said that the council was "happy to get rid of" this land because it was a maintenance problem to it and that the council had agreed to sell him 1850 square metres for $10,000. This represented a strip along the northern boundary of the caravan park of variable width up to 19 metres. Mr Moon asked Mr Stone why he did not buy the whole of the closed road. Mr Stone replied that he only needed a further 1850 square metres to carry out the improvements he wanted. Asked when he would have title, he replied:

"Well, it has already been passed by council and the land has been gazetted and I have an option to purchase the land from council and so as far as I am concerned I have already made the arrangements for it."

According to Mr Moon, he asked Mr Stone why he did not settle up for the land immediately and start the improvements right away. Mr Stone replied:

"Well, now that I am thinking of selling the park I can't see why I should pay the $10,000 out for it, out of my pocket now, so what I propose to do is to sell the park and then from the proceeds of the sale of the park exercise the option with council and then, if you buy it or whoever buys the park, I will immediately transfer the title deed over, of the new land, to them at the settlement of the sale."

There was then discussion about the improvements made since Taveraft purchased the park. Mr Moon asked how many caravans the company owned and how much income they brought. Mr Stone answered that there were nine on-site vans, returning rents ranging from $40 to $70 per week. He explained the basis of charging customers owning their own vans for the use of a site, saying that the range was $35 to $47.50 a site and adding: "The only thing I can tell you with any certainty, we know it is $32.50 per site average".

There was further discussion about the assets which would pass on sale. Mr Moon indicated that he would like to speak to some of the tenants in order to get their ideas for improvements of the park, and to find out their future intentions and the rentals they were presently paying. He said in evidence that Mr Stone replied that he did not wish him to speak to any of the tenants, that "caravan people are very sensitive", not liking "any intrusion on their life" and that they would be "just as likely to hook up and leave". Mr Stone promised that, if Mr Moon left contact with the tenants to him, he would speak to them and arrange a smooth transition. Mr Moon accepted this response.
A couple of days later Mr Moon paid a further visit to the caravan park. On this occasion, in company with Mr Stone, he made a full inspection of the area referred to by Mr Stone as being "under option" from the council. He noticed that the amenities block, which was the only permanent building in the caravan park, appeared to encroach into this area. He asked the extent of the encroachment. Mr Stone replied:

"Well, it's nothing to worry about. It's only just the north east corner that goes over the boundary, and it's not a big deal. That's one of the reasons why I have had some success in negotiating with council because they're (sic) to clear up the encroachment situation as well as help me out".

Mr Stone added:

"Of course now that we have concluded our arrangement with council, it is not a matter of concern any more, and the land acquisition on the side will overcome the encroachment problem."

Mr Moon said:

"I accept what you say, but nonetheless I think an encroachment of any land is a bit irregular, and perhaps I should go down to council and just satisfy myself that they are happy with the arrangements that you have told me about."

Mr Stone replied:

"No, no. Don't go down to council and start asking questions around there. They have been very helpful getting this matter arranged for me. I don't want anyone going down there and upsetting them because its taken me a lot of trouble to get it this far, and they believe they are helping me personally, and if you go down there and start making inquiries and making a fuss over the encroaching building, someone's likely to get upset and they might try and change the conditions of the sale or something like that. No, leave that to me and what we'll do is, if we go ahead with the deal, upon settlement I will take the portion of the settlement money. I will exercise the option, pay out the council and then we will transfer the property immediately over to you if you are the new owner. The matter's over and done with then. The council can't complain about it and I won't be seen in a bad light."

Mr Moon replied:

"I am prepared to accept your word for it. I will get it in the long run."

The discussion then turned to the matter of overhead expenses, Mr Stone listing estimates of various items -- electricity, oil heating, rates, rubbish disposal, telephone and maintenance -- which aggregated $9,960 per year. In this context, he said:

"As I have told you before, I don't keep any of these things on record. I don't want anything that I might have to account to the Taxation Department for. My only firm knowledge is that there is an average of $32.50 a week net, and that is all I can tell you."

Mr Moon and Mr Stone had a number of subsequent discussions about the proposed purchase, at one of which Mr Stone repeated his representation about an average of 30 permanent tenants and net takings of $1,000 per week. But Mr Moon found difficulty in arranging finance at an acceptable interest rate and, about 8 or 9 April 1983, he telephoned Mr Stone to explain the position. He said that he would not pursue the matter until interest rates were more favourable. Mr Stone expressed acceptance of that intention but, later the same day, he called back and suggested that his solicitor, Mr Phillip Baxter, might be able to assist with finance. Mr Moon spoke to Mr Baxter, then an employee of P R Whitehead and Associates, as the firm then was. Mr Moon explained the transaction but Mr Baxter told him that he knew about it as he had been acting for Mr and Mrs Stone for some time. He said that he also knew about the road closure because he had "been acting in regard to that on behalf of the Stones". Mr Baxter indicated that he would be able to obtain finance only if he acted for Mr Moon in the transaction and Mr Moon thereupon instructed him to act on his behalf.
Upon the following day Mr Stone telephoned Mr Moon about the closed road. He said that he had found a copy of the Government Gazette "which shows that the matter has been finalized". Mr Moon arranged to pick up this document. He received a letter from Mr Baxter to Taveraft which enclosed an extract from the Government Gazette of 25 February 1983 containing a notification by the Minister for Lands that he proposed "to consider the closing" of certain roads there listed. The roads included portion of the public road which lay between Taveraft's caravan park and Bilambil Creek. The notification said that objections should be forwarded to the Lands Office at Grafton.
Mr Moon noticed the reference to objections. He drew it to the attention of Mr Stone at a meeting shortly afterwards. Mr Stone replied that this was a mere formality, that the council has the responsibiity to decide what should be done in relation to road closures, that the Lands Department had agreed to abide by the council's decision and that the council had agreed to sell the land to him. Mr Moon asked whether Mr Stone was aware of any likely objection. Mr Stone replied that there "are no objections really", that "some old farmer" had been complaining and that his "contact at the council" had said that it would be wise to go and see him "otherwise council is going to be put in a position of having to compromise, placate the fellow and if they do that they are likely to have to take a metre or so off the northern boundary to show they are being conciliatory". Mr Stone told Mr Moon not to worry about that, he would go up to see him and that "after I buy him a beer or two he will probably forget all about it". During this same meeting, Mr Moon says, Mr Stone expressed interest in taking the two Mercedes Benz motor vehicles in partial satisfaction -- to the extent of $50,000 -- of the purchase price.
The course of negotiations: the Stone version
Mr Stone agreed that he first met Mr Moon at the Cabarita Hotel but he denied having any conversation with him at that time concerning the caravan park. He said in evidence that this subject was first raised by Mr Moon in a telephone call two days later; when Mr Moon rang and said that he believed that the caravan park was for sale and inquired whether he could come out to see it. Mr Stone agreed.
Upon the following evening Mr Moon came to the park and the two men had a general discussion about the caravan park but, according to Mr Stone, there was nothing specific. Mr Stone did tell Mr Moon that he and his wife had had the park for a couple of years; and he added "It's not a bad little business. We still have a lot of work to do but it's not a bad spot". According to Mr Stone, Mr Moon did not inspect the caravan park on this occasion as it had become dark whilst the two men were talking. Mr Stone denied that he showed Mr Moon a roll of banknotes.

