McCarthy v Wheeler & Wongan Hotels P/L [1998] VSC 67

McCarthy v Wheeler & Wongan Hotels P/L [1998] VSC 67 - VSC 1998 case summary — Zoe

[5]

The plaintiff Haydn Robert McCarthy is now aged 24. He is the son of the now Kim Johnson who was by her first marriage married to one McCarthy. There were two children of that marriage: Nikki, a daughter, some three years older than Haydn, and Haydn. That marriage was dissolved. Subsequently, Kim married Adrian Lindsay Gallagher (hereinafter called "Adrian Gallagher" or "Adrian", to distinguish him from his brother Graham Gallagher and his nephew Andrew Gallagher, to both of whom reference will have to be made). Adrian Gallagher is not a party to this proceeding, although he may well have been added as a defendant. The reason that he was not made a party was because, as I find, the plaintiff's legal advisers were not aware prior to the commencement in court of the hearing of this action that the relevant units in the Trust that are the subject of the proceeding had been transferred to Gallagher in June 1998. The position, role and influence of Adrian Gallagher with respect of the interests of the defendants and the hotel known as the Royston Hotel (which is the property of the Trust of which the second defendant is trustee) is critical and important. Mr. Gallagher is now the sole director of Wongan Hotels Pty. Ltd., the trustee, and, as will appear, he has been its moving force and the person giving instructions to its solicitor and counsel for the purpose of this proceeding. The reason why the plaintiff only discovered at such a late stage the facts to which I refer is, in my estimation, wholly due to the absolutely inadequate discovery made by the defendants in the proceeding. The court book had been prepared but the fact of the matter is that a great proportion of relevant documents had never been produced and were only unearthed as the hearing went on. The defendants never sought discovery from the plaintiff at all and the defendants' own provision of documents in response to the plaintiff's notice for discovery fell far short of what was required to be done. I should say that the solicitors who have acted on behalf of the defendants in 1998 were not the solicitors who had originally acted. There was a period in which the defendants had no solicitor acting.

[7]

Kim Gallagher had run successfully the bistro at the Mountain View Hotel in Bridge Road. It would appear that Adrian and Kim Gallagher discovered the Royston Hotel at 12 River Street, Richmond and decided to buy it, afterwards persuading the Barassi interests to join with the Gallagher interests in its purchase. When that occurred Kim Gallagher went to the Royston, thereby adversely affecting, so the evidence suggested, the successful operation of the bistro of the Mountain View Hotel. In 1991 a decision was taken to divide and re-organize the Gallagher and Barassi interests whereby the Barassi interests wholly took over the Mountain View Hotel and the Gallagher interests took over the Royston Hotel. In April 1998 there had been established Sporting Nominees Unit Trust No. 4 with Clorinda Nominees Pty.Ltd. as trustee of that unit trust. When the re-organization by way of separation of the Barassi and Gallagher interests took place in August 1991, the Gallagher stake in the Royston Hotel (which then became total) was effected by transferring A class and B class units in the Trust. For the purpose of this proceeding there is no relevant distinction between the A class and B class units although it is the B class units that access capital. On 22nd August 1991 there were two transfers of A class units to the plaintiff Haydn McCarthy; four units from Ronald Dale Barassi and four units from Adrian Gallagher. On the same date there were two transfers of B class units, four from Telica Pty. Ltd. (a Barassi vehicle) and four from Sanjuan Pty. Ltd. (an Adrian Gallagher vehicle). On the same date Clorinda Nominees Pty. Ltd. ceased to be the trustee and Wongan Hotels Pty. Ltd. was appointed as trustee in the place of Clorinda Nominees Pty. Ltd. on 29th August 1991. On 11th October 1991 the name of the Trust was changed from Sporting Nominees Unit Trust No. 4 to River Street Properties Unit Trust. The River Street Properties Unit Trust is the Trust which owns the hotel and the land. There is another unit trust which operated the business conducted at the property. Details of that aspect are unimportant to the present proceedings although some confusion between that Trust (the Royston Unit Trust) and the River Street Trust, the important trust for this proceeding, had occurred in the original statement of claim and had to be cured by amendments granted by me. The result of the transfers to which I have referred was that Haydn McCarthy, in 1991, became the holder of eight A class units and eight B class units in the River Street Properties Unit Trust of which Wongan Hotels was the trustee. At the time of the transfer of those units to him in 1991 he was aged 17 years 10 months.

[8]

