James v Hill

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 50149/02 FILE NUMBER(S) : LOWER COURT Bergin J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40170/04

SHELLER JA HODGSON JA TOBIAS JA

Friday 17 September 2004 DAVID ANTHONY JAMES & ANOR v TERRY DONALD HILL

Hill wished to acquire a wine business from a liquidator. The liquidator was not prepared to deal with Hill. As a result Hill organised that James would purchase the business from the liquidator and contemporaneously on-sell it to Hill at the same price. It was understood that James would be buying and on-selling the business for $10.3 million. James and Hill then entered a contract to this effect. It was a term of the contract that Hill was to pay the deposit for the sale between James and the liquidator (the deposit). It was also a term that if Hill were unable to complete (in which case James would not purchase the business from the liquidators), then Hill would have no claim against James in respect of the deposit.

Meanwhile, as a means of securing funds so as to complete the purchase from James, Hill entered into negotiations with Wehrle whereby Hill planned to sell 45% of the business to Wehrle. However, Hill represented to Wehrle that the business was worth $24 million and intentionally failed to disclose the fact that he (Hill) was only buying the business for $10.3 million.

James, having become aware that Hill stood to profit if Wehrle purchased 45% of the business, negotiated with the liquidators to buy the business for $6.9 million, but hid this fact from Hill such that Hill continued to act on the basis that he was buying the business for $10.3 million. Accordingly, James stood to benefit at Hill's expense by on-selling the business.

At the time for completion Hill, who was not ready willing and able to complete, discovered James' actual purchase price. At first Hill sought an order for specific performance, thereby attempting to keep the contract on foot, before finally deciding to terminate and sue for breach. Hill also sought relief against forfeiture in relation to the deposit, sued for misleading and deceptive conduct and sought exemplary damages for depict.

HELD: (per Tobias JA, Sheller and Hodgson JJA agreeing) (1) Relief against forfeiture may be granted where it is established that the vendor's behaviour caused or contributed to a circumstance rendering it unconscionable for the vendor to insist upon his legal right to forfeit the deposit. In this case the vendor's (unconscionable) trickery did not cause the purchaser's failure to be ready, willing and able to complete. Rather, the vendor's behaviour merely caused the purchaser to pay a higher deposit than was actually required. The purchaser is not entitled to relief, but only to the difference between the deposits since the difference amounted to a penalty.

(2) The purchaser lost his right to terminate for breach and thereby have his deposit refunded when he elected to affirm the contract (by seeking specific performance) after he became aware of the facts entitling him to terminate, namely James' behaviour.

(3) The awarding of exemplary damages to Hill ought not to be reduced to reflect the court's disapproval of Hill's conduct (toward Wehrle). Under New South Wales law there is no analogy to be made with the defence of 'clean hands' to a grant of equitable relief. This is so particularly when regard is had to the fact that Hill's wrongdoing was not directed towards James, nor did it contribute to, or mitigate, James' wrongdoing. Unconscionable conduct directed exclusively toward an un-associated third party will not affect the awarding of exemplary damages.

(4) A solicitor, aware that their client wishes to profit from deceitful conduct in circumstances where the solicitor, through their own actions, intends for this to occur, is guilty of such conduct. Further, given that the purposes of awarding exemplary damages are inter alia deterrence and denunciation, a primary judge is not necessarily in error to find that the reprehensibility of the solicitor's conduct is increased where it occurs in the course of legal practice. Any issue of double punishment that may occur if the solicitor is made subject to a professional disciplinary proceeding following the awarding of damages is to be considered in the subsequent proceedings and is not to be anticipated by a reduction of damages in the first hearing.

(5) There is no requirement for exemplary damages to be proportionate to the loss actually suffered. The primary judge's discretion did not miscarry.

(6) The primary judge did not err in finding that Hill had not persuaded her that it was more probable than not that he was ready, willing and able to complete for $6.9 million. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40170/04

SHELLER JA HODGSON JA TOBIAS JA

Friday 17 September 2004 DAVID ANTHONY JAMES & ANOR v TERRY DONALD HILL

Judgment 1 SHELLER JA: I have had the privilege of reading in draft the reasons for judgment prepared by Tobias JA. I entirely agree with what his Honour has said. 2 HODGSON JA: I agree with Tobias JA. 3 TOBIAS JA: Prior to 11 February 2002 the Hill Wine Group of Companies (the Group) conducted what was referred to in this litigation as a "wine business", a "distribution business" and "the Fernhill Estate Winery" (Fernhill). The wine business was a grape growing and grape production business carried on by Marienberg Wine Company Pty Limited (Marienberg) and Basedow Wines Pty Limited (Basedow) in South Australia. The business also included a restaurant. The distribution business consisted of the wholesaling of liquor and an exclusive agency distribution of wines and other alcoholic beverages carried on by other companies within the Group.

