FEDERAL COURT OF AUSTRALIA Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2002] FCA 1018 TRADE PRACTICES – NEGLIGENCE – misleading or deceptive conduct – applicants having a course of dealing over many years with respondent estate agent – acquisition and sale of various properties – respondent oversaw management of some of applicants' businesses – respondent acted as project manager on behalf of applicants in respect of certain property developments – respondent subsequently acted as agent for vendor of a city building – applicants allege respondent made false representations before they entered contracts with vendor interests for purchase of building and carrying out of major refurbishment works to the property – whether respondent misled or deceived relevant applicants in relation to acquiring the building and guaranteeing obligations in respect of the purchase and major refurbishment costs of the building – disputes with vendor interests before settlement of those contracts – applicants settled those disputes and accepted further guarantee obligations – subsequent litigation between vendor interests and applicants – those disputes settled in mid-hearing – respondent had provided valuation of building prior to first settlement of disputes – whether respondent negligent in preparing that valuation – whether respondent made representations negligently in breach of common law duty of care – whether applicants relied on respondent's representations when purchasing the building and entering into the guarantees – whether applicants relied on those representations and the valuation when entering into the subsequent settlement transactions – whether respondent and relevant applicants in a fiduciary relationship in respect of acquisition of the building. EQUITY – fiduciary duties – whether respondent real estate agent, in the particular circumstances, owed any relevant fiduciary duty to applicant purchaser and applicant guarantors of the purchaser's obligations. Trade Practices Act 1974 (Cth), s 52 Fair Trading Act 1987 (WA), s 10 R v Saffron (1988) 17 NSWLR 395 referred to Jones v Dunkel (1958) 101 CLR 298 referred to Hanave Pty Ltd v Lfot Pty Ltd (1999) ATPR 41-687 referred to McKenzie v McDonald [1927] VLR 134 applied Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied Gonsalves v Debreczeni [1998] NSWSC 588 referred to CORDELIA HOLDINGS PTY LTD & ORS v NEWKEY INVESTMENTS PTY LTD W106 of 2000 CARR J 14 AUGUST 2002 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRLIA DISTRICT REGISTRY W106 OF 2000 BETWEEN: CORDELIA HOLDINGS PTY LTD First Applicant VENDOMATIC PTY LTD Second Applicant GETUM PTY LTD Third Applicant ABRAHAM GILBERT SAFFRON Fourth Applicant ABRAHAM GILBERT SAFFRON AS THE EXECUTOR OF THE ESTATE OF DOREEN SAFFRON Fifth Applicant AND: NEWKEY INVESTMENTS PTY LTD (ACN 060 259 930) Respondent JUDGE: CARR J DATE: 14 AUGUST 2002 PLACE: PERTH THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicants pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. TABLE OF CONTENTS Introduction Factual and Procedural Background An Overview of the Pleadings Did Mr Morrone make the First Royal Representations? Did Mr Morrone make the Second Royal Representation? Did Mr Morrone repeat the Second Royal Representation on the occasions referred to in paragraphs 16A and 24G of the Statement of Claim? An Evidentiary Issue Credibility Problems Findings of Fact The First Royal Representations The Second Royal Representation Reliance Whether any of the First Royal Representations, the Second Royal Representation, or their Repetition was a cause of the applicants' execution of the Settlement Documentation The Royal Valuation Was the Royal Valuation carried out negligently? Findings of Fact Room Rates, Occupancy Rates and Consequent Room Yields Discount Rates for the Cash Flow Rates and Taxes Use of Comparable Sales What would have been a reasonable valuation? Whether the respondent's negligence, breach of contract, and misleading and deceptive conduct in relation to the Royal Valuation was a cause of the losses claimed by the applicants The Fiduciary Claim Findings of Fact in Relation to the Prior Transactions The Warwick Hotel The Cloverdale Hotel Merriwa Dunlop House South Lakes Tavern Hilton Park Tavern Re-development of the Raffles Hotel site Other Duties Undertaken by the Respondent The Proposed Purchase of the Property My reasoning on whether a fiduciary relationship existed between the respondent and Arcadia and Cordelia in relation to the acquisition of the Property Conclusion IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W106 OF 2000 BETWEEN: CORDELIA HOLDINGS PTY LTD First Applicant VENDOMATIC PTY LTD Second Applicant GETUM PTY LTD Third Applicant ABRAHAM GILBERT SAFFRON Fourth Applicant ABRAHAM GILBERT SAFFRON AS THE EXECUTOR OF THE ESTATE OF DOREEN SAFFRON Fifth Applicant AND: NEWKEY INVESTMENTS PTY LTD (ACN 060 259 930) Respondent JUDGE: CARR J DATE: 14 AUGUST 2002 PLACE: PERTH REASONS FOR JUDGMENT introduction 1 In this matter the applicants seek damages from the respondent for losses sustained by them as a result of entering into transactions which included the purchase and major refurbishment of a building at 12 Victoria Avenue in Perth ("the Property"). They also seek other relief. The first, second and third applicants are companies controlled by Mr Abraham Saffron, who is the fourth applicant in his own right and is also the fifth applicant as executor of the will of his late wife. During the course of these proceedings there was very little, if any, distinction made between Mr Saffron and his various companies. They were regarded and treated (in my view, correctly) as each being, on any relevant occasion, Mr Saffron's alter ego. Accordingly references in these reasons to Mr Saffron may be taken, where appropriate, as including a reference to the particular Saffron company involved in any relevant transaction. The respondent [in these reasons sometimes referred to as "Royal", because its business name is "Royal International (W.A.)"], carries on business as a real estate agent and valuer. Until the tenth day of the hearing of the application there were three other respondents (two of whom were cross-claimants against the applicants), but at that stage of the proceedings those parties settled their disputes. The involvement of those former respondents in the matter will, where necessary, be described later in these reasons. factual AND PROCEDURAL background 2 On 12 December 1996, a company then called Broadoak Holdings Pty Ltd bought, through the agency of the respondent (i.e. the respondent acted as purchasing agent), a building at 12 Victoria Avenue, Perth for $1.8 million. The building was then in use as an office block with a Chinese restaurant on the ground floor. Broadoak Holdings Pty Ltd later changed its name to KPG Pty Ltd ("KPG"). 3 On 24 April 1997, KPG entered into a contract to sell the Property to WA Enterprises Pty Ltd for the sum of $3 million, as part of a transaction which included an obligation on the vendor's part to cause the building to be comprehensively refurbished into what has been described as a "boutique hotel" for a building contract price of $8 million i.e. the total consideration under that contract was $11 million. The respondent acted as the selling agent for KPG in that transaction. The contract came to an end a few months later, for reasons which it is not necessary to explain. 4 On 25 September 1997, KPG and its related corporation Keywest Constructions Pty Ltd ("Keywest") entered into very similar contractual arrangements with City Inn Pty Ltd, ("City Inn") a related corporation of WA Enterprises Pty Ltd, in respect of the Property. There were two contracts (one with KPG whereby City Inn purchased the Property for $3 million and one with Keywest for the construction of the hotel for the fixed lump sum of $8 million), but it is convenient to refer to this transaction as "the City Inn Contract". The respondent was the selling agent for KPG. 5 On 7 November 1997, a company called Arcadia Securities Pty Ltd ("Arcadia"), which is a related corporation of the first applicant, entered into a contract with City Inn to purchase the Property and to have constructed upon it the same building works ("the Arcadia Contract"). The consideration expressed in the Arcadia Contract for the land was $4.5 million and the consideration for the building works was $8 million, i.e. the total consideration payable by Arcadia to City Inn under the Arcadia Contract was $12.5 million. 6 As events transpired, City Inn was unable to satisfy certain conditions in the City Inn Contract. That contract was terminated in July 1998. It would appear that City Inn and Arcadia thereafter treated the Arcadia Contract as being at an end. 7 A few months later, the first applicant ("Cordelia") entered into two contracts in respect of the Property, each of which was dependent upon the other. The first contract, dated 9 November 1998, was with Keywest. That contract was for the construction of a hotel for a price of $8.5 million ("the Building Contract"). The second contract, dated 10 November 1998 and made with KPG, was to purchase the Property for $3 million ("the Land Contract"). A deposit of $250,000 was payable under that contract. Settlement of the Land Contract was conditional upon practical completion of the building works at which point Cordelia was liable to pay the balance of the consideration under both contracts. I shall refer to the two contracts together as "the Cordelia Contracts". Mrs Saffron (since deceased) entered into a personal guarantee of Cordelia's obligations under both contracts. The third applicant, Getum Pty Ltd ("Getum") also joined in that guarantee, to a limit of $750,000, an obligation which was secured by a registered first mortgage over real property which it owned in Adelaide. 8 From the terms of the Building Contract it would appear that the parties contemplated that the building works would take about a year to complete. But practical completion, and the concurrent obligation for Cordelia to pay the balance of the moneys under both the Building Contract and the Land Contract, occurred much earlier than anticipated. 9 In about July or August 1999 Cordelia, on the one hand, and KPG and Keywest, on the other hand, fell into dispute over matters arising out of the Building Contract and the Land Contract. KPG and Keywest asserted that the building works had reached practical completion but Cordelia disagreed. At that stage Cordelia did not have the funds with which to pay the balances owing at settlement under the two contracts. Amongst other things (and one of the other things will assume a degree of importance which emerges later in these reasons), Cordelia contended that KPG and Keywest had repudiated both contracts and that they were at an end. 10 In November 1999 the three parties to those disputes negotiated and reached a settlement which was recorded formally in various documents ("the Settlement Documentation"). The first was a facility agreement ("the Facility Agreement") under which Cordelia acknowledged that the sum of $11,425,000 was immediately due and payable to KPG and Keywest pursuant to the terms of the Land Contract and the Building Contract. It was also a term of the Facility Agreement that KPG and Keywest would advance that sum to Cordelia and that Cordelia would pay those companies interest at a specified rate until 30 June 2000, when all moneys due under the Facility Agreement would be paid by Cordelia to KPG and Keywest. There were various other moneys payable, to which, at this stage, it is not necessary to refer. There were express terms of the Facility Agreement defining the rights and obligations of the parties if Cordelia did not on-sell the Property, respectively, by 31 March 2000 and 31 May 2000. The second applicant, Vendomatic Pty Ltd ("Vendomatic") and Getum executed mortgages over real property in Sydney and Adelaide respectively to secure Cordelia's compliance with the terms of settlement. Mr Saffron also gave a personal guarantee to secure Cordelia's compliance with the terms of settlement. 11 Cordelia had not on-sold the Property by 31 May 2000, despite various efforts to do so, including an auction on 3 May 2000 at which no real bids were made. On 2 June 2000, KPG and Keywest served notices on Cordelia that it was in default under the terms of the Land Contract and the Building Contract. They also gave notice of their intention to terminate those contracts. The notice from KPG included notice of forfeiture of the deposit under the Land Contract. Further notices were served on 6 June 2000. 12 Initially in this application the applicants sought relief against KPG and Keywest, including rectification of the documents which evidenced the terms of settlement. KPG and Keywest cross-claimed against the applicants for payment of moneys which, in aggregate, amounted to $7,862,160.80. The calculation of that amount included the net proceeds of sale of the Property which KPG sold (after a further unsuccessful auction) in November 2000 for a price of $6 million. 13 On 15 April 2002, on the tenth day of the hearing of this application, the applicants, KPG and Keywest settled their disputes by entering into a deed of compromise and release ("the April Deed"). Under the terms of the April Deed the applicants agreed to pay to KPG and Keywest $6,500,000 by instalments over a period ending on 31 December 2003 together with interest on the balance outstanding from 1 January 2003. Getum also agreed to assign the rents of its Adelaide property to KPG and Keywest. On the same date consent orders were made whereby: · The applicants' claims against KPG and Keywest were dismissed; · In the cross-claim, judgment was entered in favour of KPG and Keywest in the sum of $6.5 million inclusive of interest and costs, Vendomatic was ordered to deliver up possession of its Sydney property to KPG and Keywest, and Getum was ordered to deliver up possession of its Adelaide property to them. 14 On 16 April 2002, orders were made by consent that the application against what was then the fourth respondent [Colliers Jardine (WA) Pty Ltd] be dismissed and that the applicant pay the fourth respondent its costs agreed at a fixed amount. The fourth respondent was the third of the three other respondents referred to in paragraph 1 above. an overview of the pleadings 15 The statement of claim runs to some 24 pages. At this point I shall try to summarise the applicants' allegations and, where appropriate, the respondent's responses. 16 Cordelia relies upon a series of real property transactions and other associated transactions in which Mr Saffron and various of his companies were involved, together with certain other matters, as establishing that Royal was in a fiduciary relationship with both Arcadia and Cordelia. [Cordelia also relies upon the nature and extent of the business relationship said to have arisen out of those transactions between Mr Saffron and the respondent over the years leading up to 1997-1998 as making it more probable that the representations referred to below were made and repeated by the respondent and were relied upon by Mr Saffron]. Cordelia says that there were certain specific incidents of that fiduciary relationship which Royal breached, thus causing Cordelia loss and damage in respect of which it seeks equitable compensation. 17 The next complaint arises out of what has been termed "the First Royal Representations". The applicants say that in about October 1997 Mr Charles Joseph Morrone, a director of Royal, orally made the First Royal Representations to Mr Saffron. [In much the same way as Mr Saffron was identified with his various companies in the proceedings, Mr Morrone was identified with the respondent. Accordingly, unless the context otherwise requires, references to Mr Morrone in these reasons can be taken to include the respondent.] The relevant parts (for present purposes) of the First Royal Representations were, in summary, alleged to have been that: · City Inn proposed to develop a hotel at 12 Victoria Avenue, Perth; · City Inn owned the freehold of the Property; * · when the hotel was complete, the Property would have a value in the order of $15-$16 million; [paragraph 5.5 of the statement of claim] * · the purchase of the Property was a bargain at the price of $12.5 million; [paragraph 5.6] * · the hotel could be completed by about August 1998 and that by that date Royal would be able to on-sell the Property on behalf of Arcadia for about $16 million; [paragraph 5.7] and · (impliedly) each of the three opinions set out immediately above (which I have marked with an asterisk) was genuinely held, on reasonable grounds, and was the product of reasonable care and skill within the range of latitude normally permitted for a valuation of the sort advanced. 18 The respondent denies making the First Royal Representations and gives (in paragraph 5 of its defence) its version of what took place between Mr Saffron and Mr Morrone. In summary, the respondent says that in or around March 1997 Mr Morrone had told Mr Saffron about the proposal to develop a hotel on the Property. The respondent's case is that on the occasion upon which the applicants allege Mr Morrone made the First Royal Representations what happened was that Mr Saffron asked Mr Morrone whether the Property was on the market for sale, Mr Morrone responded by saying that the asking price for the Property was $12.5 million and also said that if Mr Saffron wanted to buy the Property he should use Arcadia as the vehicle for that purpose. The respondent otherwise denies each and every other particular of the alleged First Royal Representations. 