Alleged deceit or negligent misstatements by vendors as to future matters - Business sale - Hospitality business - Vendor's Agent - Vicarious liability - Representation as to business future profitability - Alleged deceit - Economic loss - Causation - Reliance on prediction - Assignment of causes of action by liquidator - Failure to conduct due diligence investigation - Business failure - Turns on own facts

Trade Practices Act 1974 (Cth)

Competition and Consumer Act 2010 (Cth)

Fair Trading Act 1987 (WA)

Second Defendant : Ms P E Cahill SC & Mr A D Bereyne

1 This is an action for common law damages against three defendants arising out of what is said to be the financially disastrous acquisition of the Imperial Inn at York by Curtin Hotels Pty Ltd (Curtin).

2 Curtin submitted two offers to purchase the Imperial Inn's land and hospitality business on 18 February 2000. The offer to acquire the freehold was for $630,000. An accompanying offer of $300,000 was made to acquire the plant, equipment and current stock of the business. Nothing was offered by Curtin for any goodwill component of value in the business of the Imperial Inn.

3 Curtin's two offers were not made subject to obtaining finance. They were conditional on Curtin perfecting the settlement of the already contracted sale of its hotel and business at Manning.

4 Both offers were accepted by the owner/vendors of the Imperial Inn (the first defendants) the following day.

5 Settlement on the land and business acquisitions of the Imperial Inn property and business by Curtin was implemented on 30 June 2000.

6 Curtin, by its sole director Mr Kevin Lawless, proceeded to run the Imperial Inn's business for over five years (2000 2005).

7 The business failed in the second half of 2005. Later, Mr Lawless took an assignment of Curtin's causes of action from Curtin's liquidator. The validity of the assignment of the cause of action in tort against him is challenged by the second defendant.

8 Mr Lawless as plaintiff began these proceedings by writ on 16 February 2006. The action was originally brought against six defendants, raising claims under contract in tort. No statutory causes of action are pursued. The causes of action relied upon are entirely those of Curtin, as assigned by Curtin's liquidator to Mr Lawless.

9 The central issues arise over Curtin's tortious claims for alleged wilfully false or reckless representations against the first defendants and for alleged negligent misrepresentations against all defendants. These claims arise out of the circumstances leading up to the accepted offers to purchase the Imperial Inn to Curtin in February 2000 and the settlement of that sale at the end of June 2000.

10 A trial bundle spanning five lever arch files comprised of mostly agreed documents which are indexed from TB 1 - 318 was tendered as exhibit 2. I refer to documents in these reasons by their trial bundle (TB) number. The index to the trial bundle became exhibit 3. Additional exhibits were also tendered ad hoc, as the trial proceeded.

11 As for witness evidence, the trial proceeded on the basis of written witness statements from all witnesses (save for Ms Irene Groves) tendered as the witness' evidenceinchief (with some reply statements). Crossexamination then proceeded by reference to these tendered witness statements.

12 I refer to aspects of all this evidence later in the reasons.

13 The following facts I find to be uncontroversially established from the evidence.

14 Mr Lawless had been involved in various capacities with hotels in his native Ireland from the age of 14. He continued with this line of work after moving to Australia in 1980.

15 Mr Lawless had been part of a successful partnership operating an Irish themed hotel (Kitty O'Shea's Paddington) in Sydney, New South Wales before he moved to Western Australia in around 1995.

16 Between 1995 and 2000 the corporation, Curtin (of which Mr Lawless was sole director) owned and operated a hotel business in the Perth suburb of Manning, variously known as the Karawara Tavern, Waterford Tavern, Kitty O'Shea's Irish Bar and finally, the Curtin Tavern (I will usually refer to this establishment as the Curtin Tavern). It had been purchased in 1995 by Curtin for $920,000, assisted by loan finance of $500,000 (TB 13, pages 57 65).

17 Curtin, under Mr Lawless' guidance, not only owned and ran the Curtin Tavern, it also purchased two properties in the Perth suburbs of Ardross and City Beach in 1995 and 1997 respectively. The Ardross property became Mr Lawless' residence. The City Beach property was acquired for investment purposes (TB 34, pages 133 136). The purchase price for City Beach was $679,000. But loan funds of $700,000 to support that purchase needed to be raised from the Commonwealth Bank of Australia and another lending institution (see TB 35, 37, 43, 47 and 50) secured by registered mortgages. The Ardross property was sold in 1999 (see TB 73, pages 267A 281).

18 The Perth residential property acquisitions in Ardross and City Beach were funded by loan finance arranged for Curtin in each instance by the second defendant, Mr Christopher Blake. Between 1997 and 2003 Mr Blake had been a financial consultant working under supervision, first at CapitalWest Finance Pty Ltd and later at Peel Finance Brokers (Midtime Pty Ltd). Later still, Mr Blake obtained a personal qualification as a finance broker in his own right.

19 The Imperial Inn at York is a heritage listed building. One side of the building fronts Avon Terrace, York's main street. The building was completed in 1886, approximately a year after opening of a railway line to York.

20 The first defendants, Dr Alastair Mackendrick and his wife, Ms Pamela Gabriels, operated the Imperial Inn in partnership for a little under four years (1997 2000) before selling to Curtin. They acquired the Imperial Inn land and business in August 1997 for $643,000 after a weekend visit to York from Perth.

21 The Imperial building was internally renovated and improved by the first defendants. Their efforts increased the turnover of the business. But their personal involvements were largely confined to visiting York on weekends. They were both living and working in Perth, each running busy medical or audiology practices, respectively. This made them reliant upon local York staff management of the Imperial Inn throughout the working week.

22 Between 1997 and 2000 Dr Mackendrick was (and remains) an ear, nose and throat (ENT) surgeon, conducting a busy practice in Perth. Ms Gabriels is an audiologist. Between 1997 and 2000 Ms Gabriels was working fulltime, running an audiology business (Western Hearing Services). Neither Dr Mackendrick nor Ms Gabriels appear to have had any prior experience of the hotel or hospitality industry before purchasing the Imperial Inn in 1997.

23 The Imperial Inn business differed from a more typical beverage selling city hotel. Its turnover base was significantly grounded on the provision of accommodation services and meals to guests. In 2000, beverage sales constituted about 10% 15% of the Imperial Inn's turnover. So, the Imperial Inn's business was more in the nature of a motel, guesthouse or restaurant type operation, from a revenue perspective.

24 Dr Mackendrick and Ms Gabriels' efforts lifted turnover (gross sales) for the York business from $424,432 (in just under an 11month trading period between 8 August 1997 to 30 June 1998) up to $602,557 for the full 12month trading period to 30 June 1999 (TB 74, page 282 and TB 80, page 295). However, by early 1999 the novelty of running a York hospitality business began to wear thin for them. The first defendants and their young children were tiring of spending every weekend at York attending the requirements of their country business. They decided to sell in early 1999 after operating the Imperial Inn for less than two years.

25 Despite initial improvements, including obtaining an extended trading hours liquor licence and a lift in turnover, the Imperial Inn's business expenses at all times remained higher than the net income. The Imperial Inn generated a loss of $256,579 (in just under 11 months' trading) to 30 June 1998. It lost another $248,102 in the financial year ending 30 June 1999 (TB 74, pages 282 283 and TB 80, page 295).

26 The Imperial Inn business never generated a profit while the first defendants were operating it between 1997 and 2000. The first defendants topped up the York business's funding from their profitable Perth medical practices from time to time.

27 The first defendants placed the Imperial Inn's land and business on the market in early 1999. They engaged the York based third defendant, trading as Colin King Rural WA, to act as their selling agent (TB 76, pages 286 287). The natural person who acted as their selling representative was Mr Philip Mulcahy, formerly fifth defendant in this action. The first defendants had dealt previously with Mr Mulcahy. He had been the representative of the previous vendors of the Imperial Inn and effected the sale to Dr Mackendrick and Ms Gabriels.

28 On 21 July 1999 an auction for the Imperial Inn and business was conducted at the Parmelia Hilton Hotel, Perth. To facilitate the auction the third defendant, through Mr Mulcahy, caused a brochure to be prepared (TB 84, pages 316 324). Dr Mackendrick and Ms Gabriels were seeking offers in the region of $1.2 million. No bids were received.

29 Following the unsuccessful auction the Imperial Inn's land and business remained on the market for private sale, under the exclusive selling agency of Colin King Rural WA through Mr Mulcahy.

30 The third defendant's exclusive agency period ran on for approximately six months after the July 1999 auction. In that period Mr Mulcahy made efforts to find a private buyer. However, no interested purchasers were on the horizon as the 1999 calendar year drew to a close.

31 Whilst operating the Imperial Inn the first defendants utilised the accounting services of a Perth based chartered accountant, a Mr Greg Chapell. The Imperial Inn's financial and trading data was either faxed or posted at regular intervals (usually weekly) from York to Mr Chapell in Perth, in order for regular management accounts to be prepared for the first defendants. Generally, these accounts were prepared on a fortnightly basis. Statutory financial accounts and tax returns were also prepared by Mr Chapell for the first defendants after the conclusion of each financial year. As is customary, the annual business accounts were finalised substantially in arrears, usually in about March or April, well after the conclusion of the previous financial trading year.

32 At the time the first defendants accepted the two offers of Curtin to purchase their Imperial Inn property and business on 19 February 2000, the annual accounts for the 30 June 1999 financial year were almost, but not quite completed. As mentioned, those accounts once finalised by Mr Chapell would show a turnover (gross sales) in the 12month period to 30 June 1999 of $602,557, but a net loss overall for the business of $248,102.

33 To facilitate the July 1999 auction Mr Mulcahy had caused an advertising brochure to be prepared. The front page had carried a prominent stamp identifying the third defendant, 'Colin King Rural WA' (see TB 84, pages 316 324).

34 The brochure contained general, nonspecific statements about the Imperial Inn and business. At Dr Mackendrick's request, no financial figures were included in the brochure. However, the trading and financial figures for the business were available for inspection through Mr Chapell, upon request prior to the July 1999 auction.

35 Mr Lawless did not attend the July 1999 auction. There is nothing to suggest he or Curtin even knew of the Imperial Inn's existence then.

36 In February 2000 Curtin, through Mr Lawless, was looking for new business opportunities. This came after Curtin had committed in November 1999 to an agreement (then uncompleted) to sell the Curtin Tavern at Manning for $1.5 million (TB 102, pages 351 356) a significant profit on its acquisition price. Settlement was due (initially) on 31 May 2000.

37 Mr Lawless learned of the availability of an (unnamed) country establishment from an advertisement in the classified section of The West Australian newspaper on Wednesday, 9 February 2000.

38 The newspaper advertisement which Mr Lawless read that day had not been placed by Mr Mulcahy. Rather, it had been arranged by another business sales agent, Ms Irene Groves, then of Joseph Charles Learmonth Duffy Pty Ltd (JCLD) in Applecross, Perth.

39 The newspaper advertisement placed that day by Ms Groves read (see TB 112, page 382):

HOTEL

Magnificent two storey colonial style - "A Statement" in jarrah and stone - includes proprietors quarters and four motel suites.

Irene Groves 0412 340 311

JCLD 92889788

40 From about August 1999 Ms Groves had telephoned Dr Mackendrick. She was seeking his permission to become a selling agent for the Imperial Inn. Ms Groves did not secure authority from the first defendants to act as their selling agent. The third defendant still held its continuing exclusive sale authority. This exclusive authority ran until around December 1999.

41 Ms Groves telephoned Dr Mackendrick again some time in December 1999. This time Dr Mackendrick gave his verbal permission for her to run a newspaper advertisement after she received some details via post from him. But she was still not appointed as the first defendants' selling agent.

42 Ms Groves' 9 February 2000 newspaper advertisement (TB 112, page 382) did not identify the name or location for the advertised business property. Based on what followed, I infer that there must have been at least one direct communication (probably by telephone) between Mr Lawless and Ms Groves between Wednesday, 9 February 2000 and Saturday, 12 February 2000. During their communication, the identity and location of the business and property must have been disclosed by Ms Groves to Mr Lawless. Arrangements must also have been made for an unaccompanied inspection of the Imperial Inn by Mr Lawless to occur on the following Saturday, 12 February 2000.

43 Mr Lawless travelled alone to York on Saturday, 12 February 2000 and inspected the Imperial Inn. He had dinner at the Inn's restaurant that evening and then drove back to Perth. From that point events moved rapidly. But Mr Lawless did not make any further contact with Ms Groves.

44 Instead of speaking to Ms Groves concerning his Saturday inspection, Mr Lawless instead telephoned Mr Blake on the morning of Sunday, 13 February 2000. He told him about the inspection and his interest in the Imperial Inn at York. This led Mr Blake to contact Mr Mulcahy, whom he knew of professionally, at that time. It also appears to have led to the third defendants' agency agreement with Dr Mackendrick and Ms Gabriels being renewed and extended for another six months, albeit nonexclusively, on Monday, 14 February 2000 (TB 115, pages 386 387).

45 Mr Lawless then arranged to meet, and subsequently met, Mr Blake at the Dome Café in Applecross on Tuesday, 15 February 2000.

46 Mr Lawless travelled to York a second time on Friday, 18 February 2000. Mr Blake travelled to York at the same time but in a separate car. They met Mr Mulcahy and inspected the Imperial Inn again.

47 At the end of that York meeting between the three men, the two offers in the aggregate of $930,000 to acquire the Imperial Inn's land and business (TB 117, pages 402 405) were written up for Curtin by Mr Blake. It was signed that day, by Mr Lawless for Curtin. The offers were handed to Mr Mulcahy representing the vendors. Mr Blake had disclosed to Mr Lawless at York that he would be acting as a conjunctional selling agent with Mr Mulcahy on any sale to Curtin. Mr Blake made an agreement with Mr Mulcahy to share 50/50 any sales commission Mr Mulcahy would receive upon the completed sale. Mr Blake also held a triennial certificate as a real estate and business agent (TB 92, page 336). Ms Groves had no knowledge of the February offers. She did not learn of these developments until after settlement of the sale.

48 Curtin's two offers were submitted in tandem, but were not made conditional upon Curtin obtaining finance. They were, however, made conditional upon a settlement on the uncompleted sale of the Curtin Tavern at Manning, which was contracted but still pending settlement (TB 118 and 120).

49 Curtin's 'cash' offers were accepted almost immediately (Saturday, 19 February 2000) by the first defendants on the advice of Mr Mulcahy, thereby bringing into effect binding contractual sale arrangements. There was no direct contact at this time with Mr Lawless (see TB 118, page 407).

50 The sales of the Imperial Inn's land and business eventually settled with Curtin on 30 June 2000. Just before settlement a dispute arose over damaged property. This issue was raised by Mr Lawless and resulted in a last minute reduction of $1,500 to the business's sale price, agreed in resolution of the issue (TB 144, page 524).

51 This is an appropriate juncture to introduce what is, on the plaintiff's case, a pivotal letter written by Dr Mackendrick to Ms Groves, dated 7 January 2000.

52 Dr Mackendrick wrote to Ms Groves (TB 106, pages 370 311) in these terms:

Dear Irene,

Enclosed is some information regarding the sale of the Imperial Inn, York.

The Special Facility Liquor Licence was obtained in November, 1998 - licensed hours are 7.30 am to 11.30 pm.

