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[2005] NSWCA 441
Court of Appeal (NSW)
2005-09-20
Hodgson JA, Santow JA, Bryson JA, Palmer J
Original judgment source is linked above.
Background on Barrington Estates Founded by Gary Blom about 6 years ago, with the purchase of Barrington Estate from Rosemount. Apparently was a messy affair. Barrington Estate is now called Yarraman Road, as it is on Yarraman Road, Wybong, in the Upper Hunter.
Gary Blom has invested a lot of money and energy into the estate, with new plantings and a new winery. The winery is modern and worth about $5M in replacement value.
The Barrington Estate property is worth about $10M in my eyes.
Gary Blom has a business, and not a wine, background. This has resulted in his approach to the business being focussed on business primarily, with wine as a secondary, albeit important, consideration. This has led to a credibility problem in the industry. However it has also resulted in perceptive assessments of the market in broad, international terms. Gary Blom is very aware of market trends, corporate plays and facts and figures.
Gary Blom then came to the realisation that medium sized wine interests like his have little future, unless they have superlative brand recognition and quality-for-price ratios. Barrington Estate failed on both accounts. This meant that Barrington Estate had the following options available, with the following likely outcomes: · Try to trade its way to better market profile and size. This would fail. · Sell out to recover funds and make a profit. This would fail in the Upper Hunter and with poor brand recognition and sales. · Go bankrupt. · Downsize. This was not an option, as Gary Blom had invested too much money to not realise an income or profit. · Upsize. This would allow market penetration, acquisition of brands and better sales. It would also mean it becomes a significant buy-out target for larger domestic firms or overseas firms.
Gary Blom decided to take the last option. He needed more money, and did a deal with Quadrant, the investment arm of Westpac. They bought a share of the company, which allowed development of the Yarraman Rd site, and paved the way for acquisitions.
It then became apparent that money was again drying up. Quadrant referred Blom to a Mr Slick, a USA investor, in his eighties. Allegedly a billionaire, Mr Slick was thought by Blom and Quadrant to be a good 'silent partner' and source of funds. Slick therefore becomes the third major shareholder.
In 2000 and 2001, the following acquisitions were made: · Hayshed Hill - a medium Margaret River company, with a good reputation at the lower to medium end of the market. · Mount Avoca - a small, successful producer in the Victorian Pyrenees. · Haselgrove - a medium producer in McLaren Vale, with an excellent portfolio of reds.
The new mother company is called Barrington Estates. The original Barrington Estate is now known as Yarraman Road. Together, the four companies have a capacity to produce almost 500,000 cases per year. The company is in the top 30 in terms of size in Australia. It has spread its risk and wines all around Australia; this is good in terms of variety of wine styles, but awkward in terms of co-ordinating administrative tasks.
The three new acquisitions are all more accepted, credible and better quality than Yarraman Road in terms of sales, distribution and wine.
Barrington Estates is putting together a smart group of personnel, with good industry experience, to handle the marketing and distribution of their wines.
Sales are slow. Export has suddenly become tougher since September 11, 2001.
The expansion from one site to four sites was rapid. More money was needed.
Gary Blom also wanted to remain the major shareholder.
In order to remain the largest shareholder, Gary led the company to borrowing money, rather than raising capital through selling more shares in the company, hence diluting his holding.
This was done in the following ways: · Quadrant and Slick both lent money to the company, despite being shareholders. These loans amount to about $15M. · Slick has taken out a convertible note, valued at about $5M. If he exercises this note, it will be at about $2.08 per share. If he exercises, the company debt falls by $5M, however shareholdings dilute for all but Slick. · Partial payment of Hayshed Hill, so that Dr Morrison, the original owner, is still owed $1.5M. · BankWest has lent them $22M.
In addition, one new shareholder was taken in, Leo Seward. This man was involved in the Hayshed Hill business. He purchased 900,000 shares for $1.5M.
As I understand it, Barrington Estates has about 13,000,000 shares, not including Slick's convertible note.
The approximate distribution (subject to confirmation): Seward 900,000 shares Blom 6,000,000 shares Slick 3,500,000 shares Quadrant 3,000,000 shares
Before any deal goes ahead, the number of shares in Barrington, and all options etc need to be determined, so that we suddenly do not end up owning nothing . [Emphasis in original.]
Background on Gary Blom I do not know as much as I should. What I do know is that he is seen as shady by many, and a businessman and dealmaker.
He brought IMAX to Australia, and was the chairman on Darling Harbour Harbourside development. I believe he got many off side in that time. He also got Rosemount off side when he bought the first vineyard.
Why is he not liked? I have no proof. It could even be that people are jealous of him.
State of the wine industry … (not relevant)
Mount Eyre & Barrington Estates The Iannuzzi and Tsironis families bought Mount Eyre Vineyards, Broke, in mid-1999. We signed a grape sale and winemaking contract with Barrington Estate (then, still the one estate) for 3 years. The last year will be the upcoming 2002 vintage.
We helped Barrington Estates sign an important export agency agreement for Canada, which will be potentially worth millions to them over the years.
As our relationship has built over the years, and Barrington Estates has grown. It has become apparent that distribution would be very difficult to achieve for Mount Eyre, given its production is 5000-9000 cases per year.
Now that Barrington Estates has set up a nationwide distribution, we have agreed that they will also distribute our wines. This has clear benefits to us in terms of sales, but also helps Barrington, as it gives them a broader product range, and ensures we have common goals in producing good fruit and wine. It also means that if Mount Eyre cannot keep up with its own demands, then Barrington can supply us with bulk wine, sales of which is a small, but important source of business for them at Haselgrove.
