GIRGIS -v- POLIWKA [No 6] [2019] WASC 230 (2 July 2019)

GIRGIS -v- POLIWKA [No 6] [2019] WASC 230 (2 July 2019) - WASC 2019 case summary — Zoe

[129]

In mid-October 2007 Mr Girgis was a 23 year old university student who had been working part-time as a trainee property valuer. Mr Girgis was preparing for his final university exams. On 23 October 2007 Mr Girgis won $30 million in Oz Lotto. Shortly after that stroke of good fortune an acquaintance referred Mr Girgis to Mr Poliwka. Mr Poliwka, then 57 years old, operated a real estate business called 'First Western Realty' (FWR) in Joondalup through the company Poliwka Group.
Thereafter, until mid to late 2012, there was an ongoing relationship between Mr Girgis and Mr Poliwka.
The precise nature of the parties' relationship is in dispute in these proceedings. However, it is common ground that Mr Girgis' and Mr Poliwka's dealings involved purchasing together (through various entities) in late 2008 and early 2009 what are described as the Midland Hotel, the Pub business and a vessel called the Moonlight Express together with its associated Charter business. At around the same time one of Mr Girgis' entities, Girgis Nominees, also purchased properties - the Joondalup Property and the Watermans Bay Property - from a seller who used FWR as the selling agent. Later FWR (ie Poliwka Group) became managing and leasing agent in relation to the Joondalup Property.
Between October 2008 and September 2012 Mr Girgis, and entities associated with him, made advances to meet liabilities incurred in connection with the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. According to Mr Poliwka this was done pursuant to a shareholder agreement whereby trusts associated with the two of them would contribute equally to the acquisition and all ongoing costs associated with the Moonlight Express, its Charter business and the Pub business.
At the time the relationship between Mr Girgis and Mr Poliwka ended there was a substantial amount of unrecouped advances on the part of Mr Girgis and his entities. Legal costs were incurred seeking to recover those amounts. And in 2016 Mr Girgis had to make payment to ME Bank under a guarantee he had provided in connection with borrowings related to the Midland Hotel. In total Mr Girgis pointed to alleged losses of $3,441,815.03 (unrecouped advances of $2,451,350, costs of $135,598.88 and $854,866.15 as to the guarantee payment).
Mr Girgis and Girgis Nominees brought these proceedings against Mr Poliwka and two entities associated with him (Poliwka Group trading as FWR and FWA) seeking to recover the $3,441,815.03. It was alleged that the defendants had:
- engaged in misleading or deceptive conduct in trade or commerce in contravention of various statutory provisions; further or alternatively
- made actionable negligent mis-representations in breach of a duty to exercise reasonable care, skill and diligence in advising the plaintiffs in relation to matters concerning the investment of money.
Mr Poliwka and the other defendants denied the allegations. The Poliwka parties also counterclaimed claiming that, in breach of the shareholder agreement, the Girgis parties had stopped making contributions for their 50 per cent share of the costs associated with the Moonlight Express, its Charter business and the Pub business. In opening their case on the counterclaim the Poliwka parties alleged that their contributions exceeded those of the Girgis parties by $805,378. The Poliwka parties counterclaimed to recover half of that amount ($402,689). FWA also claimed $29,180.52 based on having to make an additional advance to cover interest and bank fees incurred as a result of the Girgis parties allegedly not making a timely payment to a third party financier.
A separate claim was made by Girgis Nominees in relation to the Joondalup Property. Essentially two matters were the subject of complaint. First, the initial purchase of the Joondalup Property. Second, a late 2009 change in tenant (here Girgis Nominees relied in part on FWR's role as managing and leasing agent in the surrender of a pre-existing lease and the introduction of a new tenant). As to the latter, Girgis Nominees alleged a contractual breach of an obligation to conduct due diligence and use best endeavours. More generally the claim is again put in terms of alleged misleading or deceptive conduct, further or alternatively, tortious negligent mis‑statement in breach of a duty of care.
The loss alleged in relation to the Joondalup Property was opened on two alternate bases. First, on a 'no transaction' basis, in an amount of $1,246,514.78. This sought recovery of the difference between all the costs of purchasing, holding and selling the Joondalup Property and the income from and eventual proceeds of sale of the Joondalup Property. Second, based on what Girgis Nominees should have received for surrender of the initial lease and a new lease to another tenant. The losses on this alternative were initially quantified at $1,131,745.06, but post-trial were increased slightly.
For the reasons that follow I have concluded that the plaintiffs succeed in part.
I consider that there was both misleading or deceptive conduct, and negligence, in relation to the purchase of the Midland Hotel and the Pub business. That conduct caused or materially contributed to the plaintiffs suffering loss. However, the compensable loss is less than the amount claimed by the plaintiffs. The outcome in relation to the new lease of the Joondalup Property is effectively the same. Here, however, Girgis Nominees also succeeds in contract.
The counterclaim also succeeds in part.

[130]

The parties' pleadings are dense and impenetrable. The fault for that lies in the oppressive prolixity of the statement of claim. It runs for 125 pages. Most of that was never referred to by counsel for the plaintiffs in 16 days of trial. The pleading is bedevilled by an insistence of the pleader to refer to multiple permutations of alleged conduct which is said to continue in operative effect throughout the near five years of Mr Girgis' and Mr Poliwka's relationship, giving rise to a pleaded case of unnecessary complexity - and, as so constructed, a pleaded case unlikely to be reflective of Mr Girgis' actual complaint.
For example, by my calculations the statement of claim attempts to plead at least 448 potential misleading or deceptive conduct causes of action as to the alleged losses in respect of the Midland Hotel, the Pub business, the Moonlight Express and the Charter business.[1] There is a similar multiplicity of pleaded causes of action due to the pleader referring to representations and advice in a generic fashion in relation to the Joondalup Property.
It is regrettable that the pleader never heeded the observations of the plurality in Forrest v Australian Securities and Investments Commission.[2] The present is a case in which the plaintiffs (more correctly the plaintiffs' legal representatives) advanced a forest of forensic contingencies and spent little time in identifying the essential legal and factual nature of the complaint.
Matters were not assisted by the statement of issues that the parties filed in accordance with pre-trial directions. Extending over about 50 pages, the statement purported to identify at least 390 discrete pleaded issues. At trial, while counsel for the defendants did direct attention to the pleaded representations and non-disclosures in the SOC,[3] no attempt was made by the parties to deal with each such identified pleaded issue. Instead, quite broadly, emphasis was placed on what I should make of the voluminous evidence coupled with an understanding of the nature of the parties' cases as outlined in written opening submissions and amplified in opening addresses.
Given the parties' casual approach to forensic examination of the pleaded case at trial I intend to address the pleadings in a truncated fashion. I certainly do not intend to make findings on each of the so-called 'agreed issues' in the statement of agreed issues. That is all the more so where, in closing, counsel for the parties did not address me by reference to those issues or identify the findings they sought by the issues as articulated in the statement of issues. To my mind many of the 'agreed issues' are false issues arising simply because the SOC advanced numerous matters that were not matters of material fact that were necessary to establish a claim. This being the position I will structure my reasons, and make findings, to answer the way the case was fought at trial by reference to the matters advanced in written and oral openings and closings.
One other matter needs to be mentioned.
In advance of the plaintiffs' closing address I requested that I be provided with a note of the evidence relied on as to the various pleaded representations, matters of non-disclosure and reliance thereon. The evidentiary note was to identify which of the pleaded matters was continued to be relied on for the plaintiffs' case in light of the evidence as it fell out at trial.[4] The plaintiffs' evidentiary note was not provided until after the trial completed. It is, however, a valuable record of how the plaintiffs say they met their pleaded case. In some respects it demonstrates that the case was not made out; it also shows, by omission, parts of the pleaded case that are not relied on following the evidence at trial. Where either scenario is the position I will not consider that part of the pleaded case at all.

[132]

In providing an overview I have already outlined the parties and their background. I should, however, clarify the position of Girgis Nominees and FWA. Girgis Nominees is a company associated with Mr Girgis. It is the trustee of the Girgis Property Trust (a trust associated with Mr Girgis). FWA is a company associated with Mr Poliwka. It is the trustee of the Poliwka Investment Trust (a trust associated with Mr Poliwka). These two companies and trusts were involved in some of the joint purchases and were, on the defendants' case, the entities through which Mr Girgis and Mr Poliwka were to contribute further funding in accordance with the shareholder agreement.
It was common ground that before Mr Girgis won Oz Lotto he had no substantial net assets and no experience managing or investing large sums of money (SOC, pars 12 ‑ 13; DAC,[5] pars 12 ‑ 13).
There is agreement that Mr Girgis and Mr Poliwka met after Mr Girgis won Oz Lotto. There is disagreement as to when that meeting occurred. There is a more significant disagreement as to what was said at the meeting. In terms of the pleaded case Mr Girgis contends that he requested Mr Poliwka's advice on how to invest the $30 million won in Oz Lotto (SOC, par 15.2). The plaintiffs alleged that Mr Poliwka made five representations (SOC, par 15.3) and advised in nine separate ways (SOC, par 15.4). These include that Mr Poliwka could and would advise Mr Girgis (SOC, par 15.3.4) and that Mr Poliwka would advise Mr Girgis in relation to matters concerning the investment of money and that Mr Girgis should not make any investment decision without first consulting Mr Poliwka (SOC, par 15.4.4).
A key matter of alleged advice was that, as an investment strategy, Mr Poliwka allegedly advised Mr Girgis that the best way to invest his money was one-third in businesses, one-third in real estate and one-third in cash or other liquid investments (SOC, par 15.4.1).
Setting out, individually, all of the alleged initial representations and matters of advice at this juncture will make it harder to understand the pleaded narrative. That is all the more so when it is evident from the plaintiffs' post-trial evidentiary note that a number of the alleged representations and matters of alleged advice are no longer relied on. For ease of exposition I have summarised the remaining alleged representations and alleged advice in Schedule 1 to these reasons (adapting this from the plaintiffs' post-trial evidentiary note). The same approach will be taken for all other alleged representations, alleged advice and alleged matters of non-disclosure.
As pleaded the plaintiffs claimed that the alleged representations and alleged advice were made and provided by Mr Poliwka. But there is a general plea that conduct by Mr Poliwka was conduct by him personally and, through Mr Poliwka, also by Poliwka Group and FWA (SOC, par 8). That plea was not admitted by the defendants (DAC, par 8). In opening the defendants specifically denied that any of the conduct alleged in relation to the Midland Hotel, the Pub business, the Moonlight Express and the Charter business was engaged in on behalf of the corporate defendants.[6]
The plaintiffs said that, in reliance on the initial representations and alleged advice, Mr Girgis adopted the advice, engaged Focus Accounting (Mr Poliwka's accountants) and established a group of companies and trusts (SOC, pars 16.1 - 16.3). This included appointing Mr Poliwka as a director of Girgis Group (SOC, pars 16.3.2).
Another preliminary matter as pleaded was whether in making representations to and advising the plaintiffs as pleaded the defendants carried on a financial services business. It was common ground that none of the defendants held an Australian financial services licence (AFSL) or were exempted from carrying on a financial services business without holding an AFSL. The plaintiffs alleged that in making representations and giving advice to the plaintiffs as pleaded the defendants carried on a financial services business in contravention of s 911A of the Corporations Act 2001 (Cth) (SOC, par 10).
The plaintiffs relied on the alleged contravention as a non-disclosure matter which, if known, meant that they would not have entered into the transactions and dealings concerning the Midland Hotel, the Pub business, the Moonlight Express, the Charter business and the Joondalup Property (SOC, pars 21, 26, 31A, 40, 61, 89).

[136]

The first series of alleged representations and advice is said to have occurred during mid-August to early October 2008 (SOC, par 17). There are 23 alleged representations and two matters of alleged advice. Some of the alleged representations were self-evidently true; for example the description of the land on which the Midland Hotel was situated (SOC, par 17.1.2) and that the Midland Hotel was for sale (SOC, par 17.1.3).
The more material contentious alleged representations were that:
- the Midland Hotel was a 'good opportunity' to invest in some land (SOC, par 17.1.1);
- the Midland Hotel was for sale at a price ($3 million to $3.5 million) which was substantially less than its then market value (SOC, par 17.1.6) - an amount of $4.5 million to $5 million (SOC, par 17.1.8);
- Mr Poliwka had conducted due diligence investigations and was satisfied with his findings (SOC, par 17.1.15); and
- investing in the Midland Hotel would be profitable (SOC, 17.1.16).
Whether all 23 of the alleged representations were required to be pleaded is unclear. Only nine of them are pleaded to have been misleading (SOC, par 21A). With the exception of the due diligence plea, none of them are directly falsified,[7] although there are a vast array of later pleas as to the then alleged prevailing factual position in relation to the Midland Hotel and the Pub business (SOC, pars 18, 18A - 18K, 19, 19A - 19I, 20, 20A). These include: (1) the circumstances of Sunriver (the then registered proprietor of the Midland Hotel) and Sunriver's acquisition of and funding for the purchase of the Midland Hotel; (2) various prior registered proprietors and their transactions as to the Midland Hotel; and (3) the circumstances of Bold Gem and its conduct of the Pub business as Sunriver's tenant including its acquisition of the Pub business. Considerable information was also pleaded as to the financial position of Sunriver and Bold Gem, the terms of secured borrowings with ME Bank and Walthamstow and existing defaults under those loan agreements. It was also pleaded that the Midland Hotel was being renovated and that while that was being undertaken the Pub business was not trading and Bold Gem was not paying rent.
The material alleged advice was that Mr Girgis and Mr Poliwka should together invest in the Midland Hotel by acquiring the assets and assuming the liabilities of Sunriver as the entity that owned the Midland Hotel by becoming the beneficial owners of that entity (SOC, par 17.3). In substance this was advice to purchase the shares in Sunriver and the units in the unit trust of which Sunriver was trustee (the Junction Unit Trust) rather than purchasing the freehold. As to this the plaintiffs pleaded that, in direct contradiction of Mr Poliwka's alleged advice, on 30 September 2008 Mr Poliwka had been advised by Focus Accounting that Mr Girgis' and Mr Poliwka's entities should purchase the Midland Hotel by acquiring the freehold interest in it (SOC, par 20.9C).
After Mr Girgis informed Mr Poliwka that he, Mr Girgis, was interested in joining Mr Poliwka in investing in the Midland Hotel there is pleaded to have been a further series of representations and advice in around October 2008 (SOC, 17A). This was in connection with an additional potential investment in the Pub business rather than simply investing in the Midland Hotel. Of the four additional alleged representations only one is material: that investing in the Pub business (as distinct from the Midland Hotel) would be profitable within six to 12 months (SOC, par 17A.1.3). The earlier alleged advice is said to have been repeated, although now as to investment in the Pub business; two further aspects of advice as to the structuring of the acquisition are also alleged (SOC, par 17A.3).
There is agreement that in mid-October 2008 purchases proceeded in relation to the Midland Hotel and the Pub business (SOC, par 23; DAC, par 23). Relevantly:
- Girpol was incorporated on 8 October 2008. Mr Girgis and Mr Poliwka became directors of Girpol. On behalf of Mr Girgis' and Mr Poliwka's respective trusts the shareholding in Girpol was held equally by Girgis Nominees and FWA.
- Girgis Nominees and FWA became equal shareholders in Sunriver and also took a transfer, equally, of the units in the Junction Unit Trust.
- On about 23 October 2008 Girpol became an 80 per cent shareholder of Bold Gem. Girpol also took a transfer of 80 per cent of the units in the Bold Gem Unit Trust. Mr Girgis and Mr Poliwka were appointed as directors of Bold Gem.
At trial, however, there was considerable confusion as to how and to who payment of some $1 million was made in relation to the Midland Hotel for the shares in Sunriver and the units in the Junction Unit Trust.
The plaintiffs pleaded that the transactions occurred in reliance on the defendants' various representations and advice (SOC, par 23). In total 10 of the alleged representations are pleaded to have been misleading or deceptive or likely to mislead or deceive (SOC, 21A). Three of the representations were pleaded to have been made without reasonable grounds (SOC, par 22).
The plaintiffs also pleaded that there were numerous matters known to Mr Poliwka which were not disclosed to, and were not known by, the plaintiffs before entry into the transactions involving the Midland Hotel and the Pub business (SOC, 21.1A, 21.2). Including the various sub-pleas 64 separate non-disclosed matters were pleaded (see SOC, par 21). The significance of some of the pleaded non-disclosed matters escapes me. Why, for example, does it matter that Sunriver had net assets of $2 in its own right? (SOC, par 20.5). Sunriver was a trustee company and held the Midland Hotel as trustee for the Junction Unit Trust. Non-disclosure of that matter, and many others, could have no impact on what followed, was simply irrelevant and should never have been pleaded.
The non-disclosure matters are identified in Schedule 1 so far as relied on by the plaintiffs in their post-trial evidentiary note.
The plaintiffs pleaded that had the various non-disclosed matters been disclosed to them they would not have proceeded with entry into the transactions involving the Midland Hotel and the Pub business (SOC, 21.3). It is then alleged that the non-disclosure of those matters was misleading or deceptive or likely to mislead or deceive (SOC, par 21A). For their part - as with the non-disclosure matters in general - the defendants said that to the extent the non-disclosure matters were known to Mr Poliwka they were also known to Mr Girgis,[8] ie there was no possible misleading or deceptive conduct case by reason of non-disclosure.
There is an alternate plea to the extent that Mr Poliwka did not know certain of the non-disclosed matters. The plaintiffs contend that if Mr Poliwka did not know those matters then he had not conducted due diligence investigations, alternatively, he had not conducted adequate due diligence investigations, into the Midland Hotel and the Pub business contrary to the positive representation that he had conducted due diligence and was satisfied with his findings (SOC, par 20.13; see also SOC pars 22.B, 22.J).
This 'either / or' approach is replicated in other aspects of the plaintiffs' pleaded case whenever there are allegations as to due diligence. It is said that either: (1) Mr Poliwka knew of certain non-disclosed matters (because he had carried out due diligence); or (2) Mr Poliwka did not know those matters because - contrary to his representation - he had not carried out due diligence or adequate due diligence. See for example pars 25.2 - 25.3, 30.5 - 30.6, 31.7 - 31.7A, 60.2 - 60.2A and 86.9 - 86.10 of the SOC.
In written closing submissions counsel for the plaintiffs explained that the pleaded case as to due diligence was put in the alternative. It was said that:

[156]

The plaintiffs alleged that: (1) the Pub business was not profitable (SOC, par 50.1); (2) the Charter business was not profitable and performed worse than break-even (SOC, par 50.2); and (3) the plaintiffs had received no return, and had incurred losses, from investing in the Midland Hotel, the Pub business, the Moonlight Express and the Charter business (SOC, par 50.3).
Based on the alleged representations, the alleged advice, and the alleged non-disclosure matters - referred to compendiously as the 'contravening conduct' (SOC, par 51.A), the plaintiffs alleged that the defendants engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive in contravention of various statutory prohibitions (SOC, pars 51.1, 51.2).
In closing the plaintiffs said that to succeed in their various claims it was not necessary for them to make out each alleged representation as pleaded. The plaintiffs' contention was that the court should give judgment based on the pleaded elements which were established.[11]
There was no attempt - either in the pleading or in submissions - to isolate which of the various statutory formulations applied to the alleged contravening conduct. Rather, there was reliance on each of the following on a 'further or alternatively' basis:
- s 10 of the Fair Trading Act 1987 (WA);
- s 52 of the Trade Practices Act 1974 (Cth);
- s 18 of the Australian Consumer Law (WA) (as applying by s 19(2) of the Fair Trading Act 2010 (WA));
- s 18 of the Australian Consumer Law (as applying by virtue of pt X of the Competition and Consumer Act 2010 (Cth)); and
- s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).
From 1 January 2011 the Act formerly known as the Trade Practices Act 1974 (Cth) has been named the Competition and Consumer Act 2010 (Cth). That date is also the relevant date for application of the State and Commonwealth versions of the Australian Consumer Law. I infer that the plaintiffs rely on the earlier Fair Trading Act 1987 (WA) and Trade Practices Act 1974 (Cth) regime for any pre‑1 January 2011 conduct and the Australian Consumer Law and the Australian Consumer Law (WA) for conduct from 1 January 2011. Section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) continued to apply across all material times.
The defendants accepted that any conduct in relation to the purchase of the Midland Hotel was conduct in trade or commerce. But it was denied that was the case as to conduct in relation to the Moonlight Express, its Charter business and taking over the management of the Pub business.[12]
The plaintiffs sought loss or damage comprised of:
- $2,316,350 being the unpaid balance of the alleged loan to Girpol (SOC, par 52.A).
- $135,000 being the unpaid balance of the loan to the Bold Gem Unit Trust (SOC, par 52.B).
- $135,598.88 being expenses incurred in seeking to recover the loans and participating in the windings-up of Girpol and Bold Gem (SOC, par 52.C).
- $854,866.15 as to the unrecovered amount of the guarantee payment to ME Bank (SOC, par 52.D).
The defendants put the plaintiffs to proof as to loss. In submissions the defendants propounded that the plaintiffs had failed to prove that the losses as identified had been caused by or because of the alleged conduct in contravention of the statutory prohibitions.[13] The defendants also alleged that there had been contributory negligence on the part of the plaintiffs and there should be an apportionment of responsibility as between the parties (DAC, par 52A).
A separate claim was made in negligence (SOC, pars 53 - 54).
The plaintiffs repeated the plea that they had no experience with - and also said they had minimal understanding of - investing large sums of money (SOC, par 53.1.1). The plaintiffs also pleaded that they relied on the defendants to advise them in relation to matters concerning the investment of money (SOC, par 53.1.2) and accepted and acted on such advice (SOC, par 53.1.3). The plaintiffs contended that they were not advised to seek any separate or specialist advice and as a result assumed there was no reason to obtain such advice (SOC, par 53.1.4). It was said that the defendants knew or ought to have known of these matters (SOC, par 53.2.1).
The plaintiffs alleged that each of the defendants owed them a duty to exercise reasonable skill, care and diligence in advising them in relation to matters concerning the investment of money (SOC, par 53.2.2).
The advice as alleged was said to have been in breach of the duty and to have resulted in loss (SOC, par 54). The same alleged loss and damage was relied on as with the misleading or deceptive conduct causes of action (SOC, par 54.3).

[159]

The plaintiffs alleged that during October and November 2009 Mr Poliwka made various representations and gave them advice in relation to the Joondalup Property (SOC, par 56).
There are 19 different pleaded representations (SOC, par 56.1). Only five are said to have been misleading or deceptive (SOC, par 61A). These are that:
- the Joondalup Property was a 'good opportunity' to invest in some land (SOC, par 56.1.1);
- the Joondalup Property was leased to a good tenant (SOC, par 56.1.8);
- Mr Poliwka had conducted due diligence investigations in relation to the Joondalup Property and the nightclub business conducted on the property and was satisfied with his findings (SOC, par 56.1.12); and
- investing in the Joondalup Property would be profitable (SOC, par 56.1.13) because of the rental income that would be received (SOC, par 56.1.14).
In substance the alleged advice was to invest in the Joondalup Property by purchasing it for $2.565 million and thereafter to appoint FWR as exclusive managing and leasing agent (SOC, par 56.3).
The plaintiffs did not expressly falsify the alleged representations. They did, however, plead certain factual matters including that the Joondalup Property had been purchased some 17 months earlier for $1.2 million (SOC, par 58). Reference was also made to the tenancy arrangements (SOC, pars 59 - 59A). It is said that Mr Poliwka knew of these matters, by having carried out due diligence, or - if he did not know of them ‑ Mr Poliwka had not carried out due diligence or adequate due diligence (SOC, par 60). The plaintiffs alleged that had some 11 non-disclosure matters been disclosed to them Girgis Nominees would not have purchased the Joondalup Property (SOC, par 61.2).
That latter plea is very hard to accept at face value, at least as to each of the alleged non-disclosure matters. The alleged non-disclosure matters include such things as the identity of the earlier registered proprietors of the Joondalup Property (SOC, pars 57, 57A) and the term of an earlier lease of the Joondalup Property (SOC, par 59A).
The plaintiffs alleged that they purchased the Joondalup Property at the price of $2.565 million in reliance on the alleged representations and advice (SOC, par 63). It was said that the identified representations were misleading or deceptive or likely to mislead or deceive (SOC, par 61A). The profitability representations were said to have been made without reasonable grounds (SOC, par 62). Alternatively the plaintiffs alleged that the non-disclosures were misleading or deceptive or likely to mislead or deceive (SOC, par 61A).
The alleged misrepresentations and non-disclosures were said to found a claim that the defendants engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive. The claim relied on the same statutory prohibitions as the claim in respect of the Midland Hotel, the Pub business, the Moonlight Express and the Charter business (SOC, par 112). There was an alternate claim in negligence (SOC, pars 114 ‑ 115). This relied on the same sort of alleged duty, but confined to investment of money in real estate (SOC, par 114.2.2). Breach was said to arise from both Mr Poliwka's initial alleged advice and then the alleged advice in the context of the Joondalup Property purchase (SOC, par 115).
The claimed loss was advanced in a number of alternate ways in the SOC (par 113).
Two of those alternatives were not mentioned in opening or closing submissions. The first alternative was to claim $680,000 as the difference between the price paid for the Joondalup Property ($2.565 million) and the price realised on its eventual sale in January 2014 ($1.885 million)[14] (SOC, par 113.A). The second - more conventional ‑ alternative was to claim $565,000 as the difference between the price paid for the Joondalup Property ($2.565 million) and its alleged market value ($2,000,000) (SOC, par 113.AB).
At trial, however, the plaintiffs sought to recover the whole of the amounts paid to purchase, hold and sell the Joondalup Property, ie the difference between all associated cash outlays and cash inflows over the whole of the time the Joondalup Property was held (SOC, par 113.AA). It was said this was claimed on a 'no transaction basis'.[15] This resulted in a claim of $1,246,514.78.[16]
The defendants sought to put the Joondalup Property transaction in a different context.
The defendants said that, to the knowledge of Mr Girgis, Mr Poliwka through FWR was acting as the selling agent for the seller of the Joondalup Property (DAC, par 56.3.3). According to the defendants, the seller, Allundy, required any prospective purchaser to also purchase the Watermans Bay Property for an aggregate price of $4.165 million. The purchaser was able to allocate that between the two properties as the purchaser saw fit (DAC, par 56.3.4). The defendants then said that the contract to purchase the Joondalup Property was subject to, and conditional on, the simultaneous sale and settlement of the Watermans Bay Property to Girgis Nominees - Girgis Nominees having entered into a contract to purchase the Watermans Bay Property from Allundy for $1.6 million (DAC, par 63.2 - 63.3). The plaintiffs accepted that the two agreements were subject to and conditional on the simultaneous sale and settlement of the two properties (Reply, pars 44 ‑ 45).
On the defendants' case Mr Girgis determined the allocation of the $4.165 million between the Joondalup Property contract and the Watermans Bay Property contract (DAC, par 63.4).
The defendants claimed that (particularly as the plaintiffs sought to claim loss on a no transaction basis) any loss must be determined on the basis that the Joondalup Property purchase and the Watermans Bay Property purchase was a single transaction.[17] Even accepting that the market value of the Joondalup Property was $2 million this would mean that Girgis Nominees suffered no loss because - on the defendants' case ‑ the market value of the Watermans Bay Property was in the region of $3.65 million to $3.7 million. Accordingly, the combined purchase price of $4.165 million was considerably less than the combined market value of $5.65 million to $5.7 million.
To the extent there was claimable loss the defendants pleaded contributory negligence on the part of the plaintiffs (DAC, pars 113A.4 ‑ 113A.5, 115A).

[161]

It is common ground that in about February 2009 Girgis Nominees appointed FWR to be its exclusive managing and leasing agent in relation to the Joondalup Property (SOC, par 63.3; DAC, par 63). There was a written agency agreement. Those terms of the agency agreement were also agreed on the pleadings (SOC, par 64; DAC, par 64). The contractual obligations undertaken by FWR included a covenant to use due diligence and best endeavours on behalf of Girgis Nominees to negotiate surrender of leases and new leases in relation to the Joondalup Property (SOC, par 64.2.2; DAC, par 64).
FWR was paid fees by Girgis Nominees for its work under the agency agreement (SOC, par 66; DAC, par 66).
When Girgis Nominees became the registered proprietor of the Joondalup Property the premises were leased to Bajo (SOC, par 59; DAC, par 59). Bajo conducted a nightclub business on the premises. The provisions of Bajo's lease were agreed on the pleadings; the lease was for a term of 2 years and 11 months and was to expire on 30 June 2011 (SOC, pars 59, 67; DAC, pars 59, 67). However, Bajo surrendered its interest with effect from 30 September 2009. The deed of surrender entered into in May 2010 released Bajo and its guarantor, Hamish Sprague, from all claims in relation to the Bajo lease post-30 September 2009 (SOC, pars 72 ‑ 73; DAC, pars 72 ‑ 73). By a deed dated 25 February 2010 Girgis Nominees entered into a new lease with a new tenant (JEPL) and its guarantors with effect from 1 November 2009 for a term of 3 years (SOC, pars 76, 90; DAC, pars 76, 90).
The plaintiffs alleged that the rent payable under the JEPL lease was slightly less than the rent payable under the Bajo lease (SOC, pars 67 - 71, pars 77 - 81). The plaintiffs also alleged that Girgis Nominees did not receive any consideration for providing the releases under the surrender of the Bajo lease (SOC, par 74).
The plaintiffs complained as to the defendants' alleged conduct and alleged advice concerning the surrender of the Bajo lease and the entry into the JEPL lease. The structure of the pleaded claim followed a similar pattern to the earlier pleaded claims as to alleged representations, alleged advice and alleged non-disclosures.
Initially there was a plea that between late 2009 and February 2010 Mr Poliwka made various representations to the plaintiffs (SOC, par 84.1). Nine representations are enumerated. Five of those representations are eventually alleged to have been misleading or deceptive (SOC, par 87A). These alleged representations are that:

[167]

The first, second and fifth of those alleged representations was pleaded to have been made without reasonable grounds (SOC, par 88).
The plaintiffs alleged that Mr Poliwka advised the plaintiffs: (1) to cause the Bajo lease to be terminated and the Joondalup Property leased to a new tenant on terms that Mr Poliwka thought fit; and (2) thereafter to agree to the surrender of the Bajo lease and entry into the JEPL lease (SOC, par 84.2). There are also pleas that Mr Poliwka and FWR failed to advise the plaintiffs of some 11 other matters including the financial consequences of the proposed transactions and that Girgis Nominees could and should obtain legal advice (SOC, par 85).
JEPL and its guarantors were said to have negligible net assets (SOC, par 86). It was also pleaded that, due to the lesser rent, the terms of the JEPL lease were less favourable than the terms of the Bajo lease (SOC, par 85.7). Mr Poliwka and FWR were pleaded not to have conducted any, or any adequate, due diligence into the financial position of JEPL and its guarantors (SOC, par 86.8).
A litany of 40 alleged non-disclosure matters were pleaded (SOC, par 87). The plaintiffs pleaded that, had those matters been disclosed, they would not have agreed to the surrender of the Bajo lease and entry into the JEPL lease and would have sought legal advice (SOC, pars 87.2, 89). Otherwise it is said that the plaintiffs relied on the alleged representations and alleged advice in surrendering the Bajo lease, entering into the JEPL lease and not seeking legal advice (SOC, par 89).
It is agreed on the pleadings that the JEPL lease was terminated on 4 April 2012 following default on the part of JEPL in payment of rent from January 2012 (SOC, pars 91 - 92; DAC, pars 91 ‑ 92). However, possession was not provided until 14 September 2012 (SOC, par 94; DAC, par 94). When possession of the premises was yielded up the premises were not in good and substantial repair, or fit for use as a nightclub, as fixtures and fittings had been damaged and removed in breach of the JEPL lease (SOC, pars 96 ‑ 97; DAC, pars 96 ‑ 97). Girgis Nominees sought to recover the loss and damage so suffered from JEPL and its guarantors (SOC, pars 98 ‑ 108; DAC, pars 98 - 108). However, recoveries were minimal (SOC, par 109 ‑ 109B).
The plaintiffs alleged that a reasonable estimate of the costs to carry out works to rectify the premises as if JEPL had performed its obligations under the JEPL lease was not less than $578,507.50 plus GST in a total of $636,358.25 (SOC, par 100.A).
Three separate causes of action were alleged to give rise to liability. The first two followed the other pleaded claims: (1) alleged contravention of the misleading or deceptive conduct statutory norms (SOC, pars 112 ‑ 113); and (2) alleged negligent breach of a tortious duty of care (SOC, pars 114 ‑ 115). The third was a contractual claim against Poliwka Group (trading as FWR) alleging breach of the term of the agency agreement pleaded at par 90 above (SOC, par 115.1).
In opening submissions the plaintiffs quantified the alleged loss or damage suffered as to this part of the claim at $1,131,745.06.[18] This appeared to consist of:
- $20,861.05 as to the difference in rent under the Bajo lease and the JEPL lease (SOC, par 113.B);
- $636,358.25 as to a reduction in the sale price of the Joondalup Property - which was apparently quantified by reference to the costs of carrying out all works reasonably necessary to put Girgis Nominees in the position it would have been had JEPL not breached the repair and maintenance and make good obligations under the lease (SOC, par 100.A);
- $193,292.30 by way of legal costs and expenses as to proceedings involving JEPL and its guarantors (SOC, par 113.F); and
- $281,233.46 as to rent that would otherwise have been received between the termination of the JEPL lease and the sale of the Joondalup Property (SOC, par 113.DA).
However, post-trial the plaintiffs clarified that: (1) the second amount was not $636,358.25, but $680,000, which was the amount by which the price to purchase the Joondalup Property exceeded its eventual sale price (SOC, par 113.A rather than SOC, par 100.A); and (2) the damages claim was thus quantified at $1,177,386.81, not $1,131,745.06.[19]
To the extent that there is claimable loss the defendants again pleaded contributory negligence on the part of the plaintiffs (DAC, pars 113A.4 - 113A.5, 115A).

[189]

In determining whether there was an agreement - and, if so, its terms - the matters referred to in that passage speak equally as to the difficulties in proof that arise where, in the absence of a reliable contemporaneous record or other corroboration, a party relies on spoken words to found a claim.[22]
Watson v Foxman does not lay down a rule of universal application. It sets out considerations to which a trier of fact should have regard in determining whether misleading or deceptive conduct by oral representation - or the making of an oral agreement - is established in the circumstances of the particular case. The appropriateness of those considerations cannot be doubted. The many occasions on which this passage has been recited with approval is testament to its enduring accuracy.
The central task for me as a trier of fact is to assess whether the plaintiffs have proved, on the evidence adduced, that the pleaded alleged representations and alleged advice occurred. The standard of proof is the balance of probabilities. But a mere mechanical comparison of probabilities, independent of any belief in the reality of a fact, cannot justify a finding that the alleged fact occurred.[23] I must feel an 'actual persuasion' of the occurrence of existence of the disputed representation or advice.[24] The evidence as a whole must establish a reasonable satisfaction on the preponderance of probabilities so as to sustain the relevant factual finding.[25]
Whether I am so reasonably satisfied ought not to be considered independently of the nature and consequence of the fact in issue, ie the seriousness of the allegation, its inherent unlikelihood and the gravity of the consequences arising from the finding.[26]
In order to better assess the credibility and reliability of the witnesses, pre-trial directions were made that required oral evidence of all conversations said to ground a representation, advice or an agreement. So too any evidence as to reliance was to be given orally. Those portions of the various witness statements that had been prepared and exchanged before trial were redacted. Accordingly, both Mr Girgis and Mr Poliwka gave substantial oral evidence in the course of their evidence-in-chief. While I accept that memory is a constructive and reconstructive process,[27] and I must be careful to identify issues of the type referred to in the passage quoted from Watson v Foxman, having the witnesses recount the substance and effect of their recollections - even so long after the events - was of assistance in forming a view as to the reliability of the witnesses' evidence.
It is, however, still necessary to assess the oral testimony in the context of the contemporary materials, objectively established facts and the apparent logic of events.[28] As Tottle J has recently observed, reliance on contemporaneous documents is preferable in cases involving events which occurred long before the litigation; contemporaneous statements and documents are likely to be a more accurate reflection of events than later statements when false memories can intrude.[29]

[192]

Mr Girgis was the key witness for the plaintiffs.
I will shortly address my conclusions as to Mr Girgis as a witness. I am conscious, however, that it is also necessary to assess Mr Girgis' relative experience and dependence when he first dealt with Mr Poliwka back in 2008 and 2009. That is when the purchases the subject of these proceedings occurred. There is, in my view, a difference between the Mr Girgis as presented to me as a witness at trial in March 2019 and the 23 or 24‑year-old young man who first dealt with Mr Poliwka after winning Oz Lotto. Mr Girgis has obviously matured and has acquired a degree of sophistication ‑ both commercial and otherwise - that he would not have had in 2008 and 2009. In part that is likely to be due to Mr Girgis' exposure to commerce and the world of business in the formative years of his twenties.
Mr Girgis referred to himself as being a 23‑year-old 'kid' at the time[30] - thus explaining why he would defer to Mr Poliwka's more substantial 30 plus years business experience. I consider that to be an accurate summation of the then position.
It is the case that Mr Girgis was a university graduate. Mr Girgis' degree - a Bachelor of Commerce majoring in property - coupled with his part-time work as a trainee property valuer, demonstrated that Mr Girgis had an interest in the property sector. Undoubtedly Mr Girgis knew more about that area than the normal 23‑year-old. He was intending to pursue a career as a property valuer.[31] Indeed, even before winning Oz Lotto Mr Girgis had identified and registered an expression of interest in relation to a commercial property investment opportunity.[32] Mr Girgis had also undertaken formal studies in property and valuation related units at university, eg valuation methodology and valuation practice.
Mr Girgis was, however, without significant assets or investment experience. Before winning Oz Lotto Mr Girgis owned a modest car and had a mere $8000 in the bank. The fact that at this time Mr Girgis was essentially a student, rather than a young professional, is made obvious by the circumstance that Mr Girgis continued to maintain a casual job at Grand Cinemas in Currambine and Joondalup until he won Oz Lotto.
In cross-examination counsel for the defendants sought to make much of Mr Girgis' formal studies. The truth is that Mr Girgis was an indifferent student. Mr Girgis failed an accounting unit three times and did not complete the degree at the university he had initially enrolled in.[33] Mr Girgis' work experience as a part-time trainee valuer was at a relatively low level; his main role was to obtain data for the actual valuers.[34] The reality is that in 2008 and 2009 there was a significant gulf in the practical business and property investment experience and understanding of Mr Girgis and Mr Poliwka. Mr Girgis was little more than a beginner in the property industry with book learning at an undergraduate level.
Turning then to his evidence, I find that Mr Girgis was an honest witness doing his best to tell the truth about the events that had occurred. There are, however, some significant limitations on the reliability of Mr Girgis' recollections.
In terms of his oral evidence I found Mr Girgis to be a reliable witness only on limited specific aspects of what was said by Mr Poliwka as to the purchases the subject of the litigation, ie the Midland Hotel, the Pub business, the Moonlight Express, the Charter business and the Joondalup Property. Mr Girgis was not reliable as to the sequence of events and what was said in his initial meetings with Mr Poliwka over late 2007 to March 2008.
At times Mr Girgis appeared disengaged from the questioner. However, he was confident and well-spoken, in general giving measured and precise responses. Mr Girgis endeavoured to deal with the questions he was asked. For example, at one point counsel for the defendants turned away from Mr Girgis to discuss a matter with his junior. Mr Girgis politely waited for counsel to complete his discussions before proceeding to complete his answer.[35] Mr Girgis was also prepared to make concessions in his cross-examination. For example, Mr Girgis accepted that he could have told Mr Poliwka and Mr Pickrell at an early stage that he wanted to open a gym[36] and that, while Mr Poliwka appeared friendly with Kevin Pollock, that was also Mr Poliwka's nature towards Mr Girgis from the outset.[37] This extended to matters that were contrary to Mr Girgis' case. For example, as to a Burgess Rawson valuation in relation to the Midland Hotel, although Mr Girgis had no recollection of seeing the document before committing to the eventual transaction, Mr Girgis acknowledged that this was a possibility.[38]
In giving his evidence it was apparent that Mr Girgis was being reflective, ie he did his best to put himself back into the historical events and provide an accurate recollection. In part that was certainly reconstructive. For example, Mr Girgis used the expression 'that would make sense'.[39] But Mr Girgis' oral evidence was not all just mere reconstruction. As to the specific purchases, on certain important (but limited and specific) aspects, Mr Girgis had reasonable independent recollection as to the substance and effect of various conversations.
I do not consider Mr Girgis' professed specific recollections to be incredible or implausible. These events concerned Mr Girgis' first foray into a new world upon becoming significantly wealthy. As a matter of objective likelihood they are events and meetings that would have had a lasting impression on a relatively young commercial novice such as Mr Girgis was at the time.
I consider Mr Girgis' oral evidence as to certain of the statements made by Mr Poliwka as to the specific purchases the subject of the litigation to be reliable. In addressing the facts I will identify where I have accepted Mr Girgis' recollections.
There are, however, aspects of Mr Girgis' oral evidence that I do not accept. For example:

[197]

I would also distinguish between Mr Girgis' oral evidence and the evidence he confirmed and adopted by his witness statement.
Much of Mr Girgis' witness statement evidence is uncontroversial and supported by contemporaneous documentation. (Much of that evidence was also peripheral to the issues for determination; it is apparent that the witness statement was constructed for Mr Girgis by his legal representatives in as much as it is little more than an exhaustive - and often unnecessary ‑ chronological distillation of events based on the documentary record.) I accept the witness statement evidence where it is so supported. But elsewhere the witness statement evidence is less reliable.
For example, it is apparent that the witness statement evidence was in error in recording the sequence of Mr Girgis' initial interactions with Mr Poliwka and Mr Pickrell.[56]
More critically, the witness statement evidence overstated Mr Girgis' actual recollection of events. For example, as to the timing of the offer to purchase the Moonlight Express, when giving oral evidence Mr Girgis accepted that he could not give a timeline.[57] But in the witness statement Mr Girgis provided a precise chronological account.[58] I infer that this was constructed for Mr Girgis by his legal representatives by reference to documentary evidence. The witness statement evidence also purported to recount various conversations. One of those was a meeting on 5 September 2012.[59] Yet in his oral evidence Mr Girgis initially had no recollection of the meeting whatsoever - thinking that he had not been at the meeting.[60]
I consider that care must be taken in accepting the reliability of Mr Girgis' witness statement evidence to the extent that it is not supported by a contemporaneous document. In the absence of a positive finding I should not be taken as having accepted such evidence.
This impacts most substantially on Mr Girgis' hypothetical evidence of what he would have done (or would not have done) had various of the alleged non-disclosure matters been made known to him.[61]
There is an issue as to whether those self-serving statements were admissible (at least if relied on in relation to Mr Girgis' personal claim in negligence).[62] In any case the evidence was adduced without objection. The absence of such purported evidence in respect of the other non-disclosure matters is thus of potential significance. But to the extent the evidence was adduced I am not satisfied it is reliable.
The absence of an AFSL, the reputation of Mr Pollock, whether the tenant was paying rent (all the less a nothing when the tenant was to become a controlled entity of Mr Girgis and Mr Poliwka) and the bankrupt status of Mr Pollock and Mr Errichetti only assumed importance because of the legal case constructed for Mr Girgis after the event. The evidence Mr Girgis gave in cross-examination as to the significance he ascribed to these and other non-disclosed matters was far from convincing.[63] That is all the more so when Mr Girgis otherwise suggested that Mr Errichetti's role had simply been one of putting a deal together[64] and that Mr Pollock owned the Midland Hotel[65] but mentioned nothing substantial as having been said by Mr Pollock.[66] Given the limited reliance placed on what was done or said by Messrs Pollock or Errichetti I do not accept Mr Girgis' evidence that he would have acted differently had he known of these allegedly undisclosed matters.
To the contrary, for reasons I will come to, so far as the transactions in relation to the Midland Hotel and the Pub business are concerned, I am satisfied that Mr Girgis was motivated to act as he did because of the positive statement made to him by Mr Poliwka. Mr Girgis would have proceeded with the transactions even if these four matters had been disclosed.

[198]

In 2008 Milena Rahaman - known as 'Mima Rahaman' - was employed by St Andrews Wealth Management Pty Ltd as a senior financial adviser. In that capacity she was introduced to Mr Girgis in the course of 2008. Ultimately, before Ms Rahaman left St Andrews Wealth Management Pty Ltd in about September 2009, she advised Mr Girgis in relation to a share portfolio.
The significance of Ms Rahaman's evidence is what she says as to two meetings involving both Mr Girgis and Mr Poliwka.
The first meeting occurred on 29 October 2008 at Mr Poliwka's offices in Joondalup. It was also attended by Mr Poliwka, Mr Pickrell and a BankWest representative (Mr Girgis having a banking relationship with BankWest and St Andrews Wealth Management Pty Ltd having a relationship with BankWest). Ms Rahaman gave evidence that Mr Poliwka did most of the talking at the meeting. Ms Rahaman was told that Mr Girgis, Mr Poliwka and Mr Pickrell wanted financial advice in relation to shares in order to diversify Mr Girgis' investment portfolio.
Two material matters come out of Ms Rahaman's evidence as to the 29 October 2008 meeting.
First, Ms Rahaman recounted that Mr Poliwka was introduced to her as a family friend of Mr Girgis' and his property adviser. This necessarily occurred in the presence of both Mr Girgis and Mr Poliwka. There was no evidence with either party suggested that this was a mis-characterisation of the relationship. Ms Rahaman was also provided with Mr Poliwka's business card and included it within the 'other advisers' section of a 'Financial Fact Find and Investor Risk Profile' form that she prepared and Mr Girgis signed at the 29 October 2008 meeting.[67]
Second, Ms Rahaman stated that she was told by both Mr Girgis and Mr Poliwka that Mr Poliwka and Mr Pickrell were both involved in all of Mr Girgis' decision making as well as managing and looking after Mr Girgis' assets.
Ms Rahaman's recollection of these two matters was supported by a file note she prepared as to the meeting (in which Mr Poliwka was referred to as a 'property adviser')[68] and a contemporaneous email she sent on 10 November 2008 (in which Mr Poliwka was referred to as a 'property expert').[69]
The second meeting occurred on 1 December 2008. This was a meeting to discuss Ms Rahaman's recommendations. This meeting again occurred at Mr Poliwka's office at FWR. It too was attended by Mr Poliwka (described in Ms Rahaman's file note as Mr Girgis' 'property adviser'[70]), Mr Pickrell and the banker. Ms Rahaman's note of the meeting referred to going through the recommendations and that 'they' (ie including Mr Poliwka) were all happy with everything.[71]
Following those two meetings Ms Rahaman's dealings were with Mr Girgis personally.[72]
Ms Rahaman was a straightforward witness. I accept her evidence. In addition to the clear and convincing way in which Ms Rahaman gave evidence I rely on three matters. First, Ms Rahaman was independent of both Mr Girgis and Mr Poliwka. Second, the evidence was supported by detailed contemporaneous file notes. Third, Ms Rahaman's evidence was not seriously challenged in cross-examination and her account of the 29 October 2008 meeting was not contradicted by either Mr Poliwka or Mr Pickrell in their evidence.
Accordingly, in October to December 2008 the relationship between Mr Girgis and Mr Poliwka was such that Mr Poliwka would support Mr Girgis in seeking and considering specialist financial advice. Further, as between Mr Girgis and Mr Poliwka it was accepted that Mr Poliwka was a property adviser to Mr Girgis and was involved in all decision making for Mr Girgis.

[199]

Ross Thomson was the liquidator of Sunriver, Bold Gem and Girpol. He was initially appointed as voluntary administrator of the companies on 9 June 2014 following an early May 2014 meeting with Mr Poliwka. Mr Thompson became liquidator of the companies following creditors' resolutions for the windings up on 14 July 2014.
Mr Thomson's evidence was primarily to prove the provenance of various documents as books and records of Sunriver, Bold Gem and Girpol. Those documents tendered which had an identifier 'TS' were derived from documents provided to Mr Thompson following his appointment. Relevantly, in late June 2014 Mr Thomson took possession of 10 archive boxes of documents. Those boxes were collected from Mr Poliwka's offices at FWR. Mr Thomson's witness statement then explained the process by which electronic copies of the documents had been prepared so that he could answer a subpoena issued in these proceedings.
Mr Thomson's evidence in this regard was uncontroversial and is accepted.
Accordingly, I accept that the 'TS' documents were maintained at Mr Poliwka's office. At times it was suggested that this meant that Mr Poliwka had access to various documents concerning the Midland Hotel and the Pub business before completion of the transactions involving those investments. I do not accept that this follows. Ms Ridgway gave evidence, which I accept, to the effect that after the transaction was completed several archive boxes with disorganised records were delivered to FWR's offices. Ms Ridgway was tasked with organising the materials as well as reconciling a MYOB database. In any case many of the documents came into Mr Poliwka's possession after completion of the transaction. Thus I cannot identify whether a particular 'TS' document first came into the possession of Mr Poliwka before or after completion of the transaction.
Mr Thomson was cross-examined. The matters raised in cross-examination are not, in my view, of substantial importance to the proper disposition of the material issues in the dispute. Accordingly, nothing further needs to be said as to Mr Thomson's evidence.

[202]

In 2012 Gregory Hart was a principal of Harts Financial Solutions and worked as a management consultant. In that capacity Mr Hart commenced to act for Mr Girgis and his associated companies after Mr Girgis made contact with Mr McNally. Although Mr Hart has since departed from Harts Financial Solutions, he continues an association with Mr Girgis. In October 2012 Mr Hart was appointed as chief financial officer of Girgis Group. Mr Hart continues in that role; he described it as very part-time.[73] Mr Hart also held a power of attorney for and on behalf of Mr Girgis. Mr Girgis continues to be a client of Mr Hart's.[74]
It was apparent from Mr Hart's evidence in cross-examination that he had an animosity towards Mr Poliwka.[75] Whether there was a degree of partisanship due to Mr Hart's close association with Mr Girgis, or whether there were personal difficulties for other reasons, does not matter. It does mean for that reason alone I must treat Mr Hart's evidence carefully. That is all the more so when the main evidentiary purpose of Mr Hart's evidence was to suggest that Mr Poliwka had made admissions against interest in conversations with Mr Hart.
In particular there was reliance on what was said at meetings on 5 June 2012 (or shortly after that time).[76] The second of those meetings was with Mr Pickrell and his employee, Rebecca Davies. In alleging that there were admissions on the part of Mr Pickrell counsel for the plaintiffs contended that Mr Pickrell, as the defendants' accountant, was their agent.
It was noteworthy that, while Mr Hart had many file notes for other meetings - and referred to his practice of making contemporaneous file notes,[77] there were no file notes for the 5 June 2012 meetings. In cross‑examination Mr Hart suggested that there might be an email.[78] There was an email referring to the meeting with Mr Poliwka;[79] however, it did not record what was stated at either meeting.
In the course of cross-examination there were many occasions where Mr Hart stated that he was unable to recall or unable to recall specifics without being able to refer to documents.[80] It was apparent ‑ and Mr Hart confirmed ‑ that as to aspects of the 5 June 2012 meetings he was reconstructing.[81] More generally, when asked whether he gave Mr Girgis' solicitors a file note relating to the meetings ‑ or even prepared a file note ‑ Mr Hart freely conceded that without looking at documents he could not recall what happened in 2012.[82]
In the absence of any contemporaneous documentary records Mr Hart had a limited actual recollection of what was said at meetings over seven years ago. That is unsurprising. Mr Hart is a professional services provider who would have been engaged in countless meetings in 2012 and even more meetings since that time. It defies normal human experience that Mr Hart has the sort of detailed recollection of what was said at the 5 June 2012 meetings as is recounted in his witness statement. To conclude that Mr Hart did have that extraordinary type of recollection is incompatible with the general tenor and specific concessions made by Mr Hart in his cross-examination.
In the circumstances I do not accept that Mr Hart's account of the 5 June 2012 meetings ‑ and the other alleged conversations with Mr Poliwka at around that time ‑ is reliable. I reject that evidence. In doing so I am conscious that there is some, albeit limited, support for Mr Hart's recollection in what was adopted by Mr Girgis in his witness statement.[83] But I discount the reliability of that evidence given that it was only the product of the witness statement and is not supported by any contemporaneous document. In further support of the conclusion that I will not accept Mr Hart's evidence of these conversations I note that, so far as Mr Hart asserted that he had a relevant conversation with Mr Pickrell, the substance of the alleged conversation was not put to Mr Pickrell in cross-examination.[84] More generally I would not rely on Mr Hart's evidence in the absence of some contemporaneous document that supported the evidence.
Mr Hart gave other evidence as to his various dealings, for Mr Girgis, in investigating and forming a view as to the position, financial circumstances and potential future alternatives for Mr Girgis' various investments - including the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. Mr Hart also recounted his dealings, for Mr Girgis and Girgis Nominees, in obtaining alternate accounting and taxation services and in dealing with JEPL's tenancy as to the Joondalup Property. In part those dealings involved Mr Poliwka. But there were also others. For example, Mr Hart sought third party specialist input as to the Midland Hotel and the Pub business.
This evidence was grounded in supporting contemporaneous documentation.[85] Accordingly, I accept that evidence. However, as that evidence concerns events from 2012 it is only of peripheral significance to the material matters for determination.

[203]

Duncan Cameron is a licenced valuer and a director of Opteon Property Group. He provided two expert reports: an expert report as to the market value of the Midland Hotel as at 23 October 2008 and 1 November 2008 and an expert report as to the market value of the Joondalup Property as at 1 December 2008 and 2 February 2009.
In closing counsel for the defendants submitted that Mr Cameron's report as to the value of the Midland Hotel was unreliable.[86] Counsel was, however, apparently prepared to accept the value reached as to the Joondalup Property.[87]
I will deal with Mr Cameron's reports more fulsomely when I address the two transactions. For now, however, it suffices to state that ‑ for reasons I will come to ‑ I accept Mr Cameron's evidence and the opinions he reached as to the market value of the Midland Hotel and the Joondalup Property.
In summary:
- as at 23 October 2008 and 1 November 2008 the market value of the Midland Hotel was $1.73 million; and
- as at 1 December 2008 and 2 February 2009 the market value of the Joondalup Property was $2 million.
There are, however, two important limitations as to my acceptance of Mr Cameron's expert opinion in relation to the Midland Hotel. First, Mr Cameron's assessment of value is only as to the market value of the Midland Hotel as a trading tavern. Second, Mr Cameron's assessment is on a basis as if the renovation of the Midland Hotel had not commenced.
The latter limitation impacts on the usefulness of the Midland Hotel valuation: as at the date of the valuation a renovation and refurbishment of the Midland Hotel had commenced. Moreover, Mr Cameron accepted that the Midland Hotel had an alternate highest and best use: a long term redevelopment site. But Mr Cameron did not value the Midland Hotel on this basis (or ‑ if he did in assessing a 'notional land value' ‑ that is not evidence I accept). There was no useful valuation evidence based on the Midland Hotel having an alternate highest and best use as a long term redevelopment site.
Accordingly, care must be taken as to Mr Cameron's conclusion as to the market value of the Midland Hotel as at late October / early November 2008. The conclusion is subject to the two matters I have referred to. Importantly, it only addresses the market value of the Midland Hotel as a trading tavern.

