JULIA MURIEL LAURISSON as executrix of the estate of DOROTHY MURIEL LUKIN

SUSAN ANNE WARD as administratrix of the incapable estate of LOUISE LUKIN

JULIA MURIEL LAURISSON as administratrix of the incapable estate of LOUISE LUKIN

HENDRIK JOHANNES GERHARDUS JOUBERT t/as JOUBERT & BAIN

Preliminary issue - Whether binding agreement formed at mediation - Requirements for a concluded contract - Misrepresentation - Misleading or deceptive conduct

Fair Trading Act 1987 (WA), s 10

First-named First Plaintiff : John Benari & Associates

Second-named First Plaintiff : John Benari & Associates

First-named Second Plaintiff : John Benari & Associates

Second-named Second Plaintiff : John Benari & Associates

Burchell v Golden Wood Pty Ltd (No 2) [2000] VSC 485

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95

Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251

Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) Aust Contract R 90-059

Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353

Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597

1 The first and second-named first plaintiffs are sisters and are the executors of their late mother's estate. They sue in their representative capacity on behalf of the estate as first plaintiffs. They also appear as second plaintiffs and claim as administrators 'of the incapable estate' of their sister, Louise Lukin. The third plaintiff is a family company associated with the other plaintiffs.

2 The proceedings involved allegations by the plaintiffs that the first defendant, in effect, agreed to invest money on behalf of the first and second plaintiff's late mother, and their other sister, and the family company. It is alleged that over a period of years, the first defendant, by his employee, misappropriated certain funds invested, and that the first defendant is accordingly liable for the funds lost. The plaintiffs also sued the second defendant, a bank, for permitting withdrawals to be made without authority on accounts in which the investment moneys were held.

3 The first defendant joined two third parties. Only the second third party is presently relevant. On 27 October 2006, there having been default in filing and serving a statement of claim in the third party proceedings, a Registrar ordered that judgment be entered for the first third party against the first defendant. The second third party was the auditor of the first defendant's accounts. The first defendant alleged, in the third party proceedings against the auditor, that he should have, but failed to, detect the misappropriation.

4 The proceedings were commenced in 2006. There were two mediations in 2007.

5 The plaintiffs allege that at the second mediation, on 26 July 2007, an agreement to settle the action was reached. When the first defendant subsequently refused to execute a deed in connection with the alleged settlement which was circulated following the second mediation, the plaintiffs amended their statement of claim to seek to enforce, in these proceedings, the alleged settlement agreement. The second defendant and the second third party also contend that a settlement agreement had been reached at the second mediation. The only party disputing it is the first defendant.

6 By order of Master Sanderson made on 23 September 2008, certain preliminary questions were ordered to be tried on the issue of whether the alleged settlement at the second mediation was binding on the parties. In substance the first question was whether the parties had reached a binding agreement at the second mediation. The second was whether, if there were a binding agreement, it was vitiated by misrepresentation, as alleged by the first defendant.

7 I have found, for the reasons which follow, that a binding agreement was not reached at the second mediation. Even though that finding in substance disposes of the preliminary issue, I have gone on to find that if, contrary to that finding, a binding agreement had been reached, it was not one affected by misrepresentation.

8 The agreement which the plaintiffs allege was entered into at the second mediation conference (the pleaded mediation agreement) is pleaded in these terms:

27.1 that the plaintiffs were to be paid $650,000.00 in full and final satisfaction of their claims, which sum was inclusive of costs and interest to date;

27.2 as to the settlement sum the second defendant was to pay $25,000.00, the first defendant was to pay $500,000.00 and the second third party was to contribute $125,000.00 in settlement of the third party proceedings which sum was to be in turn paid on by the first defendant to the plaintiffs;

27.3 $150,000.00 of the settlement sum was to be paid to the plaintiffs upon the execution of the deed referred to in paragraph 27.4 below, incorporating the terms of settlement to which the second third party was to contribute $125,000.00, by way of payment, firstly, to the first defendant and then in turn paid on by him to the plaintiffs; and the second defendant to contribute $25,000.00, by way of payment to the plaintiffs direct;

27.4 a deed of settlement recording the agreement reached between the parties, by way of compromise at mediation, was to be prepared by the first defendant's solicitors and upon execution of the deed the action as between the plaintiffs and the second defendant was to be dismissed;

27.5 as to the first defendant, the further sum of $500,000.00, if paid within 3 months, was to be paid without incurring interest; if paid by instalments of $125,000.00 then interest at 6% on the balance outstanding from the date of deed of settlement until each payment with the first part payment of $125,000 to be made within 3 months of the agreement and the final payment of $125,000 to be within 5 months of the date of the deed of settlement.

9 It is alleged that a binding agreement was reached at the second mediation. It is not alleged that a binding agreement arose after the second mediation in consequence of the parties' subsequent conduct in circulating a draft deed of settlement, or that a binding agreement was reached after the mediation as a result of the communications at the mediation in conjunction with the parties' subsequent conduct.

10 The first defendant denies that there was a binding agreement reached at the second mediation.

The features of the pleaded mediation agreement

11 The pleaded mediation agreement, according to par 27 of the statement of claim, contains the following features:

(a) the first defendant agreed to pay the plaintiffs the sum of $625,000;

(b) the second defendant agreed to pay the plaintiffs the sum of $25,000;

(c) the plaintiffs agreed to accept $650,000 in full and final settlement of their claim including costs;

(d) the second third party agreed to pay the first defendant $125,000;

(e) the parties were to execute a deed of settlement to be prepared by the first defendant's solicitor;

(i) the second defendant would pay the plaintiffs the agreed sum of $25,000;

(ii) the third party would pay the first defendant the agreed sum of $125,000;

(iii) the first defendant would thereupon pay the plaintiffs the said sum of $125,000;

(g) the first defendant would pay the plaintiffs the remaining sum of $500,000 as follows:

(i) by way of lump sum, or by way of four instalments of $125,000 each;

(ii) if the first defendant elected to pay a lump sum, it was to be paid within three months of the date of the mediation agreement, upon which no interest would be payable if paid within that time;

(iii) if the first defendant elected to pay by instalments, then:

A. the first instalment of $125,000 would be paid within three months from the date of 'agreement' (presumably the pleaded mediation agreement rather than the deed of settlement);

B. the next three instalments of $125,000 each would be paid such that the last of those three instalments would be paid by no later than five months from the date of execution of the deed of settlement;

C. interest would run at the rate of 6% per annum on the balance outstanding, as reduced from time to time by the payment of each instalment, from the date of the deed of settlement until final payment.

12 Evidence-in-chief was given by way of witness statements. There were no objections to the plaintiffs' evidence-in-chief.

13 The oral evidence on behalf of the plaintiffs regarding the alleged settlement agreement comprised evidence from:

• Mr Bruce Grubb, the solicitor who acted for the plaintiffs in these proceedings and who attended the mediation and was involved in the communications regarding the preparation of a deed of settlement. Mr Grubb's file note of the mediation was also tendered.
• The first and second plaintiffs who attended the mediation.
• Ms Victoria Butler, solicitor, who had acted for the second defendant in these proceedings, and who attended the mediation and was involved in the correspondence immediately thereafter.

