Supreme Court of WA|2013-07-31|Before: Ms P, Mr P, Martin J

LAWLESS -v- MACKENDRICK [No 4] [2013] WASC 272 (31 July 2013)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : LAWLESS -v- MACKENDRICK [No 4] [2013] WASC 272

HEARD : 12-18 DECEMBER 2012, 18-21 FEBRUARY 2013 &

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

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.

LAWLESS -v- MACKENDRICK [No 4] [2013] WASC 272 (31 July 2013)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (427 paragraphs)

LAWLESS -v- MACKENDRICK [No 4] [2013] WASC 272 (31 July 2013)

Legislation Cited (3)

Cases Cited (8)