Walker v Richards

[2002] QDC 170

DISTRICT COURT OF QUEENSLAND

CITATION:	Walker v Richards & Ors [2002] QDC 170
PARTIES:	RICHARD ELLIS WALKER Plaintiff -v- MARK CAMERON RICHARDS TRADING AS MC RICHARDS & ASSOCIATES Defendant and VICCA MILLIGAN (A FIRM) First Third Party and SOUTHERN CROSS INVESTMENT GROUP PTY LTD ACN 061 773 493 Second Third Party and MARTIN JOSSELYN Third Third Party and MARK BORRILL Fourth Third Party and ALIANZ AUSTRALIA INSURANCE LIMITED ACN 000 122 850 Fourth Party
FILE NO/S:	D 4064 of 2000
DIVISION:	Civil jurisdiction
PROCEEDING:	Action for damages for professional negligence
ORIGINATING COURT:	Brisbane
DELIVERED ON:	7 May 2002
DELIVERED AT:	Brisbane
HEARING DATE:	18, 19,20, 21, 22 March 2002
JUDGE:	Boulton DCJ
ORDER:	Judgment for Plaintiff against the Defendant for $165,967 with costs
CATCHWORDS:	PROFESSIONAL NEGLIGENCE – solicitor – client purchaser of CBD hotel units – 7% rental “guarantee” from tenant company
COUNSEL:	Mr S Couper QC with Mr M Burnett for the plaintiff; Mr D Clothier for the defendant; Mr DD Bates for the second, third and fourth third parties
SOLICITORS:	Quinn & Scattini for the plaintiff; Phillips Fox for the defendant; Freehills for the second, third and fourth third parties

1. This action arises out of two contracts entered into by the plaintiff to purchase units in a hotel development in the Brisbane CBD.  The contracts were signed by the plaintiff on 6^th August 1997 following a meeting with the defendant.  He was a solicitor who gave legal advice concerning the contracts.

1. The plaintiff is a civil engineer by profession.  He has been employed by Thiess Contractors since about August 1996 and has been based during that period in Jakata, Indonesia.  He also has a family residence at Brookfield in Brisbane.

1. In mid 1997 his wife, Bronwyn, told him of an investment seminar being conducted by the second third party to these proceedings.  She attended such a seminar in early July 1997 and came into contact with Martin Josselyn, the third third party, who took a leading part in presenting the seminar.  She had some general discussions with Mr Josselyn.  She was also provided with brochure material which is set out in the plaintiff’s booklet of documents, Exhibit 4.

1. The plaintiff returned to Australia in early August 1997 and he and his wife had a meeting with Mr Josselyn where further discussions took place about purchasing two units in the Radisson Hotel development which was then only at planning stage.  Arrangements were made for a series of meetings to be held between the Walkers and some professional advisers on 6^th August 1997.  The first of these was with a Mr Schroeder of Southern Cross concerning availability of finance.  The second meeting was with the defendant, a solicitor, who was to take the Walkers through the transaction details and the contract documents which were then signed at the conclusion of the meeting.  The third was with Kirsty Trasseler of an accounting firm, Vicca Milligan, the first third party, with a view to obtaining taxation advice.  Lastly there was a meeting with a Delma from Garrisons Insurance Advisers to assess insurance coverage. 

1. An allegation in the defence at paragraph 8.9.2(c) that the defendant expected at the time of the meeting that the plaintiff would receive later accounting advice on the prudence of the investment was not pursued at trial.  The defendant conceded that there was no such expectation.

1. I might observe at this point that the defendant’s third party proceedings against the second, third and fourth third parties were settled immediately prior to the commencement of the trial before me which began on 18^th March 2002.  The proceedings against the first third party and the fourth party were not pursued before me.  Mr Bates, who appeared for the second, third and fourth third parties was given leave to withdraw from participation in the trial which then concerned only the principal action between the plaintiff and the defendant.

1. The principal action, therefore, hinges on the meeting between the  Walkers and the defendant on 6^th August 1997.  That meeting is estimated by the Walkers to have lasted 40-45 minutes.  The defendant estimates about an hour and a quarter but nothing would seem to turn on the precise length of the meeting.