The Inn is jointly owned by my wife, Pam Gabriels and myself - we took ownership on 8th August, 1997.

As from 1st November, 1999 our chef, Jeff Eaton, took over management of the whole business and will pay us rental and share of profits. I am expecting a minimum of $120,000.00 profits per annum which we will share. Gross annual turnover is between $600,000 and $700,000.

Our asking price is 1.2 million dollars. Thank you for your interest and I look forward to hearing from you.

Yours sincerely

[signature]

ALASTAIR MACKENRICK

(my emphasis in bold)

53 It appears very likely, and I find, that Dr Mackendrick enclosed with this letter to Ms Groves a copy of the brochure Mr Mulcahy had caused to be prepared for the 21 July 1999 auction, as part of the 'some information' he had enclosed for her (see first line of letter).

54 The 7 January 2000 letter had been written in a context of a management and profit sharing arrangement entered between the first defendants and the head chef at the Imperial Inn, Mr Jeff Eaton. Mr Eaton had taken over the management of the Imperial Inn business from 1 November 1999. He had agreed to pay $3,000 per month and a onethird 'share of profits' to the first defendants (TB 94 - 95 and 107).

55 In due course I will set out a chronology of these and some further factual findings relevant to all the claims. But these early and relatively uncontroversial findings suffice now to set the scene.

56 Mr Lawless' case is heavily tied to an issue of fact over 'if', or 'when', he received, on behalf of Curtin, a copy of the letter of 7 January 2000, containing the sentence about Dr Mackendrick's expectation of $120,000 per annum future profits for the Imperial Inn. If Mr Lawless received a copy only after settlement on the contracts to buy the Imperial Inn in 2000, then his case is heavily diminished.

57 If, however, the letter was received by Mr Lawless for Curtin, prior to the contractual offers of 18 February 2000, there arises a further question as to Mr Lawless' level of reliance (if any) upon Dr Mackendrick's expressed profit expectation sentence in the letter as to a level of future minimum profits of $120,000 per annum.

58 The pleaded case against the first defendants sees a reference (plaintiff's further amended substituted statement of claim (FASSOC) pars 5 and 6) made to a written condition found in both offers (condition 21) which stated that the vendors promised that any representations made by them before sale were true and correct. Forensically, however, condition 21 does not take matters much beyond an already required investigation as to whether or not any incorrect or false representations in fact were ever made to Curtin in this period. If there was no such representational conduct, condition 21 goes nowhere. Logically then, the tort based representational causes of action grounded in deceit or negligent misrepresentation need to be evaluated first, as to their merits (if any).

59 If contractual condition 21 does bite, its relevance may bear upon a possible difference in the measure of damages (potentially) as between the tort and contract causes of action of Curtin, in the event of their success.

Curtin's common law causes of action: the first defendants

60 The action against the first defendants is said to be primarily advanced under the tort of deceit (that is, the civil wrong of making a knowingly false representation, or making a false representation recklessly, without any proper level of thought or care at the time it is made as to whether it is correct or not): see Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337, 374 (see also FASSOC par 16). Alternatively, Curtin's claim is framed in alleged negligent misrepresentation grounded on common law duty of care principles, as explained in leading cases including Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465, Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556 and Shaddick v Parramatta Council [1981] HCA 59; (1981) 150 CLR 225.

61 Significantly, no cause of action was pleaded on behalf of Curtin alleging infringements by the first defendants against the misleading and deceptive conduct provisions of pt V of the former Trade Practices Act 1974 (Cth) (TPA) (now the Competition and Consumer Act 2010 (Cth) (CCA) and the Australian Consumer Law contained in sch 2, nor the equivalent West Australian provisions found in the Fair Trading Act 1987 (WA) (FTA)). This is despite the overwhelmingly dominant component of the deceit/negligence case as advanced for Curtin (as assigned to Mr Lawless) being grounded upon the $120,000 per annum minimum future profit expectation prediction as found in Dr Mackendrick's 7 January 2000 letter to Ms Groves. There may be an issue over the capacity to validly assign such causes of action from Curtin to Mr Lawless. Otherwise, prima facie the TPA and FTA present as being directly applicable to the facts complained of, had such statutory causes of action been commenced within the applicable time limitation periods.

62 A prediction or expressed expectation about a possible future outcome or happening is not itself a statement as to a provable fact it is an expressed opinion. Pure statements of fact are more readily susceptible to being proved as either right or wrong, at the time(s) they are made. But evaluating the correctness or the reasonableness of an opinion or a prediction at the time it is made and which does not later come to fruition, is a less definitive and far more difficult forensic exercise.

63 The common law grappled for years over redressing the consequences of opinions or predictions later proven as wrong: see Edgington v Fitzmaurice (1885) 29 Ch D 459. In that case Lord Bowen made his famous statement that the state of a man's mind is like ascertaining the state of his digestion. It may be that a prediction upon a future eventuality could contain, embodied within some underlying factual premise - which premise could be proven as false by a deceit action: see Edgington v Fitzmaurice (482 483). See also Sappideen C and Vines P, Fleming's 'The Law Of Torts' (10th ed, 2011) 717 723.

64 For a prediction about future events that is not fulfilled or borne out, an evaluative process as to reasonableness or recklessness tends to distil to asking about whether there existed any reasonable grounds for the maker's prediction at the time it was offered. Absent showing reasonable grounds, it may be open to infer the prediction was made recklessly, or without any thought or care as to its accuracy. But there must be some evidence of recklessness or a disregard for the longer term outcome or prediction. At common law that onus of proof rests on the plaintiff: see generally the observations of Steytler P in Hatt v Magro [2007] WASCA 124 [30] [33].

65 Part V of the former TPA addressed misleading or deceptive conduct by corporations in trade and commerce. Importantly, s 51A of the TPA sought to realign the evidentiary operation of s 52 TPA specifically for conduct or statements as to 'future matters'. The common law onus which fell on a plaintiff to show a defendant lacked reasonable grounds for an unfulfilled prediction or opinion, was adjusted by s 51A(2).

66 By s 51A of the TPA a representor was required to show the existence of 'reasonable grounds' for a prediction or statement as to a future matter that was not met (see s 51A(2) TPA, s 10 FTA; also Hatt v Magro [37]).

67 Section 51A(2) TPA, if invoked, may have been of some forensic assistance to Mr Lawless. It would have required the first defendants to show reasonable grounds for making the $120,000 per annum profit prediction (assuming Mr Lawless received the letter in around February 2000 and relied on the $120,000 per annum minimum profit figure Dr Mackendrick said he was 'expecting').

68 However, Mr Lawless only raises Curtin's common law causes of action regarding the $120,000 profit or expectation. The accepted position as a result (see ts 1118 1120) is that Mr Lawless carries an onus, at the civil standard, to show the first defendants lacked reasonable grounds for the minimum annual profit expectation sentence in the 7 January 2000 letter.

Curtin's common law causes of action: the second defendant

69 A stand alone common law tort claim, grounded upon alleged negligent misrepresentation is raised against Mr Blake, as second defendant. His position must be assessed distinctly to the other defendants.

70 Mr Blake is alleged to have given verbal advice directly to Curtin. However, the minimum profit prediction of $120,000 per annum, as extracted from Dr Mackrendrick's 7 January 2000 letter also provides the forensic base for the claim against Mr Blake.

71 The attack is put by the plaintiff on the basis Mr Blake is asserted to have verbally accepted from Curtin the task of verifying the accuracy of the $120,000 per annum profit expectation statement the plaintiff alleged, and that Mr Blake subsequently stated that the letter was correct (see par 46 47 of the FASSOC).

72 The wholly verbal engagement of Mr Blake by Mr Lawless for Curtin in relation to the Imperial Inn is said to have occurred after the men's telephone call of Sunday, 13 February 2000. Mr Blake had a history of arranging loans for Curtin's business activities. Mr Blake refutes he was ever asked to verify any financial figures or expectations concerning the Imperial Inn's business either in February 2000 or at any time thereafter. There is a stark clash of evidence over contested versions of what was said between Mr Lawless and Mr Blake.

73 Dr Mackendrick's letter to Ms Groves of 7 January 2000 can be seen as the central underlying feature of the case. It is integrated by reference to when it came to Curtin's attention in 2000 (if at all) and also, if it did, whether it was relied upon by Mr Lawless. I will shortly make some further observations about the letter's context.

74 The second defendant also challenges as a matter of law the assignability of a cause of action in negligent misrepresentation held by Curtin to Mr Lawless invoking Poulton v The Commonwealth (1953) 89 CLR 540, to contend this was not a permissible course: cf E C Dawson Investment Pty Ltd v Crystal Finance [No 3] [2013] WASC 183 [885] [916] (Beech J).

Curtin's common law causes of action: the third defendant

75 For the third defendant, The King and I Pty Ltd, trading as Colin King Rural WA, the cause of action asserted is alleged negligent misrepresentation. It is put against the third defendant that its representative, Mr Mulcahy, fulsomely endorsed the $120,000 prediction in the 7 January 2000 letter. That is said to have occurred during the meeting with Mr Lawless in York on Friday, 18 February 2000. Mr Mulcahy says neither Dr Mackendrick's letter, nor any aspect of its content, were ever mentioned to him, let alone endorsed by him at York that day.

76 There is also a vicarious liability/agency case against the first defendants invoked by reason of the attributed conduct of the third defendant as their selling agent. In this arena the only relevant conduct participant for the third defendant was Mr Mulcahy.

77 As perhaps now may be better appreciated, a significant factual issue in the trial concerns if, or when, Mr Lawless received a copy of Dr Mackendrick's 7 January 2000 letter from Ms Groves. It is an understatement to say Mr Lawless places extreme importance on his and Curtin's asserted reliance on the sentence in that letter concerning Dr Mackendrick's expected $120,000 profits per annum from the Imperial Inn's business.

78 An asserted deceitful, reckless, noncaring, false or negligent character in the impugned sentence in the letter underlies Curtin's causes of action against the first defendants. Moreover, the asserted grievance against Mr Blake concerns his alleged conduct in wrongly (verbally) confirming, or failing to sufficiently verify and confirm the (in)accuracy of that some $120,000 profit per annum expectation sentence. The same letter's profit expectation is also directed against the third defendant, on the basis its employee, Mr Mulcahy, allegedly also confirmed the accuracy of Dr Mackendrick's predicted annual profit for the business, in one conversation with Mr Lawless at York.

79 Mr Lawless' trial evidence (exhibit 6) is that he obtained, by post, a copy of the letter from Ms Groves. But at the trial in 2013 Ms Groves had no memory of even receiving Dr Mackendrick's letter, let alone later posting out a copy to Mr Lawless.

80 Mr Blake and Mr Mulcahy both firmly dispute that Mr Lawless ever showed them, or had in his possession, a copy of Dr Mackendrick's 7 January 2000 letter at York on 18 February 2000. They mutually refute all claims by Mr Lawless that aspects of this letter's content were discussed with them at that time.

81 The first defendants, who never met or spoke to Mr Lawless until much later, contend it is more probable Mr Lawless obtained a copy of the 7 January 2000 letter only in about October 2005 (from Ms Groves) around a period when Curtin was placed in liquidation. Ms Groves' 2013 trial evidence was unable to assist Mr Lawless upon this central controversy of fact due to her poor memory of the events of early 2000 with no documents to assist her.

82 If Mr Lawless cannot prove on the balance of probabilities that he did receive a copy of Dr Mackendrick's 7 January 2000 letter from Ms Groves in February 2000 then, necessarily, the merits of Curtin's claims are heavily undermined against all defendants.

Some preliminary observations concerning of 7 January 2000 letter

83 On my assessment, Dr Mackendrick's 7 January 2000 letter to Ms Groves manifests at least these features:

(a) The letter is addressed specifically to Ms Groves at a time when she was not formally engaged as the vendor's selling agent. At the time Ms Groves may have expected to become the selling agent, although that did not ultimately eventuate.

(b) The letter to her ends 'Thank you for your interest and I look forward to hearing from you'. Clearly, the letter anticipates developments and further contact with Ms Groves. Yet Dr Mackendrick did not hear from Ms Groves until the latter part of 2000, well after the settlement had been completed on the sale of the Imperial Inn. The letter is a preliminary communication with Ms Groves to be read in that context, particularly as regards the then nominated asking price of $1.2 million.

(c) The reference in the letter to the gross annual turnover being between $600,000 and $700,000 is not challenged by Mr Lawless as erroneous. The 30 June 1999 annual accounts for the business, which were finalised in April 2000, did show a turnover of $602,557. This is accepted by the plaintiff's accounting expert, Mr DouglasBrown (see exhibit 23, annexure D1).

(d) The letter is written at a point just over two months after the York based head chef of the Imperial Inn, Mr Eaton, assumed local management of the Imperial Inn business. Evidently, Dr Mackendrick was expressing optimism about this new management arrangement with Mr Eaton. Events subsequently showed the new management relationship was turning sour by the middle of the first half of 2000. But Dr Mackendrick's statement in early January 2000 as to the first defendants expecting $3,000 per month from Mr Eaton and a share of profits, is not proven to be erroneous in fact, at the time when written.

(e) Dr Mackendrick's communication was made to a potential selling agent he was expecting to hear from again in response but who, relevantly, he did not hear from before settlement was completed on 30 June 2000. This is not then a situation where a statement is made directly to a prospective purchaser and then needs to be corrected at a later date based on altered, intervening new facts, bearing upon an earlier opinion or prediction that then looks to be disproven. Ms Groves was out of the picture after 18 February 2000.

(f) Reference to a 'rent' of $3000 per month to be paid by Mr Eaton and the onethird split profit share would not be of relevance to a purchaser, unless that purchaser retained Mr Eaton as the manager post settlement, on the same basis. That was never Mr Lawless' plan. He planned to run the Imperial Inn business himself, using his hotelier expertise to run it more efficiently and at reduced levels of expenditure.

84 I now propose to render my more detailed factual findings, in chronological order, extracted from the evidence before proceeding to a further evaluation of the issues against each of the defendants.

Chronology of further essential factual findings

(a) October 1995: Acquisition by Curtin of Waterford Tavern (assisted by an interest only loan of $500,000) at Manning for $920,000 (TB 7, pages 18 23).

(b) 7 May 1997: Dr Mackendrick and Ms Gabriels make an offer to purchase the Imperial Inn and business from vendors, Mr and Mrs Solly. An offer of $643,000 is accepted. The amount of $571,000 is apportioned towards freehold with $72,000 towards the value of the business (TB 28, pages 103 109).

(c) 8 August 1997: Settlement on acquisition of Imperial Inn freehold and business by first defendants. The business thereafter operated by the first defendants in partnership using local York staff. The first defendants as medical professionals based in Perth are generally personally involved on weekends and holidays.

(d) 29 August 1997: Curtin purchases the property in Kalinda Drive, City Beach, for $679,000.

(e) 30 June 1998: First defendants incur a loss of $256,579 in just under 11 months' trading for Imperial Inn business during 1997/1998 financial year. The 1997/1998 financial year's statements are completed by Mr Chapell's firm around March or April 1999 (TB 74, pages 282 283).

(f) 21 July 1999: The Imperial Inn property and business is auctioned at the Parmelia Hilton Hotel at Perth. No bids were received.