14 The plaintiffs also tendered by consent the file note of the Registrar who acted as mediator at the second mediation.

15 The file note of the solicitor for the second third party who attended the mediation and who was involved in the preparation of the draft deed of settlement was also tendered by consent. The communications between the parties' solicitors in the aftermath of the mediation concerning the drafting of the deed of settlement were also tendered by the plaintiffs.

16 The oral evidence for the first defendant comprised evidence from the first defendant himself and a Mr John Barber, an employee of the first defendant. Mr Barber's evidence was, however, confined to the issue of the alleged misrepresentation claim.

17 The first defendant did not call his solicitor who had acted for him in the proceedings at the time of the events in question. The first defendant's counsel in closing address said:

We didn't trouble Mr Nutt [the first defendant's solicitor] to come and give evidence because he told me that his evidence would be in line with the other practitioners and I am very content to inform the court of that.

The evidence as to what occurred at the mediation

18 Mr Grubb gave evidence-in-chief to the effect that after early negotiations at the second mediation, the Registrar informed Mr Grubb and the plaintiffs that the defendants had made a combined offer of $650,000. The parties then reconvened in the mediation meeting room and after discussion it was agreed that there would be a payment of $650,000 to the plaintiffs, including costs, as follows:

40.1 payment to plaintiffs of $650,000 comprising:

(a) $150,000 paid by second defendant;

(b) $500,000 paid by [the first defendant] and payable within 3 months. [The first defendant] to execute judgment in that amount to be held by my firm in escrow until he makes all payments;

(c) draft deed of settlement drawn up by [the first defendant's solicitor] within 7 days; and

(d) plaintiffs agree to discontinue action against second defendant upon payment of $150,000.

The mediation commenced at 11:30am and finished at 1:30pm.

It was agreed as follows:

1. that the plaintiffs' claim be settled by way of payment in the amount of $650,000 comprising:

1.1 $150,000 from the second defendant;

1.2 $500,000 from [the first defendant] payable within 3 months. [The first defendant] is to execute a judgment in his favour to be held in escrow by this firm until he makes all the payments;

1. a draft deed will be drawn up that records the settlement and that is going to be drafted by [the solicitor for the first defendant]. He undertook to do so within 7 days; and
2. the plaintiffs agree to discontinue the action against the second defendant upon the payment of $150,000.

20 In cross-examination, on the topic of payment by instalments, Mr Grubb said:

We'd had an agreement that they were going to be paid. But it did obviously concern those parties and there was discussion in relation to that and I think [the first defendant] requested three months to pay. That was one of the things. He couldn't do it immediately and there was discussion of an interest amount, something like that, something to that effect.

Do you remember whether it was [the solicitor for the first defendant] or [the first defendant] or both of them who spoke on that topic?---I think [the first defendant] spoke to [the solicitor for the first defendant] and [the solicitor for the first defendant] spoke to him, but I can't be exactly sure as to who said that, but it came from either [the solicitor for the first defendant] or [the first defendant].

Yes. [The first defendant] said later that he thought that the first instalment that he had to pay was due in three months. Do you recall anything about what was said about the timing of the instalments?---My understanding was that he needed time and it was agreed that the whole thing would be paid in three months. That was my understanding, that the whole amount would be paid in three months.

...

There was 150,000 coming from the second defendant, but they were - how they were doing it was 25 and 125, or something like that. I don't remember and I wasn't too concerned about how that was happening. What I was concerned about, that my client was getting 650,000 from the defendants in this action, and that was agreed.

Could I put it to you that at the mediation it was not agreement - there was no agreement as to the due dates on which [the first defendant] was to make payment of equal instalments of $125,000?---My understanding was that he was to make payment - that the 150 was going to be paid on the execution of the deed but the 500 didn't have to be paid for three months. That was my understanding when I left the mediation.

Yes. At some stage the draft deeds acquired terminology saying that he would make instalment payments of $125,000?---Yes.

Is that correct?---Yes, correct.

That's evidently something that developed after the mediation?---Well, as I recall [the first defendant] or [the solicitor for the first defendant] raised the fact that his client couldn't come up with the half a million immediately and may need to pay by instalments and my recollection is that three months was agreed upon as to being the time that he could do that.

Thank you. Are you saying that happened in the mediation?---Yes, that's right. I'm saying that the term of three months was put forward. There was no agreement by my client to go beyond three months.

Is it possible that the agreement as expressed in the mediation with reference to the role of the three-month period, was not that [the first defendant] must pay in full within three months, but that if he did so he would not be liable for any interest?---That's not my recollection. (emphasis added)

The first and second-named plaintiffs' evidence

21 The second-named first plaintiff said in her statement that at the second mediation, the defendants' solicitors said that, of the $650,000 settlement sum, the first defendant would pay '$500,000 now and the balance in three months' time, plus interest on this amount'. She also said that the second defendant agreed to contribute $150,000, and that the second third party would provide $125,000. In cross-examination, she said that her evidence in relation to the contribution from the second defendant and the second third party was incorrect, and that she thought the second defendant was contributing $125,000 and the second third party was contributing $25,000.

22 The first-named first plaintiff said that the matter was settled on the basis that the plaintiffs would accept $650,000 and a deed would be prepared. She said she and her sister left the details of that to their solicitor, Mr Grubb.

23 Mr Farquharson was the solicitor for the third party. He did not give oral evidence. His file note recorded, relevantly, in effect, that:

(b) the first defendant would contribute $625,000 to the plaintiff and the second defendant would pay $25,000;

(c) the second third party would pay the first defendant's solicitors $125,000 on execution of the deed of settlement and the first defendant would thereupon have the third party proceedings dismissed;

(d) the first defendant would on-pay the sum of $125,000 to the plaintiffs;

(e) on execution of the deed, the second defendant would pay the plaintiffs $25,000 and the plaintiffs would dismiss their claim against the second defendant;

(f) 'settlement will be by way of a judgment against [the first defendant] for $500,000 which will be interest-free for three months to enable [the first defendant] to raise the funds' (emphasis added).

24 The second defendant's solicitor, Ms Butler, said in chief that at the second mediation, the second defendant's position was that it would contribute no more than $25,000, and that that fact was made known to the Registrar. Subsequently, the Registrar told her that the parties had agreed on a settlement. She said in chief:

1. All the attendees at the mediation then entered the meeting room and Registrar ... said words to the effect that:

(a) $650,000 is to be paid to the plaintiffs in full and final settlement inclusive of costs and interest to date.

(b) $150,000 is to be paid on the signing of a deed. The sum of $150,000 is to come from [the second third party] and [the second defendant].

(c) Upon the signing of the deed, the action is to be dismissed as against [the second defendant].

(d) [The first defendant] then pays $500,000. He has 3 months to pay that amount without interest. If he pays within 3 months there will be no interest. If he pays in instalments, they will be instalments of $125,000 with interest of 6% on the balance outstanding, calculated from the date of the deed until each payment. There will be 4 or fewer instalments and [the first defendant] will pay interest on the outstanding balance.

(e) The first $150,000 will be paid and [the second defendant] and [the second third party] will be released upon payment of their contribution.