The Need for the current deal Barrington has again hit a cash crisis! Sales have basically not hit projections, and everyone is getting edgy.
It was decided that to raise capital, the company would merge with a public ASX company, Hotham Wines. This would effectively be a takeover of Hotham by Barrington, but importantly giving them access to the stock market. This would solve the issue of cash and capital.
The deal was set up for November-December 2001. Slick vetoed the merger. This annoyed the other shareholders, not least Blom, who was MD of the company.
Slick then made a call on his loan, and the motivation then became clear: send the company into liquidation, and then take over Barrington for a pittance.
Blom resigned, and the board of directors became unworkable. Seward took over as interim MD. BankWest got edgy, too. BankWest, while secure, need this deal to not fall over, as it would be a blemish on their lending. David Lennon, in the corporate lending in Sydney, overseeing this deal.
A deal amongst the shareholders has been brokered along these lines, in order to settle the impasse:
The problem is that Blom cannot access $1M, and has approached us for help.
If Blom cannot raise the $1M in time, the deal falls over, and the company is doomed. Blom's $6M invested over the years will effectively be worthless.
What Blom has offered us · Blom has negotiated privately with BankWest to accept a back-to-back letter of credit for $1M. · In other words, we do not need to draw the $1M, unless Barrington fails to repay the loan after 12 months (this needs to be spelt out very clearly in the documentation). [Emphasis in original.] · Regardless of whether the $1M is drawn, we get the 10% interest anyway. · For providing the line of credit, Blom will give us an option over 900,000 shares, exercisable for $1 in total. The value of these shares will depend on the sale price of the company. If the company is sold for net assets, then the price per share is about $0.75.
Gary Blom informs me that to break even, the shareholders must recover the following per share: Blom $1.70 Slick $2.08 Quadrant $2.00 Seward $1.70
Assuming the company stays liquid, the 900,000 shares will be worth anywhere from $600K to $1.5M.
If the company goes bust, the shares are worth nothing.
Our reply Given the problems faced by Barrington, it is likely that the $1M will indeed be drawn upon. Given interest rates for such loans will be about 8%, this leaves a margin of 2%, or $20K. In this scenario, the shares are also worth zero. Therefore to expose us to this deal for only $20K is pointless.
Therefore we insisted on certain other conditions, which were agreed to by Blom.
The deal is not to go ahead unless documentation for what appears below is completed to our satisfaction before the $1M is made available. [Emphasis in original.] · We receive $50K of the first $1M Blom makes from his entire share sale when Barrington is sold, exclusive of our 900,000 shares. Once Blom has made $1M, then our shares should be worth a significant amount. · We can exercise our $1 at any time, without conditions. · Full shareholder entitlements pass to us for the 900,000 shares. · We will not be directors of the company, and therefore not liable for losses of the company. · Full disclosure of all relevant, completed shareholders' agreements regarding security of the $2.5M and sale of the company. · Signing of a 3-year grape sale agreement with Barrington Estates for the sale of a minimum of 40t Semillon grapes @ $1200/t, applicable to vintages 2003-2005. · Signing of a 3-year winemaking agreement with Barrington for winemaking @ $800/t, with other associated charges at reasonable market rates. · Signing of a 3-year national wine distribution agreement, with Barrington agreeing to sell a minimum of 2000 cases per year of our wine (using the current allocations of product range as a guide). If the 2000 cases are not achieved, then the 2000 will be purchased from us by Barrington regardless. Mount Eyre to guarantee a minimum stock of 4000 cases available for sale on the local market at any one time (no vintage to be specified). We do not require legal advice on these contracts at this point in time, and will satisfy ourselves that they are correct before going ahead. · The above three agreements between Barrington and Mount Eyre must be such that it is specified that any sale of Barrington must carry conditions that the 3-year contracts with Mount Eyre are to be honoured by the new owner. [Emphasis in original.]
If the shares become worth nothing, and the company remains solvent and sells, the contracts must be honoured by the new owners, guaranteeing us income. In this respect the deal is still of great benefit to us.
If Barrington goes bankrupt, then the contracts are worth nil.
Possible outcomes Assuming Blom gets his paperwork right, this is what can happen: · Barrington goes bankrupt. This is the worst case. This would mean a 'fire sale' takes place and assets are sold off one by one. I have calculated that even in fire sale conditions, that $30M will be realised. Given BankWest and Dr Morrison are only owed $23.5M, we still recover our $1M, and go home a lot wiser and sober! If the $1M is not recovered, we take some good land, wine or equipment very cheaply. · Barrington sells for less than net assets. The 900,000 shares are worth only a small sum, but we still make the 10% and whatever the shares are worth. We also have ongoing contracts and sales distribution. · Barrington sells for net assets or better. The shares are worth a lot of money. Blom is hopeful that the company will sell for 1-2 times net assets, but that there have been industry precedents of 3 times net assets (this was for Petaluma, and they are not Petaluma!)
Whoever buys Barrington will have to keep dealing with Mount Eyre. This will either help us grow, or lead to them wanting to buy out of the contracts or buy out our business.