Mr Stone agreed that Mr Moon came out to the park -- he says for the second time -- on Easter Saturday. But -- in contrast to Mr Moon -- he asserts that this was the first time the two men discussed price. Mr Stone said that he told Mr Moon that he "would like to think" that the park was worth $250,000 but, as it would take about $25,000 to finish the intended works, he would ask $225,000. In response to an inquiry as to the takings, he replied: "Its done in excess of $800 a week but its doing only about half of that at the present time". He told Mr Moon that the rate per site "varies from $25 to $30 per week at the moment", on site vans bringing $40 to $60 per week. Mr Stone said that he gave permission for Mr Moon to speak to the tenants but that he asked him to be careful not to upset them. In relation to the closed road, Mr Stone produced a survey plan which had been submitted to council and which identified the desired 1850 square metres. He told Mr Moon that council had agreed on a price of $10,000 for this extra land and that the application was "at the Land Board waiting to be gazetted". The two men went upon an inspection tour during the course of which Mr Stone pointed out the boundaries of the land and informed Mr Moon that they had 23 existing sites and were putting in a further 8 sites.
It is common ground that Mr Moon and Mr Stone had a further meeting, at lunch at the Broadbeach Hotel, a few days later. Mr Moon recalled nothing of significance occurring upon that occasion but Mr Stone said that, at the hotel, he told Mr Moon that "the existing amenities cater for up to 25 sites" but that "the council is not too strict about this". He repeated that the park had 23 present sites, with 8 others being developed. In answer to an inquiry as to the delay before the new land came through he said that he had been told by Mr John Henley, a council officer, that "it usually takes about three months after gazettal has been notified".
Mr Stone agreed that he had a conversation with Mr Moon about objections to the road closure. He thought that this occurred on Sunday 17 April 1983, the day preceding the exchange of contracts. This date is not inconsistent with Mr Moon's evidence. However, there is a considerable difference in Mr Stone's version of what was said. According to him, he informed Mr Moon that there were "several objections". He spoke of Mr Matt Prindable -- the "old farmer" of Mr Moon's version -- as being only one of the objectors and he referred to the grounds of objection raised by Mr Prindable, he expressing the opinion that these grounds would not be sufficient to stop the road closure but adding that "you should know about it". Mr Moon said that he would speak to Mr Baxter about it.
The agreements
On 18 April 1983 three contracts were executed and exchanged. One was a contract for the sale by Taveraft to Obacelo for the land used as a caravan park; the stated consideration being $150,000. This contract contained two special conditions (cll.26 and 27) dealing with the closed road, to which I will return. The second contract was for the sale by Taveraft to Obacelo of certain chattels, mainly caravans, used in connection with the business. The consideration for this sale was $50,000. Thirdly, there was a contract for the sale by Obacelo and Mr Moon to Taveraft of the two Mercedes Benz motor vehicles. The consideration for this sale was shown as $25,000, it having been agreed between Mr Moon and Mr Stone to reduce both the total agreed price ($225,000) and the offset ($50,000) by $25,000. However, if the two Mercedes Benz cars be treated as being worth $50,000, the true cost to the applicant remained $225,000 -- $200,000 in cash and $25,000 concession on the cars.
The agreements did not deal with the goodwill of the business. They contained no warranties as to either turnover or profitability.
As the documentation was originally prepared by Mr Baxter, there was only one contract: a contract relating to the sale of the land but containing a special condition regarding on-site vans. That contract contained two special conditions, cll.27 and 28, relating to the road closure. By cl.27 the vendor assigned to the purchaser its interest in the application for the purchase of the area of 1850 square metres adjoining the property as shown upon the plan which Mr Stone had shown Mr Moon. The draft included a warranty by the vendor that the application for closure had been passed by the council and was currently being considered by the Department of Lands. The draft referred to the agreed consideration of $10,000 and provided for the purchaser to assume liability for that amount and for any additional expenses. Clause 28 provided:

"Should the Crown not assent to the closure of the road in the manner requested but alters in some manner or form the boundaries of the said closure to the detriment of the purchaser then the Vendor agrees to compensate the purchase

(sic) in a manner as may be agreed between the parties or failing agreement as determined by an Arbitrator to be appointed by the parties or the President of the New South Wales Law Society or his Nominee."

Mr Moon was shown the first draft agreement for the sale of the land on 18 April. He was unhappy about the terms of the proposed cll.27 and 28, for two reasons. Firstly, the arrangement between him and Mr Stone was that the vendor would bear the $10,000 cost of acquisition of the land whereas the draft cl.28 cast this burden upon the purchaser. Secondly, he did not wish to become involved in an arbitration over the compensation in the event that less than the full 1850 square metres was available. He had in mind, and mentioned to Mr Baxter, Mr Stone's comment about losing a metre off the northern boundary of the land being acquired. Mr Moon proposed amendments which were in fact adopted by revised conditions in the form of contract executed later that day. They read:

"26. The Vendor assigns all its right title and interest in and to a certain application for the acquisition and purchase of an annexure road under the Public Roads Act 1902 in respect of an area of land of about 1850 square metres adjoining the property herein sold, and as shown on" (a certain plan). "The Vendor warrants that the said application for closure has been passed by the Tweed Shire Council and that the said application is presently being considered by the Department of Lands, Land Board office, Grafton (Ref. JB). The Vendor warrants that upon settlement hereof, it shall execute and deliver to the Purchaser a Memorandum of Transfer of all its right title and interest in and to the said closed road and upon the issue of a Certificate of Title to the closed road the Vendor warrants that it shall forthwith deliver the said Certificate to the Purchaser or its Solicitors.

27. The Vendor has agreed to pay the Crown TEN THOUSAND DOLLARS ($10,000.00) in respect of the said closed road. Should the area of the closed road be reduced prior to consent to closure by the Crown the Vendor shall compensate the Purchaser for the difference between TEN THOUSAND DOLLARS ($10,000.00) and the amount actually paid by the Vendor to the Crown for the closure of the said road.

Significantly, although Mr Moon gave close attention to the form of cll.26 and 27, he did not make any suggestion to deal with the possibility of no part of the 1850 square metres being available.

The transaction was completed on 16 May 1983. Obacelo raised $100,000 by a mortgage of the caravan park and of Mr Moon's home to the financiers introduced by Mr Baxter, Sylfar Pty Ltd and Mr B Wang. The balance of the funds required -- the $75,000 balance of purchase price plus legal costs -- were obtained by the withdrawal of funds from the Barclay deposit.
The true position
Mr Moon took control of the park on Saturday 21 May 1983. When he attended the park on that day he was handed an orange notebook by Mrs Julie Pyrcz. Mr and Mrs Pyrcz had been employed part-time on park duties by Taveraft. The notebook turned out to be a record of the tenants of the park and the rentals paid by them during the period from May 1982. The information in the notebook has been analysed by counsel for the applicants, without dispute from the respondents, to calculate the gross monthly income of the park for the period May 1982 to April 1983. The average gross weekly income has been calculated by dividing the monthly income by 4.2. The figures are:

MONTH GROSS INCOME WEEKLY INCOME

(DIVIDING MONTHLY BY 4.2)