19 Part of the applicants' case is that by making the First Royal Representations, the respondent engaged in misleading conduct or conduct which was likely to mislead or deceive contrary to s 52 of the Trade Practices Act 1974 (Cth) and s 10 of the Fair Trading Act 1987 (WA). They say that each of the representations which I have set out above was false. 20 Further and alternatively, the applicants contend that the respondent owed a duty to them to take reasonable care to ensure it did not cause any of them avoidable economic loss, and that the First Royal Representations were made negligently (in breach of Royal's fiduciary duties and its common law duty of care) in that the likely value of the Property when the hotel was completed was in the order of $7 million. 21 The applicants allege that Arcadia entered into the Arcadia Contract in reliance on the First Royal Representations. 22 The applicants' next complaint arises out of the making (on their case) by Mr Morrone, on behalf of Royal, of what has been termed "the Second Royal Representation". The applicants say that Mr Morrone made the Second Royal Representation in or about February 1998 at a time when it appeared that the Arcadia Contract was about to lapse. The Second Royal Representation is said to have comprised: · The failure to withdraw or otherwise amend the three representations against which I have placed an asterisk above and thereby (by necessary implication) repeating and affirming each of them. (Paragraph 11.5 of the statement of claim) · Telling Mr Saffron orally that: o There was a lot of interest in the Property; o He (Mr Morrone) had buyers willing to pay $14 to $15 million for the Property; o When the hotel was complete the Property would have a value of, in the order of, $16 million; and o That Royal would be able to sell the Property on behalf of Cordelia by the time the hotel was complete. (Paragraph 11.6) · A statement of opinion (constituted by the foregoing representations) into which were implied representations that: o the opinion was genuinely held, based on reasonable grounds, was the product of reasonable care and skill and within the range of latitude normally allowed for an opinion of that sort; o the valuations advanced by the First Royal Representations, i.e. that the value of the Property when the hotel was completed would be in the order of $15 to $16 million and that the purchase was a bargain at the price of $12.5 million, remained current and could be relied on and would remain current until Mr Saffron or a company related to him made contracts to purchase the Property and to have the hotel built; o if the valuations ceased to be current or not capable of being relied on prior to entry into such contracts, Royal would so inform Mr Saffron. 23 The applicants say that, by making the Second Royal Representation, Royal engaged in misleading conduct or conduct which was likely to mislead or deceive in contravention of the same provisions mentioned above, because what was represented was false. 24 The applicants make a further or alternative claim based upon an allegation of Royal's negligence in making the Second Royal Representation. The applicants say that Mr Morrone repeated the Second Royal Representation on several occasions between February and November 1998. 25 It is part of the applicants' case that in reliance upon the Second Royal Representation and its repetition, and in ignorance of a then existing valuation by another firm of real estate agents (which valued the Property upon completion of the hotel at $11.5 million) which the applicants allege the respondent had in its possession, Cordelia entered into the Cordelia Contracts and Mrs Saffron entered into a personal guarantee of the obligations of Cordelia under those contracts. 26 The applicants complain that in breach of its fiduciary duties the respondent failed to disclose certain facts to Arcadia or Cordelia at any time prior to the Arcadia Contract or the Cordelia Contracts. Those facts, to which I return below, included the purchase price ($1.8 million) paid by KPG for the Property in December 1996 and certain valuations of the Property made by the respondent in 1997. The applicants say that had the respondent disclosed those facts and/or not made the First and/or Second Royal Representations then Arcadia would not have made the Arcadia Contract, Cordelia would not have made the Cordelia Contracts and Cordelia would not have suffered any losses. 27 The next, discrete, complaint arises out of a valuation of the Property made by the respondent on or about 5 July 1999 which put the value of the Property (on the basis of the hotel being completed) at $13 million. This valuation has been described as "the Royal Valuation". 28 The applicants say that implied in the Royal Valuation was a representation that, insofar as the valuation was a statement of opinion, the opinion was genuinely held on reasonable grounds, was the product of the exercise of due care and skill and, after making due allowance for its nature as an opinion as to the value of real estate, safe to be relied on and not outside the range of latitude normally allowed for an opinion of that sort. 29 The applicants complain that by providing the Royal Valuation and making those implied representations the respondent engaged in conduct which was misleading or likely to mislead or deceive in that the value of the Property (on the basis of completion of the hotel) was substantially less than $13 million and that the implied representations concerning the opinion were false. 30 Further and in the alternative, the applicants complain that the respondent performed the Royal Valuation negligently thereby breaching its contract of retainer with Cordelia and its common law duty, said to be owed to all of the applicants, to take reasonable care not to cause the applicants any economic loss. 31 The applicants say that Mr Morrone repeated the substance of the Second Royal Representation to Mr Saffron, between November 1998 and November 1999, both orally and in two written "sales reports". They allege that such repetition also constituted misleading or deceptive conduct, negligence and breach of the respondent's fiduciary duties. 32 The applicants allege that they relied on the Second Royal Representation and on its repetition and on the Royal Valuation when they entered into the documents which recorded the terms of settlement of the disputes which arose, in about July and August 1999, being the disputes and the documentation which I have described in paragraphs 9 and 10 above ("the Settlement Documentation"). 33 The applicants say that they entered into the April Deed to mitigate the losses which, in summary, were sustained by entering into the Cordelia Contracts and the Settlement Documentation. They claim damages quantified by the amount of those losses as so mitigated. 34 I shall not attempt to summarise the remainder of the respondent's defence at this stage. I shall refer to it when outlining the matters in issue. I intend to approach the matters in issue initially by asking a number of questions. They are as follows: Did Mr Morrone make the First Royal Representations? Did Mr Morrone make the Second Royal Representation? Did Mr Morrone repeat the Second Royal Representation on the occasions referred to in paragraphs 16A and 24G of the Statement of Claim? 35 Mr Saffron, in his witness statement, said that in about September or October 1997 he received a telephone call from Mr Morrone. Mr Morrone told him that he had a proposition to put in relation to the purchase of a property at 12 Victoria Avenue, Perth and that he wished to have a meeting with Mr Saffron. 36 Mr Saffron's further evidence-in-chief (again through his witness statement) was that in mid October 1997 he had a meeting with Mr Morrone at Royal's office in Hay Street, West Perth. No-one else was present. Mr Morrone said words to the following effect: "City Inn Pty Ltd (City Inn) is the freehold owner of 12 Victoria Avenue. Frances (sic) Choy, a prominent Singaporean businessman, is the principal of City Inn. There is an office block built on the land. There is a proposal to convert the building to a hotel. Mr Choy is looking for a buyer. I can get the land and hotel for Arcadia for $12.5 million. It is a bargain at that price. The property will be worth $15-$16 million when the hotel is completed. Settlement will occur when the hotel has been completed." 37 Mr Saffron's evidence was that he and Mr Morrone discussed the details of the transaction. In particular, they discussed stamp duty and arranged that the vendor would pay the stamp duty. Mr Morrone then, according to Mr Saffron, said words to the effect: "Work on the hotel should be completed by about August 1998. I will have it onsold for around $16 million before the hotel is completed." 38 Then Mr Saffron said to Mr Morrone words to the effect: "I am relying on you to find a buyer. I have no intention of operating the hotel myself." 39 To which Mr Morrone replied: "No problem". 40 Mr Morrone, in his witness statement, said that in around March 1997 he had told Mr Saffron about the hotel development proposal for the Property during a general discussion with him at the respondent's office about projects with which Mr Morrone was involved at that time. Mr Morrone agreed that he had a meeting with Mr Saffron at Royal's offices in West Perth in October 1997. He said that at that meeting he showed Mr Saffron the plans for the proposed hotel development on the Property and an artist's impression of the finished building. Mr Saffron had asked whether the Property was on the market for sale. He told Mr Saffron that the asking price for the Property, as so developed, was $12.5 million. He gave Mr Saffron a copy of some sales and property reports which he had previously prepared for Mr Choy, which showed the asking price for the Property when refurbished as $12.5 million. Mr Saffron said that he was interested in the Property. Mr Morrone said that he suggested to Mr Saffron that, if he wanted to purchase the Property, he use Arcadia as the purchaser because he (Mr Morrone) knew that Arcadia had previously held a liquor licence in Western Australia. 41 Mr Morrone denied making any representations to Mr Saffron or giving him any advice regarding the value of the Property once the hotel development was completed, during the October 1997 meeting or at any other time. He said that the only figure which he mentioned to Mr Saffron in discussion at the meeting was to say that $12.5 million was the firm asking price. In particular, he did not make any representation to Mr Saffron that the purchase of the Property was a bargain at the price of $12.5 million. 42 Mr Morrone's evidence was that he did not tell Mr Saffron that City Inn owned the freehold of the Property and proposed to develop the hotel. According to Mr Morrone, Mr Saffron did not ask who the vendor of the Property was. Mr Morrone's evidence was that he made no reference to City Inn during his discussion with Mr Saffron at that meeting. 43 Both witnesses were extensively cross-examined on this and many other points. Generally speaking, throughout cross-examination both witnesses stuck to their version of what took place. But there were some significant exceptions to that. an evidentiary issue 44 During the course of cross-examining Mr Morrone, Mr D M Stone, leading counsel for the applicants, showed him a five-page photocopy document ("the Document"). The Document was similar to other documents in evidence which were called "Sales Reports". On the first page there was reference to "12 Victoria Avenue, Perth, Western Australia", and a statement that Royal International (WA) was privileged to be involved in the selling of "this unique 3˝ star refurbished boutique hotel in the central CBD of Perth, Western Australia". There then followed some 24 paragraphs of description of the Property, the proposed refurbishment and the asking price. Each of the first four pages of the document has in type script at its foot the notation "Prepared by Royal International (WA)". The last page has at its foot simply the words "Royal International (WA)" below a statement, in large bold type, "For further details contact David Ross office: 9322 4848 mobile: 0417 989 338". 45 If the Document is authentic, its date can be placed as being between 14 March 1997 and March 1998. That is because it refers to an approval having been obtained on 14 March 1997 and also refers to an expected commencement date for the refurbishments as being in March 1998. Under the heading of "Asking Price" the following appears: "The asking price on a turnkey basis is Fourteen Million Dollars ($14,000,000.00)." 46 When the Document was put to Mr Morrone he said that he could not recall anything about its preparation. He also said that he did not know how the asking price of $14 million got into the Document. He agreed that Mr Stone would have to ask Mr Ross about it. 47 When the Document was shown to Mr Ross in cross-examination he said that he had never seen the Document before. 48 The Document was apparently not a document discovered by the respondent. I was not told the source of the Document and nor was there any evidence about the source of the Document. 49 Mr Stone tendered the Document. He told me that one of the uses which the applicants wished to make of it was the very point that neither Mr Morrone nor Mr Ross could identify it. Mr Stone submitted that the Document had significance, whether or not it was admitted into evidence, because it was a sales report or part of a sales report showing the $14 million asking price which neither Mr Morrone nor Mr Ross could explain or was prepared to explain. However, he said that the applicants wanted the Document in evidence because it showed that at some stage, probably at an earlier stage, the respondent was thinking in terms of an asking price for the Property of some $14 million. At paragraph 11.6.2 of the statement of claim the applicants had pleaded, as part of the Second Royal Representation, that Mr Morrone had said to Mr Saffron that he then had buyers willing to pay $14-$15 million for the hotel. Mr Stone submitted that the Document was relevant because it made it more likely that the representations comprising the Second Royal Representation, and the representation in paragraph 11.6.2 in particular, were made. 50 Mr D M B Derham QC, senior counsel for the respondent, submitted that the Document was inadmissible for the following reasons: · it had not been authenticated. The Document had not been authenticated by either of the principals of the respondent, it had not been discovered by the respondent and was thus not shown to be a business record of the respondent; · it was not known when the Document was produced, who produced it, to whom it was given, for what purpose and on whose behalf; · Mr Saffron had not identified it as something given to him on the basis of which he had acted; 51 The tender of the Document and the submissions made in relation to it, took place on the last day of the hearing. I reserved my ruling on the question of the admissibility of the Document. 52 With considerable reservations, I have decided to admit the Document into evidence. It will henceforth be Exhibit A31 instead of merely having been marked for identification under that description. I shall give short reasons for taking that course. First, I examined the Document with a view to proceeding in accordance with s 58(1) of the Evidence Act 1995 (Cth) ("the Act"). That section relevantly provides as follows: "58(1) If a question arises as to the relevance of a document or thing, the court may examine it and may draw any reasonable inference from it, including an inference as to authenticity or identity. (2) Subsection (1) does not limit the matters from which inferences may be properly drawn." 53 The first matter which I considered was the question of authenticity i.e. was it a document prepared by the respondent? I was conscious of the possibility that the Document was a fabrication. However, I thought that the chances of it being a fabrication were not all that great. The Document was very similar to a draft document prepared by the respondent on which Mr Morrone identified an alteration as having been made in his handwriting. The alteration was to change the asking price for the Property from $12.5 million to $13.5 million. 