Poliwka v Girgis

[2021] WASCA 30

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   POLIWKA -v- GIRGIS [2021] WASCA 30

CORAM:   BUSS P

MURPHY JA

MITCHELL JA

HEARD:   2 NOVEMBER 2020

DELIVERED          :   25 FEBRUARY 2021

FILE NO/S:   CACV 79 of 2019

BETWEEN:   WASIL NICHOLI POLIWKA

First Appellant

POLIWKA GROUP PTY LTD

Second Appellant

FIRST WESTERN ADMINISTRATION PTY LTD

Third Appellant

AND

SHERIF ELHAMY WADIE GIRGIS

First Respondent

GIRGIS NOMINEES (WA) PTY LTD

Second Respondent

FILE NO/S:   CACV 120 of 2019

BETWEEN:   WASIL NICHOLI POLIWKA

First Appellant

POLIWKA GROUP PTY LTD

Second Appellant

FIRST WESTERN ADMINISTRATION PTY LTD

Third Appellant

AND

SHERIF ELHAMY WADIE GIRGIS

First Respondent

GIRGIS NOMINEES (WA) PTY LTD

Second Respondent

ON APPEAL FROM:

Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA

Coram:   VAUGHAN J

File Number            :   CIV 2425 of 2014

Catchwords:

Trade practices - Misleading or deceptive conduct - Negligent misstatement – Where parties in relationship of adviser/advisee - Where judge found shareholder agreement formed whereby parties would contribute equally to acquisition and ongoing costs of Hotel and associated Pub business as joint venture - Where implied term of shareholder agreement that either party was entitled to terminate shareholder agreement if joint venture company was suffering ongoing losses - Where judge found appellants engaged in misleading or deceptive conduct/negligent misstatement by representing that due diligence had been done in respect of acquisition of Hotel and Pub business - Where Pub business was suffering ongoing losses such that respondents became aware of appellants' misleading/negligent conduct but continued to make advances to joint venture company to fund Pub business - Where joint venture terminated and respondents unable to recover advances made to joint venture company - Where judge found appellants' misleading/negligent conduct was causally related to respondents' loss in respect of advances made up to date upon which reasonable period of time subsequent to respondent learning of misleading and deceptive conduct had passed - Where judge found reasonable period of time ended 30 June 2010 - Where judge found respondents' loss in respect of advances made to joint venture company after 30 June 2010 was not causally related to misleading/negligent conduct

Trade practices - Misleading or deceptive conduct - Negligent misstatement - Whether judge erred in finding respondents' loss in respect of advances made by respondent after 30 June 2010 was not causally related to appellants' misleading/negligent conduct - Whether judge erred in assessing recoverable value of advances as at 30 June 2010

Damages - Quantification of damages - Where judge accepted expert valuation of Hotel property to undertake notional valuation of recoverable value of advances at 30 June 2010 - Whether judge erred in accepting expert valuation of Hotel - Whether respondents failed to discharge onus of proof in establishing that entities associated with Hotel and Pub Business indebted to respondents were unable to make any substantial repayment of advances

Legislation:

Trade Practices Act 1974 (Cth), s 52, s 82

Result:

Appeals dismissed
Cross-appeals allowed

Category:    A

Representation:

CACV 79 of 2019

Counsel:

First Appellant	:	G R Ritter QC
Second Appellant	:	G R Ritter QC
Third Appellant	:	G R Ritter QC
First Respondent	:	D H Solomon
Second Respondent	:	D H Solomon

Solicitors:

First Appellant	:	KD Legal (Perth)
Second Appellant	:	KD Legal (Perth)
Third Appellant	:	KD Legal (Perth)
First Respondent	:	Solomon Brothers
Second Respondent	:	Solomon Brothers

CACV 120 of 2019

Counsel:

First Appellant	:	G R Ritter QC
Second Appellant	:	G R Ritter QC
Third Appellant	:	G R Ritter QC
First Respondent	:	D H Solomon
Second Respondent	:	D H Solomon

Solicitors:

First Appellant	:	KD Legal (Perth)
Second Appellant	:	KD Legal (Perth)
Third Appellant	:	KD Legal (Perth)
First Respondent	:	Solomon Brothers
Second Respondent	:	Solomon Brothers

Case(s) referred to in decision(s):

AJ Thompson Pty Ltd v KLK Manufacturing Pty Ltd (1986) ATPR 40-718

Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904

Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112

Baillieu Knight Frank (Gold Coast) Pty Ltd v Susan Pender Jewellery Pty Ltd [1997] ATPR 41‑542

Bateman v Slatyer (1987) 71 ALR 553

Beale v Government Insurance Office (NSW) (1997) 48 NSWLR 430

Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282

Caason Investments Pty Ltd v Cao [2015] FCAFC 94; (2015) 236 FCR 322

Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601

Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) ATPR 40‑822

Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84

Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410

Finucane v New South Wales Egg Corporation (1988) 80 ALR 486

Girgis v Poliwka [No 6] [2019] WASC 230

Girgis v Poliwka [No 6] [2019] WASC 230 (S)

Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215

Grainger v Williams [2009] WASCA 60

Hay Properties Consultants Pty Ltd v Victorian Securities Corporation Ltd [2010] VSCA 247; (2010) 241 FLR 335

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

HTW Valuers (Central Qld) Pty Ltd v Astonland [2004] HCA 54; (2004) 217 CLR 640

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109

Janssen‑Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526

Joyce v Anderson [2020] WASCA 48; (2020) 91 MVR 344

Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494

Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274

Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182

Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 338

Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302

Obacelo Pty Ltd v Taveraft Pty Ltd (1986) 10 FCR 518

Paper Sales (Aust) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183; (2009) 261 ALR 179

Sharpe v Ramage (1995) 12 WAR 325

Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233

Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565

Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627

Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514

Western Australia v Bond Corporation Holdings Ltd (1991) 28 FCR 68

Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) [2019] FCAFC 167; (2019) 272 FCR 373

JUDGMENT OF THE COURT:

Introduction

1. These reasons deal with an appeal and cross‑appeal against a decision of Vaughan J in Girgis v Poliwka[No 6][1] (primary decision) and against his Honour's supplementary decision in that matter, Girgis v Poliwka [No 6] (S) (supplementary decision).[2]

   [1] Girgis v Poliwka[No 6] [2019] WASC 230.

   [2] Girgis v Poliwka [No 6] [2019] WASC 230 (S).

2. The primary proceedings concerned claims by the respondents, Mr Girgis and Girgis Nominees (WA) Pty Ltd (collectively, the Girgis parties) against the appellants, Mr Poliwka and two entities associated with him - Poliwka Group Pty Ltd and First Western Administration Pty Ltd (FWA) (collectively, the Poliwka parties).  The claims arose in relation to certain investments undertaken by Mr Girgis and Girgis Nominees in connection with their association with the Poliwka parties after Mr Girgis had won $30 million in a lottery.

3. Mr Girgis alleged that the Poliwka parties had engaged in misleading or deceptive conduct in trade or commerce in contravention of various statutory provisions.  Mr Girgis further or alternatively alleged that the Poliwka parties had made actionable negligent misrepresentations in breach of a duty to exercise reasonable care, skill and diligence in advising Mr Girgis in relation to matters concerning the investment of money.[3]  The alleged conduct was said to have occurred in dealings between Mr Girgis and Mr Poliwka in late 2008 and early 2009, including in relation to purchasing (through various entities) interests in what are described as the Midland Hotel and the Pub business - the business associated with running the Midland Hotel.[4]

   [3] Primary decision [6].

   [4] Primary decision [3].

4. Between October 2008 and September 2012 Mr Girgis, and entities associated with him, made advances to meet liabilities incurred in connection with the operation of the Pub business and Midland Hotel.  Mr Poliwka contended that these advances were made pursuant to a shareholder agreement entered into between Mr Girgis and Mr Poliwka for the creation of a joint venture company called Girpol Pty Ltd (Girpol).  The shareholder agreement provided for trusts associated with Mr Girgis and Mr Poliwka to contribute equally to Girpol for the acquisition of, and all ongoing costs associated with, (relevantly) the Pub business.[5]  Girpol was owned 50/50 between Girgis Nominees and FWA.[6]

   [5] Primary decision [4], [106] - [107]. 

   [6] Primary decision [106], [511].

5. The relationship between Mr Girgis and Mr Poliwka ended around September 2012.[7]  At that time, the Girgis parties had made a substantial amount of unrecouped advances.  Legal costs were incurred in seeking to recover those amounts.  Also in 2016 Mr Girgis had to make payment to ME Bank under a guarantee which he had provided in connection with borrowings relating to the Midland Hotel.  In total the Girgis parties claimed alleged losses of $3,441,815.03 comprising (1) unrecouped advances of $2,451,350 made to the entities involved in the investments, (2) costs of $135,598.88, and (3) $854,866.15 as to the guarantee payment to ME Bank.[8]  The Poliwka parties contended (amongst other things) in response that Mr Girgis could have avoided much of the claimed losses by selling the Midland Hotel and the Pub business 'far earlier'.[9]

   [7] Primary decision [816].

   [8] Primary decision [5].

   [9] Primary decision [1094].

6. The Poliwka parties also counterclaimed on the basis, in effect, that the Girgis parties had not contributed their share of the funding to Girpol, under the shareholder agreement.  In response to the counterclaim, the Girgis parties contended, in effect, that they were not bound to provide additional funding after September 2012.  This was on the basis that there was an implied term of the shareholder agreement that either party was entitled to terminate the shareholder agreement if Girpol was suffering ongoing losses, which it was.[10]  The issues relating to the counterclaim are not relevant to the appeal, save to note that the judge accepted the Girgis parties' contention that the shareholder agreement was terminable by either party if Girpol was suffering ongoing losses.[11]

   [10] Primary decision [1178], [1182], [1206], [1219].

   [11] Primary decision [1220].

7. In respect of the Girgis parties' claim, Vaughan J found that there was both misleading or deceptive conduct and negligence, by misrepresentation, on the part of Mr Poliwka, in relation to the purchase of the Midland Hotel and the Pub business.  That conduct caused or materially contributed to the loss suffered by the Girgis parties.  The judge concluded, however, that the compensable loss was less than the amount claimed by the Girgis parties.[12]  In particular, his Honour found that, insofar as the Girgis parties suffered losses through advances made by Mr Girgis after 30 June 2010 and up to September 2012 which proved irrecoverable, those advances were made after the end of February 2010, when Mr Girgis knew the true position but did not bring an end to the continued funding, as he was legally entitled to do.  Vaughan J concluded that (subject to one exception) it was not reasonable for the Girgis parties to make further advances more than 4 months after the end of February 2010.  His Honour considered 4 months to be a reasonable period to continue making advances pending investigation of options, before bringing an end to continued funding.  Accordingly, such advances after 30 June 2010 were not causally related to the misleading or deceptive conduct or negligence.[13]  The judge however rejected the Poliwka parties' contention that Mr Girgis should have sold the assets 'far earlier'.  His Honour rejected that contention on the basis (amongst other things) that as the assets were held by a joint venture company (Girpol), any sale would have been dependent upon Mr Poliwka's agreement and, in substance, the point raised a mitigation issue which had not been pleaded.[14]

   [12] Primary decision [11].

   [13] Primary decision [1079] - [1081].

   [14] Primary decision [1096].

8. The judge dealt with the assessment of damages payable to the Girgis parties in two steps.  Broadly speaking, pursuant to the primary decision, the judge made orders, relevantly, requiring the Poliwka parties to pay damages in respect of certain advances made by Mr Girgis which the judge was satisfied were totally irrecoverable and which were caused by Mr Poliwka's misleading/negligent conduct, together with certain costs incurred in connection with attempted recovery of the amounts due.  His Honour then reserved for further hearing the question of the extent to which advances made by Mr Girgis prior to 30 June 2010 were irrecoverable as at that date.  This required a consideration of the amounts which could have been recovered from the investment vehicles for the Midland Hotel and the Pub business had recovery been sought as at 30 June 2010.  Assessment was approached on the basis that the Girgis parties' damages for unrecouped advances would be the difference between the advances made prior to 30 June 2010 and the amounts recoverable on those advances as at that date.  That assessment left out of account the further deterioration in trading which transpired after 30 June 2010 and up to September 2012.  This exercise was the subject of the supplementary decision.

9. In general terms, these appeals raise the following broad issues:

   1.The Poliwka parties, by their appeals, contend that, in the assessment of damages in the supplementary decision, the judge erred in attributing a particular value to the Midland Hotel as at 30 June 2010, with the result that his Honour erred in determining the extent (if any) to which Mr Girgis' advances prior to 30 June 2010 were irrecoverable as at that date.

   2.The Girgis parties, by their cross‑appeals, contend that:

   (a)the judge erred in finding, in the primary decision, that Mr Girgis' advances by way of funding the Pub business and the Midland Hotel after 30 June 2010 were not causally related to the misleading/negligent conduct of Mr Poliwka, and that the judge should have found that all of his advances up to September 2012 were causally related to the delinquent conduct of Mr Poliwka; and

   (b)in any event, the relevant date for assessing the recoverability of advances made prior to 30 June 2010 was not 30 June 2010, but September 2012 or at least some date later than 30 June 2010.[15]

   [15] Appeal ts 22 - 23.

10. Practically speaking, if the Girgis parties succeed on their cross‑appeals, the Poliwka parties' appeal will be rendered otiose.  A determination of issue 2(a) identified above in favour of the Girgis parties will make it unnecessary to resolve the other issues.