I hope this helps you! Aniello Inanuzzi 29 On 14 January 2002, Earl Slick's lawyer confirmed that Mr. Slick would not agree to provide further funding to Barrington. 30 On 15 January 2002, Mr. McGarry emailed the Dransfield report to Mr. Blom's solicitors, requesting that it be provided to Mr. Blom, and suggesting that it be provided to Dr. Iannuzzi. However, it appears that Dr. Iannuzzi and Dr. Tsironis did not receive a copy until August 2002. 31 By an instrument dated 21 January 2002, Aneve guaranteed to BankWest repayment by Barrington of an advance of $1 million. 32 On 28 February 2002, Drs. Iannuzzi and Tsironis guaranteed to St. George the repayment of all moneys payable to it by Aneve, supported by securities over four pieces of real estate owned by Drs. Iannuzzi and Tsironis, and Dr. Tsironis's parents. When executing this guarantee, Dr. Iannuzzi and Dr. Tsironis each made a statutory declaration that he or she had received independent legal advice regarding the transaction, and there was a certificate given by their accountant Mr. Bellos that he had given each of them financial advice in respect of the transaction. 33 St. George then issued a Performance Bond dated 4 March 2002 to support the guarantee and indemnity, under which it undertook to pay BankWest on demand a sum of up to $1 million. This was later replaced by another bond dated 28 January 2003 containing the same terms. 34 On 13 May 2002, Mr. Lennon suffered a major stroke, from which he has not recovered; and Mr. McGarry formally assumed all responsibility for the Barrington account at BankWest. 35 The sale of Barrington's assets did not proceed quickly. In May 2002, Mr. Slick demanded full repayment of money owing to him, and the directors invited BankWest to appoint a receiver. BankWest did so. Ultimately, the assets of Barrington were sold for about $22 million, with receiver's expenses amounting to about $4 million. BankWest did not therefore recover all money owing to it, and it sought to call on the St. George Performance Bond. That gave rise to these proceedings.
EVIDENCE BEFORE PRIMARY JUDGE 36 Dr. Iannuzzi and Dr. Tsironis filed affidavit evidence, which did not refer to communications with Mr. Coupe of NAB or to the Deal Summary, or to any advice from their solicitor or accountant. The Deal Summary in fact came to light as a result of a subpoena issued by BankWest to Tress Cocks & Maddox, the appellants' solicitors in relation to the transaction. The second affidavit of Dr. Iannuzzi contained the following assertion: At no time during these communications did David Lennon say (nor did anyone else from the Bank say) anything to the effect of any of the following propositions:
a. that there was any pressure from BankWest or any other creditor to sell Barrington Estates ("Barrington") (or its assets) in part or in whole;
b. that we should make our own enquiries about the financial status of Barrington;
d. that Earl Slick (or anyone else) had already taken steps towards legal action and calling in his loans;
e. that the balance sheet we were looking at (referred to in paragraph 44 of my previous affidavit) was out of date or wrong in any way;
f. that he had updated valuations that valued the assets of the company at less than $46 million in one report and less than $40 million in another;
g. that Barrington was in default under any facility or loan or security document;
h. that Bankwest was proposing an 'informal workout' as compared to a formal receivership;
i. that Earl Slick had imposed unacceptable ultimatum conditions which might require Bankwest to enforce its security;
j. that the company had suffered a significant downturn in sales, and that it had lost important sales and distribution agreements;
k. that Bankwest had employed independent accountants with expertise in insolvency and receiverships to assess the state of the company;
l. that Bankwest had entered into an Option Agreement with Barrington in July 2001 under which it had taken options over shares in the company in consideration for providing facilities;
m. the Bank's interest, fees and other costs would rank ahead of our letter of credit;
n. that Bankwest was dissatisfied with Barrington's accounts and record keeping, and there were gaps in significant historical and financial information which it had about the company;
o. that previous financing from Bankwest had imposed a condition that Barrington raise $15 million in equity, which condition had not been fulfilled;
p. that a Bank report indicated that Barrington would require a further $8 million in equity during the calendar year of 2002;
q. that senior management at Barrington had warned Lennon of a serious lack of funds in the company, and that $2.5 million would not be enough to keep the company afloat.
If David Lennon (or anyone else on behalf of Bankwest) had told me that any of the propositions in the preceding paragraph was true, that would have influenced my decision to enter into the Guarantee and to arrange for St George to issue the Letter of Credit. If I had known that several of these propositions were true (let alone all of them) then I would most certainly not have caused Aneve Pty Limited to enter into the Guarantee and arrange for the Letter of Credit. 37 No other witness gave evidence for the appellants. For BankWest, evidence was given by Mr. McGarry. No evidence was called from Mr. Blom, Mr. Lennon, Mrs. Lennon, Mr. Chung of Tress Cocks & Maddox (the solicitor at that firm concerned with the transaction on behalf of the appellants) or Mr. Belos (the appellants' accountant in relation to the transaction). 38 At the hearing, Senior Counsel for BankWest sought a direction that evidence of the principal conversations relied on by the appellants (the telephone conversation of 22 December 2001 and the meeting on 29 December 2001) be given orally in the first instance. The primary judge acceded to that request, and he rejected the paragraphs in the appellants' affidavits relating to those conversations. Subsequently, after cross-examination of the appellants, their Counsel sought to tender the paragraphs from the affidavits, and this material was again rejected.