(f) The interest on the instalments is calculated from the date of the deed to the date of payment of the instalments. There will be 6% simple interest.

(g) There are no costs. Each party will bear its costs.

(h) [The first defendant] will enter into judgment to be put into escrow. The judgment will be destroyed upon payment of the $500,000. (emphasis added)

25 Although Ms Butler did not refer to her contemporaneous notes in her evidence, the plaintiffs tendered an email from her to Mr Grubb dated 13 September 2007 in which she informed Mr Grubb of her record of the mediation. Her email of that occasion is consistent with her evidence referred to above.

26 In her cross-examination, she was asked about par 13(d) of her witness statement. The following exchange occurred:

'If he pays in instalments, they will be instalments of $125,000 with interest of 6 per cent on the balance outstanding, calculated from the date of the deed until each payment.'

I'm just wondering whether you're able to clarify whether that means that it was contemplated that [the first defendant] might take longer than three months, or that should he take longer than three months to pay in full, then interest will apply. Is that what it's saying? Is that what you remember being the intention of - - - ?---I can't really clarify what the intention was, because this was Registrar ... basically just telling the parties what had been agreed. I can't recall being involved in any discussions about when the payments would be made, because the way the mediation turned out, the parties, or certainly my client and I, were not involved in the direct discussions, particularly with the plaintiffs and really not with the first defendant. It was Registrar ... who was conducting, as far as I knew, the negotiations between the clients. So in terms of the timing of the payments, I can't recall now whether Registrar ... said anything when the parties came together. I can't recall. (emphasis added)

27 The first defendant in his statement said, relevantly:

1. In the course of that part of the conference, there was discussion about a number of matters, but I cannot identify who said what and the precise words spoken.
2. However, I can say the following:

(a) The issue of the costs of these proceedings was raised. Mr Grubb spoke to his clients and thereafter said the following words, or words to that effect:

'The plaintiffs will agree to bear their own costs of the proceedings.'

(b) The issue of [the second third party] being a third party and not a party to the action between the plaintiffs, the [second defendant] and me was mentioned. Someone suggested that any difficulties arising from [the second third party's] standing in respect to these proceedings could be overcome by the inclusion of an appropriate recital in a deed of settlement.

(c) The mechanism for the payment of any moneys to the plaintiffs would need to be agreed.

(d) I said the following words, or words to that effect:

'If I am to pay $500,000, that is a large sum of money to come up with in one hit and I would need time to pay. I would need 48 months to pay that amount in 4 instalments.'

I said this because I knew that my professional indemnity insurers had refused to indemnify me and therefore, any such moneys would have to be paid by me from my own private funds. Accordingly, I knew that I would not be able to make any such payments in the period of time that had been suggested and that I would require a period of at least 48 months within which to make any such a payment.

(e) One of the attendees said words to the effect that any settlement money that I might be required to pay would have to be paid by payment of $125,000 upon execution of a deed of settlement, with the balance to be paid in 3 equal instalments of $125,000 within 3 months after execution of a deed of settlement.

(f) There would need to be a mechanism for the dismissal of the proceedings between the plaintiffs, the [second defendant] and me, and for the dismissal of the third party proceedings between [the second third party] and me, linked to the payment of any settlement moneys payable by the relevant parties concerned.

(g) Registrar ... said to [the first defendant's solicitor] the following words, or words to that effect:

'Do you want to have a go at putting together a draft settlement deed?'

[The first defendant's solicitor] replied in the following words, or words to that effect:

1. After the mediation conference, [the first defendant's solicitor] prepared a draft deed of settlement, which contained various draft terms for the settlement of these proceedings and my third party proceedings against [the second third party].
2. At no stage during the second mediation conference or thereafter did I agree to settle the plaintiffs' claims against me and the third proceedings that I had commenced against [the second third party] on the terms as alleged or at all.
3. Rather, I understood that all parties would continue to discuss ways of resolving such proceedings without further recourse to the Court, so that specific terms of any possible settlement which had been left open could be discussed. (emphasis added)

28 The first defendant, in cross-examination, resiled from his evidence to the effect that he had said at the mediation that he would require to pay the instalments over 48 months. He was not challenged in relation to pars 98(e) and (f) of his witness statement.

29 The Registrar's notes of the second mediation recorded the following:

1. Plaintiffs to accept $650,000 inclusive of all costs and interest (save for the interest component set out in 3 below).
2. This to be paid as follows: $150,000 on signing of the deed of settlement.
3. Balance of $500,000 remains to be paid by [the first defendant] entirely. If he pays within 3 months the whole amount - no interest will be charged. If he has to pay by 4 instalments each of $125,000 with the first 3 months from the date of signing of the deed of settlement he will then pay interest on the balance outstanding from time to time at the rate of 6% per annum. Each instalment will be accompanied by the amount of interest due for the same period on the whole of the balance.
4. [The first defendant's solicitor] shall prepare the deed but each of the solicitors for [the second third party], [the second defendant] and the Plaintiffs will email to him any particular clause they need to include in the deed of settlement and he will put the whole together for approval by all parties.
5. The deed will include memorandums of consent orders to be signed dismissing the action by and against all parties and it will include a judgment against [the first defendant] that will be held in escrow pending payment. On payment in full the judgment will be torn up.
6. While [the second third party] is [sic] the settlement (through his insurers for an amount of $125,000) this is in the Third Party proceedings only - not in the main action. That is recorded in the deed. There would be no liability directly to the Plaintiffs.
7. The deed will include mutual releases and prohibit further action by any of the parties to the deed against any other arising out of the factual circumstances of this action.

30 On 7 August 2007, the first defendant's solicitor emailed a draft deed. The email said:

I trust that you are all well. My system has crashed again and so hopefully the attached draft deed is as I intend. I will check in the morning as it is not allowing me to access anything but email right now - but just wanted you all to have an opportunity to start considering the deed. Note that the payee of stamp duty (if any) was not agreed at mediation and I welcome comments in that regard.

Gemma, I have not inserted anything to do with the agreement re Joubert's indemnity costs - suggest that just be by exchange of correspondence. Similarly, while the deed, presently has my client paying the $125000 on signing that is in effect your client's contribution and, once the terms are agreed, perhaps, we can run that through our trust account with the plaintiffs.

Obviously the annexures are not there but they will be quick to prepare once the deed is sorted.

1. Following a mediation conference on 26 July 2007, the Parties have agreed to settle the Action and the Third party Proceedings on the terms set out in this Deed.

31 Clause 2.1 referred (mistakenly) to a sum of $600,000 and provided that the parties agreed to settle the action and third party proceedings on the 'following terms'. Clause 2.1.1 provided that the deed should be executed by each of the parties and 'on exchange of counterparts the parties will be bound by the Deed'.