11. The critical question raised by issue 2(a) is whether loss represented by unrecouped advances made by the Girgis parties after 30 June 2010 was loss by conduct of Mr Poliwka in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TP Act), for the purposes of s 82 of that Act. The question arises in a context where the Girgis parties acquired shares in the companies which owned the Midland Hotel and operated the Pub business, and units in the relevant unit trusts, in 2008 relying on Mr Poliwka's prior misleading and deceptive statements to the effect that he had 'done [his] due diligence and it all looks good'. By the end of February 2010, Mr Girgis was aware that the trading performance of the Pub business was inconsistent with Mr Poliwka having undertaken adequate due diligence investigations into the Midland Hotel and the Pub business.

12. In our view, the appropriate measure of damages in these circumstances is, broadly speaking, unrecouped amounts which the Girgis parties invested in the Midland Hotel and the Pub business, other than amounts which were invested unreasonably after the falsity of Mr Poliwka's representations was apparent.  That is consistent with the approach taken by Vaughan J.

13. The question ultimately becomes whether it was unreasonable for the Girgis parties to advance money to the businesses from 1 July 2010 to September 2012.  That is, was it reasonable for Mr Girgis to continue performing his obligations under the shareholder agreement relating to Girpol, rather than terminating it with effect from 30 June 2010 and thereupon liquidating his investments in the Pub business and the Midland Hotel?

14. We differ from Vaughan J in our assessment of whether it was unreasonable for the Girgis parties to advance money to the businesses from 1 July 2010 to September 2012.  In our view it was reasonable for Mr Girgis to have made those advances in all of the circumstances, including Mr Girgis' personal circumstances, in the context of the situation in which Mr Girgis was placed by the misleading or deceptive conduct, and the overall commercial relationship between Mr Girgis and Mr Poliwka.  In our respectful view, Vaughan J erred in failing to give any or adequate weight to those matters.

15. It follows that, for these reasons which are explained in more detail below, the cross-appeals should be allowed and the appeals should be dismissed.

Background

1. Whilst aspects of the judge's findings will be considered in more detail later in these reasons, at this point it is convenient to summarise the narrative of the principal events as found by the judge.

2. In mid-October 2007, Mr Girgis was a 23‑year‑old university student who had been working part-time as a trainee property valuer.[16]  He had no substantial net assets and no experience managing or investing large sums of money.[17]

   [16] Primary decision [1].

   [17] Primary decision [21].

3. Mr Poliwka was 57 years of age.  He had been involved in real estate for at least 20 years.  Mr Poliwka was a licensed real estate agent and auctioneer.  He was also a qualified accountant and a Fellow of the Institute of Accountants (although was not practising as an accountant).  Mr Poliwka, through Poliwka Group, operated a real estate business 'First Western Realty' (FW Realty) located in Joondalup.  As well as FWA and FW Realty, Mr Poliwka held other business and property interests, including the Albany Hotel (which was leased) and the Nannup Hotel (of which Mr Poliwka was the licensee).[18]

   [18] Primary decision [1], [191].

4. On 23 October 2007, Mr Girgis won $30 million in Oz Lotto.[19]

   [19] Primary decision [1], [241]. 

5. Earlier in 2007, Mr Girgis had been introduced to Mr Poliwka at a café run by the family of one of Mr Girgis' high school friends.  After winning the lottery, the same friend suggested that Mr Girgis make contact with Mr Poliwka.  The friend said that Mr Poliwka was a successful businessman, and that he might be willing to give Mr Girgis advice.[20]

   [20] Primary decision [241].

6. Mr Girgis had a series of interactions with Mr Poliwka between 31 October 2007 and early 2008.[21]  Broadly, through these communications Mr Girgis expressed an interest in obtaining Mr Poliwka's advice on how to invest large sums of money.[22]

   [21] Primary decision [242] - [249]. 

   [22] Primary decision [250].

7. At an initial meeting between Mr Poliwka and Mr Girgis, Mr Poliwka informed Mr Girgis that he was prepared to act as an adviser to him (Mr Girgis) and that Mr Poliwka would not charge for that advice.[23]  Mr Poliwka assumed a role as an advisor to Mr Girgis.[24]

   [23] Primary decision [256].

   [24] Primary decision [295], [296] - [297]. 

1. Mr Poliwka and Mr Girgis discussed the need for Mr Girgis to obtain accounting services.  Mr Poliwka organised for Mr Girgis to meet with his accountant, Mr Pickrell, who was the principal of Focus Accounting.[25]

   [25] Primary decision [255].

2. At a second meeting on 31 January 2008, Mr Pickrell provided Mr Girgis with advice as to the sort of business structures he ought to consider.[26]

   [26] Primary decision [249], [260]. 

3. Following a meeting between Mr Girgis, Mr Poliwka and Mr Pickrell, Girgis Nominees was incorporated on 22 February 2008.  On the same day, the Girgis Property Trust was established.[27]  Girgis Nominees was a trustee of the Girgis Property Trust.[28]

   [27] Primary decision [270].

   [28] Primary decision [20].

4. On 5 March 2008, the Girgis Group Pty Ltd (Girgis Group) was incorporated.[29]  The proposed function of Girgis Group was that of an administration company which would employ Mr Girgis and provide management services to other entities in the group.[30]  Mr Girgis was the sole shareholder of Girgis Group.  On incorporation, the directors of the company were Mr Girgis and Mr Poliwka.  Mr Pickrell was appointed as company secretary.[31]  Mr Poliwka remained as a director of Girgis Group until May 2012, and Mr Pickrell remained as company secretary until May 2012.[32]

   [29] Primary decision [273].

   [30] Primary decision [277].

   [31] Primary decision [276].

   [32] Primary decision Glossary, consolidated BB 305.

5. In due course, Mr Girgis (or entities associated with him) purchased a number of residential and commercial properties that were recommended to him by Mr Poliwka.[33]  Mr Girgis appointed FW Realty as managing agent of various properties.[34]

   [33] Primary decision [283].

   [34] Primary decision [285].

6. Mr Poliwka undertook the role of property adviser to Mr Girgis and, in that connection, from time to time provided Mr Girgis with a spreadsheet which gave an overview of the assets and liabilities of Mr Girgis and his various entities.[35]  Mr Poliwka's advice included advice on the purchase of a property in Joondalup (Joondalup property) on which a nightclub operated, and on the purchase of a property in Watermans Bay (Watermans Bay property) with development potential.[36]

   [35] Primary decision [290] - [294], [297].

   [36] Primary decision [657], [664], [696].

7. In addition to providing property advice, Mr Poliwka also gave advice, in 2010, in relation to a franchise agreement with Dome, a Jetts gym franchise business, and a telecommunications business.[37]  Mr Poliwka also attended a meeting with Mr Girgis to make enquiries about acquiring the franchise rights for a chocolatier.[38]

   [37] Primary decision [289].

   [38] Primary decision [286].

8. The parties also used Girpol as their joint venture vehicle to acquire an interest in a vessel (known as Moonlight Express) and an associated charter business.[39]

   [39] Primary decision [49]; primary decision Glossary, consolidated BB 308.

9. There was a significant imbalance between Mr Poliwka and Mr Girgis in terms of general commercial experience, as well as their respective property investment experience, understanding and expertise.[40]

   [40] Primary decision [894(3)].

10. Most relevantly for present purposes, the dealings between Mr Girgis and Mr Poliwka involved them purchasing together, in late 2008 and early 2009, through certain entities, interests in (relevantly) the Midland Hotel and the Pub business.

The Midland Hotel and Pub business prior to acquisition by the parties

1. The Midland Hotel was located in Helena Street, Midland, Western Australia.  In 2008 it was described as an established two storey hotel with a drive through bottle shop situated at a corner location within the Midland Town Centre.  The building was considered to have historical significance and was listed with the Heritage Council of Western Australia.[41]

   [41] Primary decision [300].

2. On 14 March 2008, Sunriver Holdings Pty Ltd (Sunriver) as trustee of the Junction Unit Trust became the registered proprietor of the Midland Hotel property.[42]  There were two encumbrances registered against the certificate of title of the property, one of which was a registered mortgage in favour of ME Bank.[43]  The ME Bank mortgage secured a loan to Sunriver of about $1.95 million with outstanding interest.[44]  

   [42] Primary decision [328] - [329]. 

   [43] Primary decision [345].

   [44] Primary decision [346].

3. The registered transfer of the Midland Hotel to Sunriver recorded a purchase price of $2.95 million.  That became the transaction price referred to in subsequent Real Property Data searches.  This purchase price was misleading - it was actually purchased for $2.5 million.  The fact that the Sunriver purchase was for an amount of $2.5 million, not $2.95 million, was not disclosed to or known by Mr Girgis.[45]

   [45] Primary decision [328].

4. Also on 14 March 2008, Bold Gem Pty Ltd (Bold Gem) as trustee for the Bold Gem Unit Trust, purchased the Pub business for $580,000.  From that date, Bold Gem conducted the Pub business in its capacity as trustee of the Bold Gem Unit Trust.[46]  Bold Gem was a company associated with a Mr Caporn, who was the manager of the Pub business.[47]

   [46] Primary decision [332].

   [47] Primary decision [333]; primary decision Glossary, consolidated BB 304.

5. Accordingly, the Midland Hotel and the Pub business were purchased together in mid‑March 2008 for $3.08 million (Sunriver acquiring the Midland Hotel for $2.5 million and Bold Gem acquiring the Pub business for $580,000).[48]

   [48] Primary decision [332].

6. Mr Poliwka had previously, around August/September 2007, looked at acquiring the Midland Hotel himself, but those enquiries came to nothing.[49]

   [49] Primary decision [303] - [304].

7. In mid-September 2008 the Midland Hotel was in the process of being further refurbished and renamed the 'Eastern Hotel'.[50]

The parties' purchase of the Midland Hotel and the Pub business

[50] Primary decision [302].

1. Mr Poliwka raised the potential for investment in the Midland Hotel with Mr Girgis between 16 and 19 September 2008.[51]

   [51] Primary decision [323], [375] - [376].

2. On 19 September 2008, Mr Poliwka, Mr Girgis and others attended a meeting about the Midland Hotel.  After walking around the Hotel, Mr Poliwka said to Mr Girgis words to the effect that, 'I've done my due diligence and it all looks good'.[52]

   [52] Primary decision [390], [392], [393], [407].

3. At a second meeting at the Midland Hotel, most likely on 29 September 2008, Mr Poliwka again told Mr Girgis that he had done his due diligence.[53]

   [53] Primary decision [408], [413], [414].

4. These representations (the Due Diligence representations) continued to be operative at the time Mr Girgis (for Girgis Nominees) subsequently agreed to proceed with the acquisition of the Midland Hotel by purchase of Sunriver shares and units.[54]

   [54] Primary decision [982].

5. Mr Poliwka failed to carry out adequate due diligence investigations in relation to the Midland Hotel and the Pub business.[55]  The representation that Mr Poliwka had conducted due diligence investigations, and was satisfied with his findings, was conduct that was misleading or deceptive or likely to mislead or deceive.[56]  It also constituted a negligent failure by Mr Poliwka to exercise reasonable skill, care and diligence in advising Mr Girgis that they should invest in the Midland Hotel and the Pub business in the way they did.[57]

   [55] Primary decision [996], [1020].

   [56] Primary decision [1021].

   [57] Primary decision [1028] - [1030].

6. On 1 October 2008 an offer was made by Mr Poliwka (on behalf of FWA) and Mr Girgis (on behalf of Girgis Nominees) to purchase the Midland Hotel for $3 million as a going concern.[58]

   [58] Primary decision [448] - [449].

7. By or shortly after 6 October 2008, Mr Poliwka and Mr Girgis decided to proceed with a purchase of Sunriver shares and units rather than purchase the Midland Hotel property, and to proceed with the acquisition of the Pub business.[59]

   [59] Primary decision [508]

8. The transaction was reformulated.  Girpol, the joint venture company, was established and acquired 80% of the shares in Bold Gem and held 80% of the units in the Bold Gem Unit Trust (which operated the Pub business).[60]  Girgis Nominees and FWA each became 50% shareholders in Sunriver (the registered proprietor of the Hotel land), and each acquired 50% of the units in the Junction Unit Trust.[61]

   [60] Primary decision [36], [458], by reference to par 23.2 of the statement of claim; consolidated BB 405 ‑ 407; Defence and Counterclaim, par 23; consolidated BB 510.

   [61] Primary decision [36].

9. Mr Girgis reasonably relied on Mr Poliwka's Due Diligence representations in deciding to enter into the above transaction.[62]

   [62] Primary decision [1031] - [1040].

10. On 14 October 2008, Mr Girgis obtained bank cheques totalling $500,000 as part of a $1 million payment to complete the transaction.[63] 

The parties' funding of the Midland Hotel and the Pub business post acquisition

[63] Primary decision [516], [525], [774], [1067(1)].

1. On 24 October 2008, Mr Girgis transferred $120,000 to Girpol through Girgis Group.[64]  Mr Girgis subsequently advanced a further $400,000 from 19 November 2008 - 30 January 2009.  These payments were made to fund the renovations of the Midland Hotel.[65]

   [64] Primary decision [568].

   [65] Primary decision [564], [565], [775].

2. Mr Caporn, the Bold Gem manager, continued to manage the Pub business.  Renovation of the Midland Hotel took longer than the two or three months contemplated in October 2008.  The Midland Hotel reopened for trading in February 2009.  When the Midland Hotel reopened it enjoyed some initial success.  That success was short lived.[66]

   [66] Primary decision [599].

3. From as early as March 2009, Mr Girgis had reservations about the investment in the Midland Hotel and the Pub business.[67]

   [67] Primary decision [1075].