DECISION OF PRIMARY JUDGE 39 The primary judge addressed two issues. The first was whether the alleged representations had in fact been made, and the second was whether, if that was the case, the appellants relied on the representations in entering into the transaction. In circumstances where there was no contemporaneous note of either discussion, and the only persons present at the two conversations who were called to give evidence were Dr. Iannuzzi and Dr. Tsironis, the primary judge considered that the credit of these witnesses was critical to determining the issues. 40 The primary judge gave detailed consideration of the cross-examination of Dr. Iannuzzi, and particularly to alleged inconsistencies between his affidavits and evidence in chief on the one hand, and the contents of the Deal Summary on the other hand. The primary judge referred to many examples of evidence by Dr. Iannuzzi which he was unable to accept, in some cases because of inconsistency between this evidence and the contents of the Deal Summary, and also to the unsatisfactory manner in which Dr. Iannuzzi gave evidence. He then continued: 130 In the light of this evidence I conclude that Dr Iannuzzi's statement in paragraph 46 of his first affidavit that "I was never under the impression that the company was in any sort of precarious position" was a serious and deliberate falsehood at the time that the affidavit was sworn, and that that false statement was made with the intention of inducing the Court to believe that Dr Iannuzzi, in entering into the Transaction Documents, had relied implicitly only upon representations which he claimed Mr Lennon had made to him in the meetings of 22 and 29 December 2001. Confronted in the witness box with the evident falsity of his evidence in paragraph 46 of his affidavit, Dr Iannuzzi nevertheless chose to adhere to it.
131 For the reasons which I have elaborated at some length, I am unable to accept Dr Iannuzzi as a witness of any credit. 41 The primary judge found that the appellants had failed to prove any of the representations relied on, setting out his reasons in the following paragraphs: 135 First, I must bear in mind that what is alleged against Mr Lennon, if true, brands him as a deliberate and blatant liar: it is quite clear from the evidence as to the discussions in which Mr Lennon had participated prior to 22 and 29 December 2001 that, if he made the statements about Barrington attributed to him, particularly those about the company's trading position, prospects and solvency, then he must have known that those statements were false. Further, if he had given any assurances to Drs Tsironis and Iannuzzi to the effect that the proposed letter of credit transaction with BankWest was "safe" or that he would not let them get into the deal "if he thought that [their] million was at all at risk" , then, not to put too fine a point upon it, he must have been a complete fraudster. That is a very serious allegation of misconduct to allege against a senior bank officer.
136 I find it inherently improbable that Mr Lennon, a senior officer of a major bank, would make such blatantly fraudulent representations in a commercial transaction which was clearly so fraught with risk of collapse and litigation that the probability of his exposure as a fraudster, to the ruin of his career, must have been seen as high. Mr Lennon must have been mindful of the risk of something he said to Dr Iannuzzi being used against him, if not from his own considerable banking experience, then because he was actually reminded before the meeting of 29 December. Mr McGarry gave evidence that on or about 28 December 2001 he had a conversation with Mr Lennon in which Mr Lennon told him that Mr Blom had arranged for him to go to Blue Bay to discuss with Dr Iannuzzi the "guarantee in support of Blom's funding in the package" . Mr McGarry said to Mr Lennon: "The deal with Iannuzzi is between them, not us. Blom's arranged this, let's not get involved. Issues can arise in these sorts of situations. Be careful of what you say to Dr Iannuzzi." Mr Lennon replied: "I'm not stupid, Paul." Mr McGarry was cross examined about this conversation. I have no hesitation in accepting Mr McGarry's evidence that the conversation occurred as he said.
137 Second, I must bear in mind that Mr Lennon has not been able to give evidence or to defend himself in any way. The serious accusations of misconduct against him depend solely on the uncorroborated evidence of Drs Iannuzzi and Tsironis, both of whom have, of course, a strong motivation for accusing BankWest and Mr Lennon of wrongdoing and thus escaping their liabilities.
138 Third, I take into account that in the only document which Dr Iannuzzi brought into existence to record his analysis of the proposed transaction, i.e. the Deal Summary, there is no reference whatsoever to any assurances by Mr Lennon that the transaction was "safe" or that it had no risk or little risk, or that Dr Iannuzzi was relying on something said by Mr Lennon. There is no reference at all in the document to the meetings with Mr Lennon which occurred on 22 December and 29 December. This is surprising if, as Dr Tsironis and Dr Iannuzzi would have it, they made up their minds to enter into the transaction on the basis of what Mr Lennon had said at the meeting of 29 December.
139 Fourth, I take into account that I am unable to accept Dr Iannuzzi as a witness of any credit.
140 Fifth, I regard it as improbable in the highest degree that Dr Iannuzzi would have accepted trustingly and at face value anything that Mr Lennon had said at the meetings of 22 and 29 December. The content of Dr Iannuzzi's communications with NAB, with their valuers, and with St George immediately after his execution of the Transaction Documents, taken in conjunction with his demeanour in the witness box, convince me that he is the sort of person who takes nothing and nobody on trust in his business dealings, who regards himself as knowledgeable and experienced in business matters, who always makes his own enquiries to the fullest extent possible, who makes his own judgments and who is not backward in criticising in blunt terms those who do not agree with him.
141 Sixth, I take into account that Dr Tsironis' credit generally is adversely affected by the fact that, if her evidence in cross examination is to be believed, she falsely swore a statutory declaration as to the independent advice which she had received from Mr Belos prior to executing the Transaction Documents, knowing that the statutory declaration was to be relied upon by St George Bank.
142 Seventh, it is clear that at the time of the meeting on 29 December and thereafter Dr Tsironis was wholly and understandably preoccupied with the serious medical condition of her new-born baby. I think it highly unlikely that at the meeting on 29 December she was in a state of mind in which she could focus on what was being said between Mr Lennon and her husband or could afterwards retain an accurate recollection of it.
143 Eighth, it is clear that Dr Tsironis left implementation of the transaction entirely to Dr Iannuzzi. Her evidence generally and her demeanour, coupled with the very assertive manner of Dr Iannuzzi, leaves me with the strong impression that in matters of business Dr Tsironis is prepared to acquiesce in decisions made by Dr Iannuzzi and that she is very much directed by him in that regard. I am of the view that in business matters Dr Tsironis would be prepared to support Dr Iannuzzi to whatever extent he felt necessary, if he required it of her.