1. I might mention also that in the course of the trial expert evidence was given by two prominent solicitors, Mr Gregory and Mr Lemass, concerning the professional duty of solicitors in such circumstances.  There were some minor differences of opinion between Mr Gregory and Mr Lemass but as far as the principal thrust of their evidence was concerned they were in agreement.  This is not a case which will depend on a fine analysis of a solicitor’s duty. 

1. It is sufficient to note that Mr Lemass in his report Exhibit 11 commenting on Mr Gregory’s report Exhibit 1, commented on  paragraphs 1(f), (g), (h) as follows:

“1(f)     ...
I agree with Mr Gregory that if the proposed tenant was likely to be a corporate entity without real substance, it would be imperative for a reasonably competent solicitor acting for a purchaser to advise that person of that fact and of the risks associated with that fact.
....”

“1(g)     With respect to clause 1(g) of Mr Gregory’s report, I agree that a reasonably competent solicitor should have advised purchasers that there were no guarantees from any third party and that the absence of any personal guarantees should have been noted. 
....”

“1(h)      Mr Gregory, in clause 1(h) of his report, states that inquiries should have been made with respect to the proposed management structure of the operator and the extent to which at all the operator (Radisson) proposed to guarantee liabilities.

Mr Gregory states that a reasonably competent solicitor ought to have advised that in the absence of documentation to the contrary it should have been assumed that Radisson would not be liable to purchasers for rent or other sums due under the lease of their units.  As stated above, I agree that advice should have been given to purchasers to the effect that no guarantee was to be provided of the lessee company’s obligations under its lease.  That includes the fact that no guarantee was to (be) provided by Radisson. 
...”

Mr Gregory also states :

“In addition I believe that such a solicitor would have advised a prospective buyer that in the absence of evidence that the tenant was the owner of other assets or had substantial reserves that the tenant would be unlikely to be able to make rental payments as and when they fell due if the operator of the hotel/serviced apartments terminated its arrangement with the tenant unless and until a substitute operator could be found and engaged. 
...”

“As to the first part of this statement, I agree that a reasonably competent solicitor would have advised to the effect that if the lessee company did not have substantial assets then it is likely that it depended on fees from the operator to pay the rent under the leases.  Such a practitioner would also have advised to the effect that if the fees from the operator ceased it is likely that the rent under the leases would not be paid.”

1. The abovementioned issues which are therefore not in contention are the ones which lie at the heart of this case.  The central issue then is one of credit where the plaintiff bears the onus of satisfying me on the appropriate standard of the defendant’s failure to warn the plaintiff of such serious deficiencies in the structure of the development.  The defendant says that he gave quite pointed warnings concerning such matters but this is denied by the Walkers. 

1. I also mention in passing the observations made in the Full Court of Queensland in Willcox v Sing (1983) 2 Qd. R. 66 concerning the standard of proof to be applied in cases of professional negligence and the authorities there referred to. This is an application of the Briginshaw v Briginshaw principle referred to by Mr Clothier in his written submissions. The application of such a standard of proof is unexceptional.

1. Further by way of preliminary comment it is worth noting that the various third parties have not been heard during the trial.  There has been no opportunity, therefore, for them to address criticisms both express and implied concerning their behaviour which emerged in the course of the evidence.  This case is concerned solely with resolving issues between the plaintiff and the defendant.

Events Prior to the Meeting of 6^th August

1. I have already made some mention of contacts between the Walkers and Southern Cross prior to the meeting.  I accept that they were provided with the promotional material contain in Exhibit 4.  I am satisfied that the Walkers were misled in both the oral communications at seminars and by the brochure material as to the shape and security of the investment.  The written material outlined in para. 7 of the Amended Statement of Claim makes it devastatingly obvious that the Walkers were repeatedly told of a “secure 7% net guaranteed rental” for the first five years of their investment and that they were also given to understand that the involvement as manager of Radisson Hotels Inc. was secure.  The investment was described as “highly competitive”, “an attractive investment option” and “a high return, minimal exposure investment”.

Mrs Walker

1. Mrs Walker made no claims to business expertise.  It would be fair to say that she was approaching the interview with the defendant on a more personal, intuitive level reacting positively to statements of the defendant that he was acting solely on their behalf, that he wanted some clauses of the contract altered in their favour and that he considered it a good investment.