4. On 10 March 2009, Mr Girgis made a further $50,000 advance to Girpol to get the Pub business going.[68] 

   [68] Primary decision [779], [1067(3)].

5. Around 20 March 2009, Mr Girgis guaranteed Sunriver's $1.95 million loan from ME Bank.[69]

   [69] Primary decision [58(1)], [549], [1106].

6. In May 2009, the parties decided to end their relationship with Mr Caporn, and (via their entities) took over management of the Pub business.[70]  With effect from 31 May 2009, Mr Caporn ceased to be a director of Bold Gem.  Also, in October 2009, Girpol became the sole shareholder in Bold Gem and the sole unit holder in the Bold Gem Unit Trust.[71]

   [70] Primary decision [600], [1079].

   [71] Primary decision [717].

7. Mr Poliwka advised the Girgis parties to assist Girpol to obtain bank finance by providing guarantees and giving security in relation to a proposed $1.45 million bank loan.[72]  On 1 May 2009, Girpol drew down on a $1.45 million facility from Bankwest, guaranteed by Mr Girgis and others.  On 13 May 2009, $550,000 was repaid to Mr Girgis using money advanced from the Bankwest facility.[73]

   [72] Primary decision [796].

   [73] Primary decision [780], [781].

8. From mid to late 2009, Mr Girgis began raising concerns with Mr Poliwka about the lack of return on the investment in the Pub business.[74]  Nevertheless, there were funding requests made over the course of 2010 and 2011 and into early 2012 which, despite Mr Girgis' concerns, were satisfied by or on behalf of Mr Girgis.[75]

   [74] Primary decision [799].

   [75] Primary decision [800].

9. Mr Girgis made further advances to Girpol on 5 August 2009 ($50,000) and 20 January 2010 ($25,000).  Mr Girgis made a $15,000 advance to Bold Gem on 21 June 2010.[76]

   [76] Primary decision [799] - [800], [1069], [1088] - [1089].

10. The financial statements of the Bold Gem Unit Trust for the year ended 30 June 2009 showed a net loss of $488,086.[77] 

    [77] Primary decision [603] ‑ [604].

11. By February 2010 - one year after the Pub business had reopened - Mr Girgis was well aware that the Pub business had not traded profitably.[78]

    [78] Primary decision [602], [1074].

12. By the end of February 2010, Mr Girgis was aware that the trading performance of the Pub business was inconsistent with Mr Poliwka having done adequate due diligence investigations into the Midland Hotel and the Pub business.[79]

    [79] Primary decision [1079].

13. A reasonable period for Mr Girgis continuing to make advances pending an investigation of options before bringing an end to continued funding was four months from the end of February 2010, ie, to 30 June 2010.  There was a causal connection between the misleading/negligent conduct and the advances made up to 30 June 2010.  But, subject to one exception, there was no causal connection in relation to advances made by Mr Girgis after 30 June 2010.[80]

    [80] Primary decision [1080] - [1081], [1112].

14. The exception was the advance of $725,000 made by Girgis Nominees into Girpol's Bankwest account on 17 October 2012, to discharge the Bankwest loan which Mr Girgis and others had guaranteed in April/May 2009.[81]

    [81] Primary decision [818], [1083] - [1085].

15. The year ended 30 June 2010 saw reduced revenue ($2,372,768) but a reduced loss ($320,953) for the Bold Gem Unit Trust.[82]

    [82] Primary decision [604].

16. Matters worsened after 1 July 2010.  The 12 months to 30 June 2011 saw a loss of $567,012 on a reduced trading income of $2,068,290.  For the year ended 20 June 2012 the Bold Gem Unit Trust sustained a loss of $665,469 on a trading income of $1,654,597.[83]

    [83] Primary decision [605].

17. The other advances, made by Mr Girgis after 30 June 2010 for which recovery was not allowed on the basis that they were not caused by the misleading/negligent conduct, were $235,000 in the year ended 30 June 2011, $300,350 in the year ended 30 June 2012, and $70,000 in the three months to September 2012 (the time at which Mr Girgis ceased funding).[84]  The vast majority of these advances were made to Girpol, although there were a few advances to Bold Gem.[85]

Early 2012 - August 2012:  souring of the relationship between Mr Girgis and Mr Poliwka

[84] Primary decision [1069].

[85] Primary decision [800].

1. In around February or March 2012, while Mr Girgis and Mr Poliwka were on a trip to Melbourne, Mr Girgis expressed his concerns to Mr Poliwka about the amount of money that had been put into the businesses and that Mr Girgis and Mr Poliwka were not seeing any return on their investment.[86]

   [86] Primary decision [803] ‑ [804].

2. In March 2012, Mr Girgis was in contact with another financial adviser, Mr McNally of Harts Financial Solutions.  In late March 2012, Mr McNally and Mr Girgis met to discuss Mr Girgis' financial position.  Thereafter Mr Girgis became a client of Harts Financial Solutions.[87]  Harts Financial Solutions was engaged by Mr Girgis to oversee his financial situation and the businesses in which Mr Girgis was involved.  The businesses were a charter vessel business and, more relevantly for present purposes, the Pub business.[88]

   [87] Primary decision [164].

   [88] Primary decision [805].

3. Harts Financial Solutions, and, in particular, the principal of that firm, Mr Hart, commenced consideration into Mr Girgis' financial affairs in mid-April 2012.  Mr Hart met with both Mr Girgis and Mr Poliwka.  Mr Hart also met with Mr Pickrell and persons involved in the Pub business (eg, the manager of the Midland Hotel), in addition to other people.  His investigations included obtaining specialist advice as to the Midland Hotel and the Pub business.  Mr Poliwka and Mr Girgis also attended some of these meetings, many of which were to do with improving the performance of the businesses.  Mr Hart spent a lot of time gathering information.[89] 

   [89] Primary decision [806].

4. In the course of Mr Hart's investigations, relations became strained as between Mr Poliwka and Mr Hart.[90]  Mr Poliwka resigned as a director of Girgis Group on 16 May 2012.[91]

   [90] Primary decision [806].

   [91] Primary decision [807].

5. By 26 June 2012 Mr Hart had arranged for Mr Girgis to meet with representatives of PKF Mack & Co to discuss that firm providing Mr Girgis and his entities with accounting and tax services.  In due course, PKF Mack & Co became Mr Girgis' accountants.  That occurred around the end of August 2012.  By that time relations between Mr Girgis and Mr Poliwka had soured.[92]

September - October 2012:  the termination of funding

[92] Primary decision [808].

1. Until the end of August 2012, Mr Girgis continued to satisfy funding requests in relation to the businesses throughout 2012.[93]

   [93] Primary decision [809].

2. In early September 2012, Mr Girgis refused two funding requests made on behalf of Mr Poliwka.[94]  Mr Girgis responded to the requests by email on 4 September 2012, on the advice of Mr Hart:[95]

   I think that I have already made clear that I will not be providing any further funding for the joint businesses without formal plans, forward cash flows and an agreed exit strategy.  I am also not willing to fund any businesses that my advisers and team are not actively involved in.

   …

   The fact is that the joint businesses that [Mr Poliwka] got me into are losing approx $800K / year plus capital losses (yet to be fully quantified)[.] …

   …

   Thank you for mentioning the viable option of appointing an administrator to the joint businesses.  I was going to discuss this at the meeting tomorrow as this may well be a cheaper and less stressful option for me than continuing to incur the current losses.  This would at least provide a formal and independent process for valuing and divesting the assets in the short term.

   …

   Let me know what [Mr Poliwka] wants to do.  [Mr Hart] and I will be available to meet at 11am to 12.30pm if [Mr Poliwka] wants to sit down and calmly find the best solution for both parties.  If not, I'll make the call and start the process for the appointment of administrators.  (footnote omitted)

   [94] Primary decision [810].

   [95] Primary decision [811]. This email was 'substantially ghost written' for Mr Girgis by Mr Hart: primary decision fn 792.

3. A series of meetings occurred on 5 September 2012.  They did not result in any agreement as to the steps to be taken in relation to the Midland Hotel, the Pub business, or the charter vessel business.[96]

   [96] Primary decision [812].

4. Mr Girgis went overseas on 7 September 2012.  In Mr Girgis' absence, Mr Hart sought to make arrangements for a meeting to consider the appointment of administrators.[97]

   [97] Primary decision [813].

5. On 10 September 2012, there was a proposal that Mr Girgis provide further funding.  The proposal to provide further funding was unacceptable to Mr Girgis.[98]

   [98] Primary decision [813] - [814]. 

6. On 13 September 2012 Mr Girgis took steps for the appointment of a voluntary administrator to Girpol, Bold Gem and Sunriver.[99] 

   [99] Primary decision [814].

7. Mr Girgis resigned as a director of Girpol on 24 September 2012.  On the same day Mr Girgis resigned as a director of Bold Gem and Sunriver.[100]

   [100] Primary decision [59], [817].

8. Mr Girgis did not have much to do with Mr Poliwka after 24 September 2012.  Mr Hart was appointed as chief financial officer of Girgis Group on 1 October 2012.[101]

July 2014:  the administration and liquidation of Girpol, Sunriver and Bold Gem

[101] Primary decision [816].

1. In mid-April 2013, solicitors acting for Mr Girgis made demand for repayment of the advances that he had made to Girpol.  Writs were filed against Girpol and Bold Gem on 31 July 2013.[102]  The Girgis parties incurred and paid $101,511.92 and $34,086.96 in legal expenses in relation to Girpol and Bold Gem respectively in taking proceedings against them and participating in their respective windings up.[103]

   [102] Primary decision [820].

   [103] Primary decision [823].

2. In June 2014, a voluntary administrator was appointed to Girpol, Bold Gem and Sunriver.  The companies entered liquidation on 14 July 2014.[104]  The advances made by Mr Girgis and his entities to Girpol and Bold Gem remained wholly unsatisfied.[105]

The sale of the Midland Hotel by receivers and Mr Girgis' payment to ME Bank

[104] Primary decision [820].

[105] Primary decision [821].

1. Sometime after July 2014, ME Bank appointed a receiver in relation to the Midland Hotel property.[106]

   [106] Primary decision [820].

1. In selling the Midland Hotel the Sunriver receivers were not able to clear the debt due to ME Bank.[107]

   [107] Primary decision [824].

2. Mr Girgis paid ME Bank two payments pursuant to the guarantee provided to ME Bank in respect of the debts of Sunriver.  $852,809.74 was paid on 24 March 2016 and $856,922.55 was paid on 13 April 2016.[108]

   [108] Primary decision [24].

3. Mr Girgis had recovered approximately half of these amounts from Mr Poliwka, leaving Mr Girgis ultimately out of pocket to the extent of $854,866.14.[109]

   [109] Primary decision [824].

The assessment of damages in the primary decision

1. The judge's findings were to the following effect.

Advances to Girpol and Bold Gem

1. The potential compensable losses as to the unrecovered advances made by Mr Girgis and Girgis Nominees to Girpol and Bold Gem consisted of the following:[110]

   [110] Primary decision [1088].

1.	advances to fund the October 2008 transactions, ie, the purchase of the interest in the Midland Hotel and the Pub business	$500,000
2.	advances to fund the renovations of the Midland Hotel	$520,000
3.	miscellaneous advances: (a)     10/03/2009 - $50,000 (b)     05/08/2009 - $50,000 (c)     20/01/2009 - $25,000[111] (d)     21/06/2010 - $15,000	$140,000
4.	17 October 2012 payment in respect of the $1.45 million Bankwest facility	$725,000
5.	Less: amount repaid on 13 May 2009 as derived from the $1.45 million Bankwest facility	($550,000)
Total		$1,335,000

[111] At primary decision [1088] the judge incorrectly referred to this advance as having been made on 20 January 2009, but he had accepted that it was in fact made on 20 January 2010: primary decision [800].

1. Only $15,000 of the net $1.335 million involved advances made by Mr Girgis to Bold Gem (the $15,000 advance on 21 June 2010).  The remaining $1,320,000 involved advances made by Girgis Nominees to Girpol.[112]

   [112] Primary decision [1089].

2. The debt arising from the $725,000 advance to Girpol on 17 October 2012 was worthless, and no deduction should be made from damages for the value of that debt.[113]

   [113] Primary decision [1093].

3. However, a deduction needed to be made from the debts arising from the net balance of $610,000 in advances, to reflect the value of those debts as at 30 June 2010, the date when recovery action by Mr Girgis should have been taken.[114]

Legal fees seeking to recover advances to Girpol and Bold Gem

[114] Primary decision [1097] - [1098].

1. An allowance was made in respect of legal costs incurred by the Girgis parties attempting to recover the debts arising from the advances.  The proportionate legal costs were calculated as follows:[115]

   1.as to Girgis Nominees (in respect of Girpol) - $57,847.79; and

   2.as to Mr Girgis (in respect of Bold Gem) - $3,787.44.

Guarantee payment to ME Bank

[115] Primary decision [1105].

1. Allowance was also made for the unrecovered amount paid by Mr Girgis pursuant to the guarantee provided to ME Bank in respect of Sunriver's $1.95 million loan.  The loan was always contemplated as part of the October 2008 transactions.  The March 2009 guarantee was the natural and inevitable consequence of the form of the transaction that Mr Girgis and Mr Poliwka agreed to proceed with (in Mr Girgis' case, in reliance on the misleading/negligent representation and advice of Mr Poliwka).[116]  Accordingly, the full unrecovered amount of $854,866.14 was allowed.[117]

Orders made on 2 July 2019

[116] Primary decision [1107].

[117] Primary decision [1109].

