JUDGMENT No. sou. Soul oa Lon CATCHWORDS TRADE PRACTICES - Agreement to purchase share in restaurant business - action for false and misleading conduct under s. 52 - misrepresentations as to value and expected profits of business - applicant relied in fact on representations not pleaded including a representation that the business would generate large sums of cash that could be taken without ever being declared for income tax purposes - no causal connection between representations pleaded and loss - doctrine of ex turpi causa considered. Crimes Act 1914 - s 29D Taxation Administration Act 1953 - ss 8C and 8L Trade Practices Act 1974 - s 52 Brownbild v Kenworth Truck Sales (N.S.W.) Pty. Ltd. (1982) 59 F.L.R. Gala v Preston (1991) 172 C.L.R. 243 Gollan v Nugent (1988) 166 C.L.R. 18 Gould v Vaggelas (1985) 157 C.L.R. 215 Hall v Herbert (1993) 101 D.L.R. (4th) 129 Haxry Parkes Ltd. v Mason (19a?) 164 L.T. 164 v Dunkel (1959) 101 C.L.R. 298 venes v Ayers (1940) 63 C.L.R. 524 Smith's Newspapers Ltd. v Becker (1932) 47 C.L.R. 279 v Coastmine Pty. Ltd. & Ors. QG 103 of 1991 2November, 1994 22 NOV 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY No. QG 103 of 1991 First Applicant AND: R.I. GAYKUEN Second Applicant AND: COASTMINE PTY. LTD. First Respondent AND: ROBERT JAMES BURGESS Second Respondent AND: NICHOLAS CASSAR KARLOS Third Respondent AND: XASUO WATANABE Fourth Respondent AND: PAUL GERRARD STEER Fifth Respondent AND: YASUO WATANABE Cross-Claimant AND: COASTMINE PTY. LTD, First Cross-Respondent AND: ROBERT JAMES BURGESS Second Cross-Respondent AND: NICHOLAS CASSAR. KARLOS Drummond J 2 November, 1994 Brisbane Third Cross-Respondent REASONS FOR JUDGMENT The applicants are, respectively, an Australian and a Japanese corporation. Mr. Toshiharu Igaki is the principal of both. He lives in Nagoya. His business interests centre around an English language school owned by the second applicant in Nagoya. The second and third respondents are the principals of the first respondent, a company which carried on the business of running a number of restaurants on the Gold Coast. The fifth respondent is a member of a firm of chartered accountants who acted for the first, second and third respondents in connection with the transaction out of which the litigation arises. The fourth respondent is an acquaintance of Messrs. tIgaki, Burgess and Karlos; the applicants had settled their dispute with him by the commencement of the trial. The action arises out of a contract dated 18 July, 1990 for the purchase by the first applicant for $4M of a one half shareholding in a company, Gold Coast Restaurants Pty. Ltd., to which the first respondent transferred its restaurant business as part of the arrangements between the applicants and the first three respondents. The applicants allege they were defrauded by the first respondent and by the second, third and fifth respondents, that the first respondent was guilty of conduct infringing s. 52 the Trade Practices Act 1974 in relation to the transaction and that the second, third and fifth respondents were involved in that conduct. The applicants' alternative claim against the respondents is in negligence. This claim is based essentially on the same conduct upon which the other claims are based. The applicants' case as pleaded and as conducted was that they were prejudiced because the representations alleged affected Mr. Igaki in the decisions he caused the applicants to take. Although Mrs. Igaki was also a director of both applicants and participated in the relevant meetings with the respondents, decisions on behalf of the applicants were made by Mr. Igaki. Early in the trial, I raised the question whether the applicants might be disentitled to relief, in view of the unusually explicit evidence in the applicants' own case that raised the question whether Igaki intended that the first respondent's business, once he had bought into it, would be carried on in a way which would involve the commission of criminal offences, viz., breaches of ss. 8C and 8L the Taxation Administration Act 1953 and s. 29D the Crimes Act 1914. The fifth respondent took up the matter and, in the course of the trial, amended his defence to raise the issue of illegality. BURGESS AND KARLOS' FAILURE TO GIVE EVIDENCE Neither of the respondents, Burgess or Karlos, gave evidence. Burgess was present during the first part of the hearing, which took place between 6 and 30 April, 1992. Counsel for the first three respondents told me during this part of the hearing that Karlos would not be giving evidence because he was not in a fit state to do so. Later, in October, counsel tendered three medical reports from Karlos' general practitioner, Dr. Henderson. In the first report of 24 March, provided just prior to the start of the trial, the doctor referred to a psychiatric illness Karlos suffered in 1976 and recorded Karlos' statements to him that, since that episode, he "has been troubled by poor memory and lack of concentration" and "says he has lost much of his memory of recent events" since his breakdown; he also reported that, in early 1991, Karlos sustained serious injuries in a motor vehicle accident which "seem(s) to have further impaired his already shaky recall of events over the last decade". But according to Dr. Henderson, the major cause of Karlos' memory impairment was the 1976 breakdown. Dr. Henderson obtained a psychological assessment of Karlos' memory and concentration powers (also in evidence), which he says confirmed his impression that Karlos' memory was "severely impaired". In his report of 14 April, i.e., after the trial had been running for about a week, Dr. Henderson said that his condition had deteriorated since the trial began. Finally, in his report of 28 April, 1992, Dr. Henderson said he had started Karlos on high dose anti-depressant therapy 'but with minimal response so far'. He again said that Karlos was unfit to give evidence. Burgess was due to commence his evidence on the afternoon of 30 April, but his counsel then informed me that he had been involved, just that morning, in a traffic accident in which he too suffered a head injury and was unlikely to be fit to give evidence for some days at least. The hearing was adjourned and when it came back on, on 5 October, counsel for the first three respondents simply informed me that it was not now intended to call Burgess either. It was then that Dr. Henderson's three reports on Karlos were tendered; counsel for the applicants mentioned his expectation of receiving an up- to-date report on Karlos, but none was forthcoming. At the conclusion of the evidence of the two witnesses called on behalf of the first, second and third respondents on 6 October, counsel for those respondents closed their case and sought leave to absent themselves until the close of the fifth respondent's case because of the respondents' lack of funds; I indicated that it was a matter for the respondents and their legal representatives to decide what course they would follow from then until the end of the trial. The second phase of the hearing concluded on 9 October. Further evidence was taken on 2 and 3 December and addresses, which took the form of brief oral submissions and detailed written submissions, were delivered on 15 December. Senior and junior counsel appeared for the first, second and third respondents on this last occasion, as they had on all prior occasions up to 6 October. While Burgess may well have been the more active of the two, Karlos had participated with him in the running of a restaurant business that expanded from one to _ five establishments in the period 1986 to 1990. He attended numerous meetings with Burgess, their advisers and with Igaki and others in both Japan and on the Gold Coast in mid 1990 that related to Igaki's purchase of the interest in their business and gave instructions to Watanabe in this context. All this is at odds with Karlos being, from 1976, a person suffering debilitating memory impairment. So far as Dr. Henderson's report of a deterioration in Karlos' condition in April is concerned, there is nothing in the medical information to justify a conclusion that it would have persisted into October. Given that Karlos was fit enough to take part in the running of the business and the various meetings in 1990, I do not think the medical reports on his condition in April justify a conclusion that he was incapable of giving evidence in October, if he had wished to do that. Whatever Karlos' condition was in April, I am satisfied that when the hearing resumed in October, Karlos and Burgess had each made a considered decision not to go into the witness box. The evidence of the applicants' witnesses, as against the second and third respondents, is uncontradicted by those respondents and, as against them, is to be evaluated in accordance with the principles in Jones v Dunkel (1959) 101 C.L.R. 298. THE_FACTS What follows incorporates the factual conclusions I have reached. Igaki and his wife were introduced to Burgess by the fourth respondent, Watanabe, at Burgess and Karlos' Orchid Avenue restaurant in October 1987. In early 1989, Burgess introduced them to his partner, Karlos. From late 1987, Igaki visited the Gold Coast fairly frequently. Over the next two years he became friendly with Burgess and Karlos. He appears to have regarded Burgess, in particular, as a close Australian friend. Burgess and Karlos knew him as a wealthy Japanese businessman. By the latter half of 1989, their restaurant business was facing financial difficulties. By the first half of 1990, Burgess, Karlos and Coastmine had aée total indebtedness of $3.2M. This had increased significantly over the position 12 months previously. Interest charges at high rates were a substantial problem. Attempts by Burgess and Karlos to raise money from financiers appear to have been unsuccessful. By October 1989, they were very keen to find a source of funds to clear these debts. Mr. and Mrs. Igaki then came to the Gold Coast, at Burgess' invitation, to attend the wedding of his daughter. During this visit, Karlos took the Igakis to the Rusty Pelican Restaurant at Noosa, which he and Burgess owned. Karlos made an unsolicited offer to sell the Noosa restaurant to the Igakis. They were not interested in the proposal and rejected it. After his unsuccessful overture to Igaki in October 1989, Karlos had Watanabe telephone Mrs. Igaki in Nagoya in mid June 1990 to tell her that he and Karlos were coming to Japan to see Mr. Igaki; he did not give Mrs. Igaki any reason for the planned visit. Watanabe and Karlos were invited by Igaki to stay at his home on this occasion. They arrived about 19 June, 1990. Burgess and Karlos' purpose in travelling with Watanabe to Japan to speak to Igaki was to try once again to persuade Igaki to put his money into their ailing restaurant business. Karlos did not speak Japanese and Mr. and Mrs. Igaki have very little English; Watanabe acted as Burgess and Karlos' intermediary on this occasion. Shortly before Karlos and Watanabe travelled to Japan, Burgess, on 6 June, 1990, engaged the fifth respondent, Steer, to prepare a document entitled "A Private Sale". There are two versions of this document. They were prepared by Steer specifically as an invitation to Igaki to purchase a 50% interest in four Gold Coast restaurants owned by Burgess and Karlos and in a fifth restaurant and kareoke bar which they proposed to establish there. The proposal set out in each document was for a joint venture between the first respondent and Igaki, with Igaki paying $4M to the first respondent for a 50% interest in the business. The documents are both dated 14 June, 1990. They are elaborate sales presentations. However, the only financial information included in them are the financial projections for the five restaurants for the 1991-1995 financial years. Although the Black Whale Restaurant had been trading for about 18 months, the Colony Steakhouse for about 14 months, the Rusty Pelican on the Beach for about two years and the Rusty Pelican on Orchid for about four years, no historical trading information was included. A note headed "Basis of Projections" stated: "The annual projections have been prepared based on increments to the current annual level of income and expenses". Under the heading, "Past Trading Results", the following appeared: "Coastmine Pty. Ltd. will provide past financial details to assist Toshiharu Igaki in evaluating the proposal, if required. It should be noted that past trading results cannot provide a guarantee to future trading projections." But notwithstanding this promise and Igaki's repeated requests for the same, Igaki was never given any past trading information. Each version refers to the four operating restaurants, the proposed kareoke bar and also a proposed seafood and export meat outlet; the projections take into account the four restaurants and the kareoke bar, but not the food outlet. They differ in using projections for anticipated sales for the 1991 financial year for the steakhouse restaurant of approximately $1.245M and $1.8M. The one indicates a return of 25.4% for that year on the proposed $4M investment after income tax and the other suggests a 28.2% return, after income tax. The latter version also includes a sheet of profit and loss projections for the 1991 year and a sheet of projections for all five restaurants for the 1991 to 1995 years. Steer produced the 25.4% version first and gave it to Burgess; at Burgess' request, on information provided by Burgess, he then produced the second version and gave it to Burgess and to the solicitors then acting for Burgess and Karlos, Messrs. Robinson & Robinson. Karlos and Watanabe took both versions with them to Japan. Both were given to Igaki during the June visit. Karlos and Burgess had also obtained a valuation dated 14 June, 1990 for each of the five restaurants, including the proposed kareoke bar, from a valuer, Mr. Quinlan. Quinlan got his instructions from Burgess. Quinlan, in his valuation report, stated that the valuations were based on the financial projections in the "private sale" document. He valued the five restaurants at $8.14M overall. This report was also given to Igaki by Watanabe and Karlos. Early in the visit to Igaki in June 1990, Watanabe referred to both the "private sale" document and the Quinlan valuations and sought to impress upon Igaki how profitable Burgess and Karlos' restaurant business was. Karlos was present throughout. In his written statement, Igaki said he looked at both the "private sale" document and the valuations and expressed concern about the absence of past trading figures for the restaurants, but Watanabe brushed this aside. Mrs. Igaki was suspicious of the proposal. She had Igaki deliver a copy of the "private sale" document (or an extract containing the financial projections) to Mr. Ishihara, their accountant in Nagoya, and to Mr. Kato, their banker there. Both advised against entering into the venture unless Igaki was given the past trading figures and a company history. Ishihara told Igaki that the profit rate in the "private sale" document was too high to be true. He says, however, Igaki repeatedly told him he thought he could trust Burgess and that *he trusted this document [i.e., the "private sale" document) ll and wanted to accept the proposal