4 On 11 February 2002, George Georges and Peter McCluskey of Ferrier Hodgson were appointed as joint administrators of various companies in the Group and Peter McCluskey and Bruce Carter were appointed as joint administrators of other companies within the Group (the administrators). Eventually, on or about 22 April 2002, the administrators were appointed liquidators of the companies in the Group which they had been administering. It was the intention of the liquidators to sell the Group's assets as a matter of urgency. 5 The respondent, Terry Donald Hill (Mr Hill), was a director and shareholder of each of the companies within the Group. 6 The first appellant, David Anthony James (Mr James), had a deal of experience in the liquor industry with respect to both wine production and distribution. He became aware that the administrators had been appointed to the companies within the Group and registered with them his interest in acquiring the Group's assets. Prior to February 2002 he had met a Mr Brierley who, in early March 2002, informed him that he had been asked to assist Mr Hill in putting finance together to purchase back the assets of the Group. Mr Brierley arranged a meeting between Mr Hill and Mr James to see if there was any common ground between them. 7 In early March 2002 there was a meeting relevantly between Mr Brierley, Mr James, Mr Hill and his solicitor, Mr Michael O'Neill (Mr O'Neill). Mr Hill provided some background of the Group and informed those present that he was looking to refinance the debt of the Group and to seek equity investors to effectively buy it back. After the Group went into liquidation, a further meeting took place when Mr James indicated that he remained interested in acquiring the distribution business of the Group whereas Mr Hill indicated that he was interested in acquiring the wine business including its brands. 8 Between late February and 24 April 2002, Mr Hill had been having discussions with Mr Sigvald Wehrle (Mr Wehrle), a Swiss resident with whom he had been dealing for a number of years and who had acted as a consultant to the company that imported the Group's wines into Switzerland. Mr Wehrle had expressed an interest in investing in the Australian wine industry and, in particular, in Basedow, Marienberg and Fernhill Estate. In early April Mr Hill forwarded to Mr Wehrle a draft of the Group's business plan. Mr Wehrle advised that he would review the information and that he expected to commit about "US$5-7 million". 9 On 24 April 2002, Mr Hill, through Mr O'Neill, submitted an offer to the liquidators on behalf of certain nominee companies of which he was a director, to purchase the distribution business for $3 million and the wine business for $10.9 million. Negotiations commenced but broke down on 29 April 2002. On 1 May 2002 Mr Hill and the nominee companies commenced proceedings against the liquidators in the Equity Division of the Supreme Court claiming that a binding agreement had been concluded. It would appear that the relationship between Mr Hill and the liquidators then deteriorated to the point where the liquidators indicated that they would not deal with Mr Hill with respect to his proposed acquisition of the assets of the Group. In these circumstances, Mr Brierley suggested to Mr Hill that it might be helpful if Mr James would consider "fronting the deal" for him. 10 On 6 May 2002, a meeting took place relevantly between Mr Hill, Mr O'Neill, Mr Brierley and Mr James. Mr Hill informed Mr James that he believed that the distribution business and the wine business would be good value at about $2 million and $12 million respectively. A deal was then struck between them pursuant to which, as recorded in a letter from Mr O'Neill to Mr James dated 6 May 2002, Mr James would make an offer to the liquidators to acquire the wine business for $12 million and the distribution business for $2 million. Mr Hill would then contract with Mr James to acquire the wine business at the same price paid by him to the liquidators via "back-to-back" contracts to be completed contemporaneously with the sale of both businesses by the liquidators to Mr James. 11 It was also agreed that Mr Hill would pay the total deposit of $1.4 million upon the basis that if he did not complete the "back-to-back" deal, the deposit would be forfeited. 12 By letter dated 6 May 2002, Mr James on behalf of certain nominated companies wrote to the liquidators offering to purchase all the Group's assets for $14 million with a non-refundable deposit of $1.4 million upon receipt of contracts for sale. 13 On 8 May 2002, Mr James revised his offer to the liquidators to $11.8 million. However, the liquidators then advised that certain assets were no longer for sale including Fernhill. As a consequence, Mr Hill advised Mr James that in those circumstances he would only be prepared to pay $10.3 million for the wine business. On 9 May 2002, Mr James made a further offer to the liquidators in the amount of $10.3 million for the wine business (which included a deposit of $1.03 million), the contracts to be settled within four weeks of that date. 14 On 9 May 2002, Mr O'Neill faxed to Mr James a letter signed by him with provision for the signature of both Mr Hill and Mr James and which Bergin JA, the primary judge, held to be a concluded contract between Mr Hill and Mr James (the 9 May agreement). The letter recorded that Mr James was to enter into contracts with the liquidators whereby a nominee company (Newco No 1) would acquire the distribution business of the Group for $2 million and another nominee company (Newco No 2) would acquire the wine business (excluding Fernhill) for $10.3 million. The shares in the company acquiring the wine business were to be held by a third nominee company, (Newco No 3), whose issued capital was to be legally and beneficially held by Mr Hill or his nominee. 15 The 9 May agreement further recorded that the liquidators required a 10% deposit in the sum of $1.23 million to be paid at the time of entering into contracts for the acquisition of the wine business and distribution business which was to be paid by Mr Hill on behalf of Newco No 1 and No 2. The letter further provided that upon completion of the Asset Sale Contract for the distribution business, Mr James would pay the balance of the purchase price of $1.8 million, however, the deposit of $200,000 to be paid by Mr Hill would not be repaid, subject to certain conditions not presently relevant. The letter also provided that Mr Hill would cause to be paid on behalf of Newco No 2 the balance of the purchase price of $9.27 million for the acquisition of the wine business. 16 Of particular relevance for present purposes is the following paragraph of the 9 May agreement: "(k) In the (unlikely) event that Terry Hill or nominee fails to provide the amount of $9.27 million to enable Newco No. 2 to complete the acquisition of the Wine Business, then: (i) …

(iii) Terry Hill shall have no claim against Newco No. 1 for the return or refund of the deposit of $200,000 paid by Terry Hill at the time of execution of the Heads of Agreement document;

(iv) Terry Hill shall have no claim against you or Newco No. 2 for the return or refund of the deposit paid by Terry Hill of $1.03 million paid under the Heads of Agreement." 17 Mr James' offer to the liquidators apparently met with a positive response. There must have been further negotiations between Mr James and the liquidators on the price of the wine business for it appears to have reduced from $10.3 million to $9.2 million. Thus on 13 May 2002, Mr James received an email from Clayton Utz attaching a draft sale contract on instructions from the liquidators. The covering letter and the draft contract defined the deposit for the wine business as "$1,020,000" and the "completion payment" as the "amount of $8,180,000.00 as adjusted in accordance with clause 8.2(a)". At this point Mr James retained the second appellant, David George Brooks (Mr Brooks), as his solicitor. 18 Later the same day, Mr James used his computer to change the amounts of the completion price and the deposit in Clayton Utz's draft letter and sale contract by changing the deposit from $1.02 million to $1.23 million and the completion payment from $8.18 million to $11.07 million. He then emailed the amended covering letter and draft sale contract to Mr Brierley, Mr Hill's advisor. This was because Mr Brierley had asked Mr James for a copy of the draft contract that he had received from the liquidators as he was putting a business plan together for Mr Wehrle. Mr James maintained throughout the litigation that he made these changes because he believed that Mr Hill was proposing to purchase the wine business from him for a fixed price irrespective of the price he was able to negotiate with the liquidators. As will be seen (at [31(a)]), the primary judge rejected this explanation. She also found that neither Mr Brierley, Mr O'Neill, Mr Brooks nor Mr Hill were aware of the changes made by Mr James. 19 Between 16 and 21 May 2002, Mr Hill, Mr O'Neill and Mr Brierley as well as a representative of Mr James, travelled to Zurich to meet with Mr Wehrle. Mr Brierley presented Mr Wehrle with the business plan from which a copy of the 9 May agreement and the draft sale contract relating to the wine business between Mr James and the liquidators had been removed. Apparently Mr Wehrle did not ask about the price being paid to the liquidators for the wine business. The business plan given to Mr Wehrle included figures that suggested that the value of the net assets of the wine business were $24 million and Mr Hill informed Mr Wehrle that what was being purchased was worth that sum. Mr Wehrle indicated he would invest "up to" US$7 million for a 45% shareholding based on the business plan provided to him. 20 On 22 May 2002, Mr James informed Mr O'Neill that the liquidators proposed to drop the price of the wine business by $100,000. Shortly after, Mr O'Neill received a fax from Mr James enclosing a copy of the 9 May agreement signed by Mr James with marked up changes (the amended 9 May letter). Relevantly, the amendments provided for the acquisition of the wine business by Newco No 2 "for a total purchase price of $10.3 million or such other price as agreed between the Liquidators and Newco No 2". It further provided for Mr Hill to cause to be paid "the sum of $9.27 million to allow completion of the asset sale contracts and of the acquisition of the wine business". 21 On 22 May 2002, having received a further copy of the asset sale contracts from Clayton Utz, on Mr James' instructions Mr Brooks altered the nominated prices for the wine and distribution businesses to reflect the figures stated in the 9 May agreement. Relevantly, the price of the wine business was changed from $9.5 million to $10.3 million. The altered document was then emailed to Mr O'Neill's office. In reliance thereon, Mr Hill paid to Mr James the assumed deposit for both businesses of $1.2575 million of which $200,000 had been provided by Mr James to Mr Hill by way of loan. Mr Brierley had raised the balance for Mr Hill through a financier. 22 On or about 24 May 2002, the liquidator advised that Fernhill was once again available for sale and, on the instructions of Mr Hill, Mr James negotiated with the liquidators and secured a sale thereof at the price of $575,000 with an additional deposit of $57,500. 23 Contracts between Mr James and the liquidators were exchanged on 24 May 2002. The contracts provided that the total price for the wine business (including the Marienberg property and Fernhill) was $6,924,996 and, for the distribution business, $2,500,004. The total deposit for the purchase of both businesses was $942,500, this sum being paid by Mr James to Clayton Utz on exchange of contracts. As Mr Hill had paid to Mr James a total of $1,257,500, he had overpaid the true deposit by an amount of $315,000. Whereas the 9 May agreement provided that the balance to be paid by Mr Hill for the wine business on completion was $9.27 million, the true balance was $6,232,496, a difference of $3,037,504. 24 On 3 June 2002, Mr Wehrle telephoned Mr O'Neill and informed him that he had asked Mr Hill on a number of occasions for a copy of the "back-to-back" agreement between Mr Hill and Mr James but which he had not yet received. Mr Hill then requested Mr O'Neill to send Mr Wehrle what he described as "an amended version of the back-to-back agreement deleting the details setting out the proposed purchase price". Mr O'Neill made changes to the 9 May agreement so that the purchase price was deleted therefrom. It was then sent to Mr Wehrle. 25 Mr Hill agreed in evidence that the version of the letter, which he signed and which was sent to Mr Wehrle, did not set out the full details of the arrangement or contract between himself and Mr James. Mr O'Neill agreed that the document was created so that Mr Wehrle would not know the price that Mr Hill had agreed to pay for the purchase of the wine business. Correspondence then took place which made it patently clear that Mr Wehrle was under the impression that Mr Hill would be required to make a substantial payment on completion of the purchase of the wine business in exchange for his 55% thereof. However, the true position (as the primary judge found (at [159])), was that if Mr Wehrle invested US$7 million in exchange for 45% of the business, Mr Hill would be able to purchase it for no further outlay than the deposits he had paid and still retain a 55% interest therein. 26 Mr Wehrle's funds were not forthcoming in time for settlement. Mr James was therefore required to complete the purchase on 19 June 2002 with his own funds. However, unknown to Messrs Hill, O'Neill and Brierley, he was only required to pay a further $6,232,496 for the wine business rather than $9.27 million. 27 On 24 June 2002, Mr O'Neill came across a copy of the contract between the liquidators and Mr James in which he noticed that the definition of "Deposit" was $820,000 and the apportionment of the total purchase price to the wine business was $5,699,996. (As noted in [23] above, the total purchase price for the wine business was $6.925 million (in round figures) being the $5.7 million referred to in the copy contract discovered by Mr O'Neill together with $650,000 for the Marienberg property and $575,000 for Fernhill). It was thus realised by Mr O'Neill and Mr Hill that the latter was being required to pay $10.3 million for assets in respect of which Mr James had paid the liquidators $6.925 million. 28 On 29 August 2002, Mr Hill commenced proceedings by way of summons against Mr James and Mr Brooks. The first order sought in the summons was for specific performance against Mr James in respect of the "back-to-back" agreement by procuring a transfer of all the issued share capital of the company that had acquired the wine business from the liquidators upon payment of $5,617,496. Mr Hill further claimed declarations that Mr James had breached fiduciary duties he owed Mr Hill and/or that he had been guilty of misleading and deceptive conduct in contravention of s 42 of the Fair Trading Act and s 52 of the Trade Practices Act. Finally, he claimed damages for deceit, fraudulent misrepresentation, conspiracy and unjust enrichment. 29 On and after 23 June 2002, Mr Hill continued in negotiation with Mr Wehrle for the purpose of persuading him to maintain his interest in investing in the wine business. In this respect Mr Hill wrote to Mr Wehrle on 29 August 2002 indicating that he still wished to acquire the business subject to due diligence to assess the appropriate purchase price. The letter went on to indicate that although he had no idea at that stage of the capital base of the business, a "ball park figure" was around $12 million. He asked Mr Wehrle if he still had an interest in the business. There was no evidence from Mr Hill of any further contact with Mr Wehrle. 30 On 6 May 2003, Mr Hill abandoned his claim for specific performance and elected to terminate the contract constituted by the 9 May agreement and to sue for damages for breach.