1. Order 1(a) required Mr Poliwka and FWA to pay Mr Girgis $858,653.58 plus interest in respect of:[118]

   1.$854,866.14 as to the ME Bank loan guarantee payment ([92] above]); and

   2.$3,787.44 as to recovery costs against Bold Gem ([91(2)] above).

   [118] Primary decision [1111(1)]; consolidated BB 1.

2. Order 1(b) required Mr Poliwka and FWA to pay Girgis Nominees $782,847.79 plus interest in respect of:[119]

   1.$725,000 in advances to Girpol for the Bankwest loan ([63] above); and

   2.$57,847.79 as to recovery costs against Girpol ([91(1)] above).

   [119] Primary decision [1111(2)]; consolidated BB 1.

3. Order 1(c) required Mr Poliwka and FWA to pay Girgis Nominees $394,550.42 plus interest in respect of the tenancy of the Joondalup property (which is not a subject of the appeal).[120]

   [120] Consolidated BB 1 - 2.

The assessment of damages in the supplementary decision

1. The supplementary decision dealt, relevantly, with the quantification of the Girgis parties' loss in respect of the net advances prior to 30 June 2010 of $610,000.

2. The only substantial asset of the Junction Unit Trust, of which Girgis Nominees and FWA each held 50% of units (see [47] above), was the Midland Hotel.[121]  The mid-2010 value of the Hotel did not exceed $1.73 million.  A forced sale of the Midland Hotel would not have realised sufficient net proceeds to meet the ME Bank $1.956 million loan.[122]  The Junction Unit Trust was unable to make any substantial payment to the Bold Gem Unit Trust or Girpol.[123]

   [121] Supplementary decision [39], [43].

   [122] Supplementary decision [40] - [42].

   [123] Supplementary decision [43].

3. Bold Gem's available assets (ignoring the valueless debt owed by the Junction Unit Trust) were valued at $173,036.[124]  Its liabilities were $2,485,603, which would result in a return (allowing for realisation costs) of 5 cents in the dollar.[125]

   [124] Supplementary decision [46].

   [125] Supplementary decision [47].

4. Girpol's available assets (ignoring the valueless debt owed by the Junction Unit Trust) were valued at $773,270.  Its liabilities were $3,601,719, which would result in a return (allowing for realisation costs) of 20 cents in the dollar.[126]

Supplementary orders made on 18 September 2019

[126] Supplementary decision [49] - [50].

1. Order 1(a) required Mr Poliwka and FWA to pay Mr Girgis $14,250 plus interest in respect of his $15,000 advance to Bold Gem (being a loss of 95 cents in the dollar allowing for a 5 cents in the dollar recovery from Bold Gem).[127]

   [127] Supplementary decision [51(2)]; consolidated BB 330.

2. Order 1(b) required Mr Poliwka and FWA to pay Girgis Nominees $476,000 plus interest in respect of $595,000 in advances to Girpol (being a loss of 80 cents in the dollar allowing for a 20 cents in the dollar recovery from Girpol).[128]

   [128] Supplementary decision [51(1)]; consolidated BB 330.

The appeals and cross-appeals

The appeals by the Poliwka parties

1. There are two appeals - CACV 79 of 2019 and CACV 120 of 2019.  CACV 79 of 2019 concerns an appeal against the orders made pursuant to the primary decision.  CACV 120 of 2019 concerns an appeal against the orders made pursuant to the supplementary decision.  The Poliwka parties originally advanced six grounds of appeal.  Grounds 3 ‑ 6 were abandoned prior to the appeal hearing.[129]

   [129] Appeal ts 2.

2. The Poliwka parties' remaining two grounds in each appeal may be summarised as follows.

3. The judge erred at [39] - [40] and [43] of the supplementary decision in assessing the value of the Midland Hotel as at 30 June 2010 at only $1.73 million, and thereby erred in concluding that the Junction Unit Trust was unable to make any substantial payment to Girpol as at 30 June 2010 when:

   1.its value was substantially higher than that; alternatively

   2.on the evidence, the value of the Midland Hotel could not be ascertained and the Girgis parties had failed to discharge their onus of proving that the Junction Unit Trust was unable to make any substantial payment to Girpol or that Girpol was unable to pay the Girgis parties.

The Girgis parties' cross-appeals

1. By their cross-appeal in CACV 79 of 2019, the Girgis parties challenged the judge's findings that (1) advances made after 30 June 2010 were not caused by Mr Poliwka's delinquent conduct, and (2) in selecting 30 June 2010 as the date on which the value of the advances was to be assessed.  There are three grounds in the cross‑appeal.  Grounds 1 and 2 allege error with respect to causation in the same terms, save that ground 1 refers to misleading or deceptive conduct and ground 2 refers to negligence.  In substance, the grounds are to the following effect:

   1.The judge erred in fact and law in finding[130] that, but for one exception, Mr Poliwka's misleading or deceptive conduct and negligence were not causative of losses suffered by the Girgis parties in respect of advances made after 30 June 2010 towards the Midland Hotel and Pub business (grounds 1 and 2). 

   2.The judge erred in fact and law at [1069] of the primary decision in considering that the relevant date for assessing the extent to which advances made by the Girgis parties towards the Midland Hotel and the Pub business had any value to the Girgis parties was 30 June 2010, when he ought to have found that the relevant date for assessment was as at September 2012 (ground 3).

   [130] Primary decision [1081], [1114] respectively.

2. Ground 1 of the Girgis parties' cross-appeal in CACV 120 of 2019 is, in substance, predicated on success on ground 3 in CACV 79 of 2019 (referred to in [105.2]).  The Girgis parties contend, in effect, that insofar as this court finds in CACV 79 of 2019 that the relevant date for assessing the value of the pre-30 June 2010 advances is at a later date than 30 June 2010, then the judge erred in the assessment of damages in the supplementary decision by assessing the value of the advances as at 30 June 2010, and in making the supplementary orders of 18 September 2019.

3. Ground 2 of the Girgis parties' cross-appeal in CACV 120 of 2019 is predicated on success of grounds 1 and 2 in CACV 79 of 2019 (referred to in [105.1]).  The Girgis parties contend, in effect, that insofar as this court finds in CACV 79 of 2019 that Mr Poliwka's misleading or deceptive conduct and negligence were causative of losses suffered by the Girgis parties in respect of advances made after 30 June 2010 towards the Midland Hotel and Pub business, then the judge erred in not awarding judgment in relation to these advances, valued as at September 2012 or at some other point up to September 2012.

Substantive issues

1. The substantive issues arising for this court's determination in the appeals and cross-appeals are:

   1.Did the judge err in concluding that the net sale proceeds of the Midland Hotel as at 30 June 2010 would not have realised sufficient proceeds to meet the ME Bank loan?[131]

   2.Did the judge err in concluding that Mr Poliwka's misleading/negligent conduct did not cause Mr Girgis to continue to make advances to Girpol and Bold Gem after 1 July 2010?[132]

   3.Did the judge err in determining the notional value of the debts arising from the pre-30 June 2010 advances as at 30 June 2010, rather than as at September 2012, or as at some other date between 30 June 2010 and September 2012?[133]

   [131] Supplementary decision [42].

   [132] Primary decision [1081], [1114].

   [133] Supplementary decision [33].

2. Issues 2 and 3 are related and it is convenient to deal with them first.  They will be referred to as the 'Causation Issues'.  The first issue, which will be referred to as the 'Midland Hotel Valuation Issue', will be addressed subsequently.

3. Neither the judge nor the parties in this appeal (or apparently below) sought to distinguish between the different statutory iterations in respect of misleading or deceptive conduct and damages pleaded by the Girgis parties.[134] For present purposes, it is sufficient to refer (as the parties did) to s 52 and s 82 of the TP Act.

   [134] As to which, see primary decision [64].

The Causation Issues

The judge's findings

1. The judge summarised (without apparent criticism in the appeals or cross‑appeals) what his Honour described as a number of well‑established principles that apply to the award of damages for contravention of a statutory provision of misleading or deceptive conduct.[135]  The judge further said:[136]

   [135] Primary decision [1046].

   [136] Primary decision [1056], [1059], [1063] - [1064], [1066], [1071] ‑ [1073].

   I appreciate that there was a purchase in the present case.  Girgis Nominees acquired the Sunriver shares and units.  But this was not the basis on which loss was claimed.  The loss claimed - relevantly - is in respect of the [Girgis parties'] advances to Girpol. 

   …

   The contravening conduct consisted of Mr Poliwka's misleading or deceptive representation.  This only spoke as at the time of the October 2008 transactions.  The representation was as to having conducted due diligence investigations and being satisfied with the findings … Nevertheless, it should be appreciated that the misleading or deceptive conduct occurred at a time when the renovations to the Midland Hotel had not been completed and the Pub business was not operational.  There was scope for the misleading or deceptive conduct to continue in operative effect until the Pub business recommenced in operations and the inadequacy of Mr Poliwka's due diligence investigations became manifest in the ongoing performance of the Midland Hotel and Pub business.

   …

   Insofar as the claimed loss concerns advances to meet the ongoing costs of the operations of the Pub business it is useful to consider the position which prevails in the analogous situation of claiming trading losses.  In that respect Martin CJ stated in Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd (No 2):

   '[W]here a determination as to the period over which the opportunity of alternative investment was lost has to be made, the time at which the party claiming damages became aware of the true position will be relevant.  It is also relevant when assessing the extent to which such a party can claim continuing trading losses or reduced profitability after becoming aware of the true position.  In that context, it has been held that the capacity to claim such losses does not cease immediately the innocent party becomes aware of the true position - rather, the question is: at what point of time, after becoming aware of the true position, would it be reasonable for the innocent party to put an end to the suffering of loss by disposition of the business?'

   The Chief Justice went on to explain that, if trading losses could not be characterised as losses incurred over the period of reasonable retention before and after knowledge of the true position, then the losses were properly characterised as independent, extrinsic, supervening or accidental and fell outside the scope of the losses for which the contravener was responsible.

   …

   Some advances are obviously causally connected to the contravening conduct.  Whether the necessary causal connection exists becomes more problematic with the passage of time.  This is so for two reasons.  First, it is impossible to accept as a matter of apparent logic that the [Due Diligence representations] continued in operative effect throughout the four year period that is the duration of the claim.  That proposition is simply not objectively rational.  That is all the more so when the due diligence statements spoke as to a particular point in time.  Second, with the passing of time Mr Girgis became concerned with the performance of the Pub business.  Mr Girgis was concerned that the business was struggling and was uncomfortable with the lack of return.  Mr Girgis raised those concerns with Mr Poliwka.  In addition, as a director of Bold Gem Mr Girgis knew that the Pub business was not trading profitably.  That was manifest in Bold Gem's financial statements (to which Mr Girgis had access as a director of Bold Gem).  At some point the inadequacy of Mr Poliwka's due diligence investigations must have become apparent to Mr Girgis with the continuing losses being derived by the Pub business.

   …

   By analogy with the accepted position on trading losses, there comes a point where the true position was apparent to Mr Girgis.  There may then be compensable loss to the extent that it was reasonable to continue to fund before - as Mr Girgis eventually did in September 2012 - putting an end to the suffering of loss by ceasing to fund.  After all, on Mr Girgis' case on the counterclaim (one that I accept below) he was not obliged to continue to fund the ongoing costs of operations where Girpol was suffering ongoing losses.  This necessarily means that advances - and losses sustained in relation to advances - which were made after it was no longer reasonable to fund are not compensable.  Such advances were not caused or materially contributed to by the misleading or deceptive [Due Diligence representations].  They are properly characterised as independent or extrinsic.  They occur by or because of Mr Girgis' willingness to continue to fund the operations of the Pub business despite the inadequacy of Mr Poliwka's due diligence being apparent through the need to continue to fund its ongoing losses.

   Counsel for the [Girgis parties] sought to answer this by submitting that the [Girgis parties] were locked into and unable to extract themselves from the Midland Hotel and the Pub business.   The reality is otherwise.  Mr Girgis' actions in September 2012 demonstrate that he was able to bring an end to the continuation of advances to fund the operations of the Pub business.

   It is, however, necessary to determine the point at which the contravening conduct is no longer causative.  Advances beyond that point will not be allowed as damages caused or materially contributed to by the misleading or deceptive [Due Diligence representations].  (emphasis added)

2. The judge continued:[137]

   [137] Primary decision [1079] - [1081], [1090], [1098].

   I have concluded that, by the end of February 2010, Mr Girgis was aware that the trading performance of the Pub business was inconsistent with Mr Poliwka having done adequate due diligence investigations into the Midland Hotel and the Pub business.  The Pub business had then traded unprofitably for a year.  More than six months had passed since Mr Caporn had departed the business and Mr Girgis and Mr Poliwka (through their respective entities) had taken over the conduct of the Pub business.  The unprofitable operations could no longer be assigned to start-up or Mr Caporn's management and business plan.  The unprofitable performance was due to something more.  Mr Girgis himself had voiced concerns about the Pub operations since mid to late 2009 and apparently had reservations from as early as March 2009.  As at the end of February 2010 recognition had occurred as to the unsatisfactory performance of the Pub business.  At that time Mr Girgis was aware that the trading performance of the Pub business was inconsistent with Mr Poliwka's representation as had been relied on in entering into the investment.

   I accept that it was reasonable to make some further advances after that time.  By analogy with the trading losses cases it was reasonable to make some advances pending investigation of options before bringing an end to continued funding.  However, in my opinion, a reasonable period for continued advances was no more than four months.  That was the approximate period between the commencement of Mr Hart's investigations into Mr Girgis' finances (mid-April 2012) and the last of the advances made by Mr Girgis in the usual run of things (24 August 2012).

