Corporate Affairs Commission v Drysdale

Federal Court of Australia|1987-07-01|Before: Smith J

The application was successful and the work involved was performed later in 1982. The estimated cost of the proposed works was $30,316. On 31 July 1982 Mr. Reeves, on behalf of E.G. Reeves Pty. Ltd., applied for an advance from the Commission in order to pay for these works to be performed.

The advance was to be repayable over fifteen years at a

discounted rate of interest. Mr. Reeves was required to complete an application form and a statement as to his financial status. Mr. Reeves completed these forms under the supervision of Mr. Davis. Mr. Davis advised Mr. Reeves that he should use a "conservative figure" when disclosing the value of Booka and that the plant and equipment on Booka should be stated at a depreciated value. Mr. Reeves directed his accountant, a Mr. Rota, to make enquiries as to the Valuer General's valuation of Booka. Mr. Rota was given a figure of $300,000 which represented the value of the typical 1200 ha property in the area as at 1981. Mr. Rota was also advised that land values in the area had since risen by 50%. Mr. Rota adapted this figure to the dimensions of Booka and reached a figure of $254,000. He then added to this 50% of that figure and reached a total of $381,000. This figure was disclosed in the application and statement of financial status as the value of Booka. The advance was approved on 26 August 1983. Early in 1983 Mr. Davis arranged for a "technical day" to be held on the property with the assistance of the local soil conservation

Mr. Reeves was a man of some experience in business matters. In 1958 he and his father established a _ road transport business which was built up by 1982 to a business employing approximately 50 persons. In 1982 this business was sold. By the means of a company "Western Freight Lines Pty.

Limited", Mr. Reeves held the agency in his district for the

North Western Vegetable Oil Company and, as such, sold soya bean seed to growers and marketed crops when harvested. There is in evidence material indicating that in February 1984 Mr. Reeves was interested in a company "Stanthorpe Freight Lines Pty. Limited" which described itself as a "specialist in freight and general transportation". It appears that at that time this company also acted as agents for Cargill Oil Seeds. In respect of the year ended 30 June 1983 the first respondent lodged an income tax return as trustee for the "Ted Reeves Pamily Trust" in which the business or income producing activity was described as graziers, transport operators and motor dealers. From this return it also appears that the business of motor dealers was carried on by the first

respondent under the name "Western Motors and Machinery".

By February 1982 Mr. Reeves was considering selling Booka. He listed the property with two agents, Dalgety Winchcombe Properties (under the attention of Mr. Walker) and Messrs. Keith Jensen & Company. Between February 1982 and November of that year there appear to have been no enquiries made concerning the property. The listed price was $825,000 for the front portion and $300,000 for the rear portion. In November 1982 Mr. Walker's partner, Mr. Cobon (who gave evidence in these proceedings), went out to Booka and took some photographs of the property with a view to further promotion. Mr. Reeves increased the purchase price of the front property

by $50,000 (ie to $875,000) following that inspection on the

basis of what he described as "the buoyant state" of the market. Nothing further developed from either agent and in February 1983 Mc. Reeves approached Mr. J.C. Mann for advice on how best to sell the property. Mr. Mann carried on business as Cec Mann & Company in Stanthorpe, Queensland. Mr. Mann gave evidence. Mr. Mann told Mr. Reeves that a brochure should be produced and sent to all stock and station agents in Queensland, New South Wales and Victoria and also to the head offices of all the major agencies in all capital cities in

On 14 March 41983 Mr. Mann went out to Booka accompanied by a photographer. He interviewed Mr. Reeves and inspected the property. A brochure was prepared. A copy of it was in evidence as Exhibit Q. It is a four page document with six colour photographs of the property and a map indicating its location. Booka is described in it as:-

with an annual rainfall of fifty-one (51) inches - practically drought free. Suitable for stud development or sub-division.

(a) Front property 457ha (1143ac) of farming and pasture areas ~ fully developed.

(b) Rear property 582ha (1397ac) of improved pasture cattle country.

The brochure states that the owner will sell the land either separately or in total and that the price for the front property is "$750,000 (including crop)." The price for the rear property is stated to be $250,000. The description of the price continues -

A detailed description is given of the front property. Elders relies upon this as an instance of the misleading or deceptive representations made and accordingly I set out the description in full:- Comprising 457ha (1143ac). Fully developed with only necessary shade areas remaining. Approx.34Sha (870ac) planted to Soya Beans with an estimated yield of approximately 500 tonnes. A minimum return of $150,000.00 is expected. The remainder is established with excellent improved pastures.

Mr. Reeves had wished to include in the brochure a "guarantee" of a return of $180,000 on the soya bean crop. However, Mr. Mann had told him that that was "silly" and it was Mr. Mann "who broke it down" to the more conservative statement

The brochure also stated that Booka had been owned by the same family for many years and that all improvements and fencing were in as new condition and were of superior

Although virtually drought free, it has unlimited potential for irrigation from deep and permanent creeks. The assured rainfall and the capacity to produce heavy yields of Soya Beans and winter cereals make it a very desirable property. Also its proven ability to produce cattle and fat lambs, coupled with its proximity to Southern Queensland markets makes it even more desirable.

On the back page, in very small print, appeared the

The information contained in this brochure has been collated by reliable sources and whilst we have no reason to doubt its accuracy we do not guarantee it. Prospective purchasers should make and rely on their enquiries. The agent and producers of this brochure cannot be accountable for any inaccuracy or variation which may occur.

Soya beans had been under cultivation at Booka since 1976. Initially there had been only two other farms in the locality where that crop had been cultivated. By 1983 the number had increased to 29. The crop was an attractive one, the domestic demand in those years exceeding supply. It also appeared that there were "export opportunities" for this crop. The evidence also indicated that the attractiveness of soya bean crops contributed to something of a land boom in the area

The capacity of Booka to produce soya beans was the source of much debate before me, in order to show that the statements concerning soya bean capacity in the brochure under the description of the front property (which I have set out) attracted s.52 and s.53A(1)(b) of the TP Act. I return later to this subject. Following the issue of the brochure there

were two inspections at Booka but no offer was made.