The primary judge's determination of Mr Hill's claims 31 As already noted (at [14]) the primary judge found (at [173]) that the parties intended to be bound by the terms of the 9 May agreement and conducted themselves pursuant to that agreement on and from that date (the 9 May agreement). Her Honour also found that

(a) Mr James understood that he had agreed that Mr Hill would be purchasing the wine business at the same price that he, Mr James, purchased it from the liquidators (at [148]);

(b) After 9 May 2002, Mr James could see that Mr Hill was making a very good deal for himself if Mr Wehrle acquired a 45% interest in the wine business for US$7 million as this would mean that Mr Hill was able to purchase the business with no further outlay than the deposits that had been paid and still retain a 55% interest (at [159]);

(c) As a consequence, Mr James took the opportunity to sweeten the deal for himself without alerting either Mr Hill or Mr O'Neill to what he was up to and it was in that context that the amended 9 May agreement was delivered as part of Mr James' attempt to ensure Mr Hill did not " tumble " to his plan (at [159]);

(d) Mr James' motivation was to conceal the true purchase price from Mr Hill; during May 2002 he was negotiating with the liquidators to achieve a price better than $10.3 million for the acquisition of the wine business but chose to pretend to Mr Hill that he had a contract with the liquidators that he did not in fact have (at [164]);

(e) Pursuant to the 9 May agreement, at the time of settlement on 19 June 2002 Mr Hill was only required to pay to Mr James the true balance of the purchase price for the wine business and not $10.3 million less the deposit he had paid, irrespective of the price actually paid by Mr James; in other words, the operative agreement between Mr Hill and Mr James was that the former was only required to pay the latter the amount that Newco No 2 needed to enable it to complete the purchase of the wine business from the liquidators (at [169], [171]);

(f) Mr James breached his contractual obligations under the 9 May agreement by: (i) failing to provide the draft contracts for Mr Hill's approval and in providing false contracts for that approval; (ii) requiring Mr Hill to pay by way of deposit more than 10% of the price Mr James had agreed to pay the liquidators for the wine business and the distribution business; (iii) requiring Mr Hill at the time of settlement to pay an amount different from the balance of the true purchase price payable by Mr James to the liquidators for the wine business (at [174]).

The damages claim for breach of contract 32 Mr Hill claimed damages for breach of the 9 May agreement. He submitted that had he known that the true purchase price of the wine business was $6.925 million, he would have been in a position to complete on 19 June 2002. It was accepted by Mr Hill that he would have had to establish that he would have been in a position in June 2002 to raise finance in the sum of $5,617,496, (after taking into account the deposit already paid), to complete the purchase of the wine business if he was to be awarded damages for breach of the agreement. (In fact the correct amount was $6,232,496 but for present purposes that does not matter). 33 Mr Hill called a number of witnesses who, it was submitted, would contribute funds either by way of equity or debt, to enable him to pay the true balance of the purchase price of the wine business. I will return to this evidence when dealing with Mr Hill's cross-appeal. Suffice it for present purposes to summarise her Honour's findings on this issue:

(a) At no stage did Mr Hill request Mr Brierley to pursue the raising of funds for the purpose of being ready, willing and able to complete the 9 May agreement at the lower price [at [226]);

(b) Moreover, Mr Hill did not seek to take up a number of generous offers that had been made to him in respect of funding by Mr McGuigan, a longstanding friend (at [226]);

(c) Mr Hill's capacity to service any possible loan(s) from his personal assets was minimal (at [227]); yet that capacity would be a significant factor in any decision by a potential lender to make a loan (at [233]);