(g) (Approximately) August 1999: Ms Irene Groves of JCLD Applecross's (first) telephone call to Dr Mackendrick expressing interest in acting as a selling agent of the Imperial Inn and business. Ms Groves told by Dr Mackendrick that the business and property were under exclusive agency of Mr Mulcahy of Colin King Rural WA.

(h) 18 October 1999: Staff contracts at the Imperial Inn terminated as a result of new management arrangements entered into by first defendants with Mr Eaton, who had been the resident head chef at the Imperial Inn (TB 95, page 341).

(i) 31 October 1999: Agreement between Dr Mackendrick and Ms Gabriels with Mr Eaton, who is to locally manage the Imperial Inn. Mr Eaton is to pay $3,000 per month to Dr Mackendrick. Further, any profits of the Imperial Inn business under Mr Eaton's new management are to be split on a twothirds (Mr Eaton) onethird (Dr Mackendrick and Ms Gabriels) basis (TB 100, pages 348 349 and TB 101, page 350).

(j) 4 November 1999: Mr Eaton assumes the management of the Imperial Inn business at York. He remains head chef (TB 94, page 340).

(k) November 1999: Curtin enters agreement to sell the Curtin Tavern for $1.5 million. Settlement initially set for 30 May 2000 (TB 102, page 351 356).

(l) (Approximately) December 1999: Ms Irene Groves' (second) telephone call to Dr Mackendrick. She seeks his permission to place a sales advertisement. Dr Mackendrick gives verbal permission to Ms Groves to place the advertisement upon receiving further details about the business.

(m) 7 January 2000: Dr Mackendrick sends letter to Ms Groves enclosing 'some information' and nominating an asking price of $1.2 million. Dr Mackendrick writes: 'I am expecting a minimum of $120,000 profits per annum which we [Dr Mackendrick, Ms Gabriels and Mr Eaton] will share' (TB 106, pages 370 371).

(n) Wednesday, 9 February 2000: Advertisement placed by Ms Groves in The West Australian newspaper for an unnamed business at undisclosed location (TB 112, page 382).

(o) Somewhere between 9 11 February 2000: Mr Lawless, on behalf of Curtin, contacts Ms Irene Groves of JCLD by telephone seeking information about the advertised but unidentified business. Identity and location of the business disclosed to him. Mr Lawless wishes to inspect without Ms Groves. She arranges for him to inspect the following weekend.

(p) Saturday, 12 February 2000: Mr Lawless drives to York to inspect the Imperial Inn, which he assesses as 'a wellbuilt Victorian building'. He eats a meal that evening at the Imperial Inn's restaurant and then drives back to Perth (exhibit 6, par 27).

(q) Sunday, 13 February 2000: Mr Lawless telephones the second defendant, Mr Blake, a financial consultant with whom Curtin (through Mr Lawless) has had prior business dealings. These dealings have been either arranging or refinancing Curtin's earlier business loans in Western Australia. Mr Lawless relates his visit to York and interest in the Imperial Inn to Mr Blake. The two men arrange to meet the following Tuesday at the Dome Café, Applecross. Mr Blake says he does not know of the Imperial Inn. Mr Blake says he will speak to someone he knows (Mr Mulcahy) who will have the relevant knowledge of the Imperial Inn.

(r) Monday, 14 February 2000: The agency arrangements between Colin King Rural WA and the first defendants are extended after Mr Blake and Mr Mulcahy speak by telephone (TB 115, page 386).

(s) Tuesday, 15 February 2000: Mr Lawless meets Mr Blake at Dome Café, Applecross. The content of their face to face conversation is highly contentious. No notes are made by either man of what is discussed that day.

(t) Friday, 18 February 2000: Mr Lawless and Mr Blake drive to York in separate cars. They meet Mr Mulcahy at the Imperial Inn around 11.30 am. What is said between them is controversial. At the end of the meeting two signed 'cash' offers on behalf of Curtin written up by Mr Blake and signed by Mr Lawless are submitted to Mr Mulcahy to purchase the Imperial Inn's freehold (at $630,000) and its business (at $300,000), totalling $930,000. No component of the $300,000 offer for the Imperial Inn business is allocated to goodwill. The two offers are not expressed to be subject to finance, nor are the offers subject to the carrying out of a purchaser's due diligence exercise of the financial accounts of the business (TB 117, page 402 405).

(u) 19 February 2000: Curtin's two offers submitted by Mr Mulcahy are accepted by Dr Mackendrick and Ms Gabriels (TB 118, pages 406 410).

(v) March 2000: Mr Blake submits an application to BankWest on behalf of Curtin seeking a $375,000 loan to support the Imperial Inn's purchase. By March 2000 Mr Blake had received the 1998/1999 accounts showing a net loss that year by the first defendants of $248,102.96 (TB 128, page 485). It is clear that Mr Blake also had the 1997/1998 financial statements showing the net loss that year of $256,579.60 (TB 139, page 505H).

(w) 28 April 2000: Mr Blake sends the 30 June 1998 and 30 June 1999 financial year's financial statements (which he has since received from Mr Mulcahy) for the Imperial Inn business to M T Bailey & Associates, as solicitors acting for Curtin. The 30 June 1999 accounts show the Imperial Inn's gross sales turnover of $602,557, but a net loss of $248,102 (TB 139, pages 502 505H).

(x) 30 June 2000: Settlement on sale of the Curtin Tavern for $1.5 million.

(y) 30 June 2000: Settlement on Curtin's acquisition of the Imperial Inn freehold business is effected. Purchase price of business was reduced by $1,500 to settle last minute dispute raised by Mr Lawless concerning a damaged or missing microwave, vacuum cleaner and cleaning issues (TB 154, 155 and 164). Mr Mulcahy and Mr Blake each receive vendor sales commission of $15,000 on their conjunctional sales commission arrangement (TB 156, page 543).

(z) October 2000: Telephone call received by Dr Mackendrick from Ms Groves (third telephone call). She now requests information from him about the sale of the Imperial Inn. Dr Mackendrick advises her of the 30 June 2000 settlement of the Imperial Inn's sale to Curtin. Ms Groves asserts sales commission is due to her. Dr Mackendrick says he disagrees and the conversation ends. To this point there has been nothing to indicate to Dr Mackendrick that Curtin (and Mr Lawless) had not been introduced as the prospective purchaser in February 2000 by Mr Mulcahy, acting in conjunction with Mr Blake.

(aa) 12 December 2000: Mr Lawless advertises the Imperial Inn for sale at $1.75 million in The West Australian newspaper's real estate section (exhibit 21).

(bb) March/April 2001: The first defendants receive finalised annual financial statements and tax returns from Mr Chapell for 30 June 2000 financial year and showing gross sales (turnover) of the Imperial Inn of $533,189, but overall net loss of $236,716.

(cc) August 2001: Mr Lawless engages agents, including Colin King Rural WA, to sell the Imperial Inn's land and business, at $1.45 million (TB 174A and 175A).

(dd) 20 April 2002: Valuation report prepared by David Burgess of Collier's International Pty Ltd. Imperial Inn valued at $845,000 excluding GST. Executive summary mentions the Imperial Inn was recently passed in at auction at $890,000 (TB 812, pages 641 666).

(ee) August 2002: Curtin privately sells the City Beach property for $885,000. Loan discharged (TB 181, pages 639 640).

(ff) 2 October 2003: Mr Blake obtains his personal licence as finance broker (TB 194, page 914).

(gg) Around mid2004: Dr Mackendrick receives telephone contact from Mr Lawless for the first time since 30 June 2000 settlement. Mr Lawless leaves messages on Dr Mackendrick's work and home phones. He also contacts Mr Chapell. Mr Lawless verbally asserts to both Dr Mackendrick and Mr Chapell that 'turnover figures' for the hotel had been falsified. Dr Mackendrick authorises Mr Chapell to provide Mr Lawless with the business tax returns of the first defendants, as requested by Mr Lawless. This is done by Mr Chapell.

(hh) October 2004: Auction conducted for the sale of the Imperial Inn. Offer of $900,000 rejected by Mr Lawless on behalf of Curtin.

(ii) August 2005: Mr Lawless now accepts offer of $850,000 for the Imperial Inn and business, but settlement is not effected (TB 210 211).

(jj) Around mid2005: Mr Lawless contacts Mr Mulcahy and threatens to sue him over the sale of the Imperial Inn.

(kk) October 2005: Dr Mackendrick telephoned by Ms Groves for the fourth time. She now tells him she 'had Mr Lawless with her'. There is talk of her asserted claim to sales commission on the sale of the Imperial Inn in 2000. Ms Groves tells Dr Mackendrick that she has information that will assist Mr Lawless (exhibit 27B).

(ll) 3 October 2005: Curtin enters Administration (TB 222).

(mm) 19 October 2005: Administrator's report to creditors (TB 232, pages 1059 1064).

(nn) Around 21 October 2005: Mr Lawless attends in person at the first defendants' house in East Fremantle whilst Dr Mackendrick and Ms Gabriels are out. He leaves a letter that he has written referring to the $120,000 minimum annual profit prediction. Letter is dated 21 October 2005 (TB 227, pages 1047 1048) Similar letter left by Mr Lawless under door of Ms Gabriels' Claremont business (see TB 228, pages 1049 1051).

(oo) 27 October 2005: Dino Traveglini appointed liquidator of Curtin (TB 231, page 1058).

(pp) 2 November 2005: Around 10.00 pm Mr Lawless rings intercom at the East Fremantle residence of Dr Mackendrick and Ms Gabriels. Told to leave by Dr Mackendrick over intercom (exhibit 27B).

(qq) 18 November 2005: Liquidator's report to creditors (TB 232, pages 1059 1064).

(rr) December 2005: Mr Lawless issues subpoena to the first defendants in his criminal proceedings in Magistrate's Court (exhibit 27B).

(ss) 21 December 2005: Around 2.00 pm Mr Lawless telephones Dr Mackendrick's surgery three times demanding to speak to Dr Mackendrick. Around 4.00 pm Dr Mackendrick returns the calls. Dr Mackendrick suggests that Mr Lawless contact Mr Chapell (the first defendants' accountant) in order to access financial records of the Imperial Inn. This includes financial information already provided through Mr Chapell in October 2004 (exhibit 27B).

(tt) 13 January 2006: Mr Lawless telephones Dr Mackendrick. Attempts to put questions about a profit prediction of $120,000 and the profitability of the Imperial Inn prior to sale to Curtin (exhibit 27B).

(uu) 14 January 2006: Mr Lawless telephones Dr Mackendrick again, making allegations that Dr Mackendrick falsified figures for the Imperial Inn. Mr Lawless says he is coming around the next day and that Dr Mackendrick must have a cheque for $300,000 ready for him. Later that night Mr Lawless rings Dr Mackendrick again. He makes threats of violence against Dr Mackendrick if the cheque is not provided (exhibit 27B).

(ww) January 2006: Restraining order by State against Mr Lawless to prevent him harassing multiple parties, including Dr Mackendrick and his family.

(xx) 18 February 2006: Liquidator assigns Curtin's causes of action to Mr Lawless.

85 I now turn to render some observations concerning the evidence adduced from trial witnesses. I first address witnesses for the plaintiff and subsequently turn to each of the defendants' witnesses.

86 The main witness evidence for the plaintiff was from Mr Lawless by his primary witness statement (exhibit 6). Mr Lawless' evidence was also found in three reply witness statements (exhibits 7, 8 and 9) in response to witness statements of Mr Blake, Dr Mackendrick and Mr Mulcahy respectively. I deal with the evidence of Mr Lawless in greater detail in a separate component of these reasons, after dealing with the plaintiff's other evidence.

87 At the outset, however, I regret to say I must assess Mr Lawless' evidence, in areas of controversy, to be generally unreliable. This has a significant negative impact for him forensically, for areas of the trial where there are significant clashes as between Mr Lawless against the rival evidence from Mr Blake or Mr Mulcahy, particularly over what was said passing between these men in conversation during 2000. Where there is a dispute, as there is over aspects of undocumented versions of alleged conversations, I find myself unable to accept Mr Lawless' version as reliable, unless independently supported by another reliable witness, or a reliable document.

88 The plaintiff's second witness was Ms Irene Groves.

89 She was subpoenaed to the trial by the plaintiff. She did not provide a witness statement.

90 Ms Groves left JCLD some years ago. At trial in 2013 she was not in possession of her 1999 2000 JCLD file regarding her involvement with the Imperial Inn.

91 With no notes to assist about key events occurring mainly in the year 2000, Ms Groves' memory relevant to this trial extending back to 1999 2000 was terribly vague. Although it is clear that Ms Groves received Dr Mackendrick's letter of 7 January 2000 at that time, Ms Groves had no memory of ever receiving it at trial in 2013.

92 Ms Groves also had no memory of advertising the Imperial Inn.

93 Ms Groves was asked if she had any memory of meeting Mr Kevin Lawless. She responded (ts 646), a little inconsistently:

No I don't. I don't. I know that I did deal with Mr Lawless in as much that I organised for an inspection for him to go out to have a look at the York hotel - the Imperial, the Imperial Inn in York, rather ...

We didn't have all the information on the hotel and we would have told him that we don't have a balance sheet and profit and loss statement as yet but, you know, you people can have a look until you get those.

But at the same time Mr Lawless didn't want me to accompany him and said that 'No, I don't need you there. I'm going there with my advisor'.

...

He didn't want me to come with him and that was sort of the strength of my involvement from there.

94 Ms Groves said Mr Lawless did not say who the advisor was. She added that Mr Lawless had been 'quite abrupt and curt with me and there's not much I could do about it' (ts 646).

The only person I remember speaking to was Mr Lawless and I can't remember if I - I don't know if he came into the office or what. I remember the phone call that I organised the - one thing reminded me that I organised the inspection, then later on I heard that the hotel had been bought by someone else.

96 Shown Dr Mackendrick's letter of 7 January 2000 by counsel for the plaintiff, Ms Groves was then asked (ts 647):

With the letter in front of you, would it be the case that a letter like this would be sent to a prospective buyer?

If something like this went out, it would have had if it did go out, anything that went out would have had a condition of supply attached to it...

98 A 'condition of supply', as explained by Ms Groves (ts 648) was a statement to the effect that no representations were made by JCLD about the contents of the documents provided. These would usually be placed on the provided document. (Nothing of 'condition of supply' character can be seen on the copy of the 7 January 2000 letter Mr Lawless says Ms Groves posted to him.)

99 Ms Groves mentioned a typical need for a confidentiality agreement. I took that reference to be to any business information she disclosed in the course of attempting to interest a purchaser in a business that was potentially commercially sensitive information (see ts 648).

100 Ms Groves' memory of events concerning late 1999 and early 2000, without her old JCLD file, was negligible. Her evidence as a result was of very limited utility in advancing the plaintiff's case.

101 Her evidence provides little assistance in resolving the critical issue of whether or when Dr Mackendrick's letter of 7 January 2000 to Ms Groves (more correctly a copy thereof) reached the hands of Mr Lawless (for Curtin). Did it occur just after 9 February 2000, prior to Curtin making its offers to enter into the contracts to purchase the Imperial Inn's land and business on Friday, 18 February 2000? Or was it, as the first defendants would suggest, only around October 2005 that this happened?