The Plaintiff

1. Her husband, though, while not a lawyer was no stranger to business.  I accept his evidence that he had earlier owned a unit in Sydney and appreciated what strata titling involved.  I am satisfied that he came to the meeting believing that there was a 7% net guaranteed rental for five years, that the entity behind the guarantee was Radisson International and that Radisson was contractually bound to manage the hotel.

The Defendant’s State of Knowledge

1. A matter of considerable importance concerns the defendant’s state of knowledge of the marketing of the development by Southern Cross and of the true situation concerning the matters I have mentioned viz. the structure of the development, the rental guarantee etc.

1. Mr Richards gave evidence of having attended a Southern Cross seminar in late 1996 after having been introduced to Mr Josselyn at Vicca Milligan’s office in the November.  In early 1997 he was invited by Mr Josselyn to attend a seminar as a participant.  Along with others he would be called down at the end of the seminar to answer questions that members of the audience might have.  He attended the Radisson seminars which began in about July 1997.  He saw promotional material lying about but denied reading it.

1. On 6^th May 1997 he had written to Lees Marshall and Warnick, the solicitors for Southern Cross describing himself as “one of the outside consultants” for the Radisson Hotel project.  On 26^th May 1997 having earlier received a copy of the contract, he had a detailed conversation with Mr Potts, the solicitor handling the development about the contract terms.  Amongst other things he was told:

(i)There would be no guarantees by the directors of 570 Queen Street Pty Ltd or from Radisson;

(ii)The involvement of Radisson was by means of a licence agreement with 570 Queen Street Pty Ltd.            He was refused a copy of that licence agreement;

(iii)Rental would be paid by 570 Queen Street 21 days in arrears at the end of each month.  A request to change that to rental in advance was refused;

(iv)There was a provision that the name of the building could be changed in the event that Radisson was “not there at the end of the day”.

1. Mr Richards said that he prepared a summary of the contract which is Document 4.1 in the smaller bundle of documents Exhibit 5.  There were several versions of the summary as time passed.  He made the summary available to Southern Cross, Vicca Milligan and others.  He also claims to have given a copy of the contract summary to the Walkers at the meeting of 6^th August 1997.

The Defendant’s Account of the Meeting of 6^th August 1997

1. Mr Richards gave a very lengthy and detailed account of his meeting with the Walkers in evidence in chief.  It takes up some 28 pages of transcript.  Much of it is non-contentious but some salient and controversial features of his evidence are as follows:

(i)He made written notes and drew diagrams at the meeting to illustrate features of the transaction.  These notes are 5.11 in the defendant’s bundle of documents Exhibit 5.

(ii)He placed a second copy of the contract between Mr and Mrs Walker as he proceeded through his copy to explain the terms of the contract.

(iii)        He provided a copy of the contract summary to Mrs Walker.

(iv)He explained that at settlement the vendor was obliged to give a lease and that lease was with 570 Queen Street Management.  It was that lease which was giving the 7% return.  It was a leaseback not a guarantee.  570 Queen Street management was an entity related to the vendor.  The purchasers did not have a lease with Radisson.  He denied saying that the lease provided the purchaser with a 7% guaranteed rent. 

(v)He explained that the vendor could change the name of the building because “the operator (Radisson) might not be there at the end of the day”.

(vi)In relation to Clause 30 he asked if Southern Cross had actually represented anything to Mr Walker in respect to the development.  Mr Walker never stopped him or said anything in response.  He then proceeded without giving any advice on the Clause.

(vii)He explained that the vendor could appoint an operator other than Radisson and that Radisson’s involvement was conditional on pre-sales by March 1998.

(viii)He interrupted his explanation of the contract to explain the management structure of the lease arrangement using the sheet which was part of 5.11 in Exhibit 5.  As part of this he again pointed out that Radisson might not be there, that their relationship was not with Radisson but with the tenant and that there was no guarantee.

(ix)He discussed a “worst case scenario – that Radisson might “go bad” – that another operator might be required – that the tenant might default in payments of rent – that the tenant probably was a $2 or $4 company and that its surplus of assets over liabilities was questionable”.

1. With the possible exception of (vi) above, all of the abovementioned accounts are vigorously denied by Mr Walker.  Mr Richards denies having told the Walkers in response to a question from Mrs Walker that he thought it was a good investment. 