Mr. O'Dea was introduced to Mr. Reeves by a Mr. Dore of Ray White Realty. Mr. Dore gave Mr. O'Dea a copy of the brochure. Ray White Realty was already known to Mr. O'Dea. An inspection of Booka was arranged. This took place early in May 1983. Mr. O'Dea, accompanied by Mr. Hughes, flew to Stanthorpe. He was met there by Mr. Mann and by Mr. Reeves. Mr. O'Dea, Mr. Hughes and Mr. Reeves travelled to the property in one car, Mr. Dore, Mr. Mann and the pilot of the aircraft travelling in another vehicle. The trip out took some twenty

The visit to Booka lasted some 3 to 4 hours. Both Mr. Hughes and Mr. Reeves agreed in the evidence that the subject of price had been brought up in the conversation on this visit. Mr. O'Dea had with him a copy of the brochure and reference was made to the purchase price totalling $1,000,000 shown on the back page of the brochure. Mr. Reeves emphasised the attractiveness of the property, referring to the high rainfall

of the area, the terrain, the level of the improvement of the

Property, the natural water courses and the adaptability of the property to various uses including cultivation of soya beans. Mr. Reeves told Mr. O'Dea that Booka was the best soya bean property in the district. In the course of the discussion as to the price, Mr. Reeves told Mr. O'Dea that he was "very firm" on the $1,000,000 price. Mr. O'Dea said that he was curious as

There then followed, according to Mr. Reeves, a conversation between him and Mr. O'Dea in which he responded to that curiosity of Mr. O'Dea. The evidence of Mr. Hughes was given before that of Mr. Reeves and he was not asked any questions specifically directed to this topic. Indeed, Elders' case was that it had no advance notice of this aspect of the matter until volunteered by Mr. Reeves in his evidence in chief. Mr. O'Dea was not called. It follows that the only account of Mr. Reeves' response to Mr. O'Dea's question is that of Mr. Reeves in chief and in lengthy cross-examination. The matter is an important one because Elders relies upon what it submits was the effect of what was said by Mr. Reeves to Mr. O'Dea as an instance both of overtly misleading or deceptive conduct and of the making of false or misleading statements, as

Mr. Reeves gave evidence to the effect that he was not "doing the homework" for Mr. O'Dea, although he believed that

Mr. O'Dea was ignorant of the value of farms and farming

methods. He also said that his own belief was that the value

of Booka was "far in excess" of the asking price of $1,000,000.

The crucial passage in Mr. Reeves' evidence in chief which is relied upon by Elders, appears at page 681 of the

Was there any discussion on this occasion about price? -

O'Dea said to me your price is a million dollars and he said this to me in the lounge of the homestead and I said yes it is. Are you firm on that price, that is what he asked me, I said very firm.

Well, then, this is an important part of the Matter, as you appreciate, and I want you to take your time and tell his Honour what your response was? - I told him that I had had experience in assisting my father as a valuer over many years, and that the general way to come to the value of a property was, number one to get the unimproved value of that land and then, once you have that, you then take into consideration the sale price of the properties in the near vicinity and then you add to that the structural improvements that you have and then you calculate the cost of improving that country to the state that it is in; and -

You said all those things to O'Dea, did you?

Yes, in that detail.

Yes; Go on? - And O'Dea did not question me on some of those aspects? He did not question me on unimproved value for a start; but he did question me on the cost of improving.

Well, you have told us that you gave him this indication about arriving at your figure? - Yes.

There was also a discussion at this stage concerning the GGI Pig Trust and the preparation and registration of a prospectus. Mr. Reeves engaged his solicitor, Mr. Sullivan of Messrs. Neil Sullivan and Bathersby to act for him in the matter. Mr. Sullivan did not give evidence. His son, who practised with him, did so, but he had played no part in the matter at this stage.

On or about 31 May 1983, a meeting took place between Mr. O'Dea, Mr. Hughes and Mr. O'Dea's solicitor, Mr. Hunt. In the course of that meeting, Mr. Hunt gave advice to the effect that, if a long delay was anticipated during the preparation and registration of the prospectus, O'Dea should attempt to secure an option over the property rather than be tied into the

Following these discussions, Mr. Hunt telephoned Mr. Sullivan. He told him he was acting for a "trust company to be formed", that a delay of between 9 and 12 months was expected in the issue of a prospectus, and that his client suggested an option over Booka for 12 months at a nominal consideration of $100 and "subject to conditions". Mr. Hunt told Mr. Sullivan Elders "will be trustee". Mr. O'Dea had received Mr.

Whether before or after their above discussion with

Mr. Hunt is not clear, but Mr. O'Dea and Mr. Hughes did look at and investigate other properties in the area of south-east

On or about Friday, 3 June 1983, there was another visit to Booka. Those attending were Mr. O'Dea, Mr. Hughes and Mr. Reeves. After the inspection of the property the parties went to Mr. Reeves' house in Stanthorpe where Mr. Sullivan and Mr. Hunt also attended. Mr. O'Dea indicated a willingness to purchase the property but only under an option arrangement. He referred to expected delay in preparation and registration of the prospectus. Elders points to this as indicating that even at this stage it was apparent to Mr. Reeves and Mr. Sullivan, or should have been apparent to Mr. Reeves and Mr. Sullivan, that it was only with moneys to be raised from the public by the prospectus that the purchase could finally be completed. Elders also points to the circumstance that even at these early meetings and conversations it was clear or should have been clear to Mr. Reeves and Mr. Sullivan, that the raising of the money from the public through the prospectus would involve the appointment of a professional trustee company and that, indeed, Mr. Hunt had already told Mr. Sullivan that Elders was to play that role. I accept that Mr. Sullivan appreciated these matters. Mr. Reeves was not quite in the same position. He was anxious, as soon as August 1983, for an early settlement. Both

to him and to Mr. O'Dea an issue to the public pursuant to the

prospectus did not mean that there could not be an earlier settlement of Booka, with temporary finance from some source other than publicly raised funds. Mr. O'Dea was to make considerable efforts to obtain such temporary finance, as I

At the meeting on 3 June 1983, Mr. O'Dea again attempted to negotiate with Mr. Reeves concerning the price but Mr. Reeves again indicated that he was firm as to the $1,000,000. I find that it was at this meeting that Mr. Reeves said to Mr. O'Dea that the price of the property was $1,000,000, that he had not had the property valued and that his assessment of $1,000,000 was based on an assessment by him of the relative values of properties north and south of Booka. I also find that while Mr. Reeves had beliefs as to the values of the properties relative to the $1,000,000 that he placed on Booka, his "assessment" was not a considered process of reasoning as one would expect of a professional valuer. Elders complains of what Mr. Reeves said as an instance of conduct

Mr. Reeves did indicate a willingness to negotiate so far as concerned improvements to the property to suit Mr. O'Dea's purposes. Mr. O'Dea did not then express any concern over the lack of an independent valuation of the property. He had already been told by Mr. Hunt it was probably over-valued.

Mc. Hughes prepared a resume of discussions dated 6 June. A

copy was in evidence. The resume suggests an undertaking on the part of Mr. Reeves to invest $250,000 in the trust. Mr. Reeves denied in his evidence that he made any such commitment and stated that he had been advised against doing so by Mr.

Sullivan. I accept what Mr. Reeves says as to this.