32 Clause 2.1 also provided, upon execution of the deed, for the second defendant's payment to the plaintiffs of $25,000, the second third party's payment to the first defendant of $125,000, and the first defendant's corresponding payment of $125,000 to the plaintiffs. It then provided:

2.1.4. [The plaintiffs] will hold in escrow a signed consent judgment against [the first defendant] in the sum of $500,000 in the form annexed to this Deed and marked Annexure 'C', which judgment will not be entered and/or executed upon on condition that [the first defendant]:

2.1.4.1. within 3 months from the date of signing the Deed pays to [the plaintiffs] the full sum of $500,000 without interest; or

2.1.4.2. pays the sum of $500,000 by 4 equal instalments of $125,000 plus interest calculated at the rate of 6% on the balance outstanding as at the date of the payment. (emphasis added)

33 On 10 August 2007, Mr Grubb sent an email to the parties in these terms:

I attach my first draft amended deed. I am presently considering further amendments.

The original format/numbering was somewhat unworkable and my secretary has completely reformatted the document. Regrettably, the changes have not been tracked. I relevantly refer you to the following amended sections:

Recital C

Definition of 'Sum'

2.1 (a) - (g)

I also suggest a mutual release clause for all parties to be inserted, so that my clients may plead the deed in the event any future action is commenced against them in respect to the subject matter of the claim. Stamp duty is a question to be resolved between the defendants.

I look forward to your comments so that the deed can be settled ASAP.

34 He renumbered the draft and amended the former cl 2.1.4 as follows:

2.1(d) [The first defendant] will execute, and [the plaintiffs] will hold in escrow, a consent judgment in the sum of $500,000 in the form annexed to this Deed and marked Annexure 'C', which judgment will not be entered and/or executed upon on condition that [the first defendant] pays to [the plaintiffs]:

(i) the sum of $500,000 by 4 equal instalments of $125,000, the first instalment due and payable within 21 days of the execution of this deed and the last instalment due and payable no later than 3 months from the execution of this deed;

(ii) interest owing and calculated from the date of execution of this deed, at the rate of 6%, on the balance outstanding as at the date of any payment referred to in paragraph 2.1(d)(i) above.

35 Mr Grubb did not change Recital N, and he did not change the opening words of cl 2.1, other than to correct the settlement sum to make it $650,000 and not $600,000. He renumbered cl 2.1.1 as cl 2.1(a), but made no change to the wording of it. In his cl 2.1(d) the word 'or' disappeared between the former equivalent cl 2.1(d)(i) and cl 2.1(d)(ii), and cl 2.1(d)(ii) linked interest to the instalments in cl 2.1(d)(i).

36 Over the period 10 August 2007 to early September 2007, various further drafts were exchanged between the parties' solicitors, but cl 2.1(d) from Mr Grubb's draft did not alter. There were subsequent stylistic changes to Recital N, but it, and cl 2.1(a), remained in the same terms throughout this period.

37 At 7.55 am on 5 September 2007 Mr Grubb emailed the other parties and said:

I have reviewed [Ms Butler's] document and made the changes as tracked. I agree that, once the deed is settled, we should agree on a time to exchange counterparts and cheques. Garry [Nutt], at settlement Nab are providing a bank cheque for $25k - pursuant to cl 2.1(b)(ii) I will need proof from your client of the eft into this firm's trust account of $125k (an eft funds transfer advice slip with suffice).

38 At 3.31 pm on 5 September 2007 the first defendant's solicitor emailed the other parties and said:

As regards the cheque, the payment by my client at execution is reliant on the payment by Gemma's client [the second third party] - as my client needed time to arrange the money (thus the instalments and interest) and the balance was indicated to be available readily. I do not know that he has capacity to pay that amount on execution to then be reimbursed by Gemma's client [the second third party] but can find out. (emphasis added)

39 On 5 September 2007, the parties arranged a settlement for 11 September 2007 at 2.30 pm. The first defendant's solicitor emailed the other solicitors that day and said that he:

[J]ust wanted to make sure it was clear that the $125,000 payable by my client on execution relies on payment by [the second third party] ... and then to the - I am not sure that my client has arranged funding as yet - and as I say that is why his payments have been structured as they have. (emphasis added)

40 On 6 September 2007, Mr Grubb emailed Ms Ward, the first-named first plaintiff, and said:

I attach a copy of the final deed of settlement for consideration by you and [the second-named plaintiff]. Please consider the deed and let me have your comments (if any).

I have tentatively set a settlement date for Tuesday 11 September 2007. The first $150,000 of settlement funds will then be immediately deposited into this firm's trust account pending a decision as to who (of the plaintiffs) should be paid the funds. The balance of the $500,000 will then be paid by [the first defendant] over three months (as agreed at the mediation). ... If you agree to the deed - please execute ... and return it to me before 12 pm, Tuesday 11 September 2007.

41 The proposed settlement for 11 September 2007 at 2.30 pm was put back to 3.30 pm that day. At 12.16 pm on 11 September 2007, the first defendant's solicitor emailed the other parties' solicitors and said:

I am still waiting a signed deed from my client. He got the final draft from Friday yesterday and is still going over it. He had received the various drafts last week without comment or objection and I do not expect a problem.

Trust that I am trying to get this all tied together by 2.30 but right now it's out of my hands and I cannot give any guarantees. To try and make this work today if possible, does anyone mind if we shift back to 3.30?? (emphasis added)

42 At 3.16 pm on 11 September 2007, the first defendant's solicitor emailed the parties' solicitor again and said:

I have the cheque.

I have to cancel - my client has raised problems with the deed that he did not raise with me before. One I have to deal with - the other is 2.1(d)(i) - he understood that the first part payment was to be within three months. Do you object to changing that?? It will mean that I will be able to make some progress. ...

Sorry - but he has changed his views on some things. (emphasis added)

Mr Grubb responded later that day by email and said:

The agreement was never that your client had three months to make the first payment of $125K. My memo of the mediation is attached.

He had three months to pay the balance owing on $500K. Irrespective, if your client executed the deed today he would have already had three months since his agreement at mediation - as the first $125K is not due until 21 days after execution of the deed. (emphasis added)

43 On 14 September 2007, Mr Grubb offered to amend cl 2.1(d) of the draft deed as follows:

(i) the sum of $500,000 by four equal instalments of $125,000, the first instalment due and payable within 21 days two months of the execution of this deed and the last instalment due and payable no later than three five months from the execution of this deed;

(ii) interest on the balance outstanding as at the date of each payment referred to in paragraph 2.1(d)(i) above, calculated from the date of execution of this Deed at the rate of 6% per annum.

44 The proposed amendment was not accepted by the first defendant and the plaintiffs thereafter sought to enforce the pleaded mediation agreement.

45 Mr Grubb's evidence-in-chief is consistent with his contemporaneous file note. His evidence-in-chief does not support the pleaded mediation agreement in the following respects:

• he puts the amount payable by the second defendant as $150,000 rather than $25,000;
• he makes no mention of the second third party's contribution of $125,000 and the settlement of the third party proceedings;
• it does not contemplate any payment of the $500,000 by instalments.

46 His evidence-in-chief and in cross-examination is also ambiguous in that it contemplates the $500,000 being paid within three months, but it is not clear whether the three months is intended to run from the date of the pleaded mediation agreement or the date of the proposed deed of settlement. As there was to be a deed drawn up within seven days, it might arguably be thought from his evidence that the intention, objectively, was that the payment of the $500,000 would be made within three months from the deed being executed by all the parties. Certainly that is what he provided in his draft. On the other hand, Mr Grubb's email on 11 September 2007 ([42] above) arguably suggests that he understood that the $500,000 was to be paid within three months from the date of the second mediation.