[205]

Mr Poliwka was the key witness for the defendants.
I have already made findings as to the relative positions of Mr Girgis and Mr Poliwka. Those findings are made in the following context in relation to Mr Poliwka's circumstances as at 2007. In October 2007 Mr Poliwka was 57 years of age. He had been involved in real estate for at least 20 years. Mr Poliwka was a licensed real estate agent and auctioneer. He was also a qualified accountant and a Fellow of the Institute of Accountants (although not practising as an accountant). Mr Poliwka, through Poliwka Group (of which he was the sole director, shareholder and secretary), operated the real estate business of FWR located in Joondalup. As well as FWR, Mr Poliwka held other business and property interests. These included the Albany Hotel (which was leased) and the Nannup Hotel (of which Mr Poliwka was the licensee).
Accordingly, Mr Poliwka was an experienced business person with considerable expertise in property. He also had accounting expertise.
Mr Poliwka is presently a councillor of the City of Joondalup. He has also held many community roles. I accept that Mr Poliwka is a person with impressive credentials whose general character is unquestioned.
I have taken Mr Poliwka's antecedents into account in forming a view as to the credibility and reliability of his evidence. In spite of those matters there are a number of significant issues as to the credibility and reliability of Mr Poliwka's evidence.
I have previously mentioned Mr Girgis' erroneous recollection of the sequence of his initial discussions and meetings with Mr Poliwka. Mr Poliwka correctly identified the initial discussion and meeting on 31 October 2007.[88] He also identified the 22 January 2008 discussion.[89] In so doing Mr Poliwka had the benefit of his diary entries. But the 31 January 2008 meeting is advanced as being a meeting at which Mr Poliwka mentioned that Mr Pickrell was his (Mr Poliwka's) accountant;[90] and Mr Poliwka goes on in his witness statement to refer to then arranging a meeting with and introducing Mr Girgis to Mr Pickrell on 22 February 2008.[91] In fact Mr Pickrell was at the 31 January 2008 meeting.[92] So the initial substantive meeting between Mr Poliwka and Mr Girgis must have occurred before 31 January 2008. And the statements attributed to the 31 January 2008 meeting must have occurred earlier.
Accordingly, the starting point is that Mr Poliwka's recollection as to the timing of the initial events is somewhat flawed ‑ as is also the position with Mr Girgis' recollection.
Mr Poliwka's evidence in cross‑examination was far less convincing than that of Mr Girgis.
In forming this assessment I take into account ‑ in favour of Mr Poliwka ‑ that as the cross-examination developed so too there developed a degree of unnecessary antagonism between Mr Poliwka and the cross‑examiner. To the extent that this coloured Mr Poliwka's responses I have ignored and not put any weight on the manner in which Mr Poliwka responded. Nevertheless, Mr Poliwka was prone to be argumentative.[93] At other times he was non-responsive[94] or evasive.[95]
In one material respect Mr Poliwka's evidence was defensive and unbelievable. In substance Mr Poliwka quarrelled with the proposition that in buying shares in a private company or units in a unit trust it was usual to have a comprehensive set of written warranties.[96] Mr Poliwka said that there was no need for a written agreement or contract - the share transfers were the basis for the change in ownership.[97] Mr Poliwka also denied that proceeding in the way in which he did was hazardous.[98] That evidence was incredible for a person with Mr Poliwka's accounting and business background - particularly so given Mr Pollock's and Mr Errichetti's known history as bankrupts and their involvement with the seller. The failure to accept the obvious reflected adversely on Mr Poliwka's credibility and reliability. That was all the more so given that, following the transaction, Mr Pickrell had corresponded with Mr Poliwka raising concerns as to the form in which the transaction had proceeded.[99]
Self‑evidently Mr Poliwka re-thought this evidence. It had been provided on the first day of Mr Poliwka's cross-examination. The following day Mr Poliwka accepted that proceeding without a written contract was 'probably not best practice' and 'we could have done that better'.[100] If he had his time again Mr Poliwka would have had a written contract.[101] Nevertheless, the conflicting evidence provided on the first day of cross-examination demonstrates that Mr Poliwka was prepared to assert things in evidence that he considered to be in his self-interest irrespective of whether they were what he truly believed.
Mr Poliwka commenced giving evidence on 25 March 2019. His witness statement had been signed on 1 September 2017. On 22 March 2019, the business day before Mr Poliwka was to be called to give evidence, a number of amendments were foreshadowed to the statement. Mr Poliwka explained this by stating that on re-reading the witness statement there were some 'obvious anomalies'.[102] This was despite the witness statement containing the usual certification that Mr Poliwka had read the contents of the statement, was satisfied that it was correct and that it contained the evidence which he wished to give at trial.[103]
The 'anomalies' were material. They included:

[217]

Counsel for the plaintiffs suggested that there was more to this lack of recollection.[119] I am not satisfied that Mr Poliwka was deliberately feigning ignorance because he knew that a benefit had been conferred on an undischarged bankrupt (which appeared to be the thesis of counsel for the plaintiffs). But the lack of recollection as to the circumstances of the agreement to purchase and the $1 million payment demonstrates that limited reliability can be placed on Mr Poliwka's evidence as to the details of the events surrounding the investment into the Midland Hotel and the Pub business. Mr Poliwka's inability to recall these fundamental features of the transaction is a strong indicator as to his lack of actual recollection of the events in general.
Counsel for the defendants suggested that the same could be said of Mr Girgis: he too was unable to assist in recalling the payees of his bank cheques. This attempt to deflect misses the point. Mr Poliwka was driving the transaction, not Mr Girgis (a matter acknowledged by counsel for the defendants).[120] It is readily understandable that Mr Girgis was without recollection on such a detail. The same cannot be said for Mr Poliwka. That is all the more so when ‑ as Mr Poliwka said in his witness statements - the sums involved in his interactions with Mr Girgis were large sums for him (Mr Poliwka) and he took them seriously.[121]
Also relevant to Mr Poliwka's reliability is his 9 March 2011 response[122] to a 7 February 2011 audit letter received from the Australian Taxation Office.[123] The ATO had questioned the income returned for the Bold Gem Unit Trust for the income year ended 30 June 2009. As Mr Poliwka confirmed in cross-examination, the letter was wrong in a number of material respects.[124] Mr Poliwka acknowledged that there were errors all the way through the letter and 'it was very poor practice'.[125] It tells against Mr Poliwka's reliability that he would write such a misleading letter to the ATO.
Mr Poliwka's predisposition to embellish is also evident in an email dated 13 March 2009 sent on his behalf to ME Bank.[126] By the email Mr Poliwka sought to suggest that he (Mr Poliwka) and Mr Girgis had rejected approaches to sell the Midland Hotel at $5 million. In his witness statement Mr Poliwka conceded that this was a casual verbal offer from a person incapable of producing that amount of money and was not a serious offer worth pursuing.[127]
It was also put to Mr Poliwka ‑ in substance ‑ that he had forged Mr Girgis' signature on an attachment to the email. Mr Poliwka denied that allegation.[128] Mr Girgis denied that the signature was his[129] and there was no cross-examination on that denial. Having compared the signature with other signatures of Mr Girgis I accept that the signature appears to be an imitation of Mr Girgis' signature. However, I am not prepared to find that Mr Poliwka falsely signed the document with a signature that purported to be that of Mr Girgis'. At the least, as a matter of fairness, if that was to be seriously pursued Mr Poliwka should have been taken to the original of the document. I invited counsel for the plaintiffs to consider that course.[130] However, the invitation was not taken up. The allegation of forgery has not been established. This is not a matter which tells adversely against the credibility and reliability of Mr Poliwka's evidence.
Nevertheless, having reflected upon and considered Mr Poliwka's evidence as a whole ‑ in light of the contemporaneous documents and the objective facts ‑ I have serious reservations as to the reliability of much of Mr Poliwka's evidence.
Mr Poliwka's evidence of the events in 2008 and 2009 was reconstructive. Mr Poliwka had little or no actual memory of the events. That is most obvious from the inability to provide any real insight as to how agreement was reached and payment was made for the investments in the Midland Hotel and the Pub business. It also appears from the 'anomalies' that Mr Poliwka had confirmed in 2017 but were recognised as such mid-trial (Mr Poliwka having been present throughout openings and examination of the plaintiffs' witnesses and having seen the documentary evidence displayed on the court's display monitors).
Indeed, the limitations on Mr Poliwka's recollection were conceded by Mr Poliwka in his examination‑in‑chief. At to a discussion concerning the Midland Hotel and Pub business Mr Poliwka said that he could only speak to the substantial outcome of discussions rather than the conversation itself.[131]
On the critical aspects of the alleged advice and alleged representations Mr Poliwka's evidence was impressionistic. Mr Poliwka was concerned with what could or should have been said rather than setting out what he recollected was in fact said. Given Mr Poliwka's obvious self-interest as a defendant and the controller of the other defendants that alone has implications for the reliability of Mr Poliwka's evidence. The problems with reliability are exacerbated by the other features of Mr Poliwka's evidence and dealings that I have mentioned. The misleading communications to the ME Bank and the ATO, coupled with Mr Poliwka's evidence as to the lack of a written agreement and the 6 October 2008 notes, militates against acceptance of Mr Poliwka's reconstructions at face value.
I am not satisfied that, where uncorroborated, Mr Poliwka's evidence is generally reliable. More specifically, in the absence of contemporaneous documentation I am not generally satisfied that Mr Poliwka had an accurate recollection of what was said in the contested conversations between himself and Mr Girgis over 2007 and 2009. Accordingly, I am not prepared to rely on that evidence unless it is corroborated by reliable evidence, is inherently likely or is consistent with Mr Girgis' evidence.
This is not to say that I accept the whole of Mr Girgis' account of what he says was said between him and Mr Poliwka. Just because Mr Poliwka's evidence in certain respects may be disbelieved does not prove the opposite ‑ or that Mr Girgis' version of events is to be accepted. As already mentioned ‑ and as will be elaborated on further in addressing the facts ‑ there are a large parts of Mr Girgis' evidence that I do not accept. But I do so by rejecting Mr Girgis' evidence rather than preferring Mr Poliwka's evidence over the evidence of Mr Girgis. There are times at which Mr Girgis' evidence is also unreliable.

[218]

Mr Poliwka described Beverley Ridgway as his 'right hand'.[132] Ms Ridgway is a licensed real estate agent. Before commencing to operate her own business in November 2013 Ms Ridgway was the office administrator of FWR from 21 March 2002. Among other things Ms Ridgway was responsible for payroll and other compliance activities, managing staff and administering Mr Poliwka's personal investments. She had an office adjacent to Mr Poliwka's.
In cross-examination there was an attack as to Ms Ridgway's credit. Counsel for the plaintiffs suggested that Ms Ridgway had been told that certain questions would be put to her in cross-examination.[133] Later, in written submissions, counsel for the plaintiffs made the very serious allegation that it appeared that all of the defendants' witnesses ‑ thus including Ms Ridgway - had colluded.[134]
I accept that there was a minor error in Ms Ridgway's witness statement as to the first time she heard of the Midland Hotel.[135] However, I reject the suggestion that Ms Ridgway's evidence was tailored or anything other than her truthful recollection. In giving evidence Ms Ridgway was apprehensive but cautious. To my observation she was both attentive and precise. Ms Ridgway was self-evidently reflective in her answers. It was apparent that Ms Ridgway was trying to cast her mind back to the events in question and then inform me of the extent of her recollection. In short, Ms Ridgway did her best to give accurate answers in accordance with her recollection.
There was no reasonable basis for the suggestion that Ms Ridgway had colluded with any other of the defendants' witnesses before giving her evidence. I reject that attack on Ms Ridgway's credit. The manner in which Ms Ridgway answered the allegation suggesting that she was likely to get a question on a particular subject ought to have been the end of this issue.[136]
An example of the precision of Ms Ridgway's evidence occurred when she was asked whether, having been taken to some documents, she accepted that she did not provide Focus Accounting with certain bank statements until after 7 August 2009. Ms Ridgway responded that she did not recall when and if the bank statements were supplied.[137]
Ms Ridgway's evidence is generally reliable. That said, Ms Ridgway gave little evidence that was material to the main issues for determination. There is nothing to suggest that Ms Ridgway was present at the conversations between Mr Girgis and Mr Poliwka at which the alleged representations and alleged advice were made and provided.

[219]

Graeme Pickrell is an accountant and the principal of Focus Accounting.
Mr Poliwka has been a client of Focus Accounting, and Mr Pickrell, for at least 20 years. Despite that lengthy professional relationship Mr Pickrell gave evidence, which I accept, that he and Mr Poliwka have had extremely limited social dealings.
When Mr Poliwka first met with Mr Girgis one of the things mentioned was appropriate accounting representation. Mr Poliwka referred Mr Girgis to Mr Pickrell and Focus Accounting. Focus Accounting became the accounting service providers to Mr Girgis and his associated entities and remained so until Mr Girgis and Mr Poliwka fell into dispute. In the interim Focus Accounting provided all external accounting services for Sunriver, Bold Gem, Girpol and their associated trusts.
By his witness statement Mr Pickrell gave evidence as to:
- his initial meeting with Mr Girgis on 31 January 2008;
- Focus Accounting's retention as accountants by Mr Girgis;
- his advice to Mr Poliwka in relation to the purchase of the Midland Hotel; and
- the termination of Focus Accounting's retainer in 2012 following the deterioration in the relationship between Mr Girgis and Mr Poliwka.
Mr Pickrell was subjected to a very robust cross-examination. By way of example two serious matters were alleged. First, that Mr Pickrell had brought about the incorporation of a company in knowing contravention of provisions of the corporations legislation that required that certain consents be held before the application for incorporation was lodged. Second, that Mr Pickrell did so at the urging of Mr Poliwka who wanted it done quickly, and for his (Mr Poliwka's) premises to be the principal place of business for the company, so that Mr Poliwka could control everything done by the company.
I reject those attacks on Mr Pickrell's credit. Mr Pickrell did no more than what is done by accountants for clients as a matter of day-to-day practice: he applied online for the incorporation of a company. If there is a deficiency in the application process as followed by the online incorporation provider that is hardly a matter for Mr Pickrell. Nor does it suggest any lack of credibility or reliability in Mr Pickrell's evidence.
I accept that Mr Pickrell was unable to recall numerous details as to what was discussed in his initial meeting with Mr Girgis. So too Mr Pickrell was unable to recall the details in applying for the incorporation of the various companies on Mr Girgis' behalf. But these events took place more than 12 years ago and were routine within the course of Mr Pickrell's practice. It would be remarkable for Mr Pickrell to have any recollection beyond that which Mr Pickrell professed to have.
In general, Mr Pickrell gave his evidence in a way that was measured and responsive. I am satisfied that Mr Pickrell gave evidence that was true to the best of his recollection and that Mr Pickrell's evidence is generally reliable and should be accepted. In particular, when Mr Pickrell did not know or did not recollect specific details he did not hesitate in stating that was the position. Conversely, so far as Mr Pickrell stated matters of recollection, they were plausible and not inconsistent with contemporaneous materials and the objectively established facts.

[224]

Mr Girgis won Oz Lotto on 23 October 2007. On his own account Mr Girgis became overwhelmed on the news of his new fortune. Mr Girgis struggled with pressure from family, friends and acquaintances to provide them with financial assistance. Earlier that year Mr Girgis had been introduced to Mr Poliwka at a café run by the family of one of Mr Girgis' high school friends. After winning Oz Lotto the same friend suggested that Mr Girgis make contact with Mr Poliwka saying that he (Mr Poliwka) was a successful businessman and might be willing to give Mr Girgis advice.
Mr Girgis telephoned Mr Poliwka on 31 October 2007. The only reason for that telephone call was for Mr Girgis to inform Mr Poliwka that he (Mr Girgis) had won the $30 million and to seek Mr Poliwka's advice. I find that this was discussed in the telephone call. In any case Mr Poliwka agreed to meet Mr Girgis. They met at Mr Poliwka's Joondalup office at FWR that day.
Mr Girgis remembered the telephone call but not the meeting. Mr Poliwka, aided by his diary records, was able to pinpoint that there had been a meeting. Although the meeting lasted some two hours it was mainly by way of background as to Mr Girgis and his family and the pressure Mr Girgis was experiencing. Mr Poliwka told Mr Girgis that he (Mr Girgis) should just focus on successfully completing his university examinations. Mr Poliwka suggested, however, that Mr Girgis call him (Mr Poliwka) in the new year. Mr Poliwka also said that Mr Girgis had $30 million in the bank and did not need to make any rash decisions. If there was more to this initial meeting - and for reasons I will come to there may have been - then it is likely that what was said by Mr Poliwka at that time has simply been transferred into Mr Girgis' recollection of what was said in the January 2008 discussions. Accordingly, anything additional that was said by Mr Poliwka at this time is that which Mr Girgis attributes to the January 2008 discussions.
Mr Girgis sat his university exams. After doing so Mr Girgis took an extended vacation in the Eastern States.
Mr Girgis has a recollection that Mr Poliwka telephoned him (Mr Girgis) during the Eastern States vacation. Mr Poliwka was not asked about that. Whether Mr Poliwka touched base with Mr Girgis before Christmas in 2007 does not matter. It was common ground that Mr Girgis telephoned Mr Poliwka during January of 2008.
Mr Poliwka's diary records a 22 January 2008 telephone call with Mr Girgis.[140]
Mr Girgis and Mr Poliwka both accepted that there was a 31 January 2008 meeting at FWR's offices following that telephone call. What is unclear is whether there might have been another January 2008 meeting after the 22 January 2008 telephone call. Neither party mentioned this possibility. Rather, Mr Girgis referred to the 31 January 2008 meeting as the first meeting. Mr Poliwka referred to the initial meeting on 31 October 2007 and then referred to the 31 January 2008 meeting as being the second meeting. But both Mr Girgis and Mr Poliwka referred to the 31 January 2008 meeting as being the time Mr Poliwka first mentioned Mr Pickrell and then organising a subsequent meeting with Mr Pickrell - a meeting Mr Girgis identified as the second meeting and as having occurred in February 2008 (after the 31 January 2008 meeting) and Mr Poliwka identified as having occurred on 22 February 2008. In fact Mr Pickrell was at the 31 January 2008 meeting. Accordingly, it must be the case that either: (1) Mr Poliwka mentioned Mr Pickrell at the 31 October 2007 meeting - and the 31 October 2007 meeting was a more substantive meeting; or (2) there was another January 2008 meeting.
It is clear that Mr Pickrell was at the 31 January 2008 meeting because he (Mr Pickrell) prepared notes of the 31 January 2008 meeting.[141]
Mr Girgis gave evidence that everything that happened in the first meeting (on Mr Girgis' evidence the 31 January 2008 meeting with Mr Poliwka alone) was talked about at the second meeting (on Mr Girgis' evidence the February 2008 meeting with Mr Poliwka and Mr Pickrell).[142] It is likely, and I find, that Mr Girgis has confused his recollection of a 31 January 2008 'first' meeting with either the 31 October 2007 meeting or some other January 2008 meeting that followed the 22 January 2008 telephone conversation. In other words there was a meeting that preceded the 31 January 2008 meeting (without Mr Pickrell in attendance) and it is this initial meeting (either the 31 October 2007 meeting or some other January 2008 meeting) which Mr Girgis recalled as the first meeting rather than the 31 January 2008 meeting.[143]
Mr Girgis gave evidence, and I accept, that at this initial meeting he told Mr Poliwka about the $30 million, that he (Mr Girgis) had no experience in investing money let alone large sums of money and that he (Mr Girgis) was interested in Mr Poliwka's advice.
Mr Poliwka informed Mr Girgis that he (Mr Poliwka) was an accountant in a past life. Mr Poliwka also informed Mr Girgis that he (Mr Poliwka) had 30 plus years' experience in business and property. Mention was made that Mr Poliwka had over 30 investment properties and had interests in two hotels - the Nannup Hotel and the Albany Hotel. Mr Girgis also has a recollection that Mr Poliwka said that he (Mr Poliwka) had a net worth of $160 million. I think that is unlikely. The likelihood is, as counsel for the defendants suggested to Mr Girgis, that Mr Poliwka informed Mr Girgis that FWR had property under management of $160 million. There was no need for Mr Poliwka to make a blatant lie of the type suggested and I do not accept that he did. The amount of $160 million is explained by that being the then value of FWR's residential rent roll. So Mr Girgis misunderstood what Mr Poliwka had said as to the $160 million.
Mr Girgis also gave evidence that Mr Poliwka recommended that Mr Girgis follow an investment strategy of one‑third, one-third, one‑third, ie one‑third in property, one‑third in business and one‑third in cash.
I find that Mr Girgis was mistaken in this recollection. The likelihood is, as counsel for the defendants suggested to Mr Girgis, that Mr Poliwka informed Mr Girgis of the mix of investments that he (Mr Poliwka) invested in. Mr Girgis had sought Mr Poliwka's advice as an experienced businessperson and participant in the property industry. It is likely that Mr Poliwka responded by describing his (Mr Poliwka's) investment approach. This was an initial meeting. It would have been premature for Mr Poliwka to be providing any advice of the type sought and I consider it unlikely that Mr Poliwka did so. Mr Poliwka gave oral evidence of 'qualifying' the client.[144] I accept that as an experienced real estate agent this is exactly what Mr Poliwka would do. The suggestion that at this early stage Mr Poliwka committed to advising Mr Girgis to follow a particular investment strategy is also inconsistent with Mr Girgis' acceptance that during the meeting Mr Poliwka told Mr Girgis he (Mr Girgis) should not make any rash decisions. In rejecting that such advice was given it is also relevant that at no time did Mr Girgis follow such a one-third investment strategy.
Mr Girgis also gave evidence that Mr Poliwka recommended that he (Mr Girgis) set up a particular company structure. Again I consider this is unlikely and I consider Mr Girgis was mistaken in his recollection. Mr Poliwka might have described his (Mr Poliwka's) own company structure. But it is unlikely that any recommendation was advanced at an initial meeting. That is all the more so when the subject of an appropriate company structure for Mr Girgis was very much the purpose of the 31 January 2008 meeting with Mr Pickrell. It would not have been necessary for that to have been addressed in the way it was on 31 January 2008 ‑ relying on Mr Pickrell's expertise ‑ had Mr Poliwka addressed this in the very specific terms that Mr Girgis suggests occurred at the initial meeting.
There was, however, discussion about the necessity to obtain accounting services. Mr Girgis mentioned that he had a friend at PricewaterhouseCoopers. Mr Poliwka said there was no need to engage an accountant at that level. Instead Mr Poliwka mentioned Mr Pickrell and Focus Accounting, who provided accounting services for Mr Poliwka, who it was said would be a lot cheaper. Mr Poliwka offered to organise a meeting with Mr Pickrell and Mr Girgis accepted that suggestion. Other less important things were also discussed. For example, there was agreement that Mr Poliwka suggested to Mr Girgis that he (Mr Girgis) should see a lawyer and get a will. There is, however, a dispute about whether Mr Poliwka suggested that Mr Girgis see a financial planner by the name of David Curry. I am unable to conclude positively that this occurred insofar as this relies solely on acceptance of Mr Poliwka's evidence.
Importantly, the meeting had been prompted by Mr Girgis approaching Mr Poliwka to discuss whether Mr Poliwka was prepared to give Mr Girgis advice. I find that, at this initial meeting, Mr Poliwka informed Mr Girgis that he (Mr Poliwka) was prepared to act as an adviser to Mr Girgis - and that Mr Poliwka would not charge Mr Girgis for that advice. That, after all, is what happened. It is also consistent with the subsequent uncontradicted exchanges between Ms Rahaman and Mr Martinez in which (implicitly in the case of Mr Martinez) Mr Poliwka was described as an adviser to Mr Girgis.
The process of identifying what was said at the 31 January 2008 meeting is made easier by the fact that Mr Pickrell prepared notes of the meeting.[145] There is no reason not to accept Mr Pickrell's evidence that these notes are an accurate summary of the meeting.
The notes provide:

[232]

The 'summation' as to the available legal business structures was tendered.[147] Although Mr Girgis recollected these as having been prepared by Mr Poliwka - and the notes being shown to him at a meeting with Mr Poliwka alone[148] ‑ it is apparent that Mr Girgis was mistaken in this recollection. To be fair, in cross-examination Mr Girgis accepted that may have been the case, and indeed that it was very likely the available legal structures were explained by Mr Pickrell as Mr Pickrell was the accountant.[149] In any case Mr Pickrell's evidence, which I accept, is that he prepared the notes in advance of the meeting.[150] The summation reads as the sort of information that might be provided by an accountant when first meeting with a prospective client.
Based on the notes of the 31 January 2008 meeting, and Mr Pickrell's evidence,[151] I find that Mr Pickrell ‑ not Mr Poliwka ‑ provided Mr Girgis with the substantive advice as to the sort of business structures that ought to be considered by Mr Girgis.[152] Mr Pickrell proposed the business structures,[153] not Mr Poliwka. I reject Mr Girgis' evidence to the contrary.
Nor, contrary to Mr Girgis' recollection, was the intended company structure finalised at this meeting with the intention that Mr Poliwka would give Mr Girgis instructions to set out the companies.[154] The better evidence of what happened appears in Mr Pickrell's meeting notes: Mr Girgis was to review the summation and contact Mr Pickrell (not Mr Poliwka) if he required any further clarification or information.
Mr Pickrell's meeting notes also provide no support for Mr Girgis' recollection that Mr Poliwka again advanced that Mr Girgis should adopt the so called one-third, one-third, one-third investment strategy.[155] In oral evidence Mr Pickrell could not recollect whether there was such a discussion.[156] I consider it likely, however, that had there been such a discussion, then it would have been recorded in Mr Pickrell's meeting notes. The meeting notes record only that Mr Poliwka discussed the areas of potential investment - across a broad mix of investments - rather than any specific one-third, one-third, one-third investment strategy. I do not accept that Mr Poliwka advised Mr Girgis to adopt the 'one-third investment strategy' at the 31 January 2008 meeting.
It follows that ‑ at both the initial meeting and the 31 January 2008 meeting ‑ was there no advice by Mr Poliwka to Mr Girgis that he should adopt the one-third investment strategy in the very specific terms as suggested by Mr Girgis.
Mr Girgis referred to the so-called investment strategy at other points in his oral evidence.[157] But in context this was on the basis that the advice had been given and was being implemented. For example, it was said that a proposed investment might 'fit within the investment strategy'.[158] The further mentions of the investment strategy were not advanced as independent matters of advice but rather as furthering the investment strategy. Accordingly, my rejection of Mr Girgis' evidence about the alleged advice as to one-third investment strategy at the initial meeting and the 31 January 2008 meeting disposes of this aspect of the case in favour of the defendants.
I accept that there were discussions between Mr Poliwka and Mr Girgis at which investment strategies were mentioned. Mr Girgis had sought Mr Poliwka's advice and commercial acumen and Mr Poliwka was willing to assist Mr Girgis. It is likely, as I have mentioned, that Mr Poliwka informed Mr Girgis of his (Mr Poliwka's) approach to investment and the mix of investments that Mr Poliwka invested in. The notes of the 31 January 2008 meeting provide objective evidence that Mr Poliwka was referring to various types of investments - commercial property, passive investment (ie cash), property development, a specific type of business and private residences. That is a broad spectrum that covers the field of the three limbs of the so-called one-third investment strategy. So Mr Poliwka may well have spoken in generalities of investing across businesses, real estate and cash. It is likely that this is what Mr Girgis heard and translated as a strategy of investing one-third in property, one-third in business and one-third in cash.
In so doing Mr Girgis misconstrued the generalities in which Mr Poliwka was discussing the nature of the investments readily available to Mr Girgis. At the most, in referring to investment, Mr Poliwka referred to investing in a mix of investments rather than any hard and fast rule of one-third, one-third, one-third.
Following the 31 January 2008 meeting a company structure was implemented for Mr Girgis.
The evidence does not disclose whether Mr Girgis contacted Mr Pickrell for further clarification or information as to a proposed company structure. The 31 January 2008 meeting notes foreshadowed a further meeting. There is mention in Mr Poliwka's diary of further meetings between him and Mr Girgis over early February 2008. Many of those appear to involve a property that was being purchased for Mr Girgis' brother. There was, however, a longer meeting on 13 February 2008.[159] Mr Pickrell did not recollect attending that meeting.[160] The next diary entry that mentioned Mr Pickrell was a meeting at his Osborne Park office on 22 February 2008.[161]
Mr Poliwka's diary entry also refers to Mr Girgis. Accordingly, I infer that both Mr Poliwka and Mr Girgis attended Mr Pickrell's office on 22 February 2008. Mr Girgis gave no evidence about that meeting. Mr Poliwka did, but mistakenly referred to this being the first meeting between Mr Girgis and Mr Pickrell.[162]
At the 22 February 2008 meeting arrangements were put in place for the company structure to be employed by Mr Girgis. In particular:
- Girgis Nominees was incorporated on 22 February 2008. Various documents were signed by Mr Girgis and dated 22 February 2008.[163]
- The Girgis Property Trust was established by a trust deed dated 22 February 2008.[164]
I infer that the incorporation of Girgis Nominees and the establishment of the trust was discussed at the 22 February 2008 meeting and formalised afterwards. The inference arises as the documents to effect the incorporation and establishment of the trust were sent by Mr Pickrell to Mr Girgis (at his then residence) under cover of letter dated 27 February 2008.[165] But, importantly, the establishment of the entities followed a meeting at which Mr Girgis was present. It is likely, and I find, that Mr Pickrell brought about the establishment of the entities as a result of what was said by Mr Girgis at the meeting. As an experienced accountant Mr Pickrell would not have proceeded without Mr Girgis' instructions. The instructions can also be inferred from Mr Girgis' signatures on the various documentation and from the circumstance that by the 27 February 2008 letter Mr Pickrell asked Mr Girgis to pay for the external service provider costs of the incorporation and establishment of the trust.
There was no support for the suggestion, put by counsel for the plaintiffs to Mr Pickrell in cross-examination, that Mr Pickrell acted to incorporate the company and establish the trust based on a telephone call from Mr Poliwka.[166] I reject the submission that the incorporation occurred in haste based on instructions by Mr Poliwka to Mr Pickrell.[167]
Girgis Group was incorporated subsequently, on 5 March 2008.
There was little specific oral evidence of the circumstances in which Girgis Group came to be incorporated. Both Mr Girgis[168] and Mr Poliwka[169] suggested that there had been earlier discussions of an administration company. And Mr Pickrell gave evidence, which I accept, that the establishment of an administration company was in accordance with his recommendations at the 31 January 2008 meeting.[170] But it is unclear why the instructions to incorporate Girgis Group were deferred such that Girgis Group was not incorporated until some 2 weeks after the incorporation of Girgis Nominees.
I infer that, as at 22 February 2008, Mr Girgis had decided to proceed with Girgis Nominees and the Girgis Property Trust. However, Mr Girgis had not yet decided to bring about the incorporation of an administration company - that being in due course the function of Girgis Group. The decision to do so, and the instructions to incorporate Girgis Group, came after the 22 February 2008 meeting. On the evidence I am unable to come to a conclusion as to how those instructions were communicated to Mr Pickrell. But given that Mr Girgis gave the instructions to Mr Pickrell to incorporate Girgis Nominees I consider it is likely that it was Mr Girgis who made the decision to bring about the incorporation of Girgis Group.
Mr Girgis was the sole shareholder of Girgis Group. But on incorporation the directors of the company were Mr Girgis and Mr Poliwka. Mr Pickrell was appointed as company secretary and the office of Focus Accounting was the company's registered office. Mr Girgis' residential address was the business office of the company.
As mentioned, both Mr Girgis and Mr Poliwka said that there had been discussions that Mr Girgis' company structure should include an administration company. Mr Pickrell confirmed that the proposed function of Girgis Group was that of an administration company.[171] The nature of Girgis Group's role was expanded in a flow chart as:

[234]

At trial there was a dispute as to who had created the flow chart. I find that it was created by Focus Accounting. Mr Pickrell said that it was of a form that his office would do (although he could not remember whether his office prepared the document).[173] By contrast Mr Poliwka was adamant that the document was not prepared by his office saying 'we're not flowcharters'.[174] I accept that evidence. It was confirmed by Ms Ridgway who said that Focus Accounting had created the same sort of flow chart for the Poliwka group of companies.[175]
Mr Poliwka's willingness to consent to act as a director of Girgis Group is a strong indicator that Mr Poliwka's relationship with Mr Girgis extended beyond that of real estate agent and client on an ad hoc transactional basis. It is consistent with a relationship of adviser and advisee.
Mr Poliwka sought to explain his appointment as being a 'general consensus' or 'outcome' of the meeting.[176] The meeting being referred to was the 31 January 2008 meeting. That evidence could not have been correct. The outcome of the meeting was that Mr Girgis was to review the notes prepared by Mr Pickrell so that he (Mr Girgis) had a better understanding of the issues. Mr Poliwka also sought to downplay his role saying Mr Girgis could have removed him (Mr Poliwka) and he (Mr Poliwka) did not have an engagement for life.[177] That is so. But it does not explain why Mr Poliwka occupied the role in the first place.
Mr Girgis' evidence was that Mr Poliwka put himself forward as a director of the administration company Girgis Group.[178] This was so that Mr Poliwka could oversee matters on Mr Girgis' behalf and advise Mr Girgis accordingly.[179] That evidence was contradicted by Mr Poliwka.[180] But, as will be seen, Mr Poliwka referred to Girgis Group - and inferentially his role as a director thereof - in terms of it being a sounding board for Mr Girgis (see par 295 below). Mr Girgis' evidence as to the reason for Mr Poliwka's appointment as a director of Girgis Group was not the subject of any serious challenge in cross-[181]mination.181 In the circumstances - and mindful of my general observations as to the veracity of Mr Girgis' and Mr Poliwka's evidence ‑ I accept Mr Girgis' evidence as to the circumstances of, and the reasons for, the appointment of Mr Poliwka as a director of Girgis Group.
Mr Girgis also gave evidence to the effect that Mr Poliwka advised him (Mr Girgis) that all decisions had to go through him (Mr Poliwka) and he (Mr Girgis) was not to make any decisions without speaking with Mr Poliwka about it.[182] I accept that evidence. It is consistent with Mr Poliwka assuming a role as director of Girgis Group. Mr Poliwka's evidence, which I accept, was that in as much as he was willing to be a director he (Mr Poliwka) needed to be kept fully informed of all relevant matters.[183] Being consulted on investment decisions was consistent with Mr Poliwka's understanding of his responsibilities as a director.

[246]

One unusual feature of the relationship between Mr Poliwka and Mr Girgis was Mr Poliwka's creation of a spreadsheet which provided an overview of the assets and liabilities of Mr Girgis and his various entities. Mr Poliwka stated that this 'overview document' was based on the template that he (Mr Poliwka) used in his own business.[197] The overview document was updated from time to time as investments were made and assets and liabilities changed in value and amount.
From time to time Mr Girgis provided Mr Poliwka with printouts of various bank balances for the purpose of initially creating and later updating the overview document.
A number of the overview documents were tendered in evidence. The earliest appears to be a December 2008 document headed 'Girgis - Position Statement' in Mr Poliwka's handwriting which tabulated various assets and values.[198] From there ‑ by 16 December 2008 ‑ the record developed into a more detailed spreadsheet document.[199] Later iterations showed that the document was updated over time.[200] Mr Girgis himself had access to a soft copy of the Excel spreadsheet which comprised the overview document. On one occasion Mr Girgis emailed it to Mr Poliwka.[201] On another Mr Girgis sent it to Focus Accounting.[202] This suggests that Mr Girgis may also have worked on updating the overview document from time to time. Mr Girgis accepted that it was likely that he would have made changes to the overview document.[203]
Mr Girgis gave evidence that from time to time he (Mr Girgis) and Mr Poliwka would catch up and look at the Girgis Group overview document. This occurred when there was a need to do so; for example, on the purchase or settlement of a property.[204] Mr Poliwka agreed that he (Mr Poliwka) and Mr Girgis updated the document from time to time.[205]
Mr Poliwka said in evidence that the Girgis Group overview document was no more than an instrument to let Mr Girgis know where he was at any one time - to provide information by way of an asset and liability statement.[206] I accept that is the nature of the document. It was a record of position. It did not constitute any form of advice. But it is not the sort of information that a real estate agent prepares for a client. Again, the creation and updating of this Girgis Group overview document is a strong indicator that Mr Poliwka's relationship with Mr Girgis extended beyond that of real estate agent and client on an ad hoc transactional basis. Mr Poliwka was performing a role as adviser to Mr Girgis.
In cross‑examination Mr Poliwka referred to Girgis Group (on which Mr Poliwka sat as one of the directors) as being a 'sounding board' for Mr Girgis to have a relationship with Mr Poliwka and Mr Pickrell.[207] Mr Poliwka also described himself as a 'sounding board'[208] and a 'helping hand'.[209] That is, I consider, an apt description. But it necessarily accepts that one of Mr Poliwka's assumed functions was to act in an advisory role to Mr Girgis.
My conclusion that Mr Poliwka performed a role as an unpaid adviser to Mr Girgis is consistent with what Mr Poliwka stated to Mr Girgis at their initial meeting (refer to par 256 above). So too it is consistent with the statements before Ms Rahaman (refer to pars 151 to 158 above) and Mr Martinez (refer to pars 169 to 172 above) and Mr Poliwka's concessions that he was a 'sounding board' or 'helping hand' (refer to par 295 above). The latter statements are not the only concessions in Mr Poliwka's evidence that he was an adviser to Mr Girgis. Mr Poliwka s[210]ed in cross-examination that he was not Mr Girgis' sole adviser.210 Accordingly, there was an implicit acceptance that Mr Poliwka was an adviser to Mr Girgis. That admission was correct on the evidence as a whole. It is confirmed by [211]Poliwka's statement that he viewed Mr Girgis as a client. 211
Counsel for the defendants accepted that Mr Girgis saw Mr Poliwka as his property adviser.[212] That concession was properly made. No other conclusion is possible on the evidence as a whole. Counsel further accepted that - to the extent that Mr Poliwka provided advice in relation to real estate investments Mr Girgis was contemplating - there was a relationship of adviser and advisee.[213] It was not disputed that from time to time Mr Poliwka provided advice to Mr Girgis in relation to contemplated real estate investments.[214]
Mr Poliwka's and Mr Girgis' relationship of adviser and advisee was primarily as to property, that being Mr Poliwka's area of experience and expertise. But Mr Poliwka's role was wider than just Mr Girgis' property interests. Apart from providing referrals - something in keeping with Mr Poliwka's wider business experience than that of Mr Girgis' ‑ Mr Poliwka provided limited specific advice as requested from time to time. Mr Poliwka also offered a more general support role (eg in meeting with Ms Rahaman ‑ Mr Poliwka also attended an early February 2008 meeting between Mr Girgis, Mr Girgis' family members and a lawyer).[215]

[252]

More will be said of Mr Pollock later. Mr Poliwka said that he knew Mr Pollock from previous real estate transactions[222] and described Mr Pollock as a business client.[223] It was common ground that Mr Poliwka and Mr Girgis discussed another business opportunity with Mr Pollock in April 2009[224] (although Mr Girgis expressed dissatisfaction about that offer from Mr Pollock).[225]
At this time, ie over 2007 to 2008, Mr Poliwka knew that Mr Pollock had been a bankrupt; but Mr Poliwka was unsure whether Mr Pollock remained a bankrupt.[226]
Mr Poliwka described Mr Errichetti as an accountant.[227] Mr Errichetti's precise involvement in the Midland Hotel was never clarified at trial. It was suggested that Mr Errichetti was responsible for preparation of cash flow projections and financial matters,[228] ie producing numbers[229] and acting like a secretary.[230] There was some suggestion in the materials that, by October 2008, part of one party's interest in the Pub business was held by or on behalf of Mr Errichetti. According to Mr Girgis, Mr Errichetti was not a shareholder (something that Mr Poliwka agreed with).[231] Mr Errichetti was instead the person who had 'put the deal together'.[232]
Whether in fact some interest in the Midland Hotel or the Pub business was held by or on behalf of Mr Pollock or Mr Errichetti became a live issue at trial. I address this at pars 336 to 338 below.
Mr Errichetti was also a bankrupt. Mr Poliwka knew that Mr Errichetti was a bankrupt.[233] However, Mr Poliwka never informed Mr Girgis that Mr Errichetti (or Mr Pollock) was a bankrupt; it was not something of substance to Mr Poliwka.[234]
Mr Pollock's and Mr Errichetti's status as undischarged bankrupts was part of the plaintiffs' non-disclosure case. The plaintiffs said that the status of Mr Pollock and Mr Errichetti was known to Mr Poliwka, unknown to Mr Girgis, and if Mr Girgis had known of these matters Mr Girgis and his entities would not have proceeded with the purchase of the Midland Hotel and Pub business.[235]
There was no evidence that Mr Girgis knew of Mr Pollock's status; Mr Girgis gave unchallenged evidence to the contrary.[236] In the absence of contradictory evidence or challenge I accept Mr Girgis' evidence. While Mr Girgis gave similar evidence in respect of Mr Errichetti,[237] Mr Poliwka asserted (non-responsively in cross‑examination) that Mr Errichetti had mentioned his (Mr Errichetti's) status as a bankrupt at a meeting in which Mr Girgis and Mr Poliwka were in attendance.[238] Mr Girgis was cross-examined on that but said that he did not recall the conversation.[239]
It is unnecessary to offer a conclusion on whether Mr Errichetti mentioned his status as a bankrupt before Mr Girgis. I am satisfied, on the balance of probabilities, that even if Mr Girgis knew of Mr Errichetti's (and Mr Pollock's) status as a bankrupt he (Mr Girgis) would still have proceeded with the transaction in relation to the Midland Hotel and the Pub business. As will be seen, I consider that Mr Girgis relied on Mr Poliwka's positive representation and advice in proceeding with the investment in the Midland Hotel and the Pub business. The positive representation and advice would, in my opinion, have outweighed any negatives in the form of Mr Pollock's and Mr Errichetti's status and antecedents when it came to Mr Girgis' decision making. That is all the more so when, on Mr Poliwka's evidence, these matters were not of substance to him (Mr Poliwka). The strong likelihood is that any concerns based on the status and reputations of Mr Pollock and Mr Errichetti would have been downplayed by Mr Poliwka and, given the then nature of the relationship between Mr Girgis and Mr Poliwka, that would have been accepted by Mr Girgis. That is all the more so when, as will be seen, it has not been established that either Mr Pollock or Mr Errichetti held an interest in the Midland Hotel or the Pub business.
Any non-disclosure of Mr Errichetti's status as a bankrupt did not cause or materially contribute to the events that followed. Nor did the admitted non-disclosure of Mr Pollock's bankruptcy. This part of the plaintiffs' non-disclosure case fails.
There was a further aspect to the non-disclosure case insofar as it concerned Mr Pollock. The plaintiffs alleged, and the defendants admitted, that Mr Pollock was being prosecuted for defrauding the Australian Taxation Office.[240] This was not disclosed to Mr Girgis.[241]

[254]

Mr Poliwka's diary recorded that he (Mr Poliwka) had a meeting with Mr Girgis on 16 September 2008 regarding the 'McDonald's lease tender'.[242]
Mr Girgis gave evidence, which I accept, that this meeting was to discuss a potential investment in a Currambine property which had a McDonald's Restaurant as a long term tenant. The proposed investment was in the order of $1.5 million to $1.6 million. Mr Poliwka advised against the investment. Mr Girgis accepted that advice.[243]
In cross-examination counsel for the plaintiffs suggested that Mr Poliwka so advised Mr Girgis to discourage Mr Girgis from such an investment and instead to encourage Mr Girgis to invest in the Midland Hotel and Pub business. Mr Poliwka denied that was the case.[244]
I reject counsel for the plaintiffs' suggestion that Mr Poliwka's advice as to the Currambine property was calculated to encourage Mr Girgis to invest in the Midland Hotel and the Pub business. Apart from counsel's imagination there was nothing to tie together the advice as to the Currambine property and the Midland Hotel and Pub business. The objective evidence does not support any such 'priming' or calculated manoeuvring on Mr Poliwka's part. Mr Girgis was in the habit of seeking Mr Poliwka's advice on property matters. This is just another example of when such advice was sought and provided.
Similarly, suggestions in cross-examination to the effect that to encourage Mr Girgis to make the investment Mr Poliwka went through a lengthy process to cause Mr Girgis to develop strong trust and confidence in Mr Poliwka,[245] and that Mr Poliwka owed Mr Pollock 'some very big favour',[246] were nonsensical. As will be seen, Mr Poliwka (through his entities) invested equally with Mr Girgis. Mr Poliwka had as much to lose (or gain) as did Mr Girgis. In late 2008 Mr Poliwka was an experienced and successful business person with an expertise in property. Mr Poliwka had interests in other hotel assets. It is simply implausible that Mr Poliwka brought about Mr Girgis' co-investment in the Midland Hotel and Pub business in circumstances in which Mr Poliwka knew that it was an unsafe and inappropriate investment.[247] Mr Poliwka was focussed on whether the venue would be profitable.[248] I accept entirely that Mr Poliwka had no intention of losing his ‑ or Mr Girgis' ‑ money[249] or putting them in a position of jeopardy.[250] As Mr Poliwka said, he (Mr Poliwka) invested in the Midland Hotel and the Pub business based on its potential income streams[251] and because he believed it would make a profit.[252]
To the extent that a representation was made and advice was given as to the Midland Hotel and the Pub business there was no dishonesty or conscious impropriety on Mr Poliwka's part. Mr Poliwka believed that the investment was sound, saw potential in the Midland Hotel and the Pub business, and expected that income would be derived (both rental income and business operations income) making the investment profitable.

[256]

Later on 16 September 2008 Mr Poliwka had a meeting with Mr Pollock about the Midland Hotel.[253] No details of this meeting were adduced in evidence.
On 17 September 2008 Mr Poliwka was sent a copy of the lease between Sunriver (as landlord) and Bold Gem (as tenant).[254] As this followed the meeting with Mr Pollock, I infer that the lease was mentioned in the meeting and Mr Pollock arranged for the Bold Gem lease to be sent to Mr Poliwka. The lease is dated 1 February 2008 (a somewhat unusual feature as Sunriver did not become registered proprietor of the Midland Hotel until mid-March 2008). It provided for an initial term of five years commencing 2 March 2008 and an initial rent of $288,000 per annum.
The tendered materials show that, after receiving the Bold Gem lease, on 19 September 2008 FWR obtained an RP Data search in relation to the Midland Hotel.[255] Accordingly, by 19 September 2008 Mr Poliwka had commenced a more active consideration of acquiring the Midland Hotel. This is borne out by the fact that, as will be seen, Mr Poliwka and Mr Girgis conducted an inspection of the Midland Hotel on 19 September 2008.
The nature of Mr Pollock's role with the Midland Hotel and the Pub business at this time was never satisfactorily explained at trial.
Mr Girgis gave evidence that Mr Poliwka informed him (Mr Girgis) that Mr Pollock owned the Midland Hotel.[256] Mr Poliwka gave evidence, however, that he (Mr Poliwka) told Mr Girgis that Mr Pollock was a negotiator on behalf of the owners.[257] Mr Poliwka described Mr Pollock as the 'mouthpiece' for the company selling the Midland Hotel.[258] At the initial stage of the discussions there was no mention of the name Sunriver.[259] Indeed, Mr Poliwka's evidence was that he was not initially aware that the owner was Sunriver.[260] In any case it is clear that, by early October 2008, both Mr Poliwka and Mr Girgis knew that Sunriver was the registered proprietor of the Midland Hotel. The 1 October 2008 offer signed by Mr Poliwka and Mr Girgis referred to Sunriver as seller of the Midland Hotel.[261] So too various RP Data searches[262] referred to Sunriver as the registered proprietor of the Midland Hotel; and Mr Girgis recalled seeing the RP Data search prior to signing the offer.[263]
The likelihood is that, in believing Mr Poliwka described Mr Pollock as the owner of the Midland Hotel, Mr Girgis misconstrued words to the effect that Mr Pollock represented the owner. The dispute as to the description is of little moment however. By no later than 1 October 2008 Mr Girgis knew that the owner was a company called Sunriver.
At this time, as already mentioned, Mr Pollock was an undischarged bankrupt.[264] Accordingly, Mr Pollock could not have been the owner of the Midland Hotel or the Pub business. And in any case the apparent ownership of the Midland Hotel and the Pub business is evident from the documentary evidence and was common ground on the pleadings.
A company, Sunriver, became the registered proprietor of the Midland Hotel on 14 March 2008.[265] Although the transfer as registered recorded a purchase price of $2,950,000[266] ‑ and that became the transaction price referred to in subsequent RP Data searches ‑ a contemporaneous settlement statement recorded a purchase price of $2,500,000.[267] The purchase price recorded in the transfer as registered (and therefore reflected in the RP Data searches later obtained and considered by Mr Poliwka and Mr Girgis) was misleading. The circumstance that the Sunriver purchase was for an amount of $2.5 million, not $2.95 million, was not disclosed to or known by Mr Girgis.
Sunriver was incorporated on 17 August 2007. In September 2008 Annette Kuhnert was the sole director and company secretary of Sunriver; she also held, beneficially, the two issued ordinary shares in Sunriver.[268] Since its incorporation Sunriver had been the trustee of the Junction Unit Trust.[269] It was in that capacity ‑ as trustee of the Junction Unit Trust ‑ that Sunriver held the Midland Hotel.[270] The trust deed establishing the Junction Unit Trust was tendered.[271] As suggested by the name the trust was a unit trust. The subscribing unit holders were AIK Corporation Pty Ltd (two units) and Ms Kuhnert (two units). At trial no evidence was adduced as to AIK Corporation Pty Ltd. It is likely that the company was in some way associated with Ms Kuhnert; her initials are 'AIK'. But no findings can be made as to the precise relationship between Ms Kuhnert and AIK Corporation Pty Ltd other than to say that they were the two unit holders of the Junction Unit Trust.
Mr Poliwka had met Ms Kuhnert.[272] Mr Pollock introduced Mr Poliwka to Ms Kuhnert at around the time that Mr Poliwka and Mr Girgis made a decision to pursue the acquisition of the Midland Hotel and Pub business.[273] This was in very late September 2008. Mr Poliwka had no idea whether there was any personal or business relationship between Mr Pollock and Ms Kuhnert. All that Mr Poliwka could say was that Mr Pollock and Ms Kuhnert knew each other and that Ms Kuhnert was the shareholder in Sunriver.[274]
Mr Girgis had no recollection of meeting Ms Kuhnert.[275] That evidence was not challenged in cross-examination. I accept Mr Girgis' evidence and find that he (Mr Girgis) never met Ms Kuhnert.
On the pleadings it was common ground that, from 14 March 2008, Bold Gem conducted the Pub business in its capacity as trustee of the Bold Gem Unit Trust.[276] A settlement statement confirmed that the purchase of the business was completed on 14 March 2008 for $580,000.[277] Accordingly, the Midland Hotel and the Pub business were purchased together in mid-March 2008 for $3.08 million (Sunriver acquiring the Midland Hotel for $2.5 million and Bold Gem acquiring the Pub business for $580,000).
Bold Gem was incorporated on 29 August 2007. In September 2008 its directors were Tim Caporn and David Hancock. Mr Caporn was also company secretary. 100 ordinary shares were on issue: 51 to a company called Masterline Investments Pty Ltd; 29 to Bambu Hotels Pty Ltd (a company associated with Mr Hancock); and 20 to Caporn Nominees Pty Ltd (a company associated with Mr Caporn).[278]
Ms Kuhnert was the sole director and shareholder of Masterline Investments Pty Ltd.[279]
The trust deed for the Bold Gem Unit Trust was not adduced in evidence. Nor was there direct evidence as to the units on issue and the unit holders of the units. However, as will be seen, there is documentary evidence substantiating that Girpol took a transfer of 29 units from Bambu Hotels Pty Ltd[280] and 20 units from Caporn Nominees Pty Ltd.[281] There is also much material referring to Masterline Investments Pty Ltd initially holding the remaining 51 units.[282] Those respective unit holdings are equivalent to the parties' respective share holdings.
Accordingly, before the dealings with Girpol (which I come to below) the units in the Bold Gem Unit Trust were held 51:29:20 as between Masterline Investments Pty Ltd, Bambu Hotels Pty Ltd and Caporn Nominees Pty Ltd.
In opening, and then throughout the course of the trial, counsel for the plaintiffs sought to develop a case that some of Masterline Investments Pty Ltd's and Bambu Hotels Pty Ltd's units in the Bold Gem Unit Trust were held for Mr Pollock (allegedly 40 per cent) and Mr Errichetti (allegedly 20 per cent).[283] The plaintiffs sought to rely on some undated notes[284] and notes made on 6 October 2008[285] ‑ both of which were the subject of considerable cross-examination.[286] However, the allegation was never pleaded. To the contrary, the plaintiffs specifically pleaded that Girpol took a transfer of 51 units from Masterline Investments Pty Ltd and 29 units from Bambu Hotels Pty Ltd; there was no mention of Mr Pollock or Mr Errichetti.[287] Nor was this one of the alleged non-disclosure matters as pleaded in the SOC.
The documentary evidence was sufficient to ground a suspicion that all was not as it seemed in the sense that Mr Errichetti may have had some undisclosed interest.[288] But, in my view, the matter did not rise above a suspicion given the paucity of the material available to make good the allegation and the hearsay nature of that material. Apart from not pleading the allegation, the plaintiffs did not prove on the balance of probabilities that Mr Pollock and Mr Errichetti had an undisclosed interest in 60 per cent of the units of the Bold Gem Unit Trust. My finding as to the ownership of the units in the Bold Gem Unit Trust is as stated in par 336 above.
As part of their pleaded case, and at trial, the plaintiffs also went to considerable lengths seeking to examine the ownership of the Midland Hotel and the Pub business prior to Sunriver and Bold Gem ‑ in substance, seeking to conduct an inquiry into the details of the transactions whereby Sunriver had acquired the Midland Hotel and Bold Gem had acquired the Pub business. For example, it was alleged - and indeed admitted ‑ that one of the named directors of the seller to Sunriver was in fact deceased (and had been since 15 September 2006) but that in his lifetime that person had been a notorious public figure with known or suspected connections to organised crime.[289]
I have reviewed the pleaded allegations and the evidence which addressed events pre-dating Sunriver's and Bold Gem's ownership of the Midland Hotel and Pub business.[290] I apprehend that this is part of the plaintiffs' case on alleged non‑disclosure, or alternatively, failure to conduct adequate due diligence. But when considered in the factual context of what motivated Mr Poliwka and Mr Girgis to purchase the Midland Hotel and the Pub business this part of the case strikes me as no more than an after‑the‑event lawyer's construct. The matters raised had no material bearing on the decision to invest in the Midland Hotel and the Pub business. Nor, had they been known at the time (and some of the matters were known to Mr Girgis), would events have altered. For example, it was fanciful to suggest that Mr Girgis would not have proceeded with the transaction had he known that one of the named directors of the company that sold the Midland Hotel to Sunriver was actually deceased at the time of the sale.[291] What mattered was the position of Sunriver, and its status as registered proprietor of the freehold to the Midland Hotel, rather than historical idiosyncrasies that afflicted prior owners.
In the circumstances I do not intend to burden what is already a too long account of the background facts ‑ necessarily so because of the prolixity and lack of discrimination in the SOC ‑ with detailed factual findings on this aspect of the pleaded case. In my view it is unnecessary to go beyond the prevailing factual context as at September and October 2008.
Indeed, it is not even necessary to address all of that factual context. For example, part of the plaintiffs' pleaded case was that, insofar as the kitchen and restaurant of the Midland Hotel was leased to a third party - Gourmet Gear, it would have been more profitable for Bold Gem to operate the kitchen itself.[292] The 30 June 2008 kitchen agreement was tendered.[293] But there was no evidence (expert or otherwise) to support the contention that it would have been more profitable for Bold Gem to have operated the kitchen itself rather than to have continued with the kitchen agreement. Moreover, the plaintiffs' post-trial evidentiary note deleted the matters at pars 20.9J and 20.9K of the SOC thereby signifying that the allegation was no longer relied on by the plaintiffs.
This, as with much of the material pleaded and referred to in evidence, was no more than surplusage without proper identification of the essential legal and factual nature of the plaintiffs' true complaint.[294]
I intend to restrict my consideration to the relevant prevailing factual context that pertained to the Midland Hotel and the Pub business as at September and October 2008. I have assessed relevance by reference to the plaintiffs' misleading conduct case - both positive and based on non-disclosure - as developed in closing submissions.[295]
Part of the relevant factual context are the encumbrances then affecting the Midland Hotel. There were two encumbrances registered against the certificate of title: a registered mortgage in favour of ME Bank[296] and a caveat in favour of Walthamstow Pty Ltd.[297]
It was common ground that the ME Bank mortgage secured a loan to Sunriver of about $1.95 million with outstanding interest.[298] Walthamstow Pty Ltd's caveat claimed an interest as equitable mortgagee pursuant to a mortgage dated 11 March 2008 for an advance of $1.72 million. The defendants did not admit the loan. But the Walthamstow Pty Ltd mortgage was admitted[299] and in any case was in evidence[300] (as was a loan agreement contemplated by the mortgage).[301] When read with Walthamstow Pty Ltd's letter dated 17 March 2008[302] confirming the disbursement of the loan proceeds, the mortgage and loan agreement confirm that Sunriver was indebted to Walthamstow Pty Ltd in an amount of $1.72 million.
At all times from 6 October 2008 both Mr Girgis and Mr Poliwka were aware of the ME Bank mortgage and the loan of $1.95 million that it secured. That is evident from Mr Poliwka's notes of 6 October 2008[303] (refer to par 500 below) which expressly referred to the loan with ME Bank in an amount of $1.95 million. Mr Girgis and Mr Poliwka were also aware that the loan was one or two months in arrears. For the reasons I come to in addressing the significance of the 6 October 2008 notes (refer to pars 476 to 508 below) I reject Mr Girgis' witness[304]atement evidence to the contrary.304 Moreover, in the scheme of things, the arrears were unsubstantial and would not have affected Mr Girgis' decision to proceed with the Sunriver transaction. Accordingly, that part of the plaintiffs' non-disclosure case fails.
Mr Girgis said that he was unaware that Sunriver had obtained a loan from Walthamstow Pty Ltd for $1.72 million.[305] Mr Girgis also denied knowing of the Walthamstow Pty Ltd caveat.[306] By contrast Mr Poliwka said that there were discussions between him (Mr Poliwka) and Mr Girgis about the caveat[307] and the removal of the caveat as a pre-condition to the purchase of the shares in Sunriver.[308] Mr Poliwka also said that 'we [referring to himself and Mr Girgis] were provided with certificates of title'[309] and that Mr Girgis was aware of the caveat because he (Mr Girgis) had a copy of the certificate of title.[310]
There was no evidence that Mr Girgis had a copy of the certificate of title in relation to the Midland Hotel. Nor, apart from Mr Poliwka's self-serving assertions to the contrary, was there evidence that Mr Girgis knew of Walthamstow Pty Ltd, its loan or its caveat. The notes of 6 October 2008 do not refer to Walthamstow Pty Ltd and its encumbrance against the Midland Hotel. There was no cross-examination of Mr Girgis to challenge his evidence that he (Mr Girgis) was unaware of the Walthamstow Pty Ltd and its caveat or to suggest that he was aware of those matters because they appeared on a copy of the certificate of title. The cross-examiner only established that, to Mr Girgis' knowledge, Walthamstow Pty Ltd made no demand for payment while Mr Girgis was a director of Sunriver or Bold Gem.[311]
I accept Mr Girgis' evidence that he (Mr Girgis) was unaware of the Walthamstow Pty Ltd loan and caveat. It follows that Mr Girgis could not have known of the Walthamstow Pty Ltd mortgage or the eventual agreement to withdraw the Walthamstow Pty Ltd caveat on payment of $400,000 (see par 521 below). Mr Poliwka's evidence to the contrary was based on a reconstruction (that Mr Girgis would have seen mention of Walthamstow Pty Ltd on a copy of the certificate of title) which was not borne out by the objective facts. Mr Girgis' absence of knowledge as to Walthamstow Pty Ltd's loan and caveat is consistent with the notes of the 6 October 2008 discussions.