On 9 June 1983, an option agreement was executed by the first respondent and Mr. O'Dea. The agreement was a formal document. The option was to be current for twelve months and was granted for a nominal consideration of $100. Annexed to the option agreement was a draft contract for sale. The parties shown in the draft contract for sale were the first Respondent and Mr. O'Dea, "or his Nominees." The option

For the consideration aforesaid the Owner (the first Respondent] hereby agrees undertakes as follows:-

(a) That it will for its own benefit harvest the soya beans growing on the said property

(b) that during the period October/December, 1983 it shall plant at its own cost approximately 800 acres or more to soya beans on the said property. Until the completion of the proposed Contract the Owner will tend the crop and if the Contract is not completed by the time of commencement of harvest, harvest the next crop of soya beans and market same. In that event and subject to the completion of the proposed Contract the cost of tending (including the cost of any spraying of the crop which may be necessary) and harvesting and marketing the crop shall be borne by' the intending purchaser. Should the

Contract not be completed by the time of commencement of harvest the proceeds of the sale of the crop less the costs of tending harvesting and marketing of same shall be paid by the Owner into the Trust Account of the Solicitors for the Owner and therein retain. Should the Contract be completed the amount so paid into the said Trust Account shall be the property of and payable to the Intending Purchaser but should the option not be exercised in accordance with the terms thereof the amount so paid into the said Trust Account shall be the property of and payable to the Owner.

to the property in accordance with the requirements of the Intending Purchaser

which are to be notified to the Owner, not later than 31st August, 1983.

(d) That it will construct an all weather gravel surface road to minimum required engineering standards (including any necessary crossing or culverts) from the Mount Lindsay Highway fronting the main entrance to the property to the house area of sufficient standard to sustain vehicles of up to 35 tonne weight.

(e) That it will not depasture on the said property any greater number of livestock and [sic] shall be deemed reasonable having regard to the condition of the property and good husbandry thereof.

(B) Between entry into the option and settlement - 22August It is necessary to outline in some detail what follows

in the period between 9 June 1983 and the settlement on 22

August 1984, because Elders relied in particular upon events in this period in support of submissions as to the existence of fiduciary duties owed by the respondents to Elders and the unit holders and, consequently, as to a duty of disclosure to which s.52 of the TP Act applied. These events showed, it was submitted, that the relationship between the parties was more

than that of optionor and optionee, or vendor and purchaser.

After the option was executed, Mr. O'Dea obtained a key to the house on Booka and, as Mr. Reeves put it, "he started to arrive on weekends and treat the homestead as his holiday situation." These visits increased in regularity after August 1983. Mr. Reeves began to undertake the work required under the option agreement including the building of the road

Some time after signing the option Mr. O'Dea telephoned Mr. Reeves and told him he needed to have the property valued. Mr. Reeves expressed surprise but agreed to telephone the valuer indicated to him by Mr. O'Dea, a Mr. Hynes, and arranged a convenient date for Mr. Hynes to visit Booka. 8 July 1983 was the appointed day and Mr. Reeves accompanied Mr. Hynes and a Mr. Lyons on the inspection. This lasted from 10.00am to 4.00pm. Mr. O'Dea had been introduced to Mr. Hynes by Ray White Realty, as a suitable valuer. The

valuation made by Mr. Hynes is undated but refers to an

inspection date of 8 July 1983. The valuation is of land and improvements and describes the property in enthusiastic terms as "well established with excellent improvements" and states that it is "in show condition and is a credit to the management and foresight of the present owners." The valuation contains various components and the total thereof is a figure of $1,185,000.78. Mr. Hynes was known to Mr. Reeves as a bookmaker and he had met him on a social occasion a year before. Mr. Reeves did not know Mr. Hynes was a real estate

After Mr. Hynes' visit, Mr. Reeves telephoned Mr. O'Dea and attempted to draw from him the contents of the valuation. Mr. O'Dea limited his response to telling Mr. Reeves that the valuation "checked out all right". Mr. Reeves was persistent in his attempts to obtain a copy of the valuation and was provided with a copy in September 1983. He examined the valuation closely, later describing it in his evidence as a "fair enough valuation" although he thought the

At the time of Mr. Hynes' visit Mr. Reeves was experiencing problems with the harvesting of the 1983 soya bean crop. Normally harvesting would occur during the months of May and June. However, due to constant wet weather, only one third of the crop had been harvested by 8 July. Fourteen inches of

rain fell between commencement of harvesting in May and final

completion in August. Mr. Reeves engaged contractors to harvest the crop; however the machinery then available was unsuited to harvesting in wet weather, it being of single wheel drive and particularly heavy. Accordingly, although Mr. Reeves had what he described as "a wonderful crop", he could not get it in with the machinery then available to him. The result was that the 1983 crop failed to meet the expected yield and, in

On 18 July 1983, Mr. O'Dea wrote to Mr. Oakshott of Elders, seeking to interest Elders as an investor in his schemes. He referred to an earlier conversation with Mr. Oakshott and enclosed a "Proposal". In it reference was made to the option over Booka and to the first (and thus then the only) Hynes valuation, stating "GGI has commissioned an independent valuer to make a valuation and report on the

In August 1983 there was a discussion between Mr. Reeves and Mr. O'Dea concerning settlement of the conveyance. The conversation took place in Mr. Reeves' house in Stanthorpe. Mr. O'Dea indicated that he would now be purchasing the property on his own behalf and that this would "certainly alter" the date for settlement. Mr. O'Dea said he anticipated this would occur in November. In September 1983 Mr. O'Dea approached Mr. Reeves with an idea of forming and developing "a

rural holiday village" on the property. Mr. O'Dea engaged an

architect who visited the property and suggested more dams be installed. Mr. O'Dea also indicated an interest in further irrigation works and Mr. Reeves arranged for the property to be inspected by the Water Resources Commission. Mr. Reeves was not in favour of irrigating the property. However, at Mr.

Mr. Reeves raised the subject of settlement again in October 1983. He was assured by Mr. O'Dea that there were no problems with finance and that settlement would occur in November. At this time or shortly prior to it Mr. O'Dea approached Mr. Reeves concerning the accommodation of certain stud pigs which had arrived from Canada. Mr. O'Dea sought Mr. Reeves' permission to convert the shearing shed on Booka into a piggery. Mr. Reeves gave permission on the basis that a settlement would take place in November. In early November Mr. Reeves asked Mr. O'Dea "what was the definite date for settlement?" Mr. O'Dea told Mr. Reeves that there were some "hiccups" with finance and that settlement would be in late November or early December. In early December Mr. Reeves again pressed Mr. O'Dea for a definite date. Mr. O'Dea replied that he had not concluded negotiations and as Christmas was imminent there would be no further opportunity to negotiate until after the Christmas period. Mr. Reeves was told that settlement would occur in late January. Mr. Reeves expressed no overt

annoyance although he was "not very pleased about it".