   Accordingly, I am satisfied that there was a causal connection between the misleading or deceptive [Due Diligence representations] and the advances made up to 30 June 2010.  Those advances were caused or materially contributed to by the contravening conduct.  But, with one exception, I am not satisfied that Mr Poliwka and FWA are responsible for losses suffered in relation to post-30 June 2010 advances.  From 1 July 2010 the contravening conduct as established ceased to be causative and had no continuing operative effect on Mr Girgis' further funding of the ongoing losses of the Pub business.

   …

   At this point - having identified the potential compensable losses - I should revisit the parties' debate as to the rule in Potts v Miller and the Astonland measure.  In quantifying the damages to be awarded I should consider the extent, if any, to which the debts due by Girpol and Bold Gem had a value which ought to be taken into account and allowed for against the advances.  This is not an exercise in assessing whether the [Girgis parties] failed to mitigate their loss by not taking proceedings against Girpol and Bold Gem (they eventually did) or taking proceedings too late.  There was no plea by way of defence that the [Girgis parties] failed to mitigate their loss and no attempt to discharge the [Poliwka parties'] onus of proof in respect of a claim of failure to mitigate.  The issue is not one of mitigation but rather proof of loss.  In claiming, by reference to the advances as made, the full amount of the advances, the [Girgis parties] implicitly contend that the loan amounts were without value.  To the extent, if any, the advances had value at the relevant time for assessment of loss that should be taken into account in quantifying the allowable damages in respect of the loss.

   …

   I have decided that I should value the pre-1 July 2010 advances as at 30 June 2010.  The court is not limited to the approaches in Potts v Miller or Astonland and some point other than completion of the transaction or trial may be more appropriate for the assessment of loss.  30 June 2010 is the point at which, for the reasons I have given, further advances by or on behalf of Mr Girgis were no longer attributable to the contravening conduct.  It also represents a time at which Mr Girgis could have taken the action he later took in 2012.  Knowing of the continued unprofitability of the Pub business Mr Girgis could have brought the funding to an end and commenced proceedings to recover the advances to that point.  Had that occurred I am reasonably satisfied that the events which occurred in 2014 and following - the eventual external administration of the entities and the forced sale of the Midland Hotel - would instead have occurred at an earlier time.  (emphasis added)

The parties' submissions

1. The parties' submissions canvassed the relevant High Court cases on the question of causation for the purposes of s 82 of the TP Act. There appeared to be little, if any, divergence in the parties' submissions as to the statements of the relevant principles. The differences arose more in their application. The authorities are discussed in the next section of these reasons.

The Girgis parties' submissions

1. The Girgis parties submitted that, in assessing damages for misleading or deceptive conduct, a court should make an assessment which conforms to the remedial purpose of the statutory provision.  Principles of common law, relevant to assessing damages in contract or tort, are not directly in point, although they may provide useful guidance.[138]  Questions of remoteness and contributory negligence are distinct from causation.  There is nothing in the common law or in the policy of the statutory provisions for misleading or deceptive conduct that supports a conclusion that the Girgis parties' damages should be reduced because the loss could have been avoided by the exercise of reasonable care on the Girgis parties' part (although that question may be relevant for causation if it was the sole cause of part of the loss or damage).[139]  

   [138] Respondents' written submissions on the cross-appeal, par 11; CACV 79 of 2019, WB 36.

   [139] Respondents' written submissions on the cross-appeal, par 14; CACV 79 of 2019, WB 36 - 37. 

2. In this context, the Girgis parties submitted, in effect, that the judge erred in concluding that the advances made by or on behalf of Mr Girgis after 30 June 2010 were not caused by the misleading or deceptive conduct because:

   1.It involved a 'value judgment' and/or a finding of failure to mitigate loss, which are principles that do not apply to misleading and deceptive conduct.[140]

   2.Questions of reasonableness would only be relevant to a defence of mitigation of damages in a claim for tort or breach of contract which was not pleaded.[141]

   3.The judge erroneously, and speculatively, treated Mr Girgis' termination of the Girpol joint venture and the liquidation of the investments following the retainer of Mr Hart as his independent financial adviser in 2012 as evidence of what a reasonable person in Mr Girgis' position would have done in February ‑ June 2010.  However, what Mr Girgis or a reasonable person in his position would have done in February ‑ June 2010, including having regard to Mr Girgis' then contingent liability to ME Bank in the sum of $1.95 million, had not been litigated.[142]

   [140] Respondents' written submissions on the cross-appeal, pars 12 - 15, 24; CACV 79 of 2019, WB 36 ‑ 37, 40.

   [141] Respondents' written submissions on the cross-appeal, par 15; CACV 79 of 2019, WB 37, referring to primary decision [1090], [1096]. 

   [142] Respondents' written submissions on the cross-appeal, pars 15 - 21; CACV 79 of 2019, WB 37 - 39; appeal ts 26, 29, 30, 33, 38 ‑ 39, 68.

3. The Girgis parties submitted, in effect, that causation had been established in circumstances where the parties were in a joint venture involving Girpol, in the context of a relationship in which Mr Poliwka was Mr Girgis' adviser, where there was a significant imbalance between Mr Poliwka and Mr Girgis in terms of general commercial experience as well as their respective property investment experience, understanding and expertise, and where Mr Girgis effectively remained under the guidance and influence of Mr Poliwka.[143]

   [143] Respondents' written submissions on the cross-appeal, par 22; CACV 79 of 2019, WB 39 - 40; appeal ts 25, 31, 33, 38 - 39.

4. They submitted that insofar as the general law principle of remoteness of damage has application in the context of the operation of s 82 of the TP Act, the losses suffered by Mr Girgis by making advances after 30 June 2010 were within the reasonable contemplation of the parties as flowing from the misleading or deceptive Due Diligence representations.[144]

   [144] Respondents' written submissions on the cross-appeal, par 23; CACV 79 of 2019, WB 40.

5. In substance, the Girgis parties relied on the same arguments in support of the proposition that the value of the advances, both prior to and subsequent to 30 June 2010, ought to have been assessed as at September 2012, the time that Mr Girgis actually stopped funding, and not as at 30 June 2010.[145]

   [145] Respondents' written submissions on the cross-appeal, pars 29; 32; CACV 79 of 2019, WB 42 ‑ 43.

6. The Girgis parties' submissions on causation in relation to negligent misrepresentation effectively relied on the same matters advanced by them in connection with the misleading or deceptive conduct cause of action.[146]

   [146] Respondents' written submissions on the cross-appeal, par 28; CACV 79 of 2019, WB 42.

7. In oral submissions, counsel for the Girgis parties sought to contend that they challenged the judge's finding of fact that Mr Girgis knew of the inaccuracy of the Due Diligence representations by February 2010.[147]  It is unnecessary to elaborate on the submission.  It is sufficient to note, at this juncture, that the finding was not challenged in the grounds of appeal, and no mention of it was made in the extensive written submissions of the Girgis parties.  It does not arise for consideration.

The Poliwka parties' submissions

[147] Appeal ts 25, 70 - 73.

1. The Poliwka parties, in effect, adopted the judge's reasoning and contended that the judge was correct to adopt 30 June 2010 as the relevant cut‑off date, and to regard losses represented by advances made after that date as referable to independent, extrinsic or supervening causes.[148]  The advances were not made at the Poliwka parties' request; rather, the Girgis parties 'were merely meeting an ongoing requirement [under the Girpol shareholder agreement] that each contribute, as a matter of fact'.[149]

   [148] Appellants' written submissions on the cross-appeal, pars 18 - 21; CACV 79 of 2019, WB 53. 

   [149] Appellants' written submissions on the cross-appeal, par 9; CACV 79 of 2019; WB 50 - 51.

2. The Girgis parties' decision to continue making advances with the ongoing Pub business when they knew of the misleading representation was aptly characterised by the judge as 'independent or extrinsic'.[150]

   [150] Appellants' written submissions on the cross-appeal, par 11; CACV 79 of 2019; WB 51, with reference to primary decision [1071].

3. The issue was, as stated by s 82(1) of the TP Act, what loss or damage did the Girgis parties suffer by relying on the Poliwka parties' conduct in making the representation. That loss or damage was that they entered into and completed the purchase of the Midland Hotel and Pub business and assumed the ongoing burden of making advances for renovations and for the operation of the Pub business while at least they were ignorant of the misrepresentation.[151]

   [151] Appellants' written submissions on the cross-appeal, par 12; CACV 79 of 2019; WB 51, with reference to Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) [2019] FCAFC 167; (2019) 272 FCR 373 [96].

4. Pleaded or not, the issue of a failure to mitigate goes to causation.  The common law rule found 'an echo in the way in which the causes of loss were identified' in claims under the statutory regime.  That kind of loss is caused by the Girgis parties' lack of care, rather than the impugned conduct.[152] 

   [152] Appellants' written submissions on the cross‑appeal, par 13; CACV 79 of 2019, WB 52.  Reference was made to Western Australia v Bond Corporation Holdings Ltd (1991) 28 FCR 68, 82; AJ Thompson Pty Ltd v KLK Manufacturing Pty Ltd (1986) ATPR 40-718, 47,887, affirmed in Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233; Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193, 243; Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182 [47]; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 [108], [111], [119].

5. The Poliwka parties submitted that when someone is induced to purchase an unprofitable business by misleading conduct, trading losses after the point at which a reasonable person would have taken steps to rescind, or at least to cease incurring further loss, are non‑recoverable.[153] 

   [153] Appellants' written submissions on the cross-appeal, par 18; CACV 79 of 2019, WB 52 ‑ 53.  Reference was made to Bateman v Slatyer (1987) 71 ALR 553, 567 ‑ 568; Paper Sales (Aust) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142, 53,055; Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904 [41] ‑ [44]; Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183; (2009) 261 ALR 179 [118].

6. The Poliwka parties also contended that if there was any onus placed on them with respect to mitigation, that onus was discharged by the evidence and findings that the Girgis parties knew or ought to have known by February 2010 that Mr Poliwka's Due Diligence representations were misleading, and that they elected, beyond a reasonable time, to go on making the advances.[154]

   [154] Appellants' written submissions on the cross-appeal, par 19; CACV 79 of 2019, WB 53.

7. The Poliwka parties submitted that in the present case, as demonstrated by the unilateral decision by Mr Girgis in 2012 to cease making advances, the Girgis parties were able to terminate the advances as soon as they became aware of the misleading conduct.  The Girgis parties did not require the cooperation of the Poliwka parties to terminate funding, and there was no other impediment to doing that.[155]

   [155] Appellants' written submissions on the cross-appeal, par 20; CACV 79 of 2019, WB 53.

8. The Poliwka parties submitted that, in negligence, only reasonably foreseeable losses caused by the negligence are recoverable.  A distinction can be drawn between acts or events which occur in the ordinary course by reason of the risk arising from a person's act, and those which transform the outcome of the person's conduct into something of far greater consequence not readily foreseeable by that person.  It was submitted that the latter break the chain of causation between conduct and loss.[156]  A fall in the value of an asset by a supervening cause such as 'folly, error or misfortune of the purchaser' is not caused by the fraud or negligence of the tortfeasor.  Where a person trades unreasonably, those losses are a result of the person's supervening conduct rather than the deceit.[157]  

Quantification of loss

[156] Appellants' written submissions on the cross-appeal, par 22; CACV 79 of 2019, WB 53 - 54.

[157] Appellants' written submissions on the cross-appeal, par 23; CACV 79 of 2019, WB 54.  Reference was made to Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215, 222.

1. In the cross-appeal in CACV 120 of 2019, the Girgis parties relevantly seek orders that:[158]

   (a)Mr Poliwka and the Poliwka Group be ordered to pay Mr Girgis damages in the amount of $541,124.11, plus interest; and

   (b)Mr Poliwka and the Poliwka Group be ordered to pay Girgis Nominees damages in the amount of $47,778.50, plus interest.

   [158] Respondents' orders wanted; CACV 109 of 2019, WB 84.

2. Broadly, the amounts claimed by the Girgis parties in [129](a) and [129](b) above are calculated as follows: the value of the pre-30 June 2010 advances (recalculated as at 30 June 2012) plus the advances made after 30 June 2010 (calculated as at 30 June 2012) less the amount of damages awarded in the supplementary orders of 18 September 2019 in respect of the pre-30 June 2010 advances assessed as at 30 June 2010.[159]

   [159] Respondents' table titled 'Calculations for Cross-Appeals in CACV 79/2019 and CACV 120/2019' sent to the court and served on 2 November 2020 (Respondents' Table). It is not clear however, on the Girgis parties' calculations in the Respondents' Table whether a deduction has been made for interest previously awarded by the judge in the orders of 18 September 2019.

3. In the appeal, the Girgis parties calculate the total amount of pre-30 June 2010 and post-30 June 2010 advances made by Mr Girgis as $620,350. This amount is comprised of:[160] 

   (a)$100,000 of advances to Bold Gem (comprising $15,000 advanced pre-30 June 2010 and $85,000 advanced after 30 June 2010); and

   (b)$520,350 of advances to Girpol (advanced after 30 June 2010).

   [160] Respondents' written submissions on the cross-appeal, par 8; CACV 109 of 2019, WB 75; Respondents' Table.

4. The Girgis parties calculate the total amount of advances made by Girgis Nominees as $595,000 in advances to Girpol (advanced pre-30 June 2010).[161]

   [161] Respondents' Table.