At the time the Gallaghers married in 1984 they lived at 12 Valentine Grove in Armadale, a house belonging to Adrian Gallagher. From that time on Kim worked at the Mountain View and I am satisfied that she made a full-time working contribution during the marriage to Adrian Gallagher. Some time after this, on the death of her mother, Kim Gallagher inherited the family house at Kangaroo Ground and later sold it. According to her evidence there was a net equity after expenses of $150,000 and she put that into the purchase by Adrian and her of a house at 57 Wattletree Road, Armadale. Adrian apparently put in the proceeds of the sale of the premises in Valentine Road. There was some dispute of an unimportant kind as to whether or not Kim Gallagher put in $100,000 or $150,000 into Wattletree Road. I am satisfied that in terms of a cash contribution to the purchase price that she contributed $100,000. I am also satisfied that she spent some substantial part of the other $50,000 in improving the property and the like. The property at Wattletree Road, Armadale was ultimately sold in 1990-1991 at a considerable loss, the property market having declined considerably in the intervening period. According to Kim Johnson's evidence, after the sale of the Wattletree Road property there was still money owing on it because values had fallen. Prior to the division of interests, effectively separating the Mountain View and the Royston Hotels, considerable debts had been incurred at Mountain View for which the Gallaghers had liability as a consequence of the hotel being operated by some other person (not Mr. Barassi) who incurred substantial debts to suppliers to the Mountain View Hotel. There was some dispute between Kim and Adrian in evidence before me as to the reason for the transfer of the units from Ron Barassi into the name of Haydn McCarthy. Kim Johnson claims that it was done at her insistence because she had lost everything she had put in and the only hope of ever getting anything back for her children, Nikki and Haydn, was to hold some units (eight out of 20) in the Royston Hotel property. She said that there had been discussions with Adrian and the accountant, Robert Kampf, and that although Adrian was not happy about it, he ultimately agreed that she had the right to something and accepted that they should be in Haydn's name. Therefore the Barassi and Adrian Gallagher units were transferred to Haydn. Both Kim and Haydn stated that Haydn's holding of them was regarded as being in the interest of the family, namely, Haydn, Kim and Nikki.

[12]

The plaintiff commenced his proceeding in December 1993. I will deal with events which occurred between the time of the transfer of the units and that date when I return to my findings of fact. The plaintiff's further amended statement of claim alleges that the plaintiff had been the legal and beneficial owner of the eight A class and B class units in the Trust since 27th August 1991 and that Wongan was under a contractual and fiduciary duty to the plaintiff to observe the terms of the Trust deed (to which I will later refer). The statement of claim alleges that on 7th October 1992 Wheeler represented that he wanted the plaintiff to sign documents for the purpose of obtaining a poker machine licence to be issued in Wheeler's name and that there were no other documents. In breach of those representations the plaintiff was induced to sign transfers. This was the objective at all times. It is alleged that these representations were fraudulent and that the transfers were a nullity. He alleges that in breach of the Trust deed and its contractual and fiduciary duties Wongan purported to register the transfers, cancel the certificates of the units held by the plaintiff and issued certificates in favour of Wheeler in respect of the plaintiff's units. It then registered Wheeler as the holder of the plaintiff's units in the Register of the members of the Trust. It is alleged that that conduct also was deceptive and misleading conduct within the meaning of s.52 of the Trade Practices Act 1954 and s.11 of the Fair Trading Act of Victoria. It is also alleged that at a purported meeting of directors of Wongan held on 7th October 1992 that the trustee purported to give its consent to this transaction. It is alleged that there was no meeting of validly appointed directors of Wongan on that date to enable the giving of valid consent by Wongan as trustee to the purported transfer of units because, contrary to the claim that Andrew Gallagher and John Wheeler were directors, the two directors were Adrian Gallagher and Kim Gallagher, Andrew Gallagher and John Wheeler only becoming appointed directors, according to the documents, on 18th October 1992. Thus, it is contended, not on the 7th October or any other time which the transfers were effected and approved was there a quorum of properly appointed directors. It is said that the defendants' claim that a meeting took place on 7th October in which a resolution was made by persons who were directors to approve the transfer of the eight A class and B class units is false. There was no meeting and no directors validly appointed. According to the plaintiff the consequence of this under the Corporations Law is that the claimed resolution is invalid and the purported entry of Wheeler in the Register as the registered holder of the units was of no effect. Nor was the declaration of trust signed by Wheeler that he held the units for Gallagher's benefit of any effect. Thus the purported transfer in June 1998 of the alleged Wheeler units to Adrian Gallagher was also a nullity and of no effect. The plaintiff claims that he has suffered or is likely to suffer damage. He seeks declarations to the effect that the transfers are a nullity on the grounds alleged and seeks orders that the defendants do all things necessary to ensure that Haydn McCarthy is recorded in the Register of unit holders of the unit trust as the holder of the units and in all other records maintained by it, and orders that Haydn McCarthy be issued forthwith unit certificates for the units.

[13]

The defendants fundamentally deny these allegations claiming that Haydn McCarthy voluntarily and with knowledge executed the transfer of the units to Wheeler, the purpose being to aid in the application by Wheeler on behalf of the hotel to be the operator of a gaming machine licence at the hotel. By way of counterclaim the defendant seeks orders in connection with a caveat lodged by the plaintiff over the land comprised in the Certificate of Title relating to the Royston Hotel that the caveat be removed. The argument advanced is that the interest claimed by the plaintiff is not a caveatable interest, and the caveat was invalidly placed upon the Register thereby preventing the first defendant from negotiating a new mortgage. The possibility of joinder of Gallagher as a defendant at a late stage was raised by me because it had become apparent that Wongan Hotels is, as a consequence of events in 1998, a wholly-owned Adrian Gallagher vehicle. If the plaintiff established its case it would bound to be on the basis of the major role of Gallagher in the transaction, indeed the principal role. At the outset Mr. Jones sought an injunction to restrain Mr. Gallagher from dealing with the eight A class and B class units which he had had transferred to him on 23rd June this year (the units subject to this proceeding) until the determination of the case. Mr. Jones contended that the matter was up before the Listing Master for trial this year, that Gallagher knew that and failed to fulfil the continuing obligations of discovery by Wongan to notify that the transfers had been taken another step namely passing from Wheeler to Gallagher. Counsel contended that this was a consequence of Wheeler having, at the instigation of Gallagher in 1992, executed an undated transfer of the units in favour of Gallagher for Gallagher to use when it suited him. Thus Gallagher was not in the position of a third party without notice acquiring the units but took them in 1998 in an effort to stultify the proceeding. The matter was coped with by Mr Gallagher giving an undertaking to the Court, after appropriate discussion, that he would not until further order of the Court take any step or action directed to transferring, disposing of, encumbering or otherwise dealing with in any way any interest held by him in the eight A class and eight B class units in the River Street Property Unit Trust. The issue of Mr Gallagher being joined was raised and from beginning to end of the hearing before me it was never suggested on behalf of either defendant or by Mr Connell (who had been instructed by Mr Gallagher on behalf of the second defendant) that any point would be taken that appropriate orders should not be made if Gallagher was found to have been involved in the misrepresentions even though Gallagher had not been joined as a party. Thus, in my view, sensibly enough, the parties were approaching the case on the basis that necessary orders could be made in order to effectuate the reality of the events as I might find them to be.