144 Ninth, I take into account generally as to the Plaintiffs' case that they have not been willing to call as witnesses those from whom they had received advice in connection with the transaction and who could have given direct evidence on the issue of reliance, namely, the NAB officers, Mr Coupe and Mr Leeson, their accountant, Mr Belos, and their solicitor, Mr Cheung. In my view, their evidence was required to explain what advice they gave to Dr Iannuzzi, if any, as to the subject matter of the Representations and as to what response Dr Iannuzzi made, if any, to that advice. Without their evidence, the inference is clearly open that Dr Iannuzzi discussed with them, or some of them, what he had been told both by Mr Blom and by Mr Lennon and sought their assessment. I conclude that the evidence of those witnesses would not have assisted the Plaintiffs' case.
145 Tenth, as against the foregoing, I take into account that BankWest has not called Mrs Lennon, who was present at the meeting of 29 December. Mrs Lennon could possibly have given evidence contradicting the evidence of Dr Iannuzzi and Dr Tsironis as to what Mr Lennon said at the meeting. However, I am not satisfied that the failure to call her has the same significance as the Plaintiffs' failure to call the four witnesses to whom I have referred above. The Plaintiffs' absent witnesses were all professional people directly involved in the transaction and must have had an intelligent understanding of what had been discussed between Dr Iannuzzi and themselves respectively. On the other hand, there is nothing to suggest that Mrs Lennon was knowledgeable in business affairs generally or about this transaction in particular so that she could be expected to have paid any particular attention to what was being said between Mr Lennon and Dr Iannuzzi. She was present at the meeting only because Mr Lennon was using the opportunity of taking her on a brief holiday. In view of what I regard as the overwhelming evidence as to the credit of Dr Iannuzzi and Dr Tsironis, and in view of the inherent improbability of their accounts of the 29 December meeting, I do not find that BankWest's failure to call Mrs Lennon has any great significance.
146 Eleventh, in addition to all of the foregoing reasons, I find it inherently improbable that Mr Lennon would have made the Balance Sheet Representation in light of the fact that the balance sheet being discussed was out of date and BankWest was then in the process of obtaining an urgent, up-to-date review of Barrington's financial position.
147 In summary, I must be satisfied on the balance of probabilities that Mr Lennon made one or more of the Representations, bearing in mind that a finding that he did so requires a finding of serious dishonesty on his part. I bear in mind also that before making a finding of fact that Mr Lennon made any of the Representations, I must feel "an actual persuasion" that he did so: Briginshaw v Briginshaw (1930) 60 CLR 336, at 361.
148 In Rhesa Shipping Co SA v Edmunds [1985] 2 All ER 712 at 718, Lord Brandon of Oakbrook said: "The judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take." Quoted with approval in Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58 per Heydon JA, and in Timms v Commonwealth Bank of Australia [2004] NSWSC 76 per Barrett J.
149 In the present case I may well have been able confidently to make a finding of fact as to whether any of the Representations were made had Mr Lennon's evidence been available. In the absence of Mr Lennon, the state of the evidence generally is not nearly as satisfactory as it could have been. In those circumstances, I prefer to make a decision on the basis of whether or not the Plaintiffs have discharged the burden of proof which lies upon them.
150 For the reasons which I have given, I am very far from feeling any actual persuasion that Mr Lennon made any of the Representations. Accordingly, I hold that the Plaintiffs have failed to prove that any of the Representations were made. 42 On the question of reliance on the representations, the primary judge said this: 152 For the same reasons which I have given above in support of my conclusion as to the making of the Representations, I am far from feeling an actual persuasion that the Plaintiffs relied on anything said by Mr Lennon at the 22 or 29 December meetings pertaining to the subject matter of the Representations. My assessment of Dr Iannuzzi's willingness to rely on others has been given elsewhere. In particular, the Deal Summary shows that he made his own assessments and judgments, doubtless with the benefit of the advice of Mr Belos and Mr Cheung, whom he has not called to give evidence.
153 In particular, Dr Iannuzzi's assessment of the value of Barrington's assets was clearly his own opinion, not that of Mr Lennon. For example, he said in the Deal Summary that the Barrington Estates property was worth "$10M in my eyes" . He said: "My advice is that the company is worth $50-$70M if still trading" although neither Dr Iannuzzi nor Dr Tsironis said that Mr Lennon ever referred to a figure of $70M.
154 For the reasons which I have given, I cannot accept that Dr Tsironis, in making a decision to execute the Transaction Documents, relied upon anything other than Dr Iannuzzi's decision and his views. If it is true that she signed a statutory declaration that she had received independent advice from Mr Belos when she had not received that advice, or that she signed the statutory declaration without reading it, then she demonstrated thereby that she did not wish to take any active and informed part in deciding whether the transaction should proceed. I find it difficult to believe that she made up her mind that the transaction should proceed on the basis of what was said on 29 December and had no further discussion with Dr Iannuzzi about the matter between then and the time that she came to execute the Transaction Documents.
155 Aneve, of course, was merely the corporate manifestation of Dr Iannuzzi and Dr Tsironis.
156 Accordingly, if Mr Lennon said anything to the effect of any of the Representations, I conclude that the Plaintiffs have failed to discharge the burden of proving that they placed any reliance whatsoever on what was said in making a decision to execute the Transaction Documents. 43 In a separate judgment on costs, the primary judge gave the following reasons for making an indemnity costs order against Dr. Iannuzzi and Dr. Tsironis: 8 It seems to me that upon the basis of the finding as to credit which I have made in the proceedings as against the Second and Third Plaintiffs, this is a case which falls within the category of relevant delinquency on the part of the Plaintiffs such as to attract the imposition of an indemnity costs order.
