Mr McLean's evidence
33 Mr Sheahan submitted that, regardless of any considerations of honesty, Mr McLean's evidence was too unreliable to support any finding.
34 It is clear that Mr McLean suffered from difficulties in reading, comprehension and memory. He said so himself, in paras 29 to 35 of his affidavit sworn 16 March 2005. He thinks that those problems are getting worse with age (he is now aged 76 years), but said that they have, to an extent, afflicted him all his life. However, he says, he had "an extremely good memory in relation to all matters concerning the operation of electrical motors" (see para 34(a) of his affidavit; his business, which had been very successful, involved the repair of electrical motors and included electrical sales and mechanical repairs); and that, more generally, he had better recall of "visual images, physical activities, and numbers", much more readily than written text (affidavit, para 34(b)).
35 Mr McLean was assessed by a clinical psychologist, Professor Richard Mattick. Professor Mattick's reports, which were tendered without objection, concluded, among other things, that Mr McLean had impaired verbal memory, and that the verbal memory problems that he reported appeared to be genuine, significant and impairing his function (see, for example, Professor Mattick's report of 2 March 2005, exhibit PX1, at para 12.9.2). I should note that Professor Mattick's reports were tendered by the McLean parties and that Digi-Tech did not object to their admission; thus, no question arose for my consideration of their admissibility - see, for example, s102 of the Evidence Act 1995.
36 Mr McLean's assessment of the reliability of his memory, as recorded by Professor Mattick, was more succinct and, I think, more informative on this point than his affidavit. In para 5.10.2 of the report of 2 March 2005, Professor Mattick records that Mr McLean said that: "my memory is bloody rotten"; he forgets names and has to use notes to remind himself to whom he is talking; and forgets what he has read even though he understood what he was reading at the time he read it.
37 On reviewing Mr McLean's testimony (written and oral), and my impressions of him in the witness box, I have no confidence whatsoever that his evidence reflects actual recollection rather than reconstruction. I have no sense of persuasion, based on his evidence, that the events he described did in fact occur. Human memory is notoriously both fallible and suggestible. Mr McLean is dealing with events that occurred in the second half of 1997 and the first half of 1998 - seven to eight years ago. His testimony is not based on any contemporaneous note or recollection. In an ordinary case, it may be accepted that, whilst a witness has forgotten the precise detail of events that occurred so long ago, he or she might, nonetheless, have an actual recall of events of particular significance. Thus - particularly where regarded objectively those events might be expected to have occurred - the witness' recollection of them may be persuasive, to the point that it is accepted as providing a basis for a finding in fact that the events occurred.
38 In Watson v Foxman (2000) 49 NSWLR 315, McLelland CJ in Eq had occasion to discuss the fallibility of human memory, in the context of a representation case. Although his Honour was talking of recollection of words in a conversation (where the conversation, or the words in question, were said to be misleading or deceptive), I think that what he said may be applied with equal force to memory of events and matters other than conversations. His Honour pointed out at 319 that the degree of fallibility increases with the passage of time; and that, consciously or otherwise, the processes of memory may be affected by self interest. He said:
"Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self interest as well as conscious considerations of what should have been said or could have been said. All too often, what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. This is a matter of ordinary human experience."
39 In my view, what his Honour said may be transposed exactly to Mr McLean's testimony concerning: his reading of the documents presented to him; that which he now recalls having focused on; and that which, he now says, was of significance to him. I think that the process of reconstruction is particularly acute in his case, because I think that the starting "impression" is one based on a perception of his position rather than on some - even dim - actual spark of remembrance. I do not, however, find that this is because he is seeking to be dishonest, or seeking deliberately to colour his evidence.
40 Nonetheless, I think that the problem is acute for two reasons. The first is the fact that Mr McLean's recollection is extremely poor, so that his capacity for recollection, as opposed to reconstruction, is at best very slight. The second is that the context in which he now gives evidence is one focusing entirely on the question of reliance, as a result of the decision of the Court of Appeal. These considerations reinforce my view that the persuasive character, or probative weight, of McLean's evidence is at best negligible, and that, absent corroboration (either by other evidence or by concordance with the probabilities objectively ascertained), it is insufficient to discharge the probative burden resting upon the McLean parties to prove reliance, or inducement.
41 In a representation case, where it is clear that material is given to a person for the purpose of persuading him or her to enter into a transaction, where the material in context is capable of having that effect, and where the person considers that material, human experience suggests that a decision made thereafter to enter into the transaction will have been influenced, to a greater or lesser degree, by reliance upon the material provided. In other words, human experience suggests that, to some extent, the material will have induced the decision, or that the decision will have been made in reliance upon it. Thus, where the person testifies that he or she was induced by, or relied upon, the material, a tribunal of fact may feel justified in accepting this evidence because it accords with the objective probabilities.