[20]

There were other witnesses who might have been called but were not. On the plaintiff's side, there was Mr Ian Johnson, described by Mr Connell as the "éminence grise". However, I reject this colourful if commonplace flourish. Johnson may have played the role of supporting his wife supporting her son's claim in this case and may well, as some of the evidence suggested, demanded that Robert Kampf, the Gallagher accountant and Kim Johnson's former accountant, should take steps to rectify what Johnson believed, doubtless on statements made to him by Haydn McCarthy and his wife, were fraudulently obtained transfers. I am also satisfied (indeed his wife said as much) that he was giving background support and possibly some monetary assistance with respect to the litigation. However, there is no set of circumstances about which, as far as I can perceive, any adverse inference should be drawn against the plaintiff for failing to call him. He was present when Haydn told his mother about the signing, but she was not cross-examined about that. At one point of time it appeared that the Manager of Tattersalls, one Galluli, might be called by the defendants. He was not called and my own view is that such a witness might have given evidence as to what were the requirements of either Tattersalls or the Casino and Gaming Authority in the way of the experience, character and other relevant features of personal applicants to operate gambling venues. This evidence, in my judgment, was evidence which might have been called in support of the defendant's case, if the fact of the matter were (as was contended for by the defendant) that a person such as John Wheeler was a suitable applicant. As will appear from my reference to later evidence, I am satisfied that Wheeler was never an applicant for the gaming licence nor was he the venue operator. Doubtless in his role as a bar manager he may have had some role to play in connection with the machines. The applicant for the licence appears on the evidence given before me to have been Andrew Gallagher, at that time barely 20 years of age, a full-time university student who would not be attending the hotel at any time between 9 a.m. and 5 p.m. on any weekday and who worked in the bar on Wednesday and at functions on the weekend on some occasions. He became the licensed venue operator when the licence was ultimately granted in 1996. Wheeler gave evidence that it was Graham Gallagher, Andrew's father, but this appears not to be correct.

[21]

I do not detail the exhibits concerned with the establishment of the Unit Trust and the changes of name, already summarized by me. By 1st October 1991, however, (Exhibit 8) the holders of all of the issued units of the River Street Property Trust were Adrian and Kim Gallagher and Andrew Gallagher and Haydn McCarthy. The ASC extract for Wongan Hotels Pty. Ltd. (Exhibit 2), an historical company extract obtained on 10th August 1998, shows Adrian Lindsay Gallagher was appointed as a sole director of the Trustee on 23rd June 1998. The records show that Andrew Gallagher and John Wheeler were both appointed to be directors, according to these records, on 18th October 1992 both ceasing as directors on 23rd June 1998. Kim Gallagher was appointed a director on 28th August 1991 and ceased on 18th October 1992. Adrian Gallagher had been appointed on 27th February 1989 and ceased to be a director on 18th October 1992. There were a number of other persons in the Trust and unconnected with the Gallagher interests but connected with the Barassi interests who ceased at earlier dates. It is unnecessary for me to set them out. The secretaries of the company leaving out the earlier Barassi appointment had been Kim Gallagher, secretary from 28th August 1991 to 7th October 1992; John Albert Wheeler from 18th October 1992 to 23rd June 1998 on which date Adrian Lindsay Gallagher became the secretary. Addressing the events of October 1992 it comes necessary to consider the relationship between the plaintiff, his mother, Gallagher and Wheeler. Robert Kampf had been the company accountant and the accountant for each of Adrian Gallagher and Kim Gallagher. It appeared that he continued in that role until some time in the early part of 1993 although it could hardly be doubted that before that time a considerable conflict of interest between his capacity to act for Gallagher and the company at the same time as Mrs. Gallagher became self-evident. Mrs Gallagher had known Wheeler from working at the Weathercock in Carlton some 16 to 17 years before. I have already referred to her experience in hotels; indeed she now operates the catering side of the Yarra Valley Country Club. She said the Royston cost about $850,000, including duties, which was funded by a mortgage on the Mountain View Hotel and borrowings from the ANZ bank, the Bendigo Building Society on the Royston itself. Initially she was briefly the licensee of the Royston while Adrian looked after the Mountain View. She appeared to accept that there was probably not much equity in the Royston now but she had insisted on making certain that some of the units came to her children as representing the family interest. She became a director of Wongan Hotels and the secretary in August 1991, she claiming that was really a Kampf decision. At one time she held a share in Wongan Hotels. Between August 1991 and August 1992 (when she separated from Gallagher) she said she was very much "hands-on" trying to keep the hotel afloat, buying food on a daily basis to keep the bistro going. She often did the cooking. She described Gallagher as having ill-health from gout although she also said that he was in effect frequently affected by liquor. His behaviour became such that she discussed leaving with him, and did leave about a week later. Mrs. Johnson said that she would not know the date on which she signed the Kampf-prepared documents resigning as company director on 18th October and company secretary on 17th October 1992. These were the dates on the documents in respect of those events. She gave evidence that Adrian spoke to her before she left in August 1992 about having the units transferred from Haydn into the name of Wheeler. She was not receptive to that because she believed that one day they might be worth something for her children. She said Adrian would be in drink, would become bombastic and his argument was always that they were useless and were not worth any money. She claimed her belief was that one day they may be worth some money and that she was definitely holding on to them. She had lost the house and so she had nothing to lose. She said she never agreed with Adrian or anyone to transfer Haydn's units to John Wheeler.