being made by Bob and Nick". Ultimately, however, the views of Mrs. Igaki, Ishihara and Kato prevailed and Igaki told Watanabe and Karlos that he was not prepared to enter into the joint venture. Watanabe's response was to say that Burgess would send whatever information Igaki needed to satisfy himself that the joint venture proposal was a good idea. Igaki then said that, if Burgess brought the past trading figures and company history with him to Japan, he would be prepared to discuss the proposal further with his banker and accountant. Watanabe passed this on to Karlos, who telephoned Burgess. Burgess arrived in Nagoya a few days later. He, too, stayed with Karlos and Watanabe at Igaki's home. Late the following day, after Igaki had arranged for the attendance of his own interpreter, Mrs. Umemura, he met with Burgess, Karlos, Watanabe and Mrs. Igaki at his home to discuss the proposal further. Burgess did not have aly past trading figures with him and Igaki said he was not interested in making the investment proposed without that information. Burgess persisted and described to Igaki the plans he and Karlos had for building the kareoke bar and other developments; he told Igaki that a Japanese company, Maruko, wanted to enter into a joint venture with him and pay $4M for a half share in the restaurants and he explained to Igaki his reason for not wanting to go into business with such a large organisation. All this attracted Igaki's interest. Igaki said that, as these discussions proceeded, although he did not reveal his feelings to Burgess,: "I felt I wanted to do the deal because of my trust for Bob Burgess and my friendship with him. IT thought if I didn't do the deal I would lose my friendship with Bob Burgess. But I also felt that it was too risky for me to invest $4,000,000.00 ina business when I did not have a company history or trading figures." Igaki spoke frequently in his oral evidence about his trust in Burgess, his desire to retain Burgess' friendship and his belief in Burgess' business acumen. A significant part of Igaki's motivation for ultimately committing his companies to the proposal was his personal desire to be associated with the man he regarded as his friend: Igaki's motivations were not confined to financial ones, although he expected to profit handsomely from the association. It was against the background of failure up to that point, firstly by Watanabe and Karlos and then by Burgess, to procure Igaki's agreement to investing in Burgess and Karlos' business, that, according to Igaki, Burgess first mentioned "black money". Mrs. Igaki says that it was after Burgess had attempted unsuccessfully to procure Igaki's commitment to the proposal and after Igaki insisted once again on needing the past trading figures before he could consider accepting the proposal that Burgess first mentioned "black money". Igaki said in his witness statement: "I understood from what Bob Burgess said that by the words 'black money' Bob Burgess meant money which is not declared for tax purposes. Bob Burgess sat down and wrote out a document wherein he set out the sales for each restaurant and the percentage of sales which was to be 'black money'. Igaki then identified the document, which was tendered as exhibit IG6. It shows "black money" of $2.75M being split equally between Igaki, on the one hand, and "Nick and Bob", on the other. The $2.75M is an annual figure. I do not think that there is anything odd in Igaki's description in his written statement or in his oral evidence about how Burgess sat down, without any prompting from him, and wrote out IG6. Karlos and Burgess' attempts to persuade Igaki to invest in the business had failed up till then; the "black money" offer was a last effort at persuasion. It may be that Burgess, from his prior contacts with Igaki, had good grounds for thinking that such an offer would appeal to Igaki. In any event, it fell on receptive ground. Igaki continued in his witness statement: "39. I noticed that handwritten notes produced by Bob Burgess [i.e. exhibit IG6] showed that 15% of the sales fcr each restaurant were to be deducted as 'black money' and that on Bob Burgess' figures 15% of the sales totalled $2,750,000.00. I asked Bob 'Is 15% an average figure for the 'black money'?'. 40. Bob said 'The percentage of 'black money' to be deducted from sales might vary from day to day but 15% would be an average figure for all of the restaurants'. 41. Bob said 'December, January, February and March are the best months of the year for 'black money' but July to September are quiet periods for 'black money'.' Bob Burgess then said 'I have never paid much tax'. 42. I asked Bob 'Does anyone in Australia pay tax?' Bob Burgess then said 'Only silly people pay tax'. 43. Mrs Igaki, Keiko Umemura and I were all surprised by this. 44. I asked 'How can you get away with it?' Bob said 'You are just careful. Only silly people pay tax'. It was at this point that I started to think if I can get $2,000,000.00 per year the joint venture would not be a bad deal. 45. The 'black money' document was read to me by Keiko Umemura. I didn't really understand all the things Bob wrote in the 'black money' document. For example, I am not sure what Bob meant by the words 'Also there should be another 5% profit in the company for cash flow purposes'. 46. However, I recall Bob Burgess saying at the time he wrote the document, 'These figures are based on the past three years growth and I expect this trend of improvement to continue' .* Mrs. Igaki, in the English version of her witness statement, is generally confirmatory of Igaki. Exhibit IG6 is strong confirmation of their evidence. It is in Burgess' handwriting and Burgess did not elect to offer any explanation for it. I accept what Igaki had to say in his witness statement about the matter. ASSESSMENT OF IGAKI'S EVIDENCE In general, I prefer Igaki's written statement of evidence, which he provided in both a Japanese and English language version, to his oral evidence. There was no significant challenge to the accuracy of the English translation of his original statement of evidence in Japanese. The written statement is likely to be a careful account of what he wanted to put before the Court, compiled without any of the pressures he was under in giving oral evidence through an interpreter in strange surroundings. My concerns about the reliability of his oral evidence flow from the fact that he not only contradicted what he had to say in his written statement, but also contradicted himself in the oral evidence he gave on important issues; in his oral evidence I also consider that he succumbed to the temptation to say whatever occurred to him as likely to advance his case. Some examples follow. In his written statement Igaki gave evidence that shows he clearly appreciated that the figures in the "private sale" document and in the valuation were estimates of future trading and not historical trading figures. He there says that at both the June and July meetings, he repeatedly asked for the historical trading figures. In para. 28, dealing with an episode at one of the June meetings in which, in response to his question, Burgess told him he did not have the company's history or trading figures with him, Igaki said: "I trusted you but you didn't bring me the company history and past trading figures as required by my accountant and banker. I don't want to have any part of this business. Without those figures you only have projections and the deal involves $4,000,000.00. Without a company history and trading figures it is too risky for me to make that kind of investment." The English version of para. 28 of his statement reflects what he meant to convey. In the course of his cross- examination on para. 28 of this English version, Igaki claimed he had never heard words meaning "projection" and he was then asked to read aloud para. 28 of the Japanese original. While I do not think Igaki read this passage out word for word, Mrs. Rich, the highly competent interpreter, gave his answer as follows: "I have trusted you but you have not brought the document that was trusted (sic) by the bank and my accountant. I do not want to be involved in this project in any form or shape. If those figures are not available, all we have is an estimate and a four hundred million yen. It is too risky to enter into such an investment without a company history or trading figures." (Throughout his evidence, Igaki always spoke in terms of yen, not Australian dollars, even where he was speaking about documents that referred to Australian dollars. He explained that he always automatically converted dollars to yen on the basis that the AUD equalled ¥100.) In his oral evidence, however, he repeatedly insisted that he understood the figures in the "private sale" document and the valuation report to be a tabulation of income that had been earned in the past three years and that he did not realise that they were estimates of future income. Typical of the position he generally adopted at the trial is the following: "Qs And he [Burgess] made it perfectly plain to you that the figures in the documents were the projections of what he thought the restaurants might make in the future; is not that right? A: I have not heard anything that meant projection; I have not heard words meaning projection. All I had heard was that these were actual figures from three years of trading." Not only did he thus give oral evidence that contradicted his written statement, but he also gave conflicting oral evidence on this important issue, which concerned one of the misrepresentations on which the applicants' case was based, viz., that past trading figures were not available and could not be given to him: he said at other points in his oral evidence that he knew he did not have those same historical trading figures. In his written statement, he said that at one of the June meetings, Watanabe discussed the "private sale" documents with him and told him that a 50% share in the restaurants would return him $1,250,000.00 per annum out of net profits of $2,500,000.00. He also there referred to Burgess' "black money" document, IG6. This indicated that Igaki could expect to receive $725,000.00 annually in "black money" from the four operating restaurants and $925,000.00 if the proposed kareoke bar was included, on top of the $1,250,000.00 Watanabe mentioned, i.e., about $2,000,000.00 overall. In para. 44 of his statement, he said that after looking at this "black money" document, he "started to think if I can. get $2,000,000.00 per year the joint venture would not be a bad deal". In oral evidence, however, Igaki claimed he understood he would receive the whole of the $1,387,500.00 shown in exhibit IG6, which he had Mrs. Umemura translate for him (even though IG6 included cash from a Noosa restaurant and an establishment called "Le Rivage" that were not included in the proposal put to him) and half of a further profit figure of $2.9M, which he said Burgess pointed out to him in the valuation report, i.e., a total of nearly $3,000,000.00 per year. He had earlier said, when he was first shown in Court the page in this report which he later marked, or a duplicate of it: "Yes, I remember it [i.e., the accounts page] because the income was about 290,000,000 yen, roughly 300,000,000 yen, and 50 per cent of that each." Igaki marked in the valuation report what he claimed was the $2.9M figure he was shown. Igaki makes no mention in his written statement of a profit figure of $2.9M, or of it being pointed out to him. This figure which Igaki marked, 29.02, is the percentage of gross sales projected for the kareoke bar that would be consumed in indirect expenses; it has nothing to do with any $2.9M profit. His written evidence is to be preferred to his oral evidence here. This is another example of Igaki's unreliability in his oral evidence on an important matter. It looked very like Igaki was simply saying something that had just occurred to him as likely to assist his case, when he was shown one of the accounts pages in the valuation report in the witness box. I do not think this inconsistency between written and oral evidence can be explained away as due to inept translation: I was impressed by what seemed to me to be the very high quality of the translation provided by the interpreter, Mrs. Rich, throughout her attendance at the trial. I mention that it was her practice, when Igaki gave other than a brief answer, to make notes as he spoke, to which she referred, in order to ensure an accurate translation. I also mention that, although I have not accepted everything they said, I found Mrs. Igaki and Ishihara to be more reliable witnesses than Igaki, who I think was, understandably, very concerned in court to do his best to recoup the large loss his decision, over the opposition of his wife and his advisers, had caused he and his wife to suffer. MORE FACTS While Igaki was not prepared t5 agree to the proposal when it was put to him by Watanabe and Karlos, he undoubtedly had a great deal of faith in Burgess. But even so, Burgess was not able to persuade him to become involved until he told Igaki of the large amounts of tax-free moneys that Igaki would receive. Prior to Burgess mentioning this, while Igaki was privately interested in joining with Burgess and Karlos, I think that he was very much concerned at the absence of actual trading figures and was sceptical about the reliability of the projections in the "private sale" document; his wife was opposed to his involving himself in Burgess and Karlos' business and his accountant, Ishihara, was thoroughly sceptical of the financial information in the "private sale" document. His banker was of the same opinion. I accept Igaki''s statement that, when Burgess revealed to him that substantial tax-free moneys were also available, that confirmed his belief that he could trust Burgess personally, although he remained sceptical of the documents. It also I think made the proposal to buy into Burgess and Karlos' business one that strongly attracted Igaki because of the very high returns he believed he would get. Even though Burgess had not produced any past trading figures, the visit of Burgess, Karlos and Watanabe to Japan in June ended up with Igaki signing the "Heads of Agreement" document dated 25 June, 1990, as did Burgess and Karlos. Both Mr. and Mrs. Igaki say Igaki was reluctant to sign it and only did so on assurances that it was not a binding contract. Igaki also said that he only signed it on the express condition that he was given the company history and past trading figures before he signed the binding contract, something he says Watanabe promised would be attended to. Watanabe or Burgess said that they would return in three months with the formal contract. Although the Igakis were not expecting to see them for three months, Burgess and Karlos did not waste any time following up the success they achieved in their June visit by way of procuring Igaki's qualified commitment to investing in their business. On 13 July, 1990, Mrs. Igaki received a facsimile from Watanabe advising that he, Karlos, Steer and Michael Robinson would be coming to Japan. Michael and Tony Robinson are members of the firm of solicitors, Robinson & Robinson, who up until late June had been the solicitors for Burgess