[257]

One matter that Mr Poliwka relied on heavily (both in proceeding to purchase the Midland Hotel and at trial) was a 23 January 2008 valuation of the property comprising the Midland Hotel which was prepared by Burgess Rawson (WA) Pty Ltd.[312]
Mr Poliwka could not recall how or when he obtained the Burgess Rawson valuation, but thought it was possible it came through Mr Pollock.[313] In his witness statement evidence Mr Poliwka referred to a conversation subsequent to mid-September 2008 in which Mr Pollock said that he had a sworn valuation of the Midland Hotel and he would provide it to Mr Poliwka.[314]
Accordingly, it is likely that Mr Pollock arranged for the Burgess Rawson valuation to be provided to Mr Poliwka. This must have happened at around the same time as the provision of the Bold Gem lease ‑ or shortly thereafter. Accordingly, the Burgess Rawson valuation was made available around 17 or 18 September 2008 ‑ just before Mr Poliwka and Mr Girgis first inspected the Midland Hotel (19 September 2008).
In his witness statement Mr Girgis said he did not recall seeing a copy of the Burgess Rawson valuation before the commencement of the litigation.[315] By contrast Mr Poliwka said that he (Mr Poliwka) and Mr Girgis discussed the Burgess Rawson valuation at the time that they were considering the transaction in relation to the Midland Hotel and the Pub business ‑ suggesting, in substance, that the valuation was one of the matters relied on by them.[316] Mr Poliwka said that he expressed the view that he would be interested in the Midland Hotel at the amount in the Burgess Rawson valuation.[317] As will be seen, an offer made on 1 October 2008 was consistent with the value in the Burgess Rawson valuation.
In cross‑examination Mr Girgis was not as dogmatic as in his witness statement. Mr Girgis said that it was possible he had gone through the Burgess Rawson valuation before signing the 1 October 2008 offer - although he did not recall doing and did not recall discussing the valuation with Mr Poliwka.[318] Later Mr Girgis went further and said it was likely that it happened even though he did not recall the valuation or the conversation.[319]
Based on Mr Girgis' concessions in cross-examination I find on the balance of probabilities that he (Mr Girgis) read the Burgess Rawson valuation and discussed it with Mr Poliwka. It is likely that this occurred shortly after Mr Poliwka was provided with the valuation. There were numerous meetings and discussions between Mr Girgis and Mr Poliwka concerning the Midland Hotel and the Pub business. There was ample opportunity for Mr Girgis to have read the Burgess Rawson valuation during one of the many meetings at FWR's Joondalup office.
The Burgess Rawson valuation was not adduced in evidence at trial as proof of the fact of the opinion expressed in the report. As will be seen, Mr Cameron gave sworn valuation evidence as to the value of the Midland Hotel at the relevant time. Mr Cameron's assessment differed markedly in terms of the valuation figure arrived at by the Burgess Rawson valuation. Mr Cameron's valuation evidence was the only sworn evidence as to the value of the Midland Hotel that was presented at trial; it is the only opinion evidence available as to value. The significance of the Burgess Rawson valuation is that this was made available to Mr Poliwka (and Mr Girgis) and apparently relied on by Mr Poliwka at the time of the purchase of the Midland Hotel and the Pub business.
The Burgess Rawson valuation was dated 23 January 2008 and provided a valuation as at that date. The Executive Summary noted that the 'as is' current market value was $3 million. This was based on the property's 2,992 square metre area and applying a land area rate of $1,000 per square metre. The valuation was provided under instructions of Ms Kuhnert on behalf of the directors of Sunriver and for their use for finance purposes.
The Burgess Rawson valuation referred to the Bold Gem lease (page 21). It then provided an important qualification:

[259]

The assumption as noted was in error. Sunriver and Bold Gem were related entities. Ms Kunhert was the sole director and shareholder of Sunriver. Ms Kuhnert was not a director of Bold Gem. However, Masterline Investments Pty Ltd, a company of which Ms Kuhnert was the sole director and shareholder, held 51 per cent of the issued shares in Bold Gem. Accordingly, Masterline Investments Pty Ltd - controlled by Ms Kunhert ‑ was the parent company to Bold Gem. Ultimately both Sunriver and Bold Gem were subject to control by Ms Kuhnert.
For this reason alone it is necessary to approach the valuation figure in the Burgess Rawson valuation with care. Once the true facts are known Burgess Rawson itself had reserved the opportunity to re-assess the valuation figure. This is of some significance when, at page 24, the Burgess Rawson valuation records 'our market sources indicate the rental is well above market'.
Mr Poliwka gave evidence that he did not, at the time, consider Bold Gem to be related to Sunriver. In Mr Poliwka's words the common control of Ms Kuhnert 'didn't ring a bell'.[321] Accordingly, in terms of par 20.9D of the SOC, I accept that the status of Sunriver and Bold Gem as related entities was not something disclosed by Mr Poliwka to Mr Girgis.
There is a second reason why, in September or October 2008, caution ought to have been exercised in relying on the Burgess Rawson valuation. The valuation was expressed as being as at 23 January 2008. The valuation noted that no warranty could be given to the maintenance of the value into the future (pars 1.2, 13.4, 13.6). It was also said that Burgess Rawson could not confirm the initial valuation after a period of three months from the date of valuation without undertaking a re‑inspection of the property and further investigation and analysis (par 13.4).
At trial there was a body of evidence that, by September 2008, the Global Financial Crisis had created instability that was having an effect on the property market in Western Australia.[322] Mr Poliwka himself gave evidence that he was aware of the GFC by mid-September 2008.[323]
Accordingly, by its own terms, the Burgess Rawson valuation was stale by mid-September 2008. And in any case its then reliability was adversely affected by the change in market conditions presented by the GFC.
The Burgess Rawson valuation proceeded to value the Midland Hotel on a direct comparison approach by determining a rate per square metre based on sales of improved properties as nominated. This method was employed for two reasons. First, it was said Burgess Rawson had been provided with insufficient trading figures (although it was noted that the main bar was running at a loss). Second, it was said that large portions of the Midland Hotel were not being used and required significant redevelopment and renovation to bring them up to a good standard. Accordingly, Burgess Rawson considered that 'the property [was] primarily a redevelopment site with some heritage implications' (page 28).
The valuation stated, however, that one of the weaknesses of the property was that there were 'heritage implications' (page 24). Also mentioned was a threat that heritage issues might restrict redevelopment (page 24). Beyond observing that redevelopment would require incorporating the existing buildings and retention of the licensed premises (page 28) the Burgess Rawson valuation gave little detail as to how redevelopment might occur.

[261]

Following Mr Poliwka's 16 September 2008 meeting with Mr Pollock it becomes necessary to refer to the meetings and conversations between Mr Poliwka and Mr Girgis.
There were many conversations. These included two meetings at which Mr Girgis and Mr Poliwka inspected the Midland Hotel and met with one or more of Mr Pollock, Mr Errichetti and Mr Caporn. The first of the inspections occurred on 19 September 2008. It is more difficult to place a specific date on the second inspection. Mr Girgis said it was not too long after the initial visit.[324] Mr Poliwka confirmed that there was a second inspection but did not attempt to place a date on it.[325] Mr Poliwka's diary shows two possible entries: one on 29 September 2008 (a two hour entry for 'Pollock / [indecipherable]: Midland Hotel');[326] the other on 30 September 2008 (an entry for 'Pollock on Midland - Eastern').[327] It is more likely that the second inspection took place on 29 September 2008. That entry has a two hour window. The 30 September 2008 entry has no time period but is immediately intertwined with an entry for 'Office Admin' suggesting a meeting with Mr Pollock whilst engaged with office administration at Mr Poliwka's FWR office.
Nothing turns on whether the second inspection took place on 29 or 30 September 2008. On the face of the diary entries, however, it is more likely than not that the second inspection occurred on 29 September 2008.
As well as the inspections there were other conversations and meetings between Mr Girgis and Mr Poliwka. Mr Poliwka's diary records meetings with Mr Girgis on 1 October 2008 (two meetings),[328] 9 October 2008,[329] 13 October 2008,[330] 14 October 2008,[331] 20 October 2008,[332] 22 October 2008[333] and 23 October 2008.[334] Also, as will be seen, there were meetings involving Mr Girgis and Mr Poliwka on 6 October 2008 (refer to par 476 below) and 8 October 2008 (refer to par 511 below).
Given the number and frequency of the meetings, the relatively short period over which they occurred, and that the meetings occurred more than ten years ago, Mr Girgis' and Mr Poliwka's evidence tended to focus on the two inspections. Where other discussions or events were referred to both Mr Girgis and Mr Poliwka tried to place them by reference to the inspection meetings. There is, however, some doubt as to what precisely was said at what meeting or in what discussion. Inevitably, given the matters I have referred to, the events became blurred and recollections (or reconstructions) merged. As Mr Girgis said, quite candidly, he could no longer recall precisely when the conversations referred to occurred and whether the matters were discussed in the same conversation or multiple conversations.[335]
Mr Poliwka was equally unable to be precise as to timing stating in response to a question from me:

[263]

The difficulties Mr Poliwka experienced in this regard are well illustrated by the 'anomalies' referred to in the witness statement as originally signed by Mr Poliwka (refer to pars 202(1) and (3) above) and Mr Poliwka's evidence as to meeting with the representative from ME Bank (refer to pars 547 to 550 below).
Mr Poliwka could not recall the time when he (Mr Poliwka) first raised the Midland Hotel with Mr Girgis. It was, however, Mr Poliwka who raised the potential investment with Mr Girgis. Mr Poliwka said in evidence that he (Mr Poliwka) informed Mr Girgis about the Midland Hotel and told Mr Girgis that he (Mr Poliwka) was interested in purchasing it, and intended to do so, subject to some clarifications. At this stage, according to Mr Poliwka, he (Mr Poliwka) mentioned Mr Pollock and said that Mr Pollock was acting as negotiator for the owner. Mr Poliwka referred to the property having an asking price of between $3 and $3.5 million.[337]
Mr Girgis recalled Mr Poliwka raising the Midland Hotel as an investment opportunity very closely after their discussion as to the McDonalds at Currambine.[338] This establishes that the potential investment was raised between 16 and 19 September 2008.
Mr Girgis' evidence was that Mr Poliwka referred to the Midland Hotel as being owned by Mr Pollock - who was said to be a friend of Mr Poliwka's. According to Mr Girgis, Mr Poliwka said that 'it was a really good deal' and that Mr Pollock needed cash urgently and had to liquidate the asset. Mr Poliwka is also supposed to have said that the Midland Hotel would fit within the one-third, one-third, one-third investment strategy. Mr Girgis confirmed Mr Poliwka's evidence that there was an asking price of $3 to $3.5 million. But Mr Girgis said that Mr Poliwka went further and said that the property was worth between $4.5 million and $5 million. Otherwise Mr Girgis recalled Mr Poliwka referring to the property being leased to a long-term tenant at a rental of $220,000 per annum. Because of the rental stream it was described as a 'simple and straightforward transaction.'[339]
I have already addressed the difference in recollection as to the description of Mr Pollock (refer to pars 325 to 327 above). Nothing turns on whether Mr Poliwka described Mr Pollock as a 'friend'. In my assessment Mr Poliwka is the sort of person who describes numerous people - including business acquaintances - as a 'friend'. Mr Girgis had known Mr Poliwka for about a year at this time. This trait of Mr Poliwka's would have been obvious to Mr Girgis. I consider he (Mr Girgis) would not have placed any real reliance in Mr Poliwka referring to Mr Pollock as a friend.
The reference to 'good deal' was not, in context, representational. This was no more than a very preliminary discussion at which the potential investment was mentioned to determine whether Mr Girgis was interested in co-investing with Mr Poliwka.
I have not reached a state of 'actual persuasion' so far as Mr Girgis asserts that Mr Poliwka said that the potential investment would meet the one-third investment strategy. For reasons earlier stated I do not accept that Mr Poliwka advised Mr Girgis to adopt and implement the one-third investment strategy in the specific terms as suggested by Mr Girgis (refer to pars 252 to 253 above). This evidence involves a continuation of this misconception on the part of Mr Girgis. I do not accept that a statement in the terms asserted by Mr Girgis was in fact made.
There are two other things that must be addressed as to this aspect of Mr Girgis' evidence: (1) the evidence of mention of the long-term lease; and (2) the evidence of mention of a value of $4.5 to $5 million (ie $1.5 million to $2 million more than the lower range of the asking price).
The recollection of the reference to the long-term lease and rental demonstrates that Mr Girgis was interested in a passive investment, ie deriving a rental income. That is consistent with Mr Girgis' interest in the Currambine property on which the McDonald's was located. In cross-examination Mr Girgis confirmed that he (Mr Girgis) was looking for a passive investment.[340] That was also the language used by Mr Poliwka.[341] The lease between Sunriver and Bold Gem was an important part of the factual context to both Mr Girgis and Mr Poliwka.
There was a dispute as to whether Mr Girgis was provided with the Bold Gem lease. Mr Girgis gave evidence that he (Mr Girgis) did not see a copy of the Bold Gem lease before finalising the purchase of the Midland Hotel and the Pub business.[342] Mr Poliwka said that both Mr Girgis and he (Mr Poliwka) had been provided with a copy of the lease.[343]
I am unable to come to a conclusion either way. There is an absence of contemporaneous documentation or objective evidence on the subject. I consider this to be another irrelevancy which goes nowhere: the Bold Gem lease existed; on 17 September 2008 Mr Poliwka was provided with a copy of it; it is inevitable that Mr Poliwka would have read the Bold Gem lease and that ‑ in the course of the many discussions between Mr Poliwka and Mr Girgis ‑ mention would have been made that there was a long-term lease and the rent payable under the lease. Indeed, Mr Girgis mentioned the long-term lease and the rent payable under it as being one of the attractions to him in proceeding with the Midland Hotel transaction.[344]
To the extent that the rent payable under the Bold Gem lease was $288,000 per annum, not $220,000 per annum, it is likely ‑ and I find ‑ that Mr Girgis had a minor error in recollection as to what he (Mr Girgis) was told by Mr Poliwka as to the rent payable under the Bold Gem lease.
Moving back to the disputed contents of the initial conversation, I am not persuaded that Mr Poliwka said words to the effect that the property was worth between $4.5 million and $5 million. By this time, having met with Mr Pollock on 16 September 2008, the likelihood is that Mr Poliwka either had the Burgess Rawson valuation or knew of the Burgess Rawson valuation. If Mr Poliwka had the Burgess Rawson valuation, he (Mr Poliwka) knew of the $3 million valuation. It is highly unlikely that Mr Poliwka would have suggested as market value a figure so much higher than the sworn valuation. And, if Mr Poliwka did not have the Burgess Rawson valuation, I consider the likelihood is that he (Mr Poliwka) would have said no more than they (Mr Poliwka and Mr Girgis) should obtain and consider the valuation.
Moreover, the suggestion that Mr Poliwka referred to a value of $4.5 million to $5 million is implausible given the asking price of $3 million to $3.5 million.
I consider it is far more likely than not that Mr Girgis is mistaken in this aspect of his recollection. Mr Girgis was not a witness of perfect recollection. There was, as I have already recounted, an admitted propensity to attribute what was said at some time to another conversation or conversations. The documentary evidence includes a 13 March 2009 email[345] in which Mr Poliwka refers to $980,000 in improvements since the last valuation grounding a belief that 'the current market value would be in the order of $4.2 million'. The same email refers to rejecting an approach to sell the property at $5 million. It is, in my view, more likely that Mr Girgis is misplacing recollections of similar such statements post‑completion of the renovation works to the Midland Hotel than it is that Mr Poliwka said in this initial conversation that the property was worth between $4.5 million and $5 million.
To return to the narrative, Mr Girgis was interested in meeting with Mr Pollock. Accordingly, Mr Poliwka organised a meeting for the two of them (Mr Girgis and Mr Poliwka) to inspect the Midland Hotel.
Mr Poliwka's diary records that he (Mr Poliwka) and Mr Girgis attended a meeting about the Midland Hotel on 19 September 2008.[346] Also recorded in the diary note were Mr Pollock, Mr Errichetti and Mr Caporn. What was said at that meeting is of central importance to this aspect of the litigation.
Mr Girgis said that he (Mr Girgis) was introduced to Mr Pollock, Mr Errichetti and Mr Caporn. Another senior employee was also present. Mr Caporn was introduced as the previous operator of 'The Deen', a nightclub in Aberdeen Street, Northbridge. Renovations were ongoing at the Midland Hotel (Mr Poliwka confirmed this describing the property as a 'construction site').[347] Accordingly, Mr Girgis, Mr Poliwka and Mr Pollock went to nearby premises to have lunch and discuss the Midland Hotel. Mr Girgis suggested that Mr Poliwka referred to Mr Pollock as being worth hundreds of millions of dollars (a statement which, if made, is immaterial to what followed). The sale price of the Midland Hotel was repeated as being $3 million to $3.5 million.[348]
After the lunch Mr Poliwka and Mr Girgis walked around the outside of the property without Mr Pollock.
Mr Girgis' evidence was that Mr Poliwka then said words to the effect:[349]
- This is a 'really good deal' or a 'solid deal' at $3 million to $3.5 million.
- He (Mr Poliwka) had done his due diligence and it all looked good.
- We (Mr Girgis and Mr Poliwka) should seriously consider it as we were 'getting it for a much better price'.
- There was a lease in place and the tenant was an experienced operator because it had operated 'The Deen' nightclub.
Mr Girgis said that he (Mr Girgis) and Mr Poliwka discussed matters further in a car ride back from the Midland Hotel. Again, according to Mr Girgis, there was mention by Mr Poliwka that he (Mr Poliwka) had done his due diligence. Mr Girgis also referred to Mr Poliwka suggesting that they (Mr Girgis and Mr Poliwka) would be $1 million up because the Midland Hotel was worth $4.5 million.[350] I do not consider this latter recollection as to value is correct. For the reasons given earlier in rejecting Mr Girgis' evidence that Mr Poliwka said in the initial conversation that the property was worth between $4.5 million and $5 million (see pars 386 to 388 above) I consider that this recollection is erroneous.
However, the reference to 'due diligence' was something that Mr Girgis said he specifically remembered.[351] There was a reason for that specific recollection. Mr Girgis said that, at the time, he did not know what the expression 'due diligence' meant.[352] So when Mr Girgis got home he conducted an internet search of the term to understand exactly what the expression meant.[353]
Mr Poliwka gave evidence, by witness statement, of what was said by Messrs Pollock, Errichetti and Caporn.[354] In oral evidence-in-chief Mr Poliwka said that the majority of the talking as to the future plans for the project was done by Mr Caporn, Mr Pollock having little to say about operations.[355] Mr Poliwka confirmed that the three of them (Mr Girgis, Mr Poliwka and Mr Pollock) went to lunch and referred to the discussion at lunch as just 'banter' where Mr Pollock's personal financial position was not raised.[356]
Mr Poliwka did not refer to a post-lunch discussion between himself and Mr Girgis. Mr Poliwka was, however, asked about what was discussed in the post-meeting car ride. Mr Poliwka said that he (Mr Poliwka) and Mr Girgis just threw around the pros and cons.[357]
Mr Poliwka denied, however, that he (Mr Poliwka) expressed an opinion as to the value of the Midland Hotel.[358] Mr Poliwka also denied ever using the words 'due diligence' in connection with what he (Mr Poliwka) referred to as the 'joint ventures' (which I understood to include the Midland Hotel and the Pub business).[359] Mr Poliwka said that was a 'simple furphy'.[360] Mr Poliwka said that he had 'never used' the words 'due diligence' in regards to the joint ventures.[361]
I reject Mr Poliwka's evidence in this regard. Counsel for the plaintiffs established in cross-examination that Mr Poliwka prepared an annexure 'A'[362] that accompanied an offer dated 1 October 2008[363] to purchase the freehold in relation to the Midland Hotel. The annexure A contained a special condition in these terms:

[265]

Mr Poliwka's attempt in cross-examination to explain the use of the words 'due diligence' as a standard clause was unconvincing.[364] It is plain that at the relevant time the language of 'due diligence' was something that Mr Poliwka was familiar with and a form of words that Mr Poliwka employed. The suggestion that the words 'due diligence' was not language that Mr Poliwka used was misleading. It remains the case that ‑ even now ‑ Mr Poliwka employs the terminology. For example, in the course of examination-in-chief, without any prompting by his counsel, Mr Poliwka offered up that the Moonlight Express was not 'something which we did massive due diligence on or any due diligence on'.[365]
Mr Poliwka's insistence that it was a furphy that he (Mr Poliwka) had stated that he had done due diligence in relation to the Midland Hotel cannot be relied on.
Elsewhere in his oral evidence Mr Poliwka made clear as to conversations concerning the Midland Hotel and the Pub business that he (Mr Poliwka) could only talk to the substance of the conversations, ie the substantial outcome of the discussions.[366] As Mr Poliwka said: 'I've no recollection of the exact conversation'.[367] Mr Poliwka said that he could not recall 'what I said, or what [Mr Girgis] said'.[368] Mr Poliwka later clarified that he could not recall what was said explicitly in either of the two inspection meetings.[369] Accordingly, to the extent that Mr Poliwka denied saying something, it had to be a reconstruction. In respect of that reconstruction Mr Poliwka's evidence suffered from two obvious difficulties. First, the passage of time. Second, the distortion arising from the intervening litigation ‑ subconsciously affecting perception as to what would not (or should not) have been said.
The rejection of Mr Poliwka's denial of the use of the words 'due diligence' at the inspection meeting on 19 September 2008 does not mean that Mr Girgis' evidence is to be accepted. I must be reasonably satisfied, on the balance of probabilities, that Mr Poliwka stated words to the effect: 'I've done my due diligence and it all looks good'.
In assessing this question I am especially cognisant of two matters. First, the important and insightful considerations enunciated by McLelland CJ in Eq in Watson v Foxman. Second, the circumstance that, elsewhere, I have rejected numerous aspects of Mr Girgis' evidence as to his recollections as unreliable. I have done so sometimes on important matters and, as to the mis-recollection as to the value of the Midland Hotel, in respect of the same time period and in relation to a closely related subject matter. Nevertheless, taking those matters into account, and the evidence as a whole, I have an actual persuasion that Mr Poliwka did state words to the effect as recounted by Mr Girgis, namely, that he (Mr Poliwka) had done his due diligence and it all looked good.
The reference to Mr Poliwka stating that he (Mr Poliwka) had done his due diligence was something that Mr Girgis specifically remembered. Mr Girgis' oral evidence on that point was cogent and compelling; it was also unprompted. A rational explanation was advanced to justify the specific recollection. There was a memory trigger which authenticated the specific recollection.
It was not suggested that Mr Girgis' evidence was deliberately untruthful. In closing counsel for the defendants made various submissions to the effect that aspects of Mr Girgis' evidence were unreliable. I raised with counsel for the defendants whether a submission was made that Mr Girgis was an untruthful witness in the sense that Mr Girgis did not genuinely believe that the evidence he (Mr Girgis) was giving was the truth. Counsel said that there were aspects of Mr Girgis' evidence which potentially went to credibility rather than reliability; and then said he would deal with that later.[370] No such submission was later advanced as to this aspect of Mr Girgis' evidence (or, indeed, Mr Girgis' evidence in general). For reasons I have already given I am satisfied that Mr Girgis was an honest witness doing his best to tell the truth. Thus the issue is whether this evidence is reliable.
In the circumstances I have described I consider this part of Mr Girgis' evidence to be reliable. I am satisfied, on the balance of probabilities, and find, that in discussing the potential investment in the Midland Hotel and Pub business at the 19 September 2008 meeting Mr Poliwka said to Mr Girgis words to the effect of: 'I've done my due diligence and it all looks good'.

[266]

Mr Poliwka's diary records further discussions with Mr Pollock about the Midland Hotel on 29 and 30 September 2008.[371] As mentioned, it was around this time (most likely on 29 September 2008) that Mr Girgis and Mr Poliwka attended a second inspection at the Midland Hotel.
The week after the initial inspection Mr Poliwka contacted Mr Girgis to gauge his (Mr Girgis' interest) in the Midland Hotel. In the meantime Mr Girgis had conducted an RP Data search in relation to the Midland Hotel.[372] Mr Poliwka informed Mr Girgis that he (Mr Poliwka) intended to invest in the Midland Hotel himself and referred to it as 'such a good deal' that the purchase was a 'steal'.[373] In context any such reference to 'good deal' and 'steal' was not representational; it was no more than aspirational puffery.
A second visit to the Midland Hotel was arranged.
Mr Girgis gave oral evidence that only the bottle shop was operational at the time of the second inspection.[374] In his witness statement, however, Mr Girgis gave a far longer account of being shown through the Midland Hotel by Mr Caporn. By his witness statement Mr Girgis gave a relatively detailed account as to the then state of the renovation.[375] Mr Poliwka asserted that at the time of the second inspection the ground floor renovations were near completion.[376] Mr Poliwka said that Mr Caporn said to both Mr Poliwka and Mr Girgis that the renovations would be completed in the next few months.[377] According to Mr Poliwka, Mr Caporn also said that, although rent payments had been suspended, rent payments would recommence after the renovations were completed and the Midland Hotel re-opened.[378]
Mr Poliwka did not give any detailed evidence as to what was said between him (Mr Poliwka) and Mr Girgis at the second meeting.[379]
By contrast Mr Girgis said that there was again mention of the $3 million to $3.5 million asking price and that Mr Poliwka said:[380]
- the Midland Hotel was a 'really good deal';
- he (Mr Poliwka) had done his due diligence;
- the Midland Hotel fitted within the investment strategy;
- we (Mr Girgis and Mr Poliwka) would be making money straight away because of the lease that was already in place;
- we (Mr Girgis and Mr Poliwka) would be ahead; and
- the renovations would be completed within two to three months.
It is likely, and I find, that Mr Poliwka again made reference to having done his due diligence. So doing was consistent with what was said by Mr Poliwka to Mr Girgis on the first inspection of the Midland Hotel.
I do not accept that Mr Poliwka would have said that the renovations would be completed within two to three months. Mr Poliwka was not carrying out or supervising the renovations. The renovations were being carried out by Bold Gem under the management of Mr Caporn. It is inherently unlikely that the statement recalled by Mr Girgis was made by Mr Poliwka. Rather, the likelihood is - as stated by Mr Poliwka - that this was said by Mr Caporn and that Mr Girgis has attributed what was said by Mr Caporn to Mr Poliwka.
Nor, as with and for the same reasons as the initial conversation, am I satisfied that Mr Poliwka said words to the effect that the Midland Hotel fitted within the investment strategy. I also continue to be of the view that, if there was some statement to the effect that the Midland Hotel was a really good deal, that was mere puffery or otherwise aspirational rather than being representational. The same follows for any statement to the effect that Mr Girgis and Mr Poliwka would be ahead.
The alleged statement that Mr Girgis and Mr Poliwka would be making money straight away (because of the Bold Gem lease) is more difficult to assess.
Mr Girgis' evidence was that he (Mr Girgis) was not aware that Bold Gem had not been paying rent and would not be paying rent during the renovation period.[381] Mr Girgis said that it was not until after he (Mr Girgis) agreed to invest in the Pub business that he was told that the tenant would need to be given rent relief until the renovations were complete.[382] Before then Mr Girgis said that he (Mr Girgis) was told, by Mr Poliwka, that the tenant was paying rent and was continuing to do so. Rent relief was only being provided for the two to three month renovation period ‑ something Mr Girgis said he only became aware of after the purchase of the Pub business.[383]
The evidence that Mr Girgis only became aware of the rent relief after the fact (ie after the purchase of the Pub business)[384] was inconsistent with earlier oral evidence given by Mr Girgis to the effect that, when told of the opportunity to invest in the Pub business, he (Mr Girgis) was made aware that the tenant would need to be given rent relief until the renovations were complete.[385] See also pars 432 to 433 below.
Mr Poliwka's evidence was that Mr Caporn had informed both Mr Girgis and Mr Poliwka that Bold Gem's rent payments were suspended pending completion of the renovations.[386]
As will be seen (pars 430 to 439 and 448 to 454 below), Mr Girgis was under a fundamental misconception as to when an offer was made to purchase the Midland Hotel and when an offer was made to purchase the Pub business. According to Mr Girgis, there was a two-stage process: first consideration of and agreement as to the investment in the Midland Hotel and second the investment in the Pub business. However, the true position is that consideration of investment into the Pub business was occurring at the same time as consideration of purchase of the Midland Hotel. That being the case the likelihood is that (and I find) the conversation about investing in the Pub business (see pars 431 to 435 below) took place at an earlier time - before the 1 October 2008 offer when Mr Girgis and Mr Poliwka were still considering whether to purchase the Midland Hotel.
In these circumstances I am not satisfied that Mr Girgis' recollection of the second inspection conversation is correct to the extent that Mr Poliwka is supposed to have said that Mr Girgis and Mr Poliwka would be making money straight away because of the Bold Gem lease. Mr Girgis was under a misapprehension as to the timing of events. It was not a case of property first and business later. Mr Girgis also gave inconsistent evidence as to when he (Mr Girgis) first became aware of the rent relief. In circumstances where, on Mr Girgis' own evidence, he could not recall precisely when the conversation occurred and whether matters were discussed in the same or multiple conversation, I do not feel the requisite 'actual persuasion' that a statement to this effect was said by Mr Poliwka at this time.
To the contrary, as addressed below (see pars 431 to 435 below), from a time before the 1 October 2008 offer Mr Girgis was aware that it would be necessary to give Bold Gem rent relief until the renovations were complete.

[268]

Mr Girgis' evidence was that he agreed to purchase the Midland Hotel after the second inspection.[387] Before doing so, according to Mr Girgis, he was made aware of two things: (1) that there was a $2 million mortgage on the property (this must have been the ME Bank mortgage); and (2) the information on the RP Data search.[388]
Mr Girgis said that there was a discussion between him (Mr Girgis) and Mr Poliwka about the RP Data search and the fact that it showed Sunriver had acquired the property for $2.95 million. (The RP Data searches showed the sale date of the Midland Hotel as being 2 July 2007.[389] I have previously found that Mr Girgis was not provided with a search of the certificate of title to the property. Accordingly, I accept that Mr Girgis was not informed that Sunriver had only been the registered proprietor of the Midland Hotel for about half a year.)[390] Mr Girgis and Mr Poliwka were discussing paying $3 million to purchase the Midland Hotel. Mr Girgis again suggested that Mr Poliwka said it was a 'good deal' because since Sunriver had purchased the property significant renovations had been done and a long-term lease had been put in place.[391]
For those reasons Mr Girgis believed that the Midland Hotel was worth a lot more than what they (Mr Girgis and Mr Poliwka) were paying.[392]
Mr Poliwka gave considerable oral evidence about the discussions between himself (Mr Poliwka) and Mr Girgis in pursuing an interest to acquire the Midland Hotel.[393] Among other things Mr Poliwka gave evidence that:
- He (Mr Poliwka) expressed a view that he would be interested in acquiring the Midland Hotel at the price indicated in the sworn Burgess Rawson valuation (ie $3 million).[394]
- There were discussions between him (Mr Poliwka) and Mr Girgis about the RP Data searches.
There was, however, on Mr Poliwka's account, a wider ranging discussion. One of the things discussed was the Burgess Rawson valuation and the underlying land value of the Midland Hotel.[395] The potential for redevelopment was noted but said by Mr Poliwka not to be the focus of the parties' consideration.[396] (Mr Girgis also accepted that there were discussions between him and Mr Poliwka about the redevelopment potential of the Midland Hotel.[397] Mr Girgis saw this as a potentially attractive feature of the investment.)[398] Another matter of importance was the enthusiastic expectations of Mr Caporn as to the likely success of the new venture.[399] But the rent payable under the Bold Gem lease was said to be one of the bases - indeed a 'prime motivator' ‑ for the interest in pursing an acquisition of the Midland Hotel.[400] It was noted that the rent payable of $288,000 per annum was more than sufficient to cover the commitment under the ME Bank loan.[401]
Later Mr Poliwka spoke of three 'pillars' that were looked at by the two of them (Mr Girgis and Mr Poliwka) in proceeding with the investment: the location of the Midland Hotel; the Burgess Rawson valuation; and the Bold Gem lease.[402] Mr Poliwka also suggested that he (Mr Poliwka) and Mr Girgis were excited about the potential that Mr Caporn saw in the project[403] and relied on the recommendation of Mr Caporn and the information provided by Mr Caporn.[404]
Mr Girgis' oral evidence-in-chief was to the effect that he (Mr Girgis) agreed to purchase the Midland Hotel after the second inspection.[405] Reference was then made to the offer to purchase of 1 October 2008[406] (refer to pars 448 to 452 below). Mr Girgis described this as a 'simple straightforward property investment' as 'we were p[407]hasing the property'.407 The mantra that it was originally meant to be a straightforward property transaction of the freehold of the Midland Hotel was repeated throughout the course of M[408]Girgis' evidence.408 Mr Girgis made this express in his witness statement. Mr Girgis' evidence was that it was his understanding that Mr Poliwka and he (Mr Girgis) were only purchasing the freeho[409]of the Midland Hotel.409
Mr Girgis then said that, not long after the offer to purchase the property was signed, Mr Poliwka told him (Mr Girgis) that the tenant (Bold Gem) had run out of funds, could not complete the renovations, and there was now an opportunity to invest in the Pub business.[410] In other words - on Mr Girgis' recollection - consideration of investment in the Pub business only arose after the decision to purchase the Midland Hotel.
According to Mr Girgis there was a conversation between him (Mr Girgis) and Mr Poliwka after the 1 October 2008 offer was signed at which Mr Poliwka said words to the effect:[411]
- There was now an opportunity to invest in the Pub business itself as the tenant could not pay to complete the renovations.
- Investing in the Pub business fitted within the one-third investment strategy. (I reject this evidence for the same reasons as I have rejected earlier such recollections.)
- The renovations would take two to three months. (I reject this evidence. As with the earlier statement in like terms I consider it more likely than not that Mr Girgis has incorrectly attributed to Mr Poliwka something that was said by Mr Caporn.)
- The current operators would stay on as part-owners and operators of the business but Mr Girgis and Mr Poliwka would have control of the company. This was said to be a good thing as the operators would be incentivised to make the tenant successful.
- It would be six to 12 months to show a return on the investment. The rent under the lease would be paid during that time. The rent payable would cover the mortgage payments.
- It was, however, necessary to give the tenant rent relief until the renovations were complete.
As to the last point, Mr Girgis' unsolicited evidence-in-chief was that he (Mr Girgis) was made aware 'at that point in time' of the need to provide rent relief.[412] In context, given the evidence given immediately earlier by Mr Girgis, that 'point in time' was the discussion with Mr Poliwka about the opportunity to invest in the Pub business.[413] Apprehending that was inconsistent with the plaintiffs' case, counsel for the plaintiffs asked follow up questions. Only then did Mr Girgis suggest that he (Mr Girgis) was not informed of the rent relief until after he had agreed to invest in the Pub business.[414] Given the way in which that evidence was extracted I place no weight on it. As shown by his first answer Mr Girgis was aware of the necessity for rent relief during the renovations from the time that he (Mr Girgis) and Mr Poliwka discussed investing in the Pub business.
Mr Girgis' recollection of the timing of events was wrong. In fact, from at least about the time of or immediately after the second inspection, Mr Girgis and Mr Poliwka were considering an investment in the Pub business in conjunction with the purchase of the Midland Hotel. This is evident from two things: (1) advice provided by Mr Pickrell on 30 September 2008 (refer to pars 438 to 439 below); and (2) the terms of the 1 October 2008 offer to purchase the Midland Hotel (refer to pars 448 to 452 below).
Accordingly, it is more likely than not - and I find - that such a conversation about investing in the Pub business took place at an earlier time, ie before the 1 October 2008 offer at a time when Mr Girgis and Mr Poliwka were still considering whether to purchase the Midland Hotel. Mr Girgis has mis-remembered the sequences of events. That is unsurprising. Mention has already been made of Mr Girgis' evidence that he could not recall precisely when each of the conversations occurred and whether the matters were discussed in the same conversation or multiple conversations.[415]
Mr Girgis' erroneous recollection of the events also affects my assessment of whether I should accept his (Mr Girgis') evidence that Mr Poliwka said words to the effect that it would be six to 12 months to show a return on the investment. Mr Poliwka denied that he (Mr Poliwka) was responsible for this statement. Mr Poliwka's evidence was that Mr Caporn said that, all things being equal, the Pub business could turn a profit - giving a return on investment - within six months.[416]
I am not reasonably satisfied, on the balance of probabilities, that Mr Poliwka made the statement that Mr Girgis has attributed to him (Mr Poliwka) as to the time to show a return on investment in the event of investment in the Pub business. Mr Girgis' recollection of the circumstances of the conversation is unreliable. I do not feel the 'actual persuasion' necessary to make this factual finding in favour of the plaintiffs.
On 30 September 2008 Mr Poliwka had a conversation with Mr Pickrell about the Midland Hotel. The substance of that conversation is recorded in Mr Pickrell's letter dated 21 October 2008.[417] Mr Pickrell's advice to Mr Poliwka regarding to purchase of the Midland Hotel was for:
- Girgis Property Trust and Poliwka Investment Trust to acquire the freehold interest in the Midland Junction Hotel from the Junction Unit Trust;
- For the Trust Deed of the Bold Gem Unit Trust to be reviewed and if the 51% of units owned by Masterline Investments Pty Ltd was not divisible by 2, for further units to be issued to all existing unitholders in the Bold Gem Unit Trust;
- 50% of the units held by Masterline Investments Pty Ltd were to be transferred to Joondalup City Realty Pty Ltd;
- If Masterline Investments Pty Ltd was determined to be a 'clean' company, the shares in that company were to be transferred to Sherif; and
- If Masterline Investments Pty Ltd was determined not to be a 'clean' company, then the remaining units in Bold Gem Unit Trust were to be transferred to a new company within Sherif s group. (You will recall that we had previously agreed that all new trading enterprises acquired by Sherif were to be acquired by separate companies.)[418] (emphasis added)
Accordingly, it is evident that by 30 September 2008 an acquisition of an interest in the Pub business was under active consideration. Mr Pickrell's advice, however, was that the purchase of the Midland Hotel should be a purchase of the freehold rather than shares and units in relation to Sunriver and the Junction Unit Trust. Also, the proposal was only for the acquisition of Masterline Investments Pty Ltd's interests in relation to the Bold Gem unit Trust.
Mr Girgis gave evidence to the effect that Mr Poliwka did not inform him (Mr Girgis) that he (Mr Poliwka) had spoken to Mr Pickrell about the purchase of the Midland Hotel.[419] Mr Girgis also referred to Mr Pickrell's 21 October 2008 letter stating that: (1) he (Mr Girgis) had not seen the letter before commencement of these proceedings; and (2) the content of the letter was not discussed with him (Mr Girgis).[420] Mr Girgis was not cross-examined on this part of his evidence.
Counsel for the defendants accepted that there was no suggestion in the evidence that the effect of Mr Pickrell's advice was conveyed to Mr Girgis.[421]
In his witness statement Mr Poliwka referred to Mr Pickrell's advice.[422] In part Mr Poliwka did so in terms that suggested that Mr Girgis was present when Mr Pickrell's advice was provided: Mr Poliwka said that 'Graeme said to us ...'[423] (emphasis added). However, Mr Pickrell's letter dated 21 October 2008 refers to Mr Pickrell's 'advice to Russell'.[424] Accordingly, Mr Poliwka is wrong in his suggestion that Mr Pickrell's advice was delivered to both Mr Poliwka and Mr Girgis.
In cross-examination Mr Poliwka was taken to Mr Pickrell's letter dated 21 October 2008. It was suggested that, before proceeding with the Sunriver shares and units transaction rather than a purchase of the freehold to the Midland Hotel, Mr Poliwka did not tell Mr Girgis that the change in the form of the transaction was contrary to Mr Pickrell's advice. Mr Poliwka conceded that he had no recollection of such a discussion.[425]
Accordingly, I accept Mr Girgis' evidence on this point. Mr Girgis was not informed that Focus Accounting, by Mr Pickrell, had informed Mr Poliwka that if the Girgis and Poliwka entities wanted to purchase the Midland Hotel they should do so by purchasing the freehold interest rather than the shares and units.
It is evident that ‑ at the time in October 2008 ‑ the difference between purchasing the asset (the freehold to the Midland Hotel) and the shares and units in relation to the entity that owned the asset was a matter that was confusing to Mr Girgis and one in respect of which he did not have a real understanding of the consequences.[426] Indeed, Mr Girgis gave evidence to the effect that he found the process extremely confusing and complicated.[427] I accept that evidence. It should have been apparent to anyone hearing Mr Girgis give evidence as to the details and the differences in the form of the potential transactions that Mr Girgis remained uncertain and confused on this subject even at the time of trial.
At the time of the transaction in October 2008, however, Mr Girgis was not told by Mr Poliwka or otherwise made aware of the differences between purchasing the freehold and purchasing the shares and units.[428] With the exception of the ME Bank loan, which Mr Girgis knew was being assumed,[429] Mr Girgis did not understand that there might be legacy debts or other legal issues as to Sunriver that might affect the purchase.[430]
Apart from the Walthamstow Pty Ltd loan, as already mentioned, there was at least one other legacy debt for which Sunriver remained liable: a debt to Burgess Rawson in the amount of $6,631.40.[431] In 2009 legal action was commenced against Sunriver for this debt; judgment was entered against Sunriver on 25 November 2009.[432] Eventually, with costs and interest, Sunriver had to pay $10,014.97 in late 2010 to finalise the debt.[433] The Burgess Rawson debt was not disclosed to Mr Girgis, meaning Mr Girgis was unaware of it, when he (Mr Girgis) agreed to proceed with the Midland Hotel and the Pub business transaction.
Moving back to the events of September / October 2008, initially Mr Poliwka accepted Mr Pickrell's advice as to the form the transaction should take. Mr Poliwka's diary records that he (Mr Poliwka) had a discussion with Mr Girgis at about 4.00 pm on 1 October 2008 and that Mr Girgis signed an offer and acceptance; this followed an earlier meeting at 2.00 pm.[434] In the course of the day FWR obtained further RP Data searches in relation to the Midland Hotel.[435] I infer that these were to assist in the preparation of the written offer. The offer itself was in the form of a standard REIWA contract for sale of land by offer and acceptance.[436]
The offer was signed by Mr Poliwka, for FWA, and Mr Girgis, for Girgis Nominees, as purchasers. An offer was made to purchase the Midland Hotel for $3 million as a going concern (ie no GST). The property chattels were to include all plant, equipment and fixtures as inspected on 19 September 2008. As to special conditions the offer referred to an 'Annexure A'. Annexure A was not attached to the version of the offer as tendered. The documents adduced in evidence included two potential candidates for the annexure A to the offer to purchase the Midland Hotel.
The first annexure 'A' was signed by Mr Girgis and Mr Poliwka on behalf of Girgis Nominees and FWA.[437] Their signatures were witnessed by Ms Ridgway. The signatures, with witnessing by Ms Ridgway, were consistent with the written offer. The document provided:
1. Offer is subject to Purchasers completing their due diligence within 14 days of acceptance and being satisfied with the outcome. This Clause lapses if not acted on within 14 days;
2. 51% of the Shares held in Bold Gem Pty Limited atf Bold Gem Unit Trust being transferred to a Company nominated by the Purchaser prior to settlement (i.e. Shares currently held by Masterline Investment Pty Limited);
3. Offer is subject to Assignment of Lease currently held on the property in the name of Sunriver Holdings Pty Limited as Landlord to the Purchaser's nominated Company. With all benefits accrued transferring to the Purchasers. (emphasis added)
The second annexure 'A' was unsigned.[438] It provided in part:
1. Settlement Date to be concurrent with the operational business being transferred to the Buyer [sic]
2. Assets of the trading entity, Bold Gem Pty Limited, to be transferred to the Buyer at settlement;
3. Deposit of $50,000.00 shall become the property of the Seller upon acceptance, provided it be used as part of the purchase price upon the Contract settling;
4. The Seller shall ensure all the assets of the trading Company are transferred to the Buyer including the Liquor License;
The plaintiffs' case altered on which version of annexure A was the one intended to accompany the offer to purchase. In opening counsel for the plaintiffs suggested it was more likely the signed document.[439] By the end of the trial counsel for the plaintiffs suggested it was the unsigned document.[440] I find that it was the signed document that was intended to accompany the offer to purchase. It is likely that the two documents (the offer and Annexure 'A') were signed at the same time by Mr Girgis and Mr Poliwka in front of Ms Ridgway. Neither Mr Girgis[441] nor Mr Poliwka[442] were sure of the position, but both thought that the fact that one document was signed meant it was more likely that this was the intended annexure A. So do I.
Importantly, both versions of annexure A contemplated that, simultaneously with a sale of the freehold to the Midland Hotel, there would also be a change in control as to the Pub business. The signed annexure A contemplated a change in control as to Bold Gem (cl 2). The unsigned annexure A was more explicit in requiring transfer of the Pub business to the purchaser (cl 1, cl 2, cl 4). It follows that by no later than 1 October 2008 both Mr Poliwka and Mr Girgis were intending ‑ in some way ‑ to invest in the Pub business as well as the freehold of the Midland Hotel.
Accordingly, I reject Mr Girgis' evidence that what was originally intended, and agreed between him (Mr Girgis) and Mr Poliwka, was a simple straightforward property investment whereby they (through their respective entities) simply acquired the freehold to the Midland Hotel. From about the time of, or immediately after, the second inspection Mr Girgis and Mr Poliwka were considering an investment in the Pub business in conjunction with the purchase of the Midland Hotel.
To be fair, in preparing his witness statement Mr Poliwka was under the same sort of misapprehension as to the timing of events. As originally drafted par 192 of Mr Poliwka's witness statement[443] suggested that the impetus to buy the Pub business came about from a meeting two months after the purchase of the Midland Hotel. This was one of the anomalies Mr Poliwka corrected before confirming the contents of the witness statement (refer to par 202(3) above). But in evidence-in-chief Mr Poliwka re-positioned the timing of when he (Mr Poliwka) and Mr Girgis came across the opportunity to purchase an interest in the Pub business. It was put as being before the 30 September 2008 discussion with Mr Pickrell and at a time when there were three options available to Mr Girgis and Mr Poliwka: walk-away; purchase the property and endeavour to find a substantial tenant; or purchase the property and also invest in the op[444]ting arm.444
Mr Poliwka's reconsidered evidence was still not entirely correct. It was premised on Mr Hancock (ie Bambu Hotels Pty Ltd) seeking to exit the Pub business.[445] As will be seen, that did happen - but not until 20 October 2008 (see par 557 below). Up until at least 15 October 2008 Mr Hancock wished to remain involved in the project (see par 556 below). As originally contemplated it was only Masterline Investments Pty Ltd's interest in the Pub business that was to be acquired with the Midland Hotel.
There was, however, a general paucity of evidence about: (1) how and when Mr Girgis and Mr Poliwka re-formulated their offer such that the transaction became one to acquire the units and shares in relation to Sunriver and the Junction Unit Trust rather than the freehold of the Midland Hotel; and (2) how and when that re-formulated offer was put to and accepted by the relevant contractual counterparty (and even who was the relevant representative of the contractual counterparty).
The eventual transaction was acknowledged by all parties. Indeed, it was common ground on the pleadings (SOC, pars 23.2.2 ‑ 23.2.8; DAC, par 23). But there was no written agreement. Having regard to the nature of the transaction the absence of a written agreement was most unusual. In cross‑examination Mr Poliwka eventually accepted that there should have been a written contract.[446] Mr Poliwka was correct to do so. I accept the submission of counsel for the plaintiffs that standard commercial transactional practice would have dictated a written agreement providing for the transfer of the shares and units together with comprehensive warranties to protect the interests of the purchasers. And, as will be seen, what little documentation was eventually prepared to record the transaction was exceedingly sketchy and deficient.
At one stage in his oral evidence-in-chief Mr Girgis suggested that he only found out about the change in the nature of the transaction 'after the fact', ie after he (Mr Girgis) had agreed on the commercial terms.[447] But, as will be seen, Mr Girgis retreated from that position in later evidence. Mr Girgis was party to discussions and an agreement to recast the form of the purchase.
Mr Girgis was pressed in cross-examination about the change in the nature of the transaction. Mr Girgis said he was unable to remember exact dates. All that Mr Girgis could say was that we (Mr Girgis and Mr Poliwka) decided that we were going to purchase the shares in the company that owned the asset (ie Sunriver).[448] When the cross-examiner returned to the subject it remained the position that Mr Girgis was unable to recall when the proposal changed from buying freehold to buying shares and units. All that was suggested was that, not long after signing the 1 October 2008 offer, there was a discussion between Mr Girgis and Mr Poliwka. Mr Poliwka said the deal had changed. Instead of purchasing the freehold there would be a purchase of Sunriver shares and units in the Junction Unit Trust together with a taking over of the ME Bank loan. Mr Girgis said that, based on Mr Poliwka's advice, he (Mr Girgis) agreed to go along with that.[449]
Mr Poliwka's evidence on the subject was just as lacking in precision (a matter of more concern since it was acknowledged by counsel for the defendants that Mr Poliwka was the person who had identified the opportunity and was driving the transaction).[450]
In his witness statement Mr Poliwka said that he did not present the 1 October 2008 offer because he (Mr Poliwka) decided it would be better to purchase the shares in Sunriver rather than the freehold.[451] There was no suggestion when that occurred. In examination-in-chief Mr Poliwka said that there was a twofold discussion with Mr Girgis about the motivation for the change in the nature of the transaction. First, that because the ME Bank loan was in place, and the rent would cover the interest, a purchase of shares and units would avoid a further capital outlay of $1 million each. Second, that there were time constraints and the different form of transaction would allow them to take the benefit of the Christmas trade. According to Mr Poliwka, Mr Girgis agreed with what was said.[452]
Mr Poliwka did not offer any approximate date as to when the decision was made to change the nature of the transaction.
There was also no clarity on Mr Poliwka's dealings with the contractual counterparty.
Mr Poliwka did say that he was dealing with Ms Kuhnert on the shares.[453] Mr Poliwka was, however, unable to put any more definition on when this occurred other than to say it would have been between 1 and 23 October 2008.[454] In further evidence in cross-examination - evidence that smacked of reconstruction - Mr Poliwka said that he informed Ms Kuhnert that they (Mr Girgis and Mr Poliwka) would proceed with the share acquisition if the Walthamstow Pty Ltd caveat was removed.[455]
In an attempt to obtain a more concrete understanding I asked Mr Poliwka when, and by whom (as between vendor and purchaser), was the Sunriver share and unit transaction agreed. Mr Poliwka replied:

[272]

The reference to 'Kuhnert or Pollock' was inconsistent with Mr Poliwka's earlier evidence that he (Mr Poliwka) was dealing with Ms Kuhnert on the shares. And in subsequent evidence Mr Poliwka again contradicted himself saying that the agreement, he would 'imagine', would be with the Sunriver director or through Mr Pollock ‑ before conceding that it was a recollection he (Mr Poliwka) did not have.[458] Nevertheless, the fixing of the timing of the agreement with the Sunriver vendor as being prior to the drafting of the share transfer forms means that the agreement occurred on or before 9 October 2008 (see par 516 below).
It is also plain that Mr Girgis' and Mr Poliwka's decision to proceed with a share and unit purchase, as distinct from a purchase of the freehold to the Midland Hotel, occurred after 1 October 2008. As at 1 October 2008 a purchase of the freehold was contemplated. As I will come to shortly, the documentary evidence included substantial notes created by Mr Poliwka on 6 October 2008.[459] In part these were created while Mr Girgis was present with Mr Poliwka at FWR's Joondalup office. The notes speak of 'action required' in terms of, among other things, a transfer of units and shares in relation to Sunriver to FWA and Girgis Nominees. Accordingly, the likelihood is ‑ and I find ‑ that the revised form of the transaction was discussed and agreed between Mr Girgis and Mr Poliwka at or shortly after the 6 October 2008 meeting.
It follows that Mr Poliwka's discussion and agreement with Ms Kuhnert or Mr Pollock must have occurred between 6 and 9 October 2008.
Before getting to the notes of 6 October 2008 mention should be made of two other features of the chronology.
Mr Poliwka was sent, by email, cashflow projections for the Pub business on 2 October 2008.[460] These showed no income being derived from the front bar until December 2008. Accordingly, the cashflow projections suggested that the renovations would be complete for trade in December 2008.
Also included in the tendered documentary evidence was a print out as at 30 September 2008 of Bold Gem's balance sheet as at June 2008 and profit and loss statements for July 2007 to June 2008 and July 2008 to August 2008.[461] The evidence did not disclose how or when this came to be in the defendants' possession. Plainly, however, the earliest this could have come to Mr Poliwka's attention was late in the evening of 30 September 2008 (the materials are noted as having been printed between 6:58 pm and 7:00 pm).
Mr Girgis denied receiving or being shown the cashflow projections or the financial reports.[462] Mr Poliwka gave general evidence that there was no document or information about the Midland Hotel that he (Mr Poliwka) had that was not made available to Mr Girgis.[463] Mr Poliwka also said that these two categories of documents, among others, were provided to Mr Girgis because they were handed to Mr Poliwka and Mr Girgis at a meeting with Mr Caporn.[464] Given the electronic nature of the documents as described (the financial records being print outs of an electronic file), this assertion was erroneous.
Mr Girgis was cross-examined on whether in fact he (Mr Girgis) had seen these (and other) documents.[465] The answers given did not impugn Mr Girgis' witness statement evidence. I accept Mr Girgis' evidence that he was not shown the documents prior to the 23 October 2008 finalisation of the purchase of the Pub business.
As already mentioned, Mr Poliwka made a series of detailed notes about the Midland Hotel and the Pub business on 6 October 2008 (the date is recorded on the rear of the page on which the bulk of the notes appear).[466] Mr Girgis gave evidence that he was in attendance with Mr Poliwka at FWR's office when the notes on the rear of the page were made.[467] Accordingly, Mr Girgis knew of those matters: on his own evidence Mr Girgis was present during a discussion when the notes were recorded. I come to that conclusion as Mr Girgis goes on to explain in the same passage of his witness statement that when Mr Poliwka was explaining things to him - about the Midland Hotel, the Pub business and other things ‑ Mr Poliwka made handwritten notes to explain the purchases to him (Mr Girgis). In context that evidence confirms that the notes were made during and record what was discussed in a meeting between him (Mr Girgis) and Mr Poliwka.
In closing counsel for the plaintiffs disputed that Mr Girgis should be attributed with knowledge of the matters recorded in the 6 October 2010 notes.[468] It was said that Mr Girgis' evidence merely established that the document was prepared in Mr Girgis' presence, not that there was any discussion about the document's contents. That, in my view, is not a fair reading of Mr Girgis' evidence. It also lacks plausibility. Why would Mr Girgis sit and watch Mr Poliwka make notes? The likelihood is, as Mr Girgis' witness statement confirms, that the notes record what was discussed between Mr Poliwka and Mr Girgis.
Counsel for the plaintiffs went on to submit that it was put to Mr Poliwka that he (Mr Poliwka) did not tell Mr Girgis details in the document, which he (Mr Poliwka) conceded. The passage of transcript relied on for that submission reads:

[277]