5. The Girgis parties submit that applying the judge's reasoning and methodology in the supplementary decision to the accounts for the financial year ending 30 June 2012:[162]

   (a)each advance to Bold Gem had a value of 2.69 cents in the dollar; and

   (b)each advance to Girpol had a value of 11.97 cents in the dollar.

   [162] Respondents' written submissions on the cross-appeal, pars 14 - 22, 25; CACV 109 of 2019, WB 76 - 80, 81 with reference to the judge's reasoning at supplementary decision [38] - [50]. 

6. The Girgis parties contend that, having regard to the accounts for the year ending 30 June 2013, the recoverable value of the advances as at 30 September 2012 would be even less than those amounts as at 30 June 2012, but are content to apply the 30 June 2012 figures.[163]

   [163] Respondents' written submissions on the cross-appeal, pars 18, 21, 25 - 26; CACV 109 of 2019, WB 78, 79, 81.

7. The Poliwka parties' submissions in respect of the cross-appeal in CACV 120 of 2019 are premised on the court accepting that the judge undervalued the Midland Hotel (the subject of the Midland Hotel Valuation Issue).[164]

   [164] Appellants' written submissions on the cross-appeal, pars 25 - 32; CACV 109 of 2019, WB 96 - 98.

8. At the appeal hearing, senior counsel for the Poliwka parties was asked about whether he was able to comment on the amounts calculated by the Girgis parties in their written submissions on the cross-appeal in CACV 120 of 2019.  Senior counsel said:[165]

   I can't answer that finally. We've just been looking through a transcript to – that is, the second transcript to just check those off. I'm sure that I would ask the court to accept the advances as being accurately assessed by our learned friend, but with the reservation that if, for example, we had a different view, we could take that up with him immediately after making the (indistinct) assessment today, and hopefully provide a joint note to the court. But on first - - -

   …

   I'm sorry that we haven't made that final calculation. But we do have a calculation - we've made other calculations, of course, in relation to the - the point that we make in relation to the - the damages point that is ours we say that improvements [to the Midland Hotel] should be - should have been taken into account, and we've made the calculations on two bases in relation to that as well. But again, we could provide those at the same time.

Legal principles

[165] Appeal ts 63.

1. For present purposes, s 82(1) of the TP Act relevantly provided:

   (1)A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

2. The TP Act is a fundamental piece of remedial and protective legislation which gives effect to matters of high public policy.  It is to be construed so as to give the fullest relief which the fair meaning of its language will allow.[166]

   [166] Marks [99].

3. In Marks, Gummow J observed:[167]

   Section 82 has at least five discrete elements. First, it identifies the legal norms for contravention of which the action under the section is given. Secondly, it identifies those by and against whom that action lies. Thirdly, the section specifies the injury for which the action lies as the suffering of loss or damage. Fourthly, it stipulates a causal requirement that the plaintiff's injury must be sustained 'by' the contravention. Finally, the measure of compensation is 'the amount of' the loss or damage sustained.

   [167] Marks [95].

4. Loss or damage is the gist of the statutory cause of action for which s 82(1) of the TP Act provided.[168]

   [168] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 525.

5. By describing the subject matter of recovery as 'the amount of the loss or damage' in s 82(1), the legislature has marked out the measure of damages.[169]

   [169] Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410, 418.

6. The word 'by' in s 82(1) expresses the notion of causation, without defining or elucidating it.[170] The question of causation is to be determined in accordance with the scope and purpose of s 82 of the TP Act. The general law's 'common sense' concept of causation is relevant insofar as it is understood and applied in accordance with the scope and purpose of s 82.[171]  In Travel Compensation Fund v Tambree, Gleeson CJ said:[172]

   [I]t is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found.

   [170] Wardley (525).

   [171] Marks [109]; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 [95]; Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627 [28] ‑ [30], [49]; cf Wardley (525).

   [172] Tambree [30].

7. The objects of the TP Act indicate that a court should strive to apply s 82 in a way that promotes competition and fair trading, and protects consumers.[173]

   [173] Henville [96].

8. For there to be a necessary causal relationship between a contravention of s 52 of the TP Act and loss or damage, so as to satisfy the requirements of s 82(1), it is not essential that the contravention is the sole cause of the loss or damage. It is enough that the contravention is a cause, in the sense that it has materially contributed to the loss or damage suffered.[174]

   [174] Henville [14], [61], [106], [109]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 [57], [62].

9. In particular, there is nothing in s 82(1), in other provisions of the TP Act or in the policy of the TP Act, to suggest that a plaintiff's carelessness may be taken into account to reduce the amount of the loss or damage which the plaintiff is entitled to recover under s 82(1).[175] The relief under s 82, for breach of s 52, is not restricted to the astute and intelligent, or those who have taken steps to protect themselves against such conduct.[176]

   [175] I & L Securities [50]; Henville [13], [66], [140], [153], [165].

   [176] Henville [13]; Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 [66].

10. Thus, in the case of misleading conduct by misrepresentation, the plaintiff's lack of care in making reasonable enquiries to ascertain the true position does not break the chain of causation for the purposes of s 82 of the TP Act.[177]

    [177] Burke [66]; Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302, 308 ‑ 310; Sutton v AJ Thompson (240 - 241); Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, 136 ‑ 138; Sharpe v Ramage (1995) 12 WAR 325, 328.

11. In the context of misleading conduct by misrepresentation, acts done by the plaintiff in reliance upon the misrepresentation constitute a sufficient connection to satisfy the concept of causation under s 82(1) of the TP Act.[178]  Where reliance on the false representation is alleged, the issue is whether the misleading or deceptive conduct alleged continues to be operative in fact.[179]  Thus, where the plaintiff alleges that it was induced by the defendant's misrepresentation to enter into a contract, actual knowledge of the true position the subject of the misrepresentation, at the time of entering into the contract, would, at least ordinarily, preclude a finding of reliance, and thereby causation.[180]  On the other hand, mere constructive notice would not preclude such a finding if it were otherwise available.[181]

    [178] Wardley (525).

    [179] Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, 559.

    [180] Gould v Vaggelas (236) (point 3); Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601, 611 ‑ 612.

    [181] Henjo Investments (559 ‑ 560); Collins Marrickville (611 ‑ 612); see also Obacelo Pty Ltd v Taveraft Pty Ltd (1986) 10 FCR 518, 532.

1. Ultimately, each case will turn on its own facts.  As the emphasised passage from Murphy quoted at [153] above illustrates, where the inquiry concerns whether the plaintiff has acted reasonably in incurring further loss after appreciating the true position, it is necessary to have regard to all of the circumstances of the case including the personal circumstances of the plaintiff, in the context of the situation in which the plaintiff was placed by the misleading or deceptive conduct. If the causal link between injury and contravention is established for the purposes of s 82, the measure of the compensation is the amount of the loss or damage sustained by the plaintiff, not some lesser amount.[205] 

Disposition

[205] I & L Securities [50].

1. The central question, in substance, is whether the judge erred in finding that the losses incurred on the funding advances made after 30 June 2010 were not caused by the misleading Due Diligence representations within the meaning and scope of s 82 of the TP Act. There is no dispute (and, indeed, it was Mr Girgis' case at trial[206]) that Mr Girgis was legally entitled to terminate the Girpol shareholder agreement if Girpol was suffering ongoing losses.  Also, it is not in dispute that Girpol incurred losses from the date of the acquisition of the Midland Hotel and the Pub business in October 2008 through to February 2010 (and beyond).

   [206] Primary decision [108], [1182].

2. The Girgis parties would not have acquired the shares in Bold Gem and Sunriver, acquired units in the relevant unit trusts or entered into the shareholder agreement had they not relied on Mr Poliwka's misleading and deceptive statement as to his due diligence investigations.  Prima facie, the loss which they have suffered by that misleading and deceptive conduct is the net loss of money invested to purchase and continue the operation of the businesses. 

3. Money was not advanced by Mr Girgis after the end of February 2010 because he continued to believe in the truth of the representation that Mr Poliwka had 'done' his due diligence and 'it all looks good'.  However, by the end of February 2010 the Girgis parties had already invested in, and incurred substantial contingent liabilities in respect of, the Midland Hotel and the Pub business.  In our view, the misleading and deceptive conduct will have caused the loss resulting from advances reasonably made after February 2010.  However, it will not have caused loss resulting from advances which were unreasonably made at a point in time when it would be reasonable for the Girgis parties to have brought an end to the suffering of loss and ceased funding (with the result that the businesses would be wound up).

4. That is, in our view, the appropriate measure of damages is, broadly speaking, unrecouped amounts which the Girgis parties invested in the Midland Hotel and the Pub business, other than amounts which were invested unreasonably after the falsity of Mr Poliwka's representations was apparent.  That is consistent with the approach taken by Vaughan J.

5. Adopting and adapting the language of the High Court in Murphy[207] to the circumstances of this case, for the purposes of s 82 of the TP Act the question ultimately becomes whether it was unreasonable for the Girgis parties to advance money to the businesses from 1 July 2010 to September 2012. That is, was it reasonable for Mr Girgis to continue performing his obligations under the shareholder agreement relating to the joint venture company, Girpol, rather than terminating it with effect from 30 June 2010 and thereupon liquidating his investments in the Pub business and the Midland Hotel? If it was unreasonable for Mr Girgis not to terminate the shareholder agreement in respect of the joint venture company, Girpol, by 30 June 2010, that point would mark the outer limit of the period for which Mr Girgis would be exposed by the misleading or deceptive conduct to the obligation to continue funding under the shareholder agreement. Mr Girgis would not have acted reasonably in advancing further money to the businesses after that point, and the losses resulting from advances made after that time would not be caused by Mr Poliwka's misleading and deceptive conduct.

   [207] Murphy [70].

6. In this regard, the significance of 30 June 2010, on the judge's findings, is that by 30 June 2010, Mr Girgis should have 'investigated [his] options [and brought] an end to continued funding'.[208]  The judge appears to have assumed (although there was no evidence to this effect) that had Mr Girgis appointed an external adviser to undertake investigations in the period February 2010 to 30 June 2010, Mr Girgis, or at least a reasonable person in his position, would have reached the same conclusion in mid‑2010 that Mr Girgis ultimately reached with advice from Mr Hart in 2012, namely to cease funding and liquidate his investment in the business. 

   [208] Primary decision [1080].

7. The following events, as found by the judge, are relevant:[209]

   1.Mr Hart was instructed by Mr Girgis, around March 2012, to oversee his financial situation in the businesses in which he was involved.

   2.Mr Hart conducted investigations into the Pub business and the Midland Hotel, including speaking to management and others, and obtaining specialist advice in relation to the business.

   3.Mr Hart's investigations included attending meetings to do with improving the performance of the business.

   [209] Primary decision [805] - [806].

8. Insofar as Mr Hart's investigations included considering the prospect of improving the performance of the Pub business and the Midland Hotel, it is implicit that, even in March 2012, it was not immediately apparent that liquidation of the investments was the most appropriate decision to make, rather than persevering with the assets in an attempt to turn around their commercial fortunes.

9. It was not until 4 September 2012, some six months after Mr Hart's appointment, that Mr Girgis, on Mr Hart's advice, informed Mr Poliwka that any further funding depended, amongst other things, on an 'agreed exit strategy' and that, moreover, a 'cheaper and less stressful option' would be the appointment of 'an administrator to the joint businesses'.[210]

   [210] Primary decision [811]; see [73] above.

10. In this context, the following observations, based on the unchallenged findings of primary fact, may be made:

    1.Mr Poliwka was Mr Girgis' property adviser in 2010 and up to at least mid‑2012, and he was also an adviser in other areas of investment.

    2.The investment in the Pub business and the Midland Hotel was a joint venture between Mr Girgis and Mr Poliwka, entered into by Mr Girgis, pursuant to the Due Diligence representations, against the backdrop of Mr Poliwka's role as adviser to Mr Girgis.

    3.In 2010, Mr Girgis was 26 years of age and had no real commercial experience other than pursuant to his investments in connection with Mr Poliwka; on the other hand, Mr Poliwka was the senior figure in the joint venture and had substantial business and property interests, with experience in relation to hotels.[211]  There was a 'significant imbalance' between them in terms of their experience, understanding and expertise.[212]

    [211] Mr Poliwka had interests in the Albany Hotel and the Nannup Hotel:  Primary decision [1], [141].

    [212] Primary decision [894].

    4.In June 2010 (and into early 2012), the overall commercial relationship between Mr Girgis and Mr Poliwka was a close one which was not readily disentangled, in that in addition to Girpol being the joint venture entity for the Pub business and the charter vessel business:

    (a)Mr Girgis' business structure was, itself, arranged on the advice of Mr Poliwka and his accountant, Mr Pickrell;

    (b)Mr Girgis' property trust, the Girgis Property Trust, was established on the advice of Mr Pickrell and Mr Poliwka;

    (c)Mr Poliwka was a director of the Girgis Group between March 2008 and May 2012, and Mr Pickrell was its company secretary between March 2008 and May 2012;[213]

    [213] Primary decision Glossary, consolidated BB 305.

    (d)the Girgis Group provided management services to other entities in the Girgis Group of companies, which included Girgis Nominees;[214]

    [214] Primary decision [277].

    (e)the Joondalup property had been purchased by Girgis Nominees in February 2009 pursuant to advice from Mr Poliwka,[215] and FW Realty acted as the managing and leasing agent of the Joondalup property from about February 2009 to at least September 2012;[216]

    (f)the Watermans Bay property was also purchased on advice from Mr Poliwka,[217] and was subdivided into three lots for development purposes, with the lots only being sold in or about February/March 2013;[218] and

    (g)Mr Pickrell's accounting firm, Focus Accounting, became the external accountants for Mr Girgis and entities associated with him, such as Girgis Nominees, and entities associated with both Mr Girgis and Mr Poliwka, such as Girpol, Bold Gem and Sunriver.[219]

    5.There was no express power to terminate the Girpol shareholder agreement and thereupon bring about the discontinuance of funding, and even if Mr Girgis had turned his mind to the possibility of an implied power to terminate, any implied power was no doubt contestable[220] (even though, with the benefit of hindsight, the judge accepted the existence of such an implied power).