The 7% Rental Guarantee

1. Mr Richards was asked by Mr Couper as to whether Mr Josselyn had mentioned a 7% rental guarantee:

“Can I ask you this – and please think carefully – do you recall Mr Josselyn in respect of the rent proposed to be paid at the Radisson using the terms ‘rent guarantee’, ‘guaranteed return’ or ‘guaranteed rent’ at any stage?--  He may well have.  He may well have used those words. 

He did, didn’t he?  He did?--  Okay, he did then.

Not ‘may well have’, you know he did, don’t you?--  No, I cannot recall specifically that he did, but he may well have.”

1. A short time later he referred to a specific incident where he had corrected Mr Josselyn who had said there was a rental guarantee.  He told Mr Josselyn that it was a leaseback arrangement.  Just leaving aside the adequacy of that answer, he was asked by Mr Couper:

“Just so I am clear, you say that after you had this conversation with Mr Josselyn, you told him there wasn’t a rental guarantee,  at seminars he still referred to the existence of the rental guarantee so far as Radisson was concerned?--  He may well have.

That caused you no concern?--  Oh, in retrospect, no, not particularly, in the sense that I had in my mind that when I was referred clients I would refer them to it and make sure that they understood.”

1. Mr Richards was indeed setting himself a demanding task to be fulfilled in the space of his interview with clients.  It was necessary for him to go through the documentation which was very extensive.  He must have been aware of the possibility if not the probability that clients would have quite unrealistic and unduly optimistic expectations as a result of the Southern Cross marketing.  It would have required very blunt warnings to have shaken them out of their misconceptions.  Yet when Mr Richards was asked about Clause 30.4, the clause dealing with representations the following passage occurs:

“You didn’t need to ask Mr Walker if there had been representations by Southern Cross, you knew there had been; correct?--  Sure.

And you knew that those representations would have been of significance to any normal purchaser; correct?--  Correct.  However, I explained to the client the risks involved.

Did you explain to the client the risk involved in  signing a contract in which he acknowledged there had been no representations when you knew there had been?--  No.  I didn’t – like I said, I didn’t go into detail in respect to that specific clause.

Why not?--  Because I didn’t.”

The Defendant’s Diagrams

1. A good deal of reliance was placed by the defendant upon the diagrams 5.11 in Exhibit 5.  As schematic drawings these are by no means masterpieces.  Their value in the defendant’s case is that they can be construed to support in certain respects the evidence given by the defendant concerning the interview. 

1. There is, however, nothing on the face of the diagrams to link them with the Walkers’ interview.  There is only the say-so of the defendant that they were placed on the plaintiff’s file.  Mr Walker is emphatic that no diagrams were produced.  The drawings might well have derived from some interview other than the one with the Walkers or may have been produced at some other point of time altogether.  I do not accept that the proposed amendments to the contract which are referred to in the diagrams are shown to be unique to the plaintiff.  Having regard to Mr Walker’s evidence of the August 6 meeting which was quite compelling and to some events which occurred in late 1999 to which I am about to turn which also loomed very large in the defendant’s case I am very distrustful of the defendant’s evidence concerning the diagrams.  I much prefer Mr Walker’s evidence on the point. 

Defendant’s Letter to the Plaintiff of 23^rd September 1997

1. The defendant wrote a letter to the plaintiff dated 23^rd September 1999 in which he made a number of assertions as to having warned the plaintiff on a number of crucial issues at the meeting of 6^th August 1997.  It is common ground that this letter was sent and was received by Mr Walker.  Mr Walker’s failure to make bitter complaint at the time was urged strongly as a reason for accepting that the warnings were in fact given. 

1. It came out in cross-examination that this letter had been through a number of drafts.  A first draft in the defendant’s handwriting is Exhibit 14.  Far from saying “there is no rental guarantee” it contains the following:

“... the rent guarantee is by way of lease to 570 Queen Street Management Pty Ltd with Radisson as operator of the hotel complex.”