54 I decided that there was a reasonably good chance that the Document was not fabricated and that it was what it appeared to be i.e. part of a draft property report prepared by the respondent at some time between 14 March 1997 and March 1998. As such, and subject to the possibility that it was a fabrication, I considered that it was relevant to the question whether that part of the Second Representation, made in paragraph 11.6.2 of the statement of claim had been made. However, I was not prepared to give the Document any real substantial weight on the issue in respect of which it was tendered. This was principally because there was no evidence about the circumstances in which it was created, who created it, whether it was only a draft, whether it was created for any particular purpose and whether it was used for that purpose. All that I inferred from the document was that there was a reasonably good chance that at some time between the dates mentioned above someone in the respondent's organisation thought fit to prepare a document which showed an asking price for the Property of $14 million. That "someone" would probably have been Mr Ross because he was named as the contact person. That circumstance was unusual because Mr Ross is a valuer and Mr Morrone was always in charge of selling the Property. Perhaps Mr Morrone was away from his office at the relevant time. CREDIBILITY PROBLEMS 55 I have some reservations about the evidence of both Mr Saffron and Mr Morrone. 56 Mr Saffron was in the witness box during the course of seven sitting days. He was 82 years of age at the time. Mr Saffron had considerable hearing difficulties which were initially dealt with by a hearing aid and later by a more sophisticated device which included the use of a headset. I am satisfied that Mr Saffron eventually heard and understood the hundreds of questions which were put to him. Nobody suggested otherwise. But many questions had to be repeated and the process was very slow. Many younger persons would, in my view, quite naturally have wilted under such a strain. Mr Saffron did not do so. I was impressed by the physical and intellectual stamina which Mr Saffron demonstrated in the witness box and I said as much when he concluded the bulk of his evidence. While Mr Saffron was giving evidence there was nothing in his demeanour or in the content of his oral evidence (save for the matters to which I refer below) which at that stage led me to think that he was deliberately seeking to mislead the Court on what had transpired between him and the respondent. However, towards the end of the trial I started to have substantial doubts about accepting Mr Saffron's evidence. Even then I was inclined to accept the possibility that Mr Saffron (as witnesses sometimes do) had, at some stage fairly late in the piece, convinced himself that Mr Morrone did make the First Royal Representations. Now, after an intensive examination of the evidence, and the submissions (including about 180 pages of written closing submissions) I am less inclined to accept that possibility, and my doubts about accepting his evidence on this and other issues in the case are far more substantial. 57 One major difficulty I have with Mr Saffron's evidence arises as follows. My observation of him in the witness box over such a long time gave me the impression that he was a very shrewd, practical and highly intelligent businessman. There was evidence to similar effect, including some in answers on that matter from Mr Saffron himself. There was also evidence that, over some fifty years, Mr Saffron had established an extensive and diverse commercial and property enterprise which involved dealing with real estate agents at various times. He was not only the controller of that enterprise, but managed it and made the major decisions. Despite Mr Saffron's repeated assurances of continuous reliance upon what he said were Mr Morrone's oral representations, I do not believe that he did so rely. I return to that subject below. I formed the impression, and I so find, that Mr Saffron was not telling the truth about this alleged reliance upon his part on the matters which he said had been orally represented to him by Mr Morrone. That impression and finding caused me to have serious doubt about accepting other aspects of Mr Saffron's evidence, and, in particular in the present context, whether all of the representations, said to constitute the First Royal Representations, had in fact been made. There were other difficulties in accepting Mr Saffron's evidence on this (and other issues on which the veracity of his evidence depends). I now turn to some of those. 58 Mr Saffron was prepared to swear, and did swear, to the truth of some material parts of his witness statement which were false. I shall give some examples of this. 59 In Mr Saffron's witness statement, when referring to the period between June 1999 and August 1999, he said that although he was concerned that he was unable to raise the necessary finance to settle the purchase of the Property he: "… continued to accept that 12 Victoria Avenue would be sold soon and that a sale price of about $12-$13 million would be achieved. This I considered to be the effect of the FRI Report, the Collier's Report and the Royal Valuation". 60 Mr Saffron's oral evidence was to the effect that as late as early September 1999 he was still expecting a sale price of $16 million to be achieved. 61 In cross-examination Mr Saffron was referred to the fact that in September 1999 he had made a complaint through his solicitors about a misrepresentation made by Mr Morrone concerning the strata titling of the Property. There was then the following exchange: "But you don't complain about anything else that Mr Morrone said to you, do you? – No. For example, you don't complain that Mr Morrone told you that when completed the hotel would be worth between $15 and $16 million? – No. Was there any reason that you didn't complain about that when you were on the subject of misrepresentations made by Mr Morrone – well, I still expected him to achieve it. Is your honest answer, Mr Saffron, that as at the beginning of September 1999 you were still expecting to obtain a sale of the hotel for 16 million – I was continually told by Charles I could expect that. Is it an honest answer, Mr Saffron, that by the beginning of September 1999 you were expecting to receive or to obtain a sale price of $16 million for the hotel? – That's what Charles told me. I'll ask you again, were you expecting at the beginning of September 1999 to receive a sale price of $16 million? – Based on what Mr Charles said, yes. Even although you had accepted an offer of $13 million in July? – That is right." 62 Again in his witness statement in relation to the purchase of a tavern at Hilton Park through the agency of the respondent represented by Mr Morrone, Mr Saffron said that it was only when he executed the contract that he realised that the registered proprietor was Astle Corporation Pty Ltd, a company controlled by Mr Morrone. A company search was annexed to the statement to confirm that connection. In my view, the main purpose (if not the only purpose) in making that statement was to cast Mr Morrone in a bad light. 63 In cross-examination Mr Saffron acknowledged that he knew before he decided to buy the tavern at Hilton Park, that it was owned by an entity controlled by Mr Morrone. He confirmed that paragraph 26 of his witness statement was wrong. 64 In the earlier part of Mr Saffron's written statement he set out his version of various transactions entered into by some of his companies in which transactions Mr Morrone was involved. Part of the significance of this evidence (a major part, but not its only significance), is that it forms the basis for the applicants' assertion that the respondent owed fiduciary duties first to Arcadia and then to Royal. 65 One of those transactions related to what was known as the Merriwa Tavern. Mr Saffron dealt with this in paragraphs 13 onwards of his witness statement. The impression one gains from reading those paragraphs is that Mr Morrone advised Mr Saffron in relation to the wisdom of that purchase and then negotiated on Mr Saffron's behalf with the vendor. In cross-examination a somewhat different picture emerged. Mr Saffron had seen an advertisement for the Merriwa Tavern site (he mentioned this in his amended witness statement) inserted by Messrs Knight Frank as agents for the vendor. He took that advertisement to Mr Morrone, and suggested that he (Mr Morrone) might get a share of the commission from Messrs Knight Frank. He instructed Mr Morrone to make an offer of $315,000 for the property. It further emerged from the cross-examination and the relevant documentation comprising three offer and acceptance forms on which various purchase prices had been inserted as offer and counter-offer were made, that Mr Morrone's role was simply to relay those offers and counter-offers back and forth between the vendor and Mr Saffron. 66 Also in relation to the Merriwa Tavern, Mr Saffron said in his witness statement that when delays occurred in obtaining approval to the transfer of a liquor licence from the Cloverdale Hotel to the tavern site, Mr Morrone advised him that it would be quicker simply to obtain a new provisional liquor licence for that site, that he accepted that advice and that Mr Morrone successfully arranged for the grant of that new liquor licence. In cross-examination Mr Saffron said that the change from applying for a transfer of the existing Cloverdale Hotel licence to an application for a new licence, was a decision made by Mr Morrone, which he did not discuss with him. Mr Saffron said that he was told about that decision after the event. 67 In Mr Saffron's witness statement he said that the respondent was paid commission of about $124,000 on the sale of Dunlop House. Mr Morrone's evidence was that at the time of signing the contract of sale, Mr Saffron took him outside the respondent's boardroom and told him that he would only "do the deal" if the respondent's commission were reduced to $100,000. Later, when Mr Morrone mentioned this incident to Mrs Saffron, she made a telephone call to Mr Saffron and insisted that he pay the respondent an additional $10,000 by way of commission. In cross-examination Mr Saffron accepted that this had taken place. I am satisfied that Mr Saffron would have been aware of these circumstances when he signed and subsequently swore to the truth of his witness statement. He was prepared to swear that a commission of $124,000 was paid to the respondent, when in truth that was not the case and $110,000 had been paid. 68 I interpolate at this stage to say that I do not accept the applicants' submission that the nature of the business relationship between Mr Saffron and Mr Morrone, as at 1997-1998, made it more probable that the representations alleged in the statement of claim (i.e. the First Royal Representations and the Second Royal Representation), were made, repeated and relied upon by Mr Saffron. My impression of the relationship is very different to that which the applicants advanced. At this stage, I think that it is sufficient for me to note that I consider that these were two businessmen dealing at arm's length and that Mr Saffron backed his own business judgment, rather than placed any substantial trust in Mr Morrone. I return to this subject when considering the claims that a fiduciary relationship was created between the respondent on the one hand and Arcadia and Cordelia on the other. 69 There are other examples of what I consider to be lesser inconsistencies referred to in the respondent's outline of closing submissions. However, I shall refer to one more example which I consider involves a further significant inconsistency. 70 Mr Saffron, in his witness statement, in the course of describing what took place at a meeting on 28 October 1999 with a Mr Abrusci of Keywest, said: "I told Mr Abrusci that I could obtain $7 million from the Wyllie Group within a month." 71 The context in which this meeting was held was the need to arrange settlement of the Cordelia Contracts. KPG and Keywest had by that time served notices of default and notices of termination of the two contracts which constituted the Cordelia Contracts. I infer that Mr Saffron made that statement to Mr Abrusci in order to give the latter the impression that Cordelia was prepared to avail itself of the Wyllie Group finance offer in order to facilitate settlement within the month. 72 In cross-examination, Mr Saffron agreed that at the time of this meeting he had decided not to accept the Wyllie Group offer. In earlier cross-examination Mr Saffron had sworn that he did not tell lies in business. 73 After taking into account the matters to which I have referred above, I decided that it would not be safe, generally, to rely on Mr Saffron's evidence unless it was inherently likely or corroborated by reliable documentary evidence or other reliable evidence. 74 I have examined the documentary and other evidence which, in the applicants' submissions is said to corroborate Mr Saffron's evidence about the First Royal Representations and the Second Royal Representation. I do not think that it does so. I do not propose to give details of all of that evidence, but I shall refer to a few examples. 75 The various sales reports and other associated documents, some showing asking prices as high as $16.5 million, were relied upon. In my view, an asking price in such brochures and the like is insufficient corroboration of the representations referred to in paragraphs 5.5 and 5.7 of the statement of claim. The same applies to documents such as authorities to sell or list the Property for sale. 76 Mr Maurice Chippindale's evidence was also relied upon for corroboration. Mr Chippindale has acted as manager of some of Mr Saffron's business affairs in Western Australia since early 1998. Mr Chippindale's daughter is married to Mr Saffron's nephew. I considered that Mr Chippindale was an honest witness, but my strong impression was that despite the contents of his witness statement he had virtually no recollection of the key matters in issue. For that reason I decided, after hearing his evidence in cross-examination, that he was not a witness upon whom I should place reliance on any critical matter. 77 I also had doubts about accepting much of Mr Morrone's evidence. First, I formed a clear impression that any part of his evidence which depended upon a particular date was not to be relied upon because he seemed to me not to have a good memory for dates. Subject to that, my impression was that Mr Morrone had a reasonably good memory. Secondly, Mr Morrone was on occasion, prepared not to tell the truth in the witness box. Like Mr Saffron, Mr Morrone swore to the truth of his witness statement which, in cross-examination, he admitted was untrue in several respects. For example, in paragraph 174 of his witness statement Mr Morrone said that in a telephone conversation with Mr Saffron in September 1998 he had told Mr Saffron that he had some parties interested in buying the Property/hotel development if Mr Saffron did not want to proceed. In cross-examination Mr Morrone said that that part of his statement was wrong. 78 In cross-examination, Mr Morrone gave answers which suggested that the respondent's role in relation to the management of South Lakes Tavern was confined to his authority to sign cheques and to an employee (Mr Aldrich) keeping the accounts. In further cross-examination and from a contemporaneous document (the minutes of a meeting held on 3 October 1997), it emerged that the respondent's involvement in the management of the South Lakes Tavern was far more extensive and was concerned with matters of detail, at least at that stage. 79 The impression which I formed of Mr Morrone during the course of cross-examination was that he was evasive and an unsatisfactory witness. I did not base that impression from his demeanour in the witness box, but from the nature and content of his answers. 80 I decided to treat Mr Morrone's evidence, generally, in the same manner as I treated Mr Saffron's evidence i.e. generally not to rely on it unless it was inherently likely or corroborated by reliable documentary evidence or other reliable evidence. The course which I adopted, generally, was to consider the respective evidence of Mr Saffron and Mr Morrone in conjunction with other pieces of evidence together with my assessment of the inherent likelihood or unlikelihood of a particular thing happening, when deciding whether to accept one or other of the two versions presented to me. findings of fact the first royal representationS 81 I start with the matter of City Inn. I accept Mr Morrone's evidence that he did not identify the vendor as being City Inn and in particular did not mention City Inn either at the meeting in mid-October 1997 or at any time before Mr Saffron (on behalf of Arcadia) signed the offer. My reasons for so finding are as follows. It is apparent from the Arcadia Contract, which took the form of an offer and acceptance, that Mr Saffron signed the offer on behalf of Arcadia on 6 November 1997. It also appears from that document that Mr Choy caused City Inn to accept the offer on 7 November 1997. The common seal of City Inn appears in two places in that document, possibly because it was first placed over printed text and was not decipherable. Someone, possibly Mr Choy whose signature appears three times on the relevant page, has also handwritten (in print) the name of City Inn, its address and particulars of its settlement agent. Those circumstances alone would, in my opinion, justify an inference (which I make) that there was no mention of the name of the vendor in the document which Mr Saffron signed on 6 November 1997. 