and Karlos in respect of the transaction out of which this action has arisen. The Igakis retained Robinson & Robinson to act for them in connection with the proposed joint venture agreement, although this was all arranged by Burgess in late June 1990. At the same time, Burgess engaged another firm of solicitors to act for the first three respondents in the transaction from that time on. Igaki said that neither he nor his wife had given any instructions for Tony or Michael Robinson to come to Japan. He also says that he had no knowledge of Michael Robinson being retained to act for him. He said in his oral evidence that he did not know who Michael Robinson was or what he did. The correspondence between the Igakis and Robinson & Robinson in late June-early July shows that what Igaki said was untrue. Moreover, Mrs. Igaki says she knew that Michael Robinson was their solicitor and had come instead of Tony Robinson. Dixon, an accountant with Coopers & Lybrand, gave evidence, which I accept, that he was retained to give independent accounting advice to Igaki by Tony Robinson on 2 July, 1990. On 12 July, he gave his letter of advice to Igaki of 10 July, 1990 to Tony Robinson for delivery to Igaki because, despite his request, Robinson refused to give him any other means of communicating with Igaki; he was told it would be passed immediately to Igaki. Dixon concluded this letter with a warning to Igaki to verify that he was getting value for his money, even though he had not been engaged to comment on that. Dixon also said that in early July, before he indicated to Tony Robinson his concerns about the price Igaki was to pay, Robinson said that he would make arrangements for Dixon to travel to Japan in mid July, in accordance with Igaki's requirements. No such arrangements were, however, made. He heard nothing further from Tony Robinson after he gave him the letter for Igaki. Dixon stayed in Australia and his letter of 10 July was not passed on to Igaki. Steer was the only accountant who travelled from Australia to attend the meetings in July, at the end of which Igaki signed the agreement for the payment of the $4M to the first respondent. However, neither of the Robinsons was called as a witness and the applicants have made no complaint about them in these proceedings. The Australian party arrived on 14 July, 1990. All ended up staying at the Igakis' home. On 15 or 16 July, everyone met at Igaki's home; one of the Australian party, either Watanabe or Steer, said they had brought the contracts for signing. Igaki declined to sign. He complained again about not being provided with past trading figures and a business history of the company. The information was again promised. On 17 July, a further meeting was held in an office at the second applicant's school at the request of the Australian party. Prior to this meeting, Igaki telephoned Burgess; Mrs. Umemura interpreted. (She did not give evidence, although a statement signed by her was tendered; she does not, however, give any information about what took place at any of the June or July meetings.) Igaki says that: "In the course of that telephone conversation, I asked Bob Burgess to sign the black money document he had written in June of 1990. I told him 'Unless you sign it I won't attend the meeting to discuss the contract'. I asked him to sign the black money document as a means of guaranteeing that what he had written was true. I did this because I was worried I had not been given a company history or trading figures so I wanted things in writing and signed. Bob agreed to sign the document and I received by facsimile a copy of the document with Bob Burgess' signature on it. I did not have the document translated into Japanese and I did not notice that Bob had added new words to the document when he signed it ..." What Igaki wanted Burgess to confirm was the truth of what he had set out in exhibit IG6 back in June. Mrs. Igaki faxed a copy of it to Burgess that same morning and Burgess signed it and faxed it back: it became exhibit IG9. The earlier document, exhibit IG6, recorded three significant representations by Burgess: firstly, that total annual sales by all of Burgess and Karlos' existing restaurants on the Gold and North Coasts and from three planned operations would be $19M. Secondly, that 15% of this, or $2.75M, could be retained as undeclared income and, thirdly, that Igaki would receive half of this, i.e., $1.375M, if he bought into Burgess and Karlos' business. IG6 suggests that annual sales from the four operating Gold Coast restaurants and the planned kareoke bar totalled $12.75M. Igaki never said anything to suggest that he relied on any of the sales information recorded in either exhibit. But he had much to say about the information in these documents with respect to the "black money" that Burgess said he could expect to receive. I consider that it was confirmation of this, rather than the sales figures, that Igaki sought in his telephone call to Burgess on 17 July and which he promptly received in Burgess' facsimile, exhibit IG9. There are some additional notes on it in Burgess' hand qualifying the reliability of the figures, over Burgess' signature. It appears that Burgess got the additional wording from Steer, with whom he spoke on the telephone before faxing the document to Igaki. I do not think it odd that Igaki did not have Mrs. Umemura translate IG9 then and there: Igaki recognised it as a copy of IG6 and that it now bore Burgess' signature. That is all he was concerned to have. The meeting of 17 July took place in the afternoon, after Igaki had received exhibit IG9 from Burgess. In addition to the whole Australian party, including Karlos, Mr. and Mrs. Igaki, their accountant, Ishihara, and two people from Igaki's bank, Mr. Kato and Mr. Ohta, were also present. Mrs. Igaki says that Mr. Igaki explained to Watanabe that Kato and Ohta were present at the meeting because he would have to borrow money from his bank if he were to accept the proposal; Igaki says he told the same thing to Steer, Robinson and Karlos. Both Mr. and Mrs. Igaki say Steer did most of the talking. Ishihara says the same thing: it was Steer who answered Ishihara's questions through either Watanabe or Mrs. Umemura. Steer confirms most of this. Ishihara took an active part in the discussion. Steer explained the contract documents which had been brought from Australia. Ishihara and Igaki both asked him for the trading figures and a company history; Steer said he could not provide them. Kato and Ishihara questioned Steer about the figures in the "private sale" document and both commented to Igaki that the figures were unrealistic and could not be believed. Ishihara confirms that both he and Igaki a number of times asked Steer, Karlos and Watanabe to show them the actual past trading results of the restaurant businesses. While he denies that Igaki asked for these figures, Steer acknowledges that Ishihara did so. He acknowledges that, in response to Ishihara's query, he said he did not have these figures. Ishihara says, as does Mrs. Igaki, that Steer promised to send them to Igaki. Icaki also raised a number of questions about the Shareholders' Agreement and insisted that it be changed to provide for payment to him of unlimited travelling expenses. An amendment was made, but not to the full effect demanded by Igaki. Steer mentioned the $3M or so in debts which Burgess and Karlos had incurred and which would be repaid with the funds to be provided by Igaki, a debt reduction that he said would generate more profit for the company. At this point, Igaki's banker warned him not to become involved, saying that if Burgess and Karlos still had outstanding debts of $3M, they "probably are not making any profit". Burgess in his facsimile of 18 July, 1990 to Igaki also told Igaki that $3.2M of the $4M that Igaki was to pay was needed to pay debts of $2M owing by Coastmine and of $1.2M owing by himself and Karlos personally. Igaki says that at one stage in the meeting, Ishihara and Kato said to Robinson and Karlos that the deal was off because of the absence of trading figures and company history; Watanabe then asked Igaki if that was his decision, whereupon Igaki says he took Ishihara, Kato and Ohta into another room for a private meeting. Of this private meeting, Igaki says: "106. I proposed that private meeting so that we might discuss the 'black money' document written by Bob Burgess in June. I showed the 'black money' document to Mr Ishihara, Mr Kato and Mr Ohta. 107. Mr Ishihara and Mr Kato said 'The figures prepared by Bob Burgess are too good to be true'. They said 'Even the figures in the 'A Private Sale' document are too good. We can't believe you will receive the black money too'. 108. We all agreed that the figures produced by Bob Burgess could be false but that if, in fact, 15% of the sales of the restaurants was 'black' money then it was reasonable to assume that the company could not prepare trading figures for the restaurants. 109. Mr Ishihara said 'People who deduct 15% of sales of a business by way of 'black' money cannot be trusted. You should not become involved in any business that does not declare its income tax properly'. 110. I said 'Bob Burgess has told me the business is not paying tax'. It is reasonable to assume that that is why he can not produce the trading figures for the business'. 111. Mr Ishihara said 'If you become involved in the business then the black money must stop'. We all agreed to that. 112. Mr Kato and Mr Ohta eventually said 'Whether you enter into the joint venture or not is your decision but we are not in favour of your entering into the joint venture'. Mr Ishihara also said 'Mr Igaki you should not enter into this joint venture'. 113. I told them 'I want to go ahead with the transaction because I trust Bob Burgess' and I said 'I believe the deal is reliable because Bob has signed the black money document to say 80'. 114. We all then returned to the meeting and I advised Paul Steer, Michael Robinson, Nick Karlos and Watanabe that I would sign the Shareholders Agreement." Paras. 106-107 of Igaki's written statement suggest that he gave Ishihara (and Kato and Ohta) an opportunity to read exhibit IG9. Ishihara said that Igaki did not allow him to read it, but told him, in the course of this private meeting, what it evidenced, viz., that "this document shows that I am to be paid 15% of the income of the business before tax". I prefer Ishihara's evidence to Igaki's on this point. Both Igaki and Ishihara say Igaki never showed him IG6, the "black money" document Burgess gave Igaki in June. Igaki's explanation for this I think evidences his awareness that Ishihara would not approve of Igaki going into a venture which involved him receiving a large amount of "black money". That later, in the private meeting he had with Ishihara and Kato on 17 July, Igaki disclosed to them his expectation of receiving large amounts of "black money" does not, in my view, cast any doubt on what he says in his witness statement about the importance to him of the "black money" promise: in view of the firm opposition that Ishihara and Kato made to Igaki accepting the proposal at the meeting of 17 July, because of the lack of the past trading figures about which Igaki himself complained, he would have appeared to them to be behaving irrationally if he did not explain in the private meeting that there was another powerful consideration which attracted him to the proposal. Mrs. Igaki confirms that it was in response to Kato and Ishihara making it plain that they considered the figures in the "private sale" document unrealistic that Igaki suggested the private meeting with his three advisers and that, after returning from the meeting, he agreed to sign the Shareholders' Agreement. Ishihara gives much the same account of what occurred after it had been made clear to the Australian party that Igaki was unhappy at the lack of trading figures and at a point when he still had not agreed to sign the contract. Ishihara says: "33. Mr Igaki then suggested that he, Mr Kato, Mr Ohta and me go into another room to hold a private discussion. 34. When we go to the other room Mr Igaki showed me a handwritten document which he said had been made by Bob Burgess. Mr Igaki said 'This document shows that the business makes money which is not declared for tax purposes'. He said 'This document shows that I am to be paid 15% of the income of the business before tax'. 35. When Mr Igaki told me those things I said 'That is a very dangerous way to do business'. I said 'you shouldn't do that, you have to calculate tax properly'. I said 'If you go into this business you should stop the black money as soon as possible'. Mr Igaki replied 'I understand'. I said he should not enter into the contract. I said 'Please don't go into this business'. 36. Mr Kato and Mr Ohta said it was up to Mr Igaki to decide whether or not to go into the business but they advised Mr Igaki against going into the business. 37. Mr Igaki did not say anything, he just returned to the meeting room. 38. Mr Kato, Mr Ohta and me took no further part in the meeting." Igaki said that, in the course of this private meeting, Ishihara told him that if he went into business with Burgess and Karlos, then "the black money must stop" and that "we all agreed to that". I do not accept that Igaki agreed to that. Ishihara does not confirm Igaki's contention that he agreed to Ishihara's advice, only that Igaki at that point commented "I understand". Nor do I accept that, despite his oral evidence, Igaki intended to stop the practice of taking "black money", once he became involved in the business. That Igaki had no intention of passing up the prospect of obtaining large amounts of tax free moneys is clear from what took place later that year. Mr. and Mrs. Igaki travelled to the Gold Coast in the last week of July 1990. On 31 July, with his wife, he attended a meeting at KPMG Peat Marwick, Steer's office. Steer, Michael Robinson, Burgess and Karlos and a KPMG Peat Marwick interpreter were also present. At this meeting, Igaki says Steer gave Igaki his letter of 31 July, 1990 which he said he had prepared on Burgess' instructions and on the basis of information given him by Burgess. Appendix II to the letter was described in it as "a summary of the monthly profit and loss projections of Remobay Pty. Ltd. [i.e., Gold Coast Restaurants Aust. Pty. Ltd.) to 30 June, 1991, as prepared by Mr. Bob Burgess". The figures in Appendix II for the 10 months to June 1991 showed a projected return to Igaki Australia Pty. Ltd. from the venture of only $364,550.00, made up of the consultancy fees of $200,000.00 provided for by the Shareholders' Agreement and a 50% share of profit after-tax of $164,560.00. The 28.2% version of the "private sale" document in both the English and Japanese versions suggested that for the 12 month period to June 1991, Igaki could expect to receive §$1,129,504.00 after-tax. The "black money" was additional to this. Igaki immediately appreciated, from his perusal of Appendix II, that the projected after-tax profit was much lower than the corresponding figure for the 1991 financial year in the "private sale" document, although the text of the letter was in English. Igaki became very upset. He told Steer that he wanted to terminate the