(d) Mr McGuigan, who was prepared to provide funds of between $2-4 million, was not prepared to provide an equity investment unless he received a significant shareholding in the business (at [191], [228]);

(e) Mr Hill did not have the capacity to fund the purchase by way of a commercial loan (at [234]);

(f) Although Mr Hill gave evidence that had he become aware in mid-May 2002 of the lower purchase price, he would have reviewed a number of offers of finance from various organisations including approaching Mr McGuigan to obtain finance whether by way of equity investment or loan, after becoming aware of the lower figure within days of Mr James completing the purchase of the wine business, he did none of the things which he said he would do in his evidence. What he did was continue to press Mr Wehrle for the equity investment that had been previously discussed (at [232]);

(g) However, Mr Wehrle did not make the investment notwithstanding what seemed to her Honour to have been concerted efforts by Mr Hill to persuade him to do so (at [239]). 34 The primary judge's conclusions with respect to this issue were expressed in the following terms: "233 As at 24 June 2002, the plaintiff was in the position to make the approaches to the various individuals and corporations for finance. Each of them has given evidence about the conditions that would be imposed on either a commercial loan basis or equity investment. That evidence establishes that the plaintiff's capacity to service or repay any loans would be a significant factor in any decision whether to make the loan. In considering whether the plaintiff would have been in a position to raise the funds, this aspect of the matter must also be considered. 234 The evidence establishes that the plaintiff did not have capacity to fund the purchase by way of commercial loan. Realistically, with his lack of independent income and the paucity of evidence as to how he would be able to repay loan funds of $6.9 million, the plaintiff has difficulty in establishing a capacity to fund the purchase on this basis. Mr McGuigan's evidence was that his equity investment would require a significant shareholding. His evidence establishes that he informed the plaintiff that he was willing to assist as early as March 2002. It is apparent from the evidence that the plaintiff did not approach Mr McGuigan for any form of funding at the time the lower figure was discovered. 235 I am satisfied that the reason the plaintiff pursued Mr Wehrle to the exclusion of other options was that it was the only way he could possibly fund the purchase without have further financial burden of repayment of loans imposed on him. The plaintiff was so financially stretched that he had to rely upon the defendant for a prompt loan for the deposit. The funding that he put in place to repay that deposit was not based on the capacity to service or repay the loan. It was an asset based loan with reliance upon the valuation of the Hunters Hill property." 35 Accordingly, her Honour held (at [236]) that she was not persuaded that Mr Hill was or would have been in the position to purchase the wine business at a price of $6.9 million. It followed that his claim for damages for breach of the 9 May agreement failed. Mr Hill challenges by way of cross-appeal her Honour's finding that as at 19 June 2002 he did not have the financial capacity to complete the purchase.

The claim of misleading and deceptive conduct 36 Mr Hill submitted that by altering the figures of the various draft contracts, Mr James misled and deceived him both positively (or expressly) and by silence. He further submitted that Mr Brooks participated in that misleading and deceptive conduct by altering the figures in the draft contracts on 22 May 2002. 37 The primary judge upheld these submissions in the following terms (at [241]): "I am satisfied that the defendant and Mr Brooks intentionally misled the plaintiff into believing that the defendant had purchased the wine business from the liquidator for $10.3 million. The plaintiff relied upon the representation contained in the altered contract that the purchase price was more than it really was and that reliance caused him to pay a deposit that was greater than he should have paid. I have found that the plaintiff would not have been in a position to complete the purchase. The damage that flows from the misleading and deceptive conduct to which the plaintiff is entitled is therefore the difference between the deposit paid by the plaintiff and the deposit on the lower amount." 38 Her Honour therefore ordered that there be judgment against Messrs James and Brooks in the amount of $315,000 together with interest from 22 May 2002 to 26 February 2004 in the sum of $50,098. This order was, but is no longer, challenged.

The claim for relief against forfeiture 39 Mr Hill claimed relief against the forfeiture by Mr James of $942,500 being that part of the total deposit paid by Mr Hill of $1,257,500, which represented 10% of the true purchase price of $9.425 million paid to the liquidators by Mr James for the wine business. It was submitted that equity would provide that relief where unconscionable conduct of one party has caused the default of the other party who risks the forfeiture, including where forfeiture would result from the insistence on legal rights. 40 The primary judge found (at [253]) that Mr Hill had paid the deposit upon the basis of the amended 9 May agreement. However, she also found (at [254]) that "[Mr James] with the assistance of [Mr Brooks] engaged in conduct that was designed to trick [Mr Hill] into believing that the contract [Mr James] had entered into with the liquidators containing the figures upon which the deposit to be paid by [Mr Hill] was calculated was the real contract. [Mr James] induced the payment from [Mr Hill] by that trickery." 41 Mr James had submitted that an equity court had no jurisdiction to interfere with a contractual arrangement by ordering a deposit to be repaid. Her Honour disagreed, finding (at [255]) that "[I]f it is necessary for a court of equity to intervene to avoid injustice, so long as such intervention is in line with appropriate equitable principles, then there is ample jurisdiction." 42 In [256] the primary judge found, importantly for the purposes of the appeal, that "[t]he higher amount of the deposit paid was induced by the trickery to which I have referred." (emphasis added) 43 Her Honour recognised that equity would find it difficult to allow Mr James to be unjustly enriched by the difference between the deposit required and the deposit paid and would not permit him to pocket that difference. However, recognising that she was now dealing with relief against forfeiture of the true deposit, she found (at [257]) "that the appalling trickery engaged in by [Mr James] would make the insistence on his legal rights in this regard quite unconscionable."

She was satisfied therefore, that Mr Hill was entitled to relief against forfeiture of the true deposit. Accordingly, by Order 1 made by her Honour on 26 February 2004, she entered judgment against Mr James in favour of Mr Hill in the amount of $942,500. Mr James challenges this order and the findings upon which it was based.

The claim for exemplary damages 44 Mr Hill claimed exemplary damages against both Messrs James and Brooks based upon the primary judge's finding (now unchallenged) that each was aware that the draft asset sale contracts in reliance upon which Mr Hill paid the deposit was false and, therefore, that the tort of deceit was established. As a consequence of their conduct in altering the draft contracts, Mr Hill was deceived into believing that the contract was real and the deposit amount stated therein was the amount he was required to pay. 45 Mr Hill submitted that he should be entitled to an award of exemplary damages against Mr James and Mr Brooks upon the basis that their conduct constituting the tort of deceit was the very type of conduct that has been found to warrant such an award, namely, conduct which was in "contumelious disregard for the plaintiff's rights" or was "conscious wrongdoing", "high-handed" and "reprehensible": Gray v Motor Accident Commission (1998) 196 CLR 1; Lamb v Cotogno (1987) 164 CLR 1. 46 The primary judge considered that the facts of the case warranted an award of exemplary damages. She said (at [285]) "…The conduct of the defendant and Mr Brooks in deceiving and changing the terms of the draft Asset Sale Contracts was quite appalling. A businessman and a solicitor, both obviously intent upon trickery, changed the contracts not once but numerous times. The conduct of the defendant and Mr Brooks was both high handed and reprehensible such that an award of exemplary damages is warranted against both defendants. The reprehensibility of the conduct of Mr Brooks is increased by reason of his position as a solicitor, an officer of the Court." 47 Accordingly, she awarded exemplary damages against Mr James in the amount of $75,000 and against Mr Brooks in the amount of $125,000. Messrs James and Brooks challenge the amounts awarded as excessive in all the circumstances.