102 In the end, Ms Groves' evidence more hindered than helped the plaintiff's case. She could not say that she posted out a copy of the 7 January 2000 letter to Mr Lawless. Her evidence suggested that if she had, she would have likely placed a 'condition of supply' on the posted document. There is no evidence of such a 'condition of supply' on anything Mr Lawless had, even though he had the auction brochure and it is likely it was obtained from Ms Groves.

103 The plaintiff's third witness was Mr Ben Archibald, a valuer who performed a 'kerbside' valuation in 2011 concerning the residential property at Kalinda Drive, City Beach. This property was bought by Curtin in 1997 and sold in 2002.

104 Mr Archibald's 'kerbside' valuation was tendered. The defendants uniformly objected to the evidence, contending a 2011 valuation exercise was wholly irrelevant (see exhibit 24 and ts 721).

105 Mr Archibald's 'kerbside' valuation offers his opinion concerning the value of the City Beach property in 2011. He was not otherwise crossexamined.

106 The plaintiff sought to justify evidence as to the value of the City Beach property in 2011 on the basis that, but for the impugned conduct of the defendants in 2000, Curtin would not have had to sell off the property in 2002 and would have held it, even now. Thus, it was said that Curtin would have held the City Beach property, thereby securing a capital profit from an asset which would have significantly appreciated in value over time to 2011.

107 In my view, this damages argument is conceptually misconceived, as regards a damages action in tort grounded upon deceit or negligent misstatement. The property in City Beach was acquired in July 1997 for $679,000 by Curtin. Its acquisition was facilitated by a number of loans brokered by Mr Blake. These loans were serviced by Curtin out of its other business revenues over time. It appears that Curtin borrowed the entire purchase price of the property (save for $50,000 paid in cash) in 1997 (TB 53, 55 and 56).

108 In 2002, under pressure from its lenders, Curtin privately sold off the City Beach property for $880,000. The underlying loans were then discharged. There is no evidence that the 2002 sale price of $880,000 was not the true reflection of the City Beach property's market value at that time.

109 The claim for lost capital appreciation damages is predicated upon Curtin hypothetically (ignoring that it entered liquidation in October 2005) holding the City Beach property for a further nine years, until 2011 or beyond. That is wholly misconceived. Had the argument been that on the sale in 2002 the property realised less than its true value due to a 'fire' sale brought on by the wrongs complained of, I could at least then see a basis for argument. But to say Curtin would have held the City Beach property until 2011 or 2013 (or beyond) and realised a capital gain then, presents as more like pure fantasy. That is to say nothing of the foreseeability of loss hurdles which would from a remoteness perspective confront such a claim against the first and third defendants.

110 Furthermore, little, if any, attention was given to the high level of debt associated with the acquisition of the City Beach property in 1997 and a net (low) equity underlying position of Curtin in the property at 2002.

111 Mr Anthony DouglasBrown, a chartered accountant, provided an expert accounting report (ts 665 720; exhibit 23, Frisquet Consulting report of 12 April 2012, revised 15 February 2013).

112 I formed a favourable view of the diligence of Mr DouglasBrown's accounting work. There was, however (through no fault of Mr DouglasBrown) a key conceptual difficulty that arose early in his crossexamination. That was a shaky, almost nonexistent, base in the underlying financial record materials relating to an estimation of trading losses claimed for Curtin for the two financial years ended 30 June 2004 and 30 June 2005.

113 Curtin did not provide any underlying financial accounts to Mr DouglasBrown for those two financial years. This led Mr DouglasBrown to have to extrapolate his trading loss conclusions from earlier years' figures for Curtin. Namely, the three preceding financial years ended 30 June 2001, 2002 and 2003, to assess, as he was asked, trading losses for Curtin across the five-year financial period to 30 June 2005.

114 Difficulties also arose in assessing the claimed trading losses of Curtin in the three financial years where records did exist. It was apparent that from 2001 a significant amount of Curtin's trading activities had been conducted by Mr Lawless as cash transactions. For instance, contractors engaged by Mr Lawless to carry out improvements at the Imperial Inn were accommodated gratis and given free food and drink in a sort of in kind (tax proof) remuneration for their services. An 'off books' 'country pub' cash regime of trading (which I assess as having been significant) devalues the reliability of the available trading figures Mr DouglasBrown worked from for the 2001 2003 financial years. I view these Curtin figures with considerable reservation as to their reliability.

115 From 1 July 2000 the business of the Imperial Inn was saddled with high interest repayments. Curtin needed to make these payments to support both its borrowings for the acquisition of the Imperial Inn and the property at City Beach.

116 Under the ownership of the first defendants the Imperial Inn business looks to have had reasonably healthy level of gross sales from 30 June 1999 to 30 June 2000. However, the business generated net losses, due to greater levels of expenditure. This may not be a problem if those losses can be set off, for tax purposes, against the taxable profits of another business.

117 From July 2000 a significant component of that expenditure was interest repayments due in respect of Curtin's borrowings. As noted above, those repayments were not just the borrowings tied to the Imperial Inn business. This led Mr DouglasBrown to make adjustments to his comparison exercise for the first defendants and Curtin's accounts for all financial years by eliminating all interest from his comparisons (see exhibit 23, annexure D1).

118 Annexure D1 to the DouglasBrown report records gross sales for the first 12 months' trading by Curtin ending 30 June 2001 were at a relatively healthy level of $633,290 (not adjusted by Mr DouglasBrown). However, gross sales deteriorate for the 2002 and 2003 financial years.

119 The 30 June 2001 gross sales result for Curtin is better than the first defendants' 30 June 1999 gross sales result of $602,557. The 30 June 1999 financial year's figures had not been completed at the time Dr Mackendrick wrote to Ms Groves on 7 January 2000. But the 30 June 1999 figures were provided to Mr Blake before settlement by Curtin on 30 June 2000. That gross sales result for 30 June 2001 achieved by Curtin is in harmony with Dr Mackendrick's 7 January 2000 reference to a lift in turnover, compared with the first trading period's gross sales result of $424,511 (for the 11month period until 30 June 1998).

120 The first defendants' trading figures for the period 30 June 2000 show a reduction in turnover to $533,189. But that poor result coincided with an eightmonth period (November 1999 to June 2000) during which Mr Eaton managed the Imperial Inn for the first defendants. Despite early optimism in November 1999, Mr Eaton's management results had proven to be problematic by 30 June 2000.

121 The adjustment analysis of Mr DouglasBrown concerning the first defendants' years of operating the Imperial Inn business shows losses in the 1998, 1999 and 2000 financial years (before the 1 July 2000 sale to Curtin). The trend of these adjusted losses was diminishing from $250,221.01 in the period to 30 June 1998 (in slightly less than 11 months' trading), $186,997 for the period to 30 June 1999 and, for the financial year ended 30 June 2000, down to $142,257 (adjusted).

122 The first defendants' gross profit performance at 55.4% and 56.9% for the financial years ended 1998 and 1999, was reasonable by industry standards. The result for 30 June 2000 of 22.6% was poor. There was a blowout in the cost of goods sold. This is attributable to aberrant trading circumstances from November 1999 to 30 June 2000, whilst the Imperial Inn business was under problematic management by Mr Eaton.

123 For the 2001 financial year an 'adjusted' net loss by Curtin on Mr DouglasBrown's calculations was $210,107 (see exhibit 23, annexure D1). The levels of the adjusted net loss as he calculated it for Curtin then declined in subsequent years, down to $61,290 for 30 June 2002 and at only $7,621 for 30 June 2003.

124 Curtin's sales and profit performance for the 2002 and 2003 financial years indicates, by industry standards, a reasonably respectable gross profit performance of 61.5% in 2002 and 74.6% in 2003. However, these results mirror the sharply falling cost of goods sold, in contrast to previous years. I am suspicious of these figures on the basis that there is a significant cash or 'off the books' economy at work. On the expense side, a wages and salary adjustment of $60,000 is made by Mr DouglasBrown. For the 2002 and 2003 financial years the level of wages paid out fell sharply in contrast. This again presents as a manifestation of the 'off the books' cash regime of Mr Lawless. That regime inhibits any reliable picture of the Curtin business's performance, particularly true levels of wages, across these years.

125 Mr DouglasBrown calculates an average loss of $93,006 over the three years (2002 2003) for which Curtin has available financial records. However, the levels of the losses, even adjusted by Mr DouglasBrown for Curtin in these three years fluctuates greatly, with the losses ranging from $210,107 to $7,621. The sheer scale of that threeyear fluctuation and, indeed, the improving (ie, lessening) loss trend is significant. Extrapolating a threeyear average calculated loss of $93,006 across an ensuing two financial years (2004 and 2005) where there are no final figures to be scrutinised is, in my view, unreliable and does not amount to proof of loss to an acceptable civil standard.

126 Mr Lawless' evidenceinchief was admitted via his primary statement (exhibit 6) and three further witness statements in reply to Mr Blake, Dr Mackendrick and Mr Mulcahy (exhibits 7, 8 and 9). Difficulties over the inadmissibility of many paragraphs in Mr Lawless' witness statements gave rise to many objections that required his statements to be heavily edited as the trial began. A consequence was a loss of a day of trial time while these deficiencies were addressed.

127 Eventually, Mr Lawless was able to commence his evidence just after noon on day three of the trial. He was then cross-examined over the balance of day three through to the end of day five of the trial by respective counsel for the three defendants.

128 Mr Lawless very soon presented under crossexamination as a deeply aggrieved, but highly volatile and argumentative witness. Time and time again Mr Lawless would lose control and have to be admonished, only to erupt again at an ensuing question. At trial Mr Lawless presented as largely incapable of exercising any proper regime of self control.

129 I have no doubt the business failure of Curtin in the second half of 2005 and descent into administration and then liquidation has been a deeply distressing episode and has very negatively impacted against Mr Lawless' overall frame of mind subsequently. Prior to that, particularly in 2000, when Curtin looked to have realised a significant profit on a successful sale of the Curtin Tavern of $1.5 million, Mr Lawless had been widely observed as someone extremely confident in his abilities as a hotelier (see TB 127 and 128, written by Mr Blake, undoubtedly on Mr Lawless' instructions for Curtin).

130 It was evident at the trial that Mr Lawless has now very genuinely persuaded himself that he has been seriously wronged by all the defendants. But his deep rooted personal assessments look to me from the trial evidence to be based more on his long term selfrationalisations than upon facts.

131 Insight as to Mr Lawless' volatile state of mind can be obtained from a document in the trial bundle (TB 227) of 21 September 2005. He wrote to Dr Mackendrick:

Dr Makendric [sic] you sold me a lemmon [sic]. It would take a $400.000 turnaround to achieve your minimum profit of $120.000. I have now, lost my home, my wife has had a nervous breakdown my children, are in care the hotel business is in administration, I face bankruptcies.

...

I have now lost everything. And I hold you, Dr Makendric [sic] responsible for my losses, You sold me, your lemon And you knew exactley [sic] the losses the hotel was incurring when you stated your lemon was making $155.000profit. You have caused me and my family to incur losses in excess of $1.000.000 million dollars and 5. years of hardship.

132 However, one of the reports of Curtin's liquidator, Mr Dino Travaglini, attributes the failure of the Curtin business (see notice to creditors by Moore Stevens of 19 October 2005, TB 226, page 1078) as follows:

REASONS FOR THE COMPANY'S FINANCIAL DIFFICULTIES

Based upon my investigations to date and my discussions with the Director, I am of the view that the Company's financial difficulties have been caused by (i) a marginal trading history for the Company and (ii) the inability to obtain insurance cover to allow the Company to resume trading of the business for the Imperial Hotel York.

133 That assessment by Mr Travaglini appears to have a closer alignment to the true facts in contrast to Mr Lawless' self rationalisation made in the aftermath of Curtin's business failure and its many unfortunate personal ramifications for Mr Lawless.

134 Mr Lawless' trial evidence under crossexamination manifested an almost overwhelming catalogue of demeanour deficiencies apparent to all assembled. However, courts today tend to downplay the adverse significance of demeanour deficiencies with a witness at a trial in favour of a more analytical approach: see Fox v Percy [2003] HCA 22; (2003) 214 CLR 118.

135 More weight is afforded these days to the logic of contemporary documentary evidence, in contrast to a stand alone disputed oral version of events: see Fox v Percy [31] (Gleeson CJ, Gummow & Kirby JJ). The present case manifests dramatic clashes of oral evidence against the versions Mr Lawless contends for. Unfortunately, much of what is disputed and falls to be determined by me is unsupported by any reliable surrounding documentation. Resolution of these differences necessarily involves choosing between differing recollections about words passing in conversations exchanged at times now more than a decade passed. This is particularly so as regards the rival evidence of Mr Lawless to the evidence of Mr Blake and Mr Mulcahy about their preoffer conversations.

136 In this arena, some observations from Watson v Foxman (1995) 49 NSWLR 315, 319 present as prima facie pertinent, albeit these were made in that context as a claim for misleading and deceptive conduct, arising out of oral statements or representations.

137 Nevertheless, the Watson v Foxman observations carry a forensic wisdom and applicability well beyond statutory causes of action: see Penninpede v Penninpede [2010] NSWCA 121 [20] [38] which reminds us that:

(a) Ordinary experience is that the human memory, of what was said or passes or is exchanged during a conversation or conversations is fallible. Ordinarily the level of fallibility increases with the passage of time.

(b) This is particularly so if the conversation presents subject matter which becomes the subject of the dispute. What is a subconscious selfinterest and another natural human tendency towards selfrationalisation after the event, can combine to lead a witness to an expressed version of events which, albeit sincerely held, is nevertheless tailored and unreliable.

(c) There is risk that the capacity for a subconscious reconstruction from a vague memory or impression can lead to a witness advancing a version of events that assists their own case.

138 I have done my best to evaluate Mr Lawless' trial evidence on a basis that although he manifested a catalogue of demeanour deficiencies, his evidence must properly be assessed logically, from a perspective of seeing whether, in the overall context, his evidence can be assessed as at least more reliable than that of the other witnesses, particularly Mr Blake and Mr Mulcahy (where their versions of events clash against Mr Lawless' evidence).

139 Nevertheless, Mr Lawless remains unique for a trial witness in terms of his 'drop of the hat' volatility and an unrivalled inability to never answer a question with a direct answer. I regret to say, I also assess him as prone to fabricate evidence when it suited his purpose. The whole transcript of a long crossexamination needs to be weighed in that regard. But I do mention below a handful of instances to illustrate my overall conclusions about his unsatisfactory evidence.

140 At a point in his crossexamination Mr Lawless made a confident, but bizarre, reference to having 'notes in his head'. Mr Lawless was being crossexamined by senior counsel for the second defendant and stated (ts 480):

And again, you have no notes of what was discussed at the Dome, do you?---Yes, I have notes.

Handwritten notes that you made at the time?---No, in my head I remember exactly what was said and what the instructions were ...

...

Right. I suggest to you that you can't possibly accurately recall, some 12 years after the event, exactly the words that were used in that conversation by either you or - - - ?---Well, maybe you can't but I can, madam.

You're confident about that?---Positive.

141 See a further passage of crossexamination by counsel for the third defendant (ts 594):

Before you purchased the inn did you prepare a cash flow forecast?---No.

A business plan?---No.

A budget?---No.

No cash flow, no budget, no business plan. Is that your evidence?---I had a business plan but I didn't prepare it on paper.

These are more notes in your head, are they?---Correct.

...

You have got a budget of some sort in your head but there are no figures for expenses?---Correct.