contract; he said that "In Japan if you promise something and you don't do it you must commit hari kari". The Australians at the meeting laughed at this. Igaki says he made this as a_ serious comment. Mrs. Igaki confirms what Igaki has to say. Igaki faxed a copy of the Appendix II figures to Japan for Ishihara's comment; Ishihara told him that the figures were untrustworthy and that he should get out of the contract. Steer's account is not much different on essential matters: he says he gave Appendix II to Igaki at a meeting at his office on 1 August attended by Burgess and Karlos, Mr. and Mrs. Igaki and their interpreter and Michael Robinson and that it was when the Igakis called on Steer the next day with their interpreter that Igaki spoke of his concern about the Appendix II projections differing from the "private sale" projections; he then told Steer he wanted to terminate the contract. I accept that, by the beginning of August, because of concerns generated by Appendix II, Igaki told Steer he wanted to terminate the contract. The result was that a further meeting was held on 2 August at Robinson & Robinson's office. Steer did not attend. Mr. and Mrs. Igaki, Michael Robinson, Ms. Flynn, a Japanese interpreter employed by Robinson & Robinson, and Burgess and Karlos attended. Before they arrived, according to Mrs. Igaki, Igaki said that he wanted to get out of the contract, whereupon Michael Robinson telephoned Burgess, who soon after arrived at the meeting with Karlos. Igaki repeated his wish to terminate the contract to Burgess and Karlos. He told Burgess that if Appendix II showed what he could expect to receive, he would not be able to meet the repayments on the loan which the second applicant was obtaining from Igaki's Japanese bank to pay for the shares. He was still very upset and angry. Burgess set about placating hin. He said the figures in Appendix II were prepared by him and Steer in a hurry, that they were for tax purposes only and were not reliable. He said "they don't include the black money". Burgess then made some handwritten notes on a copy of Appendix II which he had at the meeting and said he would guarantee that Igaki would receive $554,000.00 per year, which he noted on the document. He promised that Igaki would be able to meet the repayments to the bank. Mrs. Igaki says that, at this point, Burgess promised that the new projections, plus the "black money", would equal at least ¥60M per year, i.e., $600,000.00. Burgess talked a lot about family and said he would not let Igaki or his family down. Igaki asked Burgess to put it in writing. Burgess produced a typewritten copy of the "black money" document IG9 which he had the foresight to bring to the meeting. He wrote on the bottom: "We will always honour our obligations in terms of the contract between Nicholas Karlos, I Robert Burgess, Toshiharu Igaki, Takeda Igaki, Toshie Igaki and Hatsune Igaki, Toshika Igaki, also we will honour our above agreement. * Burgess and Karlos both signed this note. They also signed the document, along with Mr. and Mrs. Igaki, immediately beneath the typescript copy of IG9 and beneath the date 2 August, 1990. This was done after Igaki said, "If you can guarantee the figures in the 'black money' document I will do the deal", to which Burgess replied: "I can guarantee it". This satisfied Igaki. There were no more threats by Igaki to terminate the contract, although, later in August, he sought from Burgess and received from Steer further explanations for the differences between the figures in the "private sale" document projections and those in Appendix II, which appear to have satisfied him. Although counsel for Burgess and Karlos, in cross- examination of Igaki, put to him Burgess and Karlos' version of the circumstances in which exhibit IG10 came to be signed by them, counsel never put to Igaki their explanation why Burgess wrote, in the note that he and Karlos both signed, the concluding words: "Also we will honour our above agreement.". Counsel never made good his promise, made before informing the Court that neither Burgess nor Karlos would give evidence, to take instructions from his clients and deal with this particular matter. A fair reading of the note signed by Burgess and Karlos is that it contains a promise to honour the Shareholders' Agreement and a separate promise to honour the agreement relating to "black money" recorded in the first half of the document. I accept what Igaki says took place on this occasion concerning the discussion about "black money". A day or so later the Igakis returned to Japan. The Shareholders' Agreement, which Igaki signed on 18 July, was subject to the approval of the Treasury within 45 days from the date of execution (clause 1) and completion, i.e., payment by Igaki of $4M for his company's shareholding in Coastmine, was fixed for seven days after Treasury approval or 40 days from the date of the agreement, whichever date was the later, but always subject to the approval of the Treasury (Clause 12). The agreement was therefore due for completion by early September, at the latest. On 21 August, 1990 the Igakis received a facsimile from Robinson & Robinson advising that the settlement moneys should be telegraphically transferred to their trust account on 27 August, 1990. Igaki was reluctant to pay over the money: he informed Robinson & Robinson of his own concerns about the unfavourable exchange rate and then advised them of concerns his bank had about transferring the money at that time. Robinson responded by saying that Burgess, as a show of good faith, would pay half of Igaki's stamp duty, to which Igaki responded with a fax to Robinson saying he would forward the settlement money if Burgess would pay all of the stamp duty. That same day, 24 August, 1990, he received a response from Robinson & Robinson to the effect that Burgess was prepared to pay half Igaki's stamp duty and all of the legal and accounting costs associated with the transaction. On 26 or 27 August, Iqgqaki received a telephone call, in the course of which he spoke with Ms. Flynn, Michael Robinson and Burgess. Burgess said that he could not come to Japan as agreed unless Igaki paid the settlement money - Burgess was to come to Japan to look for decorative materials for the proposed kareoke bar and restaurant. Igaki says it sounded to him like Burgess was begging him to send the money; he said he felt sorry for Burgess and transferred the money to Burgess on 27 August, 1990. Burgess knew his man. Igaki was looking forward to his visit. Odd though it may appear, Burgess' threat not to come to Japan I think played a part in causing Igaki to have the $4M paid over to Burgess and Karlos. Settlement took place in early September. The Igakis received at least five payments of "black Money" between the end of September and the end of December totalling $80,142.00. Igaki says he was handed each payment by Mrs. Burgess. She did not give evidence, although she was readily available. Mrs. Igaki identified the last page of a notebook as the Igakis' own record of: "the black money we received from Bob as well as consultant fees". Four payments only are there recorded, together with four other payments of $16,000.00 each - the latter being a record of receipts of the monthly consultant's fees to which Igaki Australia was entitled under the Shareholders' Agreement of $200,000.00 per annum. These four payments of "black money" total $61,656.00; they received at least one further payment of "black money" of $18,486.06. At first, Igaki said he wrote up these notes himself; he later said that he thought his wife wrote them, although he was not quite sure. The first payment of "black money" received by the Igakis at the end of September 1990, but which was not recorded in this notebook, was of $18,486.06. This cash payment was made up by Ms. Carolan, the respondents' office manager, on Burgess' instructions and Placed in an envelope for Igaki, together with a note in Ms. Carolan's hand. There is some Japanese handwriting on this note, which Igaki identified as his wife's. He said it reads as follows: "This is the memo that was included in the bag when subjects excluded (sic) black money was received from Nick for four restaurants." Ms. Carolan gave evidence' that, on Burgess' instructions, she set aside from the restaurants' daily takings the cash that made up the payments given to Igaki. She set aside an equal amount for payment to Burgess and Karlos. She said that all these payments were recorded at the time in the company's daily sales book. She says she repeatedly sought to correct what she believed to be Igaki's misapprehension that these cash payments she made to him were "black money" and were, in truth, legitimate drawings that were properly recorded. She said, however, that despite a thorough search, she was unable to locate the daily sales book, which she last saw in late June 1991, in the office of the first respondent. She gave evidence of receiving instructions in November 1990 from Burgess, in the presence of Karlos, Igaki and his interpreter and solicitor, Mrs. Feller, to cease taking cash drawings out of the daily bankings for Igaki, himself and Karlos. Even if I were prepared to accept what she says here, cash continued to be set aside by someone associated with Burgess and Karlos and paid to Igaki. Ms. Carolan also gave evidence of Igaki subsequently insisting on receiving further cash drawings. I reject Ms. Carolan's evidence where she suggests that these cash payments were regarded by her employers, Burgess and Karlos, as legitimate cash drawings and that, as such, they were recorded in Coastmine's daily sales book. I accept what Igaki has to say about these payments being made to him by way of "black money". Ms. Carolan is very much in Burgess and Karlos' camp. Igaki's evidence is confirmed by the fact that the first, second and third respondents were unable to produce any record in Coastmine's books of these payments made prior to April 1991, i.e., prior to the time the dispute, which quickly led to the initiation of these proceedings, broke out between the parties: it was some time after April 1991 that Ms. Carolan, on Burgess' instructions, recorded in Coastmine's journal the cash payments of "black money" made to Igaki, which she showed as totalling $94,926.35 and constituting "loans". The Igakis banked this money in their Australian bank and Australian building society. Ishihara throughout made it clear to Igaki he was strongly opposed to Igaki taking "black money". He also told Igaki that if any "black money" was brought into Japan, he would make sure it was recorded in the books he kept for Igaki and his Japanese company. Igaki sent the "black money" he received between September and December 1990 back to Japan in February 1991, but only because he was then unable to pay the interest on his "borrowings" in Japan without § it. That he did this only in these circumstances of necessity does not throw any doubt on the proper characterisation of the receipts as payments made by Burgess and Karlos from cash income of the restaurant business to Igaki, which none of them intended to be declared for tax purposes. In reaching this conclusion, I take into account the admissions made by Burgess and Karlos' counsel that they received similar amounts by way of cash drawings to those Igaki received and that no written record existed of any decision by or on behalf of Gold Coast Restaurants Pty. Ltd. authorising any of those payments. There is not much evidence of the reasons why payment to Igaki of "black money" ceased in December 1990. I am satisfied, however, that it was not due to any action on the part of Igaki and that the impetus for it came from Burgess and Karlos. Ms. Carolan gave evidence that: "We stopped the cash drawings because of the downturn". The consultancy fees of $16,000.00 per month payable to Igaki under the Shareholders' Agreement also stopped in July 1991. The kareoke bar was a failure: it closed soon after it opened. Despite Igaki's $4M, Burgess and Karlos' business appears to have remained in financial difficulty. Sales in the 1990 year and throughout the period vwuly 1990 to at least January 1992 were well below the figures in Coastmine's accounts for the 1989 year. The banker, Kato's warning to Igaki on 17 July, 1990 turned out to be well founded. Ms. Carolan's evidence as to what occurred after the "black money" stopped is revealing. She said: "The case started when the cash drawings stopped ... That's when all the problems started when the cash drawings stopped ... That's when Mr. Igaki decided to bring in auditors..." These payments stopped in December 1990. By February 1991, Igaki had already engaged the litigation section of the solicitors who have acted for him in this action and Burgess and Karlos knew that he was considering suing them. Igaki agreed that at a meeting in late 1990 attended by his Japanese-speaking Australian solicitor, Mrs. Feller, and Burgess and Karlos, the topic of "the cessation of black money" was discussed. Counsel for Burgess and Karlos put to him that Burgess told Mrs. Feller that she ought to be aware that cash drawings were being taken and that Burgess understood Igaki did not intend to declare these drawings for income tax purposes; Igaki did not accept this suggestion but said that Mrs. Feller said at this meeting that she had previously heard from him "that black money was going on but that should be stopped". Mrs. Feller could say whether she first heard of the "black money" from Igaki or from Burgess. She did not, however, give evidence. There is some evidence that the Igakis' Australian tax accountants were made aware by the Igakis of their receipt of these "black money" payments at some time. But it is too vague to enable me to conclude when it was that the Igakis disclosed this information to them: Mrs. Igaki said that she did not clearly recall when this was done "but I think it was before we knew the commencement of the trial". Nor did the applicants or Mr. and Mrs. Igaki attempt to prove that they have declared for income tax purposes here the $80,000.00 cash received. In re- examination Igaki was asked only whether he filed tax returns in Australia. He said that he thought Coopers and Lybrand were handling that. THE APPLICANTS' CASE AS PLEADED The applicants' case as pleaded is not that they suffered loss because the first applicant was induced to enter into the Shareholders' Agreement executed on 18 July, 1990 by the misrepresentations or as a result of the negligence complained of; their case is that they suffered loss because, as a consequence of the misrepresentations and the negligence in question, the first applicant took up and paid, with moneys borrowed by the second applicant, $4M for one half of the share capital of Gold Coast Restaurants Pty. Ltd., a shareholding they say is, for practical purposes, worthless. But the case to which the applicants deliberately confined themselves was that this loss was the consequence of misrepresentations and negligence that occurred prior to the execution of the Shareholders' Agreement. The misrepresentations which the applicants allege were made to them by or on behalf of the first, second and third respondents are as follows. Pirstly, it is said that, in the course of the June 