47 In cross-examination, his evidence was to the effect that there was some discussion about payment by instalments, with the instalments to be paid within three months, so that the whole $500,000 was paid within three months. His evidence in cross-examination indicates that, although the topics of instalments and interest were discussed, he was unsure as to the precise nature and detail of those discussions. His evidence suggests that so far as he was concerned, the payment of $500,000 was required within three months. That being the main element of the discussions from his perspective, he seems to have inferred that all the instalments would need to be made within that timeframe.

48 Mr Grubb's redraft of the draft settlement deed ([34] above) differs from his evidence-in-chief and file note insofar as his draft cl 2.1(d)(i) provided for the payment of $500,000 by instalments. His draft cl 2.1(d)(ii) seeks to put a form on, and create terms for, payment by instalments and the payment of interest, within the three month period.

49 Mr Grubb's redraft of the draft settlement deed, and his evidence in cross-examination, is inconsistent with the pleaded mediation agreement in relation to the timing of the payment of instalments (see par (g)(ii) in [11] above).

50 Neither the evidence of the first-named plaintiff nor the second-named plaintiff accords with the pleaded mediation agreement, except in one respect - viz the receipt by the plaintiffs of $650,000.

51 The evidence in the third party's solicitor's file note accords, in substance, with the features of the pleaded mediation agreement referred to in pars (a) to (f) and (g)(ii) in [11] above. It does not provide evidence in support of the features of the pleaded mediation agreement referred to in pars (g)(i) and (iii) in [11] above.

52 It does not support the existence of any concluded consensus as to the payment by instalments. It clearly states that the $500,000 will be interest-free for three months which at least indicates that if the $500,000 was paid within three months, it would not carry interest.

53 Ms Butler's evidence does not strictly correspond with, but is not necessarily inconsistent with, the features of the pleaded mediation agreement in pars (a) to (f) in [11] above.

54 Her evidence in par (d) in [24] above suggests that:

(a) the $500,000 is payable after the signing of the deed (with nothing payable between the date of the second mediation and the date of execution of the deed);

(b) if $500,000 is paid within three months from the execution of the deed, no interest is payable;

(c) alternatively the first defendant would pay by instalments of not less than $125,000 each.

55 Her evidence does not indicate when the first instalment was to be paid or the final date by which all instalments were to be paid. Her evidence is also ambiguous in that whilst she refers to the payment of interest calculated from the date of the deed, without evidence as to when the instalments were due and payable, it is impossible to determine how the interest provisions would operate.

56 Further, her evidence does not support the features of the pleaded mediation agreement referred to in par (g)(iii) in [11] above.

57 In cross-examination she indicated that she could not provide evidence of any agreement as to the form and content of the proposed arrangements regarding the payment by instalments.

58 As noted above, the first defendant retracted his evidence that he referred to paying by instalments over a 48 month period.

59 It was not suggested to him in cross-examination that his evidence to the effect that an attendee at the mediation said that he might have to pay the $500,000 by paying $125,000 at the date of execution of the deed, and the remaining three instalments of $125,000 within three months thereafter was incorrect. That evidence suggests that there was some discussion on the topic of paying in instalments, although no firm common understanding was reached.

60 His evidence does not correspond with, but it is not necessarily inconsistent with, the features of the pleaded mediation agreement in pars (a) to (f) in [11] above. It does not support the features of the pleaded mediation agreement in par (g) in [11] above. It has some similarities with, but is not identical to, Mr Grubb's redraft in his draft cl 2.1(d)(i), in that in cl 2.1(d)(i) Mr Grubb had the first instalment payable within 21 days of the date of the deed, whereas the first defendant says that the suggestion was made at the mediation that he pay the first $125,000 instalment of his contribution of $500,000 upon execution of the deed.

61 The Registrar's notes are not inconsistent with the features of the pleaded mediation agreement referred in pars (a) to (f) in [11] above.

62 Paragraph 3 of the Registrar's notes contains some ambiguities. The second sentence suggests that no interest is payable if the $500,000 is paid within three months. To that extent it accords with the file notes of the second third party's solicitor, and Ms Butler.

63 The third paragraph of the Registrar's notes contemplates payment by instalments, but is difficult to construe, particularly in relation to the word 'with' in the third sentence.

64 It may be that the word 'with' in the third sentence is a typographical error for 'within'. That was the contention of the plaintiffs' counsel. The difficulty with that construction is that it would negate the ordinary meaning of the second sentence in that it would provide for the payment of interest even if the full sum of $500,000 were paid within the first three months (albeit by instalments in that period).

65 The third sentence of par 3 of the Registrar's notes is amenable to a second construction. It may be that the word 'with' is accurate and that the sentence is to be understood by reading it as if the word 'in' were intended to be added after the word 'first' in the third sentence. On this construction the sentence would read:

If he has to pay by four instalments each of $125,000 with the first in three months from the date of signing of the deed of settlement he will then pay interest on the balance outstanding from time to time at the rate of 6% per annum. (emphasis added)

There is some arguable support for that interpretation in the first defendant's solicitor's email referred to in [42] above. It is not inconsistent with features of the pleaded mediation agreement referred to in par (g)(iii)A in [11] above. A variation on that construction (albeit to similar effect) would be to read the third sentence as containing the words 'instalment paid' after the word 'first'.

66 The difficulty with each of those constructions is that it would not indicate, apart from the first instalment being payable within three months from the date of execution of the deed, when the next three instalments would fall due for payment. In that regard, the third sentence would lack certainty as to the timing of the payments and, correspondingly, as to the calculation and payment of interest.

67 The plaintiffs' counsel expressly disavowed the proposition that such a potential second construction of the Registrar's notes was properly available. He said that the words in the second sentence in par 3 of the Registrar's notes, 'pays within three months', are to be read as 'pays on execution' of the deed, and that there was never any agreement that the first defendant could take more than three months to pay by paying in instalments with interest (ts 190 - 191, 199, 14 August 2009). That contention seems at odds with the features of the pleaded mediation agreement referred to in par (g)(iii) in [11] above.

68 Counsel for the second defendant submitted a different construction for the second sentence in par 3 of the Registrar's notes (ts 200 - 201). He says that it refers to the payment of $500,000 within three months of the mediation. He says that the third sentence directs attention to the payment of instalments with reference not to the date of the mediation (with which, he says, the second sentence is concerned), but to the date of the execution of a deed. He did not explain, however, how, on that construction, those two payment regimes were intended to operate to produce a harmonious set of payment obligations.

69 None of the potential constructions of the Registrar's notes support all the features of the pleaded mediation agreement referred to in par (g)(iii) in [11] above.

70 Recital N is not, on the face of it, a recital which recites the fact that the parties reached a binding agreement at the mediation. The language in Recital N and in the opening words of cl 2.1 and cl 2.1.1 (in the first defendant's solicitor's draft) and cl 2.1(a) (in Mr Grubb's draft), tends to suggest the effectuation of a binding agreement by the execution and exchange of the settlement deed. All the other operative provisions speak with effect from the exchange of executed deeds. The draft does not readily lend itself to a construction that it is merely restating terms, previously agreed, on a fuller basis, or that the terms were previously agreed and that the deed is simply fulfilling a condition precedent to their performance.