Wouldn't you agree with me that a budget without expenses is not a budget at all?---No.

142 Mr Lawless' answers in this exchange, apart from showing Curtin's flimsy or nonexistent planning undertaken prior to acquisition of the Imperial Inn, provide further illustration of the notion concerning the 'notes in Mr Lawless' head' and a misguided self belief in his perfect recall. The absurd nature of these responses did not assist me to assess Mr Lawless as a witness about whose evidence any degree of reliance could be placed without some independent corroboration.

143 Second, I refer to TB 171, page 619. Mr Lawless was closely crossexamined about this document. Mr Lawless, through Mr Blake, had applied to RAMS Home Loans for refinance at 27 May 2001. Mr Lawless wrote to RAMS Home Loans:

We confirm gross income for Mr Kevin Lawless as $110,000 and net profit for Curtin Hotels Pty Ltd after expenses and Directors salaries as $50,000.

144 That information, provided to RAMS by Mr Lawless was totally false to his knowledge at the time.

145 At that stage Mr Lawless was still in his first year of operating the Imperial Inn business (see ts 551 and following). An exchange occurred at ts 553 between senior counsel for the second defendant and Mr Lawless:

You obviously had to provide some information to RAMS about your financial circumstances?---Yes.

You told them that you were receiving $110,000 income yourself, didn't you?---I may have told them to get the finance, yes.

Yes, and you told RAMS that Curtin Hotels, after expenses and directors' salaries, was making a net profit of $50,000, didn't you?---I may have told them in order to get finance, yes.

When you say, 'I told them that to get finance', are you implying that what you told RAMS was untrue?---It may have been.

What do you mean 'it may have been'?---I have no record. I would love to see these records to have a look ...

146 Mr Lawless was then taken to the document at TB 171. The exchange continued:

It's untrue, is it?---Yes.

Okay. In what respects?---I was advised by Chris Blake that if I wanted to get this loan I would have to make this statement.

No, answer the question?---I have answered the question, yes.

In what respect is it untrue?---The financial returns are untrue.

All right. So Curtin wasn't making a net profit after expenses and directors' salaries of $50,000?---Correct.

Is that right?---Correct.

But you were taking $110,000, weren't you?---No, I wasn't. I was advised by Chris Blake that if I wanted to get a loan for my house I had to make this statement.

You lied to RAMS, Mr Lawless, didn't you?---Yes, I did.

Do you say that that's the only time you have ever lied?---Yes.

The only time you've ever done anything dishonest?---Yes.

147 Transcript pages 551 554 display Mr Lawless himself being shown to make a deliberately false statement (in this instance to RAMS by his own admission) when it suited his purposes. His attempt to divert personal responsibility and seek to blame Mr Blake for what occurred with RAMS in 2001, was also unedifying.

148 Thirdly, on 30 June 2005 (see exhibit 19) the Deputy Commissioner of Taxation disallowed Curtin's claim for an input tax credit of $100,000 in its business activity statement (BAS) for January to March 2005 and imposed a 75% penalty (of $475,000).

149 The Taxation Commissioner's penalty advice to Mr Lawless stated:

You knowingly obtained a tax invoice dated 1 January 2005 from a related entity for a purchase to the value of $1,100,000.00 for unsubstantiated acquisition. The description of the purchase on the invoice was shown as 'Imperial Inn - Stock'.

...

The above factors indicate that the input tax credit was wilfully claimed incorrectly even though you were aware there was no creditable acquisition and there was no payment or consideration made.

150 Questioned about this by senior counsel for the second defendant, Mr Lawless was unable to offer any satisfactory explanation for what, on the face of it, presents as an act of calculated deceit on his part in preparing a false invoice (see ts 579 583).

151 Fourthly, by reference to TB 303, I note Mr Lawless' (Curtin's) own revenue forecast. But this forecast was based upon the building of six new accommodation units at the Imperial Inn. The basis for how this would be achieved in terms of underwriting such a project was unable to be explained.

152 A yet further example of incredulous evidence by Mr Lawless is the exchange with senior counsel for the second defendant in crossexamination at ts 475 476 in which Mr Lawless asserted that his recollection of events was improving as time passed. See, for example, at ts 476:

Mr Lawless, in relation to the events that are being tried, the subject matter of this trial, do you say that your memory is improving?---Yes.

153 Clearly, as his crossexamination showed repeatedly, that was not the case.

154 In the end, in controversial areas, Mr Lawless' evidence can only be accepted if there is independent corroboration for his version of events.

155 The plaintiff's essential case against Mr Blake and Mr Mulcahy (as employee of the third defendant) is heavily, if not exclusively, grounded upon the persuasive impact of the 7 January 2000 letter upon Curtin. Particular emphasis is placed on the letter's sentence referring to the expected minimum net profit of $120,000 per annum and to the alleged endorsements of that future profit prediction by both Mr Blake and by Mr Mulcahy.

156 For the first defendants evidence was adduced first from Dr Mackendrick (see his witness statement, exhibit 27B), then his wife and cofirst defendant, Ms Gabriels (see her witness statement, exhibit 38). Evidence as also adduced from the first defendants' business accountant, Mr Chapell (see witness statement, exhibit 39, and ts 871 and following).

157 Ms Gabriels' degree of participation in the partnership business of the Imperial Inn was, I find, at a much lesser level than of her husband. Whilst business decisions were shared, such decisions were largely taken by Dr Mackendrick and then later ratified by Ms Gabriels. Her personal involvement in the critical decisionmaking areas relevant to the case presented to me as relatively minor. This is demonstrated by the ambit of her witness statement and, to a lesser extent, her relatively short crossexamination. I assessed the evidence of Ms Gabriels as forthright and coherent. It should be accepted.

158 I thought Mr Chapell's largely uncontroversial accounting evidence was completely reliable.

159 Dr Mackendrick was subjected to a long crossexamination by counsel for Mr Lawless. But overall, I thought Dr Mackendrick's answers to questions were, generally, measured and responsive. I noted Dr Mackendrick was prepared on occasions to make concessions that seemingly went against the first defendants' case. For instance, he accepted that his letter of 7 January 2000 to Ms Groves and its attachment (being the auction brochure of July 1999) may 'go to people interested in purchasing the hotel' (see ts 825).

160 Dr Mackendrick did not meet Mr Lawless until a chance meeting at York. This meeting occurred well after the binding offer and acceptance documentation for sale of the Imperial Inn and its business had been completed on Saturday, 19 February 2000, but before settlement on 30 June 2000. They had coffee at the Imperial Inn and had a very cordial discussion. There is now a minor dispute over the content of that York conversation (exhibit 27B, pars 50 52 and exhibit 8, par 3).

161 Dr Mackendrick asserts in his statement he told Mr Lawless that he and his wife had never been able to turn a profit from the Imperial Inn, and that Mr Lawless seemed to be completely unaffected by or disinterested in hearing that information (see exhibit 27B, pars 50 51, particularly subpar 51(b)). Questioned about this assertion during crossexamination (see ts 830 831) Dr Mackendrick seemed less assured about how the York conversations with Mr Lawless had proceeded. He said that he was 'not sure how the conversation went' but that he remembered telling Mr Lawless that he and his wife 'had not made a profit from the hotel' (ts 830). I accept the version in Dr Mackendrick's crossexamination.

162 I find that at their face to face coffee meeting at York, well after the contracts of sale were entered, Mr Lawless had expressed himself in a very confident way to Dr Mackendrick. It seems Mr Lawless was confident of making a success of running the Imperial Inn by reason of his superior experience in the hotel industry. In particular, I find Mr Lawless said to Dr Mackendrick at this meeting that he had 'no doubt he [Mr Lawless] would run the business much better than [Dr Mackendrick] had' (see exhibit 27B, par 52).

163 I also prefer Dr Mackendrick's evidence (in contrast to Ms Groves' evidence) concerning his recollections about his telephone conversations with Ms Groves. In contrast, Ms Groves' trial evidence was extremely vague.

164 Dr Mackendrick said he had heard nothing from Mr Lawless after the settlement on the sale of the Imperial Inn (30 June 2000), until about four years later when Mr Lawless began leaving messages for him on his work and home telephones.

165 At this time (2004) a request from Mr Lawless was also received by the first defendants' accountant, Mr Chapell, for access to financial information. The subject matter related to Mr Lawless' allegation concerning 'falsified turnover figures' (see exhibit 27B, pars 59 60). [I note the request was about falsified 'turnover' not profit - this is significant.] In 2004 Dr Mackendrick said he had nothing to hide and so authorised Mr Chapell to give Mr Lawless copies of the partnership tax returns for the 1998 and 1999 financial years.

166 Dr Mackendrick then heard nothing more from Mr Lawless until October 2005.

167 In his statement (exhibit 27B, pars 64 65) Dr Mackendrick relates an incident which occurred in 2005. His evidence is that:

1. Sometime later in 2005 while doing a clinic in my surgery in Fremantle I received a call from Irene Groves. She said that she had a Mr Lawless with her in her office asking for information regarding the sale of the Imperial Inn. She said that I still owed her the commission and if I did not give to her she would give all the information about the sale of the Inn, which 'could be quite damaging to you'.
2. I told her that I did not believe I owed her a commission and she could give him anything she wanted, as I had nothing to hide regarding the sale.

168 That alleged conversation with Ms Groves in 2005 (during which she said she had Mr Lawless with her in her office asking for information) provides some of the foundation upon which the first defendants hypothesise it was only at this time that Mr Lawless first obtained copy of the letter of 7 January 2000 from Ms Groves.

169 After this 2005 telephone call from Ms Groves, Mr Lawless started to contact Dr Mackendrick and his wife at their residence or respective businesses. This development coincides with the time at which Curtin had been placed into liquidation.

170 The conduct of Mr Lawless at this time, described by Dr Mackendrick (see par 66 and following in exhibits 27B and 38) does not reflect well upon Mr Lawless. But for this trial its significance is not in what happened but, rather, when it happened. Mr Lawless is not being punished or judged by me over these incidents. The significance of this conduct for this trial is its 2005 timing.

171 Counsel for Mr Lawless attempted to rationalise the conduct on a basis that it was attributable to a man in a desperate situation who had lost everything and was very deeply affected. I can accept all that. I repeat it is more the timing of Mr Lawless' conduct that is the relevant aspect of this evidence for this trial.

172 By his witness statement, Dr Mackendrick identified factors he says he relied upon his early January 2000 as his reasonable grounds for his expressed profit expectation; an expectation which, of course, ultimately turned out to be wrong for the 30 June 2000 financial year. He said (see exhibit 27B):

1. In my letter to Groves I informed her of the new arrangement with Eaton. I stated that I expected a profit of $120,000 per annum to be shared with Eaton.
2. I based this estimate on the following factors:

(a) The business now had the benefit of significantly improved infrastructure, plant, equipment and facilities. We had converted it from a basic bed and breakfast operation into a full hotel business with licensed restaurant, bar and café.

(b) Turnover had increased every year since we bought the business and was continuing to increase according to the monthly accounting reports Chapell was sending me and which I read and considered month to month. By January 2000 I had seen the partnership's 1998 tax returns (see TB 29) which showed turnover up to June 1998 during the 11 months that we had been operating the business of $424,432. The previous year's turnover had, according to Mulcahy, been approximately $200,000. I have been unable to locate the precise accounting documentation that I had at the time of writing the 7 January 2000 letter, but I have since the commencement of these proceedings seen financial data that Chapell had sent to Mulcahy prior to the August 1999 auction which refers to turnover for the 12 months up to 30 June 1999 of $613,157. In this regard I refer to the letter from Chapell to Mulcahy dated 13 July 1999. I identify that letter (TB 82). The information in that letter is consistent with my recollection of the monthly reports that I was receiving from Chapell at that time. To my knowledge in January 2000, based on the monthly accounting reports I was receiving from Chapell, turnover during the period July 1999 to December 1999 had increased over the comparable period during 1998. As for the statement in the letter that 'Gross annual turnover is between $600,000 and $700,000', that statement is confirmed by the June 1999 partnership tax returns themselves which show turnover during that period of $602,557 (see TB 80).

(c) We had seriously overspent on ineffective marketing and promotion of the business. I refer in this regard to the promotions dealt with in paragraph 18 above. Our inexperience in that area had been costly and there were significant costs savings to be made in that area.

(d) The costs savings that would result from an onsite owner/operator of the business. That would avoid the need for payment of significant salaries for a manager and maintenance person and was the rationale for us having entered into the agreement with Eaton referred to above commencing in November 1999. An onsite owner/operator would also significantly reduce the 'leakage' that occurs when a hospitality business is run from a distance.

1. I genuinely believed that my estimate of future profit for the business as referred to in the letter was based on reasonable grounds.
2. I did not hear anything further from Irene Groves until around October 2000 which was well after the sale of the hotel and business.

173 I accept this evidence. Dr Mackendrick was strongly challenged as having been deceitful or reckless in January 2000 over his future profit expectation, as expressed in this letter to Ms Groves. But it is necessary to observe that Dr Mackendrick did not ever say to Mr Groves that profits to such a level had ever been obtained in the past.

174 A core criticism directed against Dr Mackendrick is that he was unable, at the trial in 2013, to do any more than point to generic factors underlying his January 2000 profit expectation sentence in his 7 January 2000 letter. The criticism, as I understood it, was that Dr Mackendrick should have been able to give (in 2013) a precise arithmetic calculation deriving exactly how his figure of $120,000 profit per annum had been reached back in January 2000. Failure to do that, it is said, means Dr Mackendrick ought be held to have been deceitful, reckless or at least negligent, and found to lack reasonable grounds for the $120,000 profit expectation figure (see crossexamination of Dr Mackendrick at ts 825).

175 I do not accept that criticism of Dr Mackendrick. It is pitched at far too high a level in all the circumstances, in my view. No case authority was cited to me in support of a proposition at common law that an arithmetic foundation to the last dollar, underlying an earlier prediction as to future profit, needs to be produced to refute a conclusion of deceit, of reckless indifference or to show reasonable grounds. There is a good reason for that absence of authority.

176 I accept Dr Mackendrick's evidence concerning his January 2000 belief in the generic factors he explains he relied on in aggregate at the time, in order to support his $120,000 figure of future expected profits to Ms Groves. Nor have I been persuaded to the civil standard that there has been either knowingly false, reckless, blindly uncaring or even negligent conduct exhibited by Dr Mackendrick (on behalf of the first defendants) as regards his profit expectation figure of $120,000 per annum seen in Dr Mackendrick's 7 January 2000 letter and then sent to Ms Groves.

177 The second defendant, Mr Blake, tendered at trial a witness statement which became exhibit 40. He was also subjected to a rigorous crossexamination, which spanned almost a day (see ts 918 1021).