82 Furthermore, part of the impression which I formed of Mr Morrone when he gave evidence was that he would have preferred not to disclose to Mr Saffron the identity of the proposed vendor, if that could be avoided. As the applicants suggested in their written opening submissions, to disclose the fact that the vendor was not the freehold owner would have probably been to have disclosed to Mr Saffron the possibility or even likelihood that he was being asked to pay more than the vendor had contracted to pay the owner. Also, Mr Morrone impressed me as an estate agent who would keep to an absolute minimum any possible risk of negotiations between a would-be purchaser and a would-be vendor which might, to the slightest degree, jeopardise his commission. My assessment is that Mr Morrone would not be so foolish as to tell Mr Saffron an outright lie (that City Inn was the owner of the freehold of the Property) when the risk of detection was so high and the truth could be revealed by a simple Titles Office search. I do not think Mr Morrone would take such a risk of jeopardising a valuable business connection. 83 I find on a balance of probabilities that Mr Morrone decided to say nothing about City Inn when he secured Arcadia's offer i.e. that he did not make the representations referred to in paragraph 5.1 and 5.2 of the statement of claim. I think that Mr Saffron probably thought that he was making an offer (on Arcadia's behalf) to the owner, but I find that he was not told that the vendor was City Inn and that City Inn was the owner of the Property. 84 In relation to the remaining representation pleaded in paragraph 5.1 and the representations pleaded in paragraphs 5.3 and 5.4 of the statement of claim, I find that Mr Morrone told Mr Saffron that the vendor proposed to cause the hotel development to take place, that he suggested that Arcadia should be the purchaser (this latter point was common ground) and that the contract should be drawn in such a manner that settlement would not take place until the hotel was completed. I find that the suggestion that Arcadia be the purchaser was made in the sense that the respondent nominated Arcadia as the particular company in Mr Saffron's group to be the purchaser because Arcadia already had at least one approval to hold a liquor licence. That is, it was not a recommendation to make the purchase. 85 I now turn to the three alleged representations, set out at paragraph 17 above, against which I have placed asterisks. That is, the matters pleaded in paragraphs 5.5, 5.6 and 5.7 of the statement of claim. 86 My impression of Mr Morrone was that if he was acting as an agent for the sale of a property, he would present the property in the best possible light. That comment is not intended to be any form of criticism – it was probably Mr Morrone's legal duty to do this. I have to decide whether, in so doing, Mr Morrone made these three representations. 87 I do not accept Mr Saffron's evidence that Mr Morrone told him that when the hotel was completed the Property would have a value in the order of $15 to $16 million or that he told Mr Saffron that Royal would be able to on-sell the Property at that stage for about $16 million. I think that it is more likely, and I so find, that Mr Morrone was not as specific as that. I think that he would have said something along the lines that the purchase price of $12.5 million represented good value from a purchaser's viewpoint, and I so find. I also think, and so find, that Mr Morrone would have said something to the effect that the respondent would probably be able to on-sell the Property on behalf of Mr Saffron at an unspecified higher price before settlement. I do not think that Mr Morrone gave any kind of assurance to the effect that the respondent would be able to effect an on-sale before settlement. My impression of Mr Morrone is that he is not the sort of person who would give such an assurance i.e. that he has had enough experience in the real estate industry not to make such a commitment. 88 I consider that it was inherently likely that Mr Saffron would have asked Mr Morrone how much profit he thought there would be in the on-sale. My assessment of Mr Morrone is that he would have responded by saying words to the effect that there would be a good profit to be made. I do not believe, for the various reasons which I set out below, that Mr Morrone said that when the hotel was complete the Property would have a value in the order of $15-$16 million or that Royal would be able to on-sell the Property for about $16 million. I think it unlikely that he would have been specific about an achievable sale price, but if he mentioned a figure, I find that it was not either in the order of $15 to $16 million or about $16 million. As will be seen, one of my main reasons for this conclusion is that, if such a representation had been made, Mr Saffron would have complained about it when he fell into disputes with KPG and Keywest in July/August 1999 and instructed his solicitor to obtain advice from Queens Counsel about his contractual position. But those events occurred some considerable time after the Arcadia Contract had come to an end and the Cordelia Contracts had been made. I return to the allegations of what took place in October 1997. 89 Both men would have had fresh in their minds the sale by Arcadia (through the agency of the respondent) some three months previously, of a property known as Dunlop House at a profit of about $1 million in a transaction which involved virtually no cash outlay on Arcadia's part because, as events transpired, the property was on-sold before settlement. I think that Mr Morrone would probably have sought to convey to Mr Saffron that this was a deal which would have a similar or slightly more profitable outcome, but it is not necessary for me to make a finding to that effect. 90 One of the reasons why I do not think Mr Morrone was any more specific was that he would have known that if he quoted specific figures, particularly in the order of $15 to $16 million, Mr Saffron would have sought the basis of such a calculation. 91 My assessment of Mr Saffron, based principally on the evidence to which I refer below but to some extent on my observation of him in the witness box is that he is (and was at all relevant times) very shrewd, astute and well-versed in financial calculations relating to real estate. Mr Morrone knew that. In that context, I think that it was very unlikely that Mr Morrone would have quoted any specific figures without having some basis upon which to justify to Mr Saffron such an assessment. 92 I find that it is more probable than not that Mr Morrone made a selling point out of the fact that settlement would be postponed until the hotel had been developed. But I am not persuaded, on a balance of probabilities, that he told Mr Saffron that the Property would be worth between $15 to $16 million when the hotel was completed and that by the completion date the respondent would be able to on-sell the Property for about $16 million. 93 I accept that in the Dunlop House transaction, in which Mr Morrone played a significant part, the respondent had been able to on-sell Dunlop House on behalf of Arcadia before it was obliged to pay the balance due at settlement, a settlement which was considerably deferred (the contract, by way of a put and call option, was made on 22 May 1996 with settlement on 1 July 1997). The Dunlop House transaction had started with a contract dated 22 March 1996 whereby Arcadia purchased the property on terms which included an option for the vendor to purchase a nightclub business ("Rumours Nightclub") conducted on part of the premises and to lease that part for an unspecified period, but the transaction was restructured two months later. I do not think that the evidence establishes, on a balance of probabilities, that in the Dunlop House transaction Mr Morrone gave Mr Saffron any assurance that the respondent would be able to on-sell Dunlop House before 1 July 1997. I do not accept Mr Saffron's evidence to that effect. He acknowledged in cross-examination that one of his purposes in acquiring that property was to run a nightclub in Dunlop House. Another purpose was to remove the source of an objection to a liquor licensing application then being made by Arcadia in respect of another nightclub conducted by it in Wellington Street. Mr Saffron said that he had learned that the vendor of the Rumours Nightclub was only interested in selling the nightclub with the building. The events which transpired in that transaction were that the respondent found a purchaser who signed an initial offer to purchase at a price of $3.85 million on 30 July 1996, which was not accepted, and entered into a contract of sale with Arcadia on 10 October 1996 at a price of $4.450 million with settlement to be on 1 July 1997. 94 The events which took place in September 1999 contributed strongly to my belief that Mr Morrone did not make the representations referred to in paragraphs 5.5 and 5.7 of the statement of claim. As I have mentioned above, between about July and November 1999 there were disputes between Cordelia, on the one hand, and KPG and Keywest on the other hand, ostensibly about whether the hotel refurbishment works had reached practical completion, at which point settlement of the Cordelia Contracts was due to take place. Mr Saffron, in cross-examination, admitted that Cordelia did not have the funds with which to pay the balances owing under those contracts. My assessment of the evidence is that he looked for any possible way of getting Cordelia out of those contracts, that he did all that he could to delay settlement, while at the same time making vigorous efforts both to raise finance and to find a buyer for the Property (preferably a cash buyer). In those circumstances he caused his solicitor, Mr Granich, to obtain advice from senior counsel and to engage in correspondence with the solicitors for KPG and Keywest. In part of that correspondence (a letter dated 2 September 1999 from Granich Partners to those solicitors), Cordelia's solicitors made various allegations of failure on KPG and Keywest's part to comply with the conditions of the Building Contract. Those allegations may be put to one side. What I consider to be of importance is that Mr Saffron's solicitors also made a complaint about misrepresentation by Mr Morrone. The relevant paragraph of the letter read as follows: "Your client's agent* represented to our client at the time that our client purchased the property that the property was strata titled on a floor by floor basis. It appears that even though the property has been given a strata number, the strata plan has never been registered. Our client relied upon this representation and as a consequence looks to your client to remedy the position. Should your client fail to do so our client reserves its rights in respect thereof." [* In cross-examination Mr Saffron agreed that this was a reference to Mr Morrone]. 95 In cross-examinationMr Saffron conceded that when he caused his solicitor, Mr Granich, to send the letter dated 2 September 1999 to the solicitors for KPG and Keywest, he was looking for ways to avoid termination by KPG and Keywest of the Land Contract and the Building Contract. Later in cross-examination by senior counsel for those companies (before they ceased to be respondents) the following exchange took place: "Mr Saffron, let me be blunt about it. If you could have terminated these contracts with my clients, based on something that Mr Morrone had said to you which amounted to a misrepresentation, then you would have taken that course? – That's what I discussed with Mr Granich, yes. However friendly or not you were with Mr Morrone, in this respect you were quite clearly looking after your own interests, the interests of Cordelia – Yes. You were not seeking to protect Mr Morrone, were you? – No. You weren't holding anything back from your solicitors concerning what Mr Morrone had said to you? – No." 96 At this time (early September 1999) Mr R Birmingham QC had been retained by Mr Granich to advise Mr Saffron. The evidence is that Mr Birmingham advised that it was open to Mr Saffron to rescind the Cordelia Contracts for the misrepresentation relating to strata titling referred to above. Mr Saffron's evidence was that he considered that advice, but decided not to act upon it. 97 In my view, Mr Saffron must have known in September 1999 that if Mr Morrone had made the representations referred to in paragraphs 5.5 and 5.7 of the statement of claim, there was at the very least considerable doubt about their accuracy, and the same applies to the representations alleged to have been made by him in February 1998. For example, on 22 July 1999 Mr Saffron had caused Cordelia to accept an offer for the Property of $13 million. Mr Saffron's evidence was that he did this on the advice of Mr Morrone. I have taken into account the fact that that contract was conditional upon a sale by one of Mr Saffron's companies of the Raffles Hotel site to the same purchaser at a price of $25 million and that this price was some $4.75 million in excess of a then recently current (7 July 1999) valuation of the Raffles Hotel site made by the respondent i.e. that the total consideration payable under those two contracts might have been more than Mr Saffron was expecting, at that time, to receive if, say, the Raffles Hotel site and the Property had been sold separately. But within a few weeks (well before 2 September 1999) the purchaser's deposit cheque had been dishonoured and those contracts had fallen through. Furthermore, my assessment is that if it were the case that the purchaser was prepared to buy the Property at a price of $13 million only on condition that it could buy the Raffles Hotel site (the evidence was that the Raffles Hotel site was a very valuable site in which there was a lot of interest), Mr Saffron would by then have been well aware that $13 million would have been, in the circumstances, a satisfactory price to get for the Property. He acknowledged as much in cross-examination. 98 I think, in the context of the circumstances obtaining in early September 1999 it would have been inconceivable (had the representations described in paragraphs 5.5 and 5.7 of the statement of claim in fact been made, or subsequently, the representation described in paragraph 11.6.3) for Mr Saffron not to have complained about them to Mr Granich before the latter sent the letter of 2 September 1999. In cross-examination, Mr Saffron said that he did not complain in September 1999 about any misrepresentation by Mr Morrone as to the expected sale price for the Property because, based on what Mr Morrone had told him, he was still expecting at the beginning of September 1999 to receive a sale price of $16 million. As I have mentioned above, that evidence is inconsistent with paragraph 63 of Mr Saffron's witness statement. 99 My assessment is, and I so find, that if there had been any other relevant (relevant in the sense that they had influenced Mr Saffron into entering into what later became the Cordelia Contracts and might thus be used by him to advantage in the course of the then current disputes) representations made to Mr Saffron before those contracts were entered into, he would have told Mr Granich about such representations. 100 In my view, the applicants' submission (made in paragraph 39.1 of their outline of closing submissions) that Mr Granich's evidence was to the effect that Mr Saffron did complain to him in late 1999 about statements made by Mr Morrone, is not borne out by reference to what Mr Granich actually said in cross-examination and re-examination. I do not accept the submission. 101 I also take into account the timing of these complaints, that is, their lateness in the chronology of events. The complaint about the representation set out in paragraph 5.5 of the statement of claim did not occur until the filing of the application on 30 June 2000 by which time KPG and Keywest had served notices of termination of the Cordelia Contracts. The complaint about the representation set out in paragraph 5.6 was introduced, by amendment, into the statement of claim in January 2001. The complaint about the representation set out in paragraph 5.7 was introduced by amendment to the statement of claim in June 2001. 102 In relation to the representation in paragraph 5.7, a central part of Mr Saffron's evidence (see, for example paragraphs 31 and 32 of his witness statement and paragraph 28 of his responsive witness statement) was that when he caused Arcadia to enter into the Arcadia Contract he relied upon Mr Morrone's representations that the respondent would be able to on-sell the Property on its behalf before settlement at a price of about $16 million (i.e. a profit of about $3.5 million). My assessment of Mr Saffron is that had this representation been made to him by Mr Morrone, he would have informed his solicitors about it at the time when he instructed them to issue these proceedings. 103 In cross-examination Mr Saffron said that he had told the applicants' solicitors everything that he had been told by Mr Morrone. I do not believe that he told them about the representations pleaded in paragraphs 5.6 or 5.7 of the statement of claim. Had he done so, my assessment is that the allegations would have appeared in the statement of claim. 