Did the primary judge err in relieving Mr Hill from the forfeiture by Mr James of the true deposit of $942,500? 48 Mr James submitted that there was no jurisdiction in equity to relieve against the forfeiture by a vendor pursuant to a contract for sale of a deposit not exceeding 10% of the purchase price paid by the purchaser where that forfeiture is pursuant to an express term of the contract; in this case, clause (k)(iv) of the 9 May agreement (see [16] above). It was accepted that an attempt by a vendor to exceed the customary deposit of 10% of the purchase price will amount to a penalty in respect of which relief can be obtained unless special circumstances are shown: Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 at 580C, 582D-E. 49 Equity intervention in such cases to enable the recovery of the amounts deposited to the extent they exceed a reasonable deposit or a genuine pre-estimate of loss is to be contrasted with the jurisdiction to relieve against forfeiture of the purchaser's of equitable interest in the asset, the subject of the sale: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 478; Stern v McArthur (1988) 165 CLR 489 at 425; Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 at 520. 50 It was therefore submitted that as the $942,500 was a true deposit in the sense that it was 10% of the purchase price of the wine business and the distribution business, it was required to be paid by Mr Hill irrespective of the trickery practised by Mr James in altering the relevant figures of the sale contracts so that there was no causal connection between the payment of the true deposit and that trickery. Furthermore, it was submitted that Mr Hill did not, when he discovered the deceitful conduct of Mr James, terminate the 9 May agreement: on the contrary, he sued for its specific performance thereby affirming that the agreement was still on foot. Again, there was no wrongful repudiation of the true 9 May agreement by Mr James: on the contrary, the agreement came to an end when Mr Hill elected to abandon his claim for specific performance thereof and to claim damages for its breach. The present case was, therefore, to be contrasted with those in which the contract is wrongfully terminated by the vendor thereby forfeiting the purchaser's equitable interest in the property, the subject of the contract, and the purchaser sues for specific performance in which event relief against the forfeiture of that interest is granted by way of an order for specific performance. 51 In my opinion it is unnecessary to consider the question of the extent of equity's jurisdiction to relieve against forfeiture of a deposit otherwise properly paid, but which is forfeited by the vendor as a consequence of the wrongful termination of the contract for the purchaser's alleged breach. 52 Upon the assumption that the jurisdiction exists, the more pertinent question to be determined in the present case is whether Mr James' conduct led to, caused or contributed either to the payment of the deposit of $942,500 in circumstances where it otherwise would not have been paid or to the inability of Mr Hill to complete the 9 May agreement, thus triggering the forfeiture by Mr James of the true deposit pursuant to clause (k)(iv). 53 In Stern, Mason CJ (at 502-503) noted that the High Court's decision in Ciavarella v Balmer (1983) 153 CLR 438 established that:

(a) only in exceptional circumstances will the court relieve against forfeiture of the purchaser's interest in land under a contract for sale which has been validly rescinded by the vendor for breach of a term which is an essential condition; and

(b) in order to make out exceptional circumstances, the purchaser must show conduct amounting to unconscionable conduct on the part of the vendor. 54 His Honour said (at 503): "The doctrine is a limited one that operates only where the vendor has, by his conduct, caused or contributed to a situation in which it would be unconscionable on the vendor's part to insist on the forfeiture of the purchaser's interest…[T]he jurisdiction to grant relief against forfeiture does not authorise a court to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable." 55 In Tanwar Enterprises Pty Ltd v Cauci [2003] 77 ALJR 1853 at 1860 [39], Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ said: "In Stern Mason CJ also stated that equity intervenes only where the vendor has, by the vendor's conduct, caused or contributed to a circumstance rendering it unconscionable for the vendor to insist upon its legal rights. That helps explain why mere supervening events and changes in the relevant circumstances are insufficient…In addition, his Honour spoke in Stern of the circumstances being 'exceptional' to attract equitable intervention. That also emphasised the insufficiency of the subsequent events which are adverse to the interests of one side."

In Tanwar , the appellant's case depended upon the acceptance of the view of the jurisdiction of equity taken by Gaudron J in Stern at the expense of that preferred by Mason CJ. Their Honours considered that the Chief Justice's view should be accepted (at p 1859 [36]). See also Romanos v Pentagold Investments Pty Ltd (2003) 77 ALJR 1882 at 1886 [25]. 56 In my opinion, for Mr Hill to be entitled to the relief granted to him by the primary judge, it was incumbent upon him to establish that Mr James' conduct in altering the relevant figures in the draft sale contracts caused or contributed to "a circumstance" rendering it unconscionable for Mr James to insist upon his legal right to forfeit the deposit pursuant to clause (k)(iv) of the 9 May agreement. The "circumstance" which triggered Mr James' legal right to forfeit the deposit was the failure of Mr Hill to pay or to offer to pay the balance of the purchase price on 19 June 2002 or at any other time prior to 6 May 2003 when he elected to abandon his claim for specific performance and to sue for damages for breach of contract. 57 The difficulty facing Mr Hill is that there was no finding by the primary judge that the failure of Mr Hill was in any way caused or contributed to by the trickery or unconscionable conduct practised by Mr James upon Mr Hill in May 2002. In fact, her Honour's finding is to the contrary. As I observed in [42] above, her Honour found (at [256]) that "[t]he higher amount of the deposit paid was induced by the trickery to which I have referred. " (emphasis added)

In other words, Mr James' conduct caused Mr Hill to pay a deposit of $1,257,500 rather than $942,500, a difference of $315,000. Accordingly, Mr Hill was entitled to be repaid that amount, not by way of relief against forfeiture but because the attempt by Mr James to require Mr Hill to pay an amount exceeding the true 10% deposit would amount to a penalty. 58 Furthermore, Mr James' unconscionable conduct or, as the primary judge termed it, "commercial trickery" did not cause or contribute to the failure of Mr Hill to pay the balance of the true purchase price or to elect to abandon his claim for specific performance of the 9 May Agreement. . The primary judge did not so find, nor on the evidence could she. The overwhelming inference from her Honour's finding that Mr Hill would not have been in a position to complete the purchase on 19 June 2002 is that he would not have been able to do so in the event that he was successful in obtaining an order for the specific performance of the agreement. In other words, he would not have been able to establish to the Court that he was ready, willing and able to complete the agreement at the true price. 59 Given that the primary judge found that Mr Hill's reliance upon the altered purchase price in the sale contracts caused him to pay "a deposit that was greater than he should have paid" [241] (emphasis supplied), it must follow that the unconscionable conduct of Mr James only caused Mr Hill to pay the difference between the deposit actually paid and the deposit he ought to have paid, namely, $315,000. 60 However, Mr Hill submitted that the primary judge erred in her finding that Mr James' unconscionable conduct only caused him to pay a deposit greater than that which he should have paid. He submitted that that conduct caused him to pay the whole of the deposit: in other words Mr James tricked him into paying the whole of the deposit rather than an extra $315,000. If this was so, so it was submitted, it would be unconscionable for Mr James to retain any part of the deposit, including that which was payable with respect to the true purchase price. 61 In my opinion, the primary judge was correct in categorising Mr James' conduct as only causing Mr Hill to pay a greater amount by way of deposit than he was otherwise bound to pay under the 9 May agreement. Accordingly, it is only in respect of the difference of $315,000 that Mr Hill is entitled to relief. He is not entitled to recover, by way of relief against forfeiture or otherwise, the true deposit of $942,000 which, independently of Mr James' conduct, he was bound to, and did, pay pursuant to the 9 May agreement. 62 Accordingly, in my respectful opinion, the primary judge erred in holding that Mr Hill was entitled to relief against forfeiture of the deposit of $942,500.