178 Whilst occasionally a little over defensive of his position during crossexamination, I thought that Mr Blake's evidence overall was reliable, in most instances. In particular, I prefer his version of conversations over that of Mr Lawless, to the extent they clash. That assessment carries ramifications concerning:

(a) what was said or not said over the telephone between Mr Blake and Mr Lawless on Sunday morning, 13 February 2000 and at the Dome Café at Applecross, when the two men met facetoface on Tuesday, 15 February 2000;

(b) whether there was a second facetoface meeting at the Dome Café at Applecross the morning of Friday, 18 February 2000 before the two men travelled by (separate) car to York where they met with Mr Mulcahy. Mr Lawless says there was a second meeting at the Dome Café (see exhibit 6, par 33). Mr Blake refutes this. I accept Mr Blake's evidence on that point. My finding is there was only one facetoface meeting between Mr Lawless and Mr Blake at the Dome Café Applecross. This was on the preceding Tuesday, 15 February 2000;

(c) what was said at York on Friday, 18 February 2000, when Mr Lawless and Mr Blake met Mr Mulcahy, and Curtin's two offers to purchase were submitted; and

(d) a clash over whether Mr Blake saw or was given a copy of the 7 January 2000 letter. Mr Lawless says he handed the letter to Mr Blake at the Dome Café (exhibit 6, par 30), so that Mr Blake could verify what was said in the letter. Mr Blake strongly refutes this, and again I prefer his evidence on the point. There is no documentary evidence to assist the resolution of that clash.

179 Even had I not accepted Mr Blake's evidence to the effect that he was not shown the 7 January 2000 letter (as I do), the evidentiary onus would still be upon Mr Lawless to persuade me of his affirmative proposition. Accordingly, I would still be left unpersuaded, given the overall unreliability of Mr Lawless' evidence and a lack of independent support for Mr Lawless' version of events.

180 Between themselves, Mr Blake and Mr Mulcahy clearly reached arrangements arising out of their ensuing telephone conversation that is likely to have occurred on Monday, 14 February 2000. The two men had agreed that any sales commission earned upon a successful sale of the Imperial Inn and business would be shared between them on a 50/50 basis. Mr Mulcahy explained this compellingly from an economic perspective, on the basis 50% of something was better than 100% of nothing. Mr Lawless learnt of this commission splitting arrangement from Mr Blake at the meeting on Friday, 18 February 2000 at York. The two offers as written that day make the commission split arrangement explicit. Being so then openly appraised, Mr Lawless raised no objection (exhibit 6, par 41(m)).

181 The essential controversy between Mr Lawless and Mr Blake distils to whether or not Mr Blake was asked by Mr Lawless, and subsequently agreed, to carry out a type of due diligence or verification exercise of the Imperial Inn's financial statements as to the general profitability of the business. Mr Lawless says he had first asked Mr Blake to perform that task over the telephone (Sunday, 13 February 2000), and again at the Dome Café (Tuesday, 15 February 2000) and that Mr Blake accepted.

182 Mr Blake is equally adamant he did not accept any such task from Curtin and that his role was only to seek the acquisition loan finance for Curtin (which he did successfully in due course and for no apparent charge to Curtin) and, as things turned out, he became a conjunctional selling agent with Mr Mulcahy. Mr Blake says that he was never asked to verify the turnover figures, or the underlying business profitability of the Imperial Inn as a business. Moreover, Mr Blake said that, had he been asked, he would have refused, as such a task was beyond his level of competence as a finance broker at that time (see ts 990).

183 Subsequent to February 2000, Mr Blake did facilitate the successful procuring of loan finance to support Curtin's settling on its acquisition of the Imperial Inn freehold and business (exhibit 40, par 147) and apparently, for no reward to Mr Blake (see ts 967 982) (save perhaps for the split sales commission).

184 Again, a factual clash of evidence comes down to an evaluation of differing verbal accounts from Mr Lawless and Mr Blake, about undocumented discussions passing now over 13 years ago. As plaintiff, Mr Lawless needs to persuade me on the balance of probabilities Mr Blake was indeed asked by him to perform, and accepted the task of performing, a profitability verification exercise concerning the Imperial Inn. At the end of the day, I am left unpersuaded by the state of the evidence overall upon this issue concerning Mr Blake's alleged tasks or assignment.

185 The third defendant called evidence from two witnesses at the trial. First was Mr Mulcahy, formerly fifth defendant in the action. His witness statement became exhibit 43. The principal of the third defendant corporation, Mr Colin King, was the other witness. His witness statement became exhibit 44.

186 Mr Mulcahy's recollections of events as manifested at trial was a little vague at times. But with 13 years having passed, I thought this was understandable. Overall, I assessed Mr Mulcahy to be a forthright witness, who did his best to answer questions directly.

187 Mr Colin King was lightly crossexamined upon the relatively narrow issues in his evidence about his efforts for Curtin to find a purchaser for the Imperial Inn after 2001. I assessed Mr King to be a thoroughly reliable witness. I accept all his evidence without qualification.

188 Relevantly, Mr Mulcahy and Mr Lawless had only one facetoface meeting. That occurred when they met for the first time at about 11.30 am on Friday, 18 February 2000, at York.

189 The plaintiff's dispute with the third defendant again distils to Mr Lawless' contention that Mr Mulcahy was shown the Mackendrick letter at York and was asked by Mr Lawless to verify the expectation prediction of $120,000 minimum profit per annum.

190 There was a late amendment of the plaintiff's FASSOC on the last day of trial regarding the grievances as articulated against the third defendant by reference to the alleged conduct of Mr Mulcahy. Paragraph 25 in the FASSOC was amended (unopposed) by leave to read:

On the same occasion, Mulcahy acting as aforesaid, also orally represented to the plaintiff (representing Curtin) that the business was predicted to make an annual profit of $120,000-00 plus retaining rent of $700-00 a week and that Curtin would do much better if it made a few changes to the hotel.

191 This was an important, late change. This pleading had previously asserted that Mr Mulcahy had made a representation of fact about the level of past profits achieved in the past by the Imperial Inn at the level of $120,000 per annum. There is absolutely no basis to support that. The late amendment to change the claim to be a prediction was not opposed. But the late change displays some forced eleventhhour ground shifting by Mr Lawless.

192 The essential controversy distils to a clash over passing words allegedly spoken at York on Friday, 18 February 2000. Mr Lawless contends that he showed a copy of the 7 January 2000 Mackendrick letter to Mr Mulcahy at York (exhibit 6, par 41). This is disputed by Mr Mulcahy (who on this point is supported by Mr Blake; exhibit 40, par 106). Mr Mulcahy says he was never shown that letter. He says that there was no discussion about the annual profits of the Imperial Inn either at York, or ever (exhibit 43, pars 100 and 138). However, Mr Mulcahy accepts there was some discussion about the levels of turnover (exhibit 43, pars 94 96). In the end, anything said about turnover is not significant, because it is not suggested that anything false or erroneous was said about turnover levels. The key issue is about future profits, not revenue levels.

193 Mr Lawless' witness statement says this (exhibit 6, par 41):

(a) I presented Mulcahy with a copy of the letter sent to me by Irene Groves written by Mackendrick (TB 107 Vol 2) dated 7 January 2000 and said to Mr Mulcahy: 'So the owners are making $120,000 profit?';

(b) Mulcahy replied, 'Yes, but I think you could do much better than that if you made a few changes';

194 From par 41(d) on, Mr Lawless asserts he asked Mr Mulcahy, 'What are the expenses?' to which Mr Mulcahy is alleged to have replied:

'[T]hey're included in the attachment to the letter dated 7 January 2000 and in these.'

195 The evidence about expenses and further financial documents concerning the Imperial Inn held by Mr Mulcahy at the time is essentially of no assistance to Mr Lawless, as there is no contention any financial information in the documents contains anything at all that is either erroneous or inaccurate (see exhibit 4). The sole issue is as to a predicted future profit.

196 Mr Lawless' plea in par 24 of the FASSOC as to alleged misstatements by Mr Mulcahy on 18 February 2000 concerning the successful trading performances of other hotels at York (the York Hotel, Castle Hotel and Settlers Inn) also goes nowhere. Statements by Mr Mulcahy, if made (and which I do not find established) were not in any event even attempted to be falsified at the trial.

197 Mr Mulcahy's witness statement addressed the one meeting at York with Mr Lawless, in which Mr Blake participated (exhibit 43, pars 59 101). Mr Mulcahy says (at par 65) he observed Mr Lawless had with him, at that time, a copy of the Imperial Inn auction brochure (that Mr Mulcahy had prepared for the auction held at the Parmelia Hilton Hotel in July 1999). Mr Mulcahy says (exhibit 43, pars 100 101):

1. At no time during this meeting did Lawless show me any letter from Mackendrick or JCLD.
2. At no time did Mr Lawless ask me whether Mackendrick and Gabriels were making $120,000 profit from the inn, or achieving a rental turnover of $35,000 per year. I did not make any statements to this effect to Lawless.

198 Mr Lawless filed a reply witness statement responding to the evidence of Mr Mulcahy. This reply statement became exhibit 9. Paragraphs 1 14 and 22 of that reply witness statement join issue with Mr Mulcahy but essentially just entrench a clash of versions about what was discussed at York on 18 February 2000.

199 In the end, I prefer Mr Mulcahy's version of events as to what happened or, more accurately, what did not happen with Mr Lawless at York, on 18 February 2000. I would reach that view even without factoring in the evidence of Mr Blake, whose account largely supports Mr Mulcahy. However, there is no reason not to accept Mr Blake's evidence here as well.

200 The end result is overwhelmingly against the plaintiff.

201 However, once again, even if I was not so persuaded to accept Mr Mulcahy's account, Mr Lawless would still need to persuade me, on the balance of probabilities, to accept his differing version. In the absence of some independent corroborative evidence supporting Mr Lawless' version about what was said at York, he does not persuade me. Furthermore, Mr Lawless' pleaded claim against the third defendant (even allowing for the amendments to par 25 on the last day of trial) remains essentially confined to allegations arising from Mr Mulcahy's conduct at York. The allegation is that Mr Mulcahy assured Mr Lawless that:

The profitability of the business in the hotel was secure.

202 That implied representation is said to derive from earlier representations as contended for, contained in pars 24 and 25 that:

1. On or about 18 February 2000, Mulcahy on behalf of the third defendant and acting within the scope of his employment as the servant and agent of the third defendant, orally represented to the plaintiff (representing Curtin) that the operators of York, Settlers and Castle hotels in York he showed to the plaintiffs were trading profitably and that the hotel and the business were in the best location of all hotels in York;
2. On the same occasion, Mulcahy acting as aforesaid, also orally represented to the plaintiff (representing Curtin) that the business was making an annual profit of $120,000-00 plus retaining rent of $700-00 a week and that Curtin would do much better if it made a few changes to the hotel.

203 The alleged representations in pars 24 and 25 of the FASSOC provide no support for any further representation derived by implication concerning the profitability of the Imperial Inn's business.

204 These allegations are also heavily dependent on whether Mr Mulcahy was shown the 7 January 2000 Mackendrick letter at York. But what was discussed at York I find concerned turnover, not future profits. Turnover was the key factor Mr Lawless was interested in.

205 Mr Mulcahy's evidence is that he only saw the Mackendrick letter for the first time as he read Mr Lawless' affidavit sworn in this matter in March 2007, after being served (as the then fifth defendant) with the writ in December 2006 (see exhibit 43, par 138).

206 The state of the trial evidence overall dictates my end conclusion that Mr Mulcahy was not shown this letter before 2007.

207 The scope of grievances as articulated against Mr Mulcahy and the third defendant by Mr Lawless via his witness statement (exhibit 6) extends well beyond the pleading against the third defendant. However, the trial was conducted on the basis the parties were not free to venture outside the scope of their pleadings. Therefore, other grievances expressed concerning, for instance, content of the auction brochure, and what might or might not have been said about the brochure by Mr Mulcahy on 18 February 2000, do not assist the plaintiff.

208 Mr King's evidence carried some destructive ramifications against the plaintiff's claim for damages. Mr King for the third defendant (exhibit 44) accepted the engagement from Mr Lawless (on behalf of Curtin) to sell the Imperial Inn and business in August 2001. An auction was conducted for the sale of the Imperial Inn during mid October 2004. About 20 to 25 people attended. A Ms Schmidt, someone known to Mr King as a potentially interested purchaser of the Imperial Inn and business, arrived late at the action and submitted a bid of $850,000. This resulted in Mr Lawless having an exchange with Mr King. Mr King was advocating to Mr Lawless the acceptance of Ms Schmidt's offer. Mr Lawless allegedly said (exhibit 44, par 90):

I will not accept the offer. The reserve price is $1 million. I will not accept anything under that.

210 Subsequently, Mr King told Mr Lawless that Ms Schmidt was prepared to increase her offer to $900,000. Again Mr Lawless rejected this (exhibit 44, pars 100 101 and 103). It seems clear, and I find, that Mr Lawless' asking price for the Imperial Inn in 2004 was $1 million and that he would not accept anything below that figure.

211 During August 2005 another potential purchaser made an offer of $850,000 through Mr King. Mr Lawless declined this offer. His asking price was then $900,000. He subsequently changed his mind and decided that Curtin would accept the offer of 850,000 (exhibit 110 124). There followed a curious incident of early September 2005 in which Mr Lawless told Mr King (exhibit 44, par 134):

Now that I have an unconditional contract, I'm going to shut the doors of the hotel. I do not want to be there a day longer than I need to.

212 Mr King advised Mr Lawless not to do that because the hotel had been purchased as a going concern and needed to be kept in operation. Mr Lawless insisted on closing up. Subsequently, the prospective purchasers withdrew their offer and cancelled the contract (exhibit 44, pars 135 139).

213 After that incident, Mr King had no further involvement in attempting to sell the Imperial Inn for Curtin as Mr Lawless engaged an independent agent.

(1) It is not suggested Mr Lawless ever met or even spoke to Dr Mackrendrick or Ms Gabriels prior to Curtin submitting its two offers to purchase the Imperial Inn of Friday, 18 February 2000. To that point, Mr Lawless only dealt, as regards the first defendants as vendors, with Ms Groves of JCLD or Mr Mulcahy, who he met for the first and only relevant time at York on Friday, 18 February 2000.

(2) In February 2000, Ms Groves did not hold a written and signed selling authority to act as agent on behalf of the first defendants. She merely had the verbal permission of Dr Mackendrick in December 1999 to place a newspaper advertisement. She placed an advertisement in February 2000.

(3) At York on Friday, 18 February 2000, Mr Lawless had with him a copy of the auction brochure prepared by Mr Mulcahy to promote the July 1999 auction at the Parmelia Hilton Hotel. Mr Mulcahy noticed this and commented to Mr Blake. Both Mr Mulcahy and Mr Blake confirmed at trial that Mr Lawless had the auction brochure with him that day. I infer Mr Lawless most likely obtained the auction brochure by post from Ms Groves, albeit at trial in 2013 she had no memory of providing anything to Mr Lawless.

(4) By 18 February 2000 the auction brochure was almost seven months old. It contained no relevant financial information.

(5) As the trial was run, Curtin's causes of action, assigned to Mr Lawless, are heavily grounded forensically upon one sentence of Dr Mackendrick's 7 January 2000 letter as to an expressed expectation, then, of a minimum $120,000 profit per annum.

(6) There are issues of fact about whether or when this 7 January 2000 letter was obtained by Mr Lawless and then, if he did receive it in 2000, whether it was relied upon by him (for Curtin) in deciding to purchase and settle on the acquisition of the Imperial Inn land and business at York.

(7) In the week leading up to Friday, 18 February 2000 it appears a tranche of financial information concerning the Imperial Inn business's performance to that point (updated management accounts) was prepared and forwarded from the first defendants' accountant, Mr Chapell, to the first defendants (exhibit 4).