May, 1982 $1228.00 $292.00

June, 1982 $2837.00 $675.00

July, 1982 $3056.00 $727.00

August, 1982 $2885.00 $686.00

September, 1982 $2536.00 $603.00

October, 1982 $1798.50 $428.00

November, 1982 $2058.00 $490.00

December, 1982 $1558.00 $370.00

January, 1983 $1606.00 $382.38

February, 1983 $2751.00 $655.00

March, 1983 $2324.70 $553.50

April, 1983 $1772.00 $422.00

On 21 May Mr Moon found that only 12 sites were occupied, one being that of Mr and Mrs Prycz who paid no rent. Only three of the nine on-site vans were occupied.
On 24 May Mr Moon went to the council to inquire about the road closure. He learned that there had been a large number of individual objections and a petition in opposition to the formal closure and the sale of any part of the public road. Mr Henley had become aware of the volume of objections in early April 1983. Although he was not yet convinced that the objections were valid, he had told Mr Stone of the position prior to the date of contract. As Mr Stone admitted in evidence, he was aware prior to the exchange of contracts that Mr Prindable was only one of many objectors, although he thought him to be their leader. Between the date of contract and the date of settlement the council had contacted the objectors. On 23 May a meeting had been held with some of the objectors as a result of which Mr Henley had become convinced that the application to acquire the 1850 square metre area could not succeed. The council, apparently that same day, had resolved to withdraw its support for the application.
When Mr Moon discovered these matters he went to the office of Mr Baxter. He informed him of what he had learned since settlement, both in relation to the closed road and the takings of the park. He said that he wanted to rescind the transaction.
Mr Stone did not agree to a rescission of the transaction. Obacelo commenced to operate the business. Mr Moon attempted to persuade the council to support a transfer of some part of the closed road to him but, after a year of effort, was successful only in obtaining sufficient land to remedy the encroachment by the existing building. He could not obtain land sufficient for the swimming pool or the other facilities discussed between himself and Mr Stone.
The company made a small profit during the few weeks to 30 June 1983 but lost money in the financial year ended 30 June 1984 and in the following year, until the disposal of the business on 4 June 1985. The land and business were sold for the sum of $116,463.18, of which $60,000 represented the agreed value of the land. The purchaser undertook the obligation to pay the agreed price ($3,385.25) for the land required to remove the encroachment.
Findings on liability
As I have already indicated, the applicants rely upon four separate provisions of the Trade Practices Act: ss.52, 53A, 59(1) and (2). Neither s.53A nor s.59(1) would appear to have any application to the facts of this case and there is some doubt in my mind concerning s.59(2). However, the application of these provisions has not been argued because it is accepted on both sides that, if representations were made to Mr Moon which were false and which induced him to cause Obacelo to enter into the transaction, Taveraft is in breach of s.52. That section provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. It being admitted that the claims ascribed by Mr Moon to Mr Stone were, if made, false, the central issue in the case is whether they were in fact made.
I have no hesitation in finding for the applicants upon this issue. Mr Moon impressed me as a careful person. He said in evidence that he made notes during the negotiations of the matters told to him by Mr Stone. He said that he still had those notes but he was not called upon to produce them. Mr Moon was also an experienced businessman. He would have been unlikely to have entered into this transaction, involving as it did almost the whole of his assets, without some assurance as to the profitability of the business. That much is conceded by Mr Stone's evidence that Mr Moon sought details of the takings of the park and of the rate per site. The answer attributed by Mr Stone to himself -- takings of $800 per week in the past and presently about half that -- would have been most unlikely to cause Mr Moon to pay $225,000 for the business. A gross return of $400 per week would have meant a net return after payment of the disclosed overhead expenses of little more than $10,000 per annum; an amount insufficient to cover the interest ($17,000 per annum) on the funds intended to be borrowed, let alone to provide any return to Mr Moon for his labour.
Recognizing the difficulties just mentioned, counsel for the respondents contends that Mr Moon's readiness to purchase the park should be ascribed to a perception that the park had significant potential for further development, so that the level of current earnings was a matter of little importance. Counsel referred to some passages in the evidence which indicated that Mr Moon had displayed some interest in that part of the closed road which lay outside the 1850 square metres. Mr John Brocklesby, an architectural draughtsman and builder retained by Mr Moon to advise him about the extension of the amenities block and the proposed swimming pool, gave evidence that, on one inspection, he and Mr Moon looked at the land immediately adjacent to the creek which lay outside the 1850 square metres proposed to be acquired. But he did not attribute to Mr Moon the expression of any plans for that land. The inspection appears to have been dictated by no more than general curiosity about the area.
Mr Baxter said that, at their first meeting, Mr Moon told him that he was interested in acquiring "further lands neighbouring the caravan park itself and fronting the Bilambil Creek for future redevelopment". If that had been said, and in such a manner as to indicate that this was a matter of importance to Mr Moon, it might have been expected that Mr Baxter would have cautioned him about entering into the purchase upon the assumption that this land would be available. Given the fact that the 1850 square metres had been agreed with the council only after prolonged negotiations, it must have seemed highly unlikely that the council would agree to alienate the land in the immediate vicinity of the creek. But Mr Moon denied that he ever said anything like this to Mr Baxter and I accept his denial. He explained that this area "was clearly a park", that he did not have the funds to acquire it and that, in any event, he did not need it. Although it might be expected that any solicitor would keep notes of his initial interview upon a matter, especially with a new client, Mr Baxter made no record of the meeting with Mr Moon at which the statement is supposed to have been made. No reliance may be placed upon his unaided recollection, three years later, upon a peripheral matter such as this. In cross-examination he said himself: "I did not really think too much about it all. It was just a statement by Mr Moon to me of a further intention of what he might or might not like to do in the area". He "did not consider it terribly relevant to the transaction in progress at the time".
Counsel also refers to the fact that the circumstance which caused Mr Moon to go to Mr Baxter's office and to inform him that he wished to rescind the contract was that he had just learned of the council's decision to oppose the sale to him of the 1850 square metre area. That decision must, it is said, have ended his hopes to acquire a greater area of land; a disappointment which explains the strength of his complaint to Mr Baxter.
It seems to me, however, that it is not necessary to attribute this conduct to any desire or intention by Mr Moon to acquire a greater area than the 1850 square metres. In his evidence-in-chief, he said that, on his first visit to the park, he looked around and noticed a number of vacant sites. It was his comment that "it is a bit quiet for a park that would have 30 sites let at the moment" that caused Mr Stone to make the statement that he had 23 sites occupied at that time. Mr Moon inquired the reason and Mr Stone explained the necessity to provide a swimming pool; the only suggested site for which was in the 1850 square metres. Additionally, Mr Moon was aware that the existing amenities block encroached onto the closed road. Without some additional land he faced the possibility of being required to demolish and to relocate this building. The prospective denial to him of the desired 1850 square metres created immediate problems sufficient to explain his reaction to the news of council's decision.
Other probabilities support Mr Moon's version of the negotiations. Mr Stone was adamant that there was no mention of price until Mr Moon's second visit to the caravan park. It seems to me unlikely that any prospective purchaser would trouble to go out to the park for an inspection without having some idea of the asking price. It is even less likely that he would content himself on the first visit with a short general conversation, without any discussion of turnover, profitability or price, or any inspection of what was on offer, and have to return again for those purposes. Secondly, it is clear that Mr Moon knew the terms of the special conditions in the contract relating to the closed road. But those conditions did not protect him against the possibility that the application for purchase would entirely fail. They provided only for an apportionment of the $10,000 compensation if there was a reduction in the designated area. It was assumed that the application would substantially succeed. Bearing in mind Mr Moon's close interest in the matter, his acceptance of that assumption is consistent only with his story that Mr Stone told him that there was only one "old farmer" who could probably be quietened with a "beer or two" but in relation to whom, at most, a sacrifice of a token metre or two would be necessary. It is inconceivable that Mr Moon would have accepted this condition if he had been told on the day before contract, as Mr Stone asserts, that there were numerous objectors and that Mr Moon "should know about" the position; that is he should consider the risk of the application failing completely.
I thought Mr Moon to be an honest and reliable witness. I cannot say the same of Mr Stone. His evidence was evasive, self-contradictory and, in some respects, deliberately mendacious. Even on his own story, his representations were false. At no time during the preceding twelve months had average weekly takings reached $800. There may have been a week or two during which $800 cash was received, because of late or advance payments of rent. But at no time was the rate of earnings as high as $800 per week. The actual cost of the items mentioned by Mr Stone -- as disclosed in the company's income tax return for 1982-1983 -- was $13,661 for 46 weeks ($297 per week). If the cost of advertising be added, the overhead expenses reach $16,183, or $352 per week over 46 weeks. The average gross income in the period January-April 1983 was $480 per week, leaving a net figure of $128 per week. This figure contrasts with the claim made by Mr Stone, in answers to interrogatories filed in these proceedings and tendered in evidence, that at 29 March 1983 the net income from the business was approximately $450 per week. It is a result hardly able to be described -- in relation to an asking price of $225,000 -- as "not a bad little business"; especially when it is remembered that no allowance has yet been made for interest or labour.