On 9 December 1983 Mr. Reeves was sent a copy of a draft prospectus. This was under cover of a letter from Mr. Hughes which also contained an invitation to join the board of GGI "after settlement". Mr. Reeves denied any recollection of receiving any copy of the draft prospectus. However, he said in evidence (which I accept) that in any event he wasn't particularly interested in Mr. O'Dea's schemes, as long as Mr. O'Dea purchased the property. In late December 1983, Mr. Reeves planted another crop of soya beans, the disposition of the proceeds of which would be governed by the provisions of clause 2(b) of the option agreement. In January 1984, Mr. Reeves phoned Mr. O'Dea concerning dates for settlement. Mr. O'Dea replied he was still having difficulties arranging finance and that settlement would occur in February 1984. In that month Mr. Reeves was told that settlement would take place on 28 March 1984. During January 1984, Mr. Hughes and possibly Mr. O'Dea arranged for Sir William Gunn to inspect Booka. After the inspection lunch was provided at Mr. Reeves' house in

On 6 February 1984 GGI converted to public company status under the Code. A further meeting was arranged for the discussion of settlement of the purchase for 26 February 1984, at Mr. Reeves' house in Stanthorpe. On 28 February, Mr. O'Dea wrote to Mr. Reeves purporting to set out the matters "agreed upon" at that meeting, including that "upon settlement" Mr.

Reeves would become a director of GGI. In his evidence, Mr.

Reeves strongly disputed the accuracy of other material there recorded, in particular statements that he had agreed to invest $150,000 in GGI and that "it was agreed that upon settlement you [i.e. Mr. Reeves] would advance $100,000 for a period of 120 days." Mr. Reeves said (and I accept) that various suggestions had been put to him, but that he had asked Mr. O'Dea to put them in writing and that there had been no

In late January or early February 1984 a severe hailstorm struck the soya bean crop growing at Booka. Mr. Reeves immediately spoke by telephone to Mr. O'Dea. On the same day Messrs. Hughes and O'Dea arrived by plane at Stanthorpe

At this time, Mr. O'Dea was still attempting to have the prospectus settled and the delay had necessitated the obtaining of a fresh valuation. Mr. Hynes was again retained by Mr. O'Dea to value Booka. For this purpose a further inspection took place on 6 March 1984. The duration of the inspection was much shorter on this occasion, and the "updated value" of the property was stated to be $1,356,524. The increase was said to be on the basis of an improvement in the economy, improvement to the fixtures on the property and a rise in land values generally and in the Tenterfield area in particular. The valuation does not bear a date of issue. Mr.

Reeves received a copy of this valuation through Mr. 0'Dea.

It might also be noted that the prospectus contains a further valuer's report by Mr. Hynes. This is dated 7 June 1984 and was issued to the directors of GGI. It discloses that on 30 May 1984 Mr. Hynes had valued three properties situated on the other side of the Mount Lindsay Highway to Booka and that in respect of each of these properties an option to purchase was held. The respondents did not own any of these properties. The first property had an area of approximately 885 hectares, the second 588 hectares, the third 774 hectares. The first and second properties were in New South Wales and the third, which adjoined the first, was across the border in Queensland. The purchase prices under the option arrangements as disclosed in the prospectus were, in respect of the first property $1,312,800, in respect of the second $700,000 and in respect of the third $670,000. In the declaration made in his valuer's report of 7 June 1984, Mr. Hynes declared that he was a registered valuer and had been involved in rural valuations since 1967. However, in fact he was not registered as such in New South Wales. He also declared in the prospectus that he did not have any direct or indirect relationship with Elders,

During March 1984, Mr. O'Dea asked Mr. Reeves to enquire about the installation of a seed drying plant at Booka. Mr. Reeves told Mr. O'Dea that he believed that there were

difficulties involved in such a project. Mr. O'Dea was

concerned at the high price of planting seed and Mr. Reeves made the enquiry requested of him and in due course a drying plant was purchased by GGI. At this time Mr. Reeves was completing the work he had undertaken under the option agreement. The road work was completed at a cost of between $6,000 and $7,000. The work on the installation of the electricity was undertaken at a cost of $9,300. As I have indicated, the soya bean crop had been planted and this was at a cost of $63,000 excluding Mr. Reeves' labour. Mr. Reeves worked long hours on this task, over a period of several weeks

A further meeting was held in Brisbane on 20 March 1984. In attendance were Mr. O'Dea, Mr. Reeves, Mr. Sullivan and Mr. Hunt. Further discussion occurred concerning the investment by Mr. Reeves in the trust. The discussion was mainly between Mr. Sullivan, Mr. O'Dea and Mr. Hunt. Mr. Reeves said in evidence that the content of discussion was "way beyond" him. However, settlement was again postponed until 6 April 1984. The reason again being failure to finalize the provision of finance to enable the purchase of Booka to go ahead. Discussions also took place concerning the payment of "a salary" to Mr. Reeves of $37,000. Mr. Reeves accepted the

amount proposed. No mention was made as to when it was payable.

On 9 March 1984, Mr. O'Dea wrote to Elders seeking a loan in favour of QFP Properties Pty. Limited for the sum of $1.45 million. Mr. O'Dea also wrote on 22 March 1984 to the Sydney manager of a related company of Elders, Elders Corporate Finance, seeking finance from that company. He said that an immediate objective was to purchase Booka and that if finance were forthcoming settlement could then be arranged for 20 April

On 16 March 19864 Mr. O'Dea went to the offices of Elders in order to speak with Mr. Lamshed, a legal officer employed by Elders. On this occasion Mr. O'Dea also met Mr. Wood. Mr. Wood was the only officer of Elders who gave evidence at the trial. Mr. O'Dea had an impromptu discussion with Mr. Wood for a couple of hours. Mr. Wood gave evidence that details were not discussed and that he did not send for any files held by Elders in respect of Mr. O'Dea's projects. He said that the matter at that stage was essentially in the hands of Mr. Lamshed. Mr. O'Dea discussed with Mr. Wood possible sources of finance to provide funds to enable the purchase of Booka to take place in preparation for the funds to flow into the public trust. This, in Mr. Wood's view, was the specific thrust of the meeting. Mr. O'Dea gave Mr. Wood copies of the two Hynes valuations of Booka. In response to Mr. Wood's query as to whether they were at arm's length and by a valuer qualified to value that type of property, Mr. O'Dea said Mr. Hynes had been selected at random from the list of the New

Mr. Wood said in evidence that he did not know about the details of the matter as it was in Mr. Lamshed's hands; he felt that involvement by him at that stage would have been

Premature, stating that often a couple of years elapse for

At the meeting Mr. O'Dea handed to Mr. Wood a number of documents. They included in addition to the Hynes valuations, a paper prepared by Mr. Reeves which concerned the

stocking of Booka with cattle and dealing inter alia, with

"financial returns and estimated costs". Mr. Wood did not study the bundle of documents but said "they revolved around justification of figures in the draft prospectus". These were photocopied and sent by Mr. Wood to a finance company, Beneficial Finance Corporation Limited, under cover of a letter from Elders dated 16 March 1984. The letter was addressed to Mr. Richard Thomas of Beneficial Finance. It included the

G.G.I. require approximately $1.4M (including Prepaid interest for six to twelve months) to complete the purchase of the Stanthorpe property and provide working capital for preparation of Prospectus and advertising material for the public trust.