(8) This financial information was forwarded by Dr Mackendrick by his facsimile of Tuesday, 15 February 2000 to Mr Mulcahy at York: (see TB 108 110, pages 273 381; see also three onepage facsimile documents tendered as exhibit 4).

The three onepage documents display the respective headings:

• 'Jeff's Transactions': information for the period 7 November 1999 to 16 January 2000 (TB 108);
• 'Imperial Inn Sales Gross Profit Review': onepage spanning the period August 1997 (when the first defendants took over the Imperial Inn business) to October 1999. It provides financial information concerning sales, purchases, gross profit and gross profit percentages (TB 109); and
• 'Jeff's Calculations': a onepage document dealing with the bank balance position as between the bank, Mr Eaton and Dr Mackendrick in the period 1 November 1999 to 18 January 2000 (TB 110).

The financial information looks to have been sent to Mr Mulcahy at York so that he would have uptodate financial information concerning the trading performance of the Imperial Inn in preparation for meeting Mr Lawless and Mr Blake on Friday, 18 February 2000.

(9) The trial evidence suggests that little, if any, of this financial information (exhibit 4) was discussed by Mr Mulcahy with Mr Lawless at York. In the end, this does not matter, as it is not suggested, let alone pleaded by Mr Lawless for Curtin, that any financial information within these documents was at all inaccurate.

(10) At trial the only substantive financial information that is complained of by Mr Lawless as being deceitfully, recklessly or negligently false or misleading to Curtin is the $120,000 profit prediction per annum, one sentence of Dr Mackendrick's 7 January 2000 letter to Ms Groves.

(11) No other financial information provided by or on behalf of the first defendants to Mr Lawless (for Curtin) in the period before settlement at the end of June 2000 (such as the 30 June 1999 financial statements prepared for the first defendants) is contended to be in any way false or inaccurate.

(12) Mr Lawless complains over the content of the brochure prepared for the auction at the Parmelia Hilton Hotel of 21 July 1999. But that brochure, stale as it obviously was by February 2000, only contains rather bland sales rhetoric or puffery, including (see TB 84, page 317):

• STRIKING COLONIAL BUILDING
• BRILLIANT LOCATION AND EXPOSURE - YORK'S PREMIERE COMMERCIAL SITE
• THRIVING BUSINESS - ENORMOUS POTENTIAL
• EXCELLENT INVESTMENT OPPORTUNITY
• DEVELOPMENT POTENTIAL - EXPAND AND DIVERSIFY
• VERY ACCESSIBLE TO MAJOR MARKET SOURCE
• TOTALLY REFURBISHED WITH NEW FIT OUT
• WITH IMAGINATION AND SOUND MANAGEMENT THERE IS NOW AN OUTSTANDING OPPORTUNITY TO MAKE SUBSTANTIAL PROFITS FROM THIS PROPERTY

Complaint was also raised by Mr Lawless over the brochure's references to 'Thriving Business' and 'Enormous Potential', as well as 'Excellent Investment Opportunity' and 'Outstanding Opportunity To Make Substantial Profits'.

(13) The brochure can easily be dismissed as any possible cause or contributor to Curtin's woes or losses. Apart from then being (by February 2000) seven months stale, Mr Lawless' prior business experience as a hotelier and business proprietor strongly indicates he (and through him, Curtin) would not have relied on bland sales rhetoric or brochure puffery in considering a possible purchase of a hotel business.

(14) That impression was expressly confirmed by Mr Lawless during crossexamination by counsel for the first defendant. Mr Lawless was referred to the terms of an express disclaimer at the back of the brochure (TB 84, page 324). It said:

... all interested parties should make their own independent investigation and enquiries concerning the relevant property known as 'Imperial Inn - 83 Avon Terrace, York' (see ts 330).

As an experienced businessman, whether you read [the disclaimer] in February 2000 or not, that was standard practice, wasn't it; if you're going to buy a business you need to take into account the trading performance of the business to assess whether or not it is worth what you may be looking at paying for?

Yes, I agree with that. My standard procedure is that I hire professionals to do that for me.

Mr Lawless' admission negates any degree of reliance by Mr Lawless (and Curtin) upon the content of the July 1999 auction brochure.

Further (ts 331) Mr Lawless confirmed a second time that he usually hired professionals to 'check things out' and, importantly to this case, that he did so with the Imperial Inn purchase by Curtin.

I conclude there was no prospect of Curtin, through Mr Lawless, being at all influenced by the auction brochure's bland and generalised terms about a 'thriving business', 'excellent business opportunity', or 'opportunity to make substantial profits'.

(15) I defer for the present resolving whether the $120,000 per annum profit prediction in the Mackendrick letter would suffer similarly, assessed from a (non)reliance and causation of loss perspective. Reliance would only arise as an issue if it is found Mr Lawless did actually receive a copy of the 7 January 2000 letter, as he contends, by post during February 2000. The first defendants argue it is likely that it was only in around October 2005 Mr Lawless obtained, from Ms Groves, a copy of Dr Mackendrick's letter, with Curtin and Mr Lawless, in extremis, then seizing (opportunistically, it is put) on Dr Mackendrick's $120,000 per annum future profit expectation sentence.

(16) Notwithstanding Mr Lawless' asserted use by Curtin of professionals to 'check things out' for Curtin, in fact, neither Mr Lawless (or anybody else on Curtin's behalf, including Mr Blake) ever approached or telephoned the first defendants' accountant, Mr Chapell, to arrange an inspection of the Imperial Inn business accounts prior to Mr Lawless causing Curtin to submit two linked cash offers to purchase the Imperial Inn's freehold land and business on Friday, 18 January 2000. Nor were the two offers submitted conditional upon Curtin's satisfaction with an inspection of the business's books after conducting a due diligence exercise.

(17) Dr Mackendrick's evidence was that he told Mr Mulcahy that prospective purchasers were at liberty to contact the business's accountant, Mr Chapell, in order to review the books of the business. I accept that evidence. There is no evidence of any request being made, let alone declined, at any relevant time before settlement. Mr Chapell's evidence was to the same effect. I find nothing about the financial performance of the Imperial Inn was held back or hidden from Curtin in February 2000 before settlement on 30 June 2000.

(18) Had the books for the Imperial Inn business been examined in February 2000, even on a very cursory basis, it would have been evident that only the end of year financial accounts for 30 June 1998 were available as at February 2000. Those annual accounts showed a loss (in just under 11 months' trading by the first defendants) of $256,579. Management accounts for the 1998/1999 and 1999/2000 financial years (to early 2000) would have confirmed the Imperial Inn business was still recording trading losses.

(19) This is not a trial about a business with a 'dodgy' set of books, misleading an incoming purchaser. The Imperial Inn business's management accounts were never at all challenged in this litigation as being falsified, inaccurate or misleading to any extent. Extraordinarily, no effort was ever made on behalf of this purchaser to look at the books, on behalf of Curtin during February 2000 and before submitting two cash offers to purchase.

(20) Noone for Curtin even attempted to glance at the Imperial Inn's financial books and records before 18 February 2000. Failure to make even an elementary, prudential enquiry forms the thrust of the plaintiff's distinct attack raised against the second defendant, Mr Blake.

However, Mr Blake responds by saying that he was only acting in a finance broker's role to assist Curtin (as he had in the past) in arranging finance. Mr Blake's trial evidence, which I prefer, was he was never asked by Mr Lawless to make any such enquiries into the Imperial Inn's books by Mr Lawless (for Curtin). Hence, no such enquiries were made. He also says, had he ever been asked to make such enquiries by Mr Lawless he would have declined on the basis such a task was beyond his expertise as a finance broker.

(21) It is accepted that Mr Blake did also act as a conjunctional sales agent with Mr Mulcahy on the ultimate sale of the Imperial Inn and business. This arrangement was disclosed to Mr Lawless at York on Friday, 18 February 2000 and Mr Lawless raised no substantive objection. At settlement on 30 June 2000 Mr Blake realised for himself a 50% commission of approximately $15,000 out of the sales commission paid by the first defendant vendors.

(22) Sales commissionsplitting arrangements between Mr Mulcahy and Mr Blake were premised on the assumption it was Mr Blake who had introduced Curtin (Mr Lawless) as the purchaser of the Imperial Inn. In fact, the introduction was generated by Ms Groves' 9 February 2000 newspaper advertisement and her subsequent involvement in directing Mr Lawless to the Imperial Inn at York.

(23) Curiously, Mr Lawless did not involve Ms Groves further after 12 February 2000 as regards Curtin's potential acquisition of the Imperial Inn. The conjunctional sales commissionsharing arrangement between Mr Mulcahy and Mr Blake is conceptually distant to the distinct issue of Mr Blake ever accepting Mr Lawless' alleged verbal instruction (from Curtin) to perform a due diligence exercise upon the books of the Imperial Inn business and verify a $120,000 per annum future profit prediction.

(24) The pleaded attack against Mr Blake is heavily tied to the allegation Mr Blake was engaged to verify, and subsequently did verify, Dr Mackendrick's $120,000 per annum future profit expectation. Mr Lawless says he gave a copy of that 7 January 2000 letter to Mr Blake when they met at the Dome Café, Applecross on Tuesday, 15 February 2000. Mr Lawless said at this time, after their earlier telephone conversation on Sunday, 13 February 2000, that he asked Mr Blake to 'check out' the Imperial Inn business and to verify the $120,000 profit prediction.

Mr Lawless' evidence was that Mr Blake verbally accepted that task at the Dome Café on Tuesday, 15 February 2000. Mr Blake refutes accepting any such verification assignment at the Dome Café or at all. He also firmly denies ever being shown, let alone given a copy of the 7 January 2000 Mackendrick letter or being directed by Mr Lawless to its sentence containing the $120,000 per annum profit expectation.

(25) Thus, there arises the fundamental clash of evidence as between Mr Lawless and Mr Blake over Mr Blake's role. No documents emerged at the trial that bear upon either Mr Lawless' or Mr Blake's purely oral versions of these events. I prefer Mr Blake's evidence on these disputed issues over the evidence of Mr Lawless.

(26) The state of the evidence at the trial provides no basis to conclude that the freehold and business of the Imperial Inn were not respectively worth at least $630,000 and $300,000, at 19 February 2000 and 30 June 2000 (see the assessment of a BankWest valuer at TB 137). Within Curtin's offer to acquire the Imperial Inn business for $300,000, nothing was attributed to a goodwill component for the business. The offer price for the business was expressly made attributable just for the value of plant and equipment or stock on hand. It has not been proved that the freehold and the business were not worth what Curtin paid for them on 30 June 2000.

(27) Evidence concerning Mr Lawless' efforts to sell the Imperial Inn from about 2001 and onwards only confirms that the aggregate capital sum of $930,000 Curtin paid out on 30 June 2000 was a fair price. At trial Mr Colin King's evidence was that the Imperial Inn (land and business) were put back on the market by Curtin in 2001 at an asking price then of greater than $1 million (see exhibit 44).

(28) There was no capital loss incurred by Curtin on 30 June 2000. This is not a business acquisition case where the evidence shows that the true value of land or an associated business is proven to be less than what was paid over to acquire the retained assets. Common law damages are awarded to provide compensation to a plaintiff for losses assessed by regard to any monetary difference as between what was paid out by a plaintiff, giving due allowance for the real value of what has been acquired and kept. Here the trial evidence shows no capital 'gap', as between the amounts outlaid by Curtin and the value of the land and business assets it acquired and retained on 30 June 2000 (see generally the observations as to loss by the High Court in Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 [50] [52] (McHugh, Hayne & Callinan JJ)).

(29) Mr Lawless also pursues a claim for loss of the lost value of improvements he says he had carried out at the Imperial Inn post July 2000. This loss he says amounts to some $250,000. There are no documents to support this loss claim. In the end it was pursued largely by way of the uncorroborated assertions of Mr Lawless in the context of the cash economy that he operated around the Imperial Inn's business at York. There is a spectacular dearth of any documentary evidence to sustain this lost improvements claim, which I find to be unproven.

(30) Mr Lawless also pursues consequential trading losses incurred by Curtin for the Imperial Inn across five financial trading years between 30 June 2001 to 30 June 2005. I assume, conceptually, that a consequential trading loss claim is open (if it can be proved), notwithstanding what I assess to be the complete absence of any capital loss arising upon Curtin's freehold and business acquisition of the Imperial Inn at 30 June 2000. I will evaluate this issue discretely at the end of these reasons.

(31) It was also argued for Curtin that the sustained poor trading performances by the Imperial Inn York business after June 2000, consequently caused Curtin to need to sell off its property at Kalinda Drive, City Beach, in 2002. This was because the interest only loan payments due on a 1997 loan taken out by Curtin to acquire that Perth property could not be met out of the revenues of the Imperial Inn business post 30 June 2000. The loss making performance of the York business post 30 June 2000 would not support the interest falling due on the City Beach loan. Under pressure from its lenders, the City Beach property of Curtin was sold privately in August 2002, realising $880,000.

There is no evidence to suggest $880,000 was not the reasonable or fair market price for the City Beach property in 2002. A consequential loss was claimed by Curtin on an asserted value of $1.5 million for this City Beach residence at 30 June 2011 (exhibit 24, ts 724). This figure of $1.5 million was drawn from a 'kerbside' valuation which had been conducted by Mr Archibald.

Conceptually, the loss claim seeking the 2011 lost capital value of the City Beach property falls outside Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 criteria for claimable tortious damages. The property was sold in 2002, not 2011. The first defendants are not suggested to have said anything about the capacity of the Imperial Inn as a business to support interest only borrowings for a loan used to acquire the City Beach property. This claim is misconceived.

(32) The action proceeded to trial on the basis of the plaintiff's prayer for relief. Well before trial there was some passing solicitors' correspondence (exhibit 1) which followed after the second defendant's solicitors had asserted that the prayer for relief was ambiguous. This correspondence was not responded to by the plaintiff's solicitor despite two letters. The issue raised was whether the plaintiff's prayer for relief was grounded upon invoking the principle from Hudson & Nielson v Wiseman [1986] WAR 156 (see exhibit 1) concerning the asserted primary responsibility of a particular defendant over other defendants.

In essence, the Hudson & Neilsen v Wiseman issue what whether if the plaintiff failed against the first defendants, he must necessarily then also fail against all other defendants. The plaintiff's case was accepted to be primarily directed against the first defendants in deceit.

At trial it was eventually accepted that if the plaintiff succeeded, but could not recover on a judgment amount as against the first defendants, only then would it be open for him to pursue distinct recovery against the second or third defendants, that being open in the event of assumed success at trial against those defendants as well (see ts 173 174, 216 217, 220 221, and 298 - 299).

At 730 731 counsel for the plaintiff accepted this outcome, as well as its corollary, that a failure against the first defendants must end the case against all defendants. I refer to the following trial exchange confirming that position (ts 230 231):

KENNETH MARTIN J: The Nielson v Wiseman point raised which we did clarify and the position has changed a little bit, but I think we finally clarified at pages 298 to 299 of the transcript. Yes, 11:10 on 14 December, Mr Yeldon, where you said:

I've received instructions to proceed different to my opening in respect of the Nielson v Wiseman point. We are content to proceed on that basis.

YELDON, MR: Yes. The case will be determined on those principles, your Honour.

KENNETH MARTIN J: Yes. As I understand that principle, if you fail against the first defendants you fail against everybody.