9 It seems to me that the situation may be briefly described thus. The Plaintiffs must have known by May 2002 that Mr Lennon, who was alleged to have made the misrepresentations upon which they relied, had suffered a severe and incapacitating stroke and was unlikely ever to be able to give evidence to contradict their version of what had occurred in their meeting with him. It must have been apparent to the Second and Third Plaintiffs, therefore, that their version of events would be largely uncontradicted by any other witness and that the case must turn essentially upon whether their credit could be accepted by the Court.
10 In those circumstances, for the reasons which I have given in my judgment, it seems to me that Dr Iannuzzi, the Second Plaintiff, embarked upon a deliberate course of endeavouring to mislead the Court in his affidavit evidence as to vital matters which I have elaborated upon at some length in the judgment. The Second Plaintiff really controls the First Plaintiff. As I have recorded in the judgment, I think that the Third Plaintiff acts in business matters in accordance with the wishes of the Second Plaintiff.
11 It seems to me that for the Plaintiffs to take advantage of the situation which confronted them, that is, the lack of any person who would be able to give evidence contradicting their version of the events occurring at the relevant meetings, and to make misrepresentations in their evidence of the kind which I have described, is relevant delinquency in the conduct of the proceedings. The proceedings really should never have been brought.
ISSUES ON APPEAL 44 The Notice of Appeal contains 34 grounds. These grounds raise the following issues, which I will consider in turn: 1. Alleged errors in rejecting the evidence of Dr. Tsironis (grounds 23-31). 2. Alleged errors shown by the costs judgment (grounds 2, 3 and 34). 3. Circumstantial support for the appellants' case (grounds 6-10). 4. Errors concerning the position of Mr. Lennon (grounds 11-15). 5. Errors in rejecting the evidence of Dr. Iannuzzi (grounds 18-22, 30-31). 6. Errors concerning BankWest's case, in relation to Mr. McGarry (ground 16) and Mrs. Lennon (ground 32). 7. Rejection of the affidavit account of the conversations (ground 4). 8. Errors in relation to the reliance issue. 45 No significant submissions were advanced in relation to grounds 5 and 17, and they do not require separate consideration.
REJECTION OF DR. TSIRONIS'S EVIDENCE Submissions 46 Mr. Toomey QC for the appellants submitted that the primary judge made errors in par.[141] of his judgment when he said of Dr. Tsironis "that, if her evidence in cross-examination is to be believed, she falsely swore a statutory declaration as to the independent advice which she had received from Mr. Belos". In fact, Mr. Toomey submitted, the statutory declaration asserted "independent legal advice", not independent advice generally; and Dr. Tsironis's evidence was that she had not read the documents to which she put her signature, and therefore did not deliberately swear something untrue. Furthermore, Mr. Toomey submitted, the primary judge's statements in pars.[142] and [143] of the judgment were glaringly improbable, in the light of the firm and detailed evidence given by Dr. Tsironis. 47 In effect, Mr. Toomey submitted, the primary judge said that Dr. Tsironis was prepared to conspire with her husband to commit perjury, in circumstances where this was unsupported by the material before him, and had not even been put to her. That the primary judge took this view was confirmed by pars.[9]-[11] of the costs judgment, and plainly indicated error.
Decision 48 I do not read the word "falsely" in par.[141] of the primary judge's decision as conveying a finding that Dr. Tsironis deliberately swore something she knew to be untrue. In my opinion, the gravamen of the criticism being made of her was that she was prepared to make a statutory declaration that she knew would be relied on by St. George, without checking whether it was true or not. In my opinion, the primary judge was correct to regard that as reflecting adversely on her credit. In those circumstances, the circumstance that the advice which Mr. Belos could have given was financial advice rather than legal advice is not of material significance. I note in any event that there is in evidence a certificate given by Mr. Belos that he did give financial advice to Dr. Tsironis. That certificate carries evidentiary weight as a business record, and the appellants chose not to call Mr. Belos to give evidence. This certificate was also provided by the appellants to St. George, presumably with the knowledge that St. George would rely on it. In those circumstances, it would be a reasonable inference that Mr. Belos did give financial advice to Dr. Tsironis, contrary to her evidence. 49 I do not read the paragraphs referred to as saying that Dr. Tsironis conspired with her husband to commit perjury: they are directed to unreliability of evidence, and do not address the question as to the explanation for the unreliability. In assessing evidence of this kind in cases such as this, in my opinion it is important to have in mind the considerations which were set out with admirable clarity by McLelland CJ in Eq. in Watson v. Foxman (2000) 49 NSWLR 315 at 318-9: Where in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as "misleading") within the meaning of s52 of the Trade Practices Act (or s42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the Court (1) what the alleged conduct was, and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
Each element of the cause of action must be proved to the reasonable satisfaction of the Court, which means that the Court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not ... attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding" (Helton v Allen (1940) 63 CLR 691 at 712).
Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a cause of action based on s52 of the Trade Practices Act (or s42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration. That is the position in the present case. 50 In my opinion, the primary judge gave ample reason for considering Dr. Tsironis's evidence to be unreliable, and no material error has been identified in those reasons.