Mr Stone did not challenge the evidence of Mr Moon that he told Mr Moon that he had no financial records. According to Mr Baxter, Mr Stone said the same thing to him. Cross-examined about the orange notebook, he disclaimed any real knowledge of it and would not concede its accuracy. He described the notebook as "a book with the names of the people who were in the park and the date they were supposed to pay and I think she" (Mrs Stone) "ticked them off when they paid". He said that he would not treat the book as an accurate record of takings as he "had very little to do with the book". However, this evidence was contradicted by that of his wife. Mrs Stone said that Mr Stone referred to the book from time to time, that she used to go through the book with him and that, on her observations, he understood how the book worked.
The applicants subpoenaed, and tendered in evidence, copies of the Taveraft income tax returns for the two years during a substantial proportion of which the company conducted the caravan park. The return to 30 June 1982 disclosed gross receipts of $11,967.60 and operating expenses of $29,682.21, leading to a loss of $17,714.61. The 1983 return claimed receipts of $14,119.40 and expenses of $18,286.80, leading to a loss -- over the 46 weeks of operation of the park in that year and after an adjustment for profit on disposal of plant -- of $3,014.27. Mr Stone said in evidence that these returns were prepared by an accountant, Mr J G Cassar of Burleigh Heads, after the sale of the park. According to Mr Stone the expenses are correct; they having been derived from the company's cheque butts and bank statements. He conceded that the income was mis-stated. Notwithstanding his knowledge of the existence of the orange book, and his concession in evidence that this book provided the most reliable available information as to the takings of the business, he did not produce the orange book to Mr Cassar. He gave him only the company's bank deposit book and bank statement knowing, as he conceded, that a significant portion of the takings were not banked and would not, therefore, be reflected in these documents. In the result Mr Stone vouched the accuracy of two returns which, to his knowledge, considerably and deliberately understated the income of the company.
Mr Stone admitted in evidence that he read the taxation returns before he signed them. At first he disclaimed any intent to lodge a false return but, pressed with the implications of his own evidence, he retracted that answer and admitted that he had been prepared deliberately to cheat the Commissioner of Taxation.
Notwithstanding his admission that he was prepared to cheat the Commissioner, Mr Stone maintained that he would not have been prepared to cheat Mr Moon. But his willingness to cheat Mr Moon may be tested by his conduct relating to the encroachment by the amenities block. Mr Stone had in his possession two plans of the park prepared by surveyors: an identification survey dated 24 June 1980 and the plan of Brown and Pluthero Pty Limited prepared on his instructions in August 1981 for use in connection with the road closure application. Each of these plans showed the amenities block to be situated, almost entirely, upon the closed road. Only the south west tip stood in Taveraft's land. Despite several requests from Mr Moon for an accurate plan, neither of these plans was provided to Mr Moon. Instead, Mr Stone gave him a sketch plan prepared by himself which showed the amenities block standing substantially within the caravan park. I accept that, during the initial stages of the negotiations, Mr Stone genuinely believed that the problem of the encroachment would be resolved by the acquisition of the agreed 1850 square metres. Nonetheless he was prepared to abate any concern which Mr Moon might feel by deliberately misleading him as to the extent of the existing problem. His failure to correct Mr Moon's misconception became particularly reprehensible when, shortly before contracts were exchanged, he learned that there were numerous objections to the road closure application. It should have been obvious to him that Mr Moon might not only be disappointed of the new structures which Mr Stone regarded as essential to the welfare of the park, but that he faced possible difficulty in retaining what he had.
In support of the submission that Mr Moon was unconcerned with the present level of profitability of the business, counsel for the respondents points to his failure to require the giving of appropriate warranties by Taveraft. However, Mr Moon gave evidence that he did raise the matter of warranties with Mr Baxter and that he was assured that this was unnecessary, that he (Mr Baxter) had acted for Mr Stone for some time and was familiar with the business and that he saw no justification "for preparing a long, complicated and expensive document when all these things were well known to all of us". Although Mr Baxter recalled no such discussion, I accept that Mr Moon did raise the matter. It is not surprising that he accepted Mr Baxter's advice, especially as he knew that Mr Baxter acted for Mr Stone and knew the business. It appears that, although Mr Moon had lengthy business experience, he had not previously been in the position of acquiring a business with which he was unfamiliar and in regard to which warranties would be desirable.
The representations alleged by the applicants and, as I find, proved, divide into two separate categories: statements relating to the turnover and profitability of the business and statements relating to the likely availability of the identified portion (the 1850 square metre area) of the closed road. As to the former, the statements were false when made; and to the knowledge of Mr Stone. As to the latter the representations made by Mr Stone were that the application had "already been passed" by the council, that "the land has been gazetted" and that he had "an option" to purchase the land from the council. The first statement was true. If the second statement be interpreted in the rather unusual sense of referring to a gazettal for objections rather than a gazettal of result, the second statement was also true. It is not necessary to determine whether a reference to "gazettal", without more, misrepresented the position because Mr Moon in fact learned prior to the contract that the relevant "gazettal" was a notice calling for objections. At least at that time he was under no illusion that the application had received final approval.
The word "option", used by Mr Stone, especially in conjunction with his later reference to his proposal to "exercise the option with council" and to "transfer the title deed ... at the settlement of the sale", would naturally suggest, and did in fact suggest to Mr Moon, that Mr Stone had the benefit of a firm legal entitlement to acquire the relevant land. The subsequent revelation to Mr Moon that the Land Board had not yet dealt with the matter contradicted that suggestion; at that stage Mr Moon knew that there was not yet a legal right to acquire. For him, the critical matter then became the extent of the risk that the application would fail. In that connection the number and weight of any objections was highly material. At this point he was actively misled by Mr Stone. The reference to "one old farmer" seriously mis-stated the position, as Mr Stone knew.
Counsel for the respondents submits that nevertheless his clients may not be held liable in relation to the number of objections. Mr Baxter had received from Mr Stone, prior to the date of contract, a letter from the Land Board in which reference was made to the receipt by the Board of "several objections". It is said that, as Mr Baxter also acted as solicitor for Obacelo and Mr Moon, the latter were fixed in law with knowledge of the fact that there were multiple objections to the closure. It is not suggested that Mr Moon had actual knowledge.
This submission cannot be accepted, for two reasons. In the first place Mr Baxter did not receive the letter in his capacity as solicitor for Obacelo and Mr Moon but as solicitor for Taveraft. He took the view, I think rightly, that without express instructions from Mr Stone he was not at liberty to communicate the content of the letter to Mr Moon. No doubt he should have sought those instructions and/or realised the necessity of recommending to Mr Moon that he obtain independent legal advice, but the mere receipt by him of information in his capacity as agent for one client does not fix the other client with knowledge of that information.
Secondly, the matter is only relevant on the question of inducement. If Mr Moon was in fact induced by a false representation to enter into the transaction, it is no answer to say that there is to be imputed to him knowledge through an agent of falsity. Notional knowledge of a matter does not negative reliance upon an actual belief in its opposite.
I find that the various representations alleged by the applicants were in fact made by Mr Stone on behalf of Taveraft. It follows that there was a breach by Taveraft of the provisions of s.52 of the Trade Practices Act and that Mr Stone was, within the meaning of s.75B of the Act, involved in that contravention. It being conceded -- and, in any event, clear on the evidence -- that Mr Moon was induced by those representations to cause Obacelo to enter into the transaction, both respondents are liable to pay damages in respect of the loss thereby occasioned.
Having regard to my conclusion in respect of the s.52 claim, it is not necessary to deal with the allegation of breach of contract.
Findings on damages
The total claim of the applicants comes to $218,656.00. This sum is made up as follows:

a) Difference between purchase

price ($225,000 less $10,000

retained under cl.27) $215,000.00 and sale price in June 1985 $116,463.13 $ 98,536.87

b) Legal costs on purchase of

caravan park

Purchaser's costs (including

stamp duty) $ 5,999.00 Mortgagees' costs paid by

Obacelo $ 1,420.00 $ 7,419.00

c) Interest foregone on $15,000

deposit from date of contract

to date of settlement $ 178.35

d) Interest paid to mortgagees

(Sylfar Pty Ltd and Wang)

for period between settle-

ment of purchase and discharge

of mortgage 16 February 1984 $ 13,872.35

e) Legal costs on discharge of

mortgage:

Mortgagees' costs paid

by Obacelo $ 684.50 Mortgagor's costs $ 540.00 $ 1,224.50

f) Costs of mortgagees in

foreclosure on mortgage $ 500.00

g) Costs of establishing

Commercial Bill facility

with Commonwealth Trading

Bank

30-5-83 ($ 90,000.00) $ 800.00 8-7-83 ($100,000.00) $ 130.00 13-1-84 ($120,000.00) $ 8,841.74 15-8-84 ($130,000.00 $ 9,147.80 11-12-84 $ 80.00 13-2-85 ($130,000.00) $ 1,727.49 19-3-85 - 3-6-85 (Bridging

loans) interest and fees $ 287.00 $ 5,452.10 $ 26,466.13

h) Trading losses on caravan park

1983 $ (356.26) 1984 $ 1,458.03 1985 $ 4,619.14 $ 5,720.91

i) Plumbling additions and

maintenance $ 2,991.00

j) Fees for advice and drawings

supplied by W Brockelsby $ 660.00

k) Costs on sale of caravan park

Commission $ 3,000.00 Legal costs $ 763.50 Advertising $ 400.00 $ 4,163.50

l) Interest foregone on deposit

of $75,000.00 with Barclays

Australia $ 35,923.36

m) Interest foregone on value of

motor vehicles ($50,000.00)

from date of settlement to

trial at 14% p.a. $ 21,000.00

Total $218,655.97

Counsel for the respondents does not dispute that those items of actual expenditure included in this list were in fact incurred. He does not dispute that the resale price was the best price reasonably available. Nor does he dispute the calculation of interest foregone. But he raises a number of matters, one of general concern and others of detail.
The submission of general importance is that no allowance should be made in regard to expenses incurred after the end of 1983. Counsel submits that, once the applicants realised the true position, they should have mitigated their damage by selling the caravan park as quickly as possible. The applicants were aware of the situation relating to both the takings of the business and the closed road by June 1983. A reasonable allowance, counsel suggests, would be a period of six months from that time.
In his evidence-in-chief Mr Moon said that it was not until mid to late 1984 that he realised that further pursuit of the council to acquire the whole of the 1850 square metres would be useless. Prior to that date he had taken no steps to sell. Because of the encroachment he had not been able to procure from the council a certificate under s.317A of the Local Government Act 1919 (NSW) that the amenities block complied with the requirements of that Act and the ordinances thereunder; or, alternatively, that any non-compliance need not be rectified. He said in evidence that without such a certificate "I could not get anyone to contemplate its purchase". Mr Moon did not put the property on the market until December 1984, by which time he had an arrangement with the council to obtain sufficient land to remove the encroachment. I do not, therefore, understand him to have been saying that he had tried, and failed, to find a purchaser; but rather that he did not think it likely that a purchaser would be found. His opinion on that matter was neither challenged or contradicted. There is nothing in the evidence to suggest that a purchaser could have been found before the encroachment problem had been rectified. Commonsense suggests to the contrary. The opposition aroused by Mr Stone's application had led to the formation of a local organization concerned, perhaps amongst other things, with resisting loss of the public area near the creek, exerting pressure to which the council was sensitive. It would have been foolhardy for anybody to acquire the caravan park, in such a climate, upon any basis other than that there was a substantial risk that additional land would be denied leaving, at best, a permanent encroachment and, at worst, a requirement to demolish and rebuild the amenities block. A transaction upon that basis must, of course, have been at a much reduced price.
The closure of the necessary strip of land was announced in the Government Gazette of 4 April 1985 and a contract for sale of the caravan park was executed on 3 May 1985.
The respondents dispute that part of item (g) -- the Commonwealth Bank bill facility -- which related to the period before February 1984 when the Commonwealth Bank paid out the loan to Sylfar Pty Ltd and Mr Wang. The applicants justify the recovery of these amounts by arguing that it was reasonable for the applicants to establish the facility to enable them to pay out the mortgage when it fell due. But, in the normal course, the mortgage would not have fallen due until May 1984 -- Mr Baxter neglected to insert an exact date -- and it is not reasonable to visit upon the respondents establishment fees incurred in May and July 1983 which may have turned out to be unnecessary. However, although the evidence is scanty, it appears that there was default in meeting interest payments under the mortgage and by January Mr Moon was under pressure to pay out the mortgagees. At that stage he incurred substantial costs in increasing, and then drawing upon, the arranged facility. I think that it is reasonable to allow the costs from and including 13 January 1984 as costs of substituted finance. The two earlier amounts, totalling $930.000, will be disallowed.
The basis of item (1) is that, absent the purchase of the caravan park, Mr Moon would have been able to sell the two motor cars for $50,000 and invest that sum at interest of 14% per annum. Possibly he could have done so; but there is no evidence that the vehicles would have realized $50,000 on the open market. The timing of Mr Stone's offer to purchase the cars at this price may be significant. The offer was made at Mr Moon's moment of hesitation after learning of the existence of an objector to the road closure. Mr Stone may have been prepared to put an attractive offer for the cars to clinch the deal. If it appeared probable that the motor cars would have been sold for cash, in the absence of this transaction, it would be necessary to make some allowance for interest foregone, notwithstanding the difficulty presented by the absence of evidence as to the market value. But I am not satisfied that the vehicles would have sold. Mr Moon had owned them for about two years. He had taken them with him to the north coast. So far as the evidence reveals, he gave no thought to selling either of the cars before Mr Stone made his offer. He may have retained the vehicles indefinitely. I disallow this item.
In the result I deduct a total of $21,930 from the amount claimed by the applicants. I assess damages in the sum of $196,725.97. There will be judgment accordingly.
Incidental matters: taxation
There are two incidental matters disclosed by the evidence to which reference should be made. The first concerns the taxation returns of Taveraft for the years ended 30 June 1982 and 30 June 1983. As already indicated, these are admitted by Mr Stone to be false. They significantly understate the company's income in each year. The claimed expenses may or may not be correct. It is not clear whether the true 1982 figures would have resulted in a net profit in that year but they would certainly have yielded a much lower carried forward loss than that claimed. The true figures would have yielded a net profit in 1983. In accordance with the view I expressed in Petera Pty Limited v E A J Pty Limited (1985) ATPR 40-605 at p.46892 I propose to direct the Registrar to draw this case to the attention of the Deputy Commissioner of Taxation.
There is one other matter in relation to taxation which causes me concern. Each of the two taxation returns purport to have been compiled by Mr Cassar as a registered tax agent. The copies of the returns include certificates by Mr Cassar as to his sources of information. In response to the question; "What books of account, if any, are kept by or on behalf of the taxpayer,", the copies show him to have answered "Double entry records". In response to the question; "By whom are those books of account kept?", the copies show his own name and address.
According to Mr Stone, there were no double entry records kept by Mr Cassar or by anyone else. Indeed, Mr Stone says that he consulted Mr Cassar for the first time after he had disposed of the business. If this evidence is correct, Mr Cassar's certificates are false. I make no finding as to whether the evidence is in fact correct. Mr Cassar has not given evidence. He has had no opportunity to deal with the matter and, as I have indicated, I have little confidence in Mr Stone. But it appears to me that the situation calls for some investigation by the Australian Taxation Office. Certificates by registered tax agents relating to matters within their personal knowledge are, presumably, given considerable weight by the Taxation Office. It is a matter of some importance that the true facts be ascertained in any case where there is evidence to suggest that a false certificate has been given.
Application for the Court to call Mr Baxter
The other matter for comment concerns Mr Baxter. Counsel for the applicants did not call Mr Baxter. Counsel for the respondents informed the Court that Mr Baxter had declined to swear an affidavit and that Mr Baxter was unwilling to confer with him. Nonetheless counsel desired to have the benefit of Mr Baxter's evidence upon certain aspects of the case. However, counsel preferred not to call Mr Baxter in the usual way, wishing to be free to challenge his evidence upon other matters. Counsel for the respondents asked me to call Mr Baxter myself, for the purpose of allowing both parties to obtain from him relevant evidence by cross-examination. Counsel for the applicants opposed the application. Counsel argued both my power to take this course and the question whether, if I had that power, the power should be exercised. In the result I refused the application. I now record my reasons for that decision.