[22]

Before turning to summarize the occasion on which the critical events occurred, I describe other events. The accountant Robert Kampf, at some point of time, had prepared a number of documents relating to changes that were to take place with respect to the Trust and the Trust company. I regard it as certain that instructions to do this came from Adrian Gallagher. The documents were the resignation of Kim Gallagher as a director of Wongan Hotels; the resignation of Adrian Gallagher as a director of Wongan Hotels; the appointment of Andrew Gallagher as a director of Wongan Hotels and the appointment of John Wheeler as a director of Wongan Hotels. There were prepared two transfer forms respectively transferring eight A class units and eight B class units in the River Street Properties Unit Trust from Haydn McCarthy to John Wheeler. Each of these documents had been pre-prepared and had the date 7th October typed in as the date on the document. This was even true of the transfer forms ultimately signed by McCarthy and Wheeler transferring McCarthy's units to Wheeler. From the evidence that these documents were not collected by or couriered to Gallagher, that is, they were posted. If they were posted on 7th October then it would seem to be unlikely that they were received on the same day. Mr. Kampf gave evidence that it was likely that they had been prepared some time before with the date of 7th October. I favour the view that Kampf made that allegation in order to accommodate the Gallagher version that they had been received some time prior to 7th October. However I am by no means satisfied that the documents were prepared on or before 7th October although the date 7th October appears on them. Frequently, nothing might turn much upon the fact that the date of a meeting actually held in the case of a small private company with private directors was not correct although there may be legal consequences that flow from that (and, it is argued, this is such a case). However the preparation of two transfers of the units with the date of execution already entered seems to me to stand in a different position. For reasons that will later appear, I treat Mr. Kampf's evidence about the dates upon which certain documentation was effected with considerable reservation. He altered the dates on documents at the behest of Gallagher on more than one occasion, some of those being documents lodged with the Australian Securities Commission. Such an act was not only contrary to the appropriate standards of practice by a certified public accountant, it was unlawful and possibly a crime. The fact that a date was typed in on the transfers, the same date as the resignations and appointments, would strongly suggest that the date was notional only. It might be one thing to say that one could round up the hotel employees and directors, all employees or relatives of Gallagher, to sign documents on a particular day; quite another to be able to obtain Haydn McCarthy's written agreement to handing over the units which he had held for a year. I am not satisfied that the documents were executed on 7th October although I am satisfied that the transfers were executed. No witness could proffer any reason for recalling or believing that the date upon which the activities encompassed by the execution of the relevant documents was actually 7th October 1992, other than the fact that that date was on the document. Moreover, as will also appear, Kampf's office deliberately altered the dates on some of the executed documents from 7th October 1992 to 18th October 1992. Notwithstanding that, Kampf admitted that he did not know on what dates the documents were executed. All he got back from Gallagher was all of the documents required to be executed signed by the relevant persons. Thus, although the parties spoke of the hotel meeting at which the transfers were signed by McCarthy as occurring on 7th October, it is not certain to me that that was the date. However, for the purpose of conveniently dealing with it, I will refer to it, as the parties did, as though it did take place on 7th October 1992.

[23]

The first matter to be considered in relation to this critical meeting is whether or not it was pre-arranged. Adrian Gallagher claimed in evidence that he had received the documents from Kampf possibly on the Thursday up to six days prior to 7th October and had contacted a number of persons (presumably Wheeler and Andrew Gallagher) with reference to their execution of resignations and appointments. He also gave evidence that he contacted Haydn McCarthy and asked him to come to the hotel. According to his evidence, he did not tell McCarthy why he wanted him to come to the hotel. Gallagher said that on 7th October, on the first floor of the hotel, a meeting was held by the then directors of the company to effect the board changes to which I have already referred and to approve the transfer of the units from McCarthy to Wheeler. Mr. Gallagher's position throughout his evidence was that it was vital for the hotel to survive, to get a Tatts Pokie licence and to do everything that was to be done to obtain that. He said that Wheeler was the appropriate person to be the applicant because of a 20 years-plus experience in hotels and a good record. He claimed the meetings all concluded and that when Haydn McCarthy arrived at the hotel he was told that and he walked downstairs with the two transfer forms and met him. Haydn McCarthy denied that there had been any pre-arrangement for him to attend the hotel. He was then working at Channel 9 (Johnson was the manager or held an important position at that station). The Royston was not far away. He in effect said that he would not have gone there with any particular pleasure because Gallagher in particular and John Wheeler had been cold and unwelcome to him, when he did come, made him wait to be served and other matters inconsistent with his position as a substantial unit holder in the hotel. However, he went occasionally "to make his presence felt", that is, as I understood his evidence, to remind them by his presence that he had an interest by way of units in the Royston Hotel. Gallagher claimed to have contacted him by ringing McCarthy at Warrandyte where he had previously stayed. This was not put to McCarthy but the evidence did indicate that McCarthy was not living at Warrandyte but was living with Kim and Mr. Johnson at Mowbray Street, Hawthorn, where they lived until they moved to Young Street, Malvern.