1990 meetings in Nagoya, Watanabe, and then Burgess himself, misrepresented to Igaki that the restaurants were together valued at $13M and had made, and would continue to make, a net profit of $2.5M. Igaki's written and oral evidence was that Watanabe told him of the $13M value in the course of the June 1990 meetings before Burgess' arrival. In his witness statement, he put this in the context of Watanabe showing him a version of the "private sale" document and a copy of Quinlan's valuation report (which valued the restaurants at only $8.14M). In contradiction of these clear statements, at one point Igaki gave oral evidence that, so far as mention of a valuation of $13M is concerned, it was his wife who told him "that she heard that from Mr Watanabe who heard it from Bob so the conversation's chain has come from Bob to Mr Watanabe to my wife and myself". Mra. Igaki says Watanabe said to them that he had "been told by the valuer that the restaurants were worth $13M", that the valuations are equivalent to a bank's guarantee in Japan and that when Watanabe mentioned the $13M, he was showing them Quinlan's valuation report. Neither document contains anything to justify a statement that tie restaurants were worth $13M. The summary of the financial projections for the 1991 financial year in the 28.2% version of the "private sale" document in both the English and Japanese versions assumes sales of $13,008,814.00. Igaki said in his evidence that he noticed this figure when he looked at the document, but that his belief as to the $13M value of the restaurants came not from that document, but from Watanabe's oral statements. Watanabe gave evidence as the applicants' witness, the dispute between them having been settled before the trial commenced. At the insistence of the first, second and third respondents' counsel, he gave most of his evidence in English. Although he may have a reasonable understanding of statements made to him in English, his capacity for expressing himself in that language is poor. Moreover, he has an extensive failure of recollection. While his evidence is of limited use, he did not confirm the Igakis' evidence here, although he acknowledged that he discussed with Igaki the valuation report, at least the photographs in the English language version of the "private sale" document and also an extract from the "private sale" document comprising some pages in Japanese and the pages in English of the 28.2% version consisting of section 5 "Financial Projections". These pages extracted from the English language version of this "private sale" document contained the reference to estimated sales for 1991 of $13,008,814.00. It also seems that, while Watanabe took with him to Japan in June 1990 the two versions of the "private sale" document and the Quinlan valuations, he received by facsimile a day or so after his arrival a Japanese language version of extracts from the 28.2% version of the "private sale" document which he showed to Igaki. The Japanese language extract includes the "Executive Summary" section of this version of the "private sale" document, which refers to the financial projections reflecting a profit after- tax of $2.259M and a return to Igaki on his 50% interest which reflected 28.2% on $4M; it also includes the "Financial Projections" section of the document, which includes the table showing how the 28.2% return was calculated on sales of $13,008,814.00 projected for the year ending 30 June, 1991. It is unlikely that Watanabe would have suggested that the restaurants were valued at $13M - $5M more than the Quinlan valuation report - when he showed Igaki a document in Japanese that clearly referred to $13M as a projected 1991 gross sales figure, not a valuation, and which did not set out any valuations. I am not prepared to accept that Watanabe made the $13M value representation alleged. There is some support in the five year projections sheet in the 28.2% version of the "private sale" document in English which Igaki says he got from Watanabe in June for the proposition that reference was made by Watanabe to Igaki to a net profit of $2.5M, in the context of showing Igaki that document. These projections were not, however, included in the Japanese language extract of this document which Igaki also saw. In his written statement, Igaki says Watanabe mentioned both a $2.5M profit overall and a $1.2M share of the profit for Igaki. Mrs. Igaki's evidence is that Watanabe mentioned a $1.25M profit share for Igaki. In his oral evidence, Igaki said that it was his wife who, by way of explaining what Watanabe had said, mentioned a profit figure of #250M to ¥300M, i.e., $2.5M to $3M. He initially said in his oral evidence that while he heard at the first June meeting that there was a profit of $2.5M annually, it seemed inflated to him and he declined to accept the proposal by Watanabe and Karlos because of the lack of trading statements. At another point in his oral evidence, he said he expected to receive, among other things, half of a profit figure of $2.9M, which he claimed Burgess pointed out to him in the valuation document. What he marked in that document as the figure pointed out by Burgess has nothing to do with profit. If Igaki's evidence is reliable here, Burgess was taking something of a risk in telling Igaki that the figure in question in the valuation report was a profit figure, given that Igaki had his own interpreter, Mrs. Umemura, in attendance. I am not prepared to accept Igaki's evidence on this particular issue in view of the conflicting statements he has made about this matter. It is likely, however, that Watanabe had something to say about the profit that Igaki could expect from the venture, even though he did not in his evidence mention speaking of that profit. His brief was to persuade Igaki that the proposal was an attractive one. He had, among other documents, the 28.2% version of the "private sale" document which, in the English version, included the five year profit projections that ranged from $2.3M for 1991 to $3.1M for 1995. He was given this document, which Burgess got Steer to prepare after reviewing the more pessimistic 25.4% version, by Burgess as an aid to persuading Igaki to accept the proposal. It was discussed at the June meetings before Burgess' arrival. Despite Igaki's unsatisfactory evidence on this issue, I am prepared to accept what Mrs. Igaki says. I find that Watanabe did say to Mrs. Igaki who relayed it to Igaki that he could expect the business to generate annual profits of which his share would be $1.25M. But what Watanabe had to say about this played no part in causing Igaki ultimately to commit his companies to the venture. Igaki was not prepared to enter into the proposal despite all that Watanabe had to say in June 1990. He insisted on Burgess' attendance in Japan, if he were to give any further consideration to the proposal. And it was only after Burgess arrived in Nagoya, failed to procure a commitment from Igaki and then mentioned the "black money" that Igaki became interested in it. So far as the applicants' allegations that Burgess repeated the same two statements to Igaki after his arrival in Nagoya in June are concerned, Igaki makes no mention of any of this in his written statement. That by itself makes his evidence here suspect. Moreover, he does not mention in his oral evidence that Burgess said anything about the restaurants being worth $13M. There is no basis for any finding that Burgess made this particular statement. Contrary to the allegation in the applicants' statement of claim, Igaki did not suggest in his written statement that Burgess made any statement to the effect that the restaurants generated an annual net profit of $2.5M. Nor did he make any such suggestion in his oral evidence either: he there claimed that Burgess pointed out in the valuation report what he said was a $2.9M profit figure. There is no basis for finding that Burgess made a representation that profits of $2.5M were being achieved or a representation that such a figure would continue to be achieved. Mrs. Igaki made no such suggestion. Igaki's oral evidence was to the contrary, viz., that $2.9M represented what had been achieved over the previous three years and that an even larger figure could be expected in the future. In cross-examination by counsel for the first three respondents, Igaki said: "Q: So that in June, when you gave the documents to Mr Ishihara, you only gave him the English versions of them. Is that right? A: I have only give him the one in the brown cover {[i.e. Quinlan's valuation report}. Q: All right. And did you tell Mr Ishihara that you had been promised that you would - the figures for the restaurants in the future would be better than those shown in the document? A: Yes. I said that. Q: And is it your evidence that you believe that to be the position that the figures for the restaurants, in future, would be better than those in the document? A: Yes. Q: So your decisions were not motivated by the figures contained in that document or the blue documents but rather by some promise that you would get more than that? A: Yes. Q: How much more did you think you would get? A: Because [I have no experience in this field I just trusted in Bob and Mr Watanabe. Q: I see. So, you were not particularly concerned with what the actual figure was. You simply relied on Mr Burgess's expertise to run restaurants; is that the position? A: That is correct. Q: And it was that confidence in Mr Burgess's ability to conduct a successful restaurant which was the reason you signed the documents; is that correct? A: Yes." He went on to say that another reason for his decision was what he was told about the restaurants being worth 1.3 billion yen, an issue I have already dealt with. Secondly, the applicants allege that the first, second and third respondents, by having Watanabe hand Igaki the "private sale" document and the Quinlan valuation report, thereby represented that the information contained in each was true, accurate and reliable; oral representations to the same effect are alleged to have been made in June, first by Watanabe and later by Burgess. That can be assumed to be the effect of handing these documents to Igaki in the circumstances. But according to his written statement, Igaki realised from the outset, as I have already mentioned, that the financial information contained in both the "private sale" document and the valuation report consisted of projections only, which he considered to be inherently unreliable, and that there was no information as to the past trading performance of any of the restaurants available. In oral evidence he said that his discussions with both Watanabe and Burgess in June 1990 turned on the valuation report, which he knew was a valuation of the restaurants, not on the "private sale" document. He said in answer to questioning by counsel for Burgess and Karlos: "Q: You never asked Mr Burgess what the valuations of the restaurants said, did you? A: After Bob arrived we used Keiko Umemura as an interpreter and I received a briefing on the contents of this document f{i.e. the valuation report]. Q: I see. From whom? A: Bob, and myself and my wife were present together with Keiko Umemura. Q: All right. And that discussion and briefing was in relation to the brown-covered document only, is that the case, or did it also include the blue- covered documents [i.e., the two versions of the "private sale" document]? A: I do not remember but I think it was based on the brown-covered documents [i.e., the valuation report}. Q: I see. So is it the situation that apart from Mr Watanabe giving them to you, the blue covered documents played no part in any of your discussions or meetings concerning the joint venture? A: Yes, that is correct." Although the Quinlan valuation upon which Igaki said discussions turned is an impressive enough document on a superficial glance at it, Igaki was not impressed by it. I have mentioned how, because of his concern at the lack of past trading figures and a company history of Coastmine, Igaki rejected the approach by Watanabe and Karlos, despite being given the "private sale" document and the valuation report and despite the discussion that took place in relation to the valuation report. I have also mentioned how, despite Burgess' attendance in Nagoya, he was initially unable to overcome Igaki's concern at the lack of historical information about the restaurants. Igaki was unimpressed by these documents. I do not think he relied on anything in them in committing the first applicant to buying into Burgess and Karlos' business. When Igaki became upset at the large differences between the projections in the "private sale" document and Appendix II to Steer's letter of 31 July, 1990, I do not think this happened because he had, up to then, been acting on the reliability of the projections in the "private sale" document. The reverse was the case: his prompt recognition that they were projections and not historical trading information led him from the start to place no reliance on them. It was the shift in position by Burgess and Karlos, represented by the very great magnitude of the differences between the projected returns in the "private sale" document of June and the projected returns in Appendix II which he received only two weeks after the execution of the Shareholders' Agreement and six weeks after the "private sale" document, which caused Igaki so much concern about whether his trust in Burgess was well placed that he wanted to cancel the agreement. Once again,, it was only the reassurance, in the form of the note that Burgess and Karlos both signed, that he would receive large sums of tax free money that caused him to proceed and have the applicants raise and pay over the $4M to Burgess and Karlos' company. The next allegation concerns representations by Burgess and Watanabe in June 1990 that historical trading information about the respondents' restaurants could not be provided. Against the background of Igaki's discussions with Watanabe and Karlos about the absence of past trading information, I accept that Burgess' stated failure, in the presence of Karlos, in not bringing the historical information to Nagoya with him was reasonably understood by Igaki to be a representation by Burgess and Karlos that such information could not be provided to the applicants. A good deal of such information existed, as Burgess and Karlos well knew. This representation was untrue. They did not give it to Igaki because it was at odds with the picture they presented to Igaki in the "private sale" document and the valuation report of the further prospects for the restaurant business. Steer gave evidence that when Ishihara asked for this same information at the 17 July meeting, he telephoned Burgess and relayed the request to him; he said Burgess told him that he was not to give any past trading figures to Igaki - Steer acknowledges that he himself had some of this information back in his Brisbane office and it could have easily been faxed through to Japan. But I am not prepared to find that, if Igaki had known that this information was being deliberately kept from him, he would not have given his provisional assent to the proposal in June and he would not have committed the applicants to the proposal, in July, by executing