First, the question of power. It not uncommonly happens that a person is in a position to give to a Court material evidence yet no party wishes to call that witness. A party calling a witness suffers the disadvantage of being burdened, without the opportunity to challenge it by cross-examination, with such part of the evidence of that witness as assists the opponent's case whilst being forced to suffer cross-examination by the opponent on that part of the evidence which assists his or her own case. A dilemma whether or not to call a particular witness may arise in a variety of situations. A common example is the case where there is a contest as to the terms of a transaction or of representations made in the presence of a person, who is thus able to give material evidence, but who has an interest or motive other than to tell the whole truth; which interest or motive might lead the witness to give false or misleading evidence, potentially damaging to the party desiring to call him or her in respect of other aspects of the case.
The Federal Court rules make no reference to the circumstances under which a witness may be called by the Court. The view stated in Ritchie, "Supreme Court Procedures New South Wales" para.(36.2.12), is that in civil matters the Court has no right to call a witness except with the consent of the parties. Two authorities are cited in support of this proposition, Coulson v Disborough (1894) 2 QB 316 and Re Enoch and Zaretzky, Bock and Co's Arbitration (1910) 1 KB 327. Coulson does not in fact support the proposition. It points in the other direction. In that case, at the close of addresses, the jury requested that a particular person be called. The trial judge called this person and asked him some questions but refused to permit cross-examination by either counsel. The Court of Appeal rejected an application for a new trial holding that his evidence was immaterial to the issues the jury had to determine. Lord Esher MR said, at p.318:

"If there be a person whom neither party to an action chooses to call as a witness, and the judge thinks that that person is able to elucidate the truth, the judge, in my opinion, is himself entitled to call him; and I cannot agree that such a course has never been taken by a judge before. When a witness is called in this way by the judge, the counsel of neither party has a right to cross-examine him without the permission of the judge. The judge must exercise his discretion whether he will allow the witness to be cross-examined. If what the witness has said in answer to the questions put to him by the judge is adverse to either of the parties, the judge would no doubt allow, and he ought to allow, that party's counsel to cross-examine the witness upon his answers. A general fishing cross-examination ought not to be permitted."

A L Smith LJ emphasised at pp.318-319 the role of the judge:

"It is the function of the judge to try and find out the truth, whether he is hearing the case with or without a jury. Neither party can cross-examine a witness so called as of right; the leave of the judge must be obtained."