[26]

The fundamentals of McCarthy's version were very different indeed. He said that he called in without prior notice. He said that he noticed that he was immediately greeted warmly by Wheeler (who on previous visits had been cold to him, making him wait to be served, even though he was a unit holder in the hotel) and that Wheeler bought him a pot of beer or soft drink, he could not remember which. He had been there a couple of weeks before when he had not been treated well or cordially and he was warmed by his reception, "Johnnie Wheeler graciously bought me a pot." Johnnie was in the public bar but Adrian then appeared, offered him lunch and they went to the lounge-bar. He could not remember whether he had lunch but Adrian "very nicely" asked him whether he could sign an application for a Tatts Pokies gaming licence. McCarthy said he had not done anything while he had been a unit holder, but Gallagher played on his ego and he was happy to sign the application form for him without seeking advice. He had had nothing to do with the day-to-day running of the pub like signing cheques. He was sitting down at the table; Adrian was standing over his shoulder and presented him with a group of documents which he immediately started to sign. He said he was sure that the first number of pages were a Tatts Gaming Licence application and that he was signing where the position for him to sign was initialled and crossed. As he signed them he read them, but then he got to the end documents and noticed that he was signing a transfer form or forms which he did. In effect, the penny dropped. Adrian snatched them away and "I realized I had really done something detrimental" and the whole attitude in the bar changed. Johnnie Wheeler's face changed from really pleasant to just, "Silly boy". "And I had to go and tell my mother that I had just signed away our family heritage." He said he had a terrible gut feeling from all of that that he had made a mistake. He said Wheeler's signature was already on the documents, presumably the transfer documents, that he had signed. He had seen the words A class and B class which is what half-woke him up to the fact that he was signing something other than poker machine documents but in effect it was too late. He was never told that he was signing away his units. "The attitude changed ... I'd gone from being a very important person to an irrelevant person in the corner." He said he left quite quickly because he felt stupid. They played on his ego to do it and got him. He was literally the silly kid in the corner and he had to go and tell his mother what he had done. He had tried to hold the documents but they were snatched away and Gallagher said, "We're done now Haydn, we are finished". When he went to his mother and said "I've signed something I should not." She said "What have you done" and then "here we are six years later". He said Gallagher wrapped the documents up and took them upstairs. He saw Johnnie's absolute look of joy and he knew he had done something wrong.

[27]

Evidence was given by Kim Gallagher that he came home after this meeting. Haydn was quite distressed and felt he had signed something that he should not have signed, describing how he had been warmly received by Johnnie and Adrian. She said it was not like Haydn to go down there. This conversation was at Mowbray Street with Haydn was in October. She then spoke to Adrian and Graham Gallagher who were non-committal. Then having thought about it she decided to do something about it and wrote a letter to the accountant Kampf on 12th November 1992. She knew Kampf received that letter because she had a subsequent discussion with him. This letter (Exhibit Y) proved that she raised concerns about the events which had taken place in October. The conversation with Kampf made it clear that he had received the letter. Kampf complained that she had accused him of mishandling things, and of a fraud being committed, that she was rude to him on the phone. Kampf had said she had lost nothing because of what had been signed over was nothing. She claimed that Kampf said that Wheeler held the shares because they needed them for the application for the Tattersalls machines, that she should get on with her life, the units were worthless. On 7th December 1992, a letter was allegedly written by Haydn McCarthy to Gallagher, originating from 17 Mowbray Street, Hawthorn East. By that letter McCarthy accused Gallagher of having induced him to sign the documents on 7th October transferring his units to Wheeler on the basis that it was necessary to do so to obtain the poker machines licence for the Royston Hotel. The letter specifically said "My signature was obtained through a fraudulent misrepresentation of the nature of the document." Further, he called for its return or destruction and the reversal of any action taken pursuant to the transfer. It concluded with a threat to contact the ASC and the Victorian Police Force. The position adopted by the defence throughout the giving of the evidence of McCarthy and until the giving of evidence of the accountant Robert Kampf was that Gallagher had never received this letter (nor an associated letter, to which I will subsequently refer, of 9th March 1993). However, the evidence given by Kampf when he gave evidence was that he had received from McCarthy a copy of that letter to Gallagher shortly after 7th December 1992. The McCarthy letter to Gallagher had referred to a copy to be sent to Kampf and Wheeler. I will refer shortly to the notations made on that letter received by Kampf but that makes it absolutely clear that Kampf (and indeed his oral evidence was to this effect), upon receipt of the copy letter to Gallagher from Haydn McCarthy, spoke to Gallagher about it. This established three things: (1) that the letter was prepared and sent by McCarthy to Gallagher; (2) that a copy of it was sent to Kampf who received it and (3), as a consequence of the conversation between Kampf and Gallagher, that Gallagher knew of it. The effect of these events has been incalculably damaging to the defence. Both the evidence of Kim Johnson and Kampf make it clear that the plaintiff complained at the outset on the one hand orally to his mother and on the other hand in writing to Gallagher and Kampf that he had been tricked into signing a transfer of his units when he believed he was executing a document to enable the obtaining of a poker machine licence. In its essentials, this has been his case from the outset and his case in evidence before me.