104 For all of the reasons referred to above, my conclusion is that the representations referred to in paragraphs 5.5 and 5.7 were not made. 105 As to the representation referred to in paragraph 5.6, my impression of Mr Morrone is that he is a good salesman. I think that it was inherently likely that in October 1997 he would have told Mr Saffron that the purchase price of $12.5 million represented good value from the purchaser's viewpoint and I so find. I have considered the question why Mr Saffron did not raise this representation until as late as about January 2001. My assessment is, and I so find, that initially Mr Saffron did not tell his solicitors that Mr Morrone had told him that the purchase of the Property was a bargain at the price of $12.5 million because he did not think it was a statement of any importance and furthermore he had not relied upon it. 106 That leaves, on my findings, as the only relevant representation forming part of the First Royal Representations, a general statement by Mr Morrone along the lines that the purchase price of $12.5 million represented good value from a purchaser's viewpoint. I think that there is no difference between saying something along those lines and saying that the Property was a bargain at that price. The other findings of fact which I have made (at paragraphs 87 and 88 above) are materially different from the representations as pleaded and as advanced by the applicants at the trial. It follows that I find that Mr Morrone did make the representation referred to in paragraph 5.6 of the statement of claim i.e. that only one relevant part of the First Royal Representations has been proved. 107 As I see it, that finding, on its own, has no significance because, initially, the only consequence which was said to have flowed from the making of that representation was Arcadia's entry into the Arcadia Contract. Arcadia is not among the applicants. The potential significance of the representation is whether it formed part of any subsequent conduct which was a cause of the applicants, or any of them, acting to their detriment in the various ways pleaded in the statement of claim. I now turn to the matter of the Second Royal Representation. the second royal representation 108 At paragraph 22 above I have set out above the various elements which together are said to comprise the Second Royal Representation. 109 In relation to the plea in paragraph 11.5 of the statement of claim, as I have held that the representations referred to in paragraphs 5.5 and 5.7 were not made by the respondent, there remains only the representation in paragraph 5.6 to the effect that the purchase of the Property was a bargain at the price of $12.5 million. In view of my findings in relation to non-reliance, it is not necessary to find whether that particular representation was implicitly repeated and affirmed by failure of the respondent to withdraw it or otherwise amend it. There is no allegation of express repetition of this particular representation. However, I will work on the assumption that it was implicitly repeated and affirmed. 110 The next matter is whether, in or about February 1998, Mr Morrone told Mr Saffron that: · there was a lot of interest in the Property; · he (Mr Morrone) had buyers willing to pay $14-$15 million for the Property; · when the hotel was complete the Property would have a value of, in the order of $16 million; and · that the respondent would be able to sell the Property on behalf of Cordelia by the time the hotel was complete. 111 In his witness statement, Mr Saffron puts the date of the Second Royal Representation as being in March 1998. In my view, this would fall within the description "in or about February 1998". Mr Saffron said that on this occasion he remonstrated with Mr Morrone for not telling him that City Inn was not the freehold owner of the Property. Mr Morrone's response was to say that he had a better deal for Mr Saffron, namely the purchase of the Property from Keywest for $11.5 million i.e. $1 million less than the price which Arcadia had agreed to pay to City Inn. According to Mr Saffron's witness statement, Mr Morrone then said that he would on-sell the Property for him before settlement of the purchase and also told him that there was a lot of interest in the Property, that he had buyers who were willing to pay $14 or $15 million and that when the hotel was complete the Property would be worth about $16 million. Mr Saffron further stated that he accepted what Mr Morrone said and told him that he would go ahead with the transaction so proposed. Mr Saffron said that he did not make any enquiries or investigations of his own. He did not cause Cordelia to contract to purchase the Property until later because he first wanted to resolve the issue of the stamp duty payable on the Arcadia Contract. Mr Saffron said that he met Mr Morrone on each of the six occasions when he travelled from Sydney to Perth between February and November 1998. On those occasions Mr Morrone continued to say in effect that when the hotel was complete the Property would be worth around $15 million or $16 million and that the proposed purchase was a good opportunity. In September 1998 the Western Australian State Revenue Department issued a final notice of demand for the outstanding stamp duty on the Arcadia Contract in the sum of $571,037. Mr Saffron said that he instructed Mr Granich to resolve that issue and to liaise with Messrs Deacons (solicitors for KPG and Keywest) in relation to the purchase of the Property including the Building Contract. Mr Saffron said that in the circumstances he felt that it was prudent that he should engage a lawyer. 112 Mr Saffron then stated that, in reliance on Mr Morrone's representations as to the value of the land and hotel when completed and that the respondent could sell it before settlement of the purchase (and completion of the hotel), Cordelia entered into the Cordelia Contracts. 113 Mr Morrone, in his witness statement, said that he did not make any representations to Mr Saffron or give him any advice regarding the value of the Property once the proposed hotel development was completed, during the October 1997 meeting, or at any other time. As to the meeting in about February/March 1998, Mr Morrone said that he told Mr Saffron why the contract with City Inn could not proceed (i.e. because City Inn could not complete its contracts with KPG and Keywest) and that if he wanted to pursue the purchase of the Property he might be able to "do a deal" with Mr Abrusci. He said that Mr Saffron might be able to purchase the refurbished Property for $11.5 million. Mr Morrone, in his witness statement, sets out his version of the events which transpired subsequently during the period February/March 1998 to September 1998. 114 Mr Morrone said that in September 1998, during a telephone conversation with Mr Saffron, he told Mr Saffron that he had some parties interested in buying the Property if he (Mr Saffron) did not want to proceed. [As referred to above, in cross-examination Mr Morrone disclaimed this part of paragraph 174 of his witness statement which contained this evidence, but I think he got it right the first time]. I accept Mr Morrone's original evidence that he told Mr Saffron this in October 1997 and I reject his attempt in cross-examination to resile from that part of his witness statement. He asked Mr Saffron if he would consider selling the Property and Mr Saffron told him that he would only on-sell for $16.5 million. 115 On 21 October 1998, according to Mr Morrone's witness statement, he received from Keywest a complete set of construction drawings and a specification for the hotel development. He said that those documents were provided for him to show Mr Saffron and to "get him to proceed to a formal offer". 116 On the same date Cordelia sent a letter to the respondent, signed by Mr Saffron, which, in relevant parts, read as follows: "Re: 12 Victoria Avenue, Perth CBD (Boutique Hotel) We are pleased to advise that an offer of $16,500,000 for purchase of the above freehold premises would be accepted." 117 There were differing accounts from Mr Saffron and Mr Morrone respectively about how that letter came to be sent to the respondent. 118 Approaching the fact-finding task on the basis of the credibility findings referred to above, my findings of fact in relation to the balance of the Second Royal Representation are as follows. First, I am not satisfied on the balance of probabilities that in February or March 1998 Mr Morrone told Mr Saffron that there was a lot of interest in the Property, that he had buyers willing to pay $14 to $15 million for it, that when the hotel was complete the Property would have a value of, in the order of, $16 million, and I find that those representations were not made. Once again, I accept that Mr Morrone would probably have said that the respondent would be able to sell the Property on behalf of Cordelia by the time the hotel was complete, but I find that this was not in the form of an assurance or commitment to that effect. My reasons for this conclusion are the same as in relation to the relevant portion of the statement referred to in paragraph 5.7 of the statement of claim. I accept much of Mr Morrone's account of what took place on that occasion as being inherently far more probable. By that time I think that Mr Morrone appreciated that the deal between KPG, Keywest and City Inn was not going to be concluded (although there were extensions of the times limited by various conditions in the contract) and that in those circumstances, it made good sense for Mr Saffron to be put in touch, through the respondent, with the owners with a view to buying the Property for a price being one million dollars less than Arcadia had contracted to pay to City Inn. I do not accept Mr Saffron's evidence in relation to these alleged representations. 119 However, I think that it was inherently likely that in about October 1998 Mr Morrone was asked by KPG and Keywest (probably in the person of Mr Abrusci) to try and move the negotiations along to the stage where formal contracts would be executed. I accept Mr Morrone's evidence in that regard, save that I think that the telephone call to Mr Saffron was contemporaneous with this request from KPG and Keywest. 120 I think that it was also inherently likely, and I so find, that at or about that time Mr Morrone telephoned Mr Saffron and said that he had some parties interested in buying the Property if Mr Saffron did not want to proceed. I think that in saying this it was most likely that Mr Morrone's purpose was to get Mr Saffron to sign the Cordelia Contracts. As part of that purpose, I think that it is inherently likely, and I so find, that Mr Morrone asked Mr Saffron what price he would accept on an on-sale of the Property when the hotel was completed and also asked Mr Saffron to send him written confirmation of his willingness to accept that particular figure. My impression of Mr Morrone is that this was the sort of salesmanship he would employ. I find that that gave rise to the sending of the letter dated 21 October 1998. 121 As part of my reasoning process towards those findings, I have placed some weight on the fact that documentary evidence shows that the forwarding of the specifications and drawings from Keywest to the respondent and the furnishing of the confirmatory letter by Cordelia both occurred on 21 October 1998. 122 I do not accept the plea, made in paragraph 16A of the statement of claim (and the evidence to like effect from Mr Saffron) that, in the seven months referred to in that paragraph, Mr Morrone repeated the Second Royal Representation in substance. This is primarily because I have found that in very large measure there were no such representations to be repeated. I have considered whether Mr Morrone's statement on or about 21 October 1998 to Mr Saffron to the effect that he had some parties interested in buying the Property if Mr Saffron did not want to proceed, might fairly be regarded as equivalent to a repetition of the representation, pleaded as having been made in or about February 1998, that "there was a lot of interest in the Property". In my view, the representations are materially different and this is not a point of pleading. The February 1998 representation was in the context of an alleged representation (which I have found was not made) that Mr Morrone had buyers willing to pay $14-$15 million for the Property. The October statement had no such purchase-price specific context. Furthermore, Mr Saffron's evidence on this point (the subject-matter of the alleged repetition) was, in my view, extremely vague. 123 The essence of my findings (including the assumed finding in relation to non-withdrawal of the statement made in paragraph 5.6 of the statement of claim) is as follows. In about October 1997 Mr Morrone represented to Mr Saffron that the purchase of the Property was a bargain at the price of $12.5 million. In or about February 1998 Mr Morrone said that the respondent would probably be able to sell the Property on behalf of Cordelia by the time the hotel was complete, without giving any assurance or commitment to that effect. Later, probably in October 1998, he told Mr Saffron that he had some parties interested in buying the Property if he (Mr Saffron) did not want to proceed. reliance 124 However, I do not accept that Mr Saffron relied upon these representations when he caused Cordelia to enter into the Cordelia Contracts or that those representations caused Mrs Saffron to enter a personal guarantee of the obligations of Cordelia under those contracts. There was no evidence that Mrs Saffron ever heard about the Second Royal Representation or about how she came to enter into the personal guarantee. In fact, until the last day of the hearing, the plea (in paragraph 17.2 of the statement of claim) was that Mr Saffron as executor had entered into the personal guarantee. That was amended on the last day of the trial to a plea of Mrs Saffron entering into the guarantee. I was left to speculate that Mr Saffron had either told Mrs Saffron about the Second Royal Representation or, relying upon the Second Royal Representation, had prevailed upon Mrs Saffron to sign the guarantee. The latter might have been a reasonable inference if I had been prepared to find (which I am not) that Mr Morrone made and repeated the Second Royal Representation. In any event, nothing turns upon that matter, due to my conclusions on the issue of reliance. 125 In my view, and I so find, Mr Saffron did not rely on those parts of the Second Royal Representation which are consistent with my above findings when he caused Cordelia to enter into the Cordelia Contracts and there was no such reliance either on his part or on Mrs Saffron's part when Mrs Saffron entered into the personal guarantee of Cordelia's obligations under those contracts. I conclude that neither those parts of the Second Royal Representation which are consistent with my above findings including that part of the First Royal Representations which I have assumed found its way into what is thus left of the Second Royal Representation was a cause of Cordelia entering into the Cordelia Contracts or Mrs Saffron entering into the personal guarantee. My reasons for that conclusion are as follows. 126 The evidence, which I accept, shows that, in terms of financial success, Mr Saffron is a member of a very special class of businessmen. The evidence was that as at 27 March 1996 his net assets (including those of related entities) was about $46.5 million. 127 In cross-examination there was the following exchange: "You are, Mr Saffron, a very experienced, very astute businessman, are you not? – I make my errors, but I'm not going to deny what you say." 128 The applicants called Ms Teresa Jozefa Tkaczyk to give evidence. In her witness statement Ms Tkaczyk said that she had known Mr Saffron for 21 years and that she was a company director and company secretary of Cordelia, Vendomatic and Arcadia. In the law report of R v Saffron (1988) 17 NSWLR 395 at 406 there is a reference to Ms T J Tkaczyk as formerly being Mr Saffron's secretary. I infer that the person their referred to is the same Ms Tkaczyk. In cross-examination she was asked in relation to Mr Saffron: "And you know him to be a very astute businessman, don't you? – Yes, sir. And you know that he doesn't seek to enter into transactions unless he has satisfied himself that it is an appropriate business transaction to enter into? – Yes. He is very careful with his money, isn't he? – He is. . . . And he's very careful to ensure that all the business transactions he enters into are properly understood, isn't he? – Yes." 129 Mr K Dharmalingam gave evidence on behalf of the applicants. Mr Dharmalingam is a certified practising accountant who has known Mr Saffron since about 1974. From 1975 until about 1988 Mr Dharmalingam was general manager of Mr Saffron's Western Australian businesses. The following is part of the cross-examination of Mr Dharmalingam: "You've worked for him or companies he controls for almost all of the period you've known him, haven't you? – Yes, since 1974, I think it was. Yes. In that time you've learnt that he's a very astute businessman, haven't you? – Reasonably. You know from working for him that he's operated many clubs and pubs and hotels in Western Australia? – Yep. And you know from what he's told you that he has operated many pubs, clubs and hotels in New South Wales and elsewhere? – Yes. Including a number of nightclubs? – Yes. And you know him to be experienced in operating businesses in the hospitality area, don't you? – Yes." 130 I have already mentioned Mr A P Granich who acted as solicitor for the applicants in relation to the acquisition of the Property from a period commencing in early September 1998. Mr Granich has acted for Mr Saffron and his related legal entities for approximately ten years. He was called by the applicants to give evidence. In cross-examination of Mr Granich there was the following exchange: "Yes, and you know him to be an experienced businessman? – Yes. And you know him to be an astute businessman? – Yes. Indeed, you know he's very careful about the transactions he engages you to act for him in relation to? – Generally, yes." 131 In cross-examinationMr Saffron acknowledged that he had started investing in Perth property in 1953 when he bought the Raffles Hotel. He said that he had been investing in New South Wales for a much longer time and that he had a large range of property and business investments. 