    6.It was not immediately apparent by March 2012, let alone by early to mid‑2010, that, despite the losses, the appropriate course was for Mr Girgis to take steps to terminate the Girpol shareholder agreement and to liquidate the investments in the Pub business and the Midland Hotel. 

    7.Mr Girgis had no independent advice as to the costs and benefits of terminating the joint venture and liquidating the assets of the business in June 2010, in a context in which one of the inevitable costs of that course of action would have been to transform Mr Girgis' contingent liability to ME Bank for $1.95 million into a direct, current, liability at that time.[221]

    8.Consistently with the nature of the relationship and Mr Poliwka's role as adviser, even as late as the earlier part of 2012, Mr Girgis was raising his concerns with Mr Poliwka directly about the absence of return on his investments, rather than seeking out independent advice.[222]

    9.Any termination of the joint venture by Girpol in 2010 would undoubtedly have led to a fracturing of the overall relationship with Mr Poliwka in circumstances where it was not unreasonable for a person in Mr Girgis' position to take the view that the best chance of avoiding or at least ameliorating further loss on the investments in the longer term was to maintain the relationship.

    10.The overall relationship between Mr Girgis and Mr Poliwka first became 'less harmonious' around early 2012 and was 'soured' by around August 2012.[223]

    [215] Primary decision [696], [702].

    [216] Primary decision Glossary, consolidated BB 306 - 307.

    [217] Primary decision [696].

    [218] Primary decision [705].

    [219] Primary decision Glossary, consolidated BB 307.

    [220] As evidenced by the fact that it was contested by the Poliwka parties in the primary proceedings.

    [221] Although in the supplementary decision the judge found, in effect, that if Mr Girgis had sought to recover his advances as at 30 June 2010 from the Pub business and the Midland Hotel, his returns would have been very limited, the supplementary decision proceeded on the basis that advances after 30 June 2010 were not caused by the misleading/negligent conduct and assumed a notional realisation of the assets at that time.  The supplementary decision was not directed to the question of whether, looking at the position prospectively as at 30 June 2010, it was unreasonable for Mr Girgis not to have terminated the joint venture relationship between the parties at that time.

    [222] Primary decision [799], [804].

    [223] Primary decision [802], [808].

11. In our respectful view, Vaughan J erred in failing to give any or adequate weight to those matters.

12. The conclusion to be drawn from the foregoing is that it was reasonable, in the context of the scope and purpose of s 82 of the TP Act, for Mr Girgis to have continued to perform the shareholder agreement concerning Girpol after 30 June 2010. It was reasonable for him not to have terminated the shareholder agreement and taken steps to liquidate his investments in the Midland Hotel and the Pub business at that time. The circumstances are markedly differently from the typical 'trading loss' cases referred to by the judge.[224]  In those cases, typically, the parties are at arm's length as vendor and purchaser respectively, the purchaser acquires the vendor's business on the strength of a representation concerning the profitability or commercial worth of the business; the purchaser, on acquisition, becomes and is solely responsible for the conduct of the business thereafter; the representation is subsequently found to be false and yet the purchaser decides to continue trading with that actual knowledge, resulting in identifiable trading losses in circumstances where those particular losses could have been avoided by the taking of reasonable alternative action by the purchaser.

    [224] Primary decision [1063] - [1064].

13. Although the judge described Mr Girgis' conduct as at 30 June 2010 as a 'willingness to continue to fund the operation of the Pub business despite the inadequacy of Mr Poliwka's due diligence being apparent',[225] the characterisation of Mr Girgis' conduct in that way is inapposite, insofar as it imputes to Mr Girgis a commercial agency independent of Mr Poliwka at the time. The better and correct characterisation of Mr Girgis' conduct is that his continued funding was the result of his acting conformably with the existing, unequal, relationship between the two parties. Putting it another way, despite having become aware of the inaccuracy of the Due Diligence representations by February 2010, it was reasonable for Mr Girgis not to terminate the joint venture and to liquidate his investments in June 2010, for the purposes of the operation of s 82 of the TP Act, in circumstances where:

    1.the parties were joint venturers rather than at arm's length in relation to the investments in the Midland Hotel and the Pub business;

    2.Mr Poliwka was Mr Girgis' adviser and, in particular, his property adviser;

    3.the parties were closely connected in a broader commercial relationship and there was no express power to terminate the Girpol shareholder agreement and thereupon bring about the discontinuance of funding;

    4.Mr Girgis' accountant (Mr Pickrell - who Mr Poliwka had introduced to Mr Girgis and who was Mr Poliwka's own accountant) could not be expected to have provided advice to Mr Girgis about terminating the joint venture and ceasing funding, even if Mr Girgis had asked him;

    5.there was no evidence that such a course of action would have been recommended to Mr Girgis had he sought independent external advice at the time; and

    6.it was not immediately apparent by March 2012, let alone by early to mid - 2010, that, despite the losses, the appropriate course was for Mr Girgis to take steps to terminate the Girpol shareholder agreement and to liquidate the investments in the Pub business and     the Midland Hotel.

    [225] Primary decision [1071] (emphasis added).

14. The judge also said that 'the issue [was] not one of mitigation but rather proof of loss', in that the Girgis parties 'implicitly contend[ed] that the loan amounts were without value'.[226]  However, the framing of the issue in that way reflected his Honour's finding on causation.  If it were reasonable for the Girgis parties not to have terminated the shareholder agreement with respect to Girpol by 30 June 2010, the basis for determining the value of the pre‑30 June 2010 advances as at that date falls away.

    [226] Primary decision [1090].

15. The above observations focus on the performance of Mr Girgis' obligations under the Girpol shareholder agreement in funding Girpol.  Overwhelmingly, the advances made after 30 June 2010 were made to Girpol.  There were, however, three advances to Bold Gem in that period.[227]  The proper inference is that these three advances were made directly to Bold Gem rather than via Girpol in satisfaction of Mr Girgis' obligations to fund Girpol under the Girpol shareholder agreement.  These advances should be treated in the same way as the advances made to Girpol in this period.[228]

    [227] Primary decision [800].

    [228] Also, the Poliwka parties in their submissions did not distinguish, for present purposes, advances made to Girpol and advances made to Bold Gem.

16. Further to our finding of reasonableness at [176] above, in the particular circumstances of this case, it was within the scope and purpose of s 82 of the TP Act for a property adviser (Mr Poliwka) to be held legally responsible for the property investment losses suffered by the other party (Mr Girgis) acting in reliance on the adviser's misleading or deceptive conduct by misrepresentation, during the period that the latter (Mr Girgis) remained reliant on the guidance of, or was subject to the influence of, the adviser, despite the latter coming to appreciate, during the currency of the relationship,[229] the inaccuracy of the representation which materially contributed to the making of the investments in the first place.

    [229] Albeit not as the result of any disclosure by the adviser, Mr Poliwka.

17. In light of the foregoing, prima facie losses on all advances made by the Girgis parties up to the point at which Mr Girgis stopped funding after taking independent advice, in September 2012, were caused by the misleading or deceptive conduct.  That finding should be made.  Further, the Poliwka parties did not contend in written or oral submissions that if the Girgis parties succeeded in establishing that the judge erred in finding that losses on advances after 30 June 2010 were irrecoverable, there was nevertheless some other date, after 30 June 2010 and before September 2012, after which it was unreasonable for Mr Girgis not to have terminated the Girpol shareholder agreement, stopped funding and liquidated his investments.

18. Accordingly, losses on all advances made by the Girgis parties up to September 2012 ought to have been assessed as at September 2012.

19. For these reasons, ground 1 of the cross-appeal in CACV 79 of 2019 should be upheld.  It is unnecessary to deal with ground 2 of that cross‑appeal relating to the cause of action in negligence.  The reasoning referred to above also applies to ground 3 of the cross‑appeal in connection with the misleading or deceptive conduct cause of action.  The advances prior to 30 June 2010 and the advances after 30 June 2010 ought to have been valued as at September 2012.  The appeal in CACV 120 of 2019 should to this extent (relating to the claims for misleading and deceptive conduct), and correspondingly, be allowed.

The Midland Hotel Valuation Issue

1. It follows, from the allowance of the cross‑appeals as indicated above, that the appeals, relating to the Midland Hotel Valuation Issue, fall away.  However, in case a different view ought to have been reached on the cross‑appeals, it is appropriate to consider the merits of the Midland Hotel Valuation Issue.  We will do so on the assumption that we are incorrect in our view that the cross-appeals should be allowed, and that Vaughan J did not err in concluding that that Mr Girgis should have terminated the Girpol shareholder agreement, stopped funding and liquidated his investments by the end of June 2010.

Mr Cameron's valuation

1. Mr Cameron, an expert valuer called by the Girgis parties on an aspect of their non‑disclosure case which failed,[230] valued the Midland Hotel using the capitalisation method by reference to its capacity to earn rental income.[231]  He also had regard to what he considered to be comparable market evidence.[232]  The valuation was undertaken as at October/November 2008, immediately prior to the renovation work.[233]  Mr Cameron said (in a passage quoted by the judge in the primary decision):[234]

   Theoretically, the assessed Market Value prior to the renovations being undertaken is a conceptual 'starting Market Value'.  Once the renovations have commenced the Market Value could potentially decline below this starting value due to the property and buildings being rendered 'non-functional' and uninhabitable due to this partially renovated state; and then theoretically progressively increase in value as: the renovations works physically progress; the building contract proceeds towards completion; and as capital is progressively spent/invested on the Buildings.

   Consequently, with the information available we are only able to assess the likely 'starting Market Value' immediately prior to the renovation works having commenced, given the absence of any building contract amount; value of works completed at the Dates of Valuation (ie drawdown progress payment certificates); and estimated cost to complete the renovation works.

   [230] Primary decision [595] - [597].

   [231] Mr Cameron's report, pars 17.0, 17.1; consolidated GB 353 - 355.

   [232] Mr Cameron's report, pars 16.0, 17.0; consolidated GB 339 - 354.

   [233] Primary decision [581] - [582].

   [234] Mr Cameron's report, par 17.1; consolidated GB 354; primary decision [583].

1. Mr Cameron concluded that the market rental value of the Midland Hotel was $160,000 per annum net of outgoings and GST.  He adopted a capitalisation rate of 9.25%, giving a capitalised market value of $1.73 million.[235]

   [235] Mr Cameron's report, par 17.1; consolidated GB 356 - 357.

2. Mr Cameron noted that his valuation reflected market conditions as at the date of valuation, but said that the valuation:[236]

   does not contemplate a 'forced sale' of the property, reflecting circumstances where a seller is under compulsion to sell and/or a proper marketing period is not available.  The price obtainable under a Forced Sale situation may not satisfy the definition of Market Value.

   [236] Mr Cameron's report, par 3.0; consolidated GB 321.

3. In the 'SWOT Analysis' part of his report (Strengths Weaknesses Opportunities and Threats), Mr Cameron noted:[237]

   1.under 'Opportunities', that the refurbishment of the tavern and effective management may increase trading levels and thereby enhance the capital value of the property; and

   2.under 'Threats', that:

   (a)as with any trading property, trading levels and profitability of the going concern can fluctuate significantly due to a range of factors, including the quality of management, new trading competition, substantial renovation of competitor properties, changes in consumer trends, and changes in economic conditions;

   (b)the refurbishment works to the Hotel might not result in a fundamental and commensurate financial increase in the trading profile or profitability of the Hotel's business, in which case there would be no flow‑on increase in the market rental value of the premises and thereby in the capital value of the land and buildings of the Hotel; and

   (c)economic volatility in international markets as a consequence of the Global Financial Crisis could have a detrimental impact on the Australian and local economies to the detriment of the trading property's financial performance.

   [237] Mr Cameron's report, par 1.3; consolidated GB 315.

4. For the purposes of his report, Mr Cameron assumed an average competent standard of management expertise of the business and a competent standard of property management of the land and buildings.[238]

   [238] Mr Cameron's report, par 1.3; consolidated GB 314.

5. The judge said in the primary decision, with reference to Mr Cameron's evidence:[239]

   [239] Primary decision [586] - [589].

   Mr Cameron proceeded to conduct a conventional and, in my opinion, correct analysis of the market value of the Midland Hotel based on it being used as a trading tavern (assuming renovation had not commenced).  Mr Cameron described this as a 'capitalisation' method.  It did, however, involve as a cross-check consideration of a direct comparison as to rent and the historical arms-length passing rent of the property under a prior lease.

   Mr Cameron ignored the Bold Gem lease given that it was not negotiated at arms' length.  Mr Cameron assessed past trading performance to determine estimated maintainable turnover and net operating profit.  Based on this, having compared a basket of rental and sales evidence as to turnover, profits, rent and yields - assessing comparability based on location and the nature of the property - Mr Cameron formed as view as to likely market rent ($160,000 per annum, ie approximately 6.5 per cent of turnover and 42.5 per cent of net operating profit).  To this Mr Cameron applied a yield rate of 9.25 per cent to arrive at the $1.73 million. 

   No contradictory expert evidence was presented.  Mr Cameron's justification for his approach - both in his expert report and in cross‑examination - was confident and compelling.  No error in methodology or application was exposed.  Accordingly, I accept Mr Cameron's evidence.