1. Mr Richards’ claimed that he was merely throwing down words on paper and that when dictating the draft he would have corrected inaccuracies.  This view suffered a drastic setback when he was promptly confronted with the typed draft which is Exhibit 15 which contains exactly the same wording. The same words recur in a later draft Exhibit 16.  It is only in the next draft Exhibit 17 that the wording was changed in Mr Richards’ handwriting to what was contained in the ultimate letter of 23^rd September 1999.

1. This was at a time when Mr Richards was concerned about payment of rent.  On the same day he wrote a letter, Exhibit 18, to Lees Marshall and Warnick enquiring as to whether their client would “have in place a fund in respect of the rental guarantee”. 

1. I note further that the letter of 23rd September 1999 failed to mention that the defendant told the client on 6^th August 1997 that Radisson had no obligation to support payment of rental.  There is no mention of the management company being a $2 company with questionable assets.  Indeed, the statement of there being “no guarantee per se” is rather coy and is buried underneath a mass of detail concerning settlement. 

1. Mr Richards also said that on receiving the subsequent telephone call from Mr Walker on 22^nd October 1999 he immediately took control of the conversation.  He held out hopes to Mr Walker that a solution might be found under the Managed Investment Act leading Mr Walker to think that he was active on his behalf.  In the circumstances the reference to the Managed Investment Act was quite spurious.  Actually Mr Richards had been informed by Lees Marshall and Warnick by letter of 6^th October 1999 that no fund under the Managed Investment Act would be established.  At the meeting of 14th October 1999 attended by Mr Richards he had been again informed that the vendor had an exemption under the Act.  A mere assertion that “funding was in place to cover the rental return” was plainly unsubstantiated.

1. In all the circumstances the letter of 23^rd September 1999 to the plaintiff and other purchasers of units does not assist the defendant.  I find that it was a deliberate attempt on the defendant’s part to manufacture a piece of evidence in order to forestall later claims.

Fraud

1. The defendant’s counsel submits that this is really a case of fraud – that telling the plaintiff of a guaranteed 7% net return was tantamount to fraud.  There is some ambiguity though as to what the term “rental guarantee” was meant to convey.  The defendant was still using this term as late as November 1999 in communication with clients and the developer’s solicitors.

1. The defendant well knew that there was no guarantee in the legal sense of third parties of substance standing behind the obligation of the tenant to pay rent.  It does not seem that he ever informed the plaintiff specifically piror to September 1999 of the existence or non-existence of such a structure.  It would seem that at least on occasions he used the term in a sense of a safe, binding, contractual obligation on the part of the tenant to pay rent at 7%.  His alleged response to Mr Josselyn that there was no guarantee but that there was a leaseback would be one such instance.  In the contract summary which I find was not shown to the plaintiff prior to the signing of the contract he refers to “the guaranteed return of 7% being by way of the lease.” 

1. His explanation of this to Mr Couper is quite unsatisfactory:

“Let’s start with the sentence, ‘The guaranteed return of 7 per cent is by way of the lease.’  That was patently misleading, was it not?--  No, I don’t believe that to be the case.

Your view was there was no guaranteed return; correct?--  That’s right.

Well, how could you then say that the guaranteed return is by way of the lease?--  Well, it’s italicised, so that if people thought it was guaranteed return, then I am saying it is by way of lease.

To make it something less than misleading, you ought to have said that the tenant is a $2 company with no assets, should you not?--  In retrospect I could have said things in a different way, yeah, I could have, but at the time I didn’t think I was misleading anyone or not informing someone.  In fact, I thought the opposite.  I thought I was making it clear.”

1. It is not necessary for me to find that he deliberately set out to defraud the plaintiff.  It is sufficient that I find that his explanations were hopelessly inadequate and misleading.

Misleading or Deceptive Conduct

1. The situation for the defendant gets even worse.  He knew from a letter of ASIC to Mr Marshall of 17^th September 1993, Exhibit 20,  that there was an obligation that each promoter of a scheme, regardless of an exemption, not engage in misleading or deceptive conduct.  Despite the fact that he knew that Southern Cross had engaged in such conduct he did not draw this avenue of possible redress to the attention of his clients.  His explanation was that because he had advised his clients on the contrary view prior to signing the contracts they were “stymied on that point”.  Mr Couper asked:

“Did you give any of your clients the benefit of your process of reasoning that but for your advice they might have had a release from the contract for misleading conduct?--  No, I didn’t.