42 There is no doubt that, in representation (or s 52) cases, the Court may proceed on the basis of a presumption or inference of reliance in the circumstances to which I have referred. See, for example, Gould v Vaggelas (1983) 157 CLR 215. However, as the Court of Appeal pointed out in this case at para [143], factual findings made on the basis of credibility rather than inferences or presumptions "must override any inference or rebuttable presumption". Thus, their Honours concluded at para [144], the matter could not automatically be "determined on a Gould v Vaggelas presumptive basis. Where the credibility of the witnesses who testified on the issue is seriously called into question - and on reasonable grounds … - it would not be just to decide the matter by resort to a presumption".
43 It was for that reason that their Honours remitted issue 5 for further hearing; and they did so acknowledging (at para [146]) that the McLean parties "stand in a different position to the other appellants as they entered into the transaction at a relatively late stage … and different considerations apply to them". Even so, their Honours concluded, "the question of reliance as it affects the McLean appellants would also be best resolved after a re-trial … the question raised by the McLean appellants' appeal in respect of Issue 5 should not be determined in isolation but after a full consideration of all the contextual circumstances once they have been ventilated fully in evidence".
44 There were a number of other aspects of Mr McLean's evidence, apart from his acknowledgements to the Court and Professor Mattick of the fallibility of his memory, that have affected my assessment of his credibility. He had almost no recall of any of the salient, and important, aspects of the transaction, and in some respects, the recollection that he had was either inconsistent with the transaction as presented to him or, more plainly, wrong. Thus, he thought, he was buying a 40% interest in the two partnerships, for a figure of $1.2 million. The interest (as he ultimately accepted) was 31.6% (or perhaps 31.7%). The purchase price included not just the first two years' instalments totalling approximately $1.2 million (the figure on which Mr McLean seized), but also the balloon payment of (in round figures) $22 million. It is clear, both from the documents and Mr Bali's evidence, that Mr Bali explained to Mr McLean in May 1998 that the total purchase price was the sum of those amounts. Further, Mr McLean said that he had no understanding that he was acquiring interests in partnerships, for a limited period of time. He said that he had understood that he was buying an interest in an ongoing business (presumably, one that would continue for as long as the proprietors wished). (I have not overlooked that the investment was made not by Mr McLean personally, but by his special purpose company McLean Tecnic; in this context, nothing turns on the lifting of the corporate veil.)
45 Nor, in this respect, did Mr McLean's evidence receive any corroboration from Mr Bali. The only evidence of any explanation given by Mr Bali to Mr McLean was that, as mentioned, Mr Bali explained that the purchase price included not only the first two years' payments, totalling about $1.2 million, but also the balloon payment of $22 million. (Mr Bali gave some further advice on this topic, to which I shall return.) That evidence, which I accept, does not assist in accepting Mr McLean's evidence; indeed, I think, it tells against it. Nor is there anything in the documents to corroborate Mr McLean's testimony.
46 I have no doubt that Mr Bali understood that the investment was of a limited nature: in partnerships having a duration of five years. I have little doubt that Mr Bali would have explained this to Mr McLean; any other view was inconsistent with the cash flow schedules that Mr Bali sent to Mr McLean. Thus, I think, it is more likely than not that Mr McLean understood at the time that he was acquiring interests of limited duration. If this were not so, however, then another problem would arise. The Indicative Valuation on which, Mr McLean says, he relied, and through which, the McLean parties say, they relied on the Profit Potential Representation, related to five years of cash flows. If Mr McLean did not, at the time, understand that this was what was being acquired, then there is a stark division between the substance of the Profit Potential Representation on the one hand, and the transaction that, Mr McLean on this hypothesis, understood was the subject of the Indicative Valuation. In those circumstances, it would be difficult to understand how the Profit Potential Representation could have induced a decision to enter into the transaction if Mr McLean had then understood it as he now (on his evidence) understands it.
47 There are at least two explanations for Mr McLean's lack of recollection of the nature and important elements of the transaction. One is that his memory is so poor that he has simply forgotten them. The other is that his focus (indeed, Mr Sheahan submitted, his sole focus) was on the tax benefits available under the investment, so that he did not focus on the other elements. In reality, I think, the explanation is a combination of these. I think, for reasons that I shall explain shortly, that Mr McLean's real interest was in the apparent tax benefits; and that, at the time, he focused on these; and that, as a result and because of his defective memory, his recollection of so many important elements is so poor.
48 Even on the central question of what Mr McLean said he saw and relied upon, his testimony was confused and inconsistent. In his affidavit, Mr McLean identified the $70 million valuation as one of the factors that persuaded him to cause the McLean parties to enter into the transaction. This must be taken to be a reference to his "mid point" summary of the range of $67 million to $74 million referred to in the Indicative Valuation. However, in cross examination, Mr McLean identified the $70 million figure as being one for profitability or sales. When asked what he recalled about the material provided to him, he said:
"A. The thing that I do recall was that, and it's very, very strong in my mind, the only thing I really have any total recall on is that I read an area that indicated the profitability of the company and I think I even marked, I marked one of the books, I was thinking okay there's a 70 million.