That passage provides no proper support for the submission made let alone the wider submission that there was no discussion about the contents of the document comprised in Mr Poliwka's notes of 6 October 2008. First, the passage relates to one matter only - whether there was disclosure that Mr Errichetti had an undisclosed interest of 20 per cent in the Bold Gem Unit Trust (a matter which Mr Poliwka did not accept in any case).[470] The passage does not address the many and varied other things that are recorded in the 6 October 2008 notes. Second, as will be seen, the 6 October 2008 notes do not mention Mr Errichetti holding an undisclosed 20 per cent interest in the Bold Gem Unit Trust. Nor, for the reasons I have given, am I satisfied on the balance of probabilities that Mr Errichetti had an undisclosed interest of 20 per cent in the Bold Gem Unit Trust (refer to pars 336 to 338 above).
Mr Girgis does not descend into whether he was present when the notes on the front of the page were made. Nor was there any cross-examination on this subject. The notes on the front and the rear are of different subjects. Accordingly, I am not prepared to infer that the notes on the front of the page were made in Mr Girgis' presence.
As already mentioned, the evidence suggests that Mr Poliwka often made handwritten notes in discussions with Mr Girgis so as to better explain things to Mr Girgis. Mr Poliwka referred to this as 'jogging' the notes down or a 'jog'.[471] Other notes were tendered in evidence as to Mr Poliwka's deliberations on the purchase of the Midland Hotel.[472] Those notes were undated and were not referred to in Mr Poliwka's cross-examination. Insofar as one of the notes referred to buying the property and all the shares in Masterline Investments Pty Ltd[473] I infer that these notes were made before the 1 October 2008 offer to purchase. On that basis nothing more needs to be said about these notes.
The front page of the 6 October 2008 notes[474] contained a calculation in relation to the rent payable by Bold Gem under the lease with Sunriver. It recorded that there should have been payment of nine months' rent at $24,000 per month ‑ a total of $216,000. But in fact only $39,090 had been paid. Accordingly, it was noted that Bold Gem was $176,910 in arrears.
The figure of $39,090 for rent equates to the amount of $39,090.92 that appears in the Bold Gem profit and loss statement for July 2007 to June 2008 as printed on 30 September 2008 (refer to par 473 above). Accordingly, it is plain that this financial material had been considered by Mr Poliwka by 6 October 2008.
An issue arose as to whether Mr Girgis was aware of Bold Gem's rental arrears.
Mr Girgis said that he (Mr Girgis) was not aware that the tenant had not been paying rent.[475] In oral examination-in-chief Mr Girgis went further saying that Mr Poliwka had told him that the tenant was paying rent and would continue to do so.[476] Mr Girgis was not cross-examined directly on that evidence. Mr Poliwka stated, however, that he (Mr Poliwka) informed Mr Girgis about the rental arrears; knowledge of arrears arose in the context that rent was not being paid while the renovations were being completed.[477]
I consider it is likely that, as at 6 October 2008, Mr Girgis knew there were rental arrears ‑ although whether Mr Girgis knew of the extent of the arrears is a matter of conjecture. For reasons already given (pars 431 to 435 above) the necessity for rental relief during the renovation period was mentioned at the time Mr Girgis and Mr Poliwka first discussed the opportunity to invest in the Pub business. Plainly, given the notes of 6 October 2008, this had occurred by 6 October 2008. As the renovations were ongoing Mr Girgis would have understood that rent was not being paid.
In any case the historical rental arrears would not have been material to Mr Girgis and Mr Poliwka's decision making. They were looking to acquire both the landlord (Sunriver) and a controlling interest in the tenant (Bold Gem). In the future (which was where Mr Girgis' and Mr Poliwka's interest was directed) Mr Girgis and Mr Poliwka would be able to see to the rental payments.
One of the alleged non-disclosure matters was that the Junction Unit Trust had a net deficit with liabilities exceeding assets and was trading at a loss (SOC, par 20.6). The alleged deficit relied on financial statements as reconstructed by Focus Accounting. As will be seen, I am not satisfied with the accuracy of these financial statements (refer to pars 572 to 579 below). Accordingly, the allegation of a deficit is not proven. However, based on the rental arrears during the renovation period, it must have been that the Junction Unit Trust was trading at a loss. This was apparent to Mr Girgis: he was aware that rent - the trust's only source of income - was not being paid.
Apart from the rental arrears, Bold Gem's financial statements as printed on 30 September 2008[478] disclosed:
- losses for the period July 2007 to June 2008 (an operating loss of $262,488.47 before renovation costs of $52,087.10);
- losses for the period July to August 2008 (an operating loss of $64,558.43 before renovation costs of $43,118); and
- a deficiency in assets as against liabilities in an amount of $307,275.57.
The losses as recorded (and the deficiency in net assets) did not include any allowance for the unpaid rent.
Accordingly, Bold Gem's contemporaneous financial statements establish the pleaded allegation at par 20.9 of the SOC, namely, that the Bold Gem Unit Trust had a net deficit with assets exceeding liabilities and was trading at a loss. They also establish that there were outstanding long-term liabilities to Masterline Investments Pty Ltd ($71,417.82) and Bambu Hotels Pty Ltd ($8,000) consistent with, albeit in lesser sums than, the pleaded allegations at pars 20.9A and 20.9B of the SOC. I apprehend that the pleaded figures rely on the financial statements as subsequently prepared by Focus Accounting.[479] For reasons I will come to I am not satisfied with the accuracy of Focus Accounting's accounting interpretation of transactions pre-dating Mr Girgis' and Mr Poliwka's involvement in the Midland Hotel and the Pub business (refer to pars 572 to 579 below). Accordingly, I regard these pleaded allegations proven only to the extent of amounts mentioned in Bold Gem's financial statements as printed on 30 September 2008.
I am not satisfied that Mr Girgis was provided with Bold Gem's financial statements as printed on 30 September 2008 (see pars 473 to 475 above). Nevertheless, as at this time ‑ 6 October 2008 ‑ Mr Girgis was aware that Bold Gem was operating at a loss.
Mr Poliwka asserted that there were discussions between himself (Mr Poliwka) and Mr Girgis prior to the acquisition where reference was made to the fact that the Pub business was running at a loss.[480] I would not give that evidence weight but for the fact that Mr Girgis also gave evidence as to a conversation between the two of them (Mr Girgis and Mr Poliwka) at which Mr Girgis recollected Mr Poliwka referring to the company that owned the Pub business as having recorded significant losses in prior years.[481] According to Mr Girgis this was the reason Mr Poliwka recommended buying shares in the company: the tax losses could be offset against future profits.[482] Mr Poliwka gave similar evidence; but did so in the context of the relevant advice having been provided by Focus Accounting.[483]
The only evidence of advice from Focus Accounting (by Mr Pickrell) was the 30 September 2008 conversation as referred to in the letter of 21 October 2008.
Annexure 'A' to the 1 October 2008 offer was predicated on a share transfer of 51 per cent of the Bold Gem shares.[484] The reasonable inference, which I draw, is that the discussion between Mr Poliwka and Mr Pickrell about tax losses occurred on 30 September 2008. This was then reflected in the terms of the 1 October 2008 offer. Thus it is more likely than not that the rationale for the share purchase - and the existence of Bold Gem's losses - was then discussed between Mr Girgis and Mr Poliwka at one of the 1 October 2008 meetings and this is what informed Mr Girgis' evidence as to the basis for Mr Poliwka's recommendation. By this time the Bold Gem financial statements had been printed out and could have been considered by Mr Poliwka.
Mr Girgis does place the conversation as to losses at a later time ‑ after the purchase of the Midland Hotel.[485] And he (Mr Girgis) put it specifically in the context of the entity owning the Pub business, ie Bold Gem.[486] But, for reasons already given, Mr Girgis was incorrect in his belief that the investment in the Pub business was only contemplated after the purchase of the Midland Hotel (refer to pars 421 to 422, 430 to 439 and 448 to 454 above). It is likely, and I find, that Mr Girgis was mistaken in his recollection as to when there was discussion of Bold Gem's losses: Mr Girgis was aware that there were losses by no later than 6 October 2008.
Returning to the 6 October 2008 notes, the rear of the notes ‑ which was the portion discussed with Mr Girgis in the meeting with Mr Poliwka ‑ is headed 'Junction Hotel Midland' and is broadly divided into three sections by column: the business, the property and cash movements.[487]
The notes as to the 'business' signify that, by this time, Mr Poliwka and Mr Girgis were intending to acquire an interest in the Pub business. In that respect they are confirmatory of the inference that should be drawn from Mr Pickrell's 30 September 2008 advice and the 1 October 2008 offer to purchase. The notes recognise that the Pub business was owned by Bold Gem as trustee of the Bold Gem Unit Trust. Reference is made to the shareholders and unitholders as Bambu Hotels Pty Ltd (29 per cent ‑ although the notes contain a suggestion that 9 per cent of this may be as trustee for 'Peter', ie Mr Errichetti), Caporn Nominees Pty Ltd (20 per cent) and Masterline Investments Pty Ltd (51 per cent).
As 'action required' the notes record that the Masterline Pty Ltd shares and units were to be transferred to Girpol. There is also a suggestion that 'Peter's' 9 per cent was to be transferred to Girpol. (The reference to 'Peter' must be a reference to Mr Errichetti. See, however, pars 336 to 338 above.) Accordingly, at this stage the interests associated with Mr Hancock and Mr Caporn were to remain with their respective entities. (It will be seen that this changed later in October 2008.)
The 'property' notes record that the Midland Hotel was owned 100 per cent by Sunriver Holdings Pty Ltd as trustee for the Junction Unit Trust. Mention was made of the $1.95 million loan to ME Bank. There was said to be repayments of $16,000 per month. It was noted that there were arrears of one to two months. (Accordingly, contrary to the plaintiffs' pleaded case,[488] Mr Girgis was aware that Sunriver was in default in payment under the ME Bank loan.) The notes recorded that the terms of the loan were 'unknown'.
In his witness statement evidence Mr Poliwka stated that the reason he (Mr Poliwka) thought it would be better to proceed with purchasing the shares in Sunriver (rather than purchasing the freehold of the Midland Hotel) was that Mr Girgis and Mr Poliwka could effectively obtain the benefit of the ME Bank loan. Mr Poliwka asserted that he regarded the ME Bank loan 'as being on very favourable terms'.[489] That evidence is an untrue reconstruction. The 6 October 2008 notes signify that by 6 October 2008 Mr Poliwka had decided to proceed to purchase the shares in Sunriver rather than the freehold. But at this time the terms of the ME Bank loan were unknown. How, then, can it be said that a decision was made to purchase shares rather than freehold because of the favourable terms of the ME Bank loan? In any case other motivations were proffered in the course of oral examination (see par 462 above).
As 'action required' the notes provided for a transfer of shares and units in relation to Sunriver to FWA and Girgis Nominees. Accordingly, at this time the nature of the proposed transaction had changed from the freehold purchase contemplated by the 1 October 2008 offer to purchase. It had become a purchase of shares and units rather than the freehold property.
In short, by 6 October 2008 Mr Poliwka had decided to proceed contrary to Mr Pickrell's advice of 30 September 2008. Mr Poliwka did not, however, inform Mr Girgis of the substance of Mr Pickrell's advice as to the form that the proposed transaction should take.
The 'cash movements' portion of the notes had three distinct parts. First, as to 'Pollock Sunriver' there was a $1 million acquisition cost to be met $500,000 by FWA and $500,000 by Girgis Nominees. As will be seen, those amounts were contributed by or on behalf of those parties. Second, the notes record, as to Bold Gem, two further amounts of $150,000 being paid by each of FWA and Girgis Nominees. That did not happen. Third, for stock, the notes record: 'To Pollock - $120,000 - Nominal.' I was not directed to documentary evidence that substantiated such a payment.
Mr Poliwka was subjected to a robust cross-examination on the 6 October 2008 notes.[490]
Apart from establishing that, based on the notes, Mr Poliwka knew particular matters as at 6 October 2008, the cross-examiner sought to take three things out of the 6 October 2008 notes. First, that the notes signified that Mr Pollock and Mr Errichetti had an undisclosed interest in the Midland Hotel and the Pub business. I have already rejected that contention (refer to pars 336 to 338 above). In doing so I considered the notes and the cross-examination on the notes. Second, that the notes signified that Mr Poliwka had come to an agreement with Mr Pollock. The importance of that for the case generally is doubtful. But the notes themselves do not substantiate the allegation. Third, that a payment was made to or to the benefit of Mr Pollock. This is also not apparent from the notes and, for reasons discussed elsewhere, I am unable to come to a conclusion on the balance of probabilities as to the recipients of the two $250,000 bank cheques provided by Mr Girgis.
In my view there is a fourfold significance to the 6 October 2008 notes.
First, they demonstrate that by or shortly after 6 October 2008 a decision was made by Mr Poliwka and Mr Girgis to proceed with a purchase of Sunriver shares and units rather than a purchase of the freehold of the Midland Hotel. Second, they demonstrate that by or shortly after 6 October 2008 a decision was made by Mr Poliwka and Mr Girgis to proceed with a purchase of an interest in the Pub business - and that decision was made in the light of the 30 September 2008 financial statements. Third, given Mr Girgis' witness statement evidence, he was involved in the decision making and knew of the nature of the proposed transaction from at least 6 October 2008. Fourth, the notes demonstrate that there should not be acceptance of the reason given by Mr Poliwka in his witness statement for proceeding with the transaction in the form of a purchase of Sunriver shares and units.
As mentioned (see par 469 above), at the 6 October 2008 meeting, or shortly thereafter, Mr Girgis and Mr Poliwka discussed and agreed to proceed with a purchase of: (1) the shares in Sunriver and the units in the Junction Unit Trust; and (2) Masterline Investments Pty Ltd's shares and units in Bold Gem and the Bold Gem Unit Trust. This was to occur at a notional price of $3 million ‑ in essence $1 million in cash for the shares and units and approximately $2 million in terms of the remaining debt for the M[491]ank loan.491 Mr Girgis also gave evidence that there was a discussion that Mr Poliwka was to take care of the internal bookkeeping and accounting work for the P[492]business.492 That is what happened through Ms Ridgeway. Accordingly, I accept that Mr Girgis and Mr Poliwka discussed and agreed that Mr Poliwka would take responsibility for bookkeeping and accounting related matters for the Midland Hotel and the Pub business.
On the pleadings there was an issue about whether Mr Girgis agreed to take responsibility for marketing and business development within the Pub business. Mr Girgis and Mr Poliwka gave conflicting evidence on this subject. The matter raised a false issue that need not be resolved for the proper determination of the dispute. Accordingly, I will not consider it further.
Girpol was incorporated on 8 October 2008[493] and initial meetings of Mr Girgis and Mr Poliwka as directors of Girpol were held on that day.[494] The shares in Girpol were held 50:50 between Girgis Nominees and FWA.[495]
The intended incorporation of Girpol is apparent from the notes of 6 October 2008. Mr Girgis gave evidence that Girpol was a name derived Mr Girgis' and Mr Poliwka's respective surnames and was to be owned 50:50 by Mr Girgis and Mr Poliwka.[496] Plainly the incorporation was the subject of discussion and agreement between Mr Girgis and Mr Poliwka.
Girpol was to be the entity through which Mr Girgis and Mr Poliwka took control of the Pub business. However, the Midland Hotel was to be purchased ‑ through purchase of the shares and units in relation to Sunriver ‑ by Girgis Nominees and FWA.
Then, as previously discussed at pars 457 to 470 above, sometime between 6 and 9 October 2008 Mr Poliwka reached agreement with one or both of Mr Pollock and Ms Kuhnert as to the purchase of the Sunriver shares and units and Masterline Investments Pty Ltd's Bold Gem shares and units.

[280]

The $400,000 notation appeared adjacent to the entry on the search of the certificate of title relating to Walthamstow Pty Ltd's caveat.
In cross-examination Mr Poliwka denied that the handwriting was his handwriting.[507] Mr Poliwka also said that he did not know what the numbers meant.[508] There was, however, a 13 October 2008 letter agreement between Walthamstow Pty Ltd and Sunriver whereby Walthamstow Pty Ltd agreed to withdraw its caveat over the Midland Hotel on payment of $400,000.[509] As Mr Girgis was unaware of the Walthamstow Pty Ltd loan and caveat it follows that the agreement with Walthamstow Pty Ltd was not disclosed to Mr Girgis.
Viewing the materials as a whole the handwritten notations on the search of the certificate of title refer to required payments for the settlement of the purchase of the Sunriver shares and units. Walthamstow Pty Ltd was to be paid $400,000. AIK ‑ Ms Kuhnert (whose middle name is 'Ilse') - was to be paid $100,000. This left $250,000 (the 'deposit' $250,000 paid by Mr Girgis earlier in October having already been taken into account). Who the recipient of the initial $250,000 was, and who was to receive the remaining $250,000, remained unexplained at the end of the trial. Despite evidence I will come to as to the eventual accounting treatment given to the transaction, I am not able to make any finding on the balance of probabilities as to the recipient or recipients of these two cheques.
The usual documentary sources which might have assisted in determining the payment recipients were unavailable. There was no written contract. Nor was there a settlement statement. The person who might have been expected to know the recipient or recipients was Mr Poliwka. Mr Poliwka drove the transaction. But Mr Poliwka had no recollection of who the bank cheques were made out to.[510]
I accept that Mr Poliwka genuinely had no recollection of the identity or identities of those who received the bank cheques procured by Mr Girgis and Mr Poliwka. That lack of recollection did, however, speak volumes as to the limited and unreliable nature of Mr Poliwka's recollection of the events of September and October 2008.
Mr Poliwka's diary entry for 14 October 2008 refers to two interactions with Mr Girgis (at 10.30 am and 2 pm). There is also an entry recording a discussion with Mr Errichetti (11 am). At 2.30 pm there is an entry: 'Pollock Payment Balance Sunriver Shares'.[511] Bank statements for an account in Mr Poliwka's own name showed a debit for $500,000 on 14 October 2008 with the description 'x 2 bank cheques'.[512] Mr Girgis, through Girgis Group, also obtained a $250,000 bank cheque on 14 October 2008.[513]
No-one was able to say who the bank cheques were drawn in favour of and when they were handed over to their recipients. Nor was there clarity as to what was received in exchange for the three bank cheques. However, based on the handwritten notations on the search of the certificate of title to the Midland Hotel it is likely that Mr Poliwka's two bank cheques were made out to Walthamstow Pty Ltd (for $400,000) and Ms Kuhnert or perhaps some nominee of Ms Kuhnert (for $100,000). That one of the cheques was in favour for Walthamstow Pty Ltd in an amount of $400,000 is confirmed by the 13 October 2008 letter agreement I have referred to and the evidence about the withdrawal of caveat I am about to come to. As already mentioned, I am unable to determine the recipient of Mr Girgis' second $250,000 bank cheque.
In cross-examination Mr Poliwka denied that the $400,000 to obtain withdrawal of the Walthamstow Pty Ltd caveat came from him (Mr Poliwka) or Mr Girgis. Mr Poliwka said: '[i]t wouldn't be us'.[514] That was an erroneous reconstruction. If not Mr Girgis and Mr Poliwka, as the intended purchasers, then who else? And why the mention of the $400,000 on the search of the certificate of title? There is nothing to suggest that Sunriver itself had available funds to pay the $400,000. The obvious inference, and the finding I make, is that funds derived from Mr Poliwka and Mr Girgis were used to meet the $400,000 paid to Walthamstow Pty Ltd to obtain the withdrawal of the Walthamstow Pty Ltd caveat.
A clue to when one of the further bank cheques totalling $750,000 was paid over is provided by Mr Poliwka's diary entry for 15 October 2008. This records:

[282]

It is unlikely that Walthamstow Pty Ltd's caveat would have been withdrawn without payment of the $400,000, ie the withdrawal would only have been provided on receipt of the bank cheque. It is equally unlikely that Mr Poliwka would have arranged for procuration of the bank cheques until they were required for settlement. Also relevant to determining when the $400,000 was paid is that the withdrawal of Walthamstow Pty Ltd's caveat is dated 14 October 2008[516] (although it was not lodged with Landgate until 20 October 2008).
There are thus three pieces of relevant evidence which assist in determining when the $400,000 was paid to obtain a withdrawal of Walthamstow Pty Ltd's caveat: the date on which the bank cheques were obtained (14 October 2008); the date of the withdrawal of caveat (14 October 2008); and the note in Mr Poliwka's diary (15 October 2008).
On the basis of that evidence I find, on the balance of probabilities, that Mr Poliwka caused Walthamstow Pty Ltd to be paid a $400,000 bank cheque on 15 October 2008 so as to obtain a withdrawal of Walthamstow Pty Ltd's caveat in relation to the Midland Hotel. In any case there is no doubt that Walthamstow Pty Ltd received the $400,000 by or on 20 October 2008. A 20 October 2008 letter from Walthamstow Pty Ltd to Sunriver records receipt of the $400,000.[517] (It also suggests that the then current balance of the debt owed by Sunriver to Walthamstow Pty Ltd was $1,385,468.32.)
In cross-examination Mr Poliwka said that once he knew Walthamstow Pty Ltd's caveat had been lifted he (Mr Poliwka) and Mr Girgis proceeded to the share transfer.[518]
In this respect Mr Poliwka's recollection is consistent with the contemporaneous documentary evidence. Mr Poliwka's diary entry for 16 October 2008 records a 6.30 pm meeting with the 'Eastern Shareholders'[519] (the Midland Hotel became known as 'the Eastern' or 'the Eastern Hotel'). It is logical that such a meeting - with Ms Kuhnert or her representative as shareholder - was necessary to exchange transfers and bank cheques. That inference is supported by a business record of Burgess Rawson. As at October 2008 Burgess Rawson had not been paid for its January 2008 valuation of the Midland Hotel. Debt collection records refer to a 13 October 2008 conversation with 'PE' (Mr Errichetti) referring to a settlement for the sale of Sunriver's business on Thursday, 16 October 2008.[520]
On the basis of the evidence I have referred to as to the preparation for and completion of the purchase of the Midland Hotel and the Pub business I find, on the balance of probabilities, that Mr Poliwka caused the remainder of the bank cheques to be paid over on 16 October 2008. Mr Poliwka did so to complete the purchase arrangements in relation to Sunriver and the Midland Hotel (ie the shares and units in relation to Sunriver and the Junction Unit Trust) and also Masterline Investments Pty Ltd's interest in the Pub business (ie its shares and units in relation to Bold Gem and the Bold Gem Unit Trust).
I include the interest in the Pub business with the Sunriver transaction as, according to Mr Poliwka, Masterline Investment Pty Ltd's 51 per cent interest in Bold Gem and the Bold Gem Unit Trust was transferred at no cost.[521]
On the pleadings, however, the parties have agreed that Girgis Nominees and FWA became 50:50 shareholders of Sunriver, in place of Ms Kuhnert, on or about 23 October 2008. It is also agreed that those parties became 50:50 unit holders in the Junction Unit Trust at around the same time.[522] As will be seen, there is support for the 23 October 2008 date in the ASIC Form 484 that was lodged to notify the change in shareholdings (see pars 569 to 571 below). Nevertheless, the evidence supports my finding that payment for the Sunriver shares (and units) was made at an earlier time than 23 October 2008 ‑ on 15 and 16 October 2008. In any case 15 or 16 October 2008 is 'about' 23 October 2008.
There are two other items of evidence that support the finding that the transaction to effect transfer of the shares and units in relation to Sunriver occurred over 15 and 16 October 2008 rather than on 23 October 2008:

[286]

Transfer form for the 51 units held by Masterline Investments in the Bold Gem Unit Trust to Girpol Pty Ltd
Who is buying the units in the Junction Unit Trust? Nothing has been filled in on the transfer forms. Also, are these being transferred for $1 each?[530] (underline emphasis in original; italicised emphasis added)
Mr Poliwka was cross-examined about this email. Mr Poliwka confirmed that he would have been responsible for deciding what answer was to be provided to Focus Accounting; but he was unable to recall any instructions being given.[531] Nor could Ms Ridgway recall what instructions were received from Mr Poliwka.[532] No response appeared in the materials adduced in evidence. Accordingly, in relation to transfers of the units in the Junction Unit Trust, the most that appears from the evidence is that there were blank transfer forms with nothing filled in.
I find, on the balance of probabilities, that no completed transfers of Ms Kuhnert's and AIK Corporation Pty Ltd's units in the Junction Unit Trust to Girgis Nominees and FWA were executed.
The absence of such documentation is remarkable: Mr Girgis and Mr Poliwka parted with $1 million without obtaining the most basic of documents to evidence and record the purchase of the units. Mr Poliwka appreciated that the value inherent in the underlying asset of the Midland Hotel was in the units rather than the Sunriver shares.[533] The absence of the transfers is inexplicable given the reference in Mr Poliwka's 6 October 2008 notes to the required action of obtaining transfers of shares and units in relation to Sunriver. The failure to prepare and obtain transfers of the units in the Junction Unit Trust bespeaks a lack of attention to detail beyond mere carelessness. It is extraordinary.
There are some post-completion events that should be noted.
Ms Kuhnert sent Mr Poliwka a facsimile on 18 October 2008.[534] This provided details for repayment of Sunriver's loan with ME Bank. Handwritten notes on the facsimile provide mobile phone numbers for 'Annette' (Ms Kuhnert) and Stuart Higgins (of ME Bank). I infer that following receipt of the facsimile Mr Poliwka made contact with someone to obtain Ms Kuhnert's phone number (or noted it down on the facsimile from another source) and then contacted Ms Kuhnert to obtain Mr Higgins' number.
In his witness statement Mr Poliwka stated that, at about the time of the purchase of the shares and units in Sunriver, he (Mr Poliwka) and Mr Girgis met with a representative from ME Bank for the purpose of explaining the loan transaction.[535] In cross-examination it was asserted that he (Mr Poliwka) and Mr Girgis had already spoken to the state manager of ME Bank before the acquisition (seeking by that answer to explain why a change in control of Sunriver would not constitute a breach of the ME Loan Agreement).[536]
The 18 October 2008 facsimile suggests that no meeting could have occurred until after 18 October 2008, ie after completion of the purchase of the Sunriver shares.
Moreover, in oral examination-in-chief Mr Poliwka stated that at the meeting Mr Higgins gave Mr Poliwka and Mr Girgis an application requiring the provision of asset and liability statements and guarantees for execution.[537] The documentary evidence makes it plain, however, that the asset and liability information was sought from Mr Poliwka and Mr Girgis in mid-March 2009 following ME Bank's issue of a default letter on 12 March 2009.[538] This resulted in the provision of information to ME Bank under cover of a 13 March 2009 email sent by Ms Ridgway on behalf of Mr Poliwka.[539] The terms of the 13 March 2009 email suggest that any prior dealings between Mr Poliwka and Mr Higgins were limited. The email provided an introduction to Mr Girgis and Mr Poliwka rather than any referring to any earlier meeting. And at no time did the email assert that there had been any prior meeting or discussion where an assurance had been provided by or on behalf of ME Bank that the change in control had been approved. The guarantees were not provided for execution until 20 March 2009 at the earliest.[540]
Accordingly, Mr Poliwka was incorrect as to his recollection of a meeting with the ME Bank representative at the time of purchase of the Sunriver shares and units. Nor do I accept the implicit suggestion in Mr Poliwka's evidence in cross-examination that he had made contact with ME Bank before the purchase of the Sunriver shares.[541]
Nevertheless, Mr Poliwka confirmed that - at the time in October 2008 ‑ he was aware that a change in control of Sunriver would be a breach of the ME Bank loan agreement if effected without the consent of ME Bank.[542]
Mr Girgis gave evidence to the effect that, before the Midland Hotel transaction, he (Mr Girgis) was not informed by Mr Poliwka or otherwise made aware that Sunriver was required to inform ME Bank of a change in directors or shareholding and that ME Bank's consent in this respect had not been obtained.[543] Mr Poliwka's evidence was that Mr Girgis was made fully aware of this matter.[544] But there was no cross-examination of Mr Girgis on this aspect of the dispute. Moreover, Mr Poliwka's evidence as to the timing of the meeting with ME Bank is erroneous. That impacts on the veracity and reliability of Mr Poliwka's evidence that Mr Girgis was made aware of the issue. For that reason I do not accept Mr Poliwka's evidence. In circumstances where Mr Girgis' evidence was not challenged in cross-examination ‑ and there is no contemporaneous documentary evidence that is inconsistent with Mr Girgis' evidence ‑ I accept that Mr Girgis was unaware that a change in control of Sunriver would put Sunriver in breach of the ME Bank loan agreement.
However, I am not satisfied that, had there been disclosure of the potential breach issue (or any similar issues ‑ such as the alleged misleading statements in Sunriver's loan application with the ME Bank),[545] Mr Girgis would not have proceeded with the Midland Hotel and Pub business transactions. The likelihood is that there would have been discussions with ME Bank and then substantially the same outcome would have occurred as took place in 2009: Mr Girgis and Mr Poliwka would have entered into a guarantee of the debt due by Sunriver to ME Bank debt in place of Ms Kuhnert. Disclosure would simply have resulted in this occurring earlier ‑ before completion of the purchase ‑ avoiding a default that had no impact on Sunriver in any event.
Accordingly, this non-disclosure did not cause or materially contribute to the events that followed. This part of the plaintiffs' non-disclosure case fails.

[288]

While the Sunriver transaction was being finalised there was email correspondence between Mr Poliwka and Mr Hancock.
In a 15 October 2008 email[546] Mr Hancock expressed frustration with Mr Errichetti and Mr Pollock, and things those two had said and done, but suggested that he (Mr Hancock) wished to remain involved in the project. Presumably that was through Bambu Hotels Pty Ltd's interest in the Bold Gem Unit Trust. In any case this email is consistent with the type of transaction contemplated under the 6 October 2008 notes. At this stage ‑ 15 October 2008 ‑ Mr Girgis and Mr Poliwka (through their respective entities) were only acquiring Masterline Investments Pty Ltd's interest in the Pub business. Mr Hancock (through Bambu Hotels Pty Ltd) and Mr Caporn (through Caporn Nominees Pty Ltd) were not sellers.
By 20 October 2008, however, Mr Hancock's position had changed. An email of that date[547] expressed a willingness to negotiate a sale of Mr Hancock's interest (which he said was 29 per cent). Mr Hancock sought $120,000.
There was also email communication with Mr Errichetti.
On 16 October 2008, through Ms Ridgway, Mr Poliwka requested that Mr Errichetti provide him with an up to date MYOB data file for the Pub business.[548] That must have been received later that day as various MYOB records in relation to Bold Gem were printed out later on 16 October 2008.[549] On 20 October 2008 Mr Errichetti provided Mr Poliwka with a 'total costing' for the renovation budget.[550] The suggestion was that, including stock and a till float, the approximate injection required to complete the renovation and recommence trading was $502,150. Of this some $251,350 included renovation works.
Mr Girgis gave evidence as to discussions and eventual agreement with Mr Poliwka to invest in the Pub business.[551] The evidence was, as previously explained (see pars 421 to 422, 430 to 439 and 448 to 454 above), based on the erroneous recollection that the discussions and agreement as to the Pub business followed the 1 October 2008 offer. In fact ‑ through acquisition of Masterline Investments Pty Ltd's majority interests in relation to Bold Gem ‑ investment in the Pub business occurred in tandem with the investment in relation to the Midland Hotel through purchase of the Sunriver shares and units (see pars 448 to 454, 457 to 470 and 515 to 535 above).
Accordingly, it is not necessary to again traverse that evidence and the findings I have made as to the acquisition of Masterline Investments Pty Ltd's interest in relation to Bold Gem and the Pub business.
Mr Girgis gave evidence that 'very early on' Mr Hancock wanted out and we (Mr Girgis and Mr Poliwka through Girpol) were to buy his shares in the Pub business for $40,000.[552] That evidence was essentially consistent with evidence of Mr Poliwka that Mr Hancock looked to exit the investment in the Pub business.[553] However, based on Mr Hancock's 20 October 2008 email, I find that this occurred after the completion of the transaction in relation to Sunriver (ie the Midland Hotel) and Masterline Investments Pty Ltd's interest in Bold Gem (ie the 51 per cent interest in the Pub business). In this regard Mr Poliwka's evidence that there was an initial discussion to acquire an 80 per cent[554] interest in the Pub business was an erroneous reconstruction.
The specifics of the discussion whereby Mr Hancock, for Bambu Hotels Pty Ltd, agreed to accept $40,000 for 29 Bold Gem shares and units was not addressed in the evidence. But this must have occurred between 20 and 23 October 2008.
On 23 October 2008 a meeting occurred between Mr Girgis, Mr Poliwka, Mr Caporn and Mr Hancock. Ms Kuhnert was a notable absentee. Ms Kuhnert's absence is consistent with the Sunriver transaction having already been finalised. Otherwise it is to be expected that Ms Kuhnert would have been in attendance. The meeting was held at FWR's Joondalup office. Mr Poliwka prepared handwritten minutes recording that the meeting constituted a meeting of the directors of Bold Gem at which certain resolutions were passed.[555]
Among other things the minutes:
- noted and approved Girpol's acquisition of Masterline Investments Pty Ltd's and Bambu Hotel Pty Ltd's shares in Bold Gem;
- provided for Mr Girgis and Mr Poliwka to be appointed as directors of Bold Gem (with Mr Hancock to resign as a director);
- noted agreement that Girpol would provide funding of $250,000 to complete the renovations of the Midland Hotel and funding of a further $250,000 to ensure performance of operational matters; and
- referred to an intention that the rent payable under the Bold Gem lease agreement would be paid as a priority by the first of each month (commencing 1 November 2008).
The documentary evidence includes share transfer forms transferring Masterline Investments Pty Ltd's and Bambu Hotels Pty Ltd's shares in Bold Gem to Girpol.[556] There is also an executed unit transfer for Bambu Hotels Pty Ltd's 29 units in the Bold Gem Unit Trust.[557] Again, however, the materials tendered in evidence do not include a unit transfer as to Masterline Investments Pty Ltd's units in the Bold Gem Unit Trust.
The unit transfer in relation to Bambu Hotels Pty Ltd's units, and the absence of like documentation in relation to Masterline Investments Pty Ltd's units, supports the conclusion that there was an exchange of cheques and documentation with Ms Kuhnert (or someone acting on her behalf) prior to the 23 October 2008 meeting. If the two transactions had completed at the same time I expect there would also have been a unit transfer for Masterline Investments Pty Ltd's units in the Bold Gem Unit Trust.
Both Mr Girgis[558] and Mr Poliwka[559] transferred $120,000 to Girpol. Mr Poliwka did so on 23 October 2008 and Mr Girgis, through Girgis Group, did so on 24 October 2008. Among other things the initial deposit into Girpol's bank account was used, on 23 October 2008, to pay $40,000 to Mr Hancock.[560] Accordingly, it is clear that Bambu Hotels Pty Ltd's interest in the Pub business was acquired by Girpol with effect from 23 October 2008. Mr Caporn's company, Caporn Nominees Pty Ltd, remained a 20 per cent unit holder in the Bold Gem Unit Trust.

[290]

There was a very lengthy and segmented cross-examination of Mr Poliwka,[565] and a somewhat shorter cross-examination of Mr Pickrell,[566] on the accounting treatment afforded to the October 2008 transactions in relation to Sunriver and Bold Gem. The witnesses and I were taken to various financial statements,[567] email communications[568] and a memorandum under cover of a letter dated 9 September 2013 prepared by Focus Accounting as to loan account movements.[569]
The cross-examiner's thesis appeared to be that Mr Poliwka had procured that payments were made to or to the benefit of Mr Pollock[570] or Mr Pollock and Mr Errichetti.[571] In part that was based on amounts recorded as loans to Mr Pollock and Masterline Investments Pty Ltd in the financial statements for the Junction Unit Trust and the Bold Gem Unit Trust as prepared by Focus Accounting.[572]
I am not satisfied on the balance of probabilities that this is borne out by the materials or the cross-examination. The materials - particularly the financial statements for Sunriver as trustee of the Junction Unit Trust - do no more than reflect the transactions as Focus Accounting could understand them. It is clear on the evidence as a whole that in material respects Focus Accounting did not have a full understanding of the transactions. Nevertheless Focus Accounting was called upon to reconstruct the accounts and prepare the financial statements. In doing so there were misconceptions or errors in accounting interpretation and the eventual treatment of the transactions in the financial statements.
For example, in a letter dated 9 September 2009[573] Focus Accounting recorded that Sunriver purchased the Midland Hotel for $2.5 million part of which was funded by the ME Bank loan and the balance of which was paid by Mr Pollock. That is said to have resulted in a loan due by the Junction Unit Trust to Mr Pollock of some $708,428.98 as at 30 June 2008 which is said to have been 'assumed by' (which I read in the sense of 'assigned to')[574] Mr Girgis and Mr Poliwka in the 2008/2009 financial year. All of this is wrong. Mr Pollock did not advance the balance of the purchase price to enable Sunriver to acquire the Midland Property. The balance of the purchase price was borrowed from Walthamstow Pty Ltd.
Somewhat inconsistently with counsel for the plaintiffs' self-described 'thesis'[575] that it was 'obvious'[576] that money went to Mr Pollock, counsel also submitted that the statement by Focus Accounting in the letter of 9 September 2009 signified that Mr Poliwka had performed inadequate due diligence. It was said that Mr Poliwka had misunderstood the initial transaction and given Focus Accounting incorrect instructions.
The reality is that ‑ despite request ‑ Mr Poliwka never gave Focus Accounting any proper instructions to enable the preparation of the financial statements for the Junction Unit Trust. I infer that the same goes for the Bold Gem Unit Trust. As Mr Pickrell said, obtaining the information was very difficult. His employee with primary conduct of the preparation of the financial statements, Rebecca Davies, became very frustrated with the lack of information.[577] Mr Poliwka never instructed Focus Accounting as to how to prepare the accounts.[578] Focus Accounting were left to try and reconstruct the accounts for themselves and interpretative errors were made.
I do not accept that Sunriver as trustee of the Junction Unit Trust was indebted to Mr Pollock in the amount of $708,428.98 as at 30 June 2008. The prima facie evidence of the financial statements is rebutted by: (1) the evidence that Walthamstow Pty Ltd advanced the balance of the purchase price to complete the purchase of the Midland Hotel; and (2) the evidence that ‑ in the absence of proper instructions ‑ Focus Accounting had a misapprehension as to how the initial purchase transaction had been effected.
Nor, given the matters I have referred to, am I satisfied that the 2008 and 2009 financial statements for the Bold Gem Unit Trust accurately record and present the transactions as to Masterline Investments Pty Ltd.
Accordingly, despite the accounting evidence, I remain unable to make any finding on the balance of probabilities as to the recipients of the two $250,000 bank cheques as provided by Mr Girgis in relation to the Sunriver transaction. The plaintiffs have not made out the allegation that Mr Poliwka arranged for payments to be made to or to the benefit of one or both of Mr Pollock or Mr Errichetti.

[294]

I, like Mr Cameron, have not been provided with any information to assess where on the continuum the renovation of the Midland Hotel had reached as at late October / early November 2008: the value might have been below the starting point; it might have been greater.[584] All depended on the state that the renovation had reached. I cannot make any definite finding on that; and, even if I could, I am not in a position to conclude what the state of renovation ‑ and necessity or desirability for further renovation - meant for market value as at late October / early November 2008. One thing is certain. Only by coincidence would the actual market value be the $1.73 million.
Just as importantly, in his report, Mr Cameron noted that there were two potential highest and best uses of the Midland Hotel: a trading tavern or alternatively a long term redevelopment of the site.[585] In cross-examination Mr Cameron confirmed that those two uses were quite different uses for the purpose of a valuation.[586] Mr Cameron also accepted that, in theory, a significant portion of the Midland Hotel property was available for redevelopment.[587]
Mr Cameron proceeded to conduct a conventional and, in my opinion, correct analysis of the market value of the Midland Hotel based on it being used as a trading tavern (assuming renovation had not commenced). Mr Cameron described this as a 'capitalisation' method.[588] It did, however, involve as a cross-check consideration of a direct comparison as to rent and the historical arms-length passing rent of the property under a prior lease.[589]
Mr Cameron ignored the Bold Gem lease given that it was not negotiated at arms' length. Mr Cameron assessed past trading performance to determine estimated maintainable turnover and net operating profit. Based on this, having compared a basket of rental and sales evidence as to turnover, profits, rent and yields ‑ assessing comparability based on location and the nature of the property ‑ Mr Cameron formed as view as to likely market rent ($160,000 per annum, ie approximately 6.5 per cent of turnover and 42.5 per cent of net operating profit). To this Mr Cameron applied a yield rate of 9.25 per cent to arrive at the $1.73 million.
No contradictory expert evidence was presented. Mr Cameron's justification for his approach ‑ both in his expert report and in cross-examination ‑ was confident and compelling. No error in methodology or application was exposed. Accordingly, I accept Mr Cameron's evidence.
I therefore accept Mr Cameron's evidence that ‑ subject to two important provisos that follow ‑ the market value of the Midland Hotel as at 23 October and 1 November 2008 was $1.73 million. This, however, is subject to two limitations:

[300]

In cross-examination Mr Cameron confirmed that the $530,000 for building improvements was simply a mathematical exercise, ie $1.73 million less the $1.2 million.[594]
Mr Cameron also confirmed that none of the available sales evidence referred to was in his report.[595]
I am unable to consider the sales evidence material Mr Cameron relied on to come to the $1.2 million figure. The opinion proffered is no more than a bald conclusion without reasoning or identification of the underlying material considered by Mr Cameron. I am unable to assess whether Mr Cameron's conclusion is the product of his specialised knowledge. Nor can I consider the validity of the criteria applied. All of this is very much in contradistinction to the comprehensive and thorough report, backed by supporting comparable sales material, complied by Mr Cameron in arriving at his opinion as to the market value of the Midland Hotel as a trading tavern.
In the circumstances I am not prepared to give any weight to this aspect of Mr Cameron's expert evidence. I am not satisfied that the notional market value of the underlying land of the Midland Hotel as at 23 October and 1 November 2008 was the $1.2 million as referred to in Mr Cameron's report. The consequence of this is that I am left without any useful valuation evidence as to the then market value of the Midland Hotel based on its alternate highest and best use as a long term redevelopment site.
Mr Cameron's valuation report had implications for one of the non-disclosure matters.
At par 20.9L of the SOC the plaintiffs alleged that a transaction pursuant to which a purchaser acquired all units in the Junction Unit Trust was a dutiable transaction by reason of Ch 3, Pt 4, of the Duties Act 2008 (WA). However, that would only be the case where the total value of the trustee's land entitlements was $2 million or more.[596] Value is determined as unencumbered value where s 36 of the Duties Act 2008 (WA) applies with appropriate modifications.[597] Unusually, in providing his report, Mr Cameron was instructed to provide a report on the unencumbered value of the Midland Hotel in accordance with s 36 of the Duties Act 2008 (WA).[598] Presumably the instructions had in mind the potential application, or otherwise, of the pleaded non-disclosure matter. In any event that was the basis on which the valuation was prepared.[599] Thus the report spoke directly to whether the non-disclosure matter in par 20.9L of the SOC arose.
Accordingly, based on Mr Cameron's valuation ‑ which the plaintiffs submitted should be accepted[600] ‑ the Sunriver transaction was not a dutiable transaction. This part of the plaintiffs' non-disclosure case must fail.

[302]

At trial there was considerable cross-examination, and many documents, as to the post-acquisition operations of the Midland Hotel and Pub business. All of that is of little, if any, real consequence for the matters for determination.
Renovation of the Midland Hotel took longer than the two or three months contemplated in October 2008. In fact the Midland Hotel re-opened for trading in February 2009. When the Midland Hotel re-opened it enjoyed some initial success. Turnover in February and March 2009 was fairly healthy according to Mr Poliwka. Unfortunately for Mr Girgis and Mr Poliwka, that success was short lived. And, in any case, expenses exceeded revenue. Mr Caporn's plan to revive the venue involved live bands and entertainment that came at a substantial cost. There were also concerns about staffing levels and high wages.
As will be seen, in May 2009 a decision was taken to end the relationship with Mr Caporn.
Throughout this time Mr Girgis was involved in meetings about the Midland Hotel and the Pub business. Mr Girgis was also included as an email recipient on various emails sent by Mr Caporn. I understood this material to be adduced to demonstrate that Mr Girgis was involved in the operations of the Midland Hotel and the Pub business. That much may be accepted. But it should be recalled that Mr Girgis was a director of both Sunriver and Bold Gem. Mr Girgis was also providing funding (as was Mr Poliwka) for the renovation and operations of the Midland Hotel. Nothing in the materials was inconsistent with Mr Girgis having any greater involvement than might be expected of a director and funder. Instead the materials are consistent with Mr Caporn seeking to keep Mr Girgis (together with Mr Poliwka) informed of ongoing matters affecting the operations of the Pub business.
By February 2010 ‑ one year after the Pub business had re-opened - Mr Girgis was well aware that the Pub business had not traded profitably. As Mr Girgis said, it was 'no secret' that there was a concern as to the unprofitability of the operations of the Pub business.[601]
The extent of the losses is evident from the financial statements for the Bold Gem Unit Trust.
The financial statements for the year ended 30 June 2009[602] showed a net loss of $488,086. Gross profit from trading was $926,820 on revenue of $2,469,195. But there were significant expenses in the form of entertainment ($155,283), rent ($318,182), security ($91,738) and wages ($534,515 excluding superannuation). The year ended 30 June 2010[603] saw reduced revenue ($2,372,768) but a reduced loss ($320,953).
Matters worsened after 1 July 2010. The 12 months to 30 June 2011 saw a loss of $567,012 on a reduced trading income of $2,068,290.[604] For the year ended 20 June 2012 the result was a loss of $665,469 on a trading income of $1,654,597. [605]

[308]

There was another alleged representation as to profitability, namely, that investing in the Midland Hotel would be profitable (SOC, par 17.1.6). Mr Girgis' oral evidence-in-chief did not support the making of such a representation. Accordingly, it has not been established. In the plaintiffs' post-trial evidentiary note the plaintiffs' legal representatives sought to conflate this alleged representation with those at pars 17.1.1 to 17.1.3, 17.1.6, 17.1.16 and 17.1.19 of the SOC providing for a composite 'Mr Poliwka was aware of good opportunity to profitably invest in some land (being the [Midland Hotel]) that was for sale at a price substantially less than its then market value'. As so conflated the further alleged profitability representation added nothing to the alleged representations based on value. As the alleged representations as to value fail then so too does this unpleaded composite alleged representation.
One of the alleged representations was that a pub business was conducted on the Midland Hotel (SOC, par 17.1.4). I accept that there was a representation to this effect. But, in context, there was nothing misleading or deceptive about the statement; it was substantially accurate (see eg SOC, par 19.3) and objectively could not have led a potential purchaser into error or a misconception. The statement must be considered in context rather than in isolation. Insofar as the renovations meant that the Pub business was temporarily not trading that was obvious to Mr Girgis.
In a similar vein, while there was a representation to the effect that the Midland Hotel was leased to the operator of the Pub business (SOC, par 17.1.10), that was not misleading or deceptive or likely to mislead or deceive. The statement was substantially correct. Indeed, the fact that Bold Gem conducted the Pub business as lessee formed part of the plaintiffs' pleaded case and was common ground (SOC, par 19.3 ‑ 19.4; DAC, par 19). Given the factual findings I have made, however, I do not accept that a representation was made to the effect that the annual rent was $220,000 or thereabouts (cf SOC, par 17.1.10).
Mr Poliwka did represent that there was an investment opportunity (SOC, par 17.1.1). There was an investment opportunity; an investment was in fact made. To the extent that the plaintiffs allege that there was a representation to the effect that there was a 'good' opportunity to invest I have found that the word 'good' adds nothing (cf SOC, par 17.1.1). For the reasons previously given the adjectival characterisation of the Midland Hotel was not representational in nature.
There was not, in terms, a representation that the Midland Hotel was leased to a 'good tenant' (cf SOC, par 17.1.12). Mr Girgis' evidence only went as high as to state that Mr Poliwka said that the tenant was an experienced operator because they (I interpose that this meant Mr Caporn) had operated 'The Deen' nightclub. There was no evidence suggesting that Mr Caporn had not in fact operated The Deen. Accordingly, the reference to the tenant - in the form of Mr Caporn ‑ being an experienced operator was not misleading or deceptive or likely to mislead or deceive. But in any case the alleged representation was not that the tenant was an experienced operator but that it was a good tenant. That representation was not established on the evidence.
Importantly, however, the plaintiffs have proven one of the key representations relied on for the misleading or deceptive conduct plea in par 21A of the SOC. Mr Poliwka did represent that he (Mr Poliwka) had conducted due diligence investigations in relation to the Midland Hotel and the Pub business and was satisfied with his findings (SOC, par 17.1.15).
It is also the case that, in substance, Mr Poliwka advised Mr Girgis that they should together invest in the Midland Hotel and the Pub business by: (1) acquiring the shares in Sunriver and the units in the Junction Unit Trust and assuming responsibility to discharge the ME Bank loan (SOC, par 17.3); and (2) acquiring 80 per cent of the shares in Bold Gem and 80 per cent of the units in the Bold Gem Unit Trust (SOC, par 17A.3).
The specifics of the conversation (or conversations) on or about 6 October 2008 whereby Mr Poliwka and Mr Girgis discussed and agreed to proceed with the initial transaction have not been detailed. Nor are there specifics of the post-20 October 2008 discussions and agreement to acquire Bambu Hotel Pty Ltd's 29 per cent interest in relation to Bold Gem and the Pub business. I am, however, reasonably satisfied of six matters on the balance of probabilities. First, that as between Mr Poliwka and Mr Girgis there was ‑ at this time ‑ a relationship of adviser and advisee in respect of property investment. Mr Poliwka was involved in all of Mr Girgis' decision making. Indeed, as Mr Poliwka was himself prepared to inform third parties, Mr Girgis did not do anything property related without Mr Poliwka's advice. Second, that the acquisition of the Midland Hotel and the Pub business was predominantly a property investment. Indeed, it commenced as a passive property investment. Third, it was Mr Poliwka who presented the investment opportunity to Mr Girgis. Fourth, it was Mr Poliwka who drove the transaction; it was Mr Poliwka who obtained and presented to Mr Girgis the available information in relation to the proposed investment and who dealt with the contractual counterparties. Mr Girgis simply provided funding for the acquisition in accordance with Mr Poliwka's instructions. Fifth, it was Mr Poliwka who determined the form that the initial transaction would take (ie shares and units rather than freehold and the business). Sixth, it was Mr Poliwka who, at the 6 October 2008 meeting, outlined the alternate form of the initial transaction and persuaded Mr Girgis that this was the preferable approach so as to avoid having to fund a further $1 million each.
These six matters, together with the due diligence representation, satisfy me that in substance, by the course of dealings I have outlined, that Mr Poliwka advised Mr Girgis that the two of them (Mr Girgis and Mr Poliwka) should together invest in the Midland Hotel and the Pub business. Given the subsisting established relationship between Mr Poliwka and Mr Girgis ‑ and Mr Girgis' then relative inexperience and dependence vis-à-vis Mr Poliwka - this was not a situation of two equals making an independent decision to jointly invest.

[309]

During 2008 Mr Girgis told Mr Poliwka that he (Mr Girgis) had considered purchasing a pleasure cruiser. Specific mention was made of a Sunseeker. Mr Girgis had visited a boat shop on Great Eastern Highway when passing and looked at a couple of Sunseeker boats. The enquiry was limited. Mr Girgis described the activity as no more than random window-shopping.[607]
Mr Poliwka said to Mr Girgis that boats depreciate faster than cars.[608]
Shortly after that discussion, towards October 2008, Mr Poliwka became aware of a charter boat named the 'Moonlight Express' that was for sale by tender under forced sale conditions. The vessel had been owned by a Perth restaurant identity who used it as a charter vessel. It was being sold by a mortgagee in possession, through the accounting firm McGrath Nicol, using a boat broker, Salters Boats. The vessel was large and was based in a leased pen at a commercial sized jetty at Barrack Street, Perth.
At a meeting Mr Poliwka raised the Moonlight Express with Mr Girgis. Mr Poliwka said that he (Mr Poliwka) was interested in pursuing an acquisition of the vessel with Mr Girgis.[609]
Among other things Mr Poliwka referred to the fact that the vessel was being sold by a mortgagee.[610] Mr Poliwka mentioned the vessel as having two purposes.[611] First, it would be a boat that Mr Girgis and Mr Poliwka could have for their joint and separate personal use. Second, as a charter vessel it would be a business proposition that would bring in some income - particularly as a companion vessel to the Pub business (which could supply alcohol and food for functions). Mr Girgis used the words 'good companion investment for the pub' in evidence.[612] It was common ground that Mr Poliwka's wife, Peta Poliwka, would manage the Charter business for Mr Girgis and Mr Poliwka.[613]
Mr Girgis gave evidence that Mr Poliwka said three other things.
First, on Mr Girgis' evidence, Mr Poliwka said that the Moonlight Express was worth $1.2 million to $1.3 million but the seller's asking price was $800,000 to $900,000.[614] The importance of this to the case may be queried: the plaintiffs never adduced any evidence as to the market value of the Moonlight Express at the time of its purchase. In any case I do not accept that Mr Poliwka made a positive statement as to the value of the Moonlight Express. The likelihood is that Mr Poliwka did no more than pass on what had been offered to him (Mr Poliwka) as banter by others whom Mr Poliwka had spoken with in the context of the distressed sale of the Moonlight Express. The simple fact is that Mr Poliwka was a real estate agent, not a boating specialist, and not in a position to form a view on the value of the vessel. I consider it is implausible that Mr Poliwka did so and communicated to Mr Girgis that he had done so. Mr Girgis has misconstrued what was being conveyed by Mr Poliwka as to what he (Mr Poliwka) had been informed by others.
Second, Mr Girgis gave evidence that Mr Poliwka said that he (Mr Poliwka) had done his due diligence, it was a good deal and the vessel would fit within the investment strategy and work well in the overall scheme of things.[615] The 'due diligence' statement was said to have been repeated at a second meeting when Mr Girgis agreed to purchase the Moonlight Express.[616]
It is implausible that Mr Poliwka made any statement suggesting that he (Mr Poliwka) had conducted due diligence at a time before he had even inspected the Moonlight Express with Mr Girgis. I consider it is likely that Mr Girgis has simply transferred his recollections of Mr Poliwka's reference to due diligence in the context of the Midland Hotel and the Pub business - things said just before the discussions as to the Moonlight Express - into another dealing. Further support for the unlikelihood of any such statement at the times referred to by Mr Girgis is that no trading figures were supplied as to the Charter business until 12 November 2008. Mr Poliwka is unlikely to have made any assurances as to due diligence and the transaction being a good deal without access to the trading information.
My rejection of this aspect of Mr Girgis' evidence is also supported by Mr Girgis' recollection that the alleged statement was in a context of Mr Poliwka referring to the investment strategy. For reasons already given I do not accept that Mr Poliwka advised Mr Girgis to adopt and implement the one-third investment strategy in the specific terms as suggested by Mr Girgis.
Third, on Mr Girgis' evidence Mr Poliwka said that, on a worst-case scenario, the boat would break-even.[617] Mr Girgis gave evidence that this occurred at the first meeting. This was put in terms that the 'plan' was that 'worst case scenario the boat was supposed to break-even'.[618] I consider this is an erroneous reconstruction. It is implausible that Mr Poliwka, as an experienced businessperson, would have suggested that the Charter business would at least break-even without having reviewed trading figures. I also consider it implausible that any such statement was made at this time when the parties had not even inspected the vessel. As will be seen, trading figures were not provided until later in the piece; on 12 November 2008, well after these initial discussions. That was after Mr Girgis had agreed to pursue the purchase. It is possible that the trading figures were discussed on 12 November 2008 when they were circulated to Mr Poliwka and Mr Girgis. But that is not Mr Girgis' evidence and this possibility is no more than speculation. And, even if the figures were discussed at this time, there is no basis to conclude that Mr Poliwka stated that the worst-case scenario was that the boat would (as opposed to should) break-even.
Further support for rejecting Mr Girgis' recollection of the latter two of these three things is that from the outset the possible purchase of the Moonlight Express was not a normal investment. Mr Poliwka said that the Moonlight Express was more 'pleasure first, charter second'.[619] That is borne out by the evidence. For example, Mr Girgis and Mr Poliwka used the vessel to invite close friends to attend an annual Australia Day fireworks cruise. It was also used for other personal functions. Due diligence and the likely financial return from the Charter business were of lesser importance. The Moonlight Express was a lifestyle asset rather than a normal investment.
Mr Girgis' evidence was that it was not long after the initial discussion with Mr Poliwka, and a subsequent inspection of the vessel, that he agreed to purchase the vessel with Mr Poliwka.[620] Mr Girgis referred to this happening at a second face-to-face meeting with Mr Poliwka after inspecting the Moonlight Express.[621] As Mr Girgis went to Sydney on 4 November 2008,[622] and he remained in Sydney until the offer to purchase was signed, this must have occurred quite in early November 2008 and well before the offer to purchase was made.
It was common ground that the Moonlight Express was purchased through Girpol.
There was in fact no due diligence in relation to the purchase of the Moonlight Express. Mr Poliwka said as much in examination-in-chief.[623] Inquiries made were through the receivers, the boat broker and discussions with the skipper of the vessel on inspection. Some trading figures were provided. Mr Poliwka received a confidentiality agreement from the boat broker on 12 November 2008 (ie after Mr Girgis had agreed to proceed with the purchase).[624] Later that day, after the confidentiality agreement was signed, Mr Poliwka received a package of materials (which was forwarded to Mr Girgis by email during the afternoon of 12 November 2008).[625] This included boat plans, profit and loss trading figures, a liquor licence application and a maintenance report. Earlier a copy of the jetty lease had been provided to Mr Poliwka and on-sent to Mr Girgis.[626] But, on Mr Girgis' evidence, he had agreed to purchase the Moonlight Express before seeing or discussing the trading figures for the Charter business.[627] Mr Girgis said that he believed he did not go through the information about the Moonlight Express even though it was emailed to him.[628] At the time Mr Girgis was in Sydney.[629]
The form of sale contract was sent to Mr Poliwka at 12.16 pm on 12 November 2008; it was on-sent to Mr Girgis in Sydney within an hour.[630] An offer to purchase the Moonlight Express was signed by Mr Poliwka, for Girpol, on 12 November 2008 at a purchase price of $880,000 ($800,000 plus GST). The offer appears to have been accepted on 23 November 2008.[631] A deposit of $88,000 was paid on 28 November 2008.[632] The balance of the purchase price was paid on 15 December 2008.[633] Mr Girgis gave uncontested evidence that Girgis Group transferred $400,000 to Girpol to put Girpol in funds to pay the balance of the purchase price.[634] Girpol's bank statements show two $400,000 credits at this time.[635] Accordingly, I infer that there was another $400,000 deposited into Girpol's bank account by or on behalf of Mr Poliwka.
The Charter business operated from late 2008 to at least mid-2012. Girpol employed the previous captain of the vessel. He was responsible for operational and maintenance issues. Mrs Poliwka was the cruise coordinator. Bookkeeping for the Charter business was carried out by one of Mr Poliwka's staff. There is a dispute between the parties as to whether Mr Girgis volunteered and agreed to be involved in the marketing of the venture. Determination of that side-issue is not required for the proper disposition of the plaintiffs' claim.
There was some, albeit limited, evidence that the Pub business did supply alcohol for events held on the Moonlight Express. Similarly, the restaurant at the Midland Hotel supplied food for events held on the vessel.[636]
Based on these findings the plaintiffs have failed to make good much of their pleaded case as to the alleged representations in relation to the Moonlight Express.
There was no representation that Mr Poliwka was aware of a good opportunity 'to invest' in a charter vessel business (cf SOC, par 24.1.1). Nor was it represented that the Moonlight Express could be purchased at a price substantially less than its then market value of $1.2 million (cf SOC, pars 24.1.3, 24.1.4) and that Mr Poliwka had conducted due diligence in relation to the Moonlight Express and its Charter business and was satisfied as to his findings (cf SOC, par 24.1.6). It was not represented that investing in the Moonlight Express and the Charter business would be profitable and the worst case scenario was break-even (cf SOC, par 24.1.7). Indeed, in his oral evidence Mr Girgis did not mention any suggestion by Mr Poliwka that the investment would be 'profitable'. Nor was there any oral evidence to support the alleged representation that the Charter business would not require substantial funds to operate (cf SOC, par 24.1.9). It also follows from my findings that there was no representation to the effect that investing in the Moonlight Express and the Charter business would further the investment strategy (cf SOC, par 24.1.10).
The most that the pleaded case as to the allegation of misleading conduct has been made out is that Mr Poliwka did state that the Moonlight Express and the Charter business would be a good companion to the Pub business in that the Pub business could supply food and beverages for events conducted by the Charter business (SOC, par 24.1.8). I consider 'good' not to be representational. Otherwise the representation was substantially true. The Pub business could (and in due course did) supply food and beverages for the Charter business. Separately, the evidence does not support that the statement referred to the proposed purchase as a 'companion investment' or even that the parties would be 'investing' in the Moonlight Express and the Charter business.
Nor have the plaintiffs proven, in terms of par 24.2 of the SOC, that Mr Poliwka advised them (the plaintiffs) to the effect that Mr Girgis and Mr Poliwka should together 'invest' in the Moonlight Express and the Charter business (SOC, pars 24.2.1 and 24.2.2) through Girpol purchasing the Moonlight Express at a price of $800,000 plus GST (SOC, par 24.2.3).
The purchase of the Moonlight Express was not an investment decision in the same way that Mr Girgis, through Girgis Nominees, had purchased investment properties and Mr Girgis and Mr Poliwka, through their respective entities, had invested in the Midland Hotel and the Pub business. Consistent with the purchase being of a lifestyle asset with the potential to offset some costs through the Charter business, rather than a normal investment, the purchase of the Moonlight Express stood outside the normal relationship between Mr Poliwka and Mr Girgis. There was a joint decision to purchase - thereby enabling joint and individual use of the vessel - rather than investment advice on the part of Mr Poliwka. Indeed, at no time in recounting the circumstances of the purchase of the Moonlight Express in his examination-in-chief did Mr Girgis refer to the two discussions with Mr Poliwka as having amounted to advice.
The plaintiffs pleaded a number of non-disclosure matters in relation to the Moonlight Express and its Charter business (SOC, par 26). Many of these concerned matters only of potential relevance to the Midland Hotel and the Pub business. For example, some of the non-disclosure matters relied on were the terms of the ME Bank loan and the Walthamstow Pty Ltd loan agreement. None of these were material to a decision to proceed with the purchase of the Moonlight Express and to conduct the Charter business. These may all be put to one side.
Only one new non-disclosure matter was raised in relation to the Moonlight Express and the Charter business: an allegation that the performance of the Charter business had been in decline and there was no plan for improving its performance (SOC, par 25.1).
The Charter business was not simply in decline; it was not operating.[637] However, Mr Girgis knew that the vessel was being sold as a mortgagee sale.[638] That being the case, it beggars belief to suggest that Mr Girgis would not, at the time, have appreciated that the Charter business was in decline. Why else was it being sold by the mortgagee? And why would the mortgagee have a plan in place to improve performance of the Charter business? I am satisfied that Mr Girgis would have known that, given the circumstances of the sale, the Charter business was not then trading and there were no existing plans to improve performance. Mr Girgis and Mr Poliwka would have to revive the Charter business.
Accordingly, this alleged non-disclosure matter fails. It is, then, perhaps unsurprising that it has been deleted from the plaintiffs' post-trial evidentiary note. Post-trial the plaintiffs no longer rely on the allegation.
In any case Mr Girgis was provided with the available profit and loss trading figures for the Moonlight Express. That too would have informed Mr Girgis as to the trading performance of the Charter business.
Accordingly, the plaintiffs' non-disclosure case as to the Moonlight Express and its Charter business fails: the pleaded matters were either not material to the decision-making (as not involving the relevant transaction) or in substance were appreciated by Mr Girgis (as to the performance of the Charter business).
The Charter business was conducted through Girpol. Apart from on-lending funds to Bold Gem this was Girpol's major business activity. Accordingly, the performance of the Charter business can be gauged from Girpol's financial statements.
For the year ended 30 June 2009[639] Girpol incurred a $131,905 loss. However, this included $65,096 in depreciation on the Moonlight Express and $6,145 in interest ‑ the interest being on a $1.45 million BankWest loan in connection with the Midland Hotel and Pub business. The expenses for the year included a significant amount for repairs and maintenance ($62,747). The Moonlight Express was an older vessel. The maintenance report included in the 12 November 2008 information referred to some $38,500 in required maintenance and repairs not including gelcoat, carpet and deck hydraulics.[640] I infer that much of the $62,747 in repairs and maintenance were once-off matters required on purchase of the Moonlight Express.
The 30 June 2010 financial statements[641] record a $144,519 loss. But after adjusting for interest ($85,522) and depreciation ($110,962) the earnings before interest and depreciation were positive. In the year ended 30 June 2011[642] the loss was similar to 2010 ‑ $145,584. Again earnings before interest and depreciation were positive given interest of $109,974 (still associated with the BankWest loan as to the Midland Hotel and the Pub business) and depreciation of $94,724. There was a more significant loss in the year ended 30 June 2012[643] - an amount of $443,621 following a dramatic drop in hire income from the Charter business (from $286,644 in 2011 to $95,026 in 2012). The extent of the loss was again impacted by interest expense not associated with the operation of the Charter business and depreciation. It was also affected by wages attributed to Mrs Poliwka in an amount of $157,500 together with superannuation of $14,175. The later amounts were never paid, something evidenced by Girpol's 2012 income tax return[644] and the administrator's report as to Girpol.[645]
Mr Thomson, in his administrator's report, stated that construction activity around Barrack Street jetty and Elizabeth Quay had impacted on revenue.[646] Mr Girgis also said in cross-examination that the work in Elizabeth Quay was very likely the explanation for the 2012 decrease in hire income derived by the Charter business.[647]
Based on Girpol's financial statements I find that the Charter business did break-even - in the sense of covering the costs of the Moonlight Express - in the period to 30 June 2011. That was not the position in the 2012 income year. But this was due to a supervening event: the impact of construction activity around the Barrack Street jetty associated with the Elizabeth Quay development.
Indeed, in early 2012 Mr Girgis confirmed that to that point the Charter business was operating on a break-even basis. A filenote of a 11 April 2012 meeting between Mr Girgis and Mr McNally records Mr Girgis informing Mr McNally that the Moonlight Express 'covers its costs'.[648]