[29]

I have referred to the various documents executed by John Wheeler and Adrian Gallagher as alleged directors (and in Wheeler's case, secretary) of Wongan Hotels allegedly executed on 7th October 1992. An examination of the documents makes it clear, even to an untutored eye, that the date 7th October had been altered to 18th October 1992. This conundrum, the subject of veiled suggestions from the defence that the alteration of the dates may have been effected by the plaintiff, was explained in Kampf's evidence. Kampf claimed that the meeting of the directors of Wongan Hotels was held on 7th October 1992. As I stated, this was agreed by him to be an assumption as he did not know whether the meetings were held or the date on which they were held. All Kampf said about this was, on a proper understanding, was that he received back documents prepared by him dated 7th October signed by Andrew Gallagher, John Wheeler, Adrian Gallagher, Kim Gallagher and Haydn McCarthy. As to the latter, the main feature of the case was concerned with the voluntariness and understanding of the execution of the transfer. All documents were prepared by Kampf and all were sent to Adrian Gallagher to procure the signatures. On Gallagher's version, they were received well before 7th October 1992 because he claimed to set about getting Andrew Gallagher, Kim Gallagher and Wheeler to sign the documents. Kampf's evidence was that the documents were received back by his office on 19th November. He did not produce, however, any internal document to confirm that that was the date of receipt. Be that as it may, he admitted in evidence that he instructed his staff to alter the date of execution of the documents from 7th October to 18th October to avoid the late lodgement penalties from the A.S.C. that would be incurred with respect to the Change of Directors Forms. Since they could not be lodged prior to his receipt of them on 19th November, he altered the date to the 18th October to obviate the incurring of any penalty. It appears from the evidence that the penalties were likely to be not much greater than $80. What was not amended, however, were the documents transferring the units which continued to bear the date of 7th October. These did not have to be lodged with the A.S.C. I have already said there is some doubt as to the date on which they were executed but for the purposes of the fixing the date on which McCarthy signed the documents, it does not matter greatly as both plaintiff and defendants agree he signed them on 7th October, whatever the precise date.

[34]

I do not find it necessary to go into further details concerning the conduct of Robert Kampf. It became apparent during the course of cross-examination of Mr. Kampf by counsel for the plaintiff that numerous other documents were back-dated or post-dated, e.g. the purported appointment of Wheeler as company secretary in April 1992 (he was not company secretary at that time). He said he was not aware of the penalty provision of the Corporations Law for falsification of company records. He admitted that in 1992 his firm did permit documents to go to clients bearing a date other than the true date of their execution. He appeared to concede that it was unlikely that the documents dated 7th October were prepared on 7th October. Mr. Kampf did not attend the meetings which the documents purported to record. He said in most companies the matters were dealt with on a very casual basis "if you understand what I mean", that is, they were not formal meetings as such. He said that ordinarily it was Adrian Gallagher who would speak to him about, and give him instructions as to, what documents were to be prepared including the unit transfers and the Unit Trust. I interpolate that there could be no doubt in my mind that instructions would come to Kampf concerning those matters from no-one but Adrian Gallagher. Kampf said that he had contacted Adrian Gallagher about the complaints made by Kim Gallagher in her letter of 12th November to him, by writing to Gallagher on 24th November (Exhibit QQ). At that stage, he conceded, he knew that Kim Gallagher was disputing the transfer of the units from Haydn to Mr. Wheeler. Notwithstanding that, he went ahead and prepared the undated transfer forms to enable Gallagher, once Wheeler signed them, to obtain a transfer to him of Haydn McCarthy's units. He said he was very sympathetic to Adrian Gallagher and indeed, he claimed, Kim Gallagher. He denied that his firm changed the dates on any documents other than the ones to which I have referred. However, he later accepted that the date of the documents of 23rd February 1998 (Exhibits FF to KK) had been altered to 23rd June. These were the documents deleting the old articles and establishing the new articles. Examination of the documents indicated that the "2" for February had been whited out and "6" for June typed in. Ultimately Mr. Kampf conceded that these documents had been issued to the Australian Securities Commission bearing a false date, and he had no explanation for that.

[35]

It is necessary for me to refer to a document of importance to the defence in this matter. It is part of Exhibit MM being allegedly file notes (from Kampf's office) of a meeting held at the Royston Hotel on 22nd September 1992 in which the note states there were present Adrian Gallagher, Kim Gallagher, Graham Gallagher, Andrew Gallagher and Robert Kampf. According to that note there were a number of matters discussed (including Graham Gallagher's $40,000 investment into the business). The note says it was agreed by all that certain changes needed to be made to the structure of the company and the unit trust, and thatdiscussion took place concerning a future application for poker machines and approaches to the TAB. It states that Kim Gallagher had decided to sever all formal ties with the business and that Wheeler would become the licensee of the hotel instead of Kim, Kim would resign as director and secretary of the second defendant and be replaced by John Wheeler and that the eight A class and B class units in the River Street Property Trust held by Haydn McCarthy were to be transferred to John Wheeler. A copy of these alleged notes was apparently annexed to a letter sent by the defendant's then solicitors McMahon & Associates on 8th March 1994 to the plaintiff's solicitors Meerkin & Apel. The significance of the document, if accurate, is clear enough, namely that some discussion to which Kim Gallagher was allegedly a party took place concerning the event that allegedly took place on 7th October. Haydn McCarthy was not present at that meeting and Kim Gallagher appeared to deny it. Kampf, allegedly the maker of these notes, could not produce any copy of it from his relevant files. Mr Kampf was also unable to produce a copy of a letter written by his firm to the plaintiff's solicitors Meerkin & Apel on 5th October 1993 (such letter asserting Kampf's involvement in the perpetration of the claim fraud on Haydn McCarthy). There were said to have been made file notes of a conversation he had with Mr. Johnson which Mr. Johnson complained of the events of 7th October. Kampf was unable to produce these the correspondence file held by him, where one would expect to find them. Mr Kampf had no explanation of why the documents were not there. He claimed that he had the file note typed in his office, though it was self-evident he had no personal recollection of that. He said he could not recall any complaint by Mr. Johnson in March 1994 that Johnson would take action because of the false file note. He conceded that in his reply to a letter from Meerkin & Apel of 17th September 1993, he made no reference to the note of the alleged meeting of 22nd September 1992 even though the Meerkin & Apel letter had made clear allegations against him of professional impropriety in relation to the transfer of the units. I am not satisfied that any meeting took place on 22nd September. No acceptable evidence of it was ever given and the file note's provenance is dubious.