71 Whilst cl 2.1(d) did not change after Mr Grubb's redraft of the first defendant's solicitor's first draft, there is no evidence that the provisions of his draft cl 2.1(d) had been agreed at the second mediation. None of the contemporaneous notes, including the Registrar's notes and his own notes, support Mr Grubb's draft cl 2.1(d), with its requirement that interest be paid in the first three month period. Although the first defendant's solicitor did not dispute the drafting until 11 September 2007, his own first draft following the second mediation was quite different. His use of the word 'or' between his draft cl 2.1.4.1 and cl 2.1.4.2 suggests two different payment regimes.

72 Further, his email at 3.16 pm on 11 September 2007 does not, in my opinion, provide any real assistance to the plaintiffs' case. First, I think it is difficult to construe it as an admission that there was an agreement reached at the second mediation in terms of draft cl 2.1(d). The failure to object earlier to draft cl 2.1(d) could not, I think, be regarded as an admission by silence or conduct in circumstances where the first defendant had only received earlier drafts the previous week, and the final draft the previous day. Secondly, the implication of the second and last sentences of the email is that the first defendant had changed his mind on a range of matters. The third sentence, however, refers specifically to an alleged subsisting understanding, rather than a fresh change of mind on that issue. Thirdly, even if it were an admission, taken in context with the other evidence and in particular the contemporaneous notes, the admission would not be accorded any real weight.

73 The foregoing review of the evidence indicates the following. First, none of the solicitors kept a verbatim record of what was said at the second mediation in relation to the negotiations, or in relation to the concluding remarks by the Registrar. Secondly, none of the witnesses had a clear recollection of what was said and, in the case of Mr Grubb and Ms Butler, they were largely reliant on their abbreviated notes made at or shortly after the second mediation. Thirdly, Mr Grubb, Ms Butler and the first defendant, to varying degrees, attested to some discussion on the topic of a proposal that the first defendant be entitled to pay by instalments. Fourthly, it appears that the Registrar was undertaking Kissinger-style shuttle diplomacy between the parties. The Registrar also brought the parties together at the conclusion of the mediation to describe the result. Accordingly, the Registrar's notes are likely to be the best record of what ultimately transpired to be the consensus at the second mediation. Fifthly, none of the contemporaneous file notes mention the payment of interest within the first three months. Mr Grubb's file note is silent on that matter. The file notes of the second third party's solicitor, Ms Butler, and of the Registrar, positively indicate that no interest is to be payable in the first three months.

74 In Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 [24] - [25], the plurality said:

'It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.' To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. ...

... Although the word 'intention' is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties. (footnotes omitted)

75 In Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597, 607 Menzies J (quoting Sugerman J in the court below) said:

It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. Again, there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention.

76 In Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) Aust Contract R 90-059, Gleeson CJ said (90,312):

In a case such as the present, there are two, sometimes related, questions which require to be considered. The first is whether the parties to the putative contract intended to make a concluded agreement. The second is whether they succeeded in doing so. The answer to the second question may depend upon a number of factors, including whether the parties have reached agreement upon all the terms necessary, in the circumstances, to constitute a contract. In that connection, an implication of terms, or resort to considerations of reasonableness, may assist a conclusion that a contract has been made. (Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548.)

As the decision in the Australian Broadcasting Corporation case illustrates, the fact that parties to negotiations have agreed upon the major matter under discussion, confidently believing that the remaining matters to be decided will be sorted out later between them, or their lawyers, without any difficulty, can sometimes create a misleading appearance of consensus. Such parties may well believe that they have a 'deal' or a 'bargain', and speak and act accordingly, whilst at the same time knowing and intending that further and more detailed agreement is necessary.

Also in Geebung Investments v Varga Group Investments (90,321) Kirby P said:

There are two discrete legal issues raised by this appeal. First, whether the informal agreement allegedly reached by the parties ... evinced an objective intention on their part to create legal obligations. Secondly, whether the terms reached in the informal agreement answer the legal requirements of a binding contract. These questions are in practice closely interrelated.

77 In Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 360 - 361 the court said:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract ...

Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor & c of the Poor of Kingston-upon-Hull v Petch [1854] EngR 995; (1854) 10 Exch 610 (156 ER 583). The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker [1950] HCA 13; (1950) 80 CLR 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed.

78 The parties' subsequent conduct may be considered in determining whether the parties, objectively, reached a binding agreement: Geebung Investments v Varga Group Investments (90,322), (90,340).

79 Subsequent communications may also be used in this regard as an admission by conduct, of the existence or non-existence, as the case may be, of a subsisting contract: Geebung Investments v Varga Group Investments (90,325).

80 The court, in determining whether a concluded contract has been reached, is not confined to a consideration of the terms or manner in which the communications are made, but may also consider the subject matter and the surrounding circumstances: Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251, 9255.

81 In relation to alleged agreements entered into in settlement of litigation the court may have regard to the fact that:

Settlement of litigation is generally welcomed and facilitated by courts, ... Courts should avoid adopting a re-interpretation of the facts of an alleged agreement which undoes settlement of litigation, formally arrived at. (Geebung Investments v Varga Group Investments (90,329))

Findings on whether there was a binding settlement agreement

82 I find that at the second mediation, the parties reached a consensus on there being a settlement sum of $650,000, with the first defendant paying $625,000, and the second defendant paying $25,000. The second third party would pay $125,000 to the first defendant. The last-mentioned sum was to be paid in settlement of the third party action against the second third party. The first defendant would then pay the equivalent sum to the plaintiffs. There was consensus that the first defendant's solicitor would prepare a settlement deed for review by the parties. There was consensus that upon execution of the deed, the first defendant would pay the plaintiff the sum of $125,000 it received from the second third party, and the second defendant would pay the plaintiff the sum of $25,000.

83 The parties also reached a consensus that the first defendant would have three months to pay the sum of $500,000 without interest. There was also a consensus that the first defendant could pay, at his election, the sum of $500,000 by four instalments. The first defendant would, upon execution of the deed, also sign a consent order for judgment against him in the sum of $500,000, which would be held in escrow, and that on payment in full, the judgment would be destroyed.

84 Accordingly, although there was consensus as to 'major matters' (cf Masters v Cameron (361)), there was no final consensus as to:

(c) how the instalment arrangement would operate in relation to the first defendant's right to take three months to pay the $500,000 without incurring any interest liability.

85 These matters were, in my view, objectively material in the circumstances to the constitution of a binding contract. They were objectively relevant to 'price', and they assumed particular relevance in this matter given that judgment could be entered if payment were not made. They are matters for negotiation and agreement between the parties, which cannot be remedied by the court employing techniques of contractual construction or by the court ascertaining the existence of implied terms.