Mr Hill's notice of contention 63 It is convenient at this point to deal with Mr Hill's notice of contention whereby he sought affirmation of the primary judge's order that he be relieved of the forfeiture of the deposit of $942,500 upon the ground that he was not bound to purchase the wine business from Mr James as he had not approved a draft sales contract containing the true purchase price. Not having approved the correct draft sales contracts, a condition precedent to the obligation of Mr Hill to complete the 9 May agreement was not satisfied with the consequence that he was not obliged to complete that agreement. It may well be, and I will assume for present purposes, that upon discovering the true position on 24 June 2002, Mr Hill may have been entitled to terminate the 9 May agreement upon the basis that he had not approved the correct sales contracts. But he did not do so. On the contrary, he affirmed the agreement with full knowledge of the true price by instituting proceedings for its specific performance. 64 In Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 658, Mason J said: "If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract: the conduct is adverse to the other party and may therefore be considered unequivocal in its effect." 65 In my opinion Mr Hill, otherwise aware of facts which entitled him to terminate the 9 May agreement, did not do so but elected to affirm the contract by seeking an order from the court that it be specifically performed. In these circumstances, he lost his right to terminate and with it, his right to a refund of the true deposit. Accordingly, the basis advanced by Mr Hill in his notice of contention for affirming the primary judge's decision to grant him relief against forfeiture of that deposit should be rejected.

Did the primary judge err in the amount of exemplary damages she ordered to be paid by Mr James and/or Mr Brooks? 66 It is trite law that an award of exemplary damages is not compensatory in nature but punitive. This aspect of exemplary damages was emphasised in XL Petroleum (NSW) Pty Ltd v Caltex Oil Australia Pty Ltd (1985) 155 CLR 448 at 471 where, in a passage approved in the joint judgment of the High Court in Lamb v Cotogno (1987) 164 CLR 1 at 9, Brennan J said: "As an award of exemplary damages is intended to punish the defendant for conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again, the considerations that enter into the assessment of exemplary damages are quite different from the considerations that govern the assessment of compensatory damages. There is no necessary proportionality between the assessment of the two categories. … The social purpose to be served by an award of exemplary damages is, as Lord Diplock said in Broome v Cassell & Co , 'to teach a wrong-doer that tort does not pay'. " 67 In Lamb, the joint judgment went on (at 9) to observe that the object, or at least the effect, of exemplary damages was not wholly punishment or deterrence but that it also served "to assuage any urge for revenge felt by victims and to discourage any temptation to engage in self- help likely to endanger the peace"

and, further, at [10] "to mark the court's condemnation of the defendant's behaviour." 68 In Harris v Digital Pulse Pty Limited (2003) 56 NSWLR 298 at 311 [55], Spigelman CJ referred to the first of these additional objectives as "vindication" and to the second as "denunciation". As his Honour observed (at 312 [56]), each of the purposes so identified by the High Court in Lamb is primarily, if not exclusively, a public purpose. 69 Accordingly, the objectives of an award of exemplary damages are to punish the wrongdoer, deter him and others from committing like conduct again, to provide vindication to the victim and to denounce the wrongdoer's behaviour. It is therefore incorrect for Mr James and Mr Brooks to submit, as they do, that the quantum of such damages must be linked either to the loss sustained by the victim or the benefit gained by the wrongdoer. As Brennan J observed in the passage from XL Petroleum extracted above, there is no necessary proportionality between the assessment of exemplary damages and that of compensatory damages. 70 There is therefore no basis for the proposition advanced by Mr James and Mr Brooks that any award of exemplary damages must be referrable to the loss or damage sustained as a consequence of the relevant tort, in the present case, the tort of deceit. 71 Mr Hill and Mr Brooks make the following further complaints. The first is that the primary judge erred by failing to take into account the ameliorating effect of her relieving Mr Hill of the forfeiture of the deposit of $942,500. As I am of the opinion that her Honour erred in granting that relief, this basis of challenge fails. 72 It was then submitted that the primary judge had failed to take into account the fact that she had found (at [1]) that each of Mr Hill and Mr James had pursued "a level of commercial skulduggery…as if it were their normal or usual way of doing business".

This was a reference, so far as Mr Hill was concerned, to his conduct in keeping from Mr Wehrle the details of the purchase price of the wine business which he understood he was required to pay Mr James. In my opinion, Mr Hill's conduct vis-à-vis Mr Wehrle is irrelevant to any determination of the quantum of exemplary damages appropriate to achieve the objectives of such an award vis-à-vis Messrs James and Brooks. No one is claiming exemplary damages against Mr Hill: he is not the relevant wrongdoer whose conduct is required to be considered for the purpose of such a determination. I see no principled basis, given the purposes of exemplary damages, to justify a modification of her Honour's award of such damages to reflect the court's disapproval of the conduct of Mr Hill now relies upon. 73 The view expressed in the preceding paragraph finds some indirect support in the majority decision of this Court in Digital Pulse. There, Spigelman CJ and Heydon JA held that the law of New South Wales did not empower the Supreme Court to award exemplary damages for breach of fiduciary duty where that duty arises in the context of a contractual relationship. Heydon JA (at 422 [470]) went further and concluded, obiter, that there is no power in the law of New South Wales to award such damages for equitable wrongs generally. According to their Honours, at least one reason for this is that equity does not punish. The Chief Justice (at 311[54]) observed that there "is no example of equity providing a remedy on the sole basis of punishment, deterrence, denunciation or vindication as this Court is called upon to do." 74 The submission of Mr James concerning Mr Hill's conduct towards Mr Wehrle is tantamount, or at least analogous, to the defence of lack of clean hands to a grant of equitable relief. Given the decision of the majority in Digital Pulse, and noting that the lack of clean hands defence is relevant only in equity, it follows that at least as the law in New South Wales currently stands with respect to awarding exemplary damages, there is no room for a defence to a claim for such damages where the relevant conduct of the defendant amounts to a tort (in the present case, the tort of deceit), based on the conduct of the victim and this is especially so where that conduct, as here, is not directed at the wrongdoer or in any way contributes to his wrongdoing. Even the impropriety the subject of the lack of clean hands defence "must have an immediate and necessary relation to the equity sued for": Dewhirst v Edwards [1983] 1NSWLR 34 at 51; Meagher, Gummow and Lehane's "Equity Doctrine & Remedies 4th ed at [3-130]; cf Fatimi Pty Ltd v Bryant [2004] NSWCA 140 at [78]. 75 Although it is true that as exemplary damages constitute a form of punishment, anything which mitigates the wrongdoer's conduct is relevant (Rookes v Bernard [1964] AC 1129 at 1128), there was nothing in Mr Hill's conduct which mitigated that of Mr James. The former was quite unlike the well known mitigating factor of provocation by the victim of the wrongdoer. As I have already noted, Mr Hill's conduct was not directed at Mr James but at a third party relevantly not associated with Mr James.