Why not?--  Because I didn’t.  There was no – I didn’t. That’s all I can say is I didn’t.”

1. Mr Couper rounded off the topic by asking:

“Can you offer any reason why you didn’t draw to the attention of any of your clients even the faint potential that they might have an avenue of relief from this contract?--  Because I didn’t.  I didn’t look at it in those terms.  I keep on saying that.”

1. Mr Richards’ multiple attempts at deception in late 1999 go merely to credit.  The crucial issue in the case concerns the meeting of 6^th August 1997.  I have already pointed out that Mr Walker, despite his business background, was under serious misapprehension – largely it seems as a result of the Southern Cross marketing seminars and promotional material – concerning the rental guarantee and the part to be played in the management of the hotel by Radisson.  Repeated warnings of the kind mentioned by Mr Richards would have come as a huge shock if they had in fact been given.  I accept Mr Walker’s evidence that the warnings were never given and if they had been he would not have signed the contracts.  I find that Mr Richards made no effort to apprise the Walkers of the fact that there was no guarantee either in the strict legal sense or in the colloquial sense that the rental was  certain to be paid.  He did not warn the plaintiff of the uncertainty of the link with Radisson nor did he explain the absence of connection between 570 Queen Street Management Pty Ltd and Radisson and the dubious financial viability of the former company.  When asked by Mrs Walker he described the development as a good investment.

1. I find it unsurprising that the plaintiff’s notes in his diary of the interview are very sketchy.  The volume and complexity of documentation being shown him would have made it difficult if not impossible to take comprehensive notes even if they had been thought desirable.

1. I do not accept though that the plaintiff’s inability to recall the details of the contract can be relied upon to support an inference that he simply has no memory of the warnings given by the defendant.  The plaintiff had no preconceptions about the former but he did in respect of the security of the investment and the involvement of Radisson in the management of the hotel.  It was entirely legitimate for him to entertain such beliefs.  If he had been challenged expressly on these issues it is inconceivable that he would have meekly accepted them without question.

1. It may well be the case that Mrs Walker reminded the plaintiff at a later point of time of her inquiry of the defendant as to whether it was a good investment.  Discussions between husband and wife would have been inevitable.

1. The defendant claimed to have interviewed more than 30 investors in the Radisson project and to have given them all similar advice as to the risks involved in the transaction.  He was asked:

“Can I ask you this:  the clients you had, were they all referrals from Southern Cross Investments?--  Yes.

Did anybody who was referred to you fail to sign a contract after you had advised them?--  I think there might have been one, one or two, but, no, generally not.

So, more than 30 people came to you from Southern Cross, got your advice that you’ve told us about, as with Mr Walker, of the risk involved in this transaction and went ahead and signed up?--  Yes.”

1. It seems to me to be highly improbable that more than 30 investors would virtually all sign up to the contracts having been told in unequivocal terms of the serious flaws in the investment and, by implication, that they had been misled by the developer’s promotional activities.

The Defendant’s Statements

1. Before leaving the issue of liability I might make brief mention of the fact that the defendant was cross-examined concerning statements which he had used to refresh his memory prior to giving evidence. Following a request on the afternoon of 20^th March, an “expurgated” version of a 16 page unsigned statement was produced on the morning of 21^st March 2002.  It is Exhibit 22.  Mr Richards agreed with Mr Couper that as at Tuesday, 19^th March 2002 he regarded the statement as “an accurate account of his best recollection of events”.

1. The statement had some quite bizarre features in that it contained occasional references to matters which were the subject of entirely different litigation.  All this was thrown into further confusion when in response to a question concerning an omission from the statement Mr Richards replied:

“In my subsequent statement that I prepared I did”.

1. It then emerged that on the previous weekend he had prepared a 66 page statement and that it was the 66 page statement that he had read on the Tuesday i.e. the second day of the trial.  I note that this statement is not signed or witnessed and it seems to me to be likely that it was not shown to his solicitors or counsel but merely used to refresh his own memory.

1. Following the production of the 66 page statement Mr Couper took the defendant to quite significant matters where his evidence in chief differed from its contents.  Mr Richards suggested that in certain instances his recollection had improved.  A third statement actually emerged as well concerning the alleged “worst case scenario” warning which had not figured in the 66 page statement.  This statement also was not signed or witnessed and again was unlikely to have been shown to his legal advisers who assuredly would have produced it if it had been.