[311]

The parties presented their evidence as to the Joondalup Property separately to - and after - the evidence as to the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. Chronologically the purchase of the Joondalup Property and the Watermans Bay Property occurred before the parties took over the management of the Pub business. It aids understanding to consider the event in their chronological order. Accordingly, I next consider the purchase of the Joondalup Property and the Watermans Bay Property.
In November 2008 Allundy was the registered proprietor of the Joondalup Property and the Watermans Bay Property.
The Joondalup Property was located at 3/49 Boas Avenue, Joondalup. It was, at this time, a 897 square metre strata title property situated predominantly on the first floor level of a modern two level mixed use building in Joondalup's town centre. The property was used as a nightclub. At this time the property was leased to Bajo, the nightclub operator, pursuant to a written lease with a term expiring on 30 June 2011. The lease had commenced on 1 August 2008. The lease provided for a commencement rent of $160,000 plus GST and annual CPI reviews.
The Joondalup Property had been listed for sale with FWR in May 2008 for an amount of $2.1 million.[649] It had been purchased by Allundy in July 2007 for $1.2 million.[650]
Mr Cameron gave expert evidence that the market value of the Joondalup Property was $2 million as at 1 December 2008 (the date Girgis Nominees contracted to purchase the property) and 2 February 2009 (the date the purchase completed).[651]
I have already said that I accept Mr Cameron's evidence as to the market value of the Joondalup Property (see pars 184 to 185 above). Mr Cameron reached that opinion as to market value by considering comparable rental rates for nightclubs and taverns at various Perth nightspots during 2007 and 2008. The opinion was provided on the basis that the highest and best use of the property was as a nightclub. Mr Cameron formed a view that the rent under the Bajo lease - $160,000 per annum - represented a market rent based on the comparable rent evidence. Mr Cameron then applied an 8 per cent capitalisation rate having regard to yield rates derived from contemporaneous sale evidence.
The only substantial challenge to Mr Cameron's opinion in cross-examination was on the basis that he had not considered whether the Joondalup Property might have had a higher market valuation on the basis that the property's highest and best use was as office premises.[652]
I consider that this does not affect the reliability of Mr Cameron's opinion. The Joondalup Property was subject to the Bajo lease. That lease would not expire for another 2 and a half years. There was no immediately opportunity to convert the premises into office space. Also, as Mr Cameron stated, and I accept, at the relevant time the Global Financial Crises paralysed the market for about six months.
In accepting Mr Cameron's opinion it is also notable that, while counsel for the defendants submitted that Mr Cameron's opinion as to the market value of the Midland Hotel was unreliable,[653] there was no such submission as to Mr Cameron's valuation evidence on the Joondalup Property. To the contrary counsel for the defendants relied on Mr Cameron's evidence as to the market value of the Joondalup property in contending that the plaintiffs had suffered no compensable loss.[654]
The Watermans Bay Property was a 1438 square metre ocean front residential block at 29 West Coast Drive, Watermans Bay. The block had a modest house - Mr Girgis described it as a 'knock-down'[655] - which returned a small amount of rent. However, the value of the property was in its development potential. The property was zoned R‑20 allowing for triplex development potential. The highest and best use of the land, according to Mr Blood's evidence, was to demolish the original dwelling and subdivide the block into three allotments. This was what Mr Girgis eventually did in November 2011[656] before selling the properties derived from the block.
The Joondalup Property and the Watermans Bay Property were listed with FWR in late November 2008. The exclusive agency selling agreements were tendered in evidence.[657] Both are dated 28 November 2008. The Joondalup Property was specified to have an initial listing price of $2.6 million; the initial listing price for the Watermans Bay Property was $1.6 million. There was nothing in either agreement that specified that the ability to sell one property was interdependent with a sale of the other property.
Mr Poliwka's evidence was, however, that FWR's instructions from Allundy were that the Joondalup Property and the Watermans Bay Property had to be sold in the one transaction. However, the purchaser could decide how the total purchase price should be allocated between the two properties.[658] In oral evidence Mr Poliwka qualified this saying that the seller's instructions were that it was comfortable 'within reason' with an allocation between the two properties as long as the gross was met.[659]
Mr Poliwka also gave evidence that on obtaining the listings he (Mr Poliwka) thought of Mr Girgis straight away. Mr Girgis had previously informed Mr Poliwka that he (Mr Girgis) wanted to have an ocean front property. Accordingly, Mr Poliwka approached Mr Girgis about the two properties. Mr Poliwka gave evidence that he told Mr Girgis the two properties were a 'package deal' - he (Mr Girgis) could not buy one without the other.[660]
Mr Girgis confirmed that he was told that he (Mr Girgis) could not buy one property without the other.[661] Mr Girgis referred to it as a 'bundle';[662] but said that he was only really interested in the Watermans Bay Property.[663] The Watermans Bay Property was attractive to Mr Girgis because it was subdivisible and he (Mr Girgis) could potentially use the front block to build a residence on it.[664]
In any case, I accept that from the outset Mr Poliwka informed Mr Girgis that he (Mr Girgis) could not buy one property without the other (or words to that effect), ie the two properties were a package or bundle. That is the substance of both parties' evidence.
According to Mr Girgis, he was first informed of the two properties in a telephone call. Mr Girgis was informed of the nature of the two properties, that the Joondalup Property was a nightclub with an experienced operator as a tenant paying $160,000 in rent under a long-term lease, and that the Watermans Bay Property had subdivision potential. Mr Girgis gave evidence that Mr Poliwka said to him (Mr Girgis) that the deal was a 'lolly'. According to Mr Girgis, Mr Poliwka said that both properties could be bought for $4.5 million but were worth a million more than that ‑ so straight away Mr Girgis would be up a million dollars. Mr Girgis' evidence was also that Mr Poliwka said this was his way 'to make up for how bad the deal had gone' with the Midland Hotel and the Pub business.[665]
Initially Mr Girgis said he would have to think about it as he (Mr Girgis) was only interested in the Watermans Bay Property.
On Mr Girgis' evidence there was a subsequent meeting between him and Mr Poliwka. At this meeting, according to Mr Girgis' evidence, Mr Poliwka said it was a 'really good deal' and described it as an 'off-market transaction'. Mr Girgis also gave evidence that Mr Poliwka said that these deals do not come along that often and that 'he [Mr Poliwka] had done his due diligence'. According to Mr Girgis, Mr Poliwka said that the purchases fitted within the investment strategy, that he (Mr Poliwka) was considering it for himself, but that he (Mr Poliwka) wanted to give it to Mr Girgis because he (Mr Poliwka) felt bad for what had happened with the deal at Midland.[666]
Mr Girgis decided to make offers to purchase the properties. Mr Girgis' witness statement suggested that Mr Poliwka drew up a cash flow for each property on a piece of paper before he (Mr Girgis) decided to purchase the properties.[667] I do not accept that evidence. No document of that type was tendered in evidence. And the nature of the proposed purchases were not such as would suggest a detailed cash flow was required. Neither acquisition concerned a trading business. The only income being derived was rent. Expenses would be no more than property outgoings and interest (depending on whether the purchase price was financed).
A little more must be said in due course about the apportionment of the purchase prices between the two properties. Before that I must make findings as to whether Mr Poliwka made the alleged statements as to the Joondalup Property.
I accept that Mr Poliwka informed Mr Girgis that the Joondalup Property was leased to Bajo, as the operator of the nightclub, and that the rent was about $160,000 per annum. That was the fact. I also accept that Mr Poliwka said words to the effect that the tenant was an experienced operator. (There is, however, no evidence to suggest that Bajo and its guarantor, Mr Sprague, were not experienced nightclub operators.)
It is also likely, and I find, that at the time Mr Girgis offered to purchase the Joondalup Property he (Mr Girgis) was provided with a copy of the Bajo lease. Mr Girgis denied this in his witness statement.[668] Mr Girgis is mistaken in his recollection. The contract to purchase the Joondalup Property contains a special condition stating that the buyer acknowledges that the property is leased and included in parenthesis the words 'copy of lease attached'.[669] The special condition is initialled by Mr Girgis. As a matter of objective fact - given Mr Girgis' acknowledgement ‑ Mr Girgis was provided with a copy of the lease. In cross-examination Mr Girgis accepted that this is what the contract said and did not say that he never saw the lease at the relevant time.[670] Accordingly, to the extent that Mr Girgis denies in his witness statement that various other features of the lease were not drawn to his attention, I reject that evidence.[671]
Mr Poliwka is likely to have said that the purchases were a 'lolly'. When Mr Girgis gave this evidence it was obvious that he (Mr Girgis) had an actual recollection of the phrase employed, such was the unusualness of the expression. However, this statement is no more than context. It was not relied on as part of the pleaded misleading or deceptive conduct case.
I am, however, not satisfied that Mr Poliwka stated words to the effect that the two properties were worth a million dollars more than the $4.5 million they could be bought for. Such a statement is not even a pleaded allegation within the 19 alleged representations in the SOC. Had words to this effect been stated I would have expected them to have been alleged in the process of the plaintiffs, by their legal representatives, drafting the pleaded case in the SOC. There is otherwise a comprehensive account of all alleged statements attributed to Mr Poliwka (whether of material or of only passing significance). This evidence represents a reconstructed afterthought on the part of Mr Girgis. Supporting this conclusion is the suggestion that the two properties could be bought for $4.5 million. In fact the listing prices totalled $4.2 million.
Similarly, I am not satisfied that Mr Poliwka said words to the effect that he (Mr Poliwka) had done his due diligence and it was a really good deal that fitted within the investment strategy. Nor am I satisfied that Mr Poliwka said that he (Mr Poliwka) was considering the purchases for himself but wanted to give it to Mr Girgis as he (Mr Poliwka) felt bad for what had happened with the deal at Midland.
Mr Poliwka, through FWR, was the agent for Allundy as seller of the two properties. This was known to Mr Girgis.[672] As seller's agent it was not for Mr Poliwka to be doing due diligence for a prospective purchase. It is most unlikely that Mr Poliwka did so and implausible that Mr Poliwka said that he did so. Again, the likelihood is that Mr Girgis has a transferred memory about what Mr Poliwka said in the different context of the Midland Hotel and the Pub business. My conclusion in this respect is supported by Mr Girgis' inadequate recollection in other material respects as to what was said about and occurred in relation to the Joondalup Property and the Watermans Bay Property, eg the new memory as to the two properties being worth a million dollars more than the $4.5 million they could be bought for and the belief that Mr Girgis was not provided with the Bajo lease.
Mr Girgis' inadequate recollection provides a basis for not being satisfied that Mr Poliwka stated words to the effect that this was a really good deal that fit within the investment strategy. In this respect I also repeat my earlier observations as to Mr Girgis' recollection being tainted insofar as the alleged statements are put in a context of Mr Poliwka referring to the 'investment strategy'.
The suggestion that Mr Poliwka said he (Mr Poliwka) had thought about purchasing the properties for himself is another matter that has the hallmark of a reconstructed memory ‑ perhaps from some later discussion. It is coupled with a professed recollection that Mr Poliwka said to Mr Girgis that he (Mr Poliwka) wanted to give the opportunity to Mr Girgis because he (Mr Poliwka) felt bad with what had happened with the Midland Hotel and the Pub business. But it is implausible that either Mr Poliwka or Mr Girgis 'felt bad' about the Midland transactions at this time ‑ late November 2008 ‑ only five or six weeks at the most after completion of the initial transaction. In cross-examination Mr Girgis accepted that he did not want to get out of that deal (the Midland Hotel and Pub business) as soon as he (Mr Girgis) had got into it. It was not the case that throughout October 2008 to March 2009 he (Mr Girgis) would have loved to have gotten out of the investment.[673] Indeed, on Mr Girgis' evidence he considered the position to be relatively positive at the time of the Midland Hotel's reopening in mid-February 2009.[674] That is consistent with the contemporaneous documentary evidence.[675]
In forming my views on the reliability of Mr Girgis' evidence as to what was said by Mr Poliwka in connection with the Joondalup Property and Watermans Bay Property I have also had regard to the fact that Mr Girgis' oral evidence did not support the plaintiffs' pleaded case in material respects.
There was no evidence that Mr Poliwka stated that investing in the Joondalup Property would be profitable because of the rental income that would be received (cf SOC, pars 56.1.13, 56.1.14). Mr Girgis' oral evidence did not mention the word 'profitable'. Nor was evidence given that it was said that the Joondalup Property was leased to a 'good tenant' that operated several successful nightclub and pub businesses (cf SOC, pars 56.1.8, 56.1.10). The most said in evidence was that Mr Poliwka said that the tenant was an experienced operator.[676]
The only one of the five pleaded alleged representations, as pleaded to have constituted misleading or deceptive conduct,[677] which was potentially established on the evidence was the alleged statement that Mr Poliwka was aware of a good opportunity to invest in some land (SOC, par 56.1.1). The difficulty in accepting that there was a representation in those bald terms is that the pleader goes on to state that the land was the Joondalup Property (SOC, par 56.1.2 ‑ see also SOC pars 56.1.17 - 56.1.18). But the common evidence of Mr Girgis and Mr Poliwka ‑ confirmed by the eventual sale contracts as described below (see pars 688 to 694 below) ‑ is that the opportunity was to purchase both the Joondalup Property and the Watermans Bay Property as a package or a bundle: Mr Girgis could not purchase one property without the other. Accordingly, as was confirmed by Mr Girgis' oral evidence, the 'opportunity' was to purchase both properties ‑ not just the Joondalup Property.
The 'good opportunity' (or the 'lolly' or 'good deal'[678]) was thus to acquire both properties, not just the Joondalup Property. On the evidence as a whole the plaintiffs have not established the alleged representation as pleaded, namely, that Mr Poliwka was aware of a good opportunity to invest in some land, namely, the Joondalup Property.
For reasons I will come to the potential purchase of the Joondalup Property and the Watermans Bay Property did represent a good opportunity.
The contracts to purchase the Joondalup Property and the Watermans Bay Property were tendered in evidence.[679]
Both contracts are dated 1 December 2008 with Girgis Nominees as buyer and Allundy as seller. The Joondalup Property contract provided for a purchase price of $2.565 million and the Watermans Bay Property contract provided for a purchase price of $1.6 million ‑ $4.165 million in total. The contracts contained an attachment whereby FWR disclosed its interest (as to the association between FWR and Mr Poliwka with the buyer) and Allundy consented to FWR's involvement as agent.
The Joondalup Property contract contains a special condition F:

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Mr Poliwka's evidence, which I accept, is that these special conditions were not in his handwriting[680] (unlike the other special conditions and the contracts more generally). Mr Poliwka gave evidence, which I accept, that this was the writing of the seller's representative and that the seller added the condition to make the contracts and their sale and settlement simultaneous.[681] Mr Poliwka's evidence is consistent with the contemporaneous documentary evidence and Mr Girgis' recollection that the sales were a bundle. The sequence of events must have been that Mr Poliwka prepared the offers, they were signed and presented, and Allundy did not accept the offers as prepared by Mr Poliwka but instead counter-offered by adding the special conditions. Mr Girgis, for Girgis Nominees, then accepted the counter-offer. Allundy added the special conditions so that the dealings were consistent with its instructions - and Mr Poliwka's and Mr Girgis' prior understanding - that the two properties were a package and had to be sold together.
Accordingly, I find that the purchase of the Joondalup Property and the Watermans Bay Property was a package: Mr Girgis (or Girgis Nominees as the nominated entity making the offers) could not buy one property without also buying the other. That did not mean that Mr Girgis had to retain both properties. Mr Girgis accepted in cross-examination that there was nothing that prevented him from putting the Joondalup Property back on the market once the transactions had completed.[682]
Mr Girgis gave evidence, and I accept, that in apportioning the purchase price between the two contracts Mr Poliwka recommended that more value be placed on the Joondalup Property as the commercial property.[683] That made commercial sense as interest on borrowings in that respect would be deductible against the rent derived from the property. As Mr Girgis said, the purchase prices were 'allocated'[684] - later stating that the price for Watermans Bay Property was 'the price we [ie Mr Girgis and Mr Poliwka] were allocating to it'.[685] This accentuates that the two purchases ought to be considered as a single transaction. Moreover, it establishes that the purchase price paid for the Joondalup Property was not independent of the purchase price paid for the Watermans Bay Property.
It will be apparent from the findings that I have already made that I do not accept that, during October and November 2008, Mr Poliwka advised the plaintiffs to the effect that Girgis Nominees as trustee for the Girgis Property Trust should invest in the Joondalup Property by purchasing it as a going concern at a purchase price of $2.565 million (cf SOC, pars 56.3.1 and 56.3.2).
Advice was provided. But it was not advice solely in the context of the purchase of the Joondalup Property. The advice was about purchasing and investing in both the Joondalup Property and the Watermans Bay Property. That is advice that is different in nature and substance from the alleged advice that the plaintiffs rely on in their pleaded case under par 56.3 of the SOC. In connection with the advice to purchase the Joondalup Property and the Watermans Bay Property as a package or bundle there was advice as to the apportionment of the aggregate purchase price across the two properties. But that too cannot be construed as advice to purchase and invest in the Joondalup Property alone at a purchase price of $2.565 million. It was merely advice as to apportionment.
A number of non-disclosure matters were pleaded. Some - if disclosed - would have had no effect on subsequent events; for example, details as to the prior ownership of the Joondalup Property[686] and an earlier Bajo lease.[687] So too the circumstance that FWR was the leasing agent for Allundy with respect to the Joondalup Property.[688] Insofar as aspects of the Bajo lease were said to be undisclosed[689] that is incorrect. Mr Girgis was provided with the Bajo lease (see par 676 above).
One matter that might ordinarily have been material to decision-making was that Allundy had purchased the Joondalup Property only 15 months earlier for $1.2 million,[690] an amount substantially less than the purchase price to be paid by Girgis Nominees. The significance of that matter is, however, greatly reduced when it is appreciated that the available investment opportunity was to purchase both the Joondalup Property and the Watermans Bay Property together and the two purchase prices were allocated rather than being separately negotiated at arms' length from one another. The purchase of the two properties, at their combined purchase price, was sufficiently attractive that I am satisfied on the balance of probabilities that Mr Girgis would have proceeded with the transactions even if he was aware of the most recent sale price for the Joondalup Property. Doing so would have been economically rational and in Mr Girgis' interests.
On behalf of Girgis Nominees, Mr Girgis applied for, and obtained, an offer of finance to assist in the purchase of the Joondalup Property.[691] (Of the two contracts to purchase only the Joondalup Property contract was subject to finance.) The offer of finance was subject to the grant of a mortgage over both properties. It was also subject to a condition precedent that a valuation report be obtained confirming that the secured properties had a valuation not exceeding an 80 per cent loan to value ratio. Mr Girgis arranged for the valuation through CB Richard Ellis. The valuation dated 16 December 2008 assessed that the Watermans Bay Property had a value range of $3.6 million to $4.1 million, adopting a mid-range of $3.9 million.[692]
Mr Girgis confirmed that it was likely that he received a copy of the CB Richard Ellis valuation at about the time it was undertaken.[693] Accordingly, Mr Girgis knew of the assessed value of $3.9 million for the Watermans Bay property before completion of the two purchases.
No pre-settlement valuation was obtained for the Joondalup Property. But Mr Girgis obtained a valuation from Egan Valuers in March 2009. This valued the Joondalup Property as having an assessed market value for security lending purposes at $2.25 million as at 10 March 2009.[694] Mr Girgis was aware of that at the time and, despite appreciating that this amount was less that what had been paid for the property, did not raise any concerns with Mr Poliwka.[695] In cross-examination Mr Girgis accepted that he did not do so because the purchase price for the Watermans Bay Property was substantially less than its assessed market value.[696]
Settlement of the two dealings was completed on 2 February 2009.
The contemporaneous valuations of the Joondalup Property and the Watermans Bay Property are themselves suggestive that the potential purchase of the Joondalup Property and the Watermans Bay Property represented a good opportunity. However, those valuations were not adduced as evidence of their contents. Instead I may (and do) rely on Mr Cameron's valuation of the Joondalup Property ($2 million as at 1 December 2008 and 2 February 2009)[697] and Mr Blood's valuation of the Watermans Bay Property ($3.7 million as at 1 December 2008 and $3.65 million as at 2 February 2009).[698] Accordingly, for a combined outlay of $4.165 million Girgis Nominees purchased the two properties with a combined market value of around $5.65 to $5.7 million.
Viewed as a single transaction ‑ as is prima facie the case when the evidence establishes that Girgis Nominees had to purchase both properties together or neither of them ‑ the plaintiffs had nothing to complain about in relation to Girgis Nominees' purchase of the Joondalup Property and the Watermans Bay Property.[699] The opportunity to purchase for $4.165 million two properties with a combined market value of $5.65 to $5.7 million is objectively a good opportunity.
I will have to deal with some further transactions concerning the Joondalup Property later. For now, however, it is common ground that Girgis Nominees retained the Joondalup Property until it was sold pursuant to a 26 September 2013 agreement to a third party. The sale price was $1.885 million plus GST (SOC, pars 110 - 111; DAC, pars 110 - 111). The Watermans Bay Property was subdivided into three lots that were sold. The sales were effected over February to March 2013 for a consideration totalling $2,695,000.[700]

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The plaintiffs pleaded a series of alleged representations in late February to May 2009 under the heading 'Taking over Management of the Pub business' (SOC, par 29).
Mr Girgis' evidence on this aspect of the case was sparse. Mr Girgis said that the plan had been that Mr Caporn was going to run everything (ie the Midland Hotel and the Pub business) with the assistance of a senior employee. However, shortly after the re-opening Mr Poliwka expressed concerns and he (Mr Poliwka) was not happy with Mr Caporn's management. Mr Girgis made mention of the expenses and management style.[701]
According to Mr Girgis, Mr Poliwka said that they (Mr Girgis and Mr Poliwka) should buy Mr Caporn out and control the Pub business 100 per cent. Mr Poliwka said that he (Mr Poliwka) was more than capable of running and operating the Pub business. Mr Poliwka would oversee management and external managers would be hired to run the Pub business as occurred in his other hotel interests at Nannup and Albany.[702]
At this point it is convenient to deal with two alleged non-disclosure matters.
The plaintiffs alleged that Mr Poliwka's expertise in operating his pub business at Nannup included closing it because of an industrial dispute and running it at a loss (SOC, par 30A.1). That allegation was not established by any evidence.[703] It was also alleged that Mr Poliwka did not own and operate a pub business in Albany (SOC, par 30A.2). That allegation was established. The Albany premises were owned by Mr Poliwka (or a related entity) but tenanted;[704] Mr Poliwka neither owned nor operated the pub business at Albany. However, Mr Girgis' evidence was that Mr Poliwka had said that he (Mr Poliwka) owned and operated hotels at both Nannup and Albany.[705]
I consider that, had it been disclosed that the Albany hotel was tenanted rather than being operated by Mr Poliwka, nothing would have changed. Mr Poliwka operated the Nannup hotel. That alone ‑ combined with the trust and confidence Mr Girgis reposed in Mr Poliwka generally ‑ would have been sufficient for Mr Girgis' purposes. Mr Poliwka had relevant practical experience and expertise as a hotelier.
This part of the plaintiffs' non-disclosure case fails.
It was in the context of the discussion about taking over the conduct of the Pub business that Mr Girgis said in his oral evidence-in-chief that, at this time, Mr Poliwka stated that the Midland Hotel and the Pub business had a value of $4.5 million to $5 million. Mr Girgis was asked whether a reason was given for this value. Mr Girgis said that Mr Poliwka referred to the long-term lease and the 'fully operational business'.[706]
I accept that there was a conversation between Mr Poliwka and Mr Girgis about terminating the relationship with Mr Caporn. Also, as part of that conversation, that management of the operations of the Pub business would be overseen by Mr Poliwka. That is what happened. But I do not accept that this conversation segued into Mr Poliwka providing an unsolicited opinion as to the then market value of the Midland Hotel and the Pub business.
The evidence itself takes this form:

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Accordingly, initially there was no recollection of the alleged statement as to the then value of the Midland Hotel and the Pub business. That only arises after direction from the examiner. And when the evidence is extracted it simply echoes what was alleged to have been said on two earlier occasions[708] and is out of place in the context of the conversation as a whole. I am unable to accept that this is evidence of actual recollection. The manner in which the evidence was given is in stark contrast to Mr Girgis' specific recollection of Mr Poliwka's September 2008 statements as to having conducted due diligence. Rather, in my opinion, this is an illustration of memory being overlaid by the litigation and what could have been said.
It was common ground that, with effect from 31 May 2009, Mr Caporn ceased to be a director of Bold Gem. In mid-October 2009 Girpol became the sole shareholder in Bold Gem and the sole unit holder in the Bold Gem Unit Trust. Girpol paid Caporn Nominees Pty Ltd $14,000 for its 20 shares and units. Thereafter Bold Gem continued to conduct the Pub business under the control of Girpol.[709]
Based on these findings the plaintiffs have failed to establish their pleaded case as to the alleged representations said to constitute misleading or deceptive conduct in relation to taking over the management of the Pub business.
I have rejected Mr Girgis' evidence that Mr Poliwka stated that the Midland Hotel and the Pub business had a value of $4.5 million to $5 million. It follows that the alleged representation pleaded at par 29.1 of the SOC is not made out. The evidence was, in any event, not consistent with the pleaded representation. The pleaded allegation was that it was represented that the value of the Midland Hotel was approximately $5 million, not $4.5 million to $5 million. The inconsistency between the pleaded allegation and Mr Girgis' evidence provides another reason to reject Mr Girgis' evidence.
There was no evidence to support the alleged representation that it would be profitable, alternatively, would not be unprofitable, to take over the conduct of the Pub business (cf SOC, par 29.1.4). The plaintiffs' post-trial evidentiary note deleted reference to this alleged representation.
The last of the alleged representations said to constitute misleading or deceptive conduct was that Mr Poliwka represented that he (Mr Poliwka) was confident that he could cause the Pub business to be operated successfully (SOC, par 29.1.3.4). In the plaintiffs' post-trial evidentiary note reliance was placed on two transcript references outside the pleaded timeframe of the alleged representation.[710] Otherwise only one transcript reference was relied on as making out the alleged representation.[711] The highest that this evidence took the alleged representation was that Mr Poliwka stated that he (Mr Poliwka) was more than capable of running and operating the Midland Hotel and Pub business by running it with employed managers as with Mr Poliwka's other hotel interests. That does not amount to a representation that Mr Poliwka would cause the Pub business to be operated successfully; it was concerned with Mr Poliwka's capability rather than whether the Pub business would be successful.
I accept, however, that Mr Poliwka advised Mr Girgis ‑ in substance ‑ that Mr Girgis and Mr Poliwka (with their respective entities) should take over the conduct of the Pub business (SOC, par 29.2). That is what happened. On Mr Caporn's departure there were only two directors of Bold Gem: Mr Poliwka and Mr Girgis. Girpol also held 100 per cent of the shares and units associated with Bold Gem. Apart from the departure of Mr Caporn this only had one other substantial consequence: Girpol paid $14,000 to Mr Caporn's company.

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In addition, FWR had duties to collect rents (cl 3.1.1), negotiate leases (cl 3.1.5) and terminate leases and tenancies with the consent of Girgis Nominees (cl 3.1.6).
By 13 August 2009 Bajo was in arears of its rent.[713]
Mr Girgis' evidence was that within a few months of purchasing the Joondalup Property he received a telephone call from Mr Poliwka. Mr Poliwka informed him that Bajo, the tenant, was having issues meeting its rent payments. Mr Poliwka then recommended that Mr Girgis let Bajo out of its lease ‑ or surrender its lease ‑ and that he (Mr Poliwka) should look for another tenant that could pay the same sort of rent for the property ‑ the terms would not be any less favourable than the existing lease. Mr Girgis said that he (Mr Girgis) told Mr Poliwka that he (Mr Girgis) would leave it to Mr Poliwka. The only other specific recollection that Mr Girgis attributed to Mr Poliwka at this point was that Mr Poliwka said to Mr Girgis that there was no need to get any legal advice.[714]
Mr Poliwka had a recollection that at some stage Bajo was locked out of the Joondalup property for non-payment of rent.[715]
More generally, however, the tenor of Mr Poliwka's evidence was that he was not personally involved in dealing with Bajo's default.[716] Instead, the management of the Joondalup Property was in the hands of FWR's commercial property managers. Beyond that, by his witness statement, Mr Poliwka's evidence consisted of uncorroborated assertions as to FWR's standard practice.[717]
I accept Mr Girgis' evidence. Given the nature of the relationship between Mr Girgis and Mr Poliwka it is unlikely that Mr Poliwka would have left a communication of this nature to a commercial property manager. Indeed, while in examination-in-chief Mr Poliwka stated that he personally would not have been involved,[718] in cross-examination Mr Poliwka stated that he discussed the issues concerning Bajo's default with Mr Girgis on a number of occasions.[719] The likelihood is that there was a discussion between Mr Girgis and Mr Poliwka. Insofar as Mr Girgis' oral evidence-in-chief on this subject was not the subject of any serious challenge in cross-examination - and the evidence is plausible in its content and context - it should be accepted.
Otherwise Mr Girgis gave evidence, and I accept, that he did not obtain legal advice as to whether the Bajo lease should be surrendered.[720]
Mr Girgis gave unchallenged evidence that he was not told by Mr Poliwka that: (1) Girgis Nominees did not have to terminate the Bajo lease; (2) Girgis Nominees could seek some consideration for agreeing to terminate the Bajo lease; (3) if Girgis Nominees did not terminate the Bajo lease, Bajo and its guarantor would remain liable; and (4) Girgis Nominees would have claims against Bajo and its guarantor Mr Sprague for all defaults in relation to the Bajo lease.[721] I accept that evidence. But Mr Girgis went on to say that he was otherwise unaware of those matters.[722] I do not accept that evidence. By this stage, nearly two years after the Oz Lotto win, Mr Girgis had acquired a degree of commercial sophistication. It would have been obvious to Mr Girgis that Bajo and its guarantor would remain liable under the lease unless Girgis Nominees agreed to the contrary. Equally it would have been obvious to Mr Girgis that Girgis Nominees did not have to agree to the termination of the Bajo lease. Why else was Mr Poliwka seeking Mr Girgis' instructions? And, as Girgis Nominees did not have to agree to the termination, it would have been obvious to Mr Girgis that he ‑ for Girgis Nominees ‑ could insist on some payment as a condition for agreeing to the surrender.
What might have happened had Girgis Nominees not agreed to the surrender of the Bajo lease ‑ or sought some consideration as a condition of the surrender of the Bajo lease ‑ is entirely a matter of conjecture. No evidence was adduced as to the available assets and liabilities of Bajo and Mr Sprague. The most that can be said is that Bajo was in arrears of its lease payments (owing $40,851.38 as at mid-August 2009) and had been locked out of the Joondalup Property for non-payment of rent on at least one occasion.
I am not satisfied ‑ based on that evidence ‑ that the plaintiffs have proven on the balance of probabilities that Bajo or Mr Sprague had sufficient financial capacity to continue to meet the obligations under the Bajo lease or to make any substantial payment as a condition of obtaining a surrender of the Bajo lease. The plaintiffs have not established, in this respect, that there was an opportunity of any real (as opposed to theoretical) value.
Much later a deed of surrender of lease was prepared and executed by Bajo in relation to the Joondalup Property.[723] The deed is undated but must have been executed after 11 May 2010 as its intended execution is referred to in an email of that date.[724] The deed was prepared by solicitors. (There is nothing in the evidence suggesting that the solicitors gave Girgis Nominees any advice about the deed of surrender.) The instrument provided for a surrender of the lease in relation to the Joondalup Property as and from 30 September 2009. Bajo and its guarantor (Mr Sprague) remained liable for their obligations up to that date.
The solicitors who prepared the deed of surrender also prepared a new lease for the Joondalup Property.[725] The tenant under the new lease was JEPL. The new lease was dated 25 February 2010 but had a commencement date of 1 November 2009. Based on the deemed surrender date and the commencement date it could be inferred that Bajo left the premises on 30 September 2009 and JEPL commenced in occupation on 1 November 2009. However, item 11(1) of the schedule to the lease provided for JEPL to take early possession from 1 October 2009. Accordingly, I find that JEPL commenced in occupation on 1 October 2009 but then enjoyed one month free rent.
The rent under the new lease with JEPL was $160,000 per annum with annual CPI rent reviews pending an optional renewal of the lease with effect from 1 November 2012. Given that there had already been one CPI review to Bajo's lease this meant that the rent under the JEPL lease was marginally less than the rent under the Bajo lease.
Mr Girgis gave very brief oral evidence about the circumstances in which he agreed to lease the Joondalup Property to JEPL.
Mr Girgis said that Mr Poliwka telephoned him. Mr Poliwka informed him (Mr Girgis) that there were three parties who were interested in leasing the Joondalup property. One of those was JEPL. According to Mr Girgis, Mr Poliwka stated words to the effect that he (Mr Poliwka) had done his due diligence and looked into them and thought they (JEPL) would be a fit tenant to take over from Bajo. Mr Poliwka then recommended that the Bajo lease be surrendered and that a new lease be entered into with JEPL.[726]
In his oral evidence Mr Poliwka said that he had no such discussion with Mr Girgis. Mr Poliwka said, however, that he (Mr Poliwka) had a discussion with the parties from JEPL leading up to the change in tenant. In that regard Mr Poliwka had a recollection that JEPL had already purchased the nightclub business of Bajo. (Mr Poliwka also referred to meeting with the representative of the proposed new tenant, JEPL, in his witness statement - but had limited recollection of the details of the conversation.)[727] Mr Poliwka went on, however, to say that he (Mr Poliwka) then had a discussion with Mr Girgis and left the operational aspect of the change in tenant to one of FWR's staff.[728]
Accordingly, Mr Poliwka contradicted himself: he did have a conversation with Mr Girgis about replacing Bajo as tenant with JEPL.
Again, I accept Mr Girgis' evidence as to the substance and effect of this further conversation with Mr Poliwka. The evidence is plausible in its content and context. In particular, so far as Mr Girgis recalls Mr Poliwka referring to having done due diligence, and JEPL being a fit tenant, Mr Girgis' recollection of the term 'due diligence' is consistent with FWR's obligation to use due diligence and best endeavours under the exclusive agency authority. It is unremarkable that in justifying a recommendation Mr Poliwka would adopt and echo the words of FWR's obligation under the exclusive agency authority. And in referring to JEPL as a 'fit tenant' Mr Poliwka was making an observation based on the meeting he (Mr Poliwka) accepts he had with the then principals of JEPL.
Also, as with the first telephone conversation recounted by Mr Girgis as to the change in tenancy, Mr Girgis' account of this second telephone conversation was not seriously challenged in cross-examination.
In cross-examination Mr Poliwka said that he (Mr Poliwka) did not do any due diligence as to JEPL and its proposed guarantors. But Mr Poliwka then said that 'in fact most of my staff were involved'.[729] What was meant by that, and whether it meant that there was some due diligence, was not further explored in cross-examination or re-examination.
The materials available on FWR's file as to the due diligence conducted by FWR as to JEPL consisted of (and only of):[730]
- a statement of assets and liabilities for a Gary Young.[731] (Mr Young was proposed as a guarantor under a draft of the JEPL lease. However, as I discuss further below, Mr Young never executed the guarantee to the JEPL lease);
- financial statements for a business associated with another of the guarantors, Vali Bulobin trading as Atlantic Machinery;[732] and
- a business card for the remaining guarantor, Hossam Boksmati.[733]
Mr Young's asset and liability statement showed a healthy surplus of assets over liabilities (over $3 million). However, Mr Bulobin's financial statements showed modest profits (less than $40,000 per annum for the previous two years) and limited readily available assets. Nothing can be discerned from Mr Boksmati's business card.
No evidence was adduced as to why Mr Young did not provide a guarantee in respect of JEPL's lease. The most said by Mr Poliwka was that 'he [Mr Young] dropped away'.[734] That is odd insofar as Mr Poliwka had said that Mr Young was the major party behind JEPL seeking the lease of the Joondalup Property.[735] An ASIC search in relation to JEPL reveals that Mr Young's shares in JEPL were transferred to Mr Bulobin in late January 2010 (it also shows that JEPL was only incorporated on 21 August 2009).[736] However, Mr Girgis must have known that Mr Young was not to be a guarantor. In the JEPL lease Mr Girgis has initialled the deletion of the signing clause in respect of Mr Young. Also, Mr Girgis does not say that he was never informed that Mr Young was no longer to be a guarantor. Mr Girgis must have been prepared to execute the JEPL lease on Girgis Nominees' behalf notwithstanding that one of the proposed guarantors, Mr Young, was no longer to be a guarantor.
Mr Girgis gave evidence by witness statement, and I accept, that he (Mr Girgis) was never informed of the respective net asset positions of JEPL, Mr Young, Mr Bulobin or Mr Boksmati.[737] There is nothing to suggest that Mr Girgis received any concrete information as to the financial position of any of JEPL or the three proposed guarantors. No contradictory evidence in this respect was adduced by the defendants. Nor was Mr Girgis challenged on this aspect of his witness statement evidence in cross-examination. In any case no evidence was adduced as to FWR obtaining any information as to the net asset position of JEPL or Mr Boksmati. Nor, beyond the statements provided to FWR by Mr Young and Mr Bulobin, was there any evidence as to those two proposed guarantors' actual financial position.
Based on the findings I have made in this section of my reasons the plaintiffs have proven a number of the key alleged representations relied on for the misleading or deceptive conduct plea in par 87A of the SOC.
Mr Poliwka represented that it would be better for Girgis Nominees as trustee of the Girgis Property Trust to replace Bajo with another tenant rather than to continue to lease the Joondalup Property to Bajo (SOC, par 84.1.2). However, given Bajo's default, there was nothing misleading or deceptive or likely to mislead or deceive about that representation. Mr Poliwka also represented that he had conducted due diligence investigations in relation to JEPL and was satisfied with his findings (SOC, par 84.1.7). So too there was a representation that the terms of the JEPL lease would be no less favourable to Girgis Nominees as landlord than the terms of the Bajo lease (SOC, par 84.1.9).
The last of those representations - a representation as to a future matter ‑ did not come to pass. The CPI rent review in the Bajo lease meant that there was a slightly higher rental under the Bajo lease as compared to the JEPL lease. But the difference was minimal. As pleaded the rent under the Bajo lease for the period from 1 August 2009 was $162,240 plus GST per annum,[738] ie only $2,240 more than the JEPL lease. On the balance of probabilities I consider it is more likely than not that Mr Girgis would have proceeded with the surrender of the Bajo lease, and entry into the JEPL lease, even if he (Mr Girgis) was aware of the $2,240 differential. Doing so would have been commercially prudent given Bajo's default and Mr Poliwka's recommendation of JEPL as a fit tenant to take over from Bajo. Mr Girgis' evidence was that the new tenant was to be one that could at least pay 'the same sort of value' for the property.[739] I consider that Mr Girgis was not the sort of person who would have quibbled over $2,240 per annum: the rental under the two leases was the same sort of value. Accordingly, the representation as to the terms of the two leases did not cause or materially contribute to the events that followed.
The plaintiffs also made out the representation that it was unnecessary to obtain legal advice before deciding whether, and on what terms, to alter the leasing arrangements in relation to the Joondalup Property (SOC, par 84.1.8). But there was no evidence (expert or otherwise) as to what legal advice would have been provided. For reasons already given I am satisfied that Mr Girgis was aware of the fundamentals so far as potential surrender was concerned and that, in any case, the plaintiffs have not proven that Bajo and Mr Sprague had sufficient financial capacity to continue to meet the obligations under the Bajo lease or make any substantial payment as a condition of obtaining a surrender (refer to pars 732 - 734 above). Perhaps legal advice might have been given which saw additional due diligence as to the financial capacity of JEPL and its proposed guarantors. In the absence of evidence, however, this is no more than a matter of conjecture. It is also no part of the plaintiffs' pleaded case.
Accordingly, the plaintiffs have not proven that the representation that it was unnecessary to obtain legal advice caused or materially contributed to the events that followed, ie the surrender of the Bajo lease and the grant of the JEPL lease.
The plaintiffs' pleaded case also relied on an alleged representation that JEPL would be a better tenant than Bajo (SOC, par 84.1.6). That alleged representation has not been proven. Based on Mr Girgis' oral evidence I have only found that Mr Poliwka stated words to the effect that JEPL would be a fit tenant to take over. There was no comparison of JEPL as against Bajo. Insofar as there was no pleaded alleged representation to the effect of my finding this statement - despite any possible significance - cannot give rise to liability on the plaintiffs' pleaded case.
The plaintiffs have also established key aspects of their pleaded case as to the alleged advice in relation to the surrender of the Bajo lease and the grant of the JEPL lease.
It goes too far to find that Mr Poliwka advised the plaintiffs that they should agree to Mr Poliwka causing the Bajo leased to be terminated and the Joondalup Property leased to a new tenant in whatever manner and on whatever terms Mr Poliwka and FWR saw fit (cf SOC, par 84.2.1). Mr Girgis' evidence was that he (Mr Girgis) told Mr Poliwka that he (Mr Girgis) would leave it to Mr Poliwka. But there was no evidence supporting a conclusion that this is what Mr Poliwka advised Mr Girgis or Girgis Nominees to do. And, contrary to such a conclusion, Mr Poliwka sought Mr Girgis' instructions and said that the terms for a new lease would not be any less favourable than the terms of the existing lease with Bajo.
I accept, however, that Mr Poliwka advised the plaintiffs that they should agree to the Bajo lease being terminated on the terms of or on terms similar to the Bajo surrender (SOC, par 84.2.2). So too Mr Poliwka advised the plaintiffs that they should agree to the Joondalup Property being leased to JEPL on the terms of or on terms similar to the JEPL lease (SOC, pars 84.2.2, 84.2.3). Advice to this effect is conformable with the statements grounding the representations as established and the objective facts - the surrender of the Bajo lease and the grant of the JEPL lease at a time when FWR was the managing agent of the Joondalup Property and contractually responsible for such matters.
Much evidence, both in the form of the witness statements[740] and numerous documents, was adduced as to JEPL's eventual default under its lease and the protracted proceedings undertaken to re-take possession and seek recovery against JEPL, Mr Bulobin and Mr Boksmati. It is unnecessary to recount all that evidence. By mid-June 2010 JEPL fell into arrears.[741] For some time the arrears continued in varying amounts and on at least one occasion JEPL was locked out of the Joondalup Property. FWR engaged lawyers on Girgis Nominees' behalf in June 2011. By March 2012 Mr Girgis and Mr Poliwka were discussing terminating JEPL's lease. Termination steps commenced in late March 2012 and District Court proceedings were issued on 25 April 2012. On 6 July 2012 the District Court made a declaration to the effect that the JEPL lease was terminated on 4 April 2012. On 7 August 2012 judgment was entered for Girgis Nominees in the amount of $22,896.27 (as to unpaid rent and outgoings) with damages and costs to be assessed. No damages were assessed pursuant to that judgment.
Girgis Nominees was unable, however, to obtain possession of the Joondalup Property until mid-September 2012. On re-taking possession of the Joondalup Property it was apparent that fixtures and fittings had been removed and the property itself had been damaged. Ms Patience described the Joondalup Property as being 'in an appalling condition' with exposed electrical wiring and leaking plumbing.[742]
Proceedings in this court were issued on 1 May 2013 against JEPL, Mr Bulobin and Mr Boksmati. On the pleadings it is agreed that judgment has been entered in favour of Girgis Nominees against JEPL and its guarantors as follows (SOC, par 107; DAC, par 107):

[336]

There was no evidence before me that the required restoration works were ever carried out before the 26 September 2013 sale of the Joondalup Property. It is possible to infer that no such works were carried out at Girgis Nominees cost. In the particulars to par 100.1 of the SOC the plaintiffs say only that 'a reasonable estimate of the cost' is not less than $578,507.50 plus GST as itemised in a schedule to the SOC. The schedule contains a series of costs in rounded amounts. Accordingly, the schedule ‑ as is suggested by the description 'reasonable estimate' ‑ provides for an anticipated costing rather than actual costs incurred.
The inference that the restoration works were not carried out before the 26 September 2013 sale of the Joondalup Property is confirmed insofar as the plaintiffs, by their counsel in oral closing submissions, stated that the Joondalup Property was not restored before it was sold.[744]
There was, however, no evidence to verify that the $578,507.50 plus GST as itemised in the schedule to the SOC is a reasonable estimate of the costs that Girgis Nominees would have incurred in restoring the Joondalup Property on re-taking possession of it. The judgment as obtained as against JEPL and its guarantors is insufficient; the defendants were not party to those proceedings and are not bound by the outcome in the proceedings. Nor, so far as the plaintiffs seek to quantify loss by reference to a reduction in sale price caused by JEPL yielding up possession in poor condition,[745] is there specific evidence to ground a finding that the $1.885 million plus GST sale figure was adversely affected by the condition of the property; and, if so, to what extent. (The plaintiffs initially suggested in the alternative that the estimated costs informed the reduction in the sale price due to the condition of the Joondalup Property[746] but subsequently informed the court that par 100.A of the SOC was inapplicable as to this damages quantification and the particular relied on was sub-par A to par 113.2 of the SOC.)[747]
The condition of the Joondalup Property may or may not have been material to its eventual sale price. Mr Cameron's evidence was that by the time of his 2016 inspection the premises had been converted into offices.[748] The fact that the premises were no longer suitable for use as a nightclub - due to the non-restoration and make good by JEPL ‑ may have been entirely irrelevant to the eventual purchaser and a matter that had no substantial effect on the sale price. In short, whether the condition of the Joondalup Property had a material impact on the sale price of the property in late September 2013 is a matter of conjecture not addressed in evidence adduced before me at trial.
There is simply a gap or deficiency in the evidence in these two respects.
Following the judgments against them, Mr Bulobin and Mr Boksmati became bankrupt. The plaintiffs admit that, following the bankruptcy of Mr Bulobin, Girgis Nominees recovered an amount of $38,051.34 (SOC, par 109A). Otherwise no recovery has been made. An ASIC search of JEPL as at 25 March 2014 shows that as from 15 November 2012 that company was subject to a strike-off action in progress.[749] Based on that evidence I accept that there is no prospect that Girgis Nominees will recover any of the damages it has been awarded against JEPL.
The plaintiffs pleaded, and the defendants admitted, that Girgis Nominees incurred legal expenses in re-taking possession of the Joondalup Property and pursuing the recovery action against JEPL and its guarantors (SOC, pars 101, 108.3; DAC, pars 101, 108). Those costs are quantified in par 113.F of the SOC at an amount of $193,292.30. Bundles of tax invoices from Solomon Brothers (the plaintiffs' lawyers) were tendered in evidence.[750] With respect to another firm, however, all that was tendered was a one page schedule headed 'Girgis Group - Mossensons Costs' with no real indication of the document's provenance.[751]
In closing counsel for the defendants submitted that the Solomon Brothers' invoices were insufficient to prove the costs as the tax invoices did not include a schedule describing the work done (such a schedule being mentioned on each tax invoice).[752] I do not accept that submission. The tax invoices state the subject matter of the work done. On the pleadings there was an admission that legal costs had been incurred. The tax invoices provide satisfactory proof that the legal costs as charged (and therefore paid) for the subject matter as stated are those set out in the tax invoices.
I have gone through the bundle of Solomon Brothers' tax invoices. All of the particularised tax invoices in relation to the Supreme Court action and appeal, together with enforcement of the judgments, are vouched for other than a $451.30 invoice dated 2 April 2014.[753] These total $133,116.50.[754] So too the costs of the bankruptcy proceedings against Mr Bulobin in the amount of $8,159.77 are vouched. There are also three 2014 tax invoices in relation to the District Court action against JEPL totaling $10,092.03.[755]
The schedule headed 'Girgis Group ‑ Mossensons Costs' specifies dates and amounts that are identical to the remaining dates and amounts in par 113.F of the SOC so far as the schedule groups amounts in relation to the District Court action against JEPL. (The schedule also refers to a further 31 July 2012 invoice in an amount of $6,916.46.) I accept that the document is a business record of some description and has been tendered by the plaintiffs without objection. But in the absence of an explanation of the provenance of the document I am not prepared to place any weight on the contents of the document. Evidence is to be weighed according to the proof which it was within the power of one side to have produced.[756] No reason was advanced as to why the plaintiffs were incapable of adducing incontrovertible proof of the legal costs incurred, and payment thereof, by Girgis Nominees. Doing so ought to have been reasonably simple. All that was required were the tax invoices and payment remittances. I am not willing to place weight on the schedule - unexplained as it is by any other evidence - in circumstances where the plaintiffs bear the onus of proof and Girgis Nominees was well able to lead evidence that addressed the question comprehensively.
Accordingly, I find that the plaintiffs have proven that Girgis Nominees incurred legal expenses in re-taking possession of the Joondalup Property, and pursuing recovery action against JEPL and its guarantors, in an amount of $151,368.30.[757]

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Separately, as also mentioned earlier, on 9 December 2008 $400,000 was advanced by each party to Girpol to enable it to complete the purchase of the Moonlight Express (refer to par 635 above).
Mr Girgis gave oral evidence, which I accept, that Mr Poliwka informed him (Mr Girgis) that they would have to inject some money into the Pub business and the Charter business to get them going. That is what happened. Accordingly, the statement is consistent with the objective facts. According to Mr Girgis this was said not long after getting into the Pub business and the Charter business as they were funding the businesses from early on.[759]
Mr Girgis also gave evidence that Mr Poliwka said that the businesses were going to make more than enough money to repay the money that Mr Girgis and Mr Poliwka loaned into them.[760] I also accept this evidence. It was not contradicted by Mr Poliwka. Nor was it challenged in cross-examination. But the limited nature of the evidence must be understood. The evidence was elicited to support an ongoing representation, pleaded as having been made on various dates during the period from October 2008 to September 2012, that the Pub business and the Charter business would produce sufficient profits to repay all money lent (SOC, par 34.1.5). But the evidence was only as to one discussion made 'early on' not long after the purchase of the Midland Hotel and the Moonlight Express. In context the evidence was concerned with repayment of the funding as initially injected to get the two businesses going. Accordingly, the evidence does not sustain the representation as pleaded.
The evidence discloses a further $50,000 advance to Girpol on behalf of Mr Girgis on 10 March 2009.[761]
Thereafter, however, Girpol obtained a $1.45 million facility with BankWest. At the end of April 2009 BankWest offered Girpol a $1.45 million facility.[762] The facility was fully drawn down on 1 May 2009.[763] The loan was secured by a mortgage over the Joondalup Property[764] and guarantees provided by Mr Girgis, Mr Poliwka, FWA and Girgis Nominees.[765]
The Girpol loan followed a conversation between Mr Poliwka and Mr Girgis in which Mr Poliwka said to Mr Girgis that they should obtain a loan through Girpol to repay themselves the money that had been spent on the renovations at the Midland Hotel in relation to the Pub business.[766] That is what occurred. On 13 May 2009 Girpol repaid $550,000 to both Mr Girgis and Mr Poliwka.[767] The balance of the $1.45 million - an amount of $350,000 - remained available for Girpol. Girpol's bank statement shows this being applied in loans to Bold Gem, meeting creditors and interest on Girpol's $1.45 million facility.
Mr Girgis gave oral evidence, which I accept, that at the time Girpol obtained the $1.45 million facility Mr Poliwka stated words to the effect that the money would be repaid though the operations of the Pub business.[768] Evidently, and also consistently with Mr Girgis' oral evidence,[769] because the available surplus of the $1.45 million was retained by Girpol there was a break in funding requests. For the remainder of 2009 the only funding amount by or on behalf of Mr Girgis was $50,000 on 5 August 2009.[770]
Mr Girgis gave evidence that generally, as required, Ms Ridgway contacted him whenever a transfer was necessary so as to put Girpol or Bold Gem in funds. This occurred throughout 2008 to 2012. Ms Ridgway made contact by telephone or email - or sometimes by a text message. Numerous examples of such communications were adduced in evidence. It is unnecessary to refer to those communications. A typical example is provided by Ms Ridgway's email of 20 January 2010:

[340]

In short, there was a request for an advance, some indication of the reason the funds were required (although sometimes no reason was given) and an assurance that the funding would be matched by or on behalf of Mr Poliwka. Sometimes reference is made to Mr Poliwka's contribution having already been advanced.
I address the further funding amounts as provided from 2010 in the next two sections of these reasons. That further funding from 2010 to 2012 was also provided in accordance with the pattern referred to in the two preceding paragraphs.
The evidence I have referred to establishes part, but not all, of the alleged representations the plaintiffs pleaded to constitute misleading or deceptive conduct in par 38A of the SOC.
Based on the plaintiffs' post-trial evidentiary note it was not contended that the evidence established the alleged representation that the investments in the Midland Hotel, the Pub business, the Moonlight Express and the Charter business were valuable (cf SOC, par 34.1.1). That concession was properly made. There was no evidence of such a representation in the context of the funding requests. Nor, in the plaintiffs' post-trial evidentiary note, was there continued reliance on the alleged representation that money lent on behalf of Mr Girgis had been and would continue to be matched by money lent on behalf of Mr Poliwka (cf SOC, par 34.1.3). In fact there was support for such a representation in Ms Ridgway's emails; and I am inclined to accept that, as Mr Poliwka's right hand, Ms Ridgway's conduct in that regard is attributable to Mr Poliwka and FWR (although perhaps not FWA). But the alleged representation went nowhere in establishing actionable misleading or deceptive conduct. The funding provided by or on behalf of Mr Girgis was matched by funding by or on behalf of Mr Poliwka. The representation was not falsified.
I accept that - following the purchase of the Midland Hotel and the Moonlight Express ‑ a representation was made that it would be necessary for Mr Girgis and Mr Poliwka, by their respective entities, to advance funding to meet expenses of the Pub business and the Charter business (cf SOC, par 34.1.2). But this was not put in terms that it was 'desirable' to do so. Nor was there a representation in terms that such funding was necessary or desirable 'for making and holding investments' in the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. And the evidence did not sustain an alleged representation to the effect that the plaintiffs should assist in obtaining bank finance by providing guarantees and security (cf SOC, par 34.1.2.3).
Importantly, the evidence also only establishes the representation I have found as at a single point in time (shortly after the purchase of the Midland Hotel and the Moonlight Express) and in order to 'get going' the Pub business and the Charter business on their acquisition. In context the statement is unremarkable. Neither the Pub business nor the Charter business was fully operational at the time of the purchase of the Midland Hotel and the Moonlight Express. It was necessary that amounts be lent to Girpol and Bold Gem to meet ongoing expenses of the Pub business and the Charter business to provide for the initial start-up of the two businesses. Accordingly, there was nothing misleading or deceptive or likely to mislead or deceive about this representation.
The alleged representation at par 34.1.5 of the SOC has not been established in the terms as pleaded. I do not accept that there was a representation that the Pub business and the Charter business would produce sufficient profits to repay all money lent - in the sense of all money lent over 2008 to 2012. The statement made, and the representation I find to be established, was that the two businesses (the Pub business and the Charter business) would make more than enough money to repay the initial funding to get the businesses going. Accordingly, the plaintiffs have not established the pleaded representation.
The remaining alleged representation is that pleaded in par 34.1.4 of the SOC: in substance, that it did not matter to the plaintiffs how money lent by them was treated (in the sense of the entity that was the lender and the entity that was the borrower).
No oral evidence was given that supported this alleged representation. The plaintiffs' post-trial evidentiary note relied on what was stated at par 288 of Mr Girgis' first witness statement:

[342]

That evidence does not establish the alleged representation. First, at best it goes half-way; it addresses the identity of the borrowing entity but not the lending entity. Second, and more importantly, the statement is merely as to what Mr Girgis recollected of his understanding at the time. The evidence does not purport to recount any statement to that effect by or on behalf of the defendants. That is made plain when it is recalled that the pre-trial directions required oral evidence of all conversations said to ground a representation, advice or an agreement. This ought not to be taken as being evidence of a conversation.
Accordingly, the evidence does not establish the alleged representation pleaded at par 34.1.4 of the SOC.
Ordinarily, where I have accepted that one or more of the alleged representations was made, I have accepted that advice of some nature was provided by Mr Poliwka to Mr Girgis conformably with the statement or statements that constituted the representation. That is not the case with the representation that it would be necessary for Mr Girgis and Mr Poliwka, by their respective entities, to advance funding to meet expenses of the Pub business and the Charter business. This statement was not by way of advice; it was a statement of fact. Mr Poliwka informed Mr Girgis what had to happen in terms of initial funding to start-up the Pub business and the Charter business.
There was, however, some advice established in terms of the alleged advice pleaded in par 34.2 of the SOC. In about April or May 2009 Mr Poliwka advised the plaintiffs, in substance, to assist Girpol to obtain bank finance in relation to the $1.45 million BankWest loan by providing guarantees and security (SOC, par 34.2.3). See pars 780 to 782 above. However, this was a single instance. It was not repeated over the course of the relationship between 2008 to 2012.
Subject to that one exception, the plaintiffs have not made good their pleaded case as to the advice alleged in par 34.2 of the SOC.
The plaintiffs' pleaded non-disclosure case as to the funding of Girpol and Bold Gem relied on numerous matters raised in relation to the Midland Hotel, the Pub business, the Moonlight Express and the Charter business (SOC, par 38). So far as is necessary those matters have been addressed in the factual findings concerning those topics. There were two other non-disclosure matters specific to the continued funding (SOC, pars 36, 37.2, 38). However, both were struck through in the plaintiffs' post-trial evidentiary note. Accordingly, it is apparent that they are no longer relied on. Nothing further need be said as to those two matters.