[36]

I now turn to indicate my findings of fact on the critical issues in this case. As to the events of 7th October when the plaintiff signed the transfer of both classes of units to Wheeler, I accept the evidence of Mr. McCarthy. To my mind, Haydn McCarthy was a truthful witness, in many ways a simple young man who showed his emotions easily. I observed him closely in the course of giving his evidence. He exhibited a combination of disappointment in himself that he was so easily seduced into an incautious state of mind by responding to Gallagher and Wheeler "playing on his ego", and remorse and dismay that his failure to stand up to them imperilled the family "inheritance", even if it was not then of much value. I am satisfied that no contact was made with him prior to that visit by Gallagher. There are a number of reasons for this. First, in my estimation, Gallagher would never have told him in advance that he wanted him to sign the units over to Wheeler. Even Gallagher does not claim that he made that statement but asked me to believe that he wanted McCarthy to call in, without giving him any reason. I am satisfied that had it occurred in that way McCarthy would have been suspicious. There would have been no reason for Gallagher to get McCarthy to come in in relation to the signing any application forms for a poker machine licence. There does not appear on the evidence before me to have been any necessity for such documents to have been executed. Moreover, since all that was required was the signature on a poker machine application form, it could have been sent to him. Gallagher well knew that if he had told Haydn McCarthy these things in advance, McCarthy, who was only 18 at the time, was bound to have spoken to his mother about them who would have strongly resisted any involvement by Haydn in the hotel, and forbidden the transfer of his unit. Moreover, I am satisfied that McCarthy was then living at Mowbray Street, Hawthorn and could not have been contacted by Gallagher at Warrandyte. Whilst I accept that Gallagher and Wheeler, and probably Andrew Gallagher supporting the interest of Graham Gallagher his father, who had put in $40,000 to support the failing Royston Hotel, thought the obtaining of the Tattersalls gaming licence was likely to help the hotel, there was no particular date by which that had to be done. Indeed, no licence was ever obtained until 1995 or 1996. Gallagher was in the position where he could wait for Haydn to turn up. The evidence indicated that he did come from time to time. I accept that he had not been warmly treated in the past by Adrian Gallagher or Wheeler. Adrian had split up with Kim. Haydn had left some years before. My impression is there was no particular warmth between him and Adrian.

[37]

As to the events of 7th October, I completely reject the evidence of Gallagher and Wheeler that some formal meeting was held by them between the hours 11 and 12 o'clock on that day. The notion of Wheeler as director and secretary verges on the laughable. He enquired in the course of giving his evidence "what is a resolution". I have no reason to believe that with respect to most of his life occurrences that Mr Wheeler has been other than an honourable man. I have no doubt that he was a pawn of Adrian Gallagher for these purposes. He was his close friend and had a long connection with him. He lived in the hotel on the same floor as Gallagher with his own rooms. It may be that he did not have to live there but the fact is that he did, at a low or no cost. He was an ex professional fighter of some excellence and had been involved with hotels for 20 years plus. However, he had never been a licensee and was essentially a bar manager. I have no doubt that he was prepared to do Adrian Gallagher's bidding, indeed, he described himself as "the roustabout". Gallagher clearly trusted him. If proof were needed that he was prepared to do whatever Gallagher required, one need only consider that at the time of becoming the transferee of Haydn McCarthy's units he executed an undated transfer of them to Adrian Gallagher of, which Gallagher availed himself on June 1998. One of the reasons advanced on behalf of Gallagher against acceptance of the plaintiff's case that he was deceived into signing the transfers, believing them to be documents relating to a poker machine licence application, was that the units were of no value because the debts in respect of the hotel exceeded its value. If this were the case, or Gallagher believed this to be the case, then one may ask the question - why then did Gallagher get Wheeler to execute the undated transfers? Gallagher said it was in case Johnny died. But even then, if McCarthy's units were only being obtained to facilitate the licence application, then they should have gone back to McCarthy, not to Gallagher. I am also of the view that Gallagher probably regretted the transfer of the units to McCarthy made in August of 1991, at Kim's insistence. By October 1992 the marriage had completely broken down, Kim had left and the Trustee was saddled with her 18 year old son who was not likely to do anything that Adrian Gallagher wished to be done. Further, the probabilities are absolutely against McCarthy desiring or intending to transfer his units to Gallagher. I reject Gallagher's evidence that he told Haydn that he wanted him to transfer the units to Johnny Wheeler to facilitate the poker machine application. I am of the view that Gallagher and Wheeler, with Gallagher as the planner, set McCarthy up. It appears to be common ground that at the critical time Haydn McCarthy was in the lounge bar area at a table, with Adrian Gallagher next to him, that Wheeler was in the public bar but observing through the servery what was happening. It was also common ground that either by reason of the distance or the alleged noise (although it was only just after midday) Wheeler could not hear what was being said. It seems remarkable to me that Wheeler should, as he claimed, have gone into the lounge bar to wipe tables and on that occasion conveniently observed that there were only two documents on the table before Haydn McCarthy. I accept McCarthy's evidence that there were up to a dozen pages which he signed and, it would appear likely, some of them related to an application for the poker machine licence. His half-recognition that he may have signed some documents relating to his units came too late as Gallagher took the documents and went out. I accept that Wheeler had already signed the transfers and that he co-operated fully with Gallagher in putting McCarthy off guard, being in the position to give support in an account of the events, if the need arose. Gallagher included the transfer forms with the offer documents without telling McCarthy and succeeded in fraudulently obtaining his signature.