The existing private trust has been operating for some time and it is proposed to integrate it into a new public trust with Elders acting as Trustee for investors. The Trust Deed appears to satisfy Corporate Affairs and it is proposed to raise $7M. from public subscriptions.

Amongst the enclosed papers is a list of existing investors in the private trust which may be of interest to you. There are also some details of an option over ae site for an additional processing works which will require a further option fee to be paid in the near future. Also included is a letter from NatWest signifying the terms under which they would advance the funds. I spoke to the Brisbane Manager of NatWest today and he informed me that "because of a bad experience with a piggery, their Directors are not keen to take on this type of loan". He also said that they had no objection to lending to the princpals [sic] of Q.F.P. and had previous good experience with then.

Perhaps you could telephone me on Monday when you have had the opportunity of reviewing this

collection of paper. We can then decide on future strategy in regard to Mr. O'Dea.

The approach to this possible source of funding was not successful. After March 1984, Mr. O'Dea telephoned Mr. Wood regularly to inform him of his progress. Mr. Wood's attitude was that the trust deed and the prospectus had not been finalised, and that the latter was the responsibility of GGI as manager. There was, he said in evidence, "no need for me to

Following his meeting with Mr. Wood, Mr. O'Dea wrote to Mr. Reeves setting out his difficulties in obtaining finance. However, Mr. O'Dea said that he had had "a very positive indication from Beneficial Finance" and that he remained "confident of an April settlement but until I receive

It will be recalled that the option agreement had been executed on 9 June 1983 and was open for twelve months. In May 1984 a meeting was held at Mr. Hunt's office. In attendance were Mr. Reeves, Mr. O'Dea and Mr. Hunt. The question of investment by Mr. Reeves in the trust was again raised. Mr. Reeves agreed to invest $110,000 provided that security and terms were sufficient. In particular, Mr. Reeves wanted a personal guarantee from Mr. O'Dea and his companies. Mr. Reeves asked Mr. O'Dea what the purpose of the loan was. Mr. O'Dea replied that the money was needed to satisfy a "Corporate Affairs requirement for a minimum asset backing" and also for

On 9 April 1984, Mr. O'Dea wrote to Mr. Reeves, referred to prior discussions, and requested Mr. Reeves to order concrete to finish a piggery and to form the base for silos that had been ordered for Booka; Mr. Reeves was also asked to obtain an order book "for day to day items" for Booka. Authorized signatories were to include Mr. Reeves, and the

letter stated "purchases in excess of $50 will need approval."

In May, shortly before the start of harvesting, an early frost further damaged the soya bean crop. On 11 May Mr. Mann visited Booka and then reported on the state of the soya

Mr. Reeves had suggested to Mr. O'Dea that he explore the obtaining of finance with a Father O'Dwyer who conducted a business under the name "Burwood Business Services". In the course of May Mr. O'Dea wrote to Father O'Dwyer submitting a paper "upon the recommendation of Mr. Reeves". A meeting was then held in Sydney attended by Mr. O'Dea and Mr. Reeves with Father O'Dwyer, but nothing came of it. Father O'Dwyer had previously been known to Mr. Reeves as a parish priest. In the paper submitted by Mr. O'Dea it was made plain that finance was needed to purchase Booka and that moneys borrowed would be

repaid from funds proposed to be raised from the public.

By now the term of the option was running out and also Mr. Reeves was very anxious for settlement. Towards the end of May another meeting was arranged with Mr. O'Dea. The meeting was at Mr. Reeves' house in Stanthorpe. Mr. Sullivan also attended. Mr. Reeves was agitated at the continual postponement of settlement. He told Mr. O'Dea he would not be continuing with the sale, that he had made plans to go overseas, that the option was to expire shortly and that he was selling the property too cheaply. Mr. O'Dea was apologetic and said he had made improvements to the property which were evidence of his good faith. After discussions aside with Mr. Sullivan, Mr. Reeves agreed to extend the option on conditions which included a more substantial deposit and interest to be payable on the purchase price if the conveyance were not settled by the end of the extension period. Mr. O'Dea said

that the purchaser would be himself or one of his companies.

Mr. Sullivan then prepared an extension of the option and the agreement effecting this was executed on 9 June 1984. It provided that in consideration of the sum of $25,000 the first respondent agreed to extend the option period until 4.00pm on 16 June 1984, that is to say by one week. The sum of $25,000 was to be part of the purchase price if the option was exercised, otherwise it was to be forfeited. The agreement also provided that completion of the purchase would be no later than 16 July 1984 and that time would be of the essence. In due course, $25,000 was, on eventual settlement in August, allowed

As I have mentioned, at the meeting of 20 March 1984 in Brisbane there was some discussion concerning a "remuneration package" between Mr. O'Dea and Mr. Reeves. Early in June 1984, Mr. Reeves approached Mr. O'Dea and said that it was about time Mr. O'Dea "hit the can on this wage". Mr. O'Dea replied that he was short of funds and asked Mr. Reeves if he could wait until settlement of the purchase of Booka. Mr. Reeves said that he could use the money on his forthcoming overseas holiday and Mr. O'Dea agreed to arrange for an American Express card to be available to Mr. Reeves whilst he was overseas. In the further course of this meeting Mr. Reeves continued to express scepticism. He asked Mr. O'Dea to signa document prepared by him and typed up on the spot by Mrs.

Reeves which embodied the understanding Mr. Reeves had reached

with Mr. O'Dea. The document is undated and signed by Mr. Reeves and Mr. O'Dea. Before signing the document Mr. 0O'Dea altered it with respect to the provision as to settlement date saying that he thought it was "better to leave it more open."

REGARDING THE AGREEMENT BETWEEN MR. PAT O'DEA AND GOLDEN GROVE INDUSTRIES AND E.G. REEVES WHICH

Pat O'Dea has agreed to arrange for an American Express Credit Card to be issued on the account of Golden Grove Industries which E.G. Reeves can personally use immediately on issue.

If an account is received by Golden Grove Industries from American Express prior to the "Settlement" date of "Booka" (ie £3 Jguty) this amount will be paid by Christopher Reeves [Mr. and Mrs. Reeves' son] on presentation to him and out of the bank account of E.G. Reeves Pty. Ltd. The amount paid prior to "Settlement" will be reimbursed to the account of E.G. Reeves Pty. Ltd. on "Settlement".

It is agreed that the amounts paid for charges on this credit card by Golden Grove Industries will be deducted from the annual salary of $37,000. and classified as "Travelling & Entertainment Expenses".