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In early 2012 Mr Girgis had a discussion with Mr Poliwka about the security for Girpol's loan with BankWest. It will be recalled that this was secured as against the Joondalup Property only, ie no security over property was provided by or on behalf of Mr Poliwka. Mr Girgis' evidence was that he (Mr Girgis) asked Mr Poliwka to obtain his own security for the loan - or his (Mr Poliwka's) half of the loan. In Mr Girgis' words: 'he [Mr Poliwka] wasn't too happy about it.'[779]
Mr Poliwka suggested that the conversation occurred at a slightly earlier time - just prior to Christmas 2011.[780] It is apparent, however, that the conversation was less harmonious than earlier dealings between Mr Girgis and Mr Poliwka. Mr Poliwka stated that the discussion was the trigger for him (Mr Poliwka) to resign as a director of Girgis Group in May 2012.[781]
In around February or March 2012 Mr Girgis and Mr Poliwka travelled to Melbourne together to attend the Formula One Grand Prix.
Mr Girgis had a specific recollection of a conversation with Mr Poliwka while in Melbourne. Mr Girgis expressed his concerns to Mr Poliwka about the amount of money that had been put into the businesses and that Mr Girgis and Mr Poliwka were not seeing any return on their investment. Mr Poliwka asked Mr Girgis how much cash he (Mr Girgis) had in the bank. Mr Girgis replied 'about $5 million'. Mr Poliwka said: 'That's plenty. We will be fine.'[782]
Mr Girgis had contact with Mr McNally in March 2012. That developed into a wider relationship with Mr Hart and Harts Financial Services. Harts Financial Services was engaged by Mr Girgis to oversee his financial situation and the businesses Mr Girgis was involved in.[783] It is evident, from his own witness statement evidence, that by this time Mr Girgis was concerned about his involvement in the Pub business and the Charter business. Mr Girgis described himself at the time as 'being at a cross roads' and 'experiencing serious negative cash flow'.[784]
Harts Financial Services, and in particular Mr Hart, commenced consideration into Mr Girgis' financial affairs in mid-April 2012. Numerous meetings were referred to in the evidence. These included meetings between Mr Girgis, Mr Hart and Mr Poliwka. Mr Hart also met with Mr Pickrell and persons involved in the Pub business (eg the manager of the Midland Hotel) and the Charter business (eg the captain of the Moonlight Express). Sometimes Mr Hart met with others ‑ including obtaining specialist advice as to the Midland Hotel and the Pub business. Mr Poliwka and Mr Girgis also attended some of these meetings, many of which were to do with improving the performance of the two businesses. Mr Hart spent a lot of time gathering information and it is obvious that, in the course of doing so, relations became strained as between Mr Poliwka and Mr Hart. It is unprofitable, and of no consequence to the proper disposition of the case, to go into the competing reasons proffered for the manifest differences between Mr Hart and Mr Poliwka.
Mr Poliwka resigned as a director of Girgis Group on 16 May 2012.[785]
By 26 June 2012 Mr Hart had arranged for Mr Girgis to meet with representatives of PKF Mack & Co to discuss that firm providing Mr Girgis and his entities with accounting and tax services.[786] In due course PKF Mack & Co replaced Focus Accounting as Mr Girgis' accountants. That occurred around the end of August 2012.[787] By that time relations between Mr Girgis and Mr Poliwka had soured. The evidence included increasingly tetchy emails between Mr Girgis and Mr Poliwka (Mr Girgis' emails having often been ghost written by Mr Hart and Mr Poliwka's emails being sent through Ms Ridgway).[788]
Nevertheless, until the end of August 2012, Mr Girgis continued to satisfy funding requests made over the course of 2012. The evidence substantiates the following deposits to the benefit of Girpol or Bold Gem:[789]

[360]

Mr Girgis resigned as a director of Girpol on 24 September 2012. On the same day Mr Girgis resigned as a director of Bold Gem and Sunriver.[799]
On 17 October 2012 Mr Girgis caused Girgis Nominees to pay $725,000 to Girpol's account with BankWest.[800] It was common ground that this payment was made to discharge the $1,450,000 loan that Girpol had obtained from BankWest in around April / May 2009 (secured against the Joondalup Property) which was used to repay some of the funds that had been advanced on behalf of Mr Girgis and Mr Poliwka as to the Midland Hotel (refer to pars 780 and [[801]](2019_230.html#_Ref1<a name=) above).801
Mr Girgis had provided a guarantee in respect of that facility.[802] Accordingly, had the payment not been made Mr Girgis might have been called on to make the payment in any event. That was also the position with Girgis Nominees (it having provided security for the $1.45 million facility).
In mid-April 2013 solicitors acting for Mr Girgis made demand for repayment of the loans made to Girpol.[803] Writs were filed against Girpol and Bold Gem on 31 July 2013.[804] In June 2014 Mr Thomson was appointed as voluntary administrator of Girpol, Bold Gem and Sunriver. The companies entered liquidation on 14 July 2014. Sometime thereafter ME Bank appointed a receiver in relation to the Midland Hotel property.[805]
There was no suggestion that any dividend was paid or will become payable in the windings-up. Given that the windings-up commenced nearly five years ago I would expect that any dividend would have been paid by now. In the circumstances I infer that no dividend will be paid. The loans made to Girpol and Bold Gem remain wholly unsatisfied (SOC, par 41; DAC, par 41).
It was agreed on the pleadings that the plaintiffs incurred legal expenses in taking the proceedings against Girpol and Bold Gem (SOC, pars 48; DAC, pars 48). I accept that there must also have been legal costs incurred and paid in participating in the windings-up: the windings-up followed the legal proceedings brought by the plaintiffs. Also, invoices have been tendered that show the costs being incurred.[806] The legal costs were particularised at $101,511.92 in relation to Girpol and $34,086.96 in relation to Bold Gem (SOC, par 52.C). The quantum of those costs have been proven in a like manner as with the Solomon Brothers' legal expenses as to the legal proceedings against JEPL, Mr Bulobin and Mr Boksmati (refer to par 769 above).
Accordingly, I find that the plaintiffs incurred and paid $101,511.92 and $34,086.96 in legal expenses as to Girpol and Bold Gem respectively in taking proceedings against them and participating in their windings-up.
In selling the Midland Hotel the Sunriver receivers must not have been able to clear the debt due to ME Bank. That follows as Mr Girgis gave evidence that was not challenged in cross-examination, and which I accept, to the effect that he (Mr Girgis) paid ME Bank two payments pursuant to the March 2009 guarantee and indemnity provided as to the debts owed by Sunriver to ME Bank.[807] $852,809.74 was paid on 24 March 2016 and $856,922.55 was paid on 13 April 2016. While not mentioned in Mr Girgis' witness statement evidence, the plaintiffs' SOC admits that half of those two amounts has been recovered against Mr Poliwka in other proceedings (SOC, par 52.D). Accordingly, Mr Girgis remains out of pocket to the extent of $854,866.14.
Mr Poliwka gave evidence, which I accept, as to the respective contributions of Mr Girgis and Mr Poliwka (by themselves and their respective entities) to Girpol and Bold Gem. That evidence was supported by financial statements and other financial records.[808]
As at 30 June 2013 the balance sheet of Girpol[809] showed:

[363]

According to Mr Poliwka those loans concerned the provision of funds to meet ongoing operational expenses of Girpol and Bold Gem.[810]
The outstanding loan due by Girpol to Girgis Nominees as recorded in Girpol's 2013 financial statements is $2,339,792. Girgis Nominees seeks to recover a lesser amount of $2,316,350 (SOC, par 52.A). I was not provided with a reconciliation as between the $2,316,350 and the $2,339,792. However, given the documentary evidence comprised by Girpol's 2013 financial statements (and Mr Poliwka's acceptance and reliance of what is stated in that documentary evidence) I find that there is an unpaid loan due by Girpol to Girgis Nominees in an amount of at least $2,316,350.
Also supporting that finding are the various parts of Mr Girgis' witness statement evidence, as corroborated by bank statement entries, specifying the numerous advances made to or for the benefit of Girpol.[811]
In closing counsel for the plaintiffs provided a schedule which specified for each advance made by Mr Girgis or his relevant entity the purpose for each monetary payment.[812] The entries on the schedule suggested that, physically, a number of the payments were made by entities associated with Mr Girgis other than Girgis Nominees. For example, the table mentions as 'payer' both Girgis Group and Girgis Café (Joondalup) Pty Ltd (a company of which Mr Girgis was the sole director and owned all the issued ordinary shares)[813] as well as Mr Girgis, Girgis Nominees and Girgis Property Trust (the trustee of which was Girgis Nominees).
The significance of Girpol's financial statements for the financial year ended 30 June 2013 is that ‑ as accepted by Mr Poliwka in his witness statement evidence ‑ the relevant advances are treated as having been made by Girgis Nominees as trustee of the Girgis Property Trust notwithstanding that, physically, some of the payments were made by other entities controlled by Mr Girgis. The same treatment is evinced in Girpol's earlier financial statements.[814] Accordingly, I find that it was Girgis Nominees that advanced the funds (in some cases through another entity associated with Mr Girgis).
As at 30 June 2013 the balance sheet of the Bold Gem Unit Trust[815] showed:

[366]

Mr Girgis seeks to recover an amount of $135,000 (SOC, par 52.B). No explanation was provided for the $375 difference between the amount claimed and the amount provided for in Bold Gem's financial statements as trustee of the Bold Gem Unit Trust. One of the particularised advances as appearing in par 52.B of the SOC (an amount of $35,000 said to have been made on an 'unknown' transfer date) is not corroborated other than by the Bold Gem Unit Trust's financial statements for the year ended 30 June 2011.[816] The financial statements refer to an outstanding loan balance of $134,625 rather than $135,000. Accordingly, I find that there is an unpaid loan due by Bold Gem as trustee of the Bold Gem Unit Trust to Mr Girgis in an amount of $134,625.
Mr Poliwka contends that, after 30 June 2013, he (either himself or through FWA) transferred a further $413,688.12 to Girpol's bank account.[817] However, the documentary record relied on for this statement was not tendered as an exhibit. In the absence of that document I have considered Girpol's bank statements post-30 June 2013.[818] Mr Girgis confirmed in cross-examination that he did not fund Girpol after he resigned as a director[819] (although there was payment of the $725,000). Accordingly, excepting third party payments, deposits into Girpol's bank account post-30 June 2013 must have been made by Mr Poliwka or one of his entities.
I have identified $363,500 in deposits post-30 June 2013 and before 9 June 2014 that must be attributable to Mr Poliwka or one of Mr Poliwka's entities (many of which are described as something like 'Loan from PIT' or 'Loan from WNP').[820] Accordingly, I find that the post-30 June 2013 contributions to funding Girpol by or on behalf of Mr Poliwka was $363,500. This is less than the amount asserted by Mr Poliwka. But in the absence of the tender of the documentary material relied on by Mr Poliwka in his witness statement this is all that I find to have been proven on the balance of probabilities.
Accordingly, the difference between the contributions on behalf of Mr Poliwka and those on behalf of Mr Girgis is:
- as to Girpol - $702,850;[821] and
- as to Bold Gem - $52,340.[822]
The defendants seek to counterclaim for half of that differential so that the contributions on behalf of Mr Girgis match those on behalf of Mr Poliwka. Accordingly, the quantum of this aspect of the counterclaim, if otherwise successful, is $377,595.[823]
There was a second aspect to the counterclaim. However, Mr Poliwka gave limited evidence in his witness statement supporting the plea that, by reason of the plaintiffs taking an extra seven months to advance funds to enable the repayment of Girpol's BankWest loan, Girpol incurred $29,180.52 in additional liabilities for interest and bank charges which was met by FWA (refer to par 109 [824] above).824 While the matter was briefly raised in the defendan[825] opening,825 and some documents were mentioned without [826]boration,826 this aspect of the counterclaim was only addressed in passing[827] closing.827 It is possible to identify that FWA as trustee of the Poliwka Investment Trust paid $725,000 of Girpol's liability on 18 January 2012 and the remaining $725,000 was paid on 17 O[828]ber 2012.828 The latter payment must have been a payment which Mr Girgis caused to be made (see par 818 above). In the interim interest was incurred, and paid, on the $725,000.
But it has not been proven that there was a discussion and agreement between Mr Poliwka and Mr Girgis that the BankWest loan was to be repaid by the end of January 2012 (cf DAC, par 130). Indeed, Mr Poliwka's witness statement evidence said no more than that it was Mr Poliwka's expectation that Mr Girgis would pay out the $725,000 at the same time as the payment on behalf of FWA.[829] Nor was I directed to documentary evidence to prove that it was FWA that advanced funds to Girpol to pay the $29,180.52 in alleged interest and bank charges. In any case, if this occurred, that $29,180.52 would have been taken into account in FWA's loan account with Girpol as at 30 June 2013.
An agreement to pay-out by the end of January 2012 not being established, and it not being proven that FWA alone met any additional interest and charges, the second aspect of the counterclaim need not be further considered. In any case, for the reasons given, there is an overlap between this second aspect of the counterclaim and the first aspect of the counterclaim to the extent of one half of the $29,180.52.

[374]

However, the funding representation I consider to be established is not in conformity with the pleaded representation in the SOC. It is qualitatively different. The representation I have found was as to a specific and limited aspect of the funding: the initial funding to get the Pub business and the Charter business going. It was a representation made shortly after the purchase of the Midland Hotel and the Moonlight Express. The pleaded representation was ongoing in nature - between October 2008 and September 2012 - and far wider: that the Pub business and the Charter business would produce sufficient profits to repay all money lent by Mr Girgis and Mr Poliwka (through their respective entities).
I have given consideration to whether I should assess whether the representation as found was misleading or deceptive or liable to mislead or deceive notwithstanding that it differs from the pleaded representation as alleged by the plaintiffs.
In my opinion it would be procedurally unfair to the defendants to come to a finding on liability in a manner that departs from the plaintiffs' pleaded case. The representation as found is qualitatively different to the alleged representation as pleaded. As is evident from the review of the pleadings the defendants have had to contend with a wide-ranging and broad series of allegations. The defendants ought not to have to contend with answering representations that are different in substance to the pleaded alleged representations. That is all the more so with a representation of the type that I have found. It is a representation with respect to a future matter. Practically, at least an evidentiary onus arises for the defendants to adduce evidence to the contrary. The defendants' legal representatives would have considered the pleaded representations in considering the evidence to be led. Had there been a pleaded representation in the terms I consider to be established on the evidence the defendants may have wished to adduce evidence to establish that Mr Poliwka had reasonable grounds for making the representation.
Accordingly, the representation made by Mr Poliwka in connection with the funding of Girpol and Bold Gem - while established - cannot ground a finding of misleading or deceptive conduct.
None of the alleged representations have been established as to the purchase of the Joondalup Property (see pars 679 to 681 and 684 to 686 above). Nor have the plaintiffs established the alleged advice in relation to the purchase of the Joondalup Property. The advice provided by Mr Poliwka was different in nature and substance; it was advice as to purchasing and investing in both the Joondalup Property and the Watermans Bay Property (see par 696 above). The alleged non-disclosures raised as to this part of the plaintiffs' case are either irrelevancies or matters that were known to Mr Girgis (see pars 697 - 698 above). Accordingly, the plaintiffs' claim as to purchase of the Joondalup Property fails in its entirety.
Even if liability was established there is a further issue as to loss. The Joondalup Property and the Watermans Bay Property were purchased for $4.165 million; their combined value was between $5.65 million to $5.7 million. I have found that Mr Girgis could not purchase one property without the other, ie the opportunity was to purchase the two properties as a package or a bundle. In the circumstances the plaintiffs cannot establish compensable loss.
However, key aspects of the plaintiffs' case as to the surrender of the Bajo lease and entry into the JEPL lease have been established.
In terms of the alleged representations, Mr Poliwka did represent that he had conducted due diligence investigations in relation to JEPL and was satisfied with his findings (SOC, par 84.1.7; see par 750 above). As to the alleged advice, Mr Poliwka advised Mr Girgis that:

[402]

Two notes to s 763B provide illustrations of what constitutes and does not constitute the making of a financial investment. A person purchasing real property or bullion does not constitute making a financial investment under s 763B. While the property or bullion may generate a return for the investor, it is not a return generated by the use of the purchase money by another person.
There are, however, specific inclusions within the meaning of 'financial product' whether or not they are within the general definition (s 762A(2), s 764A). They include a 'security' (s 764A(1)(a)), ie a share (s 761A); but not an 'excluded security' (s 765A(1)(a)) (normally associated with shares concerning a right to participate in a retirement village scheme (s 9)).
In closing counsel for the plaintiffs did not seek to identify how the defendants provided financial services through making the alleged representations and giving the alleged advice. While it may be accepted that Mr Poliwka and Mr Girgis had a relationship of adviser and advisee, and Mr Poliwka thereby provided advice to Mr Girgis, it does not follow that there was provision of financial services. In the absence of any submissions directed to the factual and legal issues on the application of the corporations legislation definitions I was left to try to identify for myself as to how the plaintiffs might put the case that the advice as proven had the character of financial product advice (that being the only obvious aspect of the concept of financial services that was potentially applicable).
The advice concerning the Sunriver shares and units might have been financial product advice. The shares, at least, qualify as a financial product. But otherwise, although I have noted that Mr Poliwka had a wider role than advising Mr Girgis on individual property investments, the advice provided by Mr Poliwka was predominantly of a property investment nature whereby Mr Girgis (or an entity associated with him) was contemplating purchasing specific real property or particular dealings with existing real property investments. That is particularly the case in the period of most interest for the purposes of the plaintiffs' claim: the period preceding the completion of the transactions in relation to the Midland Hotel, the Pub business, the Moonlight Express, the Charter business and the Joondalup Property.
The property investment advice was not advice as to a 'financial product'; it did not involve Mr Girgis or his relevant entities making a 'financial investment' within the meaning and for the purpose of s 763B. The various property acquisitions did not involve Mr Girgis making a contribution to another person and the other person using (or intending to use or Mr Girgis intending the other person to use) the contribution to generate a financial return or other benefit for Mr Girgis. The illustrative note to s 763B is applicable. Accordingly, the provision of that advice did not involve providing a financial service and could not amount to carrying on a business of providing financial services.
Apart from the advice as to the Sunriver shares and units the non-property investment advice as pleaded and proven was limited. I have rejected the alleged one-third, one-third, one-third general investment strategy advice (see pars 252 to 253, 262 to 264 above). Similarly I have rejected the assertion that Mr Poliwka advised Mr Girgis on the company structure to be adopted (see pars 254, 260, 271 above). So too I have rejected the alleged advice as to the Moonlight Express and the Charter business (see pars 641 to 642). I do not regard the Girgis Group overview materials as constituting a form of advice (see par 294 above).
I have noted that there are instances in which Mr Poliwka provided advice to Mr Girgis outside the realm of contemplated or subsisting property investments (see eg pars 286, 287(2), 289 and 298 above). However, things like advice in relation to the Dome café and Jetts gym franchises and the Telechoice business did not occur until 2010. They are irrelevant to whether the defendants were carrying on a financial services business at the time of the acquisition of the Midland Hotel and Pub business (September / October 2008), the Moonlight Express and Charter business (November 2008) and the Joondalup Property (November / December 2008). Moreover, they are not within the pleaded alleged representations and advice as relied on for the plea in par 10 of the SOC that the defendants each contravened s 911A(1) of the Corporations Act 2001 (Cth).
Let it be assumed, without deciding, that the remaining non-property investment advice as proven could be characterised as the provision of financial services. It consists of little more than the Sunriver shares and units and the various acts by way of being a sounding board to Mr Girgis (including providing referrals and supporting Mr Girgis by attending meetings with him and other advisers such as Mr Pickrell and Ms Rahaman). The sporadic and ad hoc nature of the advice provided by Mr Poliwka to Mr Girgis outside the area of property investment is manifestly insufficient, in my opinion, to establish that the defendants were each carrying on a business of providing financial services.
Repetition and regularity of activities is important. That is entirely lacking. I acknowledge that an isolated activity might be characterised as the commencement of the carrying on of a business. But that is not this case. The limited specific advice as proffered outside the area of property investment was provided without charge, in the context of Mr Girgis developing a significant property portfolio under Mr Poliwka's guidance, and a subsisting friendship and social relationship between Mr Girgis and Mr Poliwka together with their joint business activities. At best the evidence discloses a handful of minor matters outside of, but ancillary to, the general relationship of adviser and advisee focusing on property investment. There was no carrying on of a business of providing financial services.
This analysis also assumes that the advice provided by Mr Poliwka ought to be attributed to each of Poliwka Group trading as FWR and FWA. For reasons I come to that is doubtful. However, I do not need to go to that level of reasoning to dispose of this aspect of the plaintiffs' non-disclosure case adversely to the plaintiffs. Treating the defendants as one I am not satisfied that the defendants carried on a financial services business and contravened s 911A(1) of the Corporations Act 2001 (Cth). The non-disclosures to the effect that the defendants did not hold an AFSL and were not exempted from holding an AFSL are irrelevancies.

[415]

In Middleton v Aon Risk Services Australia Ltd McLure JA (as her Honour then was) noted that, in claims for economic loss, the matters upon which a duty of care depend include, among other things, knowledge or means of knowledge of an ascertainable class of vulnerable persons who are unable to protect themselves from harm. Reasonable reliance and assumption of responsibility are indicators of vulnerability.[848]
It is not necessary to consider whether the defendants owed a duty in the broad terms alleged in the statement of claim. The alleged liability arises in respect of the specific investments, and funding for those investments, rather than investments generally. It is not useful to begin by examining the extent of a defendant's duty of care separately from the facts which give rise to a claim.[849] Whether there was a duty, and if so the content of the duty, ought to be considered in the context said to give rise to liability. Moreover, I have found that much of the plaintiffs' pleaded case as to the alleged representations and advice has not been established on the evidence. Whether a duty of care would have arisen as to those matters is nothing more than a hypothetical.
Counsel for the defendants did remind me, however, that it is not to the point that some duty with changed content might have been established.[850] I understood that to mean some other broader or alternative duty that was outside the scope of the pleaded duty. Counsel for the defendants accepted, when pressed, that it would be within the scope of the pleading to look at the possibility of a duty of care in relation to the investment of money in a particular property transaction.[851]
The initial question as to duty of care is whether the defendants owed the plaintiffs a duty to exercise reasonable care, skill and diligence in advising them as to the intended purchase of the Midland Hotel and the Pub business.
I accept that Mr Poliwka owed the plaintiffs a duty of care in these terms; but I do not accept that there was such a duty on the part of Poliwka Group trading as FWR or FWA. The relevant conduct of Mr Poliwka was not conduct on behalf of Poliwka Group. The discussions and dealings between Mr Girgis and Mr Poliwka as to the Midland Hotel and the Pub business did not involve Mr Poliwka acting as a representative of or for the real estate agency and did not occur in the course of FWR's business, affairs and activities as a real estate agency. Mr Poliwka was considering purchasing for Midland Hotel for himself. The position with FWA is different; it is the entity through which Mr Poliwka made his eventual investment. But I do not consider there to have been any assumption of responsibility on the part of FWA. Nor was there any reasonable reliance or knowledge of reasonable reliance vis-à-vis FWA. Mr Girgis was dealing with and relying on Mr Poliwka rather than FWA.
The following factors are pertinent in reaching the conclusion that Mr Poliwka owed the plaintiffs a duty to exercise reasonable care, skill and diligence in advising them as to the intended purchase of the Midland Hotel and the Pub business:

[424]

Mr Poliwka, consistent with his role as property adviser to Mr Girgis, assumed responsibility in making representations and giving advice to Mr Girgis on the subject of the potential investment in the Midland Hotel and the Pub business. That is confirmed by the relative positions of Mr Poliwka and Mr Girgis (in particular their respective experience and expertise) as impacting on their relative capabilities in forming and coming to a considered decision on the merits of the proposed transaction and the form it should take. Mr Poliwka knew, or ought to have known, that by reason of the existing relationship - and the past dealings between them (Mr Poliwka and Mr Girgis) - that Mr Girgis would rely (and would reasonably expect that he could rely) on Mr Poliwka's representations and advice in coming to a decision on whether to proceed with an investment in relation to the Midland Hotel and the Pub business. That was all the more so when Mr Poliwka had represented that he (Mr Poliwka) had conducted due diligence investigations in relation to the Midland Hotel and the Pub business and was satisfied with his findings.
Accordingly, on the facts, there was a combination of assumption of responsibility and known reliance. Mr Poliwka thus owed the plaintiffs a duty to exercise reasonable care, skill and diligence in advising them as to the intended purchase of the Midland Hotel and the Pub business.
The position with the Midland Hotel and Pub business may be contrasted with the Moonlight Express and its Charter business. I have found that the plaintiffs' pleaded case as to the alleged representations and advice fails in relation to the Moonlight Express and the Charter business. I would, in any case, have rejected the contention that Mr Poliwka owed the plaintiffs a duty to exercise reasonable care, skill and diligence in advising them as to the intended purchase of the Moonlight Express and its Charter business. The position with the Moonlight Express and its Charter business differs from the Midland Hotel and Pub business for six reasons.
First, Mr Poliwka did not have, and did not profess to have, any particular expertise or experience in relation to vessels like the Moonlight Express (or boats in general) or businesses of the type formerly carried on by the Moonlight Express. Mr Girgis knew, or ought to have known, that was the case. Second, the Moonlight Express and its Charter business was outside the scope of Mr Poliwka's role as property adviser to Mr Girgis. Third, there was not the same imbalance between Mr Poliwka and Mr Girgis in terms of experience and expertise as existed in relation to property investment. Fourth, Mr Girgis had mentioned to Mr Poliwka an interest in acquiring a boat - it was not a case of Mr Poliwka presenting a purchase that had not previously been considered by Mr Girgis. Fifth, the vessel was intended, at least in part, as a lifestyle asset that Mr Girgis and Mr Poliwka would enjoy for their personal use. The vessel stood outside the normal advisor / advisee relationship between Mr Girgis and Mr Poliwka. It was not a normal investment. Sixth, unlike the statements made as to investment in the Midland Hotel and Pub business, Mr Poliwka did not make any due diligence representation as to the Moonlight Express and its Charter business.
In addition, although I have rejected the alleged representation that on a worst-case scenario the Moonlight Express would break-even, it is the case that on Mr Girgis' evidence he (Mr Girgis) was prepared to purchase the Moonlight Express on the basis that it might merely break-even. Accordingly, Mr Girgis was prepared to purchase the vessel on the basis that it might not turn any profit. That accentuated that the Moonlight Express was not a normal investment, but rather a lifestyle asset. The intended purchase of the Moonlight Express and its Charter business was qualitatively different in character to the intended purchase of the Midland Hotel and Pub business.
The alleged representations, advice and non-disclosures have not been established as to the Moonlight Express and the Charter business. In addition, for the reasons in pars 897 to 899 above, Mr Poliwka did not owe the plaintiffs a duty to exercise reasonable care, skill and diligence in advising them as to the intended purchase of the Moonlight Express and its Charter business.
There are two obstacles to the plaintiffs succeeding on their case as to the purchase of the Joondalup Property. First, the plaintiffs have not established the alleged representations or advice. The non-disclosure case has also failed. Second, there is no compensable loss. In the circumstances it is unnecessary to consider the question of duty of care on this aspect of the plaintiffs' case.
The question of whether a duty of care was owed in relation to the surrender of the Bajo lease and entry into the JEPL lease is affected by the circumstance that there was a contractual relationship between Girgis Nominees and Poliwka Group trading as FWR in respect of the management of the Joondalup Property. In the context of professional advice it is the contract that defines the relationship of the parties so that, ordinarily, the presumed intention of the parties is that any inconsistent duty in tort is limited or excluded.[853] By the exclusive agency authority Poliwka Group had express contractual obligations. These included an obligation to use due diligence and best endeavours on behalf of Girgis Nominees in respect of surrender of leases and new leases (see par 724 above).
The plaintiffs plead that Mr Poliwka and Poliwka Group owed a duty to exercise reasonable care, skill and diligence in managing real estate investments concurrently with and in addition to the contractual duty.[854]
A contractual obligation to use best endeavours in the context of a continuing commercial relationship does not normally impose a duty to disregard one's own interests. But it is difficult to see how consideration of the leasing agent's own interests could arise in assisting the agent's client in the process of bring about the surrender of a lease and entry into a new lease. Otherwise an obligation to use 'best endeavours' requires a party to do all it can reasonably do in the circumstances to achieve the contractual object.[855] So understood - in the circumstances of the present exclusive managing agent relationship between Poliwka Group trading as FWR and Girgis Nominees - there is, in my view, no tension between a contractual obligation to use due diligence and best endeavours and a tortious duty to exercise reasonable care, skill and diligence. The substantive content of the contractual obligation and putative tortious duty is the same.
I consider that Poliwka Group trading as FWR owed a duty to Girgis Nominees to exercise reasonable skill, care and diligence in bringing about the surrender of the Bajo lease and entry into the JEPL lease. The content of the tortious duty was co-extensive with the contractual obligation under the agency agreement to use due diligence and best endeavours.
No submissions were directed as to why, given the contractual relationship, the putative duty was owed by Mr Poliwka in addition to Poliwka Group trading as FWR. Based on the pleaded case it appears that the plaintiffs rely on the general indicia - assumption of responsibility combined with known reasonable reliance or dependence - rather than other matters.[856] The question is potentially one of some complexity. There is a great deal of academic writing and authorities, both in Australia and overseas, as to the extent to which a director may be personally liable for the torts or other wrongs of his or her company. In the absence of any submissions or assistance from counsel on the question I am reluctant to venture any conclusion. That is all the more so when, for reasons I come to, it is unnecessary to do so given the outcome of the misleading or deceptive conduct case against Mr Poliwka.
Accordingly, I expressly decline to make any finding on whether Mr Poliwka (as distinct from Poliwka Group) owed a duty to Girgis Nominees to exercise reasonable skill, care and diligence in bringing about the surrender of the Bajo lease and entry into the JEPL lease.

[428]

Section 10(1) of the Fair Trading Act 1987 (WA)[860] was in the same terms with the exception that the prohibition used the language that a person 'shall not' rather than 'must not'. Former s 52(1) of the Trade Practices Act 1974 (Cth)[861] also used the mandatory 'shall' but was directed to corporations rather than persons.[862]
Section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth)[863] applies to conduct by a person 'in relation to financial services' that is misleading or deceptive or likely to mislead or deceive. The term 'financial service' is defined in s 12BAB. It includes such things as 'financial product advice' (see s 12BAB(5)) or providing a service that is otherwise supplied in relation to a financial product. The definition of financial product advice directs attention to the concept of 'financial product' and a recommendation or statement of opinion intended to influence, or which could reasonably be regarded as intended to influence, a person in making a decision in relation to a financial product. The s 12BAA definition of 'financial product' includes a facility through which, or through acquisition of which, a person makes a financial investment (s 12BAA(4)) or manages financial risk (s 12BAA(5)); it expressly includes a 'security' (s 12BAA(7)(a)). Thus a 'share' is a financial product.[864]
While, in the context of the alleged contravention of s 911A of the Corporations Act 2001 (Cth), submissions were made as to whether the defendants carried on a financial services business, I was not addressed at all by counsel on the issue of the application of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), ie why the impugned conduct was in relation to financial services.
Having tracked through the definitions in Div 2 of Pt 2 to the Australian Securities and Investments Commission Act 2001 (Cth) I am unable to identify how the impugned conduct is conduct in relation to financial services as defined. I acknowledge that the Midland Hotel transaction involved the purchase of the Sunriver shares. However, the due diligence representation was made before the nature of the transaction changed to the intended purchase of the Sunriver shares and units. The representation was not in relation to financial services. Accordingly, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) can be put to one side.
If, however, the impugned conduct was in relation to financial services, then an issue would arise as to the application of other of the statutory provisions relied on by the plaintiffs. For example, s 52 of the Trade Practices Act 1974 (Cth) does not apply to the supply, or possible supply, of services that are financial services.[865] Nor does s 18 of the Australian Consumer Law.[866] Those issues need not detain me insofar as the impugned conduct did not occur 'in relation to financial services'. And, in the circumstances of the present case, little turns on whether it is the Australian Securities and Investments Commission Act 2001 (Cth) that applies as opposed to those other provisions. All capture conduct of a person, in trade or commerce, that is misleading or deceptive or is likely to mislead or deceive.
Precise identification of the statutory provision relied on may be relevant in some circumstances.
For example, the limitation period for a damages claim under s 236 of Australian Consumer Law and the Australian Consumer Law (WA) is six years. Six years is also the relevant period under s 82 of the Trade Practices Act 1974 (Cth) and s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth). But s 79 of the Fair Trading Act 1987 (WA) provides for three years. That difference is irrelevant for the current proceedings. The defendants did not plead a limitation defence.
There are also subtle differences in the various statutory deeming provisions as to when representations with respect to any future matter are taken to be misleading.[867] That may be ignored given the plaintiffs' failure to establish the alleged future representations as pleaded.
Most obviously, the statutory provisions identify those who may be primarily liable. By s 10(1) of the Fair Trading Act 1987 (WA) Mr Poliwka may be personally liable for misleading or deceptive conduct on his part whether or not engaged in by him as a director of Poliwka Group or FWA.[868] The same goes for s 18(1) of the Australian Consumer Law (WA). But it is otherwise with s 52(1) of the Trade Practices Act 1974 (Cth). Here (there being no relevant plea invoking the extended application of the former Trade Practices Act 1974 (Cth)) Mr Poliwka may only be accessorily liable as a person 'involved in' the contravention.[869]
The plaintiffs pleaded that Mr Poliwka was involved in each of the alleged contraventions by Poliwka Group and FWA (SOC, pars 51.3, 112.3). The pleas are deficient. There is no elucidation by material fact of the way in which Mr Poliwka is said to have been involved in the contravention: the pleader does no more than echo the statutory language of 'involved in'. If, for example, it was intended to allege that Mr Poliwka was knowingly concerned in the alleged contraventions, it would have been necessary to plead and prove that Mr Poliwka had actual knowledge of the essential matters which go to make up the contravention.[870] Where the conduct consists of false representations the alleged accessory must have knowledge of the representations and also of their falsity.[871]
There is, for example, no plea in relation to the Midland Hotel and Pub business that Mr Poliwka knew that he had not conducted due diligence investigations or adequate due diligence investigations.[872]
In the circumstances it is unnecessary to examine further whether Mr Poliwka may be accessorily liable as having been involved in any contravention by one or both of Poliwka Group or FWA. That is all the more so when, for reasons already given, Mr Poliwka was at all times the principal actor for the corporate defendants and may be primarily liable.
Conversely, under some of the various statutory provisions, conduct engaged in on behalf of a body corporate by a director within the scope of the person's actual or apparent authority is deemed to have been engaged in also by the body corporate.[873] Activities by such persons will attract direct liability to the company; no question of vicarious liability arises. There is no suggestion that Mr Poliwka did not have actual or apparent authority for the conduct he engaged in. In attributing to the corporate defendants the conduct of Mr Poliwka the question is whether that conduct was engaged in 'on behalf of' the relevant body corporate.
An act is done 'on behalf of' a corporation if either: (1) the actor engaged in the conduct intending to do so 'as representative of' or 'for' the corporation; or (2) the actor did so in the course of the corporation's business, affairs or activities.[874]
There is no doubt that the representations made by Mr Poliwka in relation to the Joondalup Property were made on behalf of Poliwka Group trading as FWR. FWR had a formal role as exclusive managing and leasing agent in relation to the Joondalup Property. The representations were made in the course of FWR's business, affairs and activities as a real estate agency. As to the Joondalup Property it was not alleged that representations made by Mr Poliwka were attributable to FWA. But, for the reasons given, to the extent that there is actionable misleading or deceptive conduct on the part of Mr Poliwka in relation to the Joondalup Property, such conduct is also attributable to (and means that there is equivalent liability for misleading or deceptive conduct on the part of) Poliwka Group trading as FWR.
A more substantial contest arose as to the representations made by Mr Poliwka in relation to the Midland Hotel and the Pub business. The defendants denied that the alleged conduct in relation to the Midland Hotel and the Pub business was engaged in on behalf of either corporate defendant.[875]
I accept the defendants' contention as to Poliwka Group trading as FWR. The evidence did not suggest that the discussions and dealings between Mr Girgis and Mr Poliwka as to the Midland Hotel and the Pub business involved Mr Poliwka acting as a representative of or for the real estate agency. To the contrary, Mr Girgis' unchallenged evidence, which I accept, was that Mr Poliwka told Mr Girgis that he (Mr Poliwka) was considering purchasing for Midland Hotel for himself.[876] Similarly, on the evidence the relevant conduct did not occur in the course of FWR's business, affairs and activities as a real estate agency. Nor was there cross-examination of Mr Poliwka to suggest that this was the case. In my opinion, on the evidence as a whole, the activities in relation to the Midland Hotel and the Pub business took place outside the operations of FWR; they are different in character and nature to the conduct in respect of the Joondalup Property.
The position with FWA is different.
FWA is the trustee of the Poliwka Investment Trust.[877] It was the entity through which Mr Poliwka made the eventual investment in the Midland Hotel and the Pub business. The terms of the 1 October 2008 offer (in particular that FWA as trustee of the Poliwka Investment Trust was one of the proposed purchasers) demonstrates that FWA was intended to be involved from the outset. Mr Poliwka's evidence in his witness statement was that it was his intention to purchase the Midland Hotel himself or through his related entities.[878] The only related entity so identified in the evidence is FWA. FWA remained involved. It provided Mr Poliwka's share of the funding for Girpol and Bold Gem and is, on the defendants' case, the entity through which it was agreed that such funding would be provided.[879]
There is insufficient evidence to conclude that the conduct of Mr Poliwka in relation to the Midland Hotel and Pub business occurred in the course of FWA's business, affairs or activities. But I can and do infer that the conduct was 'as representative of' or 'for' FWA. Based on what happened, and Mr Poliwka's evidence as to the intended acquisition, Mr Poliwka's conduct in relation to the Midland Hotel and Pub business was conduct engaged in on behalf of FWA.

[473]

The disposition of the claim requires me to apply the principles on a claim for misleading or deceptive conduct as I have earlier expounded (see pars 908 to 947 above). As to that, for the purposes of this aspect of the plaintiffs' claim, I have determined that Mr Poliwka's conduct is attributable to FWA but not to Poliwka Group trading as FWA (see pars 925 to 928 above). Separately, as to the claim in negligence, I have determined that Mr Poliwka, but not Poliwka Group or FWA, owed the plaintiffs a duty to exercise reasonable care, skill and diligence in advising them as to the intended purchase of the Midland Hotel and the Pub business (see pars 892 to 896 above). However, Mr Poliwka did not owe a like duty in respect of advice as to the intended purchase of the Moonlight Express and its Charter business (see pars 897 to 900 above).
The plaintiffs have effectively failed on the facts in relation to their claim so far as it concerns three aspects of the claim to recover the advances and payments. Those three aspects are:
- the purchase of the Moonlight Express and the conduct of its Charter business;
- taking over management of the Pub business (subject to one matter addressed below); and
- the funding of Girpol and Bold Gem (again subject to the matter addressed below).
There has been limited factual success on the plaintiffs' case as to taking over management of the Pub business. The plaintiffs established the alleged advice that Mr Girgis and Mr Poliwka should take over the conduct of the Pub business (see par 845(2)). But, in terms of detrimental consequences, the most that immediately flowed from this was the $14,000 payment to or to the benefit of Mr Caporn (see pars 717 and 722 above). As this was paid by Girpol (in October 2009) any loss in this respect is subsumed within the plaintiffs' wider case on purchase of the Midland Hotel and the Pub business and the funding required in the form of advances to Girpol and Bold Gem.
So too, in my opinion, loss on the advice as to the guarantees and security in respect of the $1.45 million BankWest loan (see par 848(2) above) is subsumed within the plaintiffs' wider case.
The plaintiffs' failure to establish the factual premises as pleaded in respect of the purchase of the Moonlight Express and the conduct of its Charter business is not terminal to the plaintiffs' claim to recoup the advances made to Girpol and Bold Gem. It is possible to identify which of the advances were made to fund the purchase of the Moonlight Express and to fund the operations of the Charter business. I consider there is no compensable loss in this respect. But the remainder of the advances conceivably fall within the plaintiffs' wider case on purchase of the Midland Hotel and the Pub business and the consequential funding required in the form of advances to Girpol and Bold Gem.
The advances made to fund the purchase of the Moonlight Express and the operations of its Charter business comprise the following:

[476]

Identification of the latter three advances as advances to fund the operations of the Charter business and the Moonlight Express draws upon the plaintiffs' written closing submissions. There, in a table, the plaintiffs state the purpose for which funds were requested and applied.[898] These advances (and also the one for 22 July 2010) are attributed to the Moonlight Express.
I do not consider it surprising that, apart from the $20,000 advance, there were no funding amounts required for the Moonlight Express and the operations of its Charter business between acquisition and 2012. That is consistent with the Girpol financial statements which demonstrated that, until the 2012 financial year, the Charter business broke even in the sense that it covered the costs of the Moonlight Express (see pars 649 to 654 above). By contrast the Pub business suffered consistent losses from the outset (see pars 603 to 605 above) and necessitated advances to meet ongoing costs of operations.
Perhaps it was the lesser merit in certain aspects of the plaintiffs' case (such as the Moonlight Express and its Charter business) that informed the 'aggregative' approach of the pleader (see pars 47, 52 and 57 to 58 above).
The plaintiffs sought to build on all (or substantially all) of the alleged prior conduct as informing and bringing about the subsequent actions which resulted in the alleged loss. Accordingly, on the plaintiffs' pleaded case, it did not matter that the material alleged representations, advice and non-disclosures specific to the Moonlight Express were not established on the facts. Instead (in addition to the alleged conduct directly relevant) the plaintiffs' pleaded case sought to sheet home liability for the advances to fund the purchase of the Moonlight Express and the operations of its Charter business to conduct in relation to other aspects of the plaintiffs' case; in particular, the purchase of the Midland Hotel and the Pub business. In essence, it was alleged that misleading conduct in relation to the Midland Hotel and Pub business was relied on by Mr Girgis in proceeding with the purchase of the Moonlight Express and the conduct of the Charter business (SOC, par 28).
I will now explain why I do not accept the aggregative case as so put. In short, as to the Moonlight Express and the Charter business (the only part of the case where the aggregative approach is of consequence) the approach fails on causation grounds. I do not accept that the relevant conduct in relation to the Midland Hotel and the Pub business caused or materially contributed to the advances to fund the purchase of the Moonlight Express and the operations of the Charter business. In terms of the statutory claim the advances as to the Moonlight Express and the Charter business were not 'by' or 'because of' the conduct in relation to the Midland Hotel and the Pub business.
In support of the broad causal case implicit in the aggregative approach counsel for the plaintiffs made the point, which I accept, that causation may be inferred. It was also said, and I accept, that contextual factors may play a role in determining causation. Otherwise I was referred to the following statement:

[480]

With non-disclosure, the test is whether the omission is material. Is the non-disclosure of such a nature that it might reasonably deter, or tend to deter, the ordinary investor from entering into the investment?[900]
I do not accept that the conduct I have found to be established in relation to Midland Hotel and the Pub business (see par 844 above) caused or materially contributed to Mr Girgis' decision to join with Mr Poliwka in the purchase of the Moonlight Express and the conduct of the Charter business. Nor were the non‑disclosures (see par 846 above) material to the transaction involving the Moonlight Express. The two transactions were separate and distinct. There was no relevant connection between the purchase of the Midland Hotel and the Pub business, on the one hand, and the purchase of the Moonlight Express and the conduct of the Charter business, on the other.
The point becomes obvious when one considers the precise representation, as established, which is said to be misleading or deceptive: that ‑ as to the Midland Hotel and Pub business ‑ Mr Poliwka had conducted due diligence investigations and was satisfied with his findings.
The representation as established in relation to the Midland Hotel and the Pub business was not relevant to a decision as to whether to purchase the Moonlight Express and conduct the Charter business. Nor was the representation such as would be persuasive so as to induce Mr Girgis to take that action. Rationally, a representation of that nature made as to an earlier purchase had no continuing operative effect as to the new intended ‑ but different ‑ purchase. That is all the more so given that, for reasons I have explained, the intended purchase of the Moonlight Express and its Charter business was qualitatively different in character to the intended purchase of the Midland Hotel and Pub business.
Similarly, in my opinion, the non-disclosures in relation to the Midland Hotel and the Pub business were not material to the decision as to whether to purchase the Moonlight Express. The non‑disclosures related to the Midland Hotel and the Pub business, not the Moonlight Express and its Charter business. The omission to inform Mr Girgis of things such as the Walthamstow Pty Ltd loan arrangements, that Sunriver had only been the registered proprietor of the Midland Hotel for about half a year and that a debt was owed by Sunriver to Burgess Rawson would not, logically, reasonably deter or tend to deter a person from proceeding with the purchase of the Moonlight Express. In this respect there was a material difference between the two intended purchases. With the Midland Hotel and the Pub business Mr Poliwka made a positive representation that due diligence investigations had been carried out. There was no such representation in respect of the Moonlight Express.
In light of the factual findings I have made the plaintiffs cannot recover advances and payments in relation to the Moonlight Express and the Charter business. The potentially viable claim is in respect of the advances and other outgoings concerning the Midland Hotel and the Pub business. I turn now to that aspect of the plaintiffs' case.

[484]

Allied to those observations, counsel for the defendants placed store on the circumstance that annexure 'A' to the 1 October 2008 offer referred to the purchasers completing due diligence within 14 days and being satisfied with the outcome.[901] Counsel submitted that, given the inclusion of this condition, it should be inferred that Mr Girgis knew that further due diligence was required to be done. It was accepted, however, that this was not raised with Mr Girgis in cross-examination.[902]
I accept that the initial reference to due diligence occurred at an early stage in the parties' consideration of the potential investment. I also accept that the references occurred at a time when the potential investment was concerned with the freehold to the Midland Hotel. However, I do not accept that an investment in respect of the Pub business was outside the contemplation of the parties on the last occasion on which there was mention of due diligence investigations having been undertaken. From about the time of (or immediately after) the second inspection, Mr Girgis and Mr Poliwka were considering an investment in the Pub business together with the purchase of the Midland Hotel (see pars 421, 434 - 435 and 454 above).
Critically, however, the due diligence representation continued in operative effect up to at least the time that Mr Girgis and Mr Poliwka committed to the eventual transaction in relation to the Midland Hotel and the Pub business.
It is wrong to look at the timing of the due diligence statements in isolation and then seek to explain them away as too early or concerned with a different form of proposed transaction. The statements and representation must be considered in context. The relevant circumstances must be appreciated so that the effect of conduct is assessed as a whole. The relevant context includes that Mr Poliwka had assumed a role as property adviser to Mr Girgis. Mr Poliwka was actively engaged in his role as property adviser at the time of the dealings in relation to the Midland Hotel and Pub business. Mr Poliwka had been looking over a potential investment in relation the Midland Hotel for some time. Mr Poliwka then introduced the potential investment to Mr Girgis. Mr Poliwka obtained information in relation to the Midland Hotel (in particular, RP Data searches, the Bold Gem lease and the Burgess Rawson valuation). That information was discussed with Mr Girgis. While there were discussions between Mr Girgis and Mr Poliwka, and Mr Girgis attended inspections with Mr Poliwka, Mr Poliwka was driving consideration of the potential investment. It was Mr Poliwka who had introduced the potential investment and who was primarily dealing with the relevant counterparties and obtaining information by which to assess the potential investment. Mr Poliwka was the means through which Mr Girgis obtained information concerning the potential investment.
In those circumstances an assurance was provided that he (Mr Poliwka) had conducted due diligence investigations in relation to the Midland Hotel and the Pub business and was satisfied with his findings. Indeed, so satisfied was Mr Poliwka that he (Mr Poliwka) intended to invest in the Midland Hotel himself. In due course that is what happened. The agreement between Mr Girgis and Mr Poliwka to proceed with the eventual transaction occurred approximately a week after the 29 September 2008 due diligence statement (ie at or shortly after the 6 October 2008 meeting). The commitment was assumed at a time when the representation remained fresh.
The relatively short time period between the last of the statements and the agreement by Mr Girgis and Mr Poliwka to proceed with the Midland Hotel and Pub business transaction is not the only thing that supports the representation continuing in operative effect. Also relevant is the following. First, the repetition of the statement; it was said not just once but three times. Second, the nature of the relationship between Mr Poliwka and Mr Girgis. As Mr Poliwka was property adviser to Mr Girgis it was reasonable to expect that Mr Poliwka would speak up if the representation ought no longer be relied on. Third, the nature of the representation. Having achieved a state of satisfaction, following due diligence investigations, the reasonable expectation is that as matters developed Mr Poliwka would bring to Mr Girgis' attention any change after the due diligence statements were made which resulted in the representation being incorrect. That was all the more so given the nature of the relationship between Mr Girgis and Mr Poliwka and that Mr Poliwka was driving consideration of the potential investment.
Based on the course of conduct as a whole I do not accept that the representation ceased to have operative effect after it was made. Nor was the representation rendered otiose by the change in the nature of the proposed transaction (from a purchase of the freehold to a purchase of shares and units). Mr Poliwka never qualified or later altered or corrected the representation. The message conveyed remained the same. It was never suggested that the due diligence investigations, and state of satisfaction as attained, did not hold good for the different form of transaction. The representation continued in operative effect.
Nor, in my opinion, was the operative effect of the representation affected by the due diligence condition included in the annexure 'A' special conditions to the 1 October 2008 offer.
The inclusion of the condition is potentially relevant to the question of reliance and causation. (However, its significance in that respect is lessened given the absence of cross-examination of Mr Girgis on the point.) I do not accept, however, that the inclusion of the condition meant that the earlier representation was without continuing operative effect. The condition provided a contractual safeguard for Mr Girgis' and Mr Poliwka's respective entities vis-à-vis Sunriver had the 1 October 2008 offer been accepted and presented. It did not speak to what had already passed between Mr Girgis and Mr Poliwka. However, insofar as the condition spoke of the purchasers 'completing their due diligence' it confirmed that due diligence had been undertaken. It was thus consistent with and confirmatory of the due diligence representation. And, insofar as the condition spoke in terms of 'being satisfied with the outcome', it was consistent with only proceeding with the transaction if the state of satisfaction that Mr Poliwka had previously affirmed to Mr Girgis continued to be the case.
In these respects the due diligence condition is confirmatory of the due diligence representation having continuing operative effect.
The absence of a like special condition in the eventual informal agreement to purchase the Sunriver shares and units is also telling. The agreement followed the 6 October 2008 meeting. By this time Mr Poliwka had received further due diligence information as to the Midland Hotel and the Pub business. In deciding to proceed with the transaction in the absence of a written contract (and any term to the effect of the due diligence special condition) Mr Poliwka must have continued to be satisfied with his findings following the due diligence investigations he (Mr Poliwka) had conducted into the Midland Hotel and the Pub business. In any case, objectively, that is how it would appear to a reasonable person in the position of Mr Girgis. Otherwise the reasonable expectation is that the due diligence special condition would have been re-introduced.
Accordingly, I conclude that the due diligence representation continued to be operative at the time that Mr Girgis (for Girgis Nominees) agreed to purchase the Sunriver shares and units. It then becomes necessary to assess the state of the actual due diligence investigations to determine whether the representation was misleading or deceptive or likely to mislead or deceive.
It was common ground that some due diligence investigations had been performed. This consisted of:
- Inspections of the Midland Hotel.
- Discussions with Mr Pollock, Mr Errichetti and Mr Caporn - the most important of these being the discussions with Mr Caporn.
- Review of the Bold Gem lease.
- Review of the Burgess Rawson valuation.
- Review of the RP Data searches.
- Consideration of the financial information in relation to Bold Gem as printed out on 30 September 2008 (ie Bold Gem's balance sheet as at June 2008 and profit and loss statements for July 2007 to June 2008 and July 2008 to August 2008). Mr Poliwka also knew a miscellany of other financial information; for example, the wages being paid to Mr Caporn.[903]
- Consideration of cash flow projections for the Pub business (as received on 2 October 2008).
- Advice from Mr Pickrell (as received on 30 September 2008).
Mr Poliwka was also aware of other things.
Mr Poliwka was aware of the ownership interests in relation to the Midland Hotel and the Pub business. That is obvious from the 6 October 2008 notes. Mr Poliwka was aware of the ME Bank loan and mortgage and that the loan was in arrears. However, as is evident from the 6 October 2008 notes, Mr Poliwka was not aware of the terms of the ME loan (and appreciated that those terms were unknown). Mr Poliwka was aware of the Walthamstow Pty Ltd caveat. However, based on what was said in cross-examination, Mr Poliwka had no information in relation to Walthamstow Pty Ltd and its loan to Sunriver other than that which he (Mr Poliwka) had read and heard in connection with the trial. At the relevant time Mr Poliwka did not know that Sunriver had borrowed $1.72 million from Walthamstow Pty Ltd.[904]
Despite Mr Poliwka's evidence at trial as to his lack of knowledge as to the extent of the Walthamstow Pty Ltd loan and its equitable mortgage, on the pleadings Mr Poliwka admitted that he knew: (1) of the existence of Sunriver's debt of $1.72 million to Walthamstow Pty Ltd (SOC, pars 20.2.1, 20.12; DAC, par 20.3.1); and (2) that the Walthamstow Pty Ltd debt was secured by an equitable mortgage over the Midland Hotel (SOC, pars 20.3, 20.12; DAC, par 20.3.1).
In cross-examination, as to Walthamstow Pty Ltd, Mr Poliwka said that all he cared about was removal of its caveat, 'no recourse'; and on that basis he then proceeded with the share transfer.[905] The reference to no recourse was explained in terms of an expungement of the debt, ie it would not 'come back to the company in any way, shape or form'.[906] There was to be 'no caveat and no debt'.[907] Counsel for the plaintiffs submitted that this evidence demonstrated that Mr Poliwka clearly did not understand the legal implications of the withdrawal of the caveat and the outstanding balance of the Walthamstow Pty Ltd loan.[908] I agree. The withdrawal simply removed the caveat as an encumbrance against the certificate of title. It could not and did not operate as a release of the remaining debt owed by Sunriver to Walthamstow Pty Ltd upon receipt of the $400,000 ‑ a matter that Walthamstow Pty Ltd itself made clear to Sunriver.[909]
Based on the evidence at trial, and Mr Poliwka's explanation of his approach to the Walthamstow Pty Ltd caveat, it is likely ‑ and I find ‑ that in September and October 2008 Mr Poliwka was unaware of the extent of Sunriver's debt to Walthamstow Pty Ltd as secured by the equitable mortgage over the Midland Hotel. Mr Poliwka knew that there was a debt and a caveat. But Mr Poliwka was solely concerned with effecting removal of the caveat rather than understanding the extent of the debt and the effect of the equitable mortgage.
More generally Mr Poliwka was aware of the things jotted down on the 6 October 2008 notes. Mr Poliwka also gave evidence, which was not challenged, that he (Mr Poliwka) contacted the Midland Redevelopment Authority and the Heritage Council and made some preliminary phone calls about heritage implications for the Midland Hotel so far as redevelopment was a potential fallback.[910]
Mr Poliwka obtained additional materials after the agreement to purchase the Sunriver shares and units and Masterline Investments Pty Ltd's Bold Gem shares and units. There were the 15 and 20 October 2008 communications with Mr Errichetti and Mr Hancock (see pars 556 to 559 above). These included the budget to complete the renovations. On 16 October 2008 the MYOB data as to the conduct of the Pub business was received and financial information was printed out. But these materials were not obtained as part of the due diligence investigations that informed Mr Poliwka's state of satisfaction as to the initial transaction in relation to the Midland Hotel and the Pub business. For the reasons I have given the $1 million was paid over by or on 16 October 2008 (see pars 529 to 538 above) and the agreement to purchase the shares and units concluded over 6 to 9 October 2008 (see pars 458 to 470 above).
The fact that some due diligence investigations were carried out does not necessarily provide an answer to the plaintiffs' misleading or deceptive conduct case. In stating that he (Mr Poliwka) had conducted due diligence and was satisfied with his findings Mr Poliwka conveyed the message that the due diligence was adequate due diligence. Otherwise how could Mr Poliwka be satisfied with his findings? All the more so how could he (Mr Poliwka) intend to invest himself and recommend that Mr Girgis and Mr Poliwka together invest in the Midland Hotel and the Pub business? The representation as established is gainsaid on proof that Mr Poliwka did not conduct adequate or proper due diligence. The plaintiffs' case was pleaded[911] and opened on this basis.[912]
Counsel for the plaintiffs referred me to various authorities and dictionary definitions which have considered the meaning of the term 'due diligence'. Counsel for the defendants submitted that these were of no assistance. Rather, the necessary enquiry was to determine what was objectively conveyed by the words spoken and the representation made thereby. I agree. It is necessary to consider the words used, and representation conveyed, in the particular context in which the conduct incurred. That context includes the relationship between the parties.
On that basis the language of 'due diligence' as used by Mr Poliwka in the representation as established has both an investigative and an evaluative function. It is investigative insofar as it conveys that a process has been undertaken to obtain objective and reliable information as to the Midland Hotel and the Pub business. It is evaluative insofar as a conclusion is proffered based on the investigations ‑ here the evaluation is expressed in the conclusion that 'it all looked good' (ie that Mr Poliwka was satisfied with his findings as a result of the due diligence process).
In general what is required for 'adequate' due diligence necessarily depends on the size and nature of the transaction. What might be considered adequate for the purpose of acquiring Mr Caporn's Bold Gem shares and units for $14,000 might not suffice for a transaction that involves paying $1 million in immediate consideration and assuming a $1.95 million loan. So too adequate due diligence will differ according to whether the contemplated purchase is of freehold property as compared to the shares and units in respect of a corporate trustee and unit trust whose main asset consists of the same freehold property.
In the latter case, among other things, it will be necessary to investigate the potential liabilities to which the company and the trust assets may be subject.
I have concluded that Mr Poliwka failed to carry out adequate due diligence investigations in relation to the Midland Hotel and the Pub business. The inadequacy of Mr Poliwka's investigations is evident in two main respects. First, as concerns Mr Poliwka's assessment of the value and future income flow to be attributed to the underlying asset - the freehold property comprising the Midland Hotel. Second, the failure to consider matters arising by reason of the change in the nature of the transaction (ie proceeding to purchase the Sunriver shares and units rather than the freehold property).
I have mentioned Mr Poliwka referring to three pillars as informing the decision to proceed with the potential investment: the location, the Burgess Rawson valuation and the Bold Gem lease. Location can, I consider, be put to one side. The location of the Midland Hotel was self-evident and there is no suggestion that Mr Poliwka misapprehended the location and its potential benefits. In any case, to the extent that location affected perceptions as to value, the view taken as to location was secondary to the opinions expression in the Burgess Rawson opinion (which in part were based on location).
Other things were mentioned by Mr Poliwka. For example, Mr Caporn's expertise and the projections provided.[913] But these were not within Mr Poliwka's three pillars. And, in any case, the inadequacy in Mr Poliwka's due diligence appears from his own investigations rather than what was said and provided by or on behalf of Mr Caporn and Bold Gem.
Mr Poliwka's dependence on the Burgess Rawson valuation and the Bold Gem lease was misplaced.
The critical point about the Bold Gem lease is that Mr Poliwka did not appreciate, at the time, that Sunriver and Bold Gem were related entities (see par 362 above). That was the position. Both entities were subject to Ms Kuhnert's ultimate control (see par 360 above). Had this been appreciated there ought to have been a more considered examination of the nominated rental amount under the Bold Gem lease. That is particularly so given: (1) Burgess Rawson's observation that the rent was well above market; (2) the known circumstance that the rent was not being paid. Likewise, had the relationship been appreciated, it ought to have been disclosed to Mr Girgis as potentially impacting on the authenticity of the rental figure. The relationship between Sunriver and Bold Gem was not appreciated by Mr Poliwka and consequently was not disclosed.
I have given consideration to whether it should also have been identified, and consequently disclosed, that the Bold Gem lease is dated ‑ and is said to have commenced ‑ before Sunriver became the registered proprietor of the Midland Hotel (see par 322 above). That would have seen disclosure of the circumstance that Sunriver had only been the registered proprietor of the Midland Hotel for about half a year (see par 425 above). It would also have focused closer consideration on the authenticity of the rental figure under the Bold Gem lease. I have decided that this (and Mr Poliwka's non-appreciation of the limited time that Sunriver had been registered proprietor) does not demonstrate that the due diligence investigations were inadequate. Mr Poliwka relied on the RP Data searches which showed an acquisition date of 2 July 2007. I consider it was reasonable for Mr Poliwka ‑ as a real estate agent ‑ to rely on the RP Data searches.
The Burgess Rawson valuation was the cornerstone to Mr Poliwka's due diligence investigations. However, there were a number of reasons that a person in the position of Mr Poliwka ought not to have relied on the Burgess Rawson valuation.
First, the valuation was expressed to have been prepared for, and under instructions from, Sunriver (see par 358 above). The valuation contained the usual exclusion providing that it was prepared solely for the use of the party to whom it was addressed and for that party[914]purposes.914 Mr Poliwka and Mr Girgis could not rely on the contents of the valuation.
Second, the valuation was stale. It was dated 23 January 2008. Warnings were provided that no warranty could be given to the maintenance of the value into the future. Specific reference was made that the valuation could not be reissued or confirmed after a period of 3 months without re-inspection and further investigation and analysis. And between the date of the valuation and the due diligence representation the GFC had created instability that was having an effect on the property market in Western Australia (see pars 363 to 365 above).
Third, the valuation provided for an important qualification that was operative on the facts: Burgess Rawson reserved the right to reassess the valuation figure should it be that the landlord and tenant were related entities (see pars 359 to 361).
Fourth, the valuation could not be relied on as a valuation of the Midland Hotel as a trading tavern. The Burgess Rawson valuation was performed on the basis that the property was a redevelopment site with some heritage implications (see par 366 above). But, on Mr Poliwka's own evidence, the potential for redevelopment, while noted, was not the focus of deliberations; they (Mr Girgis and Mr Poliwka) were focussed on the venue being[915]ofitable.915
Moreover ‑ as Mr Poliwka accepted in cross-examination ‑ he (Mr Poliwka) and Mr Girgis were considering buying the Midland Hotel as an ongoing trading hotel and not for redevelopment.[916] The Midland Hotel was being purchased as a trading tavern not as a redevelopment site. The valuation did not speak to that - or the tenant's likely ability to pay the rent under the Bold Gem lease.
Following persistent questioning by the cross-examiner, Mr Poliwka eventually conceded that at the time of consideration of the transaction he (Mr Poliwka) did not rely on the Burgess Rawson valuation as stating the value of the Midland Hotel as a trading hotel.[917] That evidence begs the question of what Mr Poliwka did rely on in forming a view of the value of the Midland Hotel as a trading tavern. There was nothing concrete in this respect. The concession made effectively meant that the commitment made to purchase the Midland Hotel and the Pub business as a trading hotel occurred without regard to its value as such.
In fact, on the basis of the accepted evidence of Mr Cameron, a valuation of the Midland Hotel as a trading tavern as at the relevant time (necessarily on a basis as if the renovation of the Midland Hotel had not commenced) resulted in a market value of $1.73 million (see par 589 above). I do not consider that Mr Poliwka should necessarily have obtained such a valuation as part and parcel of conducting adequate due diligence investigations. It might have been that other steps could have been taken which provided an appropriate substitute for a formal valuation. However, the valuation arrived at by Mr Cameron is useful as a check in confirming that Mr Poliwka's reliance on the Burgess Rawson valuation as one of his 'three pillars' was misplaced.
Finally as to the reasons why reliance on the Burgess Rawson valuation was misplaced, it was also the case that the Burgess Rawson valuation provided a valuation of the freehold to the Midland Hotel. However, following the 6 October 2008 meeting what was being purchased were the Sunriver shares and units (together, initially, with Masterline Investments Pty Ltd's interest in the Pub business through Bold Gem and the Bold Gem Unit Trust). Accordingly, the Burgess Rawson valuation did not speak directly to the transaction that was ultimately under consideration by Mr Poliwka. There was no valuation of the Sunriver and Bold Gem shares and units.
Mr Poliwka's view on the merit of the potential investment in the Midland Hotel was heavily influenced by the Burgess Rawson valuation. Mr Poliwka described the valuation as one of the three pillars relied on. Based on his evidence Mr Poliwka also informed Mr Girgis that he (Mr Poliwka) was interested in acquiring the Midland Hotel at the price indicated in the Burgess Rawson valuation (see par 427 above).
However, for the reasons I have given, Mr Poliwka's reliance on the Burgess Rawson valuation was misplaced. The Burgess Rawson valuation was not adequate for the purpose of conducting satisfactory due diligence or informing a considered view as to the value of the Midland Hotel as a trading tavern. Mr Poliwka's evident reliance on the Burgess Rawson valuation ‑ and the absence of other available (and reliable) materials directed to value ‑ demonstrates that Mr Poliwka's due diligence investigations were inadequate.
I am satisfied that Mr Poliwka failed to carry out adequate due diligence investigations in relation to the Midland Hotel and the Pub business so far as he relied on the Bold Gem lease and the Burgess Rawson valuation. But there was also a failure to conduct adequate due diligence insofar as the nature of the proposed transaction altered from one of purchasing the freehold to the Midland Hotel to instead purchasing the Sunriver shares and units (together with Masterline Investments Pty Ltd's interest in the Pub business through Bold Gem).
The change in the nature of the proposed transaction required that additional due diligence be carried out.
Mr Poliwka knew, for example, that buying an unencumbered asset was a very different proposition to purchasing shares in the company that owned the asset.[918] Mr Poliwka denied that proceeding in the way in which the transaction occurred was hazardous.[919] It is unnecessary to state a conclusion on that contention. The simple fact is that the Sunriver shares and units transaction plainly involved more risk than a simple purchase of the freehold. Sunriver might have additional liabilities. Mr Poliwka was aware of that having been advised by Mr Pickrell of the possibility there may be such liabilities.[920]
There was, however, no evidence that consideration was given to such liabilities. To the contrary the evidence was that:

[488]

This too bespeaks a failure to carry out adequate due diligence.
Counsel for the defendants sought to emphasise the limited direct consequences that resulted from this aspect of the failure to conduct adequate due diligence. In due course, following fresh guarantees by Mr Girgis and Mr Poliwka, ME Bank continued the loan. Walthamstow Pty Ltd never made demand on Sunriver for the remainder of its loan (totalling $1.32 million after the $400,000 payment). The Walthamstow Pty Ltd loan must have been discharged by Sunriver's co-borrowers (who sought no contribution). The Burgess Rawson debt resulted in an eventual payment of some $10,014.97 in late 2010.
These matters are potentially relevant to the question of damages. They do not, however, mean that Mr Poliwka carried out adequate due diligence. At the moment I am concerned only with assessing whether the due diligence representation was misleading or deceptive or likely to mislead or deceive because - contrary to the representation made - Mr Poliwka had not carried out adequate due diligence investigations into the Midland Hotel and the Pub business.
For the reasons I have given Mr Poliwka failed to carry out adequate due diligence investigations in relation to the Midland Hotel and the Pub business. The investigations were inadequate in the two different respects I have identified: as to both the underlying asset (ie the Midland Hotel) and as to identification and consideration of the liabilities to which Sunriver was subject.
Accordingly, I consider the representation that he (Mr Poliwka) had conducted due diligence investigations, and was satisfied with his findings, was conduct that was misleading or deceptive or likely to mislead or deceive. The representation created a false impression and would lead a person in the position of Mr Girgis into error. That is all the more so when - after the initial due diligence statement on the first inspection and before it was repeated at the second inspection - Mr Poliwka said that he (Mr Poliwka) intended to invest in the Midland Hotel himself. Mr Poliwka exhibited confidence in the state of his due diligence investigations, and assessment of the investment, by being prepared to invest himself.
It follows that the plaintiffs have established a contravention of the statutory prohibition. The plaintiffs succeed in their misleading or deceptive conduct case against Mr Poliwka and FWA in relation to the Midland Hotel and the Pub business.
The conclusion that misleading or deceptive conduct has been established based on the positive due diligence representation means that it is strictly unnecessary to address what remains of the plaintiffs' non-disclosure case. However, had it been necessary to do so, the fact of the due diligence representation is part of the context in assessing whether the material non-disclosures were misleading or deceptive or likely to mislead or deceive.
Mr Poliwka represented that he (Mr Poliwka) had conducted due diligence investigations in relation to the Midland Hotel and the Pub business and was satisfied with his findings. The representation had an ongoing operative effect. The representation was made in circumstances where Mr Poliwka was property adviser to Mr Girgis. Mr Poliwka knew that and also knew that Mr Girgis was contemplating joining him (Mr Poliwka) in investing in the Midland Hotel and the Pub business. Importantly, as Mr Girgis' property adviser, Mr Poliwka advised Mr Girgis that the two of them should together invest in the Midland Hotel and the Pub business in the way in which they did (ie by the share and unit purchase). Mr Poliwka was also the person, as between Mr Girgis and Mr Poliwka, who was driving the transaction and primarily dealing with the various interested persons (eg Ms Kuhnert and Messrs Pollock, Errichetti, Caporn and Handcock) in obtaining and assessing information about the Midland Hotel.
Those circumstances are such, in my opinion, as to give rise to a reasonable expectation that ‑ if a relevant fact existed which materially qualified or adversely impacted on the authoritative nature of the due diligence representation and Mr Poliwka's advice ‑ it would have been disclosed by Mr Poliwka to Mr Girgis.
It is unnecessary to address the whole of the non‑disclosure case. However, based on my conclusion as to the reasonable expectation of disclosure of certain matters, I accept that one of the material non-disclosures was misleading or deceptive or likely to mislead or deceive. This was the failure to disclose the effect of Mr Pickrell's advice as to the form that the Midland Hotel and Pub business transaction should take (see pars 438 to 444 and 846 above).
The non-disclosure of the substance of Mr Pickrell's advice was misleading or deceptive or likely to mislead or deceive insofar as Mr Pickrell's advice (that the transaction should take the form of a purchase of the freehold property) was inconsistent with Mr Poliwka's advice to Mr Girgis as to the form the transaction should take (a purchase of shares and units). That was all the more so in circumstances where, contrary to the due diligence representation, Mr Poliwka had not conducted adequate due diligence investigations into Sunriver's liabilities. The non-disclosure was misleading or deceptive as it occurred in circumstances where - given the positive due diligence representation and advice ‑ Mr Girgis was entitled to expect or infer that matters which materially qualified or adversely impacted on the representation and advice would be disclosed. Mr Pickrell's advice was of that character.

[490]

The plaintiffs pleaded, and it was necessary for them to prove, that they relied on the due diligence representation and Mr Poliwka's advice that Mr Girgis and Mr Poliwka should together invest in the Midland Hotel and the Pub business. I am satisfied that there was such reliance and that the reliance was reasonable.
The acts of reliance included: (1) agreeing to and then proceeding to complete the October 2008 transactions whereby Mr Girgis' and Mr Poliwka's respective entities purchased their interests in the Midland Hotel and the Pub business (ie the Sunriver and Bold Gem transactions); and (2) making advances to fund the October 2008 transactions and thereafter making further advances to fund the renovations of the Midland Hotel and ongoing costs of the operations of the Pub business.
I will consider other potential acts of reliance (eg the guarantee as to the ME Bank loan) when assessing specific heads of claimed damage. For now, however, it suffices to make findings that there were ‑ as was undoubtedly the case ‑ some acts of reliance as just mentioned. As well as examining the other potential acts of reliance it will be necessary to examine the extent of the plaintiffs' reasonable reliance on the representation and advice in continuing to make advances. My finding in the preceding paragraph as to reliance in making advances to fund operational costs should ‑ at this stage ‑ be understood as limited to the initial costs of the Pub business' operations.
There are two reasons I am satisfied that there was reasonable reliance.
First, the representation and advice were directly relevant to the three decisions, namely: to proceed with the transaction; to fund the completion of the renovations; and to commence to fund the operations of the Pub business. The connection between the representation and the advice, on the one hand, and the purchase, on the other, is obvious. The statement that due diligence investigations had been conducted in relation to the potential investment and that the maker (and intended co-investor) was satisfied with his findings was of its nature persuasive to induce the recipient to also proceed with the investment. The statement maker (Mr Poliwka) conveyed to the recipient (Mr Girgis) that there had been appropriate investigation and evaluation of the potential investment.
In the present case the representation was plainly material and would have been a significant factor in Mr Girgis' decision to proceed with the investment. That is all the more so with Mr Poliwka's advice. The decisions to then fund completion of the renovations and the initial operations of the Pub business (to get the business going) were a natural and inevitable consequence of the initial decision and thus also relied on the representation and advice.
In coming to this conclusion I have considered whether reliance, or reasonable reliance, is negated by the circumstances that annexure 'A' to the 1 October 2008 offer provided for the due diligence special condition.
I am not satisfied that this evidence means I should find there was no or no reasonable reliance on Mr Poliwka's representation. For reasons already explained I am satisfied that the due diligence representation continued to have operative effect despite the special condition. The representation ‑ and reliance on the representation ‑ sits conformably with the special condition given the terms and intended purpose of the special condition. In any case Mr Girgis was far more likely to trust in and act on what was said to him by Mr Poliwka on three occasions. The suggestion that reliance is negated must also be assessed in light of the fact that the point was never put to Mr Girgis in cross‑examination. In cross-examination it was certainly suggested that the due diligence representation was never made. But Mr Girgis was not challenged with the suggestion that, if made, the due diligence statements could not have been ‑ and were not ‑ relied on because of the special condition in annexure 'A' to the 1 October 2008 offer.
Second, at the time Mr Poliwka was Mr Girgis' property adviser. There was also, as I have previously explained, a considerable imbalance between Mr Poliwka and Mr Girgis in terms of property investment experience, understanding and expertise. More generally Mr Poliwka operated as a sounding board for Mr Girgis and was involved in decision making for Mr Girgis. Mr Girgis looked to Mr Poliwka for advice and deferred to and acted on Mr Poliwka's representations and advice. That was evident, for example, in the potential investment in the Currambine property involving the McDonald's restaurant. There were numerous other examples of Mr Girgis deferring to and acting on Mr Poliwka's advice in the course of their relationship.
Reasonable reliance on Mr Poliwka's misleading or deceptive representation, and on Mr Poliwka's negligent advice, has been established. Mr Girgis relied on those things in causing Girgis Nominees to proceed with and complete the October 2008 transactions concerning the Midland Hotel and the Pub business and to make consequential advances. But for the representation and advice those things would not have occurred.
The question that next arises is determination of the extent, if any, to which the misleading or deceptive representation and negligent advice caused or materially contributed to the plaintiffs incurring losses.
Among other things the plaintiffs sought to be put in the position they would have been in had none of the funds been advanced to Girpol or Bold Gem.
The plaintiffs say that they quantify their losses on a 'no transaction' basis, ie as if they had never entered into the transaction to purchase the Midland Hotel and the Pub business. The plaintiffs contend that but for the investment in relation to the Midland Hotel and the Pub business they would not have made various advances, entered into the various guarantee commitments and incurred various expenses. In substance the plaintiffs seek to recover all their outgoings incurred in connection with the Midland Hotel and the Pub business between October 2008 and trial. The contention was that all the loss claimed was caused by the conduct complained of.[922]
Three heads of loss are claimed:

[498]

It is necessary to quantify the loss which the wrongdoer's conduct has caused and exclude losses arising from other causes. Difficulty then arises when the diminishment of the claimant's economic position is contributed to by factors which are not a direct consequence of the wrongdoing. Having regard to this difficulty much of Derrington J's discussion (which was then echoed in the submissions before me) was directed to the differences in approach evinced by the so-called rule in Potts v Miller[933] and the measure in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd.[934] But, as Derrington J emphasised, both the rule in Potts v Miller and the measure in Astonland are directed to valuing the loss and damage which has been actually caused by the wrongful conduct and eschewing the loss or damage caused by factors which are not connected to the wrongful conduct.[935]
I consider that the case before me does not call for application of either the rule in Potts v Miller or the measure in Astonland. To explain why this is so it is necessary to describe the two approaches. Given that, for reasons I explain below, damages in the present case may be dealt with relatively simply, I will seek to do so in a truncated fashion in the expectation that my reasons will be read in light of the more comprehensive statement of principles provided by Derrington J in Wyzenbeek v Australasian Marine Imports Pty Ltd (No 2).
Briefly stated, the rule in Potts v Miller provides for a measure of damage which quantifies loss based on the difference between the price paid for an asset and its true value at the time of acquisition.[936] As Derrington J explains, the rule is most suited to where a claimant has suffered a singular and complete diminution in economic position on entry into a transaction; and, subsequently, only extraneous factors contribute to further loss.[937] But there are circumstances in which the rule in Potts v Miller is not appropriate. For example, where the impact of the misleading or deceptive conduct does not occur immediately, but instead has a continuing operative effect which is experienced over an extended period (such as where the transaction has an anticipated temporal aspect).[938] Or where the claimant cannot easily extricate itself from the altered economic position and - being locked into the investment for an extended time - is thereby exposed to additional loss from subsequent events.[939] Then the Astonland measure may be appropriate. Briefly stated, the Astonland approach involves measuring loss by reference to the value of the asset at the time of trial (referred to as the benefit left in the hand).[940]
Derrington J explains that:

[504]

In each case it is the contravening misleading or deceptive conduct which - through the adopted position - continues to expose the claimant to the relevant loss.
Counsel for the plaintiffs and counsel for the defendants both spent considerable time taking me through Wyzenbeek v Australasian Marine Imports Pty Ltd (No 2). Much less time and energy was expended on explaining its significance to the case before me. Essentially, however, counsel for the defendants suggested that the plaintiffs' claim was not put in accordance with the rule in Potts v Miller - and there was no evidence to quantify loss on this basis. Counsel for the defendants went on to submit that none of the three circumstances identified by Derrington J as justifying the Astonland measure were applicable on the facts. Counsel for the plaintiffs' riposte was that the rule in Potts v Miller was inapplicable as the plaintiffs posited a no transaction case - claiming all expenditure as made - and that in any event an Astonland measure was appropriate as the plaintiffs were locked into (and unable to extract themselves from) the Midland Hotel and the Pub business.
The rule in Potts v Miller and the Astonland measure are primarily concerned with quantifying damages where a claimant has purchased an investment or other asset as a result of the wrongful conduct. I appreciate that there was a purchase in the present case. Girgis Nominees acquired the Sunriver shares and units. But this was not the basis on which loss was claimed. The loss claimed - relevantly - is in respect of the plaintiffs' advances to Girpol. (For now the heads of loss other than the advances may be put to one side.)
The advances claimed by way of loss include, among others, the two initial $250,000 amounts as used to complete the purchase of the Sunriver shares and the units in the Junction Unit Trust. Apart from the claim for loss proceeding on the basis that there were such advances the relevant outflows (including the two $250,000 amounts) are also - in my opinion - properly characterised as advances to Girpol.[943] That was how they were accounted for in Girpol's financial statements as prepared under the auspices of Mr Girgis and Mr Poliwka as directors of Girpol. The two $250,000 amounts are also implicitly acknowledged as advances in the way that the defendants have propounded their counterclaim (see pars 825 to 826 and 831 above).
It is self-evidently correct, as Derrington J observes, that the adoption of an appropriate measure of damage is determined - at least in part - by the nature of the misleading or deceptive conduct and the manner in which damage is claimed to flow from it.[944] It is important to identify the claimant's acts or omissions which occurred in consequence of the misleading or deceptive conduct and what would or would not have been done had the conduct not occurred.[945]
The contravening conduct consisted of Mr Poliwka's misleading or deceptive representation. This only spoke as at the time of the October 2008 transactions. The representation was as to having conducted due diligence investigations and being satisfied with the findings. It was not, in my opinion, conduct that might justify an Astonland type measure on the third basis as identified by Derrington J - at least for the duration of the four year claim period as posited by the plaintiffs (the advances continuing well into 2012). Nevertheless, it should be appreciated that the misleading or deceptive conduct occurred at a time when the renovations to the Midland Hotel had not been completed and the Pub business was not operational. There was scope for the misleading or deceptive conduct to continue in operative effect until the Pub business recommenced in operations and the inadequacy of Mr Poliwka's due diligence investigations became manifest in the ongoing performance of the Midland Hotel and Pub business.
As a result of the misleading or deceptive conduct in contravention of the statutory norm Mr Girgis, for Girgis Nominees, agreed to and then proceeded to complete the October 2008 transactions. The acts said to occur as a consequence - and in respect of which loss is claimed to have occurred - include the plaintiffs:

[511]

The Chief Justice went on to explain that, if trading losses could not be characterised as losses incurred over the period of reasonable retention before and after knowledge of the true position, then the losses were properly characterised as independent, extrinsic, supervening or accidental and fell outside the scope of the losses for which the contravener was responsible.[947]
On the first head of claimed loss (see par 1044(1) above) I am satisfied that the contravening misleading or deceptive conduct caused or materially contributed to Mr Girgis causing Girgis Nominees (and, to a limited extent, himself) to make certain advances to Girpol and Bold Gem. This follows from the findings I have made to the effect that the plaintiffs relied, and reasonably relied, on the due diligence representation (see pars 1031 to 1040 above).
Some advances are obviously causally connected to the contravening conduct. Whether the necessary causal connection exists becomes more problematic with the passage of time. This is so for two reasons. First, it is impossible to accept as a matter of apparent logic that the due diligence representation continued in operative effect throughout the four year period that is the duration of the claim. That proposition is simply not objectively rational. That is all the more so when the due diligence statements spoke as to a particular point in time. Second, with the passing of time Mr Girgis became concerned with the performance of the Pub business. Mr Girgis was concerned that the business was struggling and was uncomfortable with the lack of return. Mr Girgis raised those concerns with Mr Poliwka. In addition, as a director of Bold Gem Mr Girgis knew that the Pub business was not trading profitably. That was manifest in Bold Gem's financial statements (to which Mr Girgis had access as a director of Bold Gem). At some point the inadequacy of Mr Poliwka's due diligence investigations must have become apparent to Mr Girgis with the continuing losses being derived by the Pub business.
The advances which are obviously causally connected to the misleading or deceptive due diligence representation are:

[515]

The initial two categories of advance (as mentioned in the preceding paragraph) followed and occurred as a direct result of the decision to purchase the Midland Hotel and the Pub business. The $500,000 was required to fund the purchase; and, having committed to the investment, it was necessary to fund the renovations. The 23 October 2008 decision to fund the renovations followed close upon the making of the due diligence representation. Losses which are only connected to the contravening conduct by the 'but for' test must be excluded. I am satisfied that that this was no mere but for connection. As a matter of common sense the commitment to renovate, and the subsequent funding to do so, depended on Mr Poliwka's assurance that he (Mr Poliwka) had done his due diligence and was satisfied with his findings. Practically, experience and reasonableness inform that conclusion in the circumstances of the relationship between Mr Girgis and Mr Poliwka and the context of the decision to proceed with the investment. So too the initial $50,000 in funding. Mr Girgis knew that they (Mr Girgis and Mr Poliwka) would have to inject some money into the Pub business to get it going. That initial funding was referable to the decision to purchase the Midland Hotel and Pub business and logically was caused or materially contributed to by the misleading or deceptive due diligence representation.
Limited advances were funded over the period of April 2009 to 30 June 2010. In part this was due to the availability of the $1.45 million facility with BankWest (see pars 780 to 782 above). The advances to 30 June 2010 consisted of $50,000 (on 5 August 2009), $25,000 (on 20 January 2010) and $15,000 (on 21 June 2010) (see pars 799 to 800 above). But thereafter there were consistent and regular advances: $235,000 in the year ended 30 June 2011; $300,350 in the year ended 30 June 2012; and $70,000 until Mr Girgis stopped funding in September 2012.
I am not satisfied that Mr Poliwka and FWA can be responsible for the losses suffered in relation to all those post-April 2009 advances.
By analogy with the accepted position on trading losses, there comes a point where the true position was apparent to Mr Girgis. There may then be compensable loss to the extent that it was reasonable to continue to fund before ‑ as Mr Girgis eventually did in September 2012 ‑ putting an end to the suffering of loss by ceasing to fund. After all, on Mr Girgis' case on the counterclaim (one that I accept below) he was not obliged to continue to fund the ongoing costs of operations where Girpol was suffering ongoing losses. This necessarily means that advances - and losses sustained in relation to advances - which were made after it was no longer reasonable to fund are not compensable. Such advances were not caused or materially contributed to by the misleading or deceptive due diligence representation. They are properly characterised as independent or extrinsic. They occur by or because of Mr Girgis' willingness to continue to fund the operations of the Pub business despite the inadequacy of Mr Poliwka's due diligence being apparent through the need to continue to fund its ongoing losses.
Counsel for the plaintiffs sought to answer this by submitting that the plaintiffs were locked into and unable to extract themselves from the Midland Hotel and the Pub business.[948] The reality is otherwise. Mr Girgis' actions in September 2012 demonstrate that he was able to bring an end to the continuation of advances to fund the operations of the Pub business.
It is, however, necessary to determine the point at which the contravening conduct is no longer causative. Advances beyond that point will not be allowed as damages caused or materially contributed to by the misleading or deceptive due diligence representation.
I have already addressed some of the evidence as to the performance of the Pub business and Mr Girgis' knowledge of the unprofitability of the Pub business (see pars 602 to 605, 799 and 803 to 805 above). The Pub business re-opened in February 2009 and enjoyed some initial success. However, signs that all was not well were apparent by May 2009 when the decision was taken to terminate the relationship with Mr Caporn (see pars 600, 707 and 717 above). By February 2010 ‑ one year after the Pub business had re-opened ‑ Mr Girgis was aware that the Pub business had not traded profitably (see par 602 above). The financial statements show significant losses for the years ending 30 June 2009 ($488,086) and the year ending 30 June 2010 ($320,953) (see par 604 above).
In examination-in-chief Mr Girgis was asked the hypothetical question as to what he would have done had an offer been received to purchase the Midland Hotel for $5 million in March 2009. Mr Girgis' answer is revealing as to his state of mind at the time. Mr Girgis said that the investment was an 'absolute mess'.[949] Mr Girgis said that he 'would have loved to get out of it'.[950] The reference to 'mess' was later explained by reference to the investment also including the Pub business.[951] Mr Girgis also stated that it was only part of the period between October 2008 to March 2009 that he would have loved to have gotten out of the investment.[952] But in any case, on his own evidence, Mr Girgis had reservations about the investment from as early as March 2009.
The difficulties with the Pub business were apparent to others. Mr Girgis says the following in his initial witness statement:

[517]

Accordingly, by within four months after the re-opening of the Pub business, Mr Girgis knew that its continued operations required ongoing funding. Ongoing funding was only required to meet ongoing losses.
From mid to late 2009 Mr Girgis started raising his concerns with Mr Poliwka about the lack of return that had been seen on the investment in the Pub business.[954]
I have concluded that, by the end of February 2010, Mr Girgis was aware that the trading performance of the Pub business was inconsistent with Mr Poliwka having done adequate due diligence investigations into the Midland Hotel and the Pub business. The Pub business had then traded unprofitably for a year. More than six months had passed since Mr Caporn had departed the business and Mr Girgis and Mr Poliwka (through their respective entities) had taken over the conduct of the Pub business. The unprofitable operations could no longer be assigned to start-up or Mr Caporn's management and business plan. The unprofitable performance was due to something more. Mr Girgis himself had voiced concerns about the Pub operations since mid to late 2009 and apparently had reservations from as early as March 2009. As at the end of February 2010 recognition had occurred as to the unsatisfactory performance of the Pub business. At that time Mr Girgis was aware that the trading performance of the Pub business was inconsistent with Mr Poliwka's representation as had been relied on in entering into the investment.
I accept that it was reasonable to make some further advances after that time. By analogy with the trading losses cases it was reasonable to make some advances pending investigation of options before bringing an end to continued funding. However, in my opinion, a reasonable period for continued advances was no more than four months. That was the approximate period between the commencement of Mr Hart's investigations into Mr Girgis' finances (mid-April 2012) and the last of the advances made by Mr Girgis in the usual run of things (24 August 2012).
Accordingly, I am satisfied that there was a causal connection between the misleading or deceptive due diligence representation and the advances made up to 30 June 2010. Those advances were caused or materially contributed to by the contravening conduct. But, with one exception, I am not satisfied that Mr Poliwka and FWA are responsible for losses suffered in relation to post-30 June 2010 advances. From 1 July 2010 the contravening conduct as established ceased to be causative and had no continuing operative effect on Mr Girgis' further funding of the ongoing losses of the Pub business.
The exception involves the $725,000 payment made by Girgis Nominees on 17 October 2012 (see par 818 above).
The $725,000 payment occurs after the 30 June 2010 cut-off. But it was not a normal advance to meet the ongoing costs of the operations of the Pub business. Rather, it was to meet Mr Girgis' 'share' of the $1.45 million facility that Girpol had obtained from BankWest at around April or May 2009 as secured against the Joondalup Property. That $1.45 million had been used, in part, to repay some of the advances made by Mr Girgis and Mr Poliwka to or for the benefit of Girpol and Bold Gem. (To the extent that advances were repaid they must be taken into account and allowed for as a credit against the unrecouped advances.) Importantly, however, the $1.45 million facility was guaranteed by Mr Girgis and Girgis Nominees.
The guarantee meant that the advance of the $725,000 on 17 October 2012 was not a discretionary decision in the nature of the other post-30 June 2010 advances. Mr Girgis effectively had no choice. Given the guarantee and security, non-payment would eventually have led to legal proceedings and forced payment or sale of the Joondalup Property and then payment. To the extent of this $725,000 payment I accept counsel for the plaintiffs' submission that Mr Girgis was locked into, and unable to extricate himself and Girgis Nominees from, making the payment.
The guarantee obligation, together with the security, was entered into in April / May 2009, a time well before the 30 June 2010 cut-off. I am satisfied that the contravening misleading or deceptive conduct caused or materially contributed to Mr Girgis entering into and causing Girgis Nominees to enter into the guarantee and the security. The transaction was the natural consequence of the purchase of the Midland Hotel and Pub business and the funding provided to complete the renovations to the Midland Hotel. In substance Mr Girgis and Mr Poliwka were seeking to finance some of the renovation costs as had previously been advanced by their respective entities. In order to do so it was necessary to provide the guarantee and security.
It is inherent in the nature of a guarantee that a payment may be required well after the obligation is assumed. Ensuing loss arises from the intrinsic nature of the obligation assumed at the time the guarantee is provided. Accordingly, that is the appropriate time to assess whether Mr Girgis was aware of the true position by virtue of the unprofitable performance of the Pub business.
At the stage the parties obtained the $1.45 million BankWest facility the penny had not dropped. For the reasons I have given Mr Girgis did not become aware of the true position until the end of February 2010. Accordingly, in the same way that there was a causal connection between the misleading or deceptive due diligence representation and the advances made up to 30 June 2010, so too there was a causal connection between the contravening conduct and the entry into the guarantee and security. The $725,000 payment made in October 2012 was made because of the guarantee and security and the intrinsic character of the obligations as undertaken. That being the case I am satisfied that $725,000 payment was likewise attributable to ‑ ie caused or materially contributed to by ‑ the misleading or deceptive due diligence representation.
The potential compensable losses as to the first head of loss ‑ the unrecovered advances made by Mr Girgis and Girgis Nominees to Girpol and Bold Gem - thus consist of the following:

[521]

Only $15,000 of the $1.335 million involves advances made by Mr Girgis to Bold Gem (the $15,000 advance on 21 June 2010). The remaining $1,320,000 involves advances made by Girgis Nominees to Girpol.
At this point - having identified the potential compensable losses - I should revisit the parties' debate as to the rule in Potts v Miller and the Astonland measure. In quantifying the damages to be awarded I should consider the extent, if any, to which the debts due by Girpol and Bold Gem had a value which ought to be taken into account and allowed for against the advances. This is not an exercise in assessing whether the plaintiffs failed to mitigate their loss by not taking proceedings against Girpol and Bold Gem (they eventually did) or taking proceedings too late. There was no plea by way of defence that the plaintiffs failed to mitigate their loss and no attempt to discharge the defendants' onus of proof in respect of a claim of failure to mitigate. The issue is not one of mitigation but rather proof of loss. In claiming, by reference to the advances as made, the full amount of the advances, the plaintiffs implicitly contend that the loan amounts were without value. To the extent, if any, the advances had value at the relevant time for assessment of loss that should be taken into account in quantifying the allowable damages in respect of the loss.
The task is not without difficulty. Nevertheless, having found that there was loss in the form of the compensable advances, I am obliged to do my best to quantify the damage.[955] It is acknowledged that doing its best to quantify loss may involve the court in a degree of speculation or guesswork.[956] Here, however, it is necessary to distinguish between a case where a plaintiff cannot adduce precise evidence of loss and a case where, although apparently able to do so, the claimant has not adduced such evidence.[957]
The obligation on the court to do the best it can on the evidence before it depends on the circumstances of the case. The proper approach is an evaluative one influenced by such considerations as the nature of the question including its amenability to precise proof or assessment, the availability and control of evidence and the onus of proof. Considerations such as the assessment of evidence according to the power of the party to adduce it will be important to such an evaluation.[958]
No speculation or guesswork is required as to the $725,000 advance of 17 October 2012 to Girpol. That debt was worthless. Girgis Nominees commenced proceedings for this debt, among others, in July 2013 (SOC, par 48, DAC, par 48). The proceedings resulted in no recovery before Girpol's eventual administration and liquidation. Accordingly, there is no need for any allowance against the amount of the advance to quantify Girgis Nominees' loss. The events that occurred show that the debt was without value. I would allow the $725,000 in full as a proven loss.
In coming to this assessment I have taken into account the defendants' argument ‑ made by counsel for the defendants as to the payment in respect of the guarantee of the ME Bank loan ‑ to the effect that Mr Girgis could have brought matters to a head by bringing about a sale of the Midland Hotel and the Pub business far earlier.[959] It was suggested, for example, that it might have been that with an earlier sale there would have been no liability under the guarantee.[960] There was, however, as counsel for the defendants emphasised, no attempt to sell the asset even though Mr Girgis was in an asset 'he would have loved to have gotten out of' at a stage he (Mr Girgis) 'knew that he had been misled'.[961]
Presumably, if the submission is correct, it would also apply to the payment made because of the guarantee in relation to Girpol's $1.45 million facility with BankWest.
I do not accept the submission. First, the submission is premised on the contravening conduct having ceased to have causal effect. For the reasons already given I do not accept that to be the case. Mr Girgis was not aware that he had been misled at the time of entry into the guarantee and security. Second, the submission assumes that Mr Girgis would have been able to bring about a sale of the Midland Hotel and the Pub business. How Mr Girgis could have done so was never explained. Sale would have been dependent on Mr Poliwka's agreement. At the most Mr Girgis could have ceased funding the Pub businesses' costs of operations. But even when Mr Girgis did this in September 2012 it did not result in any timely sale of the Midland Hotel. Rather, it resulted in a distressed sale some years later. Third, although put ‑ in form - as going to proof and quantification of damage, the argument is - in substance - one of failure to mitigate. No such defence was pleaded.
It remains necessary to quantify the damages in relation to the $610,000 in pre-1 July 2010 advances.
I have decided that I should value the pre-1 July 2010 advances as at 30 June 2010. The court is not limited to the approaches in Potts v Miller or Astonland and some point other than completion of the transaction or trial may be more appropriate for the assessment of loss.[962] 30 June 2010 is the point at which, for the reasons I have given, further advances by or on behalf of Mr Girgis were no longer attributable to the contravening conduct. It also represents a time at which Mr Girgis could have taken the action he later took in 2012. Knowing of the continued unprofitability of the Pub business Mr Girgis could have brought the funding to an end and commenced proceedings to recover the advances to that point. Had that occurred I am reasonably satisfied that the events which occurred in 2014 and following - the eventual external administration of the entities and the forced sale of the Midland Hotel - would instead have occurred at an earlier time.
A notional valuation of the recoverable value of the debts can be arrived at based on the financial statements as at 30 June 2010 of Girpol,[963] the Junction Unit Trust[964] and the Bold Gem Unit Trust.[965] The notional valuation should also take into account any other potentially relevant evidence as was adduced at trial. To the extent, if any, the loss represented by Girgis Nominees' advances to Girpol (an amount of $595,000) and Mr Girgis' advances to Bold Gem (an amount of $15,000) are assessed as having value that should be allowed for as reducing the damages to be awarded.
I am conscious, however, that I have not had submissions from either party on this quantification exercise. I have decided that the parties should have an opportunity to make submissions as to the extent, if any, to which an allowance should be made in this way. That opportunity will be provided to the parties following delivery of these reasons. Alternatively, it may be that the parties can come to an agreement as to the appropriate allowance.
With that proviso, the damages in respect of this first head of loss are as follows:

[527]

The final head of loss as claimed (see par 1044(3) above) is the balance of the March 2016 guarantee payment by Mr Girgis in the amount of $854,866.14 (see pars 824 and 1044(3) above). The payment was made as a result of the guarantee Mr Girgis provided to ME Bank in respect of Sunriver's $1.95 million loan with ME Bank. It will be recalled that the guarantee was provided in around March 2009 following ME Bank raising the issue that the change in control of Sunriver had occurred without ME Bank's consent (see pars 58(1) and 549 above).
As with (and for the same reasons as with) the guarantee in relation to Girpol's $1.45 million BankWest facility, I am satisfied that Mr Girgis' provision of the guarantee in respect of the ME Bank loan and the eventual payment under the guarantee was caused or materially contributed to by the misleading or deceptive due diligence representation. Indeed the causal connection is more direct. It was always contemplated that as part of the October 2008 transactions Mr Girgis and Mr Poliwka would be assuming the ME Bank debt. The March 2009 guarantee was the natural and inevitable consequence of the form of the transaction that Mr Girgis and Mr Poliwka agreed to proceed with (in Mr Girgis' case, in reliance on the representation and advice of Mr Poliwka).
I have already recounted the argument advanced by counsel for the defendants as to why damages in respect of the guarantee should not be quantified at the time of, and by reference to, the payments made pursuant to the guarantee. I reject that submission for the same reasons as with the guarantee in relation to Girpol's $1.45 million BankWest facility (see par 1096 above).
Accordingly, damages in respect of the third head of loss are quantified in the amount of $854,866.14. Here the loss was suffered by Mr Girgis alone as he made the guarantee payments.
I should, at this point, summarise the outcome as to the plaintiffs' damages on the misleading or deceptive conduct claim in relation to the advances and other payments concerning the Midland Hotel, the Pub business, the Moonlight Express and the Charter business. In summary, the damages proven and quantified as occurring by or because of Mr Poliwka's and FWA's contravening misleading or deceptive conduct total $1,641,501.37. There is potentially a further $610,000. However, assessment in relation to that $610,000 must await further submissions.
The $1,641,501.37 is calculated as follows:

[544]

There are two aspects to the plaintiffs' claim as to the replacement of the tenants to the Joondalup Property. First, the dealings as to the surrender of the Bajo lease. Second, the dealings as to the new lease to JEPL. For reasons I now come to the plaintiffs succeed on the latter and fail on the former.
The plaintiffs' claim fails on the facts insofar as it concerns the alleged representations and non-disclosures on the surrender of the Bajo lease (see pars 732, 750 to 754 and 858 to 859 above). With one exception the aspects of the alleged conduct that were established on the evidence concerned the new lease to JEPL rather than surrender of the Bajo lease (see pars 856 to 860 above). Moreover, the plaintiffs did not prove that Bajo or Mr Sprague had sufficient financial capacity to continue to meet the obligations under the Bajo lease or to make any substantial payment as a condition of obtaining a surrender of the Bajo lease (par 734 above).
The one respect in which the plaintiffs established their pleaded factual case as to the surrender of the Bajo lease was that, in effect, Mr Poliwka did advise Mr Girgis that the plaintiffs should agree to the Bajo lease being terminated on the terms of or on terms similar to the Bajo surrender (see par 856(1) above).
In my opinion that advice was not in breach of Poliwka Group's contractual obligations under the agency agreement. Nor was it in breach of a co-extensive tortious duty to act with reasonable skill, care and diligence. Bajo had defaulted. It had been necessary to lock-out Bajo from the Joondalup Property for non-payment of rent. In substance Mr Poliwka's recommendation was that Mr Girgis agree to let Bajo out of its lease so that a replacement tenant could be found that was able to pay the rent. To my mind that advice is non-controversial and does not bespeak negligence or a failure to act with due diligence and best endeavours. It is difficult to see what else a competent real estate agent would advise its client. It is hardly in the client's interest to retain a tenant who is in default and has had to be locked-out of the premises. I see nothing actionable per se in advice to replace a defaulting tenant - who is not paying rent - with another tenant who can pay the rent.
The real issue was not the general advice to bring about replacement; but, rather, whether JEPL was a suitable replacement. And that question is caught up in the second aspect to the plaintiffs' claim about the replacement of the tenants to the Joondalup Property.
It may be that I have misconceived the nature of the plaintiffs' complaint. It may be that the gravamen of the alleged breach of contract and duty is not the advice to agree to the surrender, but is to so advise and not also to advise that the plaintiffs insist on some form of payment as a condition of the surrender. The difficulty in this regard is one of the plaintiffs' making. Proper particulars ought to be given of any alleged negligent breach setting out with specificity the respects in which it is said that the defendant has fallen short of the relevant standard. The plaintiffs' SOC did not comply with this basal requirement. The pleader alleged solely that Mr Poliwka and Poliwka Group breached their duties. The only particularisation provided was to refer to the alleged conduct in breach without specification of what it was said the defendants should have done. No greater elucidation was provided in the plaintiffs' submissions.
If the alleged breach is truly put as a failure to advise there are two difficulties with the claim. First, I have found that Mr Girgis was aware of the substance of Girgis Nominees' legal entitlements so far as continuation or surrender of the Bajo lease was concerned; and that it was also obvious to him (Mr Girgis) that he could insist on some payment as a condition for agreeing to the surrender (pars 732 and 752). In those circumstances I am not satisfied that any putative breach caused or materially contributed to Bajo and its guarantor being released for no consideration. Second, for reasons I have explained, the plaintiffs have not established that there was a loss of opportunity of any real (as opposed to theoretical value (see pars 733 to 734 and 752 above).
Accordingly, the plaintiffs do not succeed in their pleaded case on the surrender of the Bajo lease. It remains necessary to consider the claim as to entry into the JEPL lease. It is convenient to examine this by reference first to the contractual claim against Poliwka Group trading as FWR.

[545]

Poliwka Group trading as FWR did not meet its contractual obligations in relation to Girgis Nominees' entry into the JEPL lease. FWR failed to use due diligence and best endeavours on behalf of Girgis Nominees in negotiating the new lease in relation to the Joondalup Property. The suitability of JEPL and its proposed guarantors was not adequately investigated. As a result Girgis Nominees was exposed to the potential type of loss that in due course eventuated: JEPL and its guarantors did not meet the financial obligations under the JEPL lease.
Poliwka Group knew ‑ because its commercial property manager Tony Thompson had been told ‑ that JEPL was a newly established company with no available historical financial statements.[972] In any case had Poliwka Group taken the most basic of steps and obtained a recent company search in relation to JEPL it would have been self-evident that JEPL was a newly incorporated company.[973] But the limited investigations undertaken as to JEPL's and its guarantors' financial capacity did not even extend to obtaining a company search.
Accordingly, at the time of recommending JEPL as a fit tenant to take over from Bajo nothing was known as to JEPL's financial capacity and available financial resources.
The plaintiffs pleaded that JEPL had negligible assets (SOC, par 86.1). There was little evidence as to JEPL's assets. Five things are now known. First, JEPL was a newly established company. Second, JEPL was not in a position to provide any financial statements.[974] Third, JEPL's issued and paid up share capital was only $300.[975] Fourth, by mid-June 2010 - within eight months of JEPL's tenancy - JEPL fell into arrears (see par 758 above). Fifth, eventually the JEPL lease was terminated due to JEPL's default.
Based on the first four matters referred to in the preceding paragraph I am reasonably satisfied, on the balance of probabilities, that JEPL had negligible assets at the time that Mr Poliwka was recommending it as a fit tenant to take over from Bajo. It is also the position ‑ based on the first three matters ‑ that FWR and Mr Poliwka knew or should have known, at the time of recommending JEPL as a fit tenant to take over from Bajo, that JEPL's financial capacity and available financial resources were highly questionable.
In any case, as already mentioned, neither Poliwka Group nor Mr Poliwka knew of the JEPL's financial capacity and available financial resources. There had not been any - let alone any adequate - investigation into JEPL's financial position. Remarkably, the evidence also discloses nothing as to a business plan or cash flow projections. The absence of any verifiable information as to JEPL's financial capacity, resources and prospects necessitated that there be a full and comprehensive investigation into the financial capacity of the proposed guarantors to JEPL. JEPL's suitability as a tenant was dependant on satisfaction that its proposed guarantors had adequate financial capacity and available financial resources to honour the lease commitments that were intended to be undertaken by JEPL over the proposed three year lease term.
The steps taken by way of due diligence investigations as to the proposed guarantors were limited (see par 745 above). In my opinion they were insufficient. Indeed, I would go as far as to say that the due diligence investigations as to the proposed guarantors as performed by or on behalf of Poliwka Group trading as FWR were manifestly deficient. They could not amount to the use of due diligence and best endeavours on behalf of Girgis Nominees in negotiating a new lease for the Joondalup Property.
What was done to investigate the suitability of the proposed guarantors consisted of no more than obtaining:

[548]

None of the financial information was verified. There was, for example, no statutory declaration confirming that the information was accurate and that nothing material had been omitted. The limited information on file appears to have been accepted at face value. No basic third-party credit searches were undertaken. No credit references were sought and obtained. There were no requests for proof of identity, recent income tax returns, bank statements or other usual financial records that would commonly be expected in determining the suitability of a person as a proposed guarantor.
There was an asset and liability statement in relation to Mr Young.[976] The contents of that statement were quite general. But, more significantly, the information was irrelevant by the time of execution of the JEPL lease: Mr Young did not become a guarantor.
Mr Bulobin provided financial statements.[977] Significantly, despite the FWR commercial property manager identifying that it was necessary to obtain asset and liability statements,[978] that is not what occurred. There was no complete asset and liability statement as to Mr Bulobin. The financial statements (which were unverified) only disclosed the position of Mr Bulobin's Atlantic Machinery business. They did not disclose assets held or liabilities arising outside that business. In that respect the financial statements were inadequate. On their face the financial statements raised questions for further investigation. What were the buildings disclosed as being part-owned with another? Why were there no liabilities shown in the financial statements (most business have some liabilities)? Was the very round figure of stock on hand ‑ which had doubled over the most recent 12 month period ‑ accurate (all the more so as the suggested stock figure was equivalent to the annual sale income)?
Little needs to be said as to the inadequacy of the investigations into Mr Boksmati: the production of a business card says nothing as to the holder's financial capacity and available financial resources as a proposed guarantor. Anybody can arrange for a professional looking business card to be printed up at a very small cost.
The recommendation that JEPL was a fit tenant to take over from Bajo, and the eventual facilitation of Girgis Nominees' entry into the new lease of the Joondalup Property, occurred in circumstances where: (1) there had been no investigation into JEPL's financial capacity and available financial resources; (2) the suggested 'due diligence' investigations into the suitability of the proposed guarantors were insufficient and manifestly deficient. In the circumstances Poliwka Group trading as FWR failed to use due diligence and best endeavours on behalf of Girgis Nominees in negotiating the new lease with JEPL.
The plaintiffs have established the contractual claim alleging breach of the agency agreement by Poliwka Group insofar as concerns JEPL's entry into the lease of the Joondalup Property as the replacement tenant for Bajo.

[549]

The factual findings that persuade me that Girgis Nominees has made out its contractual claim also establish the plaintiffs' misleading or deceptive conduct and negligence claims.
On the misleading or deceptive conduct claim I have found that Mr Poliwka represented that he had conducted due diligence investigations in relation to JEPL and was satisfied with his findings (see par 856 above). The representation is also attributable to Poliwka Group trading as FWR (see par 923 above). That positive representation was untrue and created a false impression. For the reasons addressed in determining the claim in contract there were no, or no adequate, due diligence investigations into the suitability of JEPL and its proposed guarantors as a replacement tenant of the Joondalup Property. The insufficient and manifestly deficient state of the actual investigations was not such that Mr Poliwka could have been satisfied that JEPL was a suitable tenant. It follows that the representation was misleading or deceptive or likely to mislead or deceive. As the positive representation made by Mr Poliwka constitutes conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive it is unnecessary to make any findings as to the plaintiffs' non‑disclosure case in respect of the entry into the JEPL lease.
The plaintiffs have established their misleading or deceptive conduct claim insofar as ‑ as to entry into the JEPL lease ‑ Mr Poliwka represented that he had conducted due diligence investigations in relation to JEPL and was satisfied with his findings. The claim is established as against both Mr Poliwka and Poliwka Group.
The failure to meet the contractual obligation under the agency agreement similarly establishes that, in advising that the plaintiffs should agree to the Joondalup property being leased to JEPL, Poliwka Group trading as FWR did not exercise reasonable skill, care and diligence.
In recommending that a landlord should grant a lease of commercial property to a tenant a reasonable and competent real estate agent would first conduct appropriate investigations into the background, financial capacity and available financial resources of the proposed tenant and its guarantors. That is all the more so when giving a recommendation that the proposed tenant would be a 'fit tenant' to take over from the existing tenant. Demonstration of an ability to meet the proposed lease terms is self-evidently critical in 'qualifying'[979] a proposed tenant. But, for the reasons I have given, there were no, or no adequate, due diligence investigations into the suitability of JEPL and its proposed guarantors as a replacement tenant of the Joondalup Property.
It follows that the recommendation and advice as to entry into the JEPL lease was made in breach of duty. The plaintiffs have established this aspect of their pleaded case in negligence as against Poliwka Group trading as FWR.