76 So far as Mr Brooks is concerned, it was submitted that there should be no award of exemplary damages against him as there was no allegation in the Fourth Further Amended Summons that he had acted "deliberately and in contumelious disregard for the rights of Terry Hill": cf [52] of that pleading. Nevertheless, in his pre-trial outline of submissions dated 31 October 2003 and in his final submissions dated 13 November 2003, Mr Hill expressly submitted to the primary judge that the conduct of both Mr James and Mr Brooks was sufficiently dishonest, fraudulent and deceitful to warrant an award of exemplary damages in addition to compensatory damages. Furthermore, the pleading point now relied upon was not taken at trial. In these circumstances, it should be rejected. 77 It was further submitted by Mr Brooks that firstly, unlike Mr James he did not stand to benefit personally from his conduct; secondly, that there must be proportionality or parity between he and Mr James; and thirdly, that her Honour erred in increasing the award against Mr Brooks by reason of the fact that he was a solicitor and, therefore, an officer of the Court. 78 In my opinion, none of the foregoing bases of challenge have substance. 79 As to the first submission, Mr Brooks was party to the deceitful conduct of his client, Mr James, and was himself guilty of such conduct. He was aware that Mr James wished to profit from the dishonest conduct and intended that to occur. As it happens, Mr James has not profited from his conduct and I see no reason in principle why it should be an error for her Honour to differentiate between Mr James and Mr Brooks on the basis contended for. 80 The second and third submissions can be dealt with together. The second may be correct, but would only follow if the third submission succeeds. Mr Hill submitted that Mr Brooks was more culpable than Mr James as he was prepared to lend his professional imprimatur to his client's deceitful and fraudulent conduct. Given the objectives of exemplary damages and, in particular, to the purposes of deterrence and denunciation, I can see no error in her Honour, having taken account of the fact that Mr Brooks was a solicitor and that his conduct occurred during the course of his practice as such, in finding as she did (at [285]) that the reprehensibility of his conduct was increased by reason of those facts. 81 It was then submitted by Mr Brooks that as the primary judge had referred her judgment to the Law Society of New South Wales and the Legal Services Commission of New South Wales, account should have been taken of that fact to ensure that Mr Brooks was not liable to be punished twice for the same conduct: cf Gray v Motor Accident Commission (at 14 [40]). 82 In my opinion, it cannot be assumed that anything will come of her Honour's referral of her judgment to the organisations referred to. If disciplinary proceedings are instituted against Mr Brooks and are successful, then no doubt the relevant tribunal will be required to take into account any award of exemplary damages against him. In this way, double punishment will be avoided. It follows that there was no necessity for her Honour to modify the damages she awarded against Mr Brooks on account of any contemplation she may then have had of referring her judgment to the organisations in question. 83 Finally, Mr James and Mr Brooks submitted that the amounts awarded by the primary judge were excessive. It was submitted that they are out of proportion to the ultimate monetary award to which Mr Hill was entitled, namely, $315,000 plus interest. However, as already observed, there is no requirement for proportionality between the loss suffered by the victim as a consequence of the relevant conduct and the award of exemplary damages in respect of that conduct. 84 Thus in Digital Pulse, Heydon JA observed (at 342 [254]) in a paragraph cited by this Court in Amalgamated Television Services Pty Ltd v Marsden (No 2) (2003) 57 NSWCA 338 at 345[23]: "If exemplary damages are to fulfil their threefold purpose, they must not merely irritate, they must sting. It is the gravity and character of the defendants' conduct which guides the Court's discretion as to the proper amount to award by way of exemplary damages. That is why there is 'no necessary proportionality' between the amount awarded as compensation for the damage suffered by the plaintiff and the amount of exemplary damages awarded against the defendant … [ XL Petroleum (NSW) Pty Ltd v Caltex Oil (Aust) Pty Ltd (1985) 155 CLR 448 at 271; Lamb v Cotogno (1987) 164 CLR 1 at 9]. A minimal amount of damage inflicted on a plaintiff may, if the wrongdoing was outrageous, nevertheless require heavy exemplary damages to be visited upon the defendant. (Other citation omitted.)" 85 The primary judge described (at [285]) the conduct of Mr James and Mr Brooks in deceiving Mr Hill by changing the terms of the draft sale contracts as "quite appalling". For this Court to interfere with her Honour's assessment of the quantum of exemplary damages would at least require it to be satisfied that her award was outside any reasonable range of such damages in the light of the particular conduct under consideration. In my opinion, it cannot be said that the awards made by her Honour in respect of either Mr James or Mr Brooks was beyond the limits of a proper exercise of her Honour's discretion.