At the expiry of one (1) year from the date of settlement the difference between $37,000.00 and the "Travelling & Entertainment Expenses" will be paid to E.G. Reeves Pty. Ltd. as a salary.

E.G. Reeves agrees that the amount charged to the Credit Card account will not exceed the amount of $10,000.00 at any one time.

Mr. Reeves signed the necessary documents to apply for the issue of the card by American Express and he collected the card when he was in Athens. The card was valid from 7 July to the end of August 1984. Expenses were incurred using the card and these were paid by cheque drawn on GGI's account as manager of the GGI Pig Trust, payable to the first respondent and endorsed by Mr. Reeves on behalf of the first respondent to American Express. Payments to American Express by this method totalled $16,375.70. These were the only payments received by Mr. Reeves under the above arrangements. He later claimed a balance outstanding of $5,173.75, as at 17 April 1985 in

On 8 June 1984 Mr. O'Dea wrote to Mr. Reeves informing him that settlement of Booka would be effected on 22 June 1984. The purchaser was stated to be QFP Properties Limited and the solicitor acting for the purchaser was to be Messrs. Greg Delaney and Associates. It was this firm which acted for the mortgagees on the contributory mortgage to which I earlier

On 15 June 1984 the option was exercised. The notice of exercise of the option was directed to the first respondent, signed by Mr. O'Dea and stated that he nominated "QFP Properties Pty. Limited or its Nominee" to be the purchaser

under the contract. The notice of exercise of the option also

stated that the sum of $25,000 was tendered therewith in payment of the deposit provided in the contract annexed to the

After the exercise of the option, a conversation occurred at Stanthorpe concerning settlement. Mr. Reeves asked Mr. O'Dea who the purchaser was to be and Mr. O'Dea answered that it was "either myself or QFP Properties Limited." The form of the consideration was discussed. Mr. O'Dea told Mr. Reeves he would pay approximately $500,000 on settlement with the remainder of the purchase price to be secured by a second mortgage over Booka, a second mortgage over the piggery at Young and a bill of sale over the equipment at Booka. Mr. Reeves was not satisfied and required mortgage insurance of

On 19 June 1984 Mr. Reeves had a discussion with Mr. O'Dea concerning the way in which Mr. O'Dea wanted the cheques for the investment of $110,000 to be made out. As I have related, this investment had been discussed in a meeting in May. Mr. O'Dea wanted two cheques. The first was to be for $50,000 in favour of GGI in consideration for the issue of non participating redeemable shares in GGI to be repurchased within twelve months of the date of issue. The second cheque for $60,000 was to be drawn in favour of Mr. O'Dea personally as a

The departure of Mr. and Mrs. Reeves for their overseas trip was now imminent. They were to visit Greece. They had a daughter living in Athens. They were to be joined on their trip by the solicitor Mr. Sullivan. Mr. Reeves told Mr. O'Dea at the meeting on 19 June that he had appointed as attorneys in his absence his son Christopher and Mr. Stephen Sullivan. Mr. and Mrs. Reeves, and Mr. Sullivan departed Australia on 25 June 1984. Mr. Stephen Sullivan was in practice with his father. He had been given the file on 16-17 June and

had the conduct of the matter in his father's absence.

An executed contract for sale of Booka bears the date 25 June 1984. The parties are identified as the first respondent as vendor and Mr. O'Dea "or his nominee" as purchaser. Mr. Reeves gave evidence that he signed the contract on 19 June but did not recall whether the document was then dated. Special Condition "N" to the Contract contained an acknowledgment by the first respondent and by the purchaser that the former had planted, at its cost, approximately 800 acres or more of soya beans on Booka and that the crop had been harvested in part. It went on to provide for the first respondent to account to the purchaser for the nett proceeds of sale less expenses of tending, spraying, harvesting and marketing the crops. On the settlement in August, $16,140.73

On 22 June Mr. Reeves signed two cheques for a total of $110,000 on the account of the first respondent. Both were payable to "Golden Grove Industries or bearer"; one was for $50,000. and the other for $60,000. He left them with his son, one of his attorneys. Mr. Reeves gave evidence that at that time he did not know the identity of the purchaser but that he understood that Mr. O'Dea was to purchase the property. He said he was in a "state of confusion," although he did not contemplate that the purchaser would be an entity unassociated

At the trial much attention was directed to the issue of whether before settlement on 22 August 1984 (on or before which date Elders alleges Mr. Reeves and the first respondent were bound to make, but failed to make, disclosure to Elders of various matters concerning Booka, of which Elders complained) Mr. Reeves had become a director of GGI. The books of GGI were not in evidence and in particular the Register of Directors was not before me. One cannot tell at what stage in a formal sense Mr. Reeves became a director of GGI. Certainly on 15 October 1984 Mr. Reeves attended, as a director, a director's meeting of GGI. This was some two weeks after his return from his foreign trip. Also, on 16 October 1984 Mr. Reeves signed a formal concurrence to his name appearing in the prospectus as a director of GGI. Further, the negotiations between Mr. Reeves and Mr. O'Dea had been on the footing that Mr. Reeves would

become a director after settlement or upon settlement of the

sale of Booka. Before he had left Australia on 25 June, Mr. Reeves had told Mr. O'Dea that on his return he would be

prepared to accept the invitation to join the board of GGI.

Consistent with this is a letter from Mr. Hunt to Mr. O'Dea dated 11 September 1984 in which, after dealing with a number of "loose ends" concerning directors' minutes and other formal matters affecting GGI, Mr. Hunt added as a postscript that he enclosed "the forms of consent to act as director for signature by Messrs. Hughes, Dunn, Sullivan and Reeves". The tenor of the letter is that there had been some lack of attention by Mr. O'Dea to formalities concerning the internal management of GGI and, no doubt, with the issue of the prospectus imminent, Mr. Hunt was anxious to put matters in good order. On 14 September, Mr. Hughes replied to Mr. Hunt's letter to Mr. O'Dea. He stated that "the two consent to act forms from Messrs. Reeves and Sullivan will be passed to you

The evidence included a form 56 under the Code. This is expressed to be a consent to act as a director of GGI, signed by Mr. Reeves. There was considerable dispute at the hearing as to the date when the document was signed. It bears the date 19 June 1984. Mr. Reeves denied that he had signed the document prior to leaving Australia on 25 June 1984 and denied he had agreed to become a director with effect prior to settlement of Booka. In the minutes of the meeting of directors of GGI on 21 June 1984 a reference is made to the

of the Company. However, Mr. Hunt's letter of 11 September 1984, to which I have already referred suggests some caution is appropriate in relying upon the accuracy of GGI minutes for this period. Onl August 1984 Mr. Bryan Hughes wrote to Mr. Hunt stating that companies forms 56 had been completed "for Messrs. Reeves and Sullivan" and were "held in this office". In the context of the letter, I read this as referring to typed up but unsigned

On 7 August 1984 Mr. Hughes wrote again to Mr. Hunt. The letter purports to enclose signed copies of form 56 for Messrs. Reeves and Sullivan, "for your action please". By this time Mr. Reeves and Mr. Sullivan had been absent from Australia for some six weeks. I have carefully considered Mr. Hughes' evidence on this topic and have come to the conclusion that his recollection here was in error and that in fact no form 56 signed by Mr. Reeves was sent to Mr. Hunt under cover of that letter. The true picture emerges more accurately, in my view, from Mr. Hunt's letter of 11 September, which bears the hall-marks of careful attention to detail and from Mr. Hughes' own reply of 14 September, 1984, which I have earlier described.