[38]

Adrian Gallagher was not a credible witness in many respects, though I do not reject all his evidence. It was noticeable that under cross-examination that he frequently repeated the question back to the questioner before answering. I ultimately came to the conclusion that this was being done in order to give him time to formulate an answer, particularly to the troublesome questions that he was asked in cross-examination. No explanation was ever given of the failure to produce the Wongan file, with all of its vital documents, until the hearing was well under way. Nor has any explanation ever been advanced why the second defendant could not produce copy documents in respect of the 1992 application for a licence or any subsequent application. The plaintiff's solicitors endeavoured to subpoena records from the Casino and Gaming Authority. The Authority, however. declined to produce any documents relying upon the secrecy provision in s.139 of the Gaming Machine Control Act 1991 . It is not by any means clear to me that an applicant for a licence may not make a record or orally divulge information with respect to its own affairs, nor that the appropriate officer of Wongan was prevented by sub-s.(2) from divulging information as to who was an applicant or applicants for a venue operator's licence. Even further, it may be that the applicant may be able to divulge or record information about its own application voluntarily. There was no evidence which I would be prepared to accept that the first defendant had to be the owner of the relevant units in order for the application to be made. In any event, since Andrew Gallagher was, on one view of the evidence, going to be the applicant for the venue operator's licence, and was the applicant, it would have been just as easy to get Andrew Gallagher to sign over some of his units to Wheeler if it was necessary to have Wheeler hold them. Thus there was no need to obtain Haydn McCarthy's units at all since Andrew Gallagher was certain to have facilitated a transfer of the units which had been given to him in August 1991 in order to aid the hotel, because Andrew Gallagher's father had advanced, with some difficulty, some $40,000 to Wongan. It would seem to me that anyone without a criminal record was likely to be licensed as a venue operator, if the owners of the venue approved, particularly in the case of such a small operation as this small hotel.

[43]

Mr. Jones for the plaintiff mounted an alternative case founded upon the Corporations Law. Essentially, this was that at the time of the claimed meeting of 7th October sought to be relied on by the defendant, neither Wheeler nor Andrew John Gallagher was a director of the second defendant as the ASC Historical Company extract (Exhibit T, court book 105-107) establishes. The appointment of Andrew John Gallagher and John Albert Wheeler as directors occurred on the 18th October 1992. It would appear that under the provisions of the Corporations Law 1274(4B) and (4C) that the extract referred to and tendered is admissible as prima facie evidence of the information contained in it. I am not prepared to accept Kampf's evidence that the documents prepared by him and bearing the date of 7th October were prepared and so dated by 7th October. Nor am I satisfied as to the date on which they were received. Notwithstanding what he purported to say, Kampf ultimately agreed that he had no knowledge as to when any of the so-called meetings took place. It would seem likely that they would not have been there or dealt with until much later in October. I reject Gallagher's evidence that he received them in the week before 7th October. Kampf agreed that the documents might have been signed as late as the 17th or 18th October but there is no satisfactory evidence of the date of execution. There is no doubt there were unlawful alterations effected by Kampf to these documents (see ss.1307, 1311 and Schedule 3 of the Corporations Law). Kampf's office did not receive them until 19th November. The argument advanced for the plaintiff was that, given what was in effect a procured alteration of the date and the falsification of the date, the Court should not go behind the prima facie effect of the documents, as there is no acceptable evidence to rebut the inference that they were signed earlier than 18th October. It would be odd if the Court permitted the defendants to escape the consequences of a procured contravention of the Corporations Law by them so as to deem Wheeler to be a director on 7th October when the ASC document describes the appointment as a director to be the 18th. Under the Articles of Association of Wongan then in place (Exhibit P, article 33), the required quorum was two. Thus there were not two directors present at the purported meeting of the trustee on 7th October, even on the defendant's own case. I have already expressed my view that even making the most substantial allowances for informality, I am not satisfied that anything amounting to a meeting formal or informal took place on that date. But if it did, there was only one director present, the meeting was therefore not properly constituted and the purported resolutions were ineffective. The resolutions could not be ratified as there was nothing to ratify. See Ford, op.cit., para 7.330, Clamp v. Fairway Investments C.L.C. 40-077.

At a glance

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Judgment (47 paragraphs)

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Legislation Cited (2)