the Shareholders' Agreement for the first applicant and by arranging for the second applicant to borrow the funds in Japan which the first applicant needed to complete that Agreement, in late August 1990. He was not taken to the trading information disclosed in discovery and asked what his reaction would have been if he had had access to it before committing the applicants to the transaction. That he would have withdrawn from the proposal is left to inference. It is true, as Wilson J said in Gould v Vaggelas (1985) 157 C.L.R. 215 at 236, that where there is evidence of the making of a misrepresentation that is calculated to induce reliance, that inference will generally be drawn, even though the representee does not give express evidence of acting upon it. But that is only a general rule. If Igaki was induced to action in part at least by any of the representations here pleaded, it is surprising that he did not say so, given the awareness on the applicants' side of the difficulties for the applicants' case raised by Igaki's admitted interest in the "black money". If he had seen this historical information, I do not think it is at all unlikely that Burgess would still have been able to persuade him to discount it in the same way that Burgess was able to overcome all Igaki's concerns with his assurances of continuing friendship and promises of large amounts of "black money". Igaki knew that such information should be available; yet he 'gnored the opposition of his wife and the repeated warnings by his accountant and banker not to have anything to do with the proposal without seeing it. In the unusual circumstances of this case, I am not prepared to infer that access to the trading figures would have affected Igaki's attitude to the proposal in the absence of an explanation from Igaki, subject to testing in cross-examination, for why that would have mattered. Igaki chose to ignore so many warning signs about the dangers of the proposal in executing the shareholders agreement and then in completing it that, in the state of the evidence before me, I am not prepared to infer that a further warning sign would have made any difference to his ultimate decision to part with the $4M. Next, while there is no _ evidence that' the representation pleaded in para. 3(b)(iii) was ever made to Igaki, I accept that the representations said to have been made by Burgess in June that the restaurant business generated large amounts of income that had not been declared for taxation purposes pleaded by the applicante in para. 3(b)(i) and (ii) of the statement of claim were made. But that is only part of what Burgess had to say to Igaki about this: he told Igaki that, on average, 15% of the business income was not declared for income tax purposes only in the context of showing Igaki exhibit IG6 and promising Igaki a share in these moneys. The statements referred to in the pleading are but an integral part of what is really a single wider representation. Igaki did not rely just on that part of this composite representation which has been pleaded to commit the applicants to the purchase of the interest in Burgess and Karlos' business and to complete the purchase agreement by passing over the $4M to Coastmine. It was the totality of the disclosure, repeated by Burgess in July and by both Burgess and Karlos in early August 1990, that I think both convinced Igaki that the businesses were in a general way very profitable and convinced Igaki to commit the applicants to the proposal and then to pay over the $4M. At the outset of the trial, in the context of dealing with objections to the admissibility of passages in the applicants' witness statements, counsel for the first, second and third respondents and counsel for the fifth respondent made it clear that they were conducting their clients' case strictly on the basis of the applicants' case as pleaded. The only representations that concerned undeclared income which were relied on in the applicants' pleading were oral representations alleged to have been made by Burgess at one of the June meetings to the effect that the first respondent failed to declare for income tax purposes, on average, about 15% of its net income - para. 3(b)({i) and (ii) - and that he could guarantee that there was no year in which the net income from that respondent's restaurants, that was declared for income tax purposes, had been less than $1M - para. 3(b) (iii). Counsel for the first, second and third respondents invited the applicants to amend the pleadings then and there if they proposed to expand their case to include reliance by the applicants on anything in the documents relating to "black money", i.e., in exhibits IG6, IG9 or IG10, and he foreshadowed objections to any attempt later in the trial on the part of the applicants to amend to rely on these documents. No application to so amend the statement of claim was made. The applicants deliberately elected not to rely on anything recorded in these documents. They cannot make out a case on the representations in the documents in these circumstances. In any event, I think the representations pleaded, viz., that Coastmine had not returned on average 15% of its income to assessment to income tax in the past, were probably true and, even if they could be looked at in isolation, cannot for that reason assist the applicants. I think they were very likely true because Burgess and Karlos were prepared to receive amounts equal to the instalments of "black money" that Igaki was given by Mrs. Burgess and which, according to Ms. Carolan, totalled over $90,000.00; no record was made in the first respondents' books of these payments until the dispute had arisen with Igaki, a dispute which Ms. Carolan said was precipitated by the stopping, due to financial necessity, of these payments. Burgess and Karlos admitted through their counsel that there is no record, even now, in the company's books of any decision by the company authorising the payments. Igaki said that Burgess told him he had never paid much tax and that only silly people pay tax. Finally, Burgess and Karlos deliberately refrained from going on oath to deny the evidence to this effect. The accompanying representation, that Igaki could expect to receive in the future payments of undeclared income of the magnitude indicated in exhibits IG6, IG9 and IG10, i.e., $750,000.00 per annum in respect of the four operating Gold Coast restaurants, was deliberately not pleaded by the applicants as a representation upon which they relied to their detriment. It may have been untrue in the sense that Burgess and Karlos, with their knowledge of the financially troubled position of Coastmine's restaurant business, may not have believed in mid 1990 that the business would be able to continue to generate indefinitely the large amounts of "black money" Igaki was then promised: only five payments of "black money" were made to Igaki, the last in December 1990, and Ms. Carolan said the payments were then stopped "because of the down turn". This issue was not explored at the trial: the applicants could not obtain any advantage from doing so and the failure of Burgess and Karlos to go into the witness box prevented any real opportunity to do that in any event. Whether it was true or false, in the view I take of the matter, that this was the factor that induced Igaki to enter into the transaction is fatal to the applicants' claims against the first, second and third respondents. Next, I accept the evidence of Mr. and Mrs. Igaki that in June 1990 Burgess told Igaki that others, including a Japanese company Maruko, were keen to pay $4M for the share in Burgess and Karlos' business that was being offered to Igaki. There is confirmation of their evidence here in Burgess' facsimile of 18 July, 1990 to Igaki. But even if this was false, this representation did not play any material part in causing Igaki to commit the applicants to the purchase. Igaki did not assert that he relied upon this statement in committing his companies to the proposal. That did not happen until the agreement was signed on 18 July, 1990. The applicants made no attempt to tender Burgess' facsimile of 17 July, 1990 said in para. 5(bc) of their pleading to contain a representation to a similar effect. This may have been an erroneous reference to Burgess' facsimile of 18 July, 1990 to Igaki in which he made statements to this effect. However, it was only tendered by counsel for Burgess and Karlos in cross- examination of Igaki, in circumstances in which its receipt had so little impact on Igaki that he said that he did not recall seeing it. At most, the statement that others were interested and which was made at the June meeting by Burgess to Igaki served, I think, only to keep Igaki interested in a general way in what Burgess put to him prior to first mentioning the availability of the "black money", in June 1990. As to the allegations in para. 5(a) of the applicants' Pleading that Watanabe made representations to Igaki to a similar effect in the course of both the June and July meetings, Igaki's own evidence was that, after hearing what Watanabe had to say in this and other respects in the June meetings, he told Watanabo "I will not enter into the joint venture" and it was only Burgess' subsequent arrival that kept Igaki's interest in the proposal alive. Igaki gives no evidence that Watanabe made any such representation in the course of the July meetings. In para. 5(b) of this pleading, the applicants allege that misrepresentations upon which they acted were made orally by both Watanabe and Steer at the 17 July meeting to the effect that if Igaki bought into the first respondent's business, it would be worth not less than $8M net of the first respondent's trading debt. Ishihara says that, in response to his question to Steer at that meeting, Steer said that the capital of the business would be $8M after Igaki paid in his $4M. $8M was also the value Quinlan placed on the four operating restaurants and the proposed kareoke bar in his report. Whether Steer said this, however, does not matter. Ishihara did not say he repeated it to Igaki or that Igaki heard this exchange and he remained throughout opposed to Igaki going into the venture. Neither Mr. nor Mrs. Igaki gave any evidence suggesting they were aware of any such representations. Igaki in fact said in oral evidence, but not in his written statement, that at this meeting, what each of Watanabe and Steer said was that the business was worth not $8M, but between ¥1.2 billion and ¥1.3 billion yen, i.e., $12M to $13M. IGAKI'S MOTIVATIONS Igaki spoke frequently in his oral evidence abut his trust in Burgess and his desire to retain Burgess' friendship. He undoubtedly became keen to be involved with Burgess whose friendship he valued and whose business acumen he respected. He saw the project as an opportunity to involve his whole family in a business venture in Australia. The facsimile that Burgess sent to Igaki on 18 July, 1990 just prior to Igaki signing the Shareholders' Agreement is revealing insofar as it shows Burgess' accurate assessment of the other factors influencing Igaki, apart from the prospect of obtaining large amounts of tax-free money. In this facsimile, in setting out "reasons for a joint venture between Coastmine and Igaki", Burgess says to Igaki, among other things: "Lee As a very close friend, with a good personality and Mr Igaki's expertise in advising and establishing the new Japanese restaurant and kareoke bar, we believed we could work very comfortably and compatibly with you Toshi. This would enable us to expand and do future joint venture and developments with you in Australia and maybe even Japan? ... {Up to this point, there had been no suggestion of the possibility of the Burgess-Karlos and Igaki venture expanding into Japan. Burgess continued: ]} "Toshi, if there is another way that you would like to complete this joint venture, from your point of view, please let me know as we are happy to discuss this with you. Most importantly is this point, as I can see Igaki, Burgess and Karlos having a very warm friendly, successful and long business relationship as well as a close family involvement. As Chairman of the Company, we have set up for you, an office which overlooks Surfers Paradise beach and very tastefully fitted out. Also when you are in Australia if you are here by yourself as discussed, you can stay at either Nick's house or at my house. I am sure you will be very happy with the bathroom in the office as we have fitted a Japanese bath for you. Good luck in signing this afternoon in Nagoya. When you arrive in Gold Coast next week we will do signing again in your office and will do official photographs of ourselves and the contracts. Yours sincerely Your good friend Bob" Although Igaki said in cross-examination he did not recall this facsimile, I think it accurately summarises the non-financial considerations which Burgess identified as operating on Igaki's mind that caused Igaki to enter into the venture and which appear from Igaki's own evidence. He no doubt expected that with Burgess' experience and Burgess' business skills the venture would prosper and there would be substantial profits from the declared income of the business. But as Igaki said in cross-examination, he did not rely on the figures in either the "private sale" documents or the valuation report in deciding to commit his companies to the venture. Burgess promised he would get more than those documents suggested and he was not concerned with the actual figure: it was his confidence in Burgess' ability to run a successful restaurant that caused him to go ahead. But the critical consideration for Igaki was that this would not merely be a profitable venture, it would be a highly profitable one for him because of the very large returns he believed he would get from income generated in the business but not declared for income tax purposes. Despite Igaki's undoubted faith in him, Burgess was unable to procure Igaki's initial commitment to the proposal in June or his execution of the agreement in July or his paying over of the $4M without assuring Igaki in writing and twice repeating that assurance that a lot of tax free money would be his. THE "BLACK MONEY" REPRESENTATIONS I have refused to find that Igaki relied, in committing the applicants to the transaction with the first respondent, on any of the representations pleaded that I have found were made to him by Watanabe, Burgess and Karlos. I have also found that it was the repeated promise of "black money" that was the critical factor which induced Igaki to commit the applicants to this transaction and to pay over the $4M purchase moneys. The applicants deliberately declined to set up such a case. They cannot therefore seek to rely on such representations now even though I consider that Burgess and Karlos made them without reasonable grounds for believing that the large amounts promised could be paid indefinitely. However, even if they had pleaded such a case, they would still have had to fail. Igaki caused the applicants to enter into the transaction only because he counted on receiving large amounts of money from the income of the business that he well knew would be paid to him in breach of the Australian income tax laws. He knew such activity was a serious breach