Sometime in October, Mr. O'Dea phoned Mr. Reeves and asked him if he could arrange for himself and Mr. Sullivan to meet a plane at Stanthorpe to sign some urgent papers. Mr. O'Dea indicated that the documents were related to the preparation of the prospectus. The plane arrived and the documents were signed by Mr. Reeves on the wing of the aircraft. On the balance of probability I find it was at this

date that Mr. Reeves signed the consent to act as director.

The degree of attention devoted in the evidence to the issue of the date of the signing by Mr. Reeves of the form of consent to act was disproportionate to its overall importance. To consent to act as a director is one matter and to become a director de jure is another. Elders sought to show that before settlement Mr. Reeves had become a director of GGI. It then sought to rely upon this circumstance in aid of its case that the respondents had failed to make material disclosures before settlement and that there thus had been misleading or deceptive conduct which caused loss or damage to

The definition of "director" for the purposes of the Code, which is contained in sub-s.5(1) thereof, includes a

person, to put it shortly, acting de facto as a director

(Corporate Affairs Commission v Drysdale (1978) 141 CLR 236) and the case that Mr. Reeves was acting informally as a

director could have been assisted if he had signed a form of

consent before he left Australia. However, my conclusion is that the whole thrust of the pre-settlement negotiations between the parties was that Mr. Reeves would not formally become a director until settlement. Whether he became a

director de facto before settlement is another question,

depending as it does upon the activities of Mr. Reeves in all the circumstances of the case. However, the finding that in the

relevant period Mr. Reeves was a de facto director of GGI is

hardly assisted by Mr. Reeves absence from the country from 25 June 1984 to 1 October 1984. Nor is there any evidence to suggest that during this period Mr. Reeves was in contact with

In the end, counsel for Elders accepted that the activities upon which he relied to establish the proposition

that Mr. Reeves become a de facto director were in essence the

same activities as relied upon to show that Mr. Reeves or the first respondent (or both) had become a promoter or otherwise a fiduciary in the circumstances of the case. I shall deal later

I return to 25 June 1984, the day Mr. Reeves and his party left Australia. The documents dated with that date include two agreements entered into between the first respondent and Mr. O'Dea, with respect to plant and equipment at Booka and payment of interest. Mr. O'Dea agreed to purchase

the plant and equipment as particularized in the schedule for

$86,000 to be paid on completion of the contract for the purchase of Booka. The other agreement (identified in evidence as the Deed of Extension) was signed by Mr. Reeves on behalf of the first respondent, ("the vendor"), and by Mr. O'Dea. "The purchaser" was identified therein as Mr. O'Dea "(or His [sic] nominee)". The recitals and operative portions of the

WHEREAS the parties hereto are the parties to an Agreement for sale of land more particularly described in the said Agreement bearing date the Twenty-fifth day of June 1984 and the parties to an Agreement for sale of certain plant and machinery more particularly described in the said Agreement bearing date therewith

AND WHEREAS pursuant to the terms of the said Agreements completion was to take place not later that the Thirteenth [sic] day of July 1984 when the Purchaser was to pay to the Vendor the sum of $1,086,000.00 less the amount of $25,100.00 which had been paid by way of deposit under the said Agreements

AND WHEREAS the Purchaser has requested an extension of that time within which to effect completion which the Vendor has agreed to allow upon the Purchaser entering into these presents

In consideration of the Vendor allowing an extension of time within which the said Agreements may be completed until the Thirty-first day of August, 1984, which the Vendor hereby agrees to allow the Purchaser agrees to pay to the Vendor on the sum of $1,060,900.00 interest at the rate of 17.16 per centum per annum as from the Ninth day of June 1984 until the date of completion and such amount of interest shall be paid on completion together with the sum payable on completion.

On 2 July 1984 Mr. Wood, on behalf of Elders, wrote to Mr. O'Dea confirming Elders' consent to act as trustee of the GGI Rural and Income Trust. The minutes of meeting of Directors of GGI held on 10 July 1964 state that in addition to agreeing to act as trustee Elders had agreed "as trustee of the trust to purchase the property at Tenterfield from E.G. Reeves

In July, whilst in Greece, Mr. Reeves received an urgent message from his son Christopher asking that he telephone him. Mr. Reeves did so, they discussed the proposed loan from Mr. Reeves to Mr. O'Dea of $110,000. Mr. Reeves told his son he wanted the whole of the loan to be a "straight out loan to O'Dea." A couple of days later there was a further telephone conversation between father and son. Mr. Reeves was told that the loan would be made in favour of Elgin Insurance Group Pty. Ltd.. Mr. Reeves had never heard of this company. He was told by his son that it was "O''Dea's trust company". This understanding is confirmed by Mr. Stephen Sullivan's

letter to Mr. Hunt of 25 July, to which shortly I will come.

On 17 or 18 July, Mr. Stephen Sullivan telephoned Mr. Peter Dunn an accountant of GGI. He sought information regarding the Young property for the preparation of the mortgage documents. At this stage the projected completion date was 31 July 1984. Mr. Sullivan also asked Mr. Dunn who would be the registered proprietor and mortgagee (sic) of

Booka. Mr. Sullivan's note of the answer is in these terms:-

The registered proprietor and therefore the mortgagee [sic] of the Bookookarara property would probably be Elders Trustee and Executor Company Limited. Mr. Dunn also indicated that he assumed Elders would also be purchaser of the plant at Booka but that "the whole thing

hinged" on a meeting of unit holders scheduled for 25 July.