86 The courts will strive to uphold agreements for the settlement of litigation, particularly agreements arrived at in the forum of a formal mediation, designed specifically to facilitate settlements. However in this case, there was no consensus recorded, even in an abbreviated form, in writing and the evidence indicates that insofar as an oral consensus was reached, it was neither 'unambiguous' nor 'sufficiently comprehensive' (cf Geebung Investments v Varga Group Investments (90,313)), to constitute a binding agreement.

87 It follows, in my view, that there was no binding settlement agreement reached at the second mediation conference. Certainly the evidence does not support any binding agreement on the terms of the pleaded mediation agreement, bearing the features referred to in par (g)(iii) in [11] above.

88 Whilst it is not, of course, necessary to have terms reduced to writing, as a parol agreement expressed with sufficient clarity and completeness will be binding, the importance of there being some written record of the consensus reached at a mediation was observed by Warren J (as her Honour then was), in Burchell v Golden Wood Pty Ltd (No 2) [2000] VSC 485. Had the ordinary precautions been taken at the conclusion of the mediation, the parties would have reduced to writing, at least in the form of a heads of agreement, essential terms, including the payment by instalments and the payment of interest. It is likely that in that event, if the parties were at cross-purposes, the issues would have surfaced and been resolved (or not). The execution of at least heads of agreement provides greater opportunity for any remaining ambiguities to be resolved by a process of construction and the implication of terms.

89 Insofar as the parties left the mediation without reaching a concluded agreement on all the material terms, and in the knowledge that a settlement deed would be prepared, those matters lend weight, in conjunction with Recital N and the opening words of cl 2.1, and cl 2.1(a), to the inference that the consensus reached at the mediation fell into the third category of Masters v Cameron. It is not necessary to come to a final view on that because ultimately I find that no contract was entered into on 26 July 2007 because of the incompleteness of the alleged agreement.

90 The first defendant alleged (pars 31 - 47 of the further re-amended defence) that if there were a binding agreement, it was vitiated by misrepresentation. It was alleged that the misrepresentation constituted misleading or deceptive conduct within the meaning of s 10 of the Fair Trading Act 1987 (WA).

91 The alleged misrepresentation was said to be to the effect that the second-named first plaintiff said, at the second mediation conference, that the plaintiffs had not received from the first defendant during the period of the alleged fraud any information which would have enabled them to become aware that the alleged fraud was occurring.

92 It was alleged that this statement was misleading in that, in effect:

(a) the employee of the first defendant who perpetrated the alleged fraud had sent to the plaintiffs copies of the transfer authorities which he had sent to the second defendant which showed the reducing amounts of principal being reinvested;

(b) the plaintiff had received bank statements showing reducing amounts of interest received on funds invested, and that the second-named first plaintiff had placed ticks against the items of interest on the statements;

(c) the plaintiffs signed tax returns which showed that investment income was less than it would otherwise have been had there been no fraud; and

(d) that on 1 September 2005 the second-named first plaintiff told the first defendant that she had noticed the reduced interest but had not wanted to say anything because the employee of the first defendant who perpetrated the alleged fraud was a nice man and she did not want to get him into any trouble.

93 As to the making of the alleged representation, the first defendant said, in chief, that the second-named first plaintiff made the statement 'towards the end of the mediation conference'. The second-named first plaintiff said, in chief, that at the first mediation conference (not the second) she had said 'I had never received any information and I had never received any so-called roll-over notices'. She did not, in chief, address the allegation that she had made the alleged representation at the second mediation conference. I am not satisfied, on the strength of the first defendant's evidence alone, that the alleged representation was made, having regard to my scepticism about his reliability as a witness (see [112] below). Nevertheless, even if the representation were made, it has not been shown to be actionable, for the reasons set out below.

94 As to the first alleged basis for misrepresentation, viz the alleged provision to the plaintiff of the copies of the transfer authorities, this point was not pressed by counsel for the first defendant at the conclusion of the hearing (ts 181 - 183).

95 As to the second point, the first defendant did not tender any bank statements. Nor did his counsel put to the plaintiffs in cross-examination that they had received bank statements showing reducing amounts of income. Nor was it put to the second-named first plaintiff that she had ticked any items on any such bank statements. There was no evidence otherwise to support this point. Accordingly, this aspect of the misrepresentation claim is not made out.

96 As to the third point, the first defendant said in cross-examination (ts 208) that unspecified tax returns had been prepared 'that showed interest receipts which were - if you calculated it out would have produced a lower rate than was available from the banks at the time'. The allegedly relevant tax returns were not however put into evidence. Moreover, the first defendant's evidence was unsatisfactory and vague. Whilst the plaintiffs were asked by counsel for the first defendant whether they had signed tax returns, and they responded that the last tax return was in 2001, it was not put to the plaintiffs that the tax returns showed income being less than would otherwise have been earned had the alleged fraud not been committed. It is also pertinent to note here that only six of the 35 allegedly fraudulent payments were made in the period prior to 30 June 2001 in any event. The remainder occurred between July 2001 and May 2005. In the end, there was no cogent evidence to support the third basis pleaded for the misrepresentation case. Accordingly, this aspect of the misrepresentation claim is not made out.

97 In relation to the fourth point, the first defendant's evidence-in-chief was that at a meeting with the second-named first plaintiff on 1 September 2005 to finalise tax returns for the third plaintiff, the following conversation occurred:

[The first defendant said:] 'I am surprised that neither you nor Susan [Ward] had not noticed the interest payable reducing, as the amount of interest paid had reduced quite drastically over the period of time that the money was invested.'

Mrs Laurisson replied in the following words, or words to the effect: 'We had noticed the amount of interest had reduced considerable, but Susan [Ward] and I did not like to say anything, because [the deceased] was such a nice man and we didn't want to get him into any trouble and dob him in.'

98 In other words, the first defendant's evidence is that on 1 September 2005 the second-named first plaintiff had admitted, in effect, that the plaintiffs had known that the first defendant's employee was not properly accounting for the money invested, but they had deliberately done nothing about it because they did not want to get him into trouble.

99 On its face, if true, this was a wholly remarkable statement. It is denied by the second-named first plaintiff.

100 The first defendant called Mr Barber to give evidence on this issue. Mr Barber is, and was at the time, an employee of the first defendant. He said that he overheard the conversation on 1 September 2005 referred to by the first defendant. His evidence-in-chief was, word-for-word, identical with the first defendant's version of that conversation. There was no suggestion that Mr Barber made any contemporaneous note of the conversation which he says he overhead. His evidence was that his witness statement was probably not prepared until 2008 (ts 152, 14 August 2009). It is very curious that his account of the conversation is word-for-word the same as the first defendant's account. Mr Barber appeared unwilling to engage constructively in cross-examination as to what his recollection of the conversation was without recourse to his statement. He repeated on various occasions that whatever occurred was in his statement and he was not able to assist beyond referring to his statement. I found his evidence unsatisfactory.

101 The probability of the conversation occurring in those terms needs also to be considered in the context of the relevant events of the time. The circumstances surrounding the alleged conversation are not materially in dispute.

102 According to the first defendant (whose evidence was not challenged on this point), the allegedly fraudulent employee passed away unexpectedly on 22 June 2005. The first defendant suspected that there had been misappropriations from the plaintiffs' accounts (ts 202 - 203, 13 August 2009; ts 139, 14 August 2009). On 23 June 2005 the first defendant reported the employee's conduct to the Major Fraud Squad.