of the law in Japan. He understood that the same position obtained here. That he would not have embarked on such a course if he had not trusted Burgess does not detract from the fact that the applicants entered into the transaction for the purpose of getting illegal gains. The case is one in which a person has been induced to buy property by a representation that the acquisition would enable him to obtain benefits in circumstances that will necessarily involve a breach of the criminal law. Even if the representation as to the availability of large sums of undisclosed income was fraudulently false, it is against public policy to give a remedy to such a purchaser. Although the invocation of the ex turpi causa doctrine to deny recovery in contract is well established, the doctrine has been applied to deny recovery in tort less frequently. There has even been controversy as to whether the doctrine has any place outside contract law. It will rarely apply to deny recovery of damages for personal injury, although Gala v Preston (1991) 172 C.L.R. 243 is a recent example of that happening. The role of the ex turpi doctrine in tort law has most recently been the subject of detailed examination by the Supreme Court of Canada in Hall v Herbert (1993) 101 D.L.R. (4th) 129. McLachlin J, who gave the leading judgment, concluded that while the application of the doctrine to deny recovery to a plaintiff will be rare, it is justified where to permit recovery would undermine' the integrity of the justice system. Her Honour continued, at "Its use is justified where allowing the plaintiff's claim would introduce inconsistency into the fabric of the law, either by permitting the plaintiff to profit from an illegal or wrongful act, or to evade a penalty prescribed by criminal law." Neal v Ayers (1940) 63 C.L.R. 524 is authority for applying the doctrine in the circumstances of this case. There, the purchaser, Neal, sued the vendor of a hotel, Ayers, in deceit, to recover damages in respect of a fraudulent misrepresentation by Ayers that the average weekly takings of the hotel during legal trading hours amounted to £85 when they were in fact much less. The evidence showed that Ayers told Neal that part of the takings resulted from after hours trading; that Neal, being anxious not to have an 'after hour Place", asked how much of the takings were from after hour trading, to which Ayers replied that the takings were £100 weekly and "that not more than £15 - or to be on the safe side, £20 - came from illegal trading". Neal swore that it was upon this representation that she bought the hotel, i.e., the existing lease, the licence, stock-in-trade, furniture (valued at £450) and goodwill. The evidence showed that the takings subsequent to the purchase did amount to £100 per week, but that at least £40 per week came from illegal after hours trading. Neal also said that, while she bought the business knowing she would have to do some after hour trading, her purpose was to reduce and ultimately to terminate that. The trial judge non-suited Neal at the end of her case on a finding that the contract was based on an illegality to which both parties were in pari delicto; it was unnecessary for the trial judge to evaluate the reliability of Neal's evidence. Starke J held that there was no disentitling illegality because: "Its (i.e. the agreement's] real purpose and object was the sale and purchase of a hotel in the ordinary way of business. The disposition of the property was not made to enable the plaintiff to violate the law nor was the purpose of the plaintiff herself to acquire a hotel so that she may violate the law. No doubt the defendant had contravened the provisions of the Liquor Act in her conduct of the hotel, and the plaintiff was unwilling or unable wholly to alter the method of conducting the hotel, as both the parties to the agreement knew. But it is not, I think, a right conclusion that the disposition of the hotel property was for an illegal purpose because liquor would be sold in the hotel during prohibited hours or that other offences against the liquor laws might be committed ..." [528-9] In contrast, Igaki committed his companies to the acquisition of the interest in the restaurant business to enable him to violate both the criminal law and the Taxation Administration Act: it was from such violations that he anticipated he would derive the substantial financial benefit that so appealed to him. In Neal v Ayers, Dixon and Evatt JJ referred at 529 to the plaintiff's evidence that she did not desire to conduct an after hour trade, but rather to buy a hotel which could under her management be made to depend for its profits upon lawful trading and, at 530, to her evidence that while she did not stop after hours trading, she said that it was her purpose to reduce and ultimately to terminate that business. Their Honours then said: "The chief question for decision is whether, in view of the element of illegality entering into the value of the hotel and the plaintiff's readiness to continue for some measure of time the practice of 'after-hour' trading, she is disabled on the ground of illegality from complaining in a court of law of the fraudulent misrepresentation inducing her to enter into the transaction. A question is also raised as to the sufficiency of the evidence of actual damage. In an action of deceit a plaintiff seeks to recover the money or money's worth with which he had been induced to part by the fraud of which he complains. ... The foundation of the action is therefore the expenditure of money or parting with money's worth under the inducement of a fraudulent representation. At what points may the illegality of the nature or ultimate purpose of the transaction touch such a cause of action? In the first place, if the representation could be material as an inducement only to a representee who contemplated some unlawful course of conduct, it would seem that the law would not countenance a complaint by him that it had operated as a fraudulent inducement. If, for instance, the misrepresentation had consisted not in understating but in overstating the profits from unlawful trading, it might be said that the overstatement would be material only to the mind of a purchaser intent on conducting an unlawful business. But in the present case the misrepresentation has' the opposite tendency. It would operate as an inducement to a person who wanted a hotel rather for its lawful business. In the second place if the subject matter of the contract was itself unlawful it might well be that none of the money expended for the purpose of obtaining it could be recovered, even against a fraudulent wrongdoer. In order to bring the case under this head it was contended that part of the subject matter of the contract of sale was a goodwill founded in some degree on illegality. It was said that to some extent the expectation that customers would resort to the site for the purchase of liquor after hours increased the price which the plaintiff agreed to pay. Even so we do not think that the contract of sale could be regarded as unlawful or as relating to an unlawful subject matter. It is after all a contract for the sale and purchase of the lease, licence and furniture of a hotel. These are assets of an ordinary character, and the fact that the vendor during her period of possession did break the licensing law and the purchaser intended during her period of possession to follow her example could not make the subject matter of the contract an unlawful one. In the third place, if the common purpose of the parties in entering into a contract is that the subject matter should be used for an unlawful purpose, the transaction may be unlawful and it may follow that an action of deceit may not be maintained to recover any part of the consideration paid, in the guise of damages. eee But in our opinion the present case cannot be brought within such a doctrine. The substantial purpose of the contract was to transfer the property on which a business was carried on and was to be continued. The fact that on and from the property the purchaser intended for a time to exceed the limits within which she could lawfully trade, could not invalidate the whole transaction, notwithstanding the vendor's knowledge of her intention. Her intention to continue for a time the practice of unlawful trading does not go to the substance of the transaction. It is an incident which provided none of the inducement for her to enter into it, if her evidence is to be believed. It appears to us to be extrinsic to the dealing which forms the foundation of the contract and of the inducing causes and therefore not to corrupt the contract." While the subject matter of the contract between the first applicant and the first respondent, viz., the acquisition of a shareholding by the one in the other, was not itself unlawful, the present case comes within the first and third sets of circumstances referred to by Dixon and Evatt JJ in both of which the attendant illegality precludes recovery. The representation that large amounts of undeclared income would be available for sharing could be material as an inducement only to a representee who contemplated the unlawful receipt of such moneys. Moreover, Burgess, Karlos and Igaki had, on the findings I have made, a common purpose when they caused their companies to enter into the transaction of using the restaurant business which they controlled through control of their company's shareholdings to generate large amounts of income that would not be declared for income tax purposes. This was Igaki's chief purpose in causing his company to enter into the transaction. It was a purpose, although not the main one, that caused Burgess and Karlos to have their company enter into it: they were also keen to get funds to meet debts of $3.2M. On the findings I have made, the acquisition by the first applicant of the shareholding in the first respondent was not the substantial purpose of the transaction. The acquisition of the shareholding was only the means whereby Igaki anticipated he would be able to obtain very large sums of undeclared income. The joint intention of Burgess, Karlos and Igaki to continue indefinitely the practice of taking large sums of cash from the business without declaring it for income tax purposes was not a mere incident to the transaction, but the core of the transaction, so far as Igaki was concerned. To give a remedy to the applicants here would involve allowing them to profit from the illegal act of their agent, Igaki, who committed them to the transaction for the purpose of reaping unlawful payments. It would therefore also be appropriate, in accordance with the approach taken in Hall v Herbert, supra, to deny him relief. See, ibid, at 162-163. Where two parties agree to participate in an illegal venture, the civil law does not penalise mere intention, but allows each a locus poenitentiae: e.g., where one conspirator pays money to the other in connection with an illegal venture, but repents before the time arrives for performance by him of the illegal purpose, he can recover his money, notwithstanding the illegality. The position is otherwise if the time for repentance by him has passed. See Harry Parker Ltd. v Mason (1941) 164 L.T. 164 at 167. The possibility of repentance by the party involved in the illegal activity, with the result that he will not be denied the Court's assistance in enforcing his rights, is relevant beyond the area of contract law: see Gollan v Nugent (1988) 166 C.L.R. 18 at 48. But to be effective, repentance must have occurred before he does acts in performance of the illegal venture. Once that happens, any Opportunity to avoid the bar to relief constituted by the illegality will be lost. See Harry Parker Ltd. v Mason, ibid, and Gollan v Nugent, ibid. There is no room here for extending to the applicants the benefit of the doctrine. I do not accept that Igaki ever decided to put a stop to the "black money" payments. He took all that was given to hin. He protested when these payments stopped and it was that which provoked him to litigation against his joint venturers. He did not attempt to prove that he or Mrs. Igaki or the first applicant had after all declared these payments for Australian taxation purposes. In Brownbill v Kenworth Truck Sales (N.S.W.) Pty, Ltd. (1982) 59 F.L.R. 56, a decision relied on by the applicants here, the applicant sued to recover damages for misleading conduct in breach of the Trade Practices Act 1974 and for negligent misrepresentations; the gravamen of the complaints was that a vehicle, contrary to the representations made by the respondent, was defective and unsuitable for its job of heavy haulage. Sheppard J rejected the respondent's submission that, although the contract whereby the vehicle had been acquired was perfectly legal, the underlying purpose of the applicant in acquiring it, viz., to use it in the course of his business as a carrier overloaded well beyond the limits allowed under the relevant vehicle loading regulations, was an illegal one and he should therefore be denied any curial remedy. His Honour relied upon Nea) v Ayers and the earlier decision of the High Court in Smith's Newspapers Ltd. v Becker (1932) 47 C.L.R. 279. His Honour found in these cases authority for the proposition that, in a case in which an applicant was suing for a civil wrong as opposed to suing ona contract, he would not be deprived of his remedy or have his damages reduced to a nominal sum if the enterprise which he has acquired or carries on is intrinsically lawful and capable of lawful operation, even though he would be prevented from recovering such portion of his damages as depended upon the unlawful carrying on of the business. The applicant in Brownbill did not sue upon a representation that involved any element of illegality. The case for the respondent was founded wholly and solely on the proposition that even though the applicant had purchased the vehicle in reliance on representations that were not in any way touched by illegality, he was nevertheless disentitled from suing on them, though otherwise actionable, solely because his own intention in acquiring the vehicle was to use it in an illegal manner. That is a quite different situation from the present where Igaki only caused his company to acquire the shares in the restaurant operation because of his reliance on a representation that not only had the business not declared all its income for taxation purposes, but that he could expect that situation to continue and he could expect, moreover, a substantial share of the undeclared earnings. The cause of the applicants' loss here was their reliance on a representation that if they participated in the illegal operation of the business, that would yield them large illicit benefits. That was not the kind of situation involved in Brownbill. The applicants' claims in negligence against the first, second and third respondents fail essentially for the game reason the claims in fraud and under the Trade Practices Act fail: the applicants have failed to establish a causal link between the negligent conduct, viz., the making of the same representations upon which the other causes of action are based, and the applicants' losses. KARLOS ' INVOLVEMENT Although the action against