The second case, Enoch, was, by any standards, an extraordinary case. A party to an arbitration moved to set aside the umpire's award. Amongst other irregularities it appeared that the umpire had called a witness, to whose evidence he subsequently attached great weight, not only without the consent of the parties but without notice to them and without informing them of the nature of the evidence the witness was expected to give. He then refused to the affected party any opportunity to call evidence in reply. Cozens-Hardy MR commented at p.331 "What right the umpire had to call a witness I confess I do not understand" but his main criticism of the umpire related to the evidence which he permitted this witness to give and his lack of fairness in denying the opportunity of reply. Fletcher Moulton LJ went further, rejecting the notion "that an umpire, a person in a judicial position, has the power to call witnesses in a civil dispute, whom the parties do not either of them wish to call". At p.332 he dismissed the statement of Lord Esher MR in Coulson, quoted above, as being without basis, if meaning "to call him when either side objects". However, it is important to observe that Fletcher Moulton LJ had in mind a situation where the parties were not entitled, as of right, to cross-examine witnesses called by the judge. His Lordship did not deal with the possibility suggested in this case: that the Court call a witness, not for the purpose of the Court adducing evidence -- except formal particulars as to the identity of the witness -- but for the purpose of enabling each party to cross-examine that witness upon material matters.
The Australian authorities, to 1980, on the power of a presiding judge to call a witness are examined in an article by Sheppard J, "Court Witnesses - A Desirable or Undesirable Encroachment on the Adversary System?", published in 56 Australian Law Journal 234. The article instances a number of actual cases in which, it is suggested, there would have been a benefit in the judge calling a witness.
Most of the Australian decisions relate to criminal trials. In Titheradge v The King (1917) 24 CLR 107 the High Court of Australia applied Enoch in setting aside a conviction entered at a trial at which the judge had, of his own volition, called a witness and had then recalled two witnesses to deal with that witness' evidence. Barton J at p.116 qualified his acceptance of Enoch by pointing out "that there are instances, not numerous, in which in furtherance of justice and in exceptional circumstances presiding Judges have rightly taken it upon themselves to actually examine a witness and, of course, it happens every day that a Judge, in order to understand what a witness has said, asks him a question". However, his Honour commented that that "is a very different matter from the assumption by the Court of the conduct of the case. A trial is a proceeding inter partes, whether the Crown is a party or not, and the conduct of the evidence, subject to questions of admissibility, is in principle the concern of the parties". Isaac and Rich JJ, at p.118, simply held Enoch applicable to both civil and criminal proceedings. Gavan Duffy J held that there had been a miscarriage of justice. He did not refer to Enoch.
The King v Jenkins; Ex parte Morrison (1949) VLR 277 at p 284 was a custody case in which there was an issue as to the parentage of a child. The applicants sought an order that the respondents undergo blood tests but it was objected by the respondents that the making of such an order would conflict with the decisions in Enoch and Titheradge. Barry J expressed himself "doubtful whether they are binding decisions that a Judge has no power to call a witness if that course really be necessary for the attainment of justice; it may be that they turn, not upon the existence of power, but upon the occasion and manner of its exercise". In the event, his Honour found it unnecessary to resolve this question because he thought that any such limitation on power was inapplicable to a case where the welfare of the child was the issue before the Court. Jenkins went on appeal to the Full Supreme Court of Victoria -- see (1949) VLR 296 -- and eventually to the High Court -- see (1949) 80 CLR 626 -- but nothing further was said about this matter.
In R v Damic (1982) 2 NSWLR 750 Street CJ, with whom Slattery and Miles JJ agreed, expressed some views about Enoch. Damic was a criminal case but, at pp.755-756, his Honour also discussed the application of the case to civil trials:

"The question whether the power exists in civil proceedings does not arise in this case. I comment, however, in passing that it may be necessary on a suitable occasion for a court with the requisite authority to consider whether Re Enoch ... -- the recognized leading case on this topic -- has not been given far wider and more arbitrary significance than it should properly be given. It is based essentially on an earlier Court of Appeal decision (Coulson v Disborough ...) laying down that where a judge calls a witness neither party may cross-examine him (Re Hayes Williams (1926) 26 SR (NSW) 383, at p.387; 43 WN 101). This last-mentioned proposition is doubtful, to say the least, and, if it were to fall, so would Re Enoch and the whole restrictive edifice, civil and criminal, that has been founded upon Re Enoch. Coulson v Disborough was authority for two propositions:

(i) a judge has a power to call a witness; and (ii) if he does neither party can cross-examine as of right. Re Enoch held that Coulson v Disborough was right on (ii) from which it followed that it was wrong on (i). There is much to be said for reversing this sequence of reasoning, and holding that it was wrong on (ii) and right on (i). I find it hard to justify that power in the judge to call a witness is to be denied simply on the ground that, if he did, the parties could not cross-examine as of right. The short answer to that is to recognize a right of cross-examination in both parties. It is to my mind surprising that Re Enoch has survived for so long. Fletcher Moulton LJ, a judge of formidable stature, who delivered the most often quoted judgment in Re Enoch, appears in that case to have strayed from the judicial philosophy he expounded elsewhere: 'We cannot allow formalities to upset practical justice': Peters v S S 'Argol' (Owners of) (1912) 5 BWCC 414, at p.415. See also the comments in Bassett v Host (1982) 1 NSWLR 206.

On the criminal side Re Enoch has been required in England to yield to the requirements of justice. Notwithstanding some expressions to the contrary, I am of opinion that in New South Wales, too, that decision must yield to such requirements. To make that good I must refer to the leading Australian cases."

Street CJ went on to refer to several Australian authorities, all criminal cases. They included Titheradge in which, after analysing the reasons of the various members of the High Court his Honour, at p.759, expressed the view that the case "is not binding authority to the effect that there is no power in a trial judge to call a witness. It seems best to identify it as a decision to the effect that a miscarriage of justice will arise if a judge calls a witness of his own motion and thereafter descends to an excessive degree into the adversarial arena".

The view expressed in Damic, in relation to criminal trials, has since been endorsed by the High Court. In R v Apostilides (1984) 53 ALR 445 at p.455 a Full Court -- departing from a view expressed by Dawson J in Whitehorn v The Queen (1983) 152 CLR 657 at p.681 -- held that, in a criminal case, the trial judge may himself call a person to give evidence but that he should do so only "in the most exceptional circumstances". At p.456 the Court adopted the reasons for caution advanced by Dawson J in Whitehorn. Those reasons include the possible distortion of the course of the trial and the chance that the fact that the judge has called the witness "may give his evidence an undesirable aspect of objectivity".
In the light of Apostilides it is no longer possible to regard as authoritative the view expressed by Isaacs and Rich JJ in relation to criminal trials in Titheradge. The comments made by their Honours in relation to civil trials were mere dicta; although, of course, carrying considerable weight. However, giving those dicta weight, the adoption by their Honours of Enoch, in reference to civil trials, means only that the Court endorsed the criticisms made in that case of the course taken by the particular arbitrator; a course very different from that discussed in his article by Sheppard J or that suggested in the present case. Moreover it is apparent from the reservation expressed by Barton J, which I have quoted, that the adoption of Enoch by that Justice was not seen as meaning that a trial judge was precluded, in all cases and under all circumstances, from calling and examining a witness. But, like others before and since, his Honour did emphasise that the judge should not take from the parties the general conduct of the case and that the power to call a witness ought to be exercised only "in furtherance of justice and in exceptional circumstances".
The course suggested in the present case would not have resulted in the Court assuming the conduct of the case by calling a witness whom neither side wished to give evidence. Counsel for the respondent wished Mr Baxter to give evidence, but particularly having regard to his inability adequately to confer with him and Mr Baxter's other interests in relation to the matter, did not wish to vouch for his credit or be deprived of the ability to challenge any evidence, unfavourable to his clients, which Mr Baxter might wish to give.
In the article to which I have referred Sheppard J suggested that the law ought to be as stated by Lord Esher M R in Coulson, permitting the presiding judge to call a witness -- even over the opposition of a party -- but that the discretion to take this course should be exercised sparingly and with great care. That suggestion is consistent with the principle adopted by the High Court in respect of criminal trials in Apostilides and with the opinion expressed by Street CJ in Damic; assuming, as was assumed in those two cases, that, if the witness gave material evidence, counsel for an affected party could cross-examine, as of right and not merely by leave. It appears to me that the decisions subsequent to the article require me to hold that the proposition argued by Sheppard J should now be regarded as the law in Australia, for civil as well as for criminal trials, and that Enoch should be regarded as an example of a miscarriage of the discretion to call a person to give evidence.
In the present case I indicated to counsel that I took the view that, notwithstanding the objection of counsel for the applicants, I had power to accede to the application made by counsel for the respondents to call Mr Baxter for the purpose of making him available for cross-examination on behalf of each party. I also indicated that it would be appropriate to exercise that power only if I were first satisfied that the interests of justice so required. I invited counsel for the respondent to indicate the subject matters in relation to which Mr Baxter could give evidence likely to assist in the resolution of the case. In the event counsel was not able to satisfy me that Mr Baxter would be likely to give evidence which would assist in the resolution of any critical issue and I rejected the application. My reaction may have been different if, for example, Mr Baxter had been present at any of the conversations at which representations were said to have been made.
Mr Baxter's conduct of the transaction
My assessment that Mr Baxter's evidence was unlikely to be of major importance was confirmed when, after considering his position, counsel for the respondent elected to call Mr Baxter and he was examined and cross-examined in the ordinary way. Upon the central issue -- the making of the representations -- Mr Baxter could contribute little. But his evidence did reveal a lamentable performance of his duties in the transaction. Mr Baxter was not inexperienced in conveyancing matters. He had undergone practical training in the Legal Workshop course conducted by the Australian National University and, at the relevant time, had been in active practice -- first in Cootamundra and then at Burleigh Heads -- for about four years. During his period in practice, he said, "a very large part" of his work was in conveyancing. Notwithstanding that background, the evidence discloses no less than eight matters of sufficient general importance as to create doubts as to the adequacy of the training he has received. These matters are as follows:

a) Mr Baxter was aware that the subject land was actively used as a caravan park, most caravaners being "permanent" tenants. He believed that Mr Stone held no financial records. Upon his own evidence he also believed, when he prepared the first draft contract, that the income of the park was a matter of considerable importance to the purchaser. Yet he gave no thought to the inclusion in the contract of warranties as to takings and/or profitability. He did not raise this matter with Mr Moon before exchange of contracts. Nor did he give any consideration to the taking of warranties on settlement even after he received the valuation obtained on behalf of the mortgagees which showed that the valuer had calculated the value of the park

($185,000) directly from an assumed net annual income of $29,950. That valuation indicated not only that the valuer saw no value of the land over and above its current earning capacity but also that information regarding takings was obtainable.

b) Mr Baxter was aware of the nature and extent of the encroachment by the amenities block onto the closed road. He knew that the council supported the road closure application but he also knew that the final decision rested with the Minister, guided by the Land Board. Before contracts were exchanged he saw and discussed with Mr Stone the letter to Mr Stone dated 5 April 1983 in which the Officer-in-Charge of the Land Board stated that "several" objections had been lodged to the proposed road closure and that an inspection would be necessary to assess the merits of these objections. Mr Baxter knew that the amenities block was critical to the operation of the caravan park and that, if the encroachment was not eliminated, it might have to be demolished. Yet he took no steps whatever to safeguard Obacelo against the possibility that the road closure application would fail. He could have made the completion of the contract conditional upon the success of the road closure application. He did not do so; nor did he even raise with Mr Moon the desirability of this course. Mr Baxter could have obtained information about the number and nature of the objections. He made no attempt to do so. He gave no advice to Mr Moon about making inquiries. Rather, and incongruously, according to his own evidence, he merely told Mr Moon that "a letter of objection" had been received.

c) The omissions of Mr Baxter in regard to the road closure were exacerbated by his failure to seek on behalf of Obacelo a certificate under s.317A of the Local Government Act which, if granted, would at least have protected the company against a demolition order by council. Mr Baxter said that he would only seek a s.317A certificate if specifically requested by the client. He did not regard it as part of his duty to advise a client about the desirability of obtaining such a certificate and, despite what had happened in this case, that remained his practice when he gave his evidence.

d) Mr Baxter knew that the operation of the caravan park required town planning approval. He said in evidence that he sought and obtained a zoning certificate, although there was no such cerfiticate in his file. But he conceded that such a certificate would not have disclosed the terms of any consent for the park. Although he had no file note to support him, Mr Baxter said in evidence that he telephoned the council a few days before settlement and inquired whether there was "any objection" to the use of the land as a caravan park. However, he obtained no information about the conditions of any approval. Had he done so, he would have learned that the assumption upon which both Mr Moon -- on any version of the evidence -- and the mortgagees were working, that is that more than 25 sites might lawfully be occupied, was false.

e) Acting on behalf of the purchaser, Mr Baxter delivered to himself requisitions on title. He answered those requisitions on behalf of the vendor. He claims to have received instructions as to the answers from Mr Stone but he has no notes of any interview with Mr Stone for that purpose. Whether or not he obtained instructions, several of the answers are false. Although Mr Stone held an identification survey and Mr Baxter himself had access to a survey plan of the park and the 1850 square metre area, he answered that no survey was held. He answered in the affirmative a question whether the provisions of the Local Government Act and ordinances had been complied with although he personally knew that they had not. In relation to an inquiry about tenancies, he gave the answer "subject to period (sic) tenancies of park residents" without offering any detail; although he must have known that some information would be available from Mr Stone.

f) The evidence shows that insurance was arranged on 16 May 1983, the date of settlement. Mr Baxter said that this was a condition of the mortgage. He gave no advice to Mr Moon about the desirability of insuring as from the date of contract.

g) Although the purchase by Obacelo included movable chattels and the purchase by Taveraft included two motor vehicles, Mr Baxter made no search of the register of Bills of Sale. Neither did he make a bankruptcy search against Mr Moon, the transferor of one car.

h) A basic problem with Mr Baxter's conduct of the transaction and his evidence was the lack of file or diary notes about alleged conversations. There were not even notes of major interviews. I asked him whether, at the Legal Workshop, the necessity to keep notes had not been "drummed into" his head. He replied: "I would not say drummed in ... but it was certainly mentioned to us that is the preferable way to conduct a matter, to keep file notes and records of everything". I trust that this reply considerably understates the instruction actually given at the Legal Workshop concerning this fundamental matter.

Two further comments must be made about Mr Baxter. The first is that he did not even protect the interests of the mortgagees. I have already mentioned the omission to complete the Memorandum of Mortgage. I add a reference to his failure carefully to read the valuation procured by him on behalf of the mortgagees. The description contained in the valuation spoke of the amenities block being "centrally located in the park". The valuer was obviously misled by the position of the fences but Mr Baxter should instantly have realised the error and that the valuation gave the misleading impression that there was no encroachment by that building. However, he took no steps to correct the misconception of the valuer, or to point out the true position to the mortgagees, because he "did not pick up" the error at the time.
It would be erroneous to assume that Mr Baxter's charges matched his token participation in the transaction. The total profit costs charged by his firm came to $5,724: $2,486 as solicitors for Obacelo, $2,265 as solicitors for Taveraft, and $973 as solicitors for the mortgagees. Although the land, and each of the chattels, was in New South Wales and each of the clients resided in New South Wales, Mr Baxter elected to use the scale of costs approved by the Queensland Law Society. This scale was relevantly higher than the New South Wales' scale. He did not inform Mr Moon that he had done so. But he charged Obacelo fees which much exceeded even the Queensland scale. Although he was given full opportunity in evidence to do so, with access to both scales, he was unable to justify his account to Obacelo.
There is no complaint of dishonesty against Mr Baxter. I would not normally refer to the Law Society for investigation a case of mere mistake by a solicitor. But I have decided to take steps to draw the attention of the Law Society of New South Wales to this case. Mr Baxter's errors and omissions were so numerous and so basic as to call into question, in my opinion, the desirability of his continuing to practice, except perhaps under close supervision. It must be for the Law Society to judge whether his performance has any implications in regard to the general adequacy of the training of new solicitors in their responsibilities as conveyancers.

[1986] FCA 241

13 JUNE 1986

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Competition Law

Legal Concepts

Misleading Conduct

Damages

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