103 About a week later, the employee's son delivered to the first defendant the contents of a briefcase containing documents relating to the practice's trust account including bank statements and the like. He also delivered two rubbish bags which were found in the boot of the employee's car, containing torn up documents from ASIC, the Australian Taxation Office and other office material.

104 The first defendant then started to work out to what extent there was a deficiency in the plaintiffs' investments (ts 199, 13 August 2009).

105 On 28 July 2005 the first defendant conducted a search at the Probate Office and found that neither probate nor letters of administration had been granted in respect of the employee's estate.

106 On 25 July 2005 the second-named first plaintiff sent the first defendant a facsimile requesting a breakup of interest on various accounts. The first defendant looked at the records, ascertained the breakup, and wrote the figures on the facsimile and faxed the document back to the second-named first defendant. On 26 July 2005 the first defendant sent a copy of the facsimile to the second defendant and asked the relevant bank officer to allocate interest to the relevant accounts accordingly (ts 203).

107 On 31 August 2005, pursuant to a request by the second-named first plaintiff, the second defendant wrote to the second-named first plaintiff and provided certain information regarding the third plaintiff's accounts. The second-named first plaintiff received the letter on 2 September 2005. She spoke to the relevant bank officer upon receipt of this letter. He told her that amounts may have been misappropriated (ts 181). She discussed the matter with the first-named first plaintiff, who went to the police on 6 September 2005. The plaintiffs did not know that the first defendant had already gone to the police in June 2005 (ts 174, 13 August 2009).

108 On 14 September 2005 the second-named first plaintiff received from the second defendant copies of the documents which had been sent by the first defendant's employee purportedly authorising the withdrawals by which the alleged fraud was perpetrated.

109 By 15 September 2005 the first defendant had instructed his then solicitors to write to the plaintiffs in relation to the apparent defalcation. The letter said, inter alia,

We advise that we act for Keet & Associates. The Principal of Keet & Associates is Mr John Francis Keet who has instructed us as follows:

1. Keet & Associates employed ... ('Deceased') for various periods until his death on or about the 22 June 2005.
2. The Deceased had conduct of the files relating to [the plaintiffs' affairs].
3. A share portfolio and various significant term deposits were held in the name of Mrs Lukin, Ms Lukin and Lakeway Pty Ltd and the Deceased managed those various investments in his capacity as an employee and office manager for our client. We note that one of the cash investments totalling $1,770,875.75 was invested at the National Bank.
4. On or about the 22 June 2005 the Deceased passed away, our client became aware of discrepancies involving the Lukin accounts and it appears that the Deceased has misappropriated monies from the Lukin accounts.

We have been instructed that our client is making full investigations to properly ascertain the precise sum of money that has been misappropriated and the methods used by the Deceased to misappropriate the monies. An investigation is also taking place as to whether any of the monies still exist and are available to be reclaimed. We are also writing to our client's insurers putting them on notice that a claim is to be made.

We have been instructed to keep you fully informed in relation to the steps that our client is taking to deal with this matter.

110 The second-named first plaintiff replied to the solicitors, with a copy to the first defendant, by letter dated 12 October 2005. Her letter said, inter alia:

Unfortunately, your letter of 15th September creates more concerns than assurances viz:

• When Mr Keet became aware of discrepancies on or about 22nd June, it would have been prudent at the time to initiate a strategy to satisfy an aggrieved client and promptly advise the client.
• I only became aware on 2nd September when I received my mother's deposit 'rollover' statements from the National Australia Bank and rang Mr Keet that day demanding explanation.
• His refusal to return telephone calls and respond to communications.
• His engagement of legal practitioners three months after the event - and only after his clients commenced pressure.
• As a professional and registered sole proprietor of Keet and Associates, grave concerns are held on his management and audit procedures, particularly as a Trust Account is said to be involved.

You may also note on your records that in frustration, I rang him on 26th September to demand a meeting, only to be advised by a staff member that this was not possible as 'Mr Keet is away for a month - he has gone to China!!!' It is suspected 'gone into hiding' would have been more appropriate. The date of your letter adds weight to that suspicion.

In view of the delays and the substantial amount involved, my co-attorney and I see no reason to be conciliatory. Recovery rests squarely with Mr Keet and should it be necessary for him to borrow to meet restitution, so be it. He may then pursue the estate of the late [deceased] and fidelity/public liability insurance at his convenience - not ours.

The courtesy of fourteen days notice is thus given. In which time Mr Keet is required to provide:

(a) a statement detailing to our satisfaction, the total principal defrauded plus calculated cumulative interest lost over the period of the crime and to date.

(b) Documentary evidence to our satisfaction, that full restitution can and will be made no later than one calendar month from today.

Should these conditions not be met in their entirety, we unfortunately see little alternative to commencing formal recovery action.

111 Whilst the second-named first plaintiff's letter of 12 October 2005 indicates that she only became aware of the discrepancies with the accounts on 2 September 2005, it seems that her suspicions were possibly raised on 26 July 2005, around the time that she received the facsimile from the first defendant regarding the breakup of interest between the various accounts. She said in cross-examination (ts 178) that in a conversation with the first defendant at that time she told the first defendant 'well those amounts can't be correct'. She said that she then rang a Ms Barbara Di Labio at the NAB who said that she would 'look into it' for her. The possibility that her suspicions were aroused on 26 July 2005 does not, however, provide any basis for inferring that, as a matter of probability, there was a discussion along the lines deposed to by the first defendant on 1 September 2005. Indeed it tends to confirm that the second-named first plaintiff had been entirely unaware of, and unsuspecting of, the alleged fraud prior to, at least, 26 July 2005.

112 The first defendant appeared to me to not give any of his evidence in cross-examination on this topic with real conviction. He evidently had a poor recollection of events, and, at one stage, appeared, in substance, to resile from his evidence-in-chief on this point (ts 200, 13 August 2009). I do not accept his evidence as reliable in this regard. Moreover, the statements which he imputes to the second-named first plaintiff at the meeting on 1 September 2005 are so extraordinary, and out of conformity with the surrounding circumstances and communications, that they are not inherently probable. Also, I accept the veracity and reliability of the second-named first plaintiff's evidence on this issue.

113 Accordingly I find that the fourth point relied upon by the first defendant in relation to the misrepresentation claim has not been made out.

114 Further, even if there had been a misrepresentation as pleaded, the first defendant has not satisfied me that he was induced to act in reliance on it in entering into the 'agreement' at the second mediation. On his evidence he knew, as from 1 September 2005, that the plaintiffs had acknowledged that they had received information which enabled them to become aware that the alleged fraud was occurring. That evidence is inconsistent with his plea (par 34 of the first defendant's further re-amended defence) that he relied on the alleged misrepresentation in agreeing to a settlement because he had not received any information to the contrary.

115 The plaintiffs have not established that a binding agreement was reached at the second mediation. If, contrary to that finding, there was a binding agreement, the first defendant has not established that it was vitiated by misrepresentation.

116 I will hear the parties on consequential orders, and costs.