132 In later cross-examination Mr Saffron said that the Raffles Hotel included something like 44 motel units. He also had an interest in a property in Melbourne called "Lygon Lodge" which had either 40 or 41 rooms. He had previously had an interest in "Lodge 44" in Sydney. At p 405 in R v Saffron "Lodge 44" is described as a motel business carried on at 44 New South Head Road, Edgecliffe. 133 At p 5367 of the trial bundle there is a statement of assets and liabilities of Mr Saffron and his related entities as at 27 March 1996. This lists some 15 items of freehold property in New South Wales, Victoria, Queensland, South Australia and Western Australia. It also lists a total of cash at banks and on deposit of about $3.5 million. The net assets disclosed in that statement amount to about $46.5 million. 134 I think that it would have been inherently unlikely for Mr Saffron to rely upon the representations which I have found were made. He has been engaged in investing in property for about 50 years. He has built up a substantial business enterprise which he manages. I think that over the years it must have been inevitable that Mr Saffron would have had some experiences of dealing with real estate agents. The applicants submitted that Mr Saffron's experience in the market for residential hotel properties in Western Australia was very limited, compared to that of Mr Morrone. To some extent that is true. However, as I have mentioned above Mr Saffron purchased the Raffles Hotel in about 1953. That hotel has a substantial residential component. I have also mentioned Mr Saffron's interest in "Lygon Lodge" in Melbourne and "Lodge 44" in Sydney. Given his business background and experience, my assessment is that it would have been inherently unlikely for Mr Saffron to have relied upon oral representations by a salesman such as Mr Morrone to the effect that the purchase of the Property was a bargain at the price of $12.5 million and, later, when Mr Morrone said that he had some parties interested in buying the Property if Mr Saffron did not want to proceed. In reaching this conclusion I have not overlooked the history of the various business transactions in which Mr Saffron and Mr Morrone had previously been involved and upon which the applicants rely to a considerable extent for their claims of breaches of fiduciary duties. I have already touched upon that topic above. Later in these reasons I return to that subject. 135 Another relevant factor, in my view, on the question whether Mr Saffron relied upon the First Royal Representations or the Second Royal Representation to the extent that I have found they were made, is the absence of any complaint. I have already referred to that factor, in the context of deciding whether the representations were made. Not only was there no complaint from Mr Saffron, but on 25 October 1999 he signed a letter to the respondent, the two opening paragraphs of which read as follows: "Dear Charles, I would like to take this opportunity to personally thank you for your diligence and effort in reaching an amicable agreement with KeyWest Pty. Ltd. And Cordelia Holdings Pty. Ltd., with regards to the settlement on the Victoria Street property. It has always been my desire not to engage in time-consuming and costly litigation, and it would appear you have achieved this end, for which I am extremely grateful." 136 Furthermore, on 28 March 2000 (only three months before these proceedings were commenced) Mr Chippindale wrote to Mr Morrone on the instructions of Mr Saffron. The primary purpose of the letter appears to be to confirm that the respondent's services were no longer required in relation to the re-development of the Raffles Hotel or Cloverdale Hotel re-development sites or the sale of the Property, and to obtain the return of all files and documents relating to the Saffron Group. But there was not the slightest hint of any complaint in that letter. On the contrary, it ended on this note: "We wish to thank you for the services provided in the past. Kind Regards." 137 In my opinion, the absence of any complaint about the alleged misrepresentations not only goes to the question of whether those representations were made, but also the question of whether, to the extent that they were made, Mr Saffron relied upon them. The fact that he did not complain about these representations until this application was filed, assists me, in conjunction with the factors which I have referred to above, to reach my conclusion that Mr Saffron did not rely upon those of the representations which I have found to have been made. 138 It follows from that conclusion that whether or not those representations amounted to ­misleading or deceptive conduct or were made negligently (which it has become unnecessary for me to decide), they did not form the basis of any such cause of action which was based on the entry into of the Cordelia Contracts and the guarantee of Cordelia's obligations under them. Whether any of the first royal representations, the second royal representation, or their repetition was a cause of the applicants' execution of the settlement documentation 139 This plea builds on the factual matters in respect of which I have made the above findings. However, it has a further basis. In paragraph 24G of the statement of claim the applicants say that between November 1998 and November 1999 the respondent, by Mr Morrone, repeated the substance of the Second Royal Representation to Mr Saffron both orally and in two written sales reports dated 10 and 25 June 1999. 140 Essentially for the reasons which I have set out above, I do not accept that Mr Morrone orally repeated the Second Royal Representation (to the limited extent that I have found it to have been made) to Mr Saffron during that further period. That leaves the two written sales reports dated 10 and 25 June 1999. 141 I do not consider that either of those sales reports contains a repetition of what was said to be the Second Royal Representation. As I understand the applicants' submissions, these two sales reports are relevant to that part of the Second Royal Representation as was said to amount to a representation by Mr Morrone of the price likely to be achieved on the sale of the Property, being a price in the order of $16.5 million [see paragraph 38.1(c)(iii) of the applicants' outline of closing submissions filed on 11 June 2002]. 142 Mr Saffron in his responsive witness statement said that he was given a copy of the 25 June 1999 sales report by Mr Morrone. He said that he did not recall being given a copy of the 10 June 1999 sales report by Mr Morrone in that month. He does not say that he was given a copy at any other date. Both these sales reports list an asking price of $16.5 million. I infer that they were intended for distribution to any person who showed an interest in purchasing the Property. Mr Morrone's evidence was that the asking price in the sales report of 10 June 1999 was nominated by Mr Saffron. Mr Saffron, in his responsive witness statement denies that he nominated that asking price, and says that it was suggested by Mr Morrone. 143 I find that the origin of the asking price referred to in each of these sales reports was in the telephone discussion between Mr Saffron and Mr Morrone on or about 21 October 1998 which resulted in the letter from Mr Saffron to Mr Morrone indicating that the former would accept an offer for the Property of $16.5 million. I think that Mr Saffron nominated that price during the course of the telephone conversation and that eventually it found its way through into these sales reports. 144 I do not consider that the asking price referred to in these two sales reports amounts to a representation by the respondent to Mr Saffron of the price likely to be achieved on the sale of the Property, being a price in the order of $16.5 million. 145 Furthermore, I do not believe that Mr Saffron relied upon the statement of the asking price in either of these two sales reports when he entered into the Settlement Documentation and caused the other applicants concerned to do the same. 146 In the absence of such reliance, those portions of the applicants' claims which were based on the further repetition (referred to in paragraph 24G and 24H) for damages and other relief arising out of their entry into the Settlement Documentation must be dismissed. the royal valuation 147 I have summarised above, at paragraphs 27 to 30, the applicants' claims in relation to the Royal Valuation. It is necessary to give some more details of these claims. The respondent prepared the Royal Valuation and presented it to Cordelia on or about 5 July 1999. Mr Ross, a fellow director of and 50% shareholder in the respondent (there were only two directors, the other being Mr Morrone who owned the other 50% of the shares in the respondent) prepared that valuation. Mr Ross valued the Property at $13 million. The applicants say that implied in the Royal Valuation was a representation that, in so far as the valuation was a statement of opinion: · it was genuinely held on reasonable grounds; · it was the product of the exercise of due care and skill; and · it was, after making due allowance for its nature as an opinion as to the value of real estate, safe to be relied on and not outside the range of latitude normally allowed for an opinion of that sort. 148 The applicants say, first, that the preparation and delivery of the Royal Valuation was conduct in trade or commerce within the meaning of the Trade Practices Act and that it was misleading conduct or conduct likely to mislead or deceive. This was because the value of the Property when the hotel was complete was substantially less than $13 million and also because the implied representations were wrong. 149 Further and alternatively the applicants say that in the contract pursuant to which the respondent was retained to prepare the Royal Valuation ("the Royal Retainer") there was an implied term (implied as a matter of law) that it would be performed with reasonable care and skill. The respondent admits that the Royal Retainer contained an implied term that the valuation would be carried out with the skill and care of a reasonably competent valuer. 150 So far as Cordelia on its own is concerned, it claims that the respondent made the Royal Valuation negligently, in breach of the duty of care which the respondent owed to it and also in breach of the implied term of the Royal Retainer. 151 Cordelia, Vendomatic, Getum and Mr Saffron together say further that the respondent knew that Mr Saffron beneficially owned and/or controlled a number of companies and that if he accepted what the applicants describe as "the recommendation to purchase" the Property, he was likely to cause one of those companies to purchase the Property, enter into other relevant commitments and/or provide securities for the obligations arising under those contracts. The applicants say that the respondent knew that Mr Saffron was likely, in reliance on the Royal Valuation, to cause companies related to him to enter into transactions, give commitments or grant securities in respect of the Property. In those circumstances Cordelia, Vendomatic, Getum and Mr Saffron claim that the respondent owed them a duty to take reasonable care not to cause them economic loss and that the Royal Valuation was made negligently in breach of that duty. 152 In essence, Cordelia says that it suffered loss and damage, due to the negligent preparation of the Royal Valuation, by varying the Cordelia Contracts and entering into the Settlement Documentation. Vendomatic, Getum and Mr Saffron make a similar claim that the respondent's negligence in preparing the Royal Valuation was a cause of their entering into the securities (being the mortgages and personal guarantee referred to above) which formed part of the Settlement Documentation. All applicants say that they mitigated their loss by entering into the April Deed under which they must pay $6.5 million to KPG and Keywest, make other payments and assign rents. was the royal valuation carried out negligently? 153 In the statement of claim the applicants allege that a fair value of the Property, as at the time of the Royal Valuation, was in the order of $7 million. They give the following particulars of the negligent preparation of the Royal Valuation: · it was based on an over-estimate of demand for and an under-estimate of the supply of hotel accommodation of the sort it was proposed would be provided at the hotel; · it was based on an under-estimate of certain costs of operating the hotel; and · the respondent failed to make an adequate analysis of comparable sales evidence. 154 The applicants plead that they also rely on a valuation report prepared by Mr Ross Hughes, a valuer who gave expert evidence. The applicants also called Mr Alan Boys to give evidence in support of Mr Hughes' valuation report. Mr Boys is a chartered accountant who has specialised as a financial consultant to the hotel and leisure industry for over 16 years. 155 The respondent called Mr Ross to give evidence, but did not otherwise call any expert evidence on the issue of the Royal Valuation. The applicants relied to some extent on the failure of the respondent to call any independent evidence and said that I should take a Jones v Dunkel (1958) 101 CLR 298 approach to the matter. The respondent disputed that suggestion and submitted that the applicants had failed to discharge their onus of proving that the Royal Valuation was prepared negligently. findings of fact 156 I find that Mr Saffron's purpose in obtaining the Royal Valuation was to use it for the purposes of obtaining finance to complete the purchase of the Property. At paragraph 60 of his witness statement he suggested that he obtained the Royal Valuation because Mr Morrone had told him that it would assist with the sale of the Property. At paragraph 58 of Mr Saffron's responsive statement he confirmed that the reason for the Royal Valuation was to obtain finance. Mr Saffron again confirmed this in cross-examination. 157 On 9 September 1998 a company called Kirk Nominees Pty Ltd ("Kirk") expressed a willingness, on certain conditions, to purchase the Property for $2 million and to enter into a lump sum building contract with Keywest Constructions for $9 million. The conditions included a condition that Arcadia agree to purchase the Property from Kirk, on completion of the hotel, for $12.5 million. Nothing came of that proposal. 158 There is a group of companies in Perth (apparently with 190 offices in 38 other countries) known as "Colliers Jardine". The group carries on various businesses related to real estate, including acting as licensed real estate agents, property and project managers and property and hotel consultants. One of those companies, Colliers Jardine (WA) Pty Ltd, was the fourth respondent in this application before the applicants discontinued their proceedings against it and agreed to pay its costs. Another member of the group was Colliers Jardine Consultancy and Valuation Pty Limited. In these reasons I do not propose to distinguish between the individual corporations which make up this group. I shall refer to them individually and collectively as "Colliers Jardine". 159 Until the sale of the Property to KPG, Colliers Jardine were the managing agents for it. 160 On 28 October 1998 (i.e. less than nine months before the Royal Valuation) Colliers Jardine supplied a valuation to the "Keywest Construction Group" of the Property on the basis of completion of the hotel in accordance with architectural plans and a schedule of finishes which had been provided to them. That valuation was very detailed. It took into account the actual and expected effects of what was known as the "Asian crisis" on the Perth hotel market. Colliers Jardine valued the Property on the hotel-completed basis at $11.5 million ("the 1998 Colliers Jardine Valuation"). 