Mr. Stephen Sullivan gave careful and accurate evidence of the events surrounding the settlement. Mr. Sullivan said that his conversation with Mr. Dunn on 17 or 18 July was the first occasion in which it had been indicated to him that Elders was to be involved in the purchase of the property. He had made the enquiry of Mr. Dunn because with the projected settlement date only 13 to 14 days away he was anxious as he did not yet have with certainty the name of the

On 18 July 1984 Mr. Sullivan wrote to Mr. Hunt setting out details concerning the conveyance and_ requesting information as to the role of Elders as purchaser. On 23 July Mr. Hunt wrote to Mr. Astley of Messrs. Finlaysons 1n Adelaide. That firm acted for Elders. Mr. Hunt enclosed what he "hoped" would be the final draft of the trust deed, noting that Elders would purchase Booka as trustee subject to the proposed

On 24 July, Mr. Hunt telephoned Mr. Sullivan and told him that he (Mr. Hunt) had been told Elders would be the purchaser. Mr. Sullivan then had a telephone conversation with Mr. Reeves (who was still in Europe) in the course of which he told him Elders would be the purchaser. There were expressions of mutual reassurance in dealing with a company of the standing of Elders. At no stage in the transaction was Mr. Stephen Sullivan made aware of the involvement of Messrs. Finlaysons of Adelaide as solicitors for Elders. He dealt only with Mr. Hunt. Mr. Hunt requested Mr. Sullivan, in this conversation, of 24 July, to provide a contract showing Elders as the purchaser of Booka, in substitution for the contract dated 25 June 1984 in favour of Mr. O'Dea "or his nominee". No request

was made to vary or supersede the Deed of Extension.

On 24 July Mr. Hunt wrote to Mr. Sullivan replying to three letters, one of 11 July and two of 18 July. This letter of 24 July states that:-

QFP Properties Pty Limited would retire as trustee and Elders would be appointed as trustee at a meeting of unit holders to be held on 25 July. The letter confirms that Elders would be purchasing the property as trustee. The trust deed of 30 February 1982 was to be replaced with a new trust deed, at that date not yet

executed. The letter also indicates that arrangements for the

loan of $110,000 from Mr. Reeves to Mr. O'Dea had not been completed. On 24 July 1984, Mr. Hunt wrote to Messrs. Finlaysons enclosing a form of transfer to be completed by Elders on the understanding that it was to be the purchaser of

On 24 July, presumably after Mr. Reeves had spoken from Greece to his son, Mr. Sullivan wrote to Mr. Hunt enclosing a draft loan agreement and guarantee for the advance from Mr. Reeves to Elgin Insurance Group Pty. Ltd.. By now it had become apparent to Mr. Sullivan that the target settlement date of 31 July had been abandoned. On 25 July, QFP Properties Pty. Limited retired as trustee in consequence of the special resolution passed by an extraordinary meeting of unit holders. Elders was duly appointed by GGI to act as trustee of the trust and the meeting of unit holders approved that appointment. On the same day, 25 July, Mr. Sullivan wrote to Mr. Hunt enclosing drafts of a loan agreement between the first respondent and Elgin Insurance Group Pty. Ltd., and of a guarantee by Mr. and Mrs. O'Dea, GGI and Queensland Financial Planning Pty. Ltd. In the letter Mr. Sullivan said he understood Elgin Insurance Group Pty. Ltd. to be the trustee of

On 30 July Messrs. Jennings and Kneipp, Mr. Sullivan's agents in New South Wales, sent to Mr. Hunt the following

A second mortgage over Booka nominating Elders as mortgagor and the first respondent as mortgagee [it is upon the covenants as to payment in this document that the cross claim is brought in the present proceedings]

A third mortgage in respect of the property at Young nominating QFP Properties Pty. Ltd. as mortgagor and Mr. Reeves as mortgagee.

On 6 August 1984 the deed of appointment nominating Elders as incoming trustee and the new deed of trust were executed. On the same day Mr. Hunt wrote to Mr. Astley of Messrs Finlaysons stating that his firm had now received mortgages in respect both of the loan of $813,000 (being first security over Booka) and of the balance of the purchase (being $490,000) which would remain owing to Mr. Reeves. The letter states that owing to the difficulty of having the Young property transferred, Mr. Reeves' third mortgage would be registered on the existing Certificate of Title. There would then be a transfer to Elders subject to the three mortgages. On 6 August a meeting of the directors of GGI resolved that GGI act as guarantor for the lease by QFP Properties Pty. Limited of a grain dryer and moisture meter, three silos and a hopper

On 14 August 1984 Mr. Hunt wrote to Mr. Sullivan enclosing various securities executed by Elders, including the

The execution of these instruments by Elders, in escrow, had been in Adelaide on or about 13 August 1984 under the supervision of Mr. Wood. He had relied on his legal staff (Mc. Lamshed) and Elders' solicitors to get the transaction ready for settlement. Not until 1985 did Mr. Wood see any settlement sheet showing how moneys had been disbursed on 22 August 1984. Elders arranged for the security documents I have

Before executing the documents Mr. Wood perused a note written by Mr. Lamshed containing details of the proposed application of funds on settlement. It was headed "Pat O'Dea 25/7/84". It included the words "New contract between ET and vendor on way likewise mortgages." There was no reference to such matters as the loan of $110,000 to Elgin Insurance Group Pty. Ltd., the operation of the Deed of Extension, and the provisions as to the interest rate on the two mortgages to be given by Elders. A note on the document indicates attendances by Mr. Lamshed upon Mr. Astley of Messrs. Finlaysons on 25 July

On 17 August Mr. Sullivan wrote to Mr. Hunt reiterating that Mr. Hunt's firm was acting on behalf of Elders as mortgagor. The letter goes on to provide for an amendment to the mortgage with the effect of deferring payment of $20,000

to the mortgagee for three months. The letter also required

that priority be conceded to the incoming finance over the Young property and that finance secured over the Young property be limited to $400,000 rather than the $450,000 proposed. More importantly, the letter points out that clause 36(9) of the new Trust Deed limited the borrowings of the trust to 60% of the gross asset value of the trust fund. Mr. Stephen Sullivan requested the supply of certificates that the borrowings on the first mortgage over Booka of $813,000 and on the Reeves

These certificates were provided both by Elders and GGI to Mr. Sullivan and to the contributory mortgagees. They are dated 20 August 1984. At this stage no valuation of Booka, on the evidence, had been undertaken by a valuer other than Mr. Hynes. There is no evidence one way or another as to whether a valuation of the Young property had been provided at this

Later, on 11 September 1984 Messrs. Duesburys, auditors of GGI and the GGI Unit Trust wrote as follows to

We are under instructions from the Manager [ie GGI}] to confirm with you that the Trust has complied with Clause 36(9) of the Trust Deed dated 6th August 1984.

Based on independent valuations of the properties owned by the Trust and as ae result of investigations into the other assets and liabilities of the Trust as at 3lst August 1984, we are now able to confirm that the total

liabilities of the Trust did not amount to more than 60% of the Gross Asset Value of the Fund as defined by Clause 15(1) of the Deed as at that

date. On 27 August 1984 Messrs. L.J. Hooker had signed a valuation of the Young property at $850,000 (land and improvements). This

was seven days after the issue of the certificates.

At a glance

Court

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Judgment (689 paragraphs)

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Legislation Cited (1)

Cases Cited (42)

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