Coastmine, Burgess and Karlos fails, there is one submission by counsel for those respondents with which I should deal since it is relevant to the question of costs. Their counsel submitted that Karlos' position needs to be looked at separately from that of Burgess and that, even if the applicants were able to make out a case against Coastmine and Burgess, Karlos should still escape liability. It is plain that Igaki was only prepared to act upon what Burgess, as opposed to anyone else including Karlos, told him: it was because of this, when Karlos appreciated that his June 1990 visit to Igaki was likely to prove abortive, that Karlos got Burgess to come to Japan. It was Burgess who was successful in obtaining Igaki's provisional assent to buying into Burgess and Karlos' business on that occasion. But it was Karlos who first attempted to interest Igaki in putting funds into Burgess and Karlos' business in October 1989; it was he who went to Japan in June 1989 with Watanabe to try to persuade Igaki to assent to the proposal outlined in the "private sale" document, a document drawn up by Steer on instructions given by Burgess on behalf of himself and Karlos. It is true that Watanabe said that the instructions he got before going to see Igaki in Japan in June were given to him by Burgess; but that took place at a meeting with both Burgess and Karlos and the discussions can only have been in English. Watanabe also said that, before the June meeting, he got some of his instructions from Karlos, e.g., to be sure to show Igaki the Quinlan valuations. When, during the June visit, Igaki told Watanabe that his accountant and bankers were opposed to the proposal and that he would like to turn it down but wanted to discuss the matter with Burgess directly, Watanabe conveyed that message to Karlos. Karlos Promptly arranged Burgess' attendance. Although Karlos did not speak Japanese and Igaki had little English, Karlos' attendance in Japan in June was I think to ensure that Igaki would accept that what Watanabe had to say in relation to this proposal was said with the authority of Karlos and Burgess. It was Watanabe, not Karlos, who was the messenger. Counsel submitted that Steer's evidence showed that all the information he received and the instructions he got came from Burgess and not from Karlos and that Steer went to Japan in July at the request of Burgess, not Karlos. But Karlos accompanied Steer, while Burgess remained in Australia. Again, his presence in Japan in July was I think a demonstration to Igaki that what was then put to him by Watanabe and Steer also was done with the authority of himself and Burgess. While it was Karlos who made the initial approach at Noosa in October 1989 and then Karlos, who came to Japan with Watanabe in mid June 1990 to put a second proposal to Igaki, I am satisfied that Burgess and Karlos were jointly involved in both approaches and, in particular, the second one which led to Igaki's company buying its shareholding in the first respondent. That they were jointly involved throughout in persuading Igaki to invest in their business is demonstrated not only by Karlos' presence at all critical meetings in both Japan and Australia, but by the fact that he was a co-signatory with Burgess of the "black money" promise contained in exhibit IG10 that caused Igaki to drop his intention of cancelling the transaction and by the fact that Igaki''s involvement was sought to provide funds to meet, among other things, Karlos' own personal debts. COSTS AS BETWEEN APPLICANTS AND FIRST, SECOND AND THIRD RESPONDENTS Although these respondents have ultimately succeeded in resisting all the applicants' claims, they were successful because I have found that the applicants acted on a representation not pleaded, i.e., that illegal moneys would be paid to them. They unsuccessfully argued against my reaching such a conclusion. They were involved themselves in just such conduct. Moreover, their dealings with Igaki show that they were prepared to dupe him in their efforts to persuade him to put the S$4M they needed into their company: Burgess' instruction to Steer not to give Igaki the past trading figures that were being sought evidences this. The neutralisation of Dixon, when it became apparent that he intended to give independent advice to Igaki which might have derailed Burgess and Karilos' plan as it was coming to fruition, is even more eloquent of this. Burgess and Karlos knew of Dixon's involvement: they paid his bill later on. That they have succeeded in the litigation because Igaki could not resist their promise to share their dishonest gains with him does not entitle them to their costs of the proceedings. THE_CASE AGAINST STEER The conduct in which Steer is alleged to have engaged and which is set out in para. 5(c) of the applicants' Pleading and particulars consists of assurances given by Steer in the course of the July 1990 meetings in Nagoya as to the reliability of the financial information in the "private sale" document and the valuation report. The consequence of the findings I have made as to what it was that caused Igaki to commit his companies to the transaction is that, even if they can show that Steer engaged in some or all of the conduct alleged, the applicants have failed to prove that they relied on anything Steer is alleged to have said or done in entering into the transaction and have failed to prove any causal link between his conduct and the losses they have suffered. In concluding that it was a combination of his personal trust in Burgess and his belief in his business acumen and the expectation, generated by Burgess, that he would receive large amounts of tax free cash that led Igaki to pay $4M for a share in Burgess and Karlos' business, I referred to Igaki's evidence in which he expressly disclaimed having relied on the information in either document; I also referred to what took place in early August when Igaki received Appendix II to Steer's letter of 31 July. Moreover, although the assurances that it is alleged Steer gave Igaki were to the effect that these two documents "contained and reflected" or "were based on" or that the figures in these documents "were" the trading figures of actual business conducted in the past by the respondents, there is much evidence by Igaki, to which I have also referred, that he well knew that not to be the case and that the financial information in those documents consisted of or was based on estimates of anticipated future trading, not historical information. There is no evidence that Steer was aware of the discussions between Burgess and Igaki concerning "black money" (although Steer acknowledged that he was the source of some of the wording in IG9). Igaki acknowledged that he never discussed IG6, IG9 and IG10 with Steer. Steer was not in Japan in June when Burgess first mentioned "black money" and gave Igaki IG6; Steer was not present at the meeting in early August 1990 when Burgess gave Igaki 1G10. Igaki said that he never showed IG9, the facsimile he got from Burgess on 17 July, to Steer at the July meetings, because he regarded it as a highly confidential document as between himself and Burgess. He also said that he had the meeting with Ishihara and Kato in private, so that he could tell them about IG9 without Steer and the others then present seeing it. Steer's evidence is unimpressive in a number of respects. Steer knew exactly what the "private sale" document and accompanying projections were to be used for when he prepared them. He prepared the projections in the "private sale" document on the basis of information given him by Burgess and projections he had prepared in early 1989 for the 1989 year in connection with the finance application then made by Burgess and Karlos. He adopted this approach because he said this was how Burgess told him he wanted it done. He did not look at the final profit and loss statements for each of the four operating restaurants for the 1989 year which he then had: if he had checked the actual figures against the 1989 projected figures, he could not properly have used the 1989 projections, without adjustment, as he did. Nor did he check his projections against either that 1989 information which he had or against the information which, as Coastmine's long term general accountancy adviser, he must have known existed in respect of actual trading in the period July 1989 to April or May 1990. A perusal of those two lots of information would have shown the gross over-optimism of his 1991 projections. I think he probably suspected as much from the outset, but put his faith in the disclaimer he inserted in the "private sale" document. He cannot have failed to have been strongly suspicious of the reliability of the projections by 17 July at the latest, when he telephoned Burgess in the course of the meeting with Igaki and his advisers on that day, to relay Ishihara's request for the actual trading figures: he says that Burgess told him that he had previously discussed the matter of past trading figures with Igaki and that he (Steer) was not to give any such figures to Igaki. Steer, of course, had the actual results for the 1989 year back in his office in Brisbane, which he acknowledged he could readily have had faxed through to Japan. It was plain to him, on his own evidence, that Ishihara was very keen to see the obviously important past trading figures. Steer said that, after speaking with Burgess, he returned to the meeting and stated: "I [do} not have any past trading figures", (which was not true) and that Burgess would discuss the matter with Igaki. He added: "I also said that the past trading figures contained information relating to businesses other than the restaurants which Mr. Igaki was acquiring an interest in." He appears to have said this on his own motion, i.e., without being told to say it by Burgess. He knew, from his work as the respondents' accountant, that these figures for 1989 included the financial statements for the four restaurants the subject of discussion with Igaki together with information relating to Coastmine's Yum Yum Tree family restaurant and its Noosa restaurant: Steer had been involved in the preparation of the consolidated accounts for the Larjod Trust of which Coastmine was trustee. He did not just comply with Burgess' instruction not to provide Igaki with any past trading figures: it appears he volunteered this as a justification for the refusal by Burgess to provide the meeting with past trading figures. That Steer was aware, prior to the July meeting in Japan, of the unjustifiably optimistic picture created by the projections in the "private sale" document, is also clear from what occurred on 9 July as between himself and Dixon, whose evidence I generally accept, including his evidence of the conversation with Andrew Harris, an associate of Steer''s, on 18 February, 1991. Given Harris' indifferent memory for the events of 9 July, I think it likely his file note of 18 February records only the second conversation he had then with Dixon and that Dixon is generally reliable in his account of what was the first conversation between them that day. Dixon had seen Steer's "private sale" document. He thought the financial information in it was overly optimistic and that the price of $4M Igaki was to pay appeared to him to be very expensive. I do not accept Dixon's evidence that it was in the course of this meeting, attended by the two Robinsons, Burgess and Karlos and their new solicitor and Steer and his associate, Harris, that Dixon said that the price Igaki was to pay for his half share in the restaurants was, in his opinion, "too high". But he says that at Steer's suggestion, near the end of this meeting, he went with Steer to Steer's office and had a private conversation in the course of which he said to Steer that the transaction looked like a "rip-off"; Steer's response was as follows: "Off the record, I agree, Igaki is not getting a fair deal but that is not my concern I am the adviser for Bob Burgess and Nick Karlos and it is my job to get the deal done and to get it done quickly eee Bob Burgess, Nick Karlos and Igaki have resolved the price between themselves and you don't have to worry about it." When Dixon said he intended to raige the question of price in his written advice to Igaki and to suggest that he obtain an independent valuation, he says Steer stated that he understood Dixon's position. Dixon was undoubtedly concerned about what Igaki was to pay. His concerns are reflected in the letter dated 10 July, which he gave to Tony Robinson on 12 July, an event that brought about the end of his involvement in the matter as Igaki's independent Australian accountancy adviser. Steer himself confirms a good deal of what Dixon says: he acknowledges that there was a private meeting in his office on 9 July, although he says it took place after the large meeting broke up and that Harris was present. He confirms that Dixon raised the question of the price Igaki was paying, that it was too high and that he intended to raise the matter with Igaki. Steer also confirms that he told Dixon that he understood his position and that he told Dixon that Burgess, Karlos and Igaki had agreed the price. He also says that Dixon referred to the projections in the "private sale" document as being optimistic. Harris was probably present. Although it is clear that, on any view, highly significant matters were discussed at this meeting in Steer's office, Harris says he has no recollection of any of that; he confirms, however, that Dixon was at that time concerned about the projections being unrealistic, although he says that was said in a conversation he had with Dixon the next day. However, there is no point in dealing more fully with my views on Steer's conduct, given my conclusion that Igaki's decision to commit his companies to the transaction was not brought about by anything done by Steer and given that there is no basis in the evidence for a finding against Steer that he was aware of the discussions between Burgess and Igaki about "black money". Irrespective of any findings that might be made concerning Steer's conduct, he did not cause the applicants any of the loss they suffered. This consideration, together with the absence of any justification for implicating Steer in the "black money" discussions seems to me at the moment to make it inappropriate to deprive him of his costs of the proceedings. I will, however, give the applicants an opportunity, if they wish, to contend for a contrary outcome on these costs. I certify that this and the preceding 78 pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Drummond. Associate: LEK. (liclogg Date: 2 November, 1994 Counsel for the applicants: Solicitors for the applicants: Counsel for the first, second and third respondents: Solicitors for the first, second and third respondents: Counsel for the fourth respondent: Solicitors for the fourth respondent: Counsel for the fifth respondent: Solicitor for the fifth respondent: Dates of Hearing: R.R. Douglas Q.C. and R.G. Bain Minter Ellison Morris Fletcher P.R. Dutney Q.C. and N.E. Ulrick Steindls P.J. Lyons Q.C. and K.S. Howe Michael Sing & Associates D.F. Jackson Q.C. and E.M. O'Reilly Feez Ruthning 3 - 16 April, 1992 22 - 30 April, 1992 5 - 9 October, 1992 2 - 3 December, 1992 15 December, 1992