161 In June 1999 Colliers Jardine prepared a submission for the appointment of it and the respondent to act as joint marketing agents for Cordelia in respect of the sale of the Property. I infer from the extent to which that document refers to Colliers Jardine, compared to the references to the respondent and from the textual differences between it and similar documents prepared by the respondent, that Colliers Jardine were mainly responsible for its preparation. The recommended sale price set out in that submission was $12-$13 million. 162 As I have mentioned above, on 22 July 1999 a company (controlled by Indonesian interests) called Australian Land Investments Pty Ltd ("ALI") entered into an agreement to buy the Property for $13 million conditional upon the simultaneous acquisition of the Raffles Hotel. ALI's deposit cheque was dishonoured. 163 On 11 February 2000, another Indonesian company called PT Risjadson Pty Ltd submitted an offer to the respondent to purchase the Property for $13.5 million. PTR did not pay a deposit and Cordelia did not accept the offer. 164 On 15 March 2000, a company called Westralian Investments Pty Ltd offered to purchase the Property for $12.5 million subject to vendor finance of $4.5 million (to be secured by a second mortgage) and finance from another source of $8 million (to be secured by a first mortgage). Cordelia accepted that offer, but the contract fell through. 165 On 21 March 2000, Mr Francis Choy sent a fax to Mr Morrone expressing an intention to purchase the property for $12 million subject to vendor and other finance. Nothing came of that proposition. 166 In the meantime, on 17 March 2000, Cordelia retained Colliers Jardine to auction the Property. 167 At an auction on 3 May 2000 the Property was passed in at $8.1 million, with the only bids received being the auctioneer's bids. 168 Another auction was held on 10 August 2000. There were no bidders and the Property was passed in again, this time at $5 million. 169 On 7 November 2000, KPG sold the Property to a company called Starboot Pty Ltd ("Starboot") for $6 million. 170 Starboot caused a new strata plan to be registered which created 79 strata lots, comprising 76 residential units plus a basement and two ground floor commercial units. As at March 2002 some 40 of those residential units had been sold for a gross sum of $6.6 million leaving 38 units plus the basement car park still available for sale. 171 Mr Hughes' evidence was that he estimated that Starboot, if it chose to sell all of the units, would receive a gross amount of $14 million for an outlay of up to $1.8 million in "development costs" plus selling and marketing expenses. His estimate of those expenses was $980,000. 172 Mr Hughes' evidence, for the applicant, came in several forms. First, there was his expert report dated 9 October 2000, then there was his further report dated 21 December 2001, his witness statement dated 12 April 2002 and, finally, there was his oral evidence in chief and in cross-examination. 173 Mr Hughes' opinion was that the Property (with the hotel built) was worth $7 million as at the time of the 1998 Colliers Jardine Valuation and also at the time of the Royal Valuation. 174 Mr Hughes, in his report dated 9 October 2000 stated his opinion that both the 1998 Colliers Jardine Valuation and the Royal Valuation were "flawed". He prefaced this opinion by stating the following conclusions: "The Colliers and Royal reports have misjudged oversupply and reduced demand as at the relevant date and misinterpreted the hotel and tourism market status. Supply and demand judgements are cornerstone factors leading to performance and trend assumptions underlying operating forecasts. In our opinion the performance and trend assumptions in the Colliers and Royal reports were excessive whilst some costs were underestimated resulting in inflated projected returns. Distorted results from operating forecasts and capitalisation methodology would normally be exposed by the comparative sales approach as an important secondary check. Compilation and analysis of sales evidence in the Colliers and Royal Reports is superficial; this may have contributed to less intense scrutiny of operating forecast methodology. Misinterpretation of tourism market performance drivers then reliance on questionable financial forecasts cursorily checked by inadequate comparative sales evidence appear to be the main reasons for reported valuations beyond acceptable range of tolerance." 175 Mr Hughes expressed the view that in the context of this matter a "valuation opinion difference tolerance of up to 15% would be appropriate". He then prepared a short calculation assuming a tolerance margin of 15% in respect of his valuation and a like margin in respect of the Royal Valuation to show that there was still a gap of $3 million between them. 176 Mr Hughes' report was very detailed. In explaining how he approached the valuation he said that he relied primarily on an income earnings approach balanced with a comparative approach. 177 Mr Hughes' income earnings approach was to start with a projection, over a period of 11 years starting on 1 July 1999, of his assessment of the likely income and expenditure of a hotel business conducted at the Property. The income earnings approach involved estimating the net profit before management fees in each of the years 2000 and 2003, capitalising that figure at 8% (which Mr Hughes considered to be an appropriate yield to be applied to current expected trading profit before management fees) and deducting (in the case of year 2000) two years at 6% interest for deferred receipt of the money and, (in the case of year 2003), five years at the same rate of interest. 178 For the year 2000, his estimate of the net profit before management fees was $391,231 (see p 53 of his report) which he capitalised (using 8%) at $4.35 million after an interest adjustment. The comparable figures for the year 2003 were $637,830 and $5.96 million. My examination of Appendix 13 to that report shows that these calculations stem from Mr Hughes' correction of the "template" of a projection contained in the 1998 Colliers Jardine Valuation. He took those two figures (of $4.35 million and $5.96 million – I have rounded the figures) to the summary tabulation on p 54 of his report. He carried out a similar exercise in relation to the Royal Valuation i.e. based on the template generated by Mr Ross (see Appendix 16), but did not use those figures to make any capitalisation calculations. If the exercise reflected on p 53 of Mr Hughes' report were repeated, save that the figures were based on Appendix 16, then there would be, in my opinion, an insignificant difference in relation to the year 2000, but in relation to the year 2003 the resultant figure would be quite substantial. My calculations of the comparable figures which Mr Hughes would have produced using Appendix 16 to his report in relation to the Royal Valuation would be about $4.38 million and $6.78 million respectively, compared to $4.35 million and $5.96 million respectively. However, I very much doubt whether those variations would have had any significance or any impact on Mr Hughes' opinion, given the range of the figures in his summary, and I find that it would not have had any such significance or impact. 179 Next, Mr Hughes used his 11 year projections to prepare a discounted cash flow. This included assessing a terminal value for the Property at the end of the "cash flow horizon" by capitalising expected year 11 income at an investment yield of 9%. The two terminal values thus generated (one by modifying the 1998 Colliers Jardine Valuation figures and the other by varying the Royal Valuation figures) were, again in round figures, $6.02 million and $5.94 million. 180 The direct comparison approach taken by Mr Hughes was to select five sales of hotels which he regarded as broadly comparable to the Property, calculate a sales price per room and make adjustments (see p 52 of his report). Those adjustments involved reducing the sales price per room by a percentage which varied from 15% in respect of the Princes Hotel (Ibis) and 35% in respect of the Mercure Hotel. The criteria upon which these adjustments were made were also listed (but their application to the respective hotels was not explained) at p 52 of Mr Hughes' report. The adjusted sales figures, as Mr Hughes observed, indicated a level of value (assuming the correctness of the adjustments) for the Property in the order of $93,000 to $116,000 per room. He noted that the two most recent sales reflected a level of about $97,000 per room and added: "Based upon further investment considerations a value in the range of $100,000 per room would be expected". 181 The direct comparison approach, i.e. $100,000 per room x 76 rooms resulted in a figure of $7.6 million. 182 The main reasons why there was such a wide divergence between Mr Hughes' valuation of $7 million and the Royal Valuation of $13 million were as follows: · Mr Ross, in his projections, started with an average room rate of $100 in the year 2000 and increased that figure by 10% per annum for each of the first two years, by 7% for each of the next two years and by 4% for each of the remaining years. Mr Hughes chose an average room rate starting at $80 in the year 2000 which remained static for the first three years but which he increased by 5% in each of the subsequent years. · Mr Ross assumed an occupancy rate starting at 68%, increasing by 7% in the second year, by 3% for the next two years, by 2% for the next two years and by 1% (to 81.11%) in the year 2006 and remaining at that level until the end of the period of his projections. Mr Hughes started with an occupancy rate of 55% building up to 75% by the year 2006 in increments of 5% and then remaining at 75% for the rest of the period. · There were differences in expenditure estimates both in terms of the percentage of turnover adopted in relation to major items such as rooms expenditure and food and beverage expenditure but also in relatively minor items such as rates and taxes. This factor coupled with the differences in revenue assumptions resulted in different assessments of expenses in absolute terms. The evidence was that this was not as important a source of the variation in values as the factors referred to immediately above. · Mr Ross applied an 8% discount rate in the Royal Valuation cash flow whereas Mr Hughes applied a discount rate of 12%. 183 Consequently the return before tax and depreciation estimates differed very substantially. Mr Ross' estimate of this figure for the year 2000 was $521,348 compared to Mr Hughes' estimate of $321,478. By the year 2009 the two respective figures were $1,490,955 and $851,115. 184 It was common ground that the three critical differences between the two valuations were the room rate, the occupancy rate and the discount rate. 185 In my view, when Mr Ross prepared the Royal Valuation in early July 1999 he did not take reasonable care i.e. he did not carry out the Royal Valuation with the skill and care of a reasonably competent valuer. It also follows that the respondent breached the implied term in the Royal Retainer as pleaded and its common law duty to Cordelia. I also find that in preparing and presenting the Royal Valuation the respondent engaged in conduct which was both misleading and deceptive. In short, it conveyed the false impression that the Property was then worth $13 million. I set out below the reasons why I have reached those conclusions. 186 Before I set out those reasons, I think that I should say something about the impression which I formed of Mr Ross generally and while he was in the witness box. I was impressed by Mr Ross' professional experience over some 30 years. The real estate firms mentioned in his curriculum vitae, from the very first years, were highly regarded in Perth business circles – a fact of which I take judicial notice. If valuers can be said to have a provenance, Mr Ross has an excellent provenance. Secondly, he gave his evidence in what I considered to be a frank and straightforward manner. There were some differences with counsel for the applicants in cross-examination over the understanding of such matters as discount rates and internal rates of return and also over the manner in which he treated the net profit in the last year of his ten year projection. However, I formed the firm impression that Mr Ross genuinely held the opinions which he expressed. 187 The fact that, in my opinion (based on the evidence to which I am about to refer), his valuation was wrong does not, of course, automatically result in a finding of negligence on his part. There is, to start with, a range of latitude and secondly, getting a valuation seriously wrong does not necessarily mean that the valuer has been negligent. That question depends upon how the valuer set about his task. I now turn to my reasons for the finding of negligence. Room Rates, Occupancy Rates and Consequent Room Yields 188 At paragraphs 100 and following of his witness statement, Mr Ross explained how he made his assessment of room rates and occupancy rates for the Property. He said that he based both these rates on his knowledge of the room rates and occupancy for the Kings Hotel and the Inntown Hotel which he had obtained when he valued both those hotels. Mr Ross valued the Kings Hotel in March 1996 and the Inntown Hotel in April 1996. Those two valuations were in evidence. From them one can see, by applying the occupancy rates to the room rates, that the room yield for the Kings Hotel in 1996 was $55 per room and for the Inntown Hotel it was $33 per room. Mr Ross, for the purposes of preparing his financial projections for the Property assumed an initial rate of occupancy in the year 2000 of 68% and a room rate of $100 which results in a room yield of $68. These are very much higher figures. The statistics upon which Mr Hughes and Mr Boys relied when making their assessments included those from the Australian Bureau of Statistics and from the Western Australia Tourism Commission. I am satisfied, from examining those statistics and the other then current and generally-available information (obtainable by a valuer such as Mr Ross) in evidence that the room rates, occupancy rates, and hence room yields, for hotels in the market in which the Property would have participated had fallen for the two years preceding the Royal Valuation. I also find that this was common knowledge in that section of the real estate industry which was involved with the hotel market in Perth. 189 Mr Ross was well aware that the Perth hotel market had been affected by the Asian economic crisis and that this had resulted in a fall-off of Asian tourists coming to Perth. This can be seen at pages 10 and 11 of the Royal Valuation. By a comparison of the precise wording of the second and third paragraphs on p 10 and the first and second paragraphs on p 11 of the Royal Valuation with identically worded text on pp 21 and 24 of the Colliers Jardine Spring 1998 "Perth Property Review" I infer that Mr Ross had read the Colliers Jardine Spring 1998 Perth Property Review when he prepared the Royal Valuation. This confirmed the downward trend in room yields in both the three and four and five star hotels sectors. 190 Despite his reliance on the 1997 room yields for the Kings Hotel and Inntown Hotel in 1996, Mr Ross did not make any enquiry in 1999, before making the Royal Valuation, about the room rates then being achieved by either of those hotels and he did not enquire about the occupancy rate for the Inntown Hotel. He only enquired of the manager of the Kings Hotel about the prevailing occupancy rate at that hotel and was told that it was then 75%. This was much the same as the occupancy rate in March 1996. 191 It emerged, when Mr Ross gave evidence, that for the purposes of preparing a valuation of the Property in 1997 he had obtained information about room tariffs from the Kings Hotel, the Ridges Hotel and others, and that he relied upon that information as a basis for the room yield postulated by the cash flow annexed to both his 1997 valuation and the Royal Valuation. In cross-examination Mr Ross acknowledged that these were asking rates or published tariffs [see for example the fax dated 11 April 1997 received by Mr Ross' cadet valuer (Mr Webb)]. Mr Ross also acknowledged that the published tariff was not the average room rate, and that there were lots of discounts offered by modern hotels to attract business. The information supplied to Mr Webb by the Kings Hotel shows that the published room tariffs for that hotel as at 11 April 1997, and valid until 31 March 1998, ranged from $120 per night to $170 per night. In Mr Ross' valuation of the Kings Hotel of 22 March 1996 he referred to the then average room rate as being $72.45. Even allowing for the expiry of some 12˝ months between the provision of these two pieces of information I think that this evidence confirms that published tariffs were substantially in excess of achievable room rates at that hotel. In my view, a prudent valuer would, in July 1999, have checked with the Kings Hotel to see what room rates it was actually achieving at that time. 192 Mr Ross' cash flow in the Royal Valuation assumed a 17.70% increase in room yield in year 2001 compared to year 2000. 