Grimson, Martin Harold & Anor v O'Donnell, Garry Francis & Ors [1996] FCA 970

CATCHWORDS TRADE PRACTICES - misleading and deceptive conduct - purchase of hotel premises and business and contemporaneous on-sale of business and grant of lease of hotel premises - on-purchasers' allegation of concealment by on-sellers of on-sellers' association with original owner - numerous misrepresentations alleged - puffery - (no question of principle). MARTIN HAROLD GRIMSON & ANOR v GARRY FRANCIS O'DONNELL & ORS No NG 737 of 1994 Lindgren J Sydney 8 November 1996

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No NG 737 of 1994 GENERAL DIVISION ) BETWEEN: MARTIN HAROLD GRIMSON First Applicant RICKY MARTIN GRIMSON Second Applicant AND: GARRY FRANCIS O'DONNELL First Respondent EVENLONG PTY LIMITED Second Respondent ENIMA PTY LIMITED Third Respondent CORAM: Lindgren J PLACE: Sydney DATE: 8 November 1996

MINUTE OF ORDERS THE COURT ORDERS: 1. THAT the application be dismissed. 2. THAT the applicants pay the respondents' costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No NG 737 of 1994 GENERAL DIVISION ) BETWEEN: MARTIN HAROLD GRIMSON First Applicant RICKY MARTIN GRIMSON Second Applicant AND: GARRY FRANCIS O'DONNELL First Respondent EVENLONG PTY LIMITED Second Respondent ENIMA PTY LIMITED Third Respondent CORAM: Lindgren J PLACE: Sydney DATE: 8 November 1996