   I therefore accept Mr Cameron's evidence that - subject to two important provisos that follow - the market value of the Midland Hotel as at 23 October and 1 November 2008 was $1.73 million.  This, however, is subject to two limitations:

   (1)First, this assessment of value is only as to the market value of the Midland Hotel as a trading tavern.  Accordingly, it is not a comprehensive assessment of actual market value given Mr Cameron's acceptance of an alternate highest and best use as a long term redevelopment site.

   (2)Second, this assessment is on a basis as if the renovation of the Midland Hotel had not commenced.  But it is common ground that the renovation had commenced and was partially complete.  Accordingly, the evidence cannot be accepted as establishing an actual market value as at the relevant date - even if only assessing market value of the property as a trading tavern[.]  (original emphasis)

The judge's findings in the supplementary decision

1. The judge made, relevantly, the following findings in the supplementary decision:[240]

   [240] Supplementary decision [38] - [44].

   1.The only significant asset of the Junction Unit Trust was the Midland Hotel.  Other assets were immaterial. 

   2.The book value of the Midland Hotel was approximately $3.2 million, in the accounts of the Junction Unit Trust for the year ended 30 June 2010.[241]

   3.The only expert valuation evidence at trial was that of Mr Cameron (called by the Girgis parties) who valued the Midland Hotel as at October/November 2008.[242]  Mr Cameron valued the Midland Hotel as a trading tavern, prior to its renovations, and valued it at $1.73 million.  There was no evidence of the Hotel's value as a redevelopment site. 

   4.In circumstances where the Pub business was unprofitable, it is unlikely that in mid‑2010, the Midland Hotel was worth more than Mr Cameron's valuation of $1.73 million, particularly in the counterfactual context of a forced sale.

   5.The book value of the Hotel in the accounts as at 30 June 2010 was accordingly substantially overstated.

   6.The amount due to ME Bank (the secured creditor with security over the Midland Hotel) was $1.956 million.  A forced sale of the Midland Hotel, which would have occurred on a realisation of the assets as at 30 June 2010, would have been insufficient to repay the loan to ME Bank.

   7.The Junction Unit Trust was unable to make any payment to either the Bold Gem Unit Trust or Girpol.

Poliwka parties' submissions

[241] The accounts are at consolidated GB 440 - 453.

[242] Mr Cameron's report is at consolidated GB 307 - 406.

1. The Poliwka parties' submissions were, in substance, to the following effect:

   1.In the financial statements of the Junction Unit Trust for the year ended 30 June 2010, the Midland Hotel had a book value of (approximately) $3.2 million, which took into account the value of the renovations.[243]  The judge accepted other entries in the financial statements of the Junction Unit Trust, such as rent, but (wrongly) did not accept the carrying value of the Midland Hotel in the accounts of the Junction Unit Trust.[244]

   2.Mr Cameron's valuation undervalued the Midland Hotel, in that:[245]

   (a)Mr Cameron valued the Hotel as at October/November 2008 (and not June 2010), and the valuation was therefore 'stale'.

   (b)Mr Cameron's valuation excluded the value of the renovations undertaken by the parties.  The renovations post‑acquisition cost in the order of $1.04 million, and there was also evidence of renovations prior to then.

   (c)Mr Cameron's valuation took into account the change in market conditions presented by the 2008 Global Financial Crisis.  However, no evidence was put before the judge to enable him to assume that the 2008 Global Financial Crisis continued to depress values up to 30 June 2010.[246]

   3.The judge proceeded on the unnecessary assumption, at [40] and [42] of the supplementary decision, that the sale of the Midland Hotel as at 30 June 2010 would or may have been a forced sale.[247]

   4.Alternatively, even if the value of the Midland Hotel could not be found to be significantly higher than the $1.73 million attributed to it by the judge, there was, in any event, insufficient evidence to place a value on the Hotel and, accordingly, the judge was not in a position to value the Midland Hotel, and the Girgis parties had thereby failed to discharge their onus of proof.[248]

   [243] Appellants' written submissions 'Ground 1', pars 2, 3; CACV 79 of 2019, WB 9 - 10.

   [244] Appellants' written submissions 'Ground 1', par 4; CACV 79 of 2019; WB 10.

   [245] Appellants' written submissions 'Ground 1', pars 2, 5 - 6; CACV 79 of 2019, WB 9 - 10; appeal ts 4, 6 ‑ 7, 10 ‑ 11, 15 ‑ 16.

   [246] Appellants' written submissions 'Ground 1', par 6; CACV 79 of 2019, WB 10; appeal ts 10.  Reference was made to [364] and [365] of the primary decision.

   [247] Appellants' written submissions, par 7; CACV 79 of 2019, WB 10.

   [248] Appellants' written submissions 'Ground 2', pars 1 - 2; CACV 79 of 2019, WB 10.

2. The thrust of the Poliwka parties' contentions appear in the following oral submissions by senior counsel for the Poliwka parties:[249]

   So what we say that the renovation cost:  whether it - of over a million dollars, and possibly … more - … we say that it's a very sizeable cost as expressed as a proportion of the original cost of the hotel … some $3 million.

   …

   So we would say that you start with the valuation of Mr Cameron and you have to add to it … [Mr Cameron's] valuation … has to be treated as saying the value is $1.73 million plus whatever is referable to the renovations.

   …

   So our point is this:  you have two … ways of looking at value.  Mr Cameron's [value] plus renovation, or, as we put it, the book value, which stands there as prima facie evidence[.]

   [249] Appeal ts 7, 15, 17.

3. In oral submissions, senior counsel for the Poliwka parties accepted that, in general terms, the cost of improvements to a property of this nature may or may not lead to an increase in the value of the property.[250]  He also accepted that even after the refurbishment of the Midland Hotel had been completed in February 2009, the evidence was that the Hotel did not trade profitably.[251]  Counsel nevertheless returned to the theme that:[252]

   There is the simple fact that a million dollars [on renovations] is spent.  One has to grapple with that in some way, even if you were to conclude, for example, that the trading was such that it could obliterate [the value of the moneys outlaid on the refurbishment].

   [250] Appeal ts 12.

   [251] Appeal ts 13 - 14.

   [252] Appeal ts 14.

4. Senior counsel for the Poliwka parties also sought to contend in oral submissions that the judge erred in failing to provide adequate reasons.[253]  The absence of reasons was not a ground of appeal, and those submissions cannot therefore be accepted.  Even if there had been a ground of appeal complaining of adequacy of reasons, the judge's reasons in the supplementary decision were plainly adequate.[254]

Girgis parties' submissions

[253] Appeal ts 9, 17 - 18.

[254] See, generally, Joyce v Anderson [2020] WASCA 48; (2020) 91 MVR 344 [80]; Beale v Government Insurance Office (NSW) (1997) 48 NSWLR 430.

1. The Girgis parties submitted, in effect, that neither party had adduced evidence at the trial as to the value of the Midland Hotel as at 30 June 2010, as it was not known what, if any, 'cut-off' date would be applied by the judge.  The 30 June 2010 date emerged in the primary decision.[255]

   [255] Respondents' written submissions, par 19; CACV 120 of 2019, WB 53.

2. The Girgis parties broadly contended that the judge's conclusions in the supplementary decision as to the realisable value of the Midland Hotel as at 30 June 2010 were correct for the reasons that his Honour gave.  They contended, in effect, that it was open to the judge to use Mr Cameron's valuation in the way that his Honour did; that the carrying value of the Hotel in the accounts of the Junction Unit Trust for the year ended 30 June 2010 merely reflected historical cost; that expenditure on improvements in itself would not automatically produce an increase in the market value of the Hotel; and that the Poliwka parties had not challenged the findings in the primary decision, which formed the framework for the supplementary decision, that Mr Poliwka should have terminated funding by 30 June 2010, as a result of which there would have been a forced sale of the Hotel.[256]

Disposition

[256] Respondents' written submissions, pars 9 -18; CACV 120 of 2019; WB 50 - 53.

1. The appeals should be dismissed for the following combination of reasons.  First, the exercise undertaken in the supplementary decision was predicated on the finding in the primary decision (favourable to the Poliwka parties and without challenge in their grounds of appeal or in their Practice Direction 7.4 schedule[257]) that Mr Girgis should have terminated the Girpol shareholder agreement, stopped funding and liquidated his investments in June 2010.[258]  (While we have concluded that these findings were in error in allowing the cross-appeals, we are (as indicated above) dealing with the appeals on the contrary assumption.)  It is inconceivable that, in those circumstances, the secured creditor, ME Bank, would not have appointed receivers to sell the Midland Hotel.  The value of the Midland Hotel, for the purposes of the supplementary decision, was correctly predicated on a forced sale.

   [257] Appellants' Practice Direction 7.4 schedule in CACV 120 of 2019; WB 16 - 23.

   [258] Supplementary decision [13]; primary decision [1098].

2. Secondly, the point of the exercise being undertaken in the supplementary decision was to determine the realisable value of the Midland Hotel in the context of the (hypothetical) forced sale in June 2010.  Mr Cameron expressly stated that a value of $1.73 million for the market value of the Midland Hotel assumed the absence of a forced sale.  The clear inference is that a forced sale might not achieve his assessment of market value.

3. Thirdly, the book value of the Midland Hotel for the year ended 30 June 2010 in the accounts of the Junction Unit Trust provided no real guidance to its realisable value in a forced sale as at 30 June 2010.  The book value, it may be inferred, reflected the historical cost ascribed to the asset for the purposes of the accounts of the Junction Unit Trust as a going concern.[259]

   [259] See the accounts of the Junction Unit Trust Balance Sheet as at 30 June 2009 as to the carrying value of the Midland Hotel as at that date compared with its carrying value as at 30 June 2008; consolidated GB 412.

4. Fourthly, as senior counsel for the Poliwka parties recognised,[260] it could not be assumed that the renovations contributed to an increase in the value of the property, let alone an increase in value measured by the actual cost of the renovations.  The observations of Mr Cameron referred to in points 2(a) and (b) of [187] above were apt. 

   [260] See [193] above.

5. Fifthly, the Hotel in fact suffered trading losses in the period after the completion of the renovations through to 30 June 2010.  The evidence of actual trading losses subsequent to Mr Cameron's date of valuation (October/November 2008) was not taken into account by Mr Cameron in assessing a market value of $1.73 million as at October/November 2008.  It was open to the judge to take into account evidence of actual trading losses subsequent to the renovations on the question of whether and to what extent the renovations had contributed to the profitability of the Hotel's operations and, hence, its value as a trading tavern as at 30 June 2010.

6. Sixthly, whilst there was no direct valuation evidence of the realisable value of the Hotel as at 30 June 2010 in a forced sale, that reflected the way in which the court, and the parties, approached the supplementary decision.  The judge found, in the primary decision, that the notional valuation of the pre‑30 June 2010 advances should be determined having regard to the financial statements of Girpol and the relevant trusts, and 'any other potentially relevant evidence as was adduced at trial'.[261]  That included Mr Cameron's evidence.  Neither party sought to adduce additional valuation evidence as at 30 June 2010 for the purposes of the supplementary decision.

   [261] Primary decision [1099].

7. Seventhly, it was open to the judge to have regard to Mr Cameron's evidence with respect to value as at October/November 2008, and to take into account any material circumstances potentially affecting value in the period October/November 2008 to 30 June 2010 - relevantly, trading losses in the context of the renovation work undertaken. Indeed, the Poliwka parties' written submissions to the judge,[262] and their submissions in the appeals,[263] assumed that the evidence of value as at October/November 2008 in Mr Cameron's report could be used, in conjunction with an assessment of evidence as to the impact of the renovations after October/November 2008, to infer a realisable value of the Hotel as at 30 June 2010.  There is no basis for a contention to the effect that the judge did not have evidence from which to infer a realisable value of the Hotel as at 30 June 2010, and that the Girgis parties had thereby failed to prove their loss.

   [262] Defendants' outline of submissions on the questions of assessment and costs filed pursuant to order 3 made 2 July 2019, par 5(b); consolidated BB 593.

   [263] See [192] above.

8. Finally, Mr Cameron's observation referred to in point 2(c) of [187] above was a broad observation to the effect that the Global Financial Crisis may have consequences for the local economy and the businesses operating within it, including the Midland Hotel as a trading operation. There is no basis for inferring that the observation ceased to have any significance as at 30 June 2010. In any event, it was not a point that was taken by the Poliwka parties in their submissions to the judge,[264] and ought not be allowed to be taken now.

   [264] See defendants' outline of submissions on the questions of assessment and costs filed pursuant to order 3 made 2 July 2019; consolidated BB 592 - 594.

9. In summary, there is no error in the judge's findings and reasoning summarised in [190] above.  There is no merit in the appeals and they should be dismissed.

Conclusion

1. The Girgis parties have succeeded in the cross-appeals as indicated above.  The Poliwka parties have failed in their appeals.

2. The parties' submissions as to quantum in assessing the recoverability of the advances as at September 2012 have been referred to in [129] to [136] above.  The utilisation of the judge's approach in the supplementary decision to assessing value as at September 2012, having regard to the assets and liabilities as at 30 June 2012 as disclosed in the accounts (rather than 30 June 2010) is correct in principle.  The court has not been informed as to whether any issue has been taken with the Girgis' parties' calculations as foreshadowed by senior counsel for the Poliwka parties in the exchange referred to in [136] above.

3. The parties should be heard as to final orders conformably with these reasons. 

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

DM

Associate to the Honourable Justice Murphy

25 FEBRUARY 2021