COSTS JUDGMENT Submissions 51 Mr. Toomey QC submitted that, whereas in the main judgment the primary judge decided against the appellants on the basis that they had not discharged their burden of proof, in the costs judgment he said that Dr. Iannuzza had embarked on a deliberate course of trying to mislead the Court. Part of the reason given for this was that the appellants knew they would not be contradicted; and there was no valid basis for saying this. In relation to Dr. Tsironis in particular, if the primary judge did not make a finding that she conspired with her husband to commit perjury, then the case against her fell far short of what was required for indemnity costs.
Decision 52 In my opinion, there is no inconsistency between the main judgment and the costs judgment. For reasons given later in relation to the submissions concerning Dr. Iannuzzi, it was in my opinion well open to the primary judge to make a finding in this case that he gave deliberately false evidence on the question of inducement. In the main judgment, the primary judge found to the effect that Dr. Iannuzzi gave deliberately false evidence and that Dr. Tsironis's evidence was unreliable; but this does not mean that the primary judge could make a determination as to what was said and what was not said in the conversations. Particularly was this so in the absence of any evidence of the conversations by Mr. Lennon and in the absence of any record of the conversation either by Mr. Lennon or anyone else. 53 There is some force in the submissions that, for all the appellants knew at the time they commenced the proceedings, Mr. Lennon could have made a memorandum of the conversation on 29 December 2001, and also that Mr. Lennon may have made some recovery from his stroke of May 2002 and Mrs. Lennon may have been able to give evidence of the conversation; so that the judge's view that it was apparent to the appellants that their version of events would be largely uncontradicted could be considered as somewhat overstating the position. 54 It was conceded before the primary judge that, by reason of a Calderbank letter, an order for indemnity costs against the appellants as from 11 December 2003 was justified. The hearing took place in April and May 2004, so that what was in issue was whether the appellants should be liable for indemnity costs up to 11 December 2003. It is not clear how significant those costs would be; but it is reasonable to assume that the greater amount of costs of the proceedings were incurred after 11 December 2003. 55 In my opinion, the order for indemnity costs against Dr. Iannuzzi was plainly justified, and the primary judge's statement concerning the appellants' expectation that they would not be contradicted could not be considered a material error. In the light of the primary judge's finding that Dr. Iannuzzi gave deliberately false evidence on the question of inducement and set out to mislead the Court on this issue, the order for indemnity costs was appropriate. 56 The situation is less clear in the case of Dr. Tsironis. The justification for indemnity costs in her case must lie in her preparedness to make a statutory declaration which she knew would be relied on by St. George Bank without checking to see whether or not it was true; and in her acting in accordance with the wishes of Dr. Iannuzzi, in effect leaving it to him to determine whether or not proceedings should be commenced and how they should be conducted. A decision whether to award costs on an indemnity basis is a discretionary decision, and on the whole I do not think a sufficient basis is made out for appellate intervention in that decision in the case of Dr. Tsironis.
CIRCUMSTANTIAL SUPPORT Submissions 57 Mr. Toomey submitted that the circumstances were such that, at the meeting of 29 December 2001, there must have been discussion of the financial position of Barrington and the safety of the transaction: there could have been no other purpose for the meeting. It was clear, he submitted, from the notations on the pro forma balance sheet that this was discussed and that there was discussion as to the realisable value of assets if they had to be sold. After the meeting, these two doctors, with assets totalling about $2 million, went ahead with a transaction in which they committed half their worldly wealth, indicating that they must have received assurances during this meeting as to the safety of the transaction.
Decision 58 I accept that it is a reasonable inference that there was discussion at this meeting of the financial position of Barrington and the safety of the transaction; and I accept that there is a strong inference that the pro forma balance sheet was discussed and that it is likely that the figures in the handwriting of Dr. Iannuzzi were placed on that pro forma balance sheet during the meeting. However, as highlighted by the passage quoted above in Watson v. Foxman, the matter at issue is not the subject matter of the conversation but what was actually said, and in particular whether representations were made and, if so, whether they were made with or without appropriate qualifications and generally whether they were made in such a way as to be misleading. An inference as to the subject matter of a conversation falls far short of enabling an inference that misleading representations were made.
MR. LENNON Submissions 59 Mr. Toomey submitted that the primary judge's statements in pars.[135] and [136] of the judgment to the effect that it was "inherently improbable" that Mr. Lennon would make representations suggest misconception and pre-judgment. The circumstance that Mr. Lennon was a senior officer of a major bank was not a matter to be taken into account in the way in which the primary judge did; and it was notable that the primary judge did not put against this the consideration that there were two professional people of unimpeached credit asserting that the statements were made, in circumstances where it was being suggested that at least Dr. Iannuzzi was giving deliberately false evidence. Mr. Lennon's action in going to the appellants' home in order to discuss the transaction with them suggested that he was motivated to have the transaction proceed, this being in circumstances where he had been involved in an advance by the Bank of $11 million in July 2001 and where it was clear as early as September 2001 that there was danger of receivership or voluntary administration. It would not have been helpful to Mr. Lennon's career if Barrington had failed in January 2002.
Decision 60 In my opinion, the primary judge was in these paragraphs essentially stating what was said in Briginshaw v. Briginshaw (1938) 60 CLR 336 at 361-2 and Helton v. Allen (1940) 63 CLR 691 at 712, to the effect that the reasonable satisfaction of the Court as to the occurrence of something is not attained or established independently of the nature and consequence of the matter to be proved, including the seriousness of an allegation and the inherent unlikelihood of an occurrence of a given description. It is reasonable to look for strong evidence where serious misconduct is alleged against a person, particularly a person of apparent good character; and I do not take the primary judge's reference to Mr. Lennon's position as a senior officer of a major bank as suggesting that wrong-doing by such a person is less likely and requires greater proof than wrong-doing by a person of apparently good character in a less senior position. However, Mr. Lennon's position in the Bank is of some consequence, because of the particularly serious consequences to a person in that position if the making of fraudulent statements is exposed. There is nothing in the judgment that suggests the primary judge did not fully take into account the appellants' apparent good character in assessing whether or not to accept their evidence. 61 Accordingly, in my opinion, no error by the primary judge is made out in this respect.