1. The mystery of the first statement Exhibit 22 and Exhibit 23 was never resolved.  Some solicitors’ conference notes were produced which became Exhibit 26.  These were said to relate to the conference which led to Exhibits 22 and 23 but on examination they do not conform.  They appear to relate to a conference on 20^th March 2001 some four months after the filing of the defence.  Fairly obviously the conference notes produced are not the correct ones.  They do not assist.

1. The thing that I found most curious about this exercise was that the defendant produced to the court on the Thursday morning a document with various passages blacked out from which he said he had refreshed his memory two days previously.  Within a very short time he mentioned a 66 page statement which he had prepared over the previous weekend and said that it was this statement that he read in preparation for giving evidence at the trial.

1. This contradiction was not satisfactorily explained but I am afraid that it meant very little as far as the issues in the trial were concerned.  The defendant’s credit was in tatters long before the various statements were produced.  He was completely discredited in cross examination concerning the events leading up to and including 6^th August 1997 and the events of late 1999.  His letter of 23^rd September 1999 which was written to afford protection against future claims was shown to be a fabrication.

1. On the issue of liability I find for the plaintiff. 

Quantum

1. In assessing quantum I have the benefit of four expert reports.  Two of these relate to capital loss and involve valuation evidence concerning the two units previously purchased by the plaintiff as at 28^th February 2002.  Evidence in respect of this aspect of the matter was given by Brian Joseph Smith on behalf of the plaintiff.  Mr Smith prepared a valuation report dated February 2002 which is Exhibit 3.  Mr Gordon J. Price of Knight Frank produced two valuations, one dated 30^th January 2001 and the second dated 7^th March 2002.  Those valuations are Exhibits 8 and 9. Both Mr Smith and Mr Price gave oral evidence in the proceedings.

1. I also have the benefit of two expert reports prepared by accountants as to economic loss.  The first of these is a report of Vincents Forensic Accountants dated 7^th March 2002.  That report was prepared by a Mr Mark Thompson and is Exhibit 2.  Secondly there is a report from BDO Kendalls Chartered Accountants prepared by a Mr Terence James O’Dwyer which is Exhibit 10.  Again both Mr Thompson and Mr O’Dwyer gave evidence in the proceedings.

1. The BDO Kendalls’ Report is prepared on two alternative bases.  Those alternatives were described as follows:

“1.The amount required to place him back in the position he would have been had the investment been what it was alleged to be.  This is calculated as the difference between the actual loss and the forecasts based on what was known by Mr Walker, or

2.The amount required to put him back in the position had the units never been purchased.”

1. The second of these methodologies is the one appropriate to assessment of damages in negligence and is appropriate to the circumstances of this case.  It is the approach taken by Mr Thompson in his assessment of economic loss.

1. At para. 3.5.2 Mr Thompson notes that the first methodology in the Kendalls’ report i.e. Alternative 1 ignores an important part of negative gearing strategy:

“It would appear from Kendalls’ report that they correctly understand one half of the negative gearing strategy (i.e. the creation of income tax losses).  However we note that Kendalls have made no reference to the “other half” of the negative gearing strategy (i.e. the expected benefits of the investment by way of capital gain).  We refer to the investment analysis prepared for Richard Walker and Bronwyn Walker (refer Appendix 1) and note that the properties purchased by Mr Walker were expected to have increased in value during the period to 30 June 2002 by the following amounts:

Lot 43 - $70,869

Lot 46 - $73,352”

1. When the second method adopted in the Kendalls’ report is adopted there is little difference between the quantification carried out by Mr Thompson and that carried out by Mr O’Dwyer.  The only amendment to the report of Mr Thompson that should be made arises out of a passage of cross-examination by Mr Clothier:

“... given that the capital loss of the plaintiff is being assessed as including any loss of the value of the fitout?--- yes.

That is because the unit and the fitout are being valued together, and compared with the price that was paid for them, alright?—Yes.

It would in those circumstances be appropriate, I suggest, to bring into account in your calculations the tax benefit that is derived from the depreciation of the fitout?--  The depreciation of the fitout quite rightly will be accounted for in the current valuation.  However, there will be – there is an actual cost of holding the fitout for the period of time that is held for the fitout.