Mr Hill's cross appeal 86 Mr Hill submits that the primary judge erred in finding that, as at 19 June 2002, he would have been unable to raise the funds needed to complete the 9 May agreement by the payment of $6.9 million. I have summarised her Honour's findings in [33] above. Mr Hill challenges these findings on a number of bases. 87 It was submitted that the evidence led by Mr Hill at trial established that it was more probable than not that he would have been in a position as at 19 June 2002 to raise the necessary funds to complete the purchase at the true price. It is necessary to examine this submission with respect to each of the witnesses upon which Mr Hill relied to support a finding that, individually or in combination, those witnesses constituted a source of funds available to him for the purpose of completing the purchase of the wine business. 88 It was first submitted that Mr Hill could have raised the sum of $1.36 million from a Mr Grahame Montgomery, a director of a company which specialised in corporate mortgage brokering. In April or May 2002, Mr Hill's wife, Ms Rose, approached Mr Montgomery on behalf of BDT Holdings Pty Limited (BDT) the owner of the property 14 Ferdinand Street, Hunters Hill (the Hunters Hill property) in which Mr Hill and Ms Rose resided. At that time Mr Montgomery was successful in obtaining refinancing approval for BDT's existing mortgage over that property in the sum of approximately $1.7 million. According to her Honour (at [198]), Mr Montgomery made the assessment that in about June 2002, BDT would have had "little difficulty" in securing additional finance in an amount up to 75% of the value of the Hunters Hill property. At the relevant time it was valued at $3 million, of which 75% was $2.2 million. Accordingly, a further $550,000 could have been raised rather than the $1.36 million referred to in Mr Hill's submission. 89 However, the raising of that further amount was subject to personal guarantees being provided and assumed that Mr Hill had access to a lump sum payment or, alternatively, an annuity from his superannuation fund which would enable him to assist BDT in servicing the loan. The primary judge found (at [199]) that no evidence was called to justify that assumption. In those circumstances, her Honour was correct to find (at [199]) that Mr Montgomery's evidence with respect to raising a further $550,000 on the Hunters Hill property was of little value to Mr Hill. 90 Ms Rose also owned a property at Ryde. Mr Montgomery said he would have no difficulty raising finance up to 80% of its value. He said he could have raised $440,000 to be secured against that property. He also said that he could raise a further $312,000 over a property owned by Ms Rose in Victoria. At most, therefore, Mr Montgomery on behalf of Ms Rose might have been able to raise $756,000 although the terms upon which such loans may have been made does not seem to have been canvassed. 91 Secondly, it was submitted that Mr Brian McGuigan would have considered an equity investment in the order of $2 - $4 million. However, this was in return for a significant shareholding in the wine business. Her Honour found (at [191]) that if Mr McGuigan was to make a loan in those amounts, he would have required appropriate security and for the loan to have been on commercial terms. Furthermore, in his affidavit of 31 March 2003, Mr McGuigan set out in [15] a number of assumptions that he had been asked to make on the basis of which he said he believed he would invest between $2 - $4 million in the business in return for a significant shareholding. Those assumptions included a valuation of the wine brands (Basedow, Marienberg and Fernhill) in the business plan at $10 million and an inventory of bulk and packaged wines at approximately $13 million. Although not referred to by the primary judge, those assumptions were never made good. The highest valuation of the stock and brands contended for at the hearing by Mr Hill was based on Mr Gaetjens' evidence valuing the stock at $7.5 million and the brands at $1.56 million. These values fell far short of the assumptions Mr McGuigan was asked to make and upon which he expressed his belief as to the amount he would be prepared to invest. 92 Thirdly, reliance was placed upon evidence of Mr Don Cunnington, the managing director of PayNow Pty Ltd (PayNow), who said he might have lent $3 million to be secured against inventory. However, as her Honour found (at [183]), any such advance was subject to the standard conditions of PayNow which included a first-ranking fixed and floating charge over all of the assets and undertakings of the wine business company as well as due diligence to determine the existence, quality, quantity and title to the inventory the subject of the finance. There were a number of conditions which would have been imposed by PayNow in respect of which it does not appear that there was any evidence to suggest that they could be satisfied. Furthermore, Mr Cunnington was asked to make the same assumptions as Mr McGuigan and, as I have observed, the evidence did not support their validity. 93 Fourthly, it was submitted that Mr Brierley considered it "very likely" that he could have raised funds in the order of $6 million together with $800,000 to be secured against the Marienberg property and $250,000 through a leaseback on plant and equipment. However, as her Honour observed (at [185]), Mr Brierley's evidence was that he would have approached PayNow to obtain a facility of $5.9 million although Mr Hill never asked him to do so. Accordingly, the problems associated with accepting Mr Cunnington's evidence applies to Mr Brierley. His evidence also related to raising funds on the Hunters Hill property and against the other properties owned by Ms Rose with which I have dealt above. 94 Finally, it was asserted that finance would have been available to be secured against the wine stock. It was submitted that as the wine stock had a value of at least $7 million, finance of about $4.2 million would likely have been available against it. However, this contention went no further than that advance with respect to the evidence of Mr Cunnington and Mr Brierley. 95 Although Mr Hill knew by no later than 24 June 2002 that the real purchase price of the wine business was $6.9 million, as the primary judge found (at [226]), he never requested Mr Brierley to pursue the raising of funds for the purpose of being ready, willing and able to complete at that price. Nor did he attempt to take up what her Honour referred to as "the prima facie generous offers made by Mr McGuigan". Furthermore, her Honour found (at [228]), and it is not challenged, that commercial commonsense dictated that it was doubtful that financiers would have been willing to make loans when the person upon whom the burden was cast for repayment of those loans had no personal capacity to do so and very few assets. 96 As the primary judge found (at [232]), the only source of finance which Mr Hill pursued after 24 June 2002 was Mr Wehrle but without success. Accordingly, her Honour was therefore satisfied (at [235]) that Mr Hill pursued Mr Wehrle to the exclusion of other options because that was the only way he could possibly fund the purchase without having imposed upon him the further financial burden relating to the repayment of loans. The fact that Mr Hill was financially stressed was illustrated by the fact that not only did he have to rely upon Mr James for a partial loan of that part of the deposit relating to the purchase of the distribution business, but also he could only raise the balance of the deposit by mortgaging the Hunters Hill property. In these circumstances, her Honour was entirely justified in finding that she was not persuaded that Mr Hill was in a position to purchase the wine business at a price of $6.9 million. 97 Mr Hill submitted that her Honour had erred in valuing the wine stock in the wine business. The valuation of the stock and the wine brands was relevant, as her Honour acknowledged at [206], to the ascertainment of what would have been available by way of security for the purpose of any fundraising by Mr Hill as at 9 June 2002 to complete the purchase. 98 As already observed, Mr Gaetjens' evidence was that the bulk and bottled wine stock should be valued at $7.5 million and the wine brands at $1.56 million. He also valued certain land and buildings at $1 million to arrive at a total value of the wine business of $10 million. However, after considering the evidence, including the criticisms made of Mr Gaetjens by Mr Lonergan called on behalf of Mr James, her Honour considered (at [225]) that the value of the wine business was "somewhere in the vicinity of $5 million". It was submitted that she was in error in so finding. 99 Mr Gaetjens was not cross-examined in respect of his valuation of the wine stock at $7.5 million or the value of land and buildings at $1 million. Nor was his evidence with respect to those items the subject of challenge by contrary evidence. I am therefore prepared to accept for present purposes, as was more or less conceded by Mr James, that her Honour's estimated value of the wine business at $5 million was too low and that a valuation of the wine stock in the amount of $7.5 million should have been accepted. 100 However, even if one accepts Mr Gaetjens' evidence that the wine stock was worth $7.5 million and the Basedow, Marienberg and Fernhill brands were worth $1.56 million, there was no evidence that, based on those valuations, Mr McGuigan would have invested $2 million - $4 million in the wine business or alternatively, he or Mr Cunnington would have been prepared to make a commercial loan of $2 million - $4 million in the case of Mr McGuigan or $3 million in the case of Mr Cunnington. 101 As already observed, each of those witnesses expressed his opinion as to the amount he would have invested or lent upon the assumption that the wine brands were valued in the business plan at $10 million and the inventory at approximately $13 million. 102 Furthermore, it is apparent from what I have said that her Honour's conclusion that Mr Hill would not have been in a position to raise the necessary funds as at 19 June 2002 to purchase the wine business for $6.9 million was not dependant upon her assessment of the valuation of the business at $5 million. Her rejection of Mr Hill's capacity to raise the necessary funds was based upon more fundamental considerations. 103 In my opinion, the primary judge was correct in finding that Mr Hill did not have the capacity to raise the necessary funds to complete the 9 May agreement and, therefore, was never ready, willing and able to complete that purchase.

Conclusion 104 Before indicating the orders which I propose, it is necessary to say something about the order for costs made by the primary judge. Mr James was ordered to pay 65% of Mr Hill's costs of the proceedings. This was upon the basis that he was successful in obtaining judgment against Mr James in the sum of $1,257,600 being $942,500 in respect of the correct deposit and $315,000 together with interest, in respect of the overpaid deposit. Mr Hill was also successful in obtaining an award of $75,000 by way of exemplary damages against Mr James. 105 On the basis of my conclusions, the judgment against Mr James in favour of Mr Hill for $942,500 should be set aside. However, it seems to me that the evidence relied upon by Mr Hill to recover the overpaid deposit of $315,000 and exemplary damages of $75,000 was the same as that relied upon by him in submitting that he was entitled to relief against forfeiture of the true deposit. In these circumstances, although I am of the opinion that Mr James has succeeded on the appeal in part, I do not think it appropriate to interfere with her Honour's order for costs with respect to the trial. 106 So far as the costs of the appeal are concerned, Mr James has succeeded in part and failed in part. In these circumstances, Mr Hill should be ordered to pay 60% of Mr James' costs of the appeal. 107 I would therefore propose the following orders:

(c) Set aside Order 1 made by Bergin J on 26 February 2004;

(d) The respondent pay 60% of the first appellant's costs of the appeal but to have a certificate under the Suitor's Fund Act 1951 if otherwise qualified;

(f) The cross-appellant pay the first cross-respondent's costs of the first cross-appeal;

(h) The cross-appellants pay the cross-respondent's costs of the second cross-appeal. **********

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