DR. IANNUZZI'S EVIDENCE Submissions 62 Mr. Toomey submitted that although in some respects Dr. Iannuzzi did not give evidence in a satisfactory way, the primary judge erred in placing too much weight on the manner of his giving evidence and in the way he approached the Deal Summary. Mr. Toomey submitted that the Deal Summary, far from indicating that Dr. Iannuzzi was a sophisticated investor with a firm grasp of the issues, rather indicated his confusion. It was an email written at one sitting over four hours, being an expression of a stream of consciousness rather than a systematic attempt to set out precisely the state of his mind and belief concerning the transaction.
Decision 63 In my opinion, the primary judge's careful analysis of Dr. Iannuzzi's evidence, particularly his evidence in cross-examination, amply justified his rejection of Dr. Iannuzzi's evidence and his finding that Dr. Iannuzzi had set out to mislead the Court. 64 In my opinion, a fair assessment of Dr. Iannuzzi's affidavit evidence is that it was intended to convey the impression that Dr. Iannuzzi entered into the transaction in the belief that Barrington was not in financial difficulties and that the transaction was safe; and that evidence contained no reference to Dr. Iannuzzi's communications with NAB (see pars.[17]-[20] above) or to the Deal Summary (par.[26] above). The appellants put on no evidence from the solicitor and accountant who acted for them in the transaction. In these circumstances, and having regard to the deficiencies in Dr. Iannuzzi's evidence identified by the primary judge, it was well open to the primary judge to reach the conclusions he did. There was no material error in what the primary judge said about the Deal Summary.
MR. McGARRY AND MRS. LENNON Submissions 65 Mr. Toomey submitted the primary judge was in error in accepting and placing weight on Mr. McGarry's evidence to the effect that he warned Mr. Lennon to be careful of what he said to Dr. Iannuzzi. He submitted this was improbable because of the comparative ages and experience of Mr. McGarry and Mr. Lennon, and because of illogicality of the words allegedly used. 66 As regards Mrs. Lennon, Mr. Toomey submitted that the appellants' evidence of the relevant conversation included evidence of statements made concerning Mrs. Lennon, in particular a statement by Mr. Lennon that he and Mrs. Lennon were in a business and lost money. If such a thing had been said, Mrs. Lennon would have taken notice, and this also indicates that Mrs. Lennon had business experience, contrary to what was said by the primary judge in par.[145] of his judgment.
Decision 67 The primary judge saw and heard Mr. McGarry giving evidence, and it was well open to the primary judge to accept that evidence. The reasons suggested by the appellants to the contrary fall far short of what would be required to intervene in a primary judge's assessment of a witness. 68 As regards Mrs. Lennon, the primary judge did not say that the failure to call her was of no significance, only that it was not of great significance. In my opinion, this was a reasonable assessment. In my opinion, it was also a reasonable assessment that the appellants' failure to call a number of witnesses, in particular their accountant and solicitor, was of greater significance.
AFFIDAVIT EVIDENCE OF CONVERSATIONS Submissions 69 Mr. Toomey submitted that it was unfair to the appellants to exclude from evidence a carefully considered statement brought into existence only about a year after the events to which they referred.
Decision 70 The use of affidavits for the purpose of evidence is not dealt with by the Evidence Act 1995. It is permissible because of various qualifications to the operation of the Act, particularly s.52, which is in the following terms: 52 Adducing of other evidence not affected This Act (other than this Part) does not affect the operation of any Australian law or rule of practice so far as it permits evidence to be adduced in a way other than by witnesses giving evidence or documents being tendered in evidence. 71 The Evidence Act, like the common law, requires oral evidence in chief generally to be given in response to non-leading questions; and the desirability of this is particularly strong in the case of conversations where considerations of the type referred to in Watson v. Foxman apply. It was open to the primary judge to require evidence of the vital conversations to be given orally, in response to non-leading questions, and to reject the account of those conversations given in the affidavits. 72 If either of the appellants had then been cross-examined on the relevant part of the affidavit that had been excluded in such a way that, as a matter of fairness, the evidence should have been admitted, then refusal to admit the evidence could have been a material error. However, Mr. Toomey was unable to point to any cross-examination which could possibly fall into that category.
RELIANCE 73 There was no specific appeal ground concerning error in relation to reliance, but it was submitted that if the Court of Appeal found error in relation to the primary judge's findings as to representations, the judgment could not then be supported on the basis of the primary judge's finding that there was no reliance. The question therefore does not arise, in circumstances where no error has been found concerning the primary judge's conclusion as to representations.
CONCLUSION 74 For those reasons, in my opinion the appeal should be dismissed with costs. 75 A submission was made that these costs should be on an indemnity basis. On the whole, I do not think the circumstances surrounding the bringing of the appeal justify such an order in relation to the costs of the appeal. 76 SANTOW JA: I agree with Hodgson JA. 77 BRYSON JA: I agree with Hodgson JA. **********
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CITATION: Aneve Pty. Limited & Ors. v. Bank of Western Australia Limited [2005] NSWCA 441
(1938) 60 CLR 336
(1940) 63 CLR 691
(2000) 49 NSWLR 315
(1930) 60 CLR 336