REASONS FOR JUDGMENT INTRODUCTION AND PARTIES The first applicant ("Grimson") is the father of the second applicant. The applicants ("the Grimsons") seek to recover damages from the respondents. The claim arises out of a purchase by the Grimsons in 1991 from the second respondent ("Evenlong") of the business of the Royal Hotel, 34 Gibraltar Street, Bungendore ("the Hotel") and an associated lease by them from Evenlong of the Hotel premises. Bungendore is an historic rural village some 233 km south-west of Sydney and some 35 km north-east of Canberra. Grimson alone took an active role in relation to the transaction on behalf of the Grimsons. On 31 August 1995, Wilcox J ordered that the issues of liability and damages be tried separately. These Reasons for Judgment relate only to liability. Evenlong was incorporated as a "shelf company" under that name by registration on 22 May 1991. The first respondent ("O'Donnell") and his wife, Fiona Lee O'Donnell, have been, since 10 June 1991, Evenlong's only shareholders and directors. The third respondent ("Enima") is a company of and in which O'Donnell and Michael Kouper ("Kouper") are the only directors and shareholders. It is an older company than Evenlong, having been incorporated on 31 July 1986. O'Donnell and Kouper have been Enima's only directors and shareholders since 27 August 1986. According to a "company extract" in evidence, Enima's "principal activity" is that of "property owner". It is a hotel-owning vehicle of O'Donnell and Kouper. It is common ground that the Hotel premises and business were purchased by Evenlong from Sedore Pty Limited ("Sedore") and that contemporaneously there were settled an "on-sale" of the business and grant of a lease of the premises by Evenlong to the Grimsons. The contemporaneous transactions were entered into and settled on 28 October 1991. According to a company extract in evidence, Sedore was incorporated under that name on 14 March 1988, and since 23 March 1988 its only directors and shareholders have been Peter Riddles ("Riddles"), James Huggett ("Huggett") and James Marshall Johnstone ("Johnstone"). The Grimsons contend that originally it was intended that Enima, the investment vehicle of O'Donnell and Kouper, rather than Evenlong, the family company of the O'Donnells, would purchase and on-sell the Hotel business. A significance of that contention, if it is right, is, according to the Grimsons, that certain representations on which they rely to ground their causes of action are to be treated as having been made by, inter alia, Enima. Again, if those representations were made by Enima, there is a particular advantage to the Grimsons: they executed a deed of release dated 16 April 1992 in favour of Sedore, Evenlong, and those companies' "representatives" including O'Donnell ("Deed of Release"), which does not shield Enima from the claims made against it. For its part, however, Enima contends that it had nothing whatever to do with the transactions. The Grimsons allege that O'Donnell already had an interest in the Hotel or in its owner, Sedore, prior to the transaction with which the case is concerned. The existence of any such interest is denied by the respondents. The effect of the Grimsons' allegation in this respect is to be contrasted with the position as asserted by the respondents. The respondents say that they were, relevantly, in the same situation as the Grimsons, namely arm's length purchasers, and that if there was any misleading or deception of a purchaser, they were as much misled and deceived as the Grimsons were. The Grimsons' case is that O'Donnell concealed from them the existing interest which he had, that he knew much more about the profitability of the hotel than he has ever acknowledged, and that he deceived, or knowingly participated in a deception of, the Grimsons. STRUCTURE OF THE TRANSACTIONS The transactions were effected by documents executed on 28 October 1991. They and their effect were as follows: (a) By an Agreement for Sale of Land Sedore sold to Evenlong the freehold of the Hotel for $325,000 and a Transfer under the Real Property Act 1900 was executed. (b) By an Agreement for Sale of Business, Sedore sold the business of the Hotel to Evenlong for $200,000, apportioned between goodwill, plant fittings and chattels, and fixtures. (c) By a Deed of Assignment of Purchaser's Rights under Agreement for Sale, Evenlong assigned to the Grimsons all of Evenlong's interest in the Agreement for Sale of Business and the Hotel business itself. The Grimsons covenanted with Evenlong that they would perform and observe the terms, covenants and conditions of the Agreement for Sale of Business as if they were a party to it in lieu of Evenlong, and that they would keep Evenlong indemnified against liability under the Agreement for Sale of Business or any non-observance of its terms. Evenlong authorised and directed Sedore, although it was not a party to the document, to transfer the Hotel business to the Grimsons on their paying the balance of the price of $200,000. (d) By a Deed of Agreement for Lease, Evenlong contracted to grant to the Grimsons a lease of the Hotel freehold for 10 years at an annual rent of $67,782.00 per annum (according to one's method of calculation, this gives a weekly figure of $1,303.50 or $1,299.93). By cl 5 of the Deed of Agreement for Lease, Evenlong undertook, upon completion of the Agreement for Sale by Sedore to Evenlong of the freehold, to lend to the Grimsons $100,000 to enable them to complete their purchase of the business. By the same clause, to secure repayment of that loan, the Grimsons charged the business in favour of Evenlong and undertook to execute a bill of sale. In fact, they did execute an ordinary bill of sale which, oddly, bears date 24 October 1991 (all the other documents are dated 28 October 1991) and was registered in the Land Titles Office. The Deed of Release to which I have already referred was entered into on 16 April 1992. I will say more later about the terms of the releases by the Grimsons contained in it. At present, it is necessary only to note that in consideration of those releases, Evenlong agreed to vary the terms of the lease to the Grimsons by reducing the rent from $67,782.00 to $37,440.00 per annum (according to the method of calculation used, $720 or $718.03 per week). The second applicant, Ricky Martin Grimson, became the licensee of the Hotel on 28 October 1991 and ceased to be licensee on 19 April 1994 (the Grimsons ceased to occupy the Hotel shortly before that date). The person who immediately preceded Ricky Martin Grimson as licensee was Robert William White ("White") who had been licensee from 10 August 1988 to 28 October 1991 and to whom reference will be made later. White was the nominee of Sedore. FACTS The suggested prior interest of O'Donnell in Sedore or in the Hotel At the beginning of the period with which I am concerned, the Hotel was owned by Sedore. O'Donnell has sworn that he had known Riddles and Huggett since the early 1980s; that he first met Riddles when Riddles was working at the Commonwealth Bank in Canberra and doing part time accounting work for the owners of a hotel at Kambah in the Australian Capital Territory which O'Donnell bought; that he first met Huggett after that purchase, when Huggett opened the business of a real estate agency at Kambah; that he saw Riddles and Huggett at the Kambah Hotel from time to time; that some time after O'Donnell's purchase of the Kambah Hotel, Riddles retired from the Commonwealth Bank and worked with Huggett in the real estate agency business; that in about 1988, Sedore purchased the Hotel; and that Riddles and Huggett were directors of Sedore at the time of that purchase and remained directors of it until Sedore sold the Hotel to Evenlong in October 1991. O'Donnell concedes that there were some business connections between himself and Sedore prior to Evenlong's purchase of the Hotel from Sedore. He says that at some time between 1988 and 1991 he lent Sedore approximately $10,000 in cash to assist it in the renovation of the Hotel. His evidence is that it was agreed orally that repayment would be made out of the proceeds of the poker machines at the Hotel and that he (O'Donnell) would send someone out on a regular basis to participate in the clearing of the poker machines and to check the meter readings. There was a second business connection between O'Donnell and Sedore. O'Donnell's evidence is that in the period 30 November 1990 to 30 June 1991, Arko Investments Pty Ltd ("Arko"), a company with which he was associated, owned a pool table, and, he believed, a jukebox, which were, at various times in that seven-month period, located in the Hotel and that Arko paid "commission" to Sedore for the privilege. According to O'Donnell, his son "Jamie" regularly attended at the Hotel to "service" the equipment. He says that when Jamie attended for that purpose, Jamie and Sedore's manager and licensee of the Hotel (White), would clear the cash from the poker machines ("approved amusement devices - 'AADs'"), count the cash, set aside sufficient to pay relevant taxes, and divide the balance equally. He says that Jamie would bring back and pay to him (O'Donnell) the half which Jamie had taken, on account of repayment by Sedore of the loan of $10,000. He says that he assumed that White accounted to Riddles and Huggett (more strictly to Sedore) for the other half. According to O'Donnell, the liability of Sedore to him in respect of the outstanding balance of the loan of $10,000 and interest, was satisfied upon settlement of the sale and on-sale of the Hotel on 28 October 1991. The Grimsons issued a subpoena for production of Arko's records of commission payments made by it to Sedore in the period 30 November 1990 to 30 June 1991 in respect of the pool table and jukebox. O'Donnell swore that he had been unable to find such records. He said that in January 1995, he and employees of Arko "carried out a clean-up" of Arko's records and that he believed that the documents covered by the subpoena may have been thrown out in the course of that clean-up. In cross examination, his evidence was unequivocally to the effect that there was no point in his searching Arko's office again for the records, as he knew from his previous search that no documents covered by the subpoena were there.