YELDON, MR: Yes.

KENNETH MARTIN J: Yes, all right. I just wanted that absolutely explicit.

Resolution of remaining key issue concerning the letter of 7 January 2000

215 As regards the claims against the first defendants for deliberately making a false misrepresentation (by a profit prediction of $120,000 profit per annum in the Dr Mackendrick letter of 7 January 2000) or for alleged negligent misstatements by the same materials, the critical point to resolve is whether Mr Lawless did in fact receive by post from Ms Groves a copy of the Mackendrick letter shortly after he read her newspaper advertisement of Wednesday, 9 February 2000.

216 Ms Groves' evidence at trial provides no support for Mr Lawless' position as to a postal receipt. No file or postal records from JCLD were adduced in evidence to assist his position.

217 Whilst no document supports Mr Lawless' position, he did obtain the Imperial Inn auction brochure (or pages therefrom) from Ms Groves prior to him travelling to York to see the Imperial Inn for the first time on Saturday, 12 February 2000. His evidence was he received the letter in February from Ms Groves by post along with the brochure. Mr Lawless' evidence that he discussed the letter with Mr Blake at the Dome Café and then again with Mr Mulcahy at York is rejected by Mr Blake and Mr Mulcahy. I have accepted that evidence from them.

218 At the time of writing his 7 January 2000 letter, Dr Mackendrick would have been reasonably entitled to expect a new agent would do more work after receiving his communication before contact was made with prospective purchasers. Furthermore, it would be logical for Dr Mackendrick to expect any prospective purchasers would behave rationally and seek to inspect the books of the business for themselves.

219 Dr Mackendrick was fully prepared to allow the first defendants' accountant, Mr Chapell, to make available the business's books to an interested purchaser, so they might view the trading position of the Imperial Inn for themselves. The first defendants' business books and records are not suggested, let alone shown, to be inaccurate, false or misleading in any way.

220 Context puts Dr Mackendrick's 7 January 2000 letter to Ms Groves in a proper perspective. The letter is of far less significance than the plaintiff now rather opportunistically contends.

221 At 19 February 2000, Dr Mackendrick was entitled to assume it was Mr Mulcahy, the first defendants' York based selling agent, whose efforts had unearthed Curtin as a potential purchaser. At this time he renewed the third defendants' exclusive agency agreement. In that respect I find that Dr Mackendrick was not aware until a third telephone conversation with Ms Groves in around October 2000, well after settlement, of her assertion that Mr Lawless and Curtin had actually been introduced to the York property and business by Ms Groves. I note that it was Mr Lawless who firmly advised Ms Groves she was not to accompany him to York on Saturday, 12 February 2000 to first see the Imperial Inn.

222 From an evidentiary perspective, Mr Lawless carries an onus at the civil standard to show the Mackendrick letter was received by him (by post from Ms Groves) at this time (shortly after 9 February 2000) as he asserts.

Whether Mr Lawless received the Mackendrick letter in early 2000

223 Facts that support Mr Lawless' contention that he received the Mackendrick letter in February 2000 from Ms Groves would include their obviously making contact at that time. It is likely, and I find, that Mr Lawless obtained the July 1999 auction brochure from Ms Groves in February 2000. It is also uncontroversial that Mr Lawless had the brochure with him at York on 18 February 2000. It is then argued that I could safely infer Ms Groves likely posted Mr Lawless a copy of the Mackendrick letter at the same time as sending him the brochure. However, there is no direct evidence upon this point and, if anything, Ms Groves' evidence at the trial rather suggested that she would have attached what she referred to as a 'condition of supply' to anything she sent out to Mr Lawless. There is no evidence of that being done.

224 The following factors weigh against Mr Lawless receiving the Mackendrick letter by post (or at all) in February 2000:

(a) a lack of documentary support from any quarter to show, on the balance of probabilities, Ms Groves posted a copy of the Mackendrick letter to Mr Lawless at or around 9 February 2000;

(b) Mr Blake and Mr Mulcahy's firm denials (which I have accepted) of ever being shown, at any relevant time in February 2000, a copy of the Mackendrick letter by Mr Lawless;

(c) the overall unreliability of Mr Lawless as a trial witness;

(d) the fact that a grievance over the expressed expectation as to $120,000 per annum profit was not raised by Mr Lawless with the first defendants until October 2005 (what Mr Lawless raised by telephone in 2004 with Dr Mackendrick and Mr Chapell was an issue of falsified 'turnover');

(e) the conversation between Ms Groves and Dr Mackendrick in October 2005, as to which I accept Dr Mackendrick's evidence.

225 In the end, I am not persuaded on the balance of probabilities Mr Lawless received the letter from Dr Mackendrick earlier than some time in 2005.

226 In the end, I conclude Mr Lawless, whilst he obviously by now has very firmly convinced himself he received the letter in 2000, is mistaken. Mr Lawless has, I find, over time firmly but, I find, wrongly, convinced himself of the truth of that position.

227 Here, the key determining factor to my conclusion is that on the evidence at trial as a whole, Mr Lawless only began articulating profit based grievances to the first defendants as to the figure of $120,000 in the second half of 2005. At the time Curtin had failed and entered administration, then liquidation. This strongly suggests his knowledge of the letter and what it said about future anticipated profits of the business only emerged at this time.

228 Upon Mr Lawless' version, given his explosive personality (seen constantly during crossexamination) I would have expected him to have been loudly complaining of being misled about a $120,000 profit expectation for the business a lot earlier than late 2005 had he received the letter earlier, or had he relied on it earlier.

229 When Mr Lawless contacted Dr Mackendrick and Mr Chapell in 2004, his grievance at that time was over 'falsified turnover', not profits. The profits grievance only emerged over a year earlier.

230 On all the evidence I find myself persuaded that Mr Lawless only obtained a copy of the Mackendrick letter from Ms Groves after the failure of Curtin's business in the second half of 2005. This was in about October 2005. That conclusion means Mr Lawless' case must fail, and not only against the first defendants but, by reason of the Hudson & Nielson v Wiseman issues, also correlatively as against the second and third defendants.

231 No independent document supports a finding that a copy of the 7 January 2000 letter came into Mr Lawless' hands for Curtin between 9 February and 18 February 2000.

Whether Mr Lawless relied upon the Mackendrick letter

232 Were I wrong about the factual conclusion that Mr Lawless received the Mackendrick letter in 2005, I would nevertheless go on (from a premise that Mr Lawless had the letter) to conclude from all the evidence that there was no degree of reliance placed by Mr Lawless on this letter and especially the profit expectation sentence as to $120,000 per annum. I would reach that alternate conclusion on the basis that I also find:

(a) in early 2000 Mr Lawless was highly confident of his own abilities as a hotelier in the industry, particularly after his success with Curtin's profitable sale of the Curtin Tavern for $1.5 million;

(b) Mr Lawless accepted in crossexamination by counsel for the first defendants that he would always 'hire professionals' to check the figures. By that statement Mr Lawless was obviously referring to Mr Blake. The significance of this from a (non)reliance perspective is that Mr Lawless accepts that it would be highly naïve for he and Curtin to rely on a prediction as to profit from a vendor of a business he had never met when assessing a country hotel;

(c) Mr Lawless said he would not accept such a statement as to future profitability without someone (a professional) looking at the books;

(d) a very late articulation of his expressed grievance in 2005 over a profit prediction against Dr Mackendrick and Ms Gabriels, suggests Mr Lawless' claims are likely tied to an after the event reconstruction towards prior events in 2000 from a then distorted perspective of his abject desperation and distress over the failure of the Imperial Inn business;

(e) Mr Lawless' key concern at February 2000, as the document shows, was directed at the level of the turnover of the Imperial Inn, not its net profitability. Mr Lawless thought his business skills as a hotelier would address any problems the inexperienced first defendants as vendors had with expenditures (see TB 127, page 464);

(f) Mr Lawless did not hesitate at the end of June 2000 to articulate a grievance over equipment just before settlement, resulting in a late discount of $1,500.

233 Mr Lawless clearly was not a man to sit mute for five years until October 2005, if in truth he had placed any degree of reliance upon a future profit expectation sentence in Dr Mackendrick's 7 January 2000 letter.

234 Therefore, I would conclude, even on the assumed hypothesis that Mr Lawless did receive the Mackendrick letter from Ms Groves in February 2000, that he placed no reliance at all upon the profit expectation sentence within it.

235 I would find Mr Lawless did not give that aspect of the letter, or indeed the letter itself, any thought until he was faced with Curtin's business failure and its liquidation around October 2005.

236 This conclusion is subject only to a residual issue concerning Mr Mulcahy's conduct as agent for Colin King Rural WA on behalf of the first defendants. I need to assess whether Mr Mulcahy said or did anything at York on Friday, 18 February 2000 as the first defendants' selling agent which is attributable to the first defendants by reason of the vendor's vicarious responsibility for a wrong within the scope of an agent's authority.

Resolution of the case against the third defendant

237 On the negligent misstatement case raised against the third defendant, said to arise out of Mr Mulcahy's conduct, it will be remembered that Mr Lawless only met Mr Mulcahy for the first time at York on Friday, 18 February 2000. Mr Lawless' attack is heavily tied to his version of the alleged conversation with Mr Mulcahy and Mr Blake at York, in which Mr Lawless says he raised the Mackendrick letter's profit prediction of $120,000 per annum. Mr Lawless alleges the profit prediction was confirmed by Mr Mulcahy.

238 As I indicated earlier, I cannot accept Mr Lawless' uncorroborated oral evidence about the Mackendrick letter having been in his possession and being shown to Mr Mulcahy at York. A correlative consequence is that the attacks against Mr Mulcahy (and thereby, vicariously, against the first defendants) for confirming the letter's profit prediction, are totally undermined.

239 Mr Lawless asserts Mr Mulcahy made representations to him (for Curtin) on 18 February 2000 at York about the alleged performance of other hotels at York at the time, namely the Castle Hotel, the York Hotel and the Settlers Inn. As I explained earlier, these allegations go nowhere. No evidence suggests, let alone proves, that any statements by Mr Mulcahy about those other York hotels were false (even assuming the statements were made, which Mr Mulcahy denies and I prefer his evidence on that as well).

240 Furthermore, any statements at York by Mr Mulcahy about the Imperial Inn's gross sales figures for the business, based on management accounts as sent to him by Mr Chapell in February 2000 (exhibit 4), also have not been alleged to be wrong, let alone proven to be in any way false or inaccurate.

Resolution of the case against the second defendant

241 A discrete area of the trial concerns Mr Blake, as the second defendant. Here the cause of action relied upon is negligent misstatement as regards verification of the $120,000 per annum profit prediction. Because of findings which I earlier reached concerning the Mackendrick letter this cause of action must derivatively fail as well. Failure of the case against the first defendants correlatively ends the cases against the second and third defendants by virtue of the accepted application of the Hudson & Nielson v Wiseman position.

242 Nevertheless, independently assessing the merits of the claim against Mr Blake regarding Mr Lawless' allegation that he verbally asked Mr Blake to conduct a de facto due diligence, I have concluded that this attack has also not been proved. The challenge is unsupported by any document. The allegation is, of course, strongly resisted by Mr Blake. Mr Blake points out that in early 2000 he was a financial consultant employed by Peel Finance Brokers. Given that, I find it very unlikely that Mr Blake would have accepted any assignment from Mr Lawless to investigate or verify any level of profitability of the Imperial Inn business.

243 Mr Lawless might have silently assumed to himself that Mr Blake would likely have assessed Curtin's cash offers for the Imperial Inn's acquisition from a perspective of whether such an acquisition could be loan financed in due course - as events proved it could. But Mr Lawless' unspoken assumptions about such matters would not amount to a sufficient foundation upon which to conclude Mr Blake agreed to verify the future profits and viability of the Imperial Inn business.

244 That Mr Blake became a conjunctional sales agent (with Mr Mulcahy) and shared in half the sales commission at settlement does not bear upon this issue.

245 I conclude Mr Lawless, in February 2000, having entered into arrangements to dispose of Curtin's hotel business at Manning, was very confident of his skills and abilities as a hotelier. He saw the Imperial Inn at York as an opportunity for him to utilise his expertise, believing he could be a more effective hands on manager, unlike the first defendants who lacked his industryrelated skills and experience.

246 The Imperial Inn in February 2000 had a respectable turnover. Its core problem as a business was the greater level of its expenditure. Its problem, like many businesses, is that it could not readily support or service the interest payable on financing debt.

247 However, as Mr Micawber lamented in Charles Dickens' David Copperfield (Dickens C, David Copperfield (1850) 185):

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.

248 Mr Lawless believed in 2000 that his superior management skills to the first defendants' would deliver a success for the York business's bottom line under his stewardship. He said as much to Dr Mackendrick when they met by chance and had coffee together at York after February 2000, before the settlement of the sale, on 30 June 2000 (see exhibit 27B).

249 In the long term (2001 2005), Mr Lawless proved mistaken about his ability to run the Imperial Inn at a profit. Unlike other hotels, the Imperial Inn was significantly dependent upon the sales of meals and accommodation to patrons for turnover, rather than the sale of alcoholic beverages. Mr Lawless was unable to reduce expenditures to levels that would realise profits.

250 The Curtin Imperial Inn business ultimately failed in the second half of 2005. But the business had been saddled with interest payments not only from its acquisition loan, but also with interest on a loan (until 2002) taken out to acquire Curtin's property at City Beach. This was never a sustainable longterm arrangement. The business failure in 2005 was attributable to Curtin's management's inability to reduce expenses to a lesser level in order to turn a net profit.

251 Had I reached a contrary liability conclusion, then applying Potts v Miller principles Curtin could only prove for loss in the character of trading losses. This would be the only area of damages recovery, from a common law damages perspective. Upon the evidence of Mr DouglasBrown (exhibit 23) and his report, a claim for five years' trading losses was advanced. No evidence was adduced to support the asserted bald claim for the loss of Curtin's financial investment of $250,000 in improvements to the Imperial Inn.

252 A fiveyear period loss which is claimed is much too long from a causation, foreseeability and reasonableness perspective, for this type of claim: see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1989] FCA 246; (1989) 40 FCR 76, 83 (Davies J), 86 - 87 (Burchett J), 90 - 91 (Lee J).

253 In my view, a maximum allowable period for trading losses open to Curtin, had it succeeded against any of the defendants, would have only been until the annual financial statements for the York business, under Curtin's management, should have been finalised for the financial year ended 30 June 2001. Curtin's significant trading losses which exceeded $200,000 in the financial year ended 30 June 2001 ought to have been well appreciated in their adverse implications by Curtin by no later than approximately April 2002. That is close enough to the end of its second financial year's period of trading (to 30 June 2002). At that time Mr Lawless had engaged Colin King Rural WA to attempt to sell off the Imperial Inn and its business.

254 Yet in this period Mr Lawless had declined to consider offers below $1 million as too low. Responsibility for continuing on and running the Imperial Inn business at a loss beyond a reasonable period, rests upon Curtin alone. In the circumstances, I would have only allowed Curtin as damages, had it succeeded, its trading losses up until 30 June 2002, amounting to (see exhibit 23, annexure D1 Mr DouglasBrown's report for the two financial years aggregating $210,107 plus $61,290 = $271,317 with, on that, simple interest from 30 June 2002).