I understand.  But the problem with not allowing for that is that you compensate the plaintiff, isn’t it, for the entire depreciation of the fitout?--  Yes.

The capital loss without bringing into account the corresponding tax benefit that the depreciation of the fitout gives rise to?--  Yes.

And that’s a flaw in your methodology, I suggest, because you don’t – you don’t bring into account the tax benefit from the depreciation of the fitout?--  Yes, I would concede that.

Alright.  Now, if you brought into account the tax benefit from the depreciation of the fitout, your Schedule A items would be affected, wouldn’t they? --  They would.”

1. Mr Thompson went on to say that the loss would reduce by $9,580 and that that sum would have to be deducted from the net income losses of $36,387 referred to in his report.

1. After making that adjustment the figures which I accept are as follows:

“Incidental costs of acquisition           $17,561 
  Net Income losses  $26,807
  Future losses   $7,099

TOTAL  $51,467

Capital Loss

1. I turn to the issue of capital loss where valuation evidence was provided by Mr Smith and Mr Price.

1. I accept Mr Smith’s approach which utilizes sales from within the building made to local buyers.  I accept his evidence that sales made to southern interstate buyers are out of line with the market.  He observed:

“I don’t believe that somebody living in Sydney or Melbourne is a prudent purchaser when you have evidence to the contrary from people who live in Brisbane and Queensland”.

When looked at on a square metre basis (excluding car spaces) the four interstate sales from within the building referred to by Mr Price are some 25.4% higher than the corresponding figure for sales to local buyers.

1. I also prefer Mr Smith’s approach in utilizing sales from within the building in preference to other newer unit developments in Brisbane which have not been built for hotel purposes.

1. I also accept Mr Smith’s opinion that if using a capitalization of net maintainable income as a backup to valuations from comparable sales a capitalization figure of 6-7% of the investment would be appropriate.  A purchaser of units as at February 2002 would have had no reasonable expectation of significant capital gain in the foreseeable future given the stigma associated with the failure of the initial project and the current supply of CBD units referred to by Mr Smith.

1. I accept that the preferable method of valuation in the present instance is by way of comparable sales and that resort to a capitalization method is at best a secondary check.

1. I disagree, however, with Mr Smith’s opinion of there being a significant difference in the market between January and February 2002 such as to justify the reduction he has made in the valuation of Lot 43.  The best evidence in respect of Lot 43 is the sale of Lot 33 on the 11^th Floor in January 2002 for a sum of $210,000.  That lot was identical in configuration to Lot 43.  I do not accept Mr Price’s addition of $10,000 in valuation between the units because of the difference in floor levels.  These are hotel units not residential units.  As to Lot 43 I adopt a figure of $210,000.

1. Lot 46 has an area of 88 square metres which is 9 square metres larger than Unit 43.  Lot 62 which at 72 square metres is 16 square metres smaller than Lot 46 but on a higher floor, the 16^th floor, sold for $210,000.  Lot 67, also 72 square metres but on the 17^th Floor, sold for $205,000.

1. An analysis of the costs paid per square metre in respect of the four local sales referred to by Mr Smith does not reveal any similarity.  Again leaving aside the car spaces the costs per square metre vary from $2,847 to $3,043.  It seems quite clear that recourse cannot be had in determining the value of Lot 46 with an area of 88 square metres to the application of a figure per square metre.

1. I note that the discrepancy between the purchase price of Unit 43 and that of Unit 46 was initially a mere $9,500, the difference between $270,000 and $279,500. 

1. There is, however, some unanimity in the opinions of Mr Smith and Mr Price as to the margin between the valuation of Unit 43 and that of Unit 46.  Both valuers arrive at a figure of $15,000.  I adopt a figure for Unit 46 then of $225,000. 

1. Accordingly the loss when the purchase prices of Lots 43 and 46 are brought into comparison is $114,500.

1. I give judgment for the plaintiff against the defendant in the sum of $165,967.  Unless persuaded to the contrary I propose to order that the defendant pay the plaintiff’s costs of and incidental to the action to be assessed.  I will hear submissions from the defendant and the third parties as to orders consequential on the third party proceedings.