193 Mr Boys' evidence was that during the three years 1997, 1998 and 1999 in the Perth three star motels and hotels sector, both occupancy rates and average daily room rates were falling. This, as a matter of arithmetic, indicated a fall in room yields in that sector from $51.07 to $44.05. A similar pattern was observable in respect of Perth four and five star hotels, motels and serviced apartments. Mr Boys' figures were taken from statistics published by the Australian Bureau of Statistics which were readily available. So far as room rates were concerned, Mr Boys' opinion was that the room rates adopted by Mr Hughes were reasonable and within the range he would expect the Property to achieve. 194 The following was part of the cross-examination of Mr Ross: "There was no basis at all, was there, to predict an increase in room yield of in excess of 17 per cent for the first year? – No, it was just my assumption of what I considered would be realistic rate. But there was no basis for that assumption, was there? – No. . . . There was no basis for the other assumptions about acceleration rates and the cash flow, was there? – In the occupancy rate and the average room rate? That's right – It's just my assessment of what I considered the market would be at that time. Yes, but it was an assessment which had been made without regard to the available statistics? Yes? – Correct. It was an assessment that had been made without regard to available opinion as to contemporary market conditions and trends? Correct? – Correct. It was an opinion which was really based on very little at all, was it? It was my opinion as a valuer and experience in these sort of properties. No, what was it based on? What trend or rate or tool of analysis was this opinion based on? – My personal opinion. That's an end to it, is it? – Mm'hm. In ignorance of the available statistics and contemporary views as to market trends? – Correct." 195 I was impressed by Mr Boys as a witness, by his length and depth of experience and by the contents of his expert's report. Based, as it was, on information from the Australian Bureau of Statistics, it seemed to make very good sense. I acknowledge, and it emerged in evidence, that, as might be expected, there are degrees of differences between the various establishments within each sector. But given Mr Boys experience and expertise I decided to accept his assessment of what was then taking place in the market. I felt confident that if the picture which emerged from the Australian Bureau of Statistics was inconsistent with Mr Boys' personal experience, he would not have relied upon them. 196 Mr Boys described a method used within the hotel industry to assess likely occupancy levels of a hotel. That is known as "fair share analysis". Again given Mr Boys' experience and expertise, I considered that his adoption of the fair share analysis approach was reasonable, particularly as the description of how it was applied (see p 4 of his report) seemed logical and sensible. Mr Boys' projected occupancy rates for the Property for the years 2000 and 2001 were 46% and 53% respectively. This compares with Mr Ross' assumed occupancy rates of 68% and 72.6% respectively. This disparity is too great, in my view, to be explained by justifiable differences of professional opinion. 197 Mr Boys' evidence (which I accept on the basis of his experience and because it seems inherently sensible) was that in the initial years of operation, hotels would usually take time to establish their presence in the market and build custom. He said that it would not achieve "its fair share" (in accordance with the fair share analysis) until about year 3. Mr Boys, quite fairly, assumed that the hotel would then "over-penetrate" its fair share due to its location and relative newness. 198 There is no evidence that Mr Ross was aware of the method known as "fair share analysis". I do not think that Mr Ross' selection of an initial occupancy rate of 68% for the year 2000, when the statistics show that the area-wide occupancy rate at the time was 57.6% was within a permissible range of estimation. In my view, a reasonably competent valuer would not have assessed the occupancy rates of the Property so optimistically. The contrast between Mr Boys' estimated occupancy figures and those of Mr Ross is very marked. Mr Ross had the occupancy rate for the Property start at 68% in 2000 and rise to 78.73% in 2004. Mr Boys' comparable figures were 46% rising to 64%. 199 Confirmation of a marked trend downwards in room yields in the Perth city three star and the four and five star hotel, motel and serviced apartment sectors can be seen in the joint Colliers Jardine/Royal "Submission for Agency Appointment" prepared by Colliers Jardine in 1999. When Mr Ross assessed the projected room rates and occupancy rates (and hence room yields) for the Property, I do not think that he did so with the reasonable care and skill required of a reasonably skilled valuer undertaking a task of this nature. Discount rates for the cash flow 200 Mr Ross adopted an 8% discount rate for his 1999 cash flow. I accept the applicants' submission that this was an "aggressive" discount figure. In his 1997 cash flow he used a 22% discount rate. Mr Hughes applied a 12% discount rate to the circumstances reflected in the cash flow in the Royal Valuation. He thought that an acceptable discount rate in the circumstances upon which the 1998 Colliers Valuation cash flow was based would be in the order of 10%. 201 As Mr Hughes explained, the discount rate has to take into account not only the risk in the property market, but also in the market for the relevant business (in this case the hotel business). 202 In my view, Mr Ross adopted a discount rate which a reasonably prudent valuer would not have adopted. I find that such a valuer would have adopted a discount rate in the range of between 10% and 12%. Rates and Taxes 203 This is a relatively small matter but I consider it to be relevant. Mr Ross, in his cash flow, assumed a starting figure in the year 2000 of $35,000 for rates and taxes on the Property. In cross-examination he would not accept this figure as being wrong and said that he thought that he had the rates and taxes figures from the time when the respondent managed the Property. The respondent's figures from that time were in evidence. They totalled $66,700 for the 1996/1997 year. Use of comparable sales 204 When one takes the Royal Valuation of $13 million and divides it by the number of rooms, the resultant value per room figure is $171,000. Mr Ross considered that comparable hotels included the Orchard and the Sebel. The Orchard, a 4 star hotel, was sold in June 1997 for $36.85 million. It had 278 rooms. This works out at $132,554 per room, a considerably lower figure. The Sebel Hotel was sold in October 1996 for $20 million. It was a 4˝ star hotel with 119 rooms. The resultant value per room was $168,067 somewhat below Mr Ross' figure. Other hotels which Mr Hughes considered to be relevant sales included the Mercure Hotel, the Princes Hotel and the Centra Hotel which achieved room values between December 1996 and March 1998 of $149,569, $109,195 and $129,727. In relation to the Sebel Hotel, Mr Ross acknowledged that that had been made in a pre-Asian economic crisis market. He acknowledged various factors which made the Sebel Hotel more attractive than the Property, but was prepared to attribute a room rate to the Property (a 3˝ star hotel) higher than that achieved by the Sebel (4˝ star) with a proven track record and the other more attractive features which he acknowledged. The Centra Hotel was the latest comparable sale (March 1998). Mr Ross acknowledged that this was a sale in a similar market of a higher star-rated hotel in a better position. As I have mentioned, even in those circumstances, the room value achieved was $129,727 compared to Mr Ross' figure of $171,000 per room for the Property. It emerged in cross-examination that Mr Ross, when he prepared the Royal Valuation, was unaware of the sale of the Centra, although it took place some fifteen months before. In my view, a reasonably skilled valuer, exercising reasonable care, would have been aware of this transaction. 205 Mr Ross relied on the sale of the Park Inn as one of his comparables. He agreed that the sale appeared to reflect a jump in value (after extensive refurbishment) from $5.5 million in June 1996 to $13.6 million in May 1998. He obtained his information from a publication known as "Perth City Scope". It emerged in evidence that there had been a transaction in which the shares in a company owning three hotels, including the Park Inn, had occurred. Mr Ross did not conduct a Land Titles Office search to see whether there had been a transfer of the Park Inn. He was asked: "If you had done a land titles search at the Land Titles Office you would have found, of course, that there had not been a sale in the sense of the hotel changing hands. You would have found that out, wouldn't you? – I would have found that out, yes. And having found that out, you would have been extremely cautious about this sale, wouldn't you? – Yes. And you would not have relied on it, would you – You have to take some consideration into it. You would not have relied on it, would you? – Not if it was not an actual sale, but it was reported as a sale and I took it as such. But had you searched the Land Titles Office and realised that it wasn't an actual sale, then you would not have relied on it? – I wouldn't have relied on it, no." 206 In my view, a reasonably competent valuer, noticing the remarkable difference in values over a two year period (even allowing for the extensive refurbishment), would have searched the title to see what price was contained in the consideration box in the transfer. That search would have disclosed that there had not been any transfer at the value suggested or indeed at all. What would have been a reasonable valuation? 207 My conclusion in relation to the Royal Valuation did not lead me to accept Mr Hughes' valuation of $7 million, despite the degree to which I accepted his and Mr Boys' evidence. For a start, I note that he chose to put some preliminary answers at the front of his report one of which suggested that the value was approximately $7.5 million, admittedly only a 7% difference. 208 Then, in relation to his analysis of the Sebel Hotel, it emerged in cross-examination that Mr Hughes had placed considerable reliance upon a valuation prepared by a Mr Christie in February 1999, to the extent that he took large parts of the text of that valuation into his own valuation and (had there not been cross-examination) he was prepared to pass that text off as his own. 209 I was also concerned about what appeared to me to be the somewhat arbitrary discounts which he applied to the sales prices per room in respect of his comparable sales. For example, I found it curious that he applied a 20% reduction to the Orchard Hotel room sale price when (once the allegedly incompetent family management team had departed) one would have expected an increase rather than a reduction. Mr Hughes referred to the poor management of this hotel at p 48 of his report. 210 On a couple of occasions in cross-examination Mr Hughes said that he had not dealt with or was not aware of a particular aspect "in detail", but was then forced to concede that he had not dealt with that aspect at all. 211 Despite Mr Boys' endorsement of the occupancy rates and room rates used by Mr Hughes, I had some strong reservations which led me to the conclusion that Mr Hughes' valuation was too low. 212 I do not think that Mr Hughes' ex post facto (the fact being the eventual sale to Starboot) valuation of the Property sufficiently took into account what might be termed the "distress" nature of the eventual sale of the Property. Contrary to the applicant's submissions, I think that Starboot bought at a bargain price a property which had been on the market for so long as to be regarded almost with disdain (e.g. no real bids at either of the two auctions). Even though Mr Hughes accepted that a 30% allowance for profit was reasonable, Starboot saw the opportunity to buy the Property cheaply (a perfectly acceptable commercial decision) and correctly judged that, by outlaying about $1.8 million in development costs, it could receive a gross amount of about $14 million and a net profit before selling expenses of about $3 million. 213 I take into account, to some extent, the 1998 Colliers Jardine Valuation of the Property at $11.5 million. 214 There is an indication that Mr Hughes' assessment of the Property on a sale price per room was somewhat on the low side. Mr Hughes selected five hotels for this purpose. I have already referred to the matter of the percentage adjustment which he made to the sale prices per room. But if one simply takes the average of those sale prices per room ($135,204) and multiplies that by the number of rooms in the Property (76) the resultant figure is $10.275 million. The applicants submit that the average room price over these five sales is "wholly irrelevant" and refer to various differences among those hotels and between them and the Property. That is true, but an average tends to smooth out, to some degree, such differences within the group. Although I did not place a very great deal of weight on this computation when I made the assessment referred to in paragraph 217 below, I regarded it as a "pointer" upon which I could derive some, albeit perhaps slight, assistance. 215 Furthermore, I formed the impression that Mr Hughes had not given sufficient weight to two aspects of the Property. The first was that the Property was new in comparison to the hotels which comprised the five hotel sales which he analysed – a factor which he acknowledged (in cross-examination) made it more attractive to customers. The second was the high proportion of large rooms in the Property. Mr Hughes did not ascertain the room sizes in the five comparable hotels, but thought that they would be "regulation minimum size" of about 19 square metres. He had the room sizes at the Property available to him because he was provided with the plans. They showed that, of the 76 rooms in the Property, 18 were 50.25 square metres in area, which Mr Hughes agreed was "spacious", 18 were 36 square metres, 36 were 26.5 square metres and there were 4 penthouses ranging from 56 to 68 square metres. 216 I also take into account, to a lesser extent, the various offers that were made for the Property which I have described above. I place their significance at the lower end of the scale of weight because they did not result in sales. 217 All in all my impression is, and I so find, that a reasonably skilled valuer, exercising reasonable care, would have placed a valuation of about $10 million on the Property as at 5 July 1999. I think that is the figure at which Mr Ross would have arrived and would have inserted in the Royal Valuation had he not been negligent on this occasion. Whether the respondent's negligence, breach of contract, and misleading and deceptive conduct in relation to the royal valuation was a cause of the losses claimed by the applicants 218 At this point, I think that it is useful to note two things. The first is that at the time of the Royal Valuation, Cordelia had already entered into the Cordelia Contracts (in November 1998). The second is that the valuation was prepared in July 1999, not for the purpose of guiding Mr Saffron in his business decisions, but for the purpose of raising finance so that Cordelia could complete the purchase. 219 The applicants' case, in summary, is that Mr Saffron relied upon the Royal Valuation when he entered into the Settlement Documentation and exposed Vendomatic to a liability to which it had not previously been exposed and increased the exposure of Getum i.e. that there was the requisite causal connection between the Royal Valuation and those applicants entering into the Settlement Documentation. 220 Mr Saffron admitted that the Royal Valuation had no influence upon him when he entered into the Settlement Documentation. There was the following exchange in cross-examination: "I'll go back a step, Mr Saffron, do you recall that in November 1999 you entered into an agreement with Mr Abrusci's companies to enable you to attempt to on-sell the hotel before March 2000? – Yes. In negotiating and entering into that agreement with Mr Abrusci's companies, this valuation had no influence whatever, did it? – I don't believe it had, no." 221 On the basis of that admission, which I accept as reflecting the truth of the matter, I find that Mr Saffron did not rely at all on the valuation contained in the Royal Valuation when he and his two companies, Vendomatic and Getum, entered into the agreements which comprised the Settlement Documentation. I now turn to the manner in which this issue of causation subsequently evolved. 222 Mr Saffron made the above admission on the fourth day of the hearing (5 April 2002). 223 At that time, the relevant paragraph in the statement of claim (paragraph 26) read as follows: "In reliance on the Second Royal Representation and on the Proposal (a reference to the joint proposal on or about 6 July 1999 by Colliers Jardine and the respondent that they be appointed joint agents to sell the property), and in the belief that the Land and the Hotel had a value of in the order of $13 million, Cordelia negotiated with KPG and Keywest to settle the Disputes." (Emphasis added) 224 Mr Saffron left the witness