[550]

Mr Girgis relied on Mr Poliwka's misleading or deceptive representation and Poliwka Group's negligent advice as to JEPL and entry into the JEPL lease. I have already explained why, as Mr Poliwka was Mr Girgis' property adviser, Mr Girgis deferred to and acted on Mr Poliwka's representations and advice. That was the case with the JEPL lease. Mr Girgis did not conduct his own investigations as to JEPL and its proposed guarantors. Mr Girgis did not have to; investigation of JEPL as a prospective tenant fell within the contractual remit of Poliwka Group and was something that Mr Poliwka had said he (Mr Poliwka) had done.
Based on the representation and advice Mr Girgis caused Girgis Nominees to enter into the lease of the Joondalup Property with JEPL. But for the representation and advice - and the breach of the agency agreement - Girgis Nominees would not have entered into the JEPL lease.
Loss was incurred by Girgis Nominees as a result of its entry into the JEPL lease. JEPL and its guarantors defaulted under the JEPL lease. As a consequence Girgis Nominees did not derive rent that otherwise would have been paid to it in relation to the Joondalup Property. Girgis Nominees also incurred costs in seeking to effect recovery against JEPL and its guarantors.
For the reasons given in the three preceding paragraphs the losses on the eventual default of the JEPL lease were caused or materially contributed to by the misleading or deceptive representation and Poliwka Group's negligent advice. So too they were caused by Poliwka Group's contractual breach of the agency agreement Had FWR used due diligence and best endeavours on behalf of Girgis Nominees there would not have been a recommendation that JEPL was a fit tenant to take over from Bajo. On the state of the information then available to Mr Poliwka and Poliwka Group there could not have been such a recommendation if Poliwka Group was to satisfy its contractual obligation. Nor would Poliwka Group have facilitated Girgis Nominees' eventual entry into the new lease of the Joondalup Property.
The plaintiffs claimed four separate heads of loss (see pars 103 to 104 above).
The first head is an amount of $20,861.05 representing the difference between the rent under the Bajo lease and the JEPL lease (SOC, par 113.B). But, as pleaded, this is the amount that Girgis Nominees could reasonably have required, and expected to have received, as consideration for agreeing to the Bajo lease being received. Accordingly, on the plaintiffs' case, it is money that should have been received from Bajo or its proposed guarantor. I do not accept that this is loss which results from the actions of Mr Poliwka and Poliwka Group which caused Girgis Nominees to enter into the lease of the Joondalup Property with JEPL. Rather, this alleged head of loss is bound up with the failed case on surrender of the Bajo lease. I will not allow any damages for this head of loss.
The second head is an amount of $680,000 representing the difference between the initial purchase price of the Joondalup Property and its eventual price on re-sale (SOC, par 113.A).
I have difficulty in understanding how such a loss was caused or materially contributed to by the contractual breach and the actionable representation and advice. In written submissions counsel for the plaintiffs contended:

[552]

The submission assumes, however, that any difference between the initial purchase price of $2.565 million in December 2008 and the eventual $1.885 million on re-sale in September 2013 was due to the state of the Joondalup Property on it being yielded up by JEPL. That assumption is misconceived. The plaintiffs themselves adduced Mr Cameron's valuation evidence establishing that the actual market value of the Joondalup Property at the time of its acquisition was $2 million (see pars 184 to 185 and 659 to 663 above). Accordingly, the $2.565 million never reflected the actual market value of the Joondalup Property and this figure cannot be adopted as the metric to establish loss based on the value of the property due to its poor condition on the departure of JEPL.
Also, as I observed earlier, there is no specific evidence to ground a finding that the $1.885 million plus GST sale figure on the eventual re-sale was adversely affected by the condition of the Joondalup Property; and, if so, to what extent (see pars 764 to 766 above). That too stands in the way of acceptance of this head of loss.
If the condition of the Joondalup Property caused the eventual sale price of the property on its September 2013 re-sale to be lower than it otherwise might have been that has not been established on the evidence. In any case any diminution in the sale price would not fall to be assessed as against the initial $2.565 million purchase price. The plaintiffs have not proved their case on this head of loss.
The third and fourth heads of loss comprise:
- $281,233.46 in alleged rent that would otherwise have been received between the termination of the JEPL lease and the sale of the Joondalup Property (SOC, par 113.DA); and
- $193,292.30 in alleged legal costs and expenses as to the recovery proceedings involving JEPL and its guarantors (SOC, par 113.F). However, for reasons I have given, the legal expenses that have been proven as to the costs incurred in re-taking possession of the Joondalup Property, and pursuing recovery against JEPL and its guarantors, is an amount of $151,368.30 (see pars 768 to 772).
The $281,233.46 (rent that otherwise would have been derived that was not received following JEPL's default) is calculated based on the rent under the JEPL lease. It is suggested that an alternative tenant would have paid the same rent as JEPL. I accept that this is a valid barometer by which to gauge the 'lost' rent. Mr Cameron confirmed that the market rent as at 1 December 2008 to 1 February 2009 was $160,000 per annum.[981] That was the rent under the JEPL lease. However, consistent with the JEPL lease, the claim has been adjusted for CPI increases. That is reasonable.
I have considered the fact that the JEPL lease would have expired on 31 October 2012 and the lost rent claim persists from 1 May 2012 (the approximate date of termination) to 16 December 2013 (the eventual sale of the Joondalup Property).
Rent was not derived during that time. Why? Because of the poor condition of the Joondalup Property. I am reasonably satisfied that, had JEPL and its guarantors honoured the obligations under the JEPL lease, rent would have been derived. The Joondalup Property would then have remained fit for purpose as a nightclub. Accordingly, the plaintiffs have established loss over the whole of the period. This third head of loss has been proven in the amount of $281,233.46.
So too the legal costs and expenses as to the recovery proceedings have been proven; but only in the amount of $151,368.30. I accept that the recovery proceedings of the type taken were reasonably necessary steps to mitigate Girgis Nominees' losses. Had in fact JEPL and its proposed guarantors proved to have financial substance the losses suffered would have been recovered against them ‑ or at least minimised. There was no plea by the defendants to the effect that the plaintiffs had failed to take reasonable steps in mitigation of loss in commencing and proceeding with the recovery proceedings against JEPL and its guarantors. As to questions of mitigation there is an onus on the defendants to show that Girgis Nominees did not take such steps as a reasonably prudent landlord would have taken. There being no plea ‑ or proof ‑ that the recovery proceedings constitute unreasonable steps to mitigate loss, the legal costs and expenses as proven are recoverable as damages.
Girgis Nominees in fact obtained a recovery against Mr Bulobin in an amount of $38,051.34 (see par 767 above). Credit must be allowed for the $38,051.34. Accordingly, the damages as proven ‑ and for which Poliwka Group trading as FWR and Mr Poliwka are liable ‑ are [982]4,550.42.982

[558]

The defendants also pleaded an implied term to the effect that, where one party's contributions exceeded the other party's, then the contributions would be equalised (DAC, par 120.2). I consider that the implied term is not necessary to establish liability on the counterclaim. If the parties were to contribute equally, and one (non-paying) party has not satisfied its obligations, the paying party will be out of pocket by having to make an additional contribution. The breach thus exposes the paying party to loss to the extent that the non-paying party should have made a contribution and the paying party instead satisfied the non-paying party's share.
Mr Girgis stopped funding Girpol and Bold Gem in September 2012. Thereafter, once Mr Girgis had resigned as a director of Girpol, Bold Gem and Sunriver, Mr Poliwka caused continued funding to be provided. That occurred until the eventual appointment of voluntary administrators in June 2014. Because of the post-September 2012 contributions as made solely by or on behalf of Mr Poliwka there is a difference in contributions on behalf of Mr Poliwka, when compared to those on behalf of Mr Girgis, of $702,850 (as to Girpol) and $52,340 (as to Bold Gem).
Accordingly, the second aspect of the counterclaim is established: additional contributions have been made by or on behalf of Mr Poliwka.
The question for determination is thus whether - by the putative agreement alleged by the defendants - the parties were required to make equal financial contributions. If that is the case the Girgis parties say by way of defence that it should be implied ‑ and there was an implied term of the shareholder agreement to the effect ‑ that either party was entitled to bring the shareholder agreement to an end if the company was suffering ongoing losses (Reply, par 8.1).
Counsel for the defendants asserted that if there was such an implied term it should be on the basis that reasonable notice was required.[983] It was suggested that a reasonable period was six months.[984] That answer to the defence to the counterclaim was never the subject of a pleaded reply; it was first introduced in oral opening (not having been mentioned in the preceding written opening submissions) and then repeated in counsel's closing address. Indeed the suggestion that reasonable notice would have been six months was not made until closing.
Mr Poliwka's evidence in support of the alleged shareholder agreement was perfunctory. In the course of examination-in-chief[985] this evidence was elicited:

[562]

Mr Poliwka also referred to Girpol as a 'common entity funding bank'.[988]
Mr Girgis also gave evidence that there were discussions with Mr Poliwka about the need to fund the businesses. But this was in the context of Mr Girgis and Mr Poliwka having to fund the businesses to get them going.[989] Mr Girgis denied, however, that there was an agreement at the outset that he (Mr Girgis) and Mr Poliwka would fund the businesses in equal shares on an ongoing basis to the extent that funding was required.[990] The discussion and agreement was as to the initial injection of money. Mr Girgis said that there was no agreement to fund the businesses indefinitely.[991]
The evidence establishes that there were discussions and agreement about provision of funding: Girpol had to be funded to fund the other entities. But even Mr Poliwka's evidence does not refer to an open-ended agreement between Mr Girgis and Mr Poliwka that they would cause their respective trusts to contribute equally ‑ and forever ‑ to the acquisition and ongoing costs associated with the Moonlight Express and the Pub business.
The defendants put the alleged shareholder agreement on two bases. The first basis was that there was an oral agreement to that effect. Based on Mr Poliwka's evidence, as recorded above, there was no such oral agreement. Mr Poliwka did not suggest that he (Mr Poliwka) and Mr Girgis were to cause their respective trusts to make equal contributions. Mr Poliwka's evidence gets no higher than that there was to be funding by way of loans from the parties' respective entities. There is no mention of equal contributions. Nor is there mention that the arrangement was to continue beyond initial funding. The question of duration is studiously avoided. That is material insofar as Mr Girgis, who gave evidence before Mr Poliwka and in Mr Poliwka's presence, denied that there was any agreement to fund the businesses indefinitely.
The defendants bear the onus of establishing the alleged oral shareholder agreement. Mr Poliwka's evidence is, in my opinion, insufficient to meet that onus. I have, in any case, accepted Mr Girgis' evidence that the discussions were about having to fund the businesses to get them going (not to fund the businesses indefinitely). The intention was that the businesses were to make money to repay the initial amounts that were loaned to get them going (see pars 777 to 778 above).
In the alternative the shareholder agreement is said to be inferred from the acts and conduct of Mr Girgis and Mr Poliwka. In that respect Mr Girgis confirmed that the advances the plaintiffs made claim for were matched by the Poliwka parties.[992]
Neither party directed any submission to the applicable legal principles on inferring an agreement from conduct. Nor was I addressed as to why, on the evidence, such an agreement ought to be inferred. (Similarly, beyond the defendants' conclusory afterthought that any implied term for termination would require reasonable notice, there was an absence of submissions ‑ from either party ‑ as to the plaintiffs' suggested implied term.) I am left to assess the pleaded cases unassisted by submissions. At one stage I thought the contention as to an inferred contract might have been abandoned. Counsel for the defendants did, however, refer in passing in closing to the existence of an alleged 'inferred' agreement.[993] Accordingly, I must deal with the respective contentions as best I am able.
An agreement may be inferred from conduct. The intention of the parties may be gleaned as a matter of inference from the way they acted and reacted with one another in their dealings concerning the subject matter of the arrangements. But the law requires parties to make their own contract. A contract will not be constructed out of arrangements that are vague, indefinite or unsettled. The key consideration is the actual or imputed intention of the parties. The ascertainment of intention is objective.[994]
With such an informal contract the inference of actual intention applies at two stages: first, in determining whether a contract exists; second, in identifying the terms of the contract. The inference as to a contract and its terms is different to identification of an implied term.[995]
In assessing whether such an objective 'actual intention' is to be identified it is necessary to consider the entire body of conduct of the parties.[996] The task has been described as follows:

[565]

Inferring a contract or a term from conduct will not be done lightly. It is only in cases where the evidence is clear that such inferences will be drawn.[999]
The defence pleaded by the plaintiffs relied on an alleged implied term (assuming that there was a shareholder agreement as pleaded by the defendants).
The five criteria usually applied in determining whether a term is to be implied in fact are well-established.[1000] The term must:
- be reasonable and equitable;
- be necessary to give business efficacy of the contract (so that no term will be implied if the contract is effective without it);
- be so obvious that 'it goes without saying';
- be capable of clear expression; and
- not contradict any express term of the contract.
However, the criteria are not applied rigidly in the case of an informal contract. With informal contracts a term will be implied if, and only if, the implication of the term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case, assessed against the background of, but without rigidly applying, those five criteria.[1001]
Seven things are important in assessing whether the conduct establishes, by objective actual intention, the alleged shareholder agreement with the equal contribution term as pleaded by the defendants.
First, Mr Girgis and Mr Poliwka, through their respective entities, each held a 50 per cent interest in respect of the Midland Hotel. Second, the shares in Girpol were also held 50:50. (That is important insofar as Girpol held the Bold Gem shares and units and also owned the Moonlight Express and operated the Charter business.) Third, Mr Girgis and Mr Poliwka (whether themselves or by their respective entities) made equal contributions to bring about the initial purchase of the Sunriver shares and units ($500,000 each) and the Moonlight Express ($400,000 each). Fourth, as was expressly agreed, Mr Girgis and Mr Poliwka caused equal contributions to be made to complete the renovations of the Midland Hotel and to provide initial funding for the operations of the two businesses. Fifth, Mr Girgis and Mr Poliwka were both directors of the two trading companies (Bold Gem and Girpol) and therefore potentially responsible for any insolvent trading by those companies. Sixth, Mr Girgis and Mr Poliwka both provided relevant guarantees (a guarantee in respect of the ME Bank loan and guarantees both personally and on behalf of Girgis Nominees and FWA in respect of Girpol's $1.45 million facility with BankWest).
Seventh, and most significantly, over the course of March 2009 to August 2012 Mr Girgis and Mr Poliwka caused equal contributions to be made (either personally or by their respective related entities) as and when funds were required for the operations of the Pub business and the Charter business. On Mr Girgis' part the evidence refers to some 33 advances totalling $745,350 (see pars 779, 783 to 785, 799, 800, 809).
I have already referred to the funding requests, through Ms Ridgway, often being accompanied by an assurance to Mr Girgis that Mr Poliwka had or was to make an equivalent deposit to keep everything equal.[1002]
Assessing that body of conduct as a whole ‑ in the factual context that Mr Girgis and Mr Poliwka each controlled a 50 per cent interest and were directors of the trading entities ‑ I consider, objectively, that there was an actual intention between the parties that Mr Girgis and Mr Poliwka would each contribute (either personally or through their respective entities) equal amounts to enable Girpol to meet the ongoing costs of the operations of the Pub business, the Moonlight Express and the Charter business. Accordingly, I find the alleged inferred shareholder agreement to be established on the facts.
Such an objective actual intention is consistent with the express oral discussions and agreement as to the initial funding for the acquisitions, the renovation of the Midland Hotel and to bring about the commencement of the operations of the two businesses. There is also a consistent course of dealings, on numerous occasions, over more than three years. That unequivocal course of dealings manifests that there was a tacit understanding and agreement between Mr Girgis and Mr Poliwka in terms of the alleged shareholder agreement: the two parties were to make equal contributions to meet the ongoing costs of operations.
It does not follow, however, that Mr Girgis was bound to fund Girpol forever by matching Mr Poliwka's contributions to the ongoing costs associated with the Pub business and the Charter business.
A shareholder agreement of the type manifested by the parties' conduct would be oppressive and burdensome if it was open-ended in duration. A realist shareholder/director, conscious of the need to take action to bring mounting losses to a close, would potentially be subject to unreasonable or uncommercial actions of a quixotic shareholder/director who believed - despite past performance - that continued funding will result in turnaround. The realist would be left with no option but to seek curial intervention of some form; for example, by a just and equitable winding up. But pending the determination of such proceedings the realist will remain exposed to trading losses and the need to make equal contributions.
The obvious difficulties with an open-ended contract in the nature of the shareholder agreement that I infer from the acts and conduct of Mr Girgis and Mr Poliwka are ameliorated by the implication of a term to the effect of that suggested by the plaintiffs: either party was entitled to bring the agreement to an end in the event Girpol was suffering ongoing losses.
I consider the suggested term should be implied.
In general, where a question arises as to whether a commercial agreement for an indefinite term may be terminated, the answer depends on whether the agreement contains an implied term to that effect. So too whether it is terminable on reasonable notice instead of at will. Those questions are determined by the circumstances existing at the time the contract comes into existence. Whether the implication is drawn involves consideration of the subject matter of the agreement, the circumstances in which the agreement was made and the provisions to which the parties have or have not agreed.[1003]
It is not necessary to rigidly apply the five criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings. I will, however, assess the suggested implied term in the background of the five usual criteria.
The requirement of business efficacy is best considered in the context of examination of whether the suggested implied term is necessary for the reasonable or effective operation of the shareholder agreement. I consider that to be satisfied. For the reasons I have given in explaining the oppressive or burdensome nature of the shareholder agreement if it was indefinite in duration, I consider the agreement would operate unreasonably and ineffectively unless each party had the ability to bring it to an end in the event that Girpol was suffering ongoing losses. The common intention was that the businesses were to make money to repay the initial amounts that were loaned to get them going (see pars 777 to 778 above). The parties did not commence and continue with the co-ventures with an intention of continually funding losses come what may. It was necessary that either party could terminate the shareholder agreement, in the event of ongoing losses, to avoid the uncommercial and objectively unbargained for outcome that in the absence of the other party's agreement a party was committed to continue to contribute equal amounts to enable Girpol to meet the ongoing costs of the businesses' operations. That is all the more so when the potential liability was unlimited.
There are countervailing factors. A right of unilateral termination in the event of ongoing losses might be awkward for the other party. It would have to decide whether to meet 100 per cent of the future funding obligations (the terminating party must remain liable to make equal contribution in respect of the ongoing costs of operation to the point of termination). That, however, does not mean that the suggested implied term is not necessary for the reasonable or effective operation of the shareholder agreement. If, in the face of the company suffering ongoing losses, one party wishes to continue trading by continuing to fund the ongoing costs of operations, it is reasonable for that party to meet the costs.
A second countervailing factor is whether, as counsel for the defendants suggested, any implied term permitting termination should be on reasonable notice to enable an orderly winding-up and sale of the assets. That, however, overlooks that during the notice period there would be a continuing obligation to make matching contributions. The reasonable and effective operation of the shareholder agreement necessitates that a party be able to bring an immediate end to its commitments. What would be the position if the party was unable to meet future funding requirements? It also overlooks that on cessation of the shareholder agreement there are options other than the remaining party providing sole funding; for example, external administration under Pt 5.3A of the Corporations Act 2001 (Cth) would permit an orderly sale of the assets and a winding-up of the businesses with the benefit of a moratorium period.
The plaintiffs' suggested implied term is necessary to give business efficacy to the shareholder agreement.
The final two criteria from BP Refinery (Westernport) Pty Ltd v Shire of Hastings are clearly satisfied.
The question of obviousness ought to be confronted irrespective of the accepted wisdom that the usual criteria are not applied rigidly in the case of an informal contract. It is unlikely that a term which fails to meet the obviousness criterion would be one which is necessary for the reasonable or effective operation of the contract. In my opinion the suggested implied term is so obvious that it goes without saying. Neither party, in entering into the shareholder agreement, would objectively have anticipated an obligation to fund the businesses indefinitely in the event of ongoing losses. Nor that its ability to extract itself from the funding commitment in the event of Girpol suffering ongoing losses was dependent on the other party's agreement. At the time of formation I consider the unilateral ability to bring the funding commitment to an end in the event of ongoing losses would have been accepted by Mr Girgis and Mr Poliwka, as the contracting parties, as a matter so obvious that it would go without saying.
Based on what I have said I consider the suggested term to be reasonable and equitable. It is not to the point that some other term - say counsel for the defendants' suggested six months' reasonable notice - might be thought by some to be more reasonable or more equitable. The ability to terminate is not without cause. It is pre-conditioned on the suffering of ongoing losses. It was reasonable and equitable for each of Mr Girgis and Mr Poliwka, at his own discretion, to be able to bring an end to his obligation to contribute to funding operational costs where the businesses were suffering ongoing losses.
The distinguishing feature of the plaintiffs' suggested implied term is that the entitlement to terminate is dependent on Girpol suffering ongoing losses. The implied term is not a right to terminate at will. The suggestion that reasonable notice is required is belied by the circumstance that the company must be suffering ongoing losses for the termination right to accrue. It is also important to recognise that it was always intended that the business would make more than enough money to repay the money that Mr Girgis and Mr Poliwka initially provided by way of loan funds. Objectively it was not the intention of Mr Girgis and Mr Poliwka that they were committing absolutely to contribute equal amounts to enable Girpol to meet the ongoing business operations in the event that Girpol continued to suffer losses.
Accordingly, I accept that the shareholder agreement included the plaintiffs' suggested implied term: each party was entitled to bring the agreement to an end in the event Girpol was suffering ongoing losses. My acceptance of the plaintiffs' suggested implied term necessarily involves rejection of the defendants' argument introduced in opening that an implied term permitting termination required reasonable notice.
There is another reason why the defendants' 'reasonable notice' variant on the implied term should not be accepted. The contention was never pleaded. It should have been (as counsel for the defendants seemingly recognised in raising the matter).[1004] Until closing no indication was given as to what was said to be the period required for reasonable notice. All of this was simply too little and too late. Where there is an implied term permitting termination on reasonable notice the question of what notice is reasonable depends on the circumstances existing when the notice is given.[1005] It is likely that, had the matter been properly pleaded or notified, additional evidence might have been adduced as to what time would have been sufficiently long for the activities of the two businesses to be finalised in a businesslike manner. It would, in my view, be prejudicial to the plaintiffs to uphold the defendants' unpleaded contention if ‑ contrary to my opinion ‑ it had been established.
Finally, even were I to have found that the shareholder agreement was terminable only on a reasonable notice period of six months, I was not directed to what this meant in terms of quantum. I have, however, considered Girpol's bank statements.[1006] These show that Mr Poliwka paid or caused to be paid some $241,000 to Girpol over the period of September 2012 to 31 March 2013 that was not matched by or on behalf of Mr Girgis.[1007] Presumably, had the 'reasonable notice' contention been accepted, the defendant would have sought $120,500 by way of the counterclaim.
That exercise highlights that Mr Poliwka made a $50,000 advance on 4 September 2012 that was not matched by or on behalf of Mr Girgis.
Mr Girgis gave notice that he would not be providing further funding for the two businesses on 4 September 2012.[1008] The meeting to place the companies in voluntary administration was called on 13 September 2012 (being proposed for 24 September 2012). I am satisfied that, through the various emails and the 13 September 2012 notice of meeting, Mr Girgis notified Mr Poliwka of the termination of the commitment to make equal contributions to fund the ongoing costs of the businesses. But the termination could only apply to future liabilities. Mr Girgis, while terminating, had a continuing obligation to make equal contribution in respect of the ongoing costs of operation to the point of termination.
The defendants did not address the extent to which Mr Poliwka's 4 September 2012 payment was required to meet the ongoing costs of operations to that point.
I have previously recounted the early September 2012 emails in which Ms Ridgeway made a request for this $50,000 (see pars 810 to 814 above). Following those, and a meeting on 5 September 2012, there were further emails between Mr Hart and Ms Ridgway in which Ms Ridgway attached copies of accounts that required immediate payment together with a MYOB aged accounts payab[1009]ummary for Bold Gem.1009
Those materials disclose:

[790]

My hope that, with the guidance provided by my primary Reasons, the parties could come to appropriate allowances and a resolution of the appropriate costs orders proved wildly optimistic. Instead, consistent with the conduct of the proceedings in general, the parties took diametrically opposed positions.
The plaintiffs sought damages as to the whole of the $610,000 in pre-1 July 2010 advances. The defendants said that nothing should be allowed. The defendants contended that the $610,000 was wholly recoverable as against the relevant debtors meaning that no further allowance for damages should be made in favour of the plaintiffs. On the counterclaim, however, Mr Poliwka sought an amount of $50,000 (the maximum potentially allowable given the primary Reasons). The plaintiffs said that no judgment should be entered. Alternatively, if there was to be a judgment on the counterclaim, Mr Girgis contended that it should be for no more than $25,000.
There was a similar disparity in the parties' respective positions on costs.
The plaintiffs sought that the defendants pay the plaintiffs' costs of the proceedings generally (ie both the costs of the action and the costs of the counterclaim). The plaintiffs also sought an order that those costs be taxed without regard to the limits imposed by the applicable costs determinations. The defendants' minute of proposed orders would have deprived the plaintiffs of any costs whatsoever. On the action the defendants sought an order that the parties each bear their own costs of the claim. As to the counterclaim the defendants sought an order that the plaintiffs pay the defendants' costs of the counterclaim.
No party sought to adduce any additional evidence on the further hearing. Rather, the hearing proceeded based on the findings made in the primary Reasons together with consideration of evidentiary materials, as relevant, which were adduced at trial.
In those circumstances it is unnecessary to provide any further introduction to the outstanding matters for determination. The background is fully developed in the primary Reasons. These supplementary reasons should be read together with, and as if they incorporated, the primary Reasons. I will use the abbreviations and expressions employed in the primary Reasons in the course of these reasons.

[800]

No agreement was reached. To the contrary, as mentioned at the outset, the parties took opposing positions. The plaintiffs submitted that the $610,000 had no value as at 30 June 2010. The defendants submitted that all of the loans were fully recoverable as at 30 June 2010 and no further allowance by way of quantification of damages should be made in favour of the plaintiffs. Of course, as this matter is one going to proof of loss, the onus lies on the plaintiffs.
The plaintiffs contended that account should be taken of material subsequent events. It was said that the advances had no value as at 30 June 2010 by reason of:
- the very poor financial position of Girpol and Bold Gem in their financial statements;
- the eventual insolvent administration and liquidation of Girpol, Bold Gem and Sunriver. The plaintiffs noted that in the primary Reasons the inference was drawn that there would be no dividend payable in the windings-up.[1017] The plaintiffs suggested that likewise it could be inferred that the companies had no prospects of success as at 30 June 2010; and
- the finding, at [824] of the primary Reasons, that Sunriver's receivers must not have been able to clear the debt due by Sunriver to ME Bank on the sale of the Midland Hotel.
In oral submissions counsel for the plaintiffs went further. He contended that in conducting the task of quantification it was permissible to employ hindsight. Counsel submitted that it was unnecessary to value the debts as at 30 June 2010. It was enough, according to counsel for the plaintiffs, that the payments had been made and had been lost. It was said that the advances had proven to be non-recoverable and of no value. Counsel repeated the submission, as made at trial, that the investment was not readily marketable and that the plaintiffs were locked into and were unable to extract themselves from the Midland Hotel and the Pub business.[1018]
Counsel for the plaintiffs also submitted that the risk that quantification is difficult ought to be a risk borne by the wrongdoer. In support of that proposition reference was made to various authorities.[1019] The authorities referred to are of limited value. This is not a case where deceit or some other deliberate wrong has caused the position of uncertainty or difficulty of proof. The plaintiffs did not plead a case of deceit or fraud. The relevant principles are, I consider, better understood by reference to the general principles I collected at [1091] to [1092] of the primary Reasons. I do accept, however, that as the defendants were wrongdoers they could not insist on an unrealistic level of proof on the question of fact involved in valuing the benefit to the plaintiffs as represented by the claims in debt as against Girpol and Bold Gem.[1020]
Counsel for the defendants presented an analysis of the recoverable value of the debts of Girpol to Girgis Nominees and Bold Gem to Mr Girgis. It was said that this was a notional exercise involving consideration of:
- what assets disclosed on the balance sheets as at the assessment date were realisable; and
- whether competing liabilities may have prevented or reduced recoverability.
Three tables were advanced. Those tables are reproduced in Annexure A to these reasons. Essentially the tables represented the defendants' assessment of the realisable values of the respective entities' assets and the claims against those assets.
The defendants' analysis commenced by considering the position of the Junction Unit Trust and whether, on a notional realisation of its assets, there would have been a sufficient surplus to allow for the repayment of the loans due by it to the Bold Gem Unit Trust and Girpol. The analysis assumed that:
- rent payable by the Bold Gem Unit Trust would be recoverable in full;
- the Midland Hotel (including its fixtures and fittings) could be realised at its written down book value; and
- the debt due to the ME Bank should be largely ignored.
On the defendants' analysis the ME Bank debt was to be ignored as the bank loan was discharged by the guarantors rather than from the assets of the debtor companies. The defendants also said that the plaintiffs have already been compensated for the contributions they made in repaying bank loans.[1021] The argument was elaborated on in oral submissions. Counsel for the defendants sought to justify ignoring the bank loan debts on the basis that in the events that happened those debts were not required to be met by the relevant entities. Rather, the debts were met by Mr Girgis and Mr Poliwka (or their respective entities). It was also said that taking the bank debts into account would result in over‑recovery as the plaintiffs have subsequently recouped payments made in relation to the bank debts as against the defendants.
As presented in oral submissions the defendants' over-recovery argument reduced to four propositions: (1) had the bank debts been paid out of the relevant entities' assets those debts would have been reduced or eliminated; (2) the payments pursuant to the guarantees would then have been reduced or would not have occurred; (3) the plaintiffs have already been compensated for the guarantee payments (payments which would not have been made by Mr Girgis and Girgis Nominees had the relevant entities' assets been applied to the debts as at 30 June 2010); and (4) the plaintiffs cannot obtain the benefit of being compensated for the guarantee payments without treating the bank debts as having been paid (with its implications for assessment of the recoverability of the pre-1 July 2010 advances).[1022]
So understood the contention is, in substance, a back-door attempt to re-argue - from a different direction - a proposition that was advanced at trial in an attempt to resist damages being awarded in relation to the guarantee payments.
The argument for ignoring the bank debts in coming to a view on the recoverable value of the pre-1 July 2010 advances is premised, in part, on a contention that, had the relevant entities' assets been applied earlier (ie as at 30 June 2010), there would have been no guaranteed bank debts. In the primary Reasons at [1094] I recorded the defendants' argument that Mr Girgis could have brought matters to a head by bringing about a sale of the Midland Hotel and the Pub business far earlier - it being suggested that had this been done there might have been no liability in relation to the guarantees. I rejected the contention stating:

[802]

Now, compensation having been awarded in relation to the guarantee payments, the defendants seek to counteract that setback through re-casting the financial position of the relevant entities as at 30 June 2010 as if there had been a payment (or substantial payment) of the bank debts. That ignores that there were in fact no such payments. It ignores my rejection of the submission advanced at trial. And it ignores the circumstance that the task being undertaken is one of determining the value of the pre-1 July 2010 advances as at 30 June 2010 - a task which is not affected by post-1 July 2010 events. The bank debts of $1.95 million and $1.45 million were relevant liabilities of the Junction Unit Trust and Girpol as at 30 June 2010 and, as such, had an impact on the recoverable value of the pre-1 July 2010 advances.
It should be appreciated that, in holding the defendants liable in relation to the guarantee payments, I accepted the plaintiffs' submission that they were locked into and unable to extricate themselves from making the payments.[1024] This explains why the payments were recoverable although made after 30 June 2010.[1025] Liability in relation to the heads of loss involving the guarantee payments has been sustained on a slightly different basis to that which pertains to the pre-1 July 2010 advances.
The defendants' over-recovery argument conflates the question of the recoverable value of the pre-1 July 2010 advances with compensation for the guarantee payments. The questions are separate and distinct and require that consideration be directed to different time periods and events. It is incorrect, in my opinion, to approach the task of determining the unrecoverable value of Mr Girgis' and Girgis Nominees' pre-1 July 2010 debts as at 30 June 2010 by reference to compensation that has subsequently been awarded for subsequent payments. That is all the more so when the subsequent payments (and compensation) could have had no effect on the relevant entities' ability to repay the pre-1 July 2010 advances of Mr Girgis or Girgis Nominees either as at 30 June 2010 or at the time of the payment.
Accordingly, as will be seen, in analysing the recoverable value of the pre-1 July 2010 advances I do not accept that it is permissible to ignore the ME Bank and BankWest loans due by the Junction Unit Trust and Girpol.
Based on their analysis as to the Junction Unit Trust the defendants contended that Sunriver could have paid its related party loans to the Bold Gem Unit Trust and Girpol in full. This conclusion was then carried forward into the defendants' analysis of the notional recoverability of the debt due by the Bold Gem Unit Trust to Mr Girgis and the debt due by Girpol to Girgis Nominees. Two additional matters should be noted. First, as to Girpol the defendants' analysis proceeded on the basis that the $1.45 million BankWest loan could be ignored. This was put on the same basis as the defendants sought to justify ignoring the ME Bank debt vis-à-vis the Junction Unit Trust. Second, the defendants' analysis classified all third-party creditors as 'priority liabilities' who were paid in full first and before the related parties. Then, as between the related parties, different approaches were embraced to maximise notional payment to Mr Girgis and Girgis Nominees in respect of their pre-1 July 2010 advances. For example, with the Bold Gem Unit Trust the assumption was that Mr Girgis' $15,000 debt was paid - but nothing was paid on a further amount of $24,625 due to Mr Girgis - Mr Poliwka received nothing and a remaining amount was distributed to Girpol to increase its asset pool.
The defendants contended that, based on their analysis as presented in the tables, all of the pre-1 July 2010 advances were recoverable in full. (I am not sure how that is correct so far as, even on the defendants' analysis, Girpol had a net asset deficiency and was unable to meet its debts to both Girgis Nominees as trustee of the Girgis Property Trust and FWA as trustee of the Poliwka Investment Trust.) On that basis it was contended that no further allowance for damages should be made in favour of the plaintiffs.
It is, in my view, necessary to undertake the sort of exercise that is contained in the defendants' analysis. The matters raised by the plaintiffs to forestall such an analysis do not suffice. The first such reason, in substance, is the suggestion that the pre-1 July 2010 advances had no value by reason of the poor financial position of Bold Gem and Girpol as evinced in their financial statements. That directs attention to the very type of analysis undertaken by the defendants. Otherwise the plaintiffs rely on events that occurred in and after 2014, ie the external administrations and the eventual sale of the Midland Hotel by receivers following the liquidation of Sunriver. What happened then - more than 4 years later - does not provide an adequate basis to draw a conclusion as to the position as at 30 June 2010. Nor, in my opinion, is it open to simply say that the payments were made, are not recoverable and thus have been lost. I have already ruled that to the extent, if any, the advances had value at the relevant time for assessment of loss that should be taken into account in quantifying the allowable damages in respect of the loss.[1026] In a similar vein I have already ruled against the plaintiffs on the submission that they were locked into and unable to extract themselves from the Midland Hotel and the Pub business.[1027]
Accordingly, I will proceed to carry out a notional valuation of the recoverable value of the pre-1 July 2010 advances by Girgis Nominees and Mr Girgis based on the financial statements as at 30 June 2010 of the Junction Unit Trust,[1028] the Bold Gem Unit Trust[1029] and Girpol.[1030]
In so doing the type of analysis presented by the defendants provides an appropriate starting point. There are, however, two matters of principle that must be addressed.
First, I do not accept that it is permissible to simply ignore the bank loans due by the Junction Unit Trust (the $1.95 million due to ME Bank) or Girpol (the $1.45 million due to BankWest). Those liabilities existed as at 30 June 2010. What is being undertaken is a notional valuation of the recoverable value of the plaintiffs' unrecovered advances as at 30 June 2010. It is not to the point that, in the events that happened after 30 June 2010, other liabilities due by Sunriver and Girpol were met by guarantors. (All the more so when, by reason of the doctrine of subrogation, Sunriver and Girpol thereupon had a corresponding liability to the guarantors - thus negating the defendants' argument that the debts were not required to be met by the relevant entities.)
Nor, for the reasons already given (see pars 22 to 29 above), is it pertinent that those guarantee payments have grounded recovery against the defendants under other heads of loss. The present task is to assess the value of the debts owed by Bold Gem and Girpol as at 30 June 2010 so that this amount can be taken into account by way of an allowance in determining what loss, if any, Mr Girgis and Girgis Nominees sustained in relation to their advances made before 1 July 2010. There is no potential double recovery in this regard in giving due recognition to the legal and commercial reality that debts were due to ME Bank and BankWest. The potential recovery in relation to the pre-1 July 2010 advances is based on the unrecoverable value of Mr Girgis' and Girgis Nominees' pre-1 July 2010 debts as at 30 June 2010.
Second, there is no basis to assume - as the defendants' analysis does - that some debts are paid in priority. That is particularly the case when the defendants' analysis seeks to suggest that some of the subject advances - or debts to Girpol - ought to be taken to be paid in priority. For example, as can be seen from Table 2 in Annexure A, the defendants' analysis provided for Mr Girgis to be paid 37.85 cents in the dollar, Girpol to be paid 8 cents in the dollar and Mr Poliwka to be paid nothing. No principled basis was advanced for the suggestion of differential treatment. Essentially it was a means to eliminate, to the greatest extent possible, the debts that were potentially the subject of a further judgment in the proceedings. The defendants' suggested priority payments offend the pari passu principle and must be rejected.
I turn then to the notional valuation. I agree with the defendants that the analysis must start with consideration of the Junction Unit Trust. The Junction Unit Trust owed substantial amounts to both the Bold Gem Unit Trust and Girpol. The ability of those two entities to pay their debts (including the debts to Mr Girgis and Girgis Nominees) was dependent - at least in part - on the ability of the Junction Unit Trust to make payment of its debts.
The only substantial asset of the Junction Unit Trust was the Midland Hotel. The financial statements also show trade debtors of $590,000. But this is the rent payable by Bold Gem. For reasons I will come to Bold Gem was not in a position to pay that debt and in any case - on a hypothetical liquidation - the debt could not be proved for unless the Junction Unit Trust met its debt to the Bold Gem Unit Trust. Alternatively, at best there might have been a set-off. In the circumstances I consider that this amount, although appearing as an asset, ought not to be taken into account. Counsel for the defendants accepted in the course of oral submissions that the amount might be disregarded as a realisable asset.[1031] That concession was correctly made for the reasons I have given. It is confirmed by the reason given by counsel for the defendants: the rent debt is no longer recognised as an asset of the Junction Unit Trust in its 2013 financial statements.[1032]
The Midland Hotel was recorded in the financial statements at a book value of just over $3.2 million ($3,221,196 if including fixtures and fittings and allowing for accumulated depreciation). Based, however, on Mr Cameron's October / November 2008 valuation of the Midland Hotel as a trading tavern, that book value was substantially overstated. I am not in a position to assess the value of the Midland Hotel as a redevelopment site; there was no evidence of value on this basis. The only evidence I have for value is Mr Cameron's valuation, which speaks to late October / early November 2008 (and values as if no renovations had been conducted). However, in circumstances where the trading of the Pub business had proven unprofitable - with losses running at an average of over $400,000 per annum for the previous two years[1033] - I am unable to accept that the mid-2010 value of the Midland Hotel was significantly higher than Mr Cameron's October / November 2008 valuation, ie an amount of $1.73 million.[1034] That is all the more so where, in the counterfactual that has been posed for notional valuation purposes, the Midland Hotel is being realised on a forced sale basis.
In using Mr Cameron's valuation figure I note that - albeit in the alternative to the book value amount - counsel for the defendants also presented the defendants' analysis by reference to Mr Cameron's pre-renovation valuation as at 1 November 2008.[1035]
The ME Bank loan (which was secured against the Midland Hotel) was slightly over $1.956 million. I consider it is more likely than not - based on the pre-renovation value of the Midland Hotel as at October / November 2008 and the subsequent unprofitability of the Pub business - that on a forced sale the Midland Hotel would not have realised sufficient net proceeds to meet the ME Bank loan.
Apart from the Midland Hotel the only realisable asset of the Junction Unit Trust was a motor vehicle with a written down value of $13,207. The ordinary unsecured liabilities of the Trust included $877,524 due to Girpol, $679,527 due to the Bold Gem Unit Trust (which, given the $590,000 in rent due by the Bold Gem Unit Trust, might instead be viewed as $89,527) and $54,750 due to the Australian Taxation Office. The potential recovery as represented by the motor vehicle was so small that it would have had no material impact in meeting those ordinary unsecured liabilities. I conclude that, for the purpose of the notional valuation of the recoverable value of the pre-1 July 2010 advances, the Junction Unit Trust was unable to make any substantial payment to either the Bold Gem Unit Trust or Girpol.
The financial statements of the Bold Gem Unit Trust show it as having a significant net asset deficiency at the end of the year ended 30 June 2010. Liabilities exceeded assets by more than $1.065 million.
The Bold Gem Unit Trust held some cash assets (approx. $30,000), a tax receivable ($5,425), a GST refund ($16,506) and stock (approx. $120,000). Otherwise its assets consisted of a loan to the Junction Unit Trust as has already been discussed ($679,527) and the Pub business (recorded as having a goodwill value of $400,000 and property, plant and equipment of $138,302).
For reasons just given the loan due by the Junction Unit Trust was without value. Given the unprofitability of the Pub business I am unable to accept its goodwill value; that is confirmed in as much as the defendants' analysis as reproduced in Table 2 of Annexure A places a nil realisable value on the goodwill figure. At best a likely recovery vis-à-vis the Bold Gem Unit Trust was represented by the hard assets. Allowing, in favour of the defendants, all the hard assets - but excluding those which the defendants assess to have had a nil realisable value - the available assets total $173,036.
The financial statements establish that the Bold Gem Unit Trust had liabilities of $2,485,603. Accordingly, at best a debt owed by Bold Gem as trustee of the Bold Gem Unit Trust might have been recoverable in an amount of about 6.96 cents in the dollar. I will round that down to 5 cents in the dollar. Some reduction is appropriate to take account of the inevitable costs of realisation of the assets.
Girpol's financial statements also show it as having a net asset deficiency ($276,422).
Girpol's significant assets were the Moonlight Express (a written down value of about $625,000), loans due by the Junction Unit Trust ($877,524) and the Bold Gem Unit Trust ($1,708,234), trade debtors ($43,070), cash ($11,029) and a security bond for the boat mooring ($9,091). A small amount is provided for as to plant and equipment ($2,559). That is so small that it need not be further considered.
Consistent with the analysis of the Junction Unit Trust's financial statements I place a nil value of the debt due by that entity. However, based on the Bold Gem Unit Trust's financial statements, a notional recovery of $85,412 ought to be allowed for the Bold Gem Unit Trust receivable. Allowing the other main assets at book value - which is reasonable so far as Mr Girgis and Mr Poliwka as directors of Girpol have provided for and accepted those assets as having such values and there is no other available evidence - the total assets come to $773,270. But Girpol had liabilities of $3,601,719. Accordingly, at best a debt owed by Girpol might have been recoverable in an amount of 21.47 cents in the dollar. To take account of costs of realisation I will round that down to 20 cents in the dollar.
Having undertaken this exercise I quantify the additional damages in respect of the $610,000 in pre-1 July 2010 advances as follows:

[810]

The defendants relied on that passage so far as I found that the materials prima facie disclosed creditor claims of more than $100,000 and provided prima facie justification for a $50,000 contribution on the part of Mr Girgis. It was said that the plaintiffs had not identified any evidence to displace the preliminary quantum finding.
The plaintiffs raised two things in an attempt to answer the outstanding quantification exercise on the defendants' counterclaim.
First, the plaintiffs contended that no judgment should be entered. It was said that the shareholder agreement was only entered into because of the misleading conduct in relation to the Midland Hotel and the Pub business. The plaintiffs contended, by counsel, that if any sum was payable under the shareholder agreement it should be added to the judgment for the plaintiffs. It was said that in those circumstances the defence of circularity applied to the counterclaim and it should be dismissed.
There are two reasons for rejecting that contention. The first is it was not advanced at trial. The further hearing was only to address quantification. It was not to allow further defences to be run. In that regard it is notable that the plaintiffs did not seek leave to re-open. Moreover, the argument entirely overlooks that I found that post-1 July 2010 advances were not claimable by way of loss on the misleading conduct claim in relation to the Midland Hotel and the Pub business. I was satisfied that the contravening conduct ceased to be causative and had no continuing operative effect on Mr Girgis' further funding of the ongoing losses from 1 July 2010.[1039] Mr Girgis could have, but did not, terminate the shareholder agreement earlier. Liability in relation to a September 2012 payment cannot be allowed as damages caused or materially contributed to by the misleading due diligence representation in relation to the Midland Hotel and the Pub business.
Second, the plaintiffs drew my attention to a further aspect of the evidence that was relevant to the $50,000 payment made by Mr Poliwka on 4 September 2012.
It was accepted that the $50,000 payment had been made. At that time Girpol's bank balance had a small debit balance ($500.92).[1040] Thereafter, in circumstances where Mr Girgis had given notice that he would not be providing any more funding:[1041]

[813]

There were no more transactions until 17 September 2012.[1043] Mr Poliwka did not provide further funding to Girpol until at least 10 October 2012 (there is an unattributed transfer for $60,000 on that day)[1044] and the next advance was on 12 December 2012.[1045] There was, however, funding that came into Girpol's account from Bold Gem ($5,000 on 17 September 2012) and First Western Realty ($11,000 apparently directed towards a Hyundai i30).[1046]
I am not satisfied that Mr Poliwka is entitled to damages in the amount of $50,000 in circumstances where $25,000 of his $50,000 payment was repaid to him virtually immediately.
The essence of the counterclaim was described at [1178] of the primary Reasons. Essentially it was that Mr Girgis and Mr Poliwka had agreed to make, or cause to be made, equal contributions; and that the contributions by or on behalf of Mr Poliwka had exceeded the contributions by or on behalf of Mr Girgis. Once that is appreciated the fact that $25,000 of Mr Poliwka's payment was repaid to him three days after the $50,000 was transferred (and after it became apparent that Mr Girgis would not match the $50,000) is of immediate significance. The commercial reality is that Mr Poliwka's additional contribution is not the whole of the $50,000; it is the $50,000 less than the $25,000. Mr Poliwka only made an additional contribution of $25,000 over and above the contributions made by or on behalf of Mr Girgis, ie the actual imbalance in the contributions is only $25,000. Mr Poliwka must give credit for the $25,000 as recouped and can only seek to claim for the additional amount as was in fact funded by him.
Put alternatively - in terms of what was stated at [1230] of the primary Reasons - the whole of the $50,000 payment was not required to meet the ongoing costs of operations to that point. That is necessarily so as to $25,000 of the $50,000 payment insofar as $25,000 was repaid to Mr Poliwka.
The damages on the counterclaim are quantified at $25,000. Judgment will be entered for Mr Poliwka, against Mr Girgis, in that amount. Consistent with the orders made entering judgment on 2 July 2019 pre-judgment interest will be allowed under s 32 of the Supreme Court Act 1935 (WA) at the rate of six per cent per annum from the date of commencement of the counterclaim (ie 23 December 2014).

[814]

The plaintiffs contended that they had been largely successful in their claim and in defending the counterclaim. They said that the intertwined nature of the relationship between the parties and the transactions the subject of the litigation meant that, in substance, there was only one contest arising from the same sets of facts. For that reason the plaintiffs contended that they did not fail on discrete and severable issues that added to the costs of the action in a significant and discernible way so as to justify reducing their costs award. The plaintiffs also asserted that they appropriately canvassed issues that very well might have been material to the proper determination of the entire case.
The plaintiffs thus submitted that the general rule as to costs ought to apply; and that the plaintiffs should receive an order for costs of the proceedings generally.
Alternatively, if I was to consider that provision ought to be made for failures in the claim and any success of the defendants on the counterclaim, the plaintiffs said it would be preferable that the costs order made in favour of the plaintiffs be reduced by fixed proportion rather than requiring analysis of which party won on which issue and the costs of each issue.
The defendants submitted that the plaintiffs had pleaded and led evidence on a multitude of discrete issues on which they failed. It was said that the introduction of these issues substantially increased the costs of the proceedings. The defendants also referred to the way in which the plaintiffs had pleaded and conducted the case which was said to have prolonged the trial and caused significant unnecessary costs to be incurred in the proceedings. The defendants contended that they had incurred costs in answering causes of action and issues that they ought not have been put to had the plaintiffs' case been appropriately confined.
In written submissions the defendants contended that, rather than ordering that the plaintiffs pay the defendants' costs on particular issues or reducing the plaintiffs' overall entitlement to costs, the appropriate exercise of the court's discretion would be to make no order as to costs. That submission was maintained at the oral hearing. In the alternative it was said that a hefty reduction was required.
The parties referred to a large number of costs authorities in their submissions. It is unnecessary to recite those authorities. I consider it sufficient to re-state the following well-known propositions drawn from the recent decision of the Court of Appeal in Strzelecki Holdings Pty Ltd v Jorgensen:[1047]

[823]

The plaintiffs were the successful party in the main action. That was not really contested by the defendants. The defendants acknowledged that the plaintiffs 'have generally succeeded in recovering damages'.[1048] Accordingly, it was incumbent on the defendants to satisfy me that there are good reasons why they should not pay the plaintiffs' costs of the claim. In substance two reasons were advanced in support of that contention. First, that there were numerous causes of action and issues (both pleaded and unpleaded) that had been introduced by the plaintiffs on which they had failed. Second, that the plaintiffs' conduct of the case had unnecessarily caused costs to be increased and amounted to relevant disentitling conduct.
The plaintiffs succeeded in two main aspects of the case. Girgis Nominees and Mr Girgis succeeded in part on their misleading conduct and negligence claims in relation to the Midland Hotel and the Pub business. Girgis Nominees also succeeded in relation to the Joondalup Property; but only did so on its case as to entry into the JEPL lease.
The amount that has been awarded by way of damages is significantly less than what was sought. It is, however, a substantial amount. The plaintiffs' success in the main action is real and substantial, not merely trivial.
It is important to recognise that, for both aspects of the case on which liability was made out, the part of the plaintiffs' case that was successful was far narrower than the case that had been advanced in the pleadings and at trial. For example, as to the Midland Hotel and the Pub business it was essentially the due diligence representation and accompanying advice that grounded liability. I rejected countless other alleged representations and matters of alleged non-disclosure. (For completeness, however, I should record that it was unnecessary to address the whole of the non-disclosure case and there was one aspect of the non-disclosure case where a contravention was established.)[1049] So too, with the Joondalup Property and entry into the JEPL lease, Girgis Nominees' success turned on the fitness of JEPL (with its proposed guarantors) as a replacement tenant together with an associated representation and advice. Many other pleaded allegations were advanced, fully litigated at trial, but failed.
I do not intend to list out the many and varied components of those two parts of the plaintiffs' case which, while ultimately successful, saw failure in a particular respect. That has already been done at length in the primary Reasons. The relatively narrow factual basis on which the plaintiffs have succeeded may be gauged by comparing:
- the summary of material representations, advice and non-disclosures as found (see the primary Reasons at [844] to [846] and [855] to [860]); and
- the summary of the plaintiffs' pleaded case (see the primary Reasons at [20] to [105]) and the detailed listing of the alleged representations, advice and non-disclosure matters relied on by the plaintiffs as set out at Schedule 1 of the primary Reasons.
Among other things the plaintiffs failed on the alleged 'one-third, one-third, one-third' advice allegation (see primary Reasons at [23], [252] - [253], [262] - [266]).
More important are those identifiable parts of the case (many of which comprised causes of action in their own right) on which the plaintiffs failed. These include:

[830]

In oral submissions counsel for the plaintiffs argued that these matters were not discrete and severable. It was said that, as there was a single relationship between Mr Girgis and Mr Poliwka, there was in substance a single contest and all the matters were part and parcel of the narrative. I reject that submission. It is plain that some of the matters were claims in their own right (eg the Moonlight Express / Charter business and the acquisition of the Joondalup Property). Apart from that the discrete nature of the issues is readily apparent from the pleadings and the way in which the trial was run. For example, the witness statements addressed the narrative by topics that were consistent with many of the issues identified in par 78 above. So too, in large part, the cross-examination of the principal witnesses (Mr Girgis and Mr Poliwka) addressed the various matters by topic corresponding with the major issues. That was then reflected in closing submissions and the structure I adopted for the primary Reasons.
This is a case where the plaintiffs failed on discrete and severable issues.
Counsel for the plaintiffs also contended that the issues on which the plaintiffs lost did not take up a lot of time at trial. I accept that the topic which occupied the most time at trial was the Midland Hotel and the Pub business. But I do not accept that it can be said that the issues on which the plaintiffs lost were minor and did not add to costs in a significant way. Taken as a whole, having reflected on the course of the trial and having had to work through all of the issues to produce the primary Reasons, I am satisfied that the identified issues on which the plaintiffs were unsuccessful added to the costs of the trial in a significant and discernible way. They introduced distinct evidence not otherwise relevant (eg the value of the Watermans Bay Property), required cross-examination and re-examination, and saw time taken in opening and closing. The fact that a significant portion of the primary Reasons addresses why the plaintiffs lost on those identifiable issues is reflective of the fact that the issues were substantial and occupied a not immaterial portion of the trial. Moreover, the costs incurred in relation to the issues is not just concerned with the time taken at trial. Costs would have been incurred in preparing to deal with those issues.
The plaintiffs lost on the issues and associated causes of action identified in par 78 above. In the main those issues are discrete and severable from the part of the case on which the plaintiffs were successful. They added to the costs of the proceedings in a significant and readily discernible way. To do justice between the parties, so far as awarding costs is concerned, the costs orders made must take those matters into account.
However, I consider that little weight should be given to the circumstance that the plaintiffs failed on most of the alleged representations and non-disclosure matters as part of the ultimately successful case as to the Midland Hotel and the Pub business. Those matters were properly canvassed at trial and might well have been material to the proper determination of the case. They cannot be disentangled from the plaintiffs' case as to the Midland Hotel and the Pub business.
The defendants made a more general submission as to the plaintiffs' conduct of the case. That submission has merit in three respects. First, there are other aspects of the case on which the plaintiffs failed.[1050] Second, the nature of the plaintiffs' statement of claim has already been the subject of criticism in the primary Reasons.[1051] So far as the prolix and aggregative approach of the pleading resulted in many false issues there was, in my view, an unnecessary degree of complication which added to the time at trial and the preparation that would have been required for trial. Third, I accept a number of forensic excursions were embarked on unnecessarily on behalf of the plaintiffs.[1052]
These matters, taken individually, had some perceptible effect on the length of the time at trial. Collectively their impact was greater, but far from significant in the context of the trial as a whole. The overall effect of these three matters should, I consider, be taken into account in determining what is just as concerns the disposition as to costs. But in taking them into account I do not intend to accord them a significance out of proportion to the effect I ascribe them as having had to the length of the trial. They should be taken into account but are less significant, and have far less weight, than the plaintiffs' failure to succeed on the discrete and severable issues I have identified.
The defendants sought that there be no order as to costs. I am not satisfied that such an order would be open as a matter of discretion. It must be remembered that the plaintiffs are the successful party and the parts of the case on which they are successful occupied more time at trial than any other single issue. While, for the reasons I have given, there has been some disentitling conduct on the part of the plaintiffs, I am not satisfied that the disentitling conduct is of a type that it would be open to me to deprive the plaintiffs of costs altogether. To my mind that would be manifestly unreasonable and unjust.
I am not minded to provide for an order that the plaintiffs recover costs on some issues and the defendants on others. That will create a difficult and costly taxation. By far the better solution is an order as suggested by counsel for the plaintiffs in the alternative, ie an order that the plaintiffs recover a portion of their costs. In so apportioning costs I take into account that the defendants have incurred costs as a result of the manner in which the case was conducted and the defendants should not have been put to those costs. Otherwise apportionment should be made to reflect the fact that the plaintiffs were not wholly successful and, by their conduct of the case, unnecessarily and unreasonably increased costs. The latter factor is, however, of much lesser significance as, in my assessment, it had a much lesser impact on the length of the trial.
The apportionment is undertaken as a matter of impression rather than mathematical precision.
The plaintiffs are the generally successful party. Numerically the plaintiffs have recovered $2,526,301.79 (before interest) of a total amount claimed of $4,688,329.81.[1053] Recovery has been successful in relation to unrecouped advances, costs and guarantee payments made in relation to the Midland Hotel and the Pub business and losses following the re-letting of the Joondalup Property under the JEPL lease. The plaintiffs did, however, fail on a number of discrete issues. As I reflect on the trial, and my post-trial review of the witness statements, documents, transcript and submissions, I consider that those issues - individually and collectively - were significantly lesser contributors to the overall length of the trial than the parts of the case on which the plaintiffs were successful. (I include in that part of the case on which the plaintiffs were successful the associated evidence which cannot properly be disentangled from the plaintiffs' case as to the Midland Hotel and the Pub business and the re-letting of the Joondalup Property.) So too, while aspects of the plaintiffs' conduct of the case unnecessarily and unreasonably increased costs, the effect on the trial - although not immaterial - was not notable.
In the circumstances of the case I consider that the just result as to costs is that the defendants pay 70 per cent of the plaintiffs' costs of the action. I reach that conclusion as a matter of broad impression based on the matters I have set out as to the degree of the plaintiffs' success, in a context where the Midland Hotel and the Pub business occupied more time at trial than any other single issue, and conscious that - to a relatively small degree - the plaintiffs unnecessarily and unreasonably increased costs by their conduct of the case.
The plaintiffs also sought an order that certain reserved costs follow the event. Those were costs reserved on 8 and 10 August 2017 in respect of an application made by the plaintiffs as to the defendants' proofing process. Apparently there was a concern that Mr Poliwka's son, a legal practitioner, was involved in the preparation of Mr Poliwka's witness statement. I was not case manager of the action at that time. I am not satisfied, however, that the plaintiffs' success in the action is a relevant event by which to determine the reserved costs for the application as described. The reserved costs concern an application which was never finally heard and determined. I am not in a position to assess whether it can be determined that one party would inevitably have been successful on the application. In those circumstances the costs should lie where they fall. Each party should bear its own costs as reserved on 8 and 10 August 2017.
Finally, to the extent that they were awarded their costs of the action, the plaintiffs sought an order that those costs be taxed without regard to the limits imposed by the applicable costs determinations. The plaintiffs relied on the 'unusual difficulty' criteria under s 280(2) of the Legal Profession Act 2008 (WA).
I set out my understanding of the applicable principles on an application for a special costs order under s 280(2) in Blatchford v Laine.[1054] I will not repeat what I stated in that case. I simply adopt and apply the principles set out in Blatchford v Laine.
In summary:

[837]

There was no draft bill of costs before me. Nor did the plaintiffs adduce any evidence as to the fees charged and time spent by the plaintiffs' legal representatives. However, having been case manager of the action for some nine months pre-trial and having then presided over the trial I am in a position to deal with the issues arising under s 280(2) as a matter of impression. I am well familiar with the way in which the case was conducted and the issues were litigated.
The issues for consideration are evaluative rather than quantitative. It is, however, instructive to remind myself that:
- the pleadings occupied over 200 pages and a statement of issues prepared by reference to the pleadings occupied 46 pages;
- discovery was substantial (eg the electronic trial bundle consisted of some 3377 documents);
- the witness statements were voluminous. Mr Girgis had two statements ranging over 300 pages. Mr Poliwka's witness statement totalled 130 pages. In total, as to the other witnesses that were called, there were another 9 witness statements of varying lengths. In addition there were three valuation expert reports (totalling 218 pages). The witness statements provoked disputes as to admissibility which resulted in the need for conferral, argument and evidentiary rulings;
- due to the bulk of the likely documentary evidence the trial proceeded as an electronic trial. The parties arranged for documentary references in the witness statements to be hyperlinked to the electronic documents. Ultimately there were over 724 documentary exhibits admitted at trial;
- the parties filed comprehensive written opening submissions (45 pages for the plaintiffs and 34 pages for the defendants);
- the trial went for 16 days. There was additional oral evidence as to conversations relied on to ground alleged advice and representations. There was extensive cross-examination - particularly of Mr Girgis and Mr Poliwka;
- the plaintiffs prepared comprehensive written closing submissions (68 pages). In oral closing submissions counsel for the plaintiffs spoke to those submissions. That had the result of reducing the plaintiffs' oral closing to one day compared to two days for the defendants; and
- post-trial the plaintiffs prepared the evidentiary note as to the alleged representations, advice and non-disclosure matters that were continued to be relied on as is recorded in the primary Reasons (46 pages).
I am not so far removed from practice to fail to recognise that these things, especially when considered together, required the plaintiffs' legal representatives to undertake extensive preparation for trial. I am comfortably satisfied by reference to these things - and the conduct of the trial more generally - that there is a fairly arguable case that on taxation costs may properly be allowed in an amount greater than the limit imposed by the relevant costs determinations. For example, the costs determinations provide an allowance of 10 hours for giving discovery, 120 hours for the solicitors' preparation for trial and 3.5 days for counsel in preparation for trial.[1055] In the circumstances of the case run before me it is fairly arguable that the time necessarily and reasonably incurred by the plaintiffs' lawyers on these items will have exceeded those limits by a very considerable margin. When it is appreciated that these three items are likely to constitute a significant part of the overall costs incurred by the plaintiffs the result is that the requirement of inadequacy is satisfied. This is not to suggest that the inadequacy is demonstrated simply by those three items. Given the significance of those three items they inform inadequacy more generally.
The defendants argued that the inadequacy was not because of the unusual difficulty of the matter. Counsel for the defendants contended that whether there should be an uplift should be determined based on the case that the plaintiffs should have brought. The suggestion was that, when the plaintiffs' case was shorn of things on which the plaintiffs were unsuccessful or otherwise ought not have been pursued, the core matter was not unusually difficult.
In Strzelecki Holdings Pty Ltd v Jorgensen the Court of Appeal left open whether a special costs order could be made under s 280(2) where a party is awarded only a proportion of its overall costs having regard to the fact that it was not successful on all the issues it raised.[1056]
In principle I see no reason why such an order cannot be made. Section 280(2) is concerned with whether the costs allowable in respect of a 'matter' is inadequate and whether the inadequacy arises because of the unusual difficulty, complexity or importance of the 'matter'. The 'matter' is the matter in respect of which legal services were provided.[1057] Consideration is given to the dispute as a whole. Whether the two integers under s 280(2) are satisfied is not determined having regard to the issues on which the party seeking a special order won or lost. All the more so it is not determined by concluding that there were issues on which a party failed that justify apportionment as to costs. If it were otherwise the power provided by s 280(2) would be unjustifiably circumscribed. Section 280(2) would not be able to fulfil its statutory purpose of facilitating the operation of the general principle that a successful party is entitled to its costs of the litigation. Neither the text nor the purpose of s 280(2) justify limiting the power to make a special costs order such that the order is excluded where a party is awarded only a proportion of its overall costs.
In practical terms an order that the successful party only recover a portion of its costs will appropriately adjust costs entitlements as between the paying and receiving parties should a special costs order be made under s 280(2)(c) to remove limits. It should also be remembered that there is a residual discretion as to whether to make an order under s 280(2). If the qualifying conditions in s 280(2) are met the court 'may' do all or any of the things listed in sub-paragraphs (a) to (d). Accordingly, in a particular case it may be that the reasons a party is awarded only a proportion of its overall costs militate against any order under s 280(2).
In the latter respect I should record that counsel for the plaintiffs submitted that once the integers under the chapeau to s 280(2) were met there was no residual discretion. According to counsel for the plaintiffs, the court must then make one of the orders under s 280(2)(a) to (d). I reject that submission. It is contrary to authority.[1058] Putting aside prior authority, the use of the word 'may',[1059] coupled with the fact that it is well-established that powers granted to a court as to costs confer a broad discretion to be exercised judicially,[1060] compel the conclusion that satisfaction of the qualifying conditions in the chapeau to s 280(2) simply enlivens a discretion as to whether or not to make one or more of the orders as specified in sub-paragraphs (a) to (d). There is a residual discretion as to whether to make a special costs order once the party seeking the order establishes the things provided for under s 280(2).
I am satisfied that the matter in the present case was unusually difficult within the meaning and for the purpose of s 280(2). Further, answering the defendants' point, I am satisfied that - even if the the plaintiffs' case had excluded those things on which the plaintiffs were unsuccessful or ought not have been pursued - the matter was unusually difficult. There was an extremely large body of evidence covering a relationship and dealings that spanned nearly five years. I accept that the legal issues involved were relatively standard. But the case for the special costs order was not advanced on the basis that the matter was complex. Judged by reference to the length and nature of the parties' relationship - and their multiple commercial and personal dealings - both the matter as a whole and the core part of the case on which the plaintiffs succeeded was unusually difficult. In no way could either be considered to fall within the usual run of civil cases in this court or the District Court of Western Australia (the latter being relevant as the relevant costs determinations are applicable to both courts).
The causal question remains. I must be satisfied that the inadequacy of the costs allowable in respect of the matter under the costs determination arises because of its unusual difficulty. I am so satisfied. The unusual difficulty of the matter - reflected in the extremely large body of evidence I have referred to - plainly affected the amount of work necessarily and reasonably done in preparing for and presenting the case at trial.
While, for the reasons I have given, I consider there is a residual discretion to refuse a special costs order under s 280(2), this is not a case where it would be appropriate to refuse to make a special costs order altogether. The disentitling conduct of the plaintiffs is not of such a character that such a response would be just or reasonable. It would be disproportionate and capricious to penalise the plaintiffs in this way. The relevant failings on the part of the plaintiffs have been adjusted for and taken into account in depriving the plaintiffs of a portion of their costs.
It follows that the plaintiffs have made out a case for a special costs order under s 280(2)(c) of the Legal Profession Act 2008 (WA). The precise terms of the order then need to be considered.
I will make an order removing limits fixed for certain items within the costs determinations rather than all limits. I also propose only to remove the limit created by the maximum daily and hourly allowances for time spent on the relevant items rather than removing the maximum daily and hourly rates prescribed by the costs determinations. I received no evidence nor submissions to suggest that the daily and hourly rates - as distinct from the daily and hourly allowances - as fixed by the costs determinations were inadequate. Accordingly, taxation should proceed on the basis that the costs determinations establish the maximum allowable daily and hourly rates.
I will remove the limits on the daily and hourly allowances for those items where the size of the dispute results in prima facie inadequacy in relation to the limits imposed by the relevant costs determinations. Those items are:
- item 7(b) - giving discovery;
- item 18 - preparation of case; and
- item 21(a) - fee on brief (but only as to the 3.5 day limit on preparation for trial).
To the extent that limits were removed by item, rather than across the board, the plaintiffs sought that there be removal of the limit in relation to item 1(c), ie the statement of claim. The costs determinations provide for a maximum 10 hours by way of allowance. I am not prepared to remove the limit in relation to the statement of claim. The primary Reasons addressed the oppressive prolixity of the statement of claim.[1061] Given the observations made as to the statement of claim it is inappropriate that this aspect of the work performed on behalf of the plaintiffs see a lifting of the limit fixed by the costs determination. The deficient nature of the statement of claim militates against a favourable exercise of discretion in this regard.
While I will remove certain daily and hourly allowances limiting recovery under the costs determinations it will nonetheless remain the task of the taxing officer to consider the reasonableness of and necessity for the work undertaken; the taxing officer will make a judgment about the remuneration reasonably required.[1062] He or she will undoubtedly do so having regard to the observations I made in the primary Reasons as to the manner in which the plaintiffs' case was prepared and presented.

At a glance

Court

Decision date

Before

Source

Judgment (997 paragraphs)

GIRGIS -v- POLIWKA [No 6] [2019] WASC 230 (18 September 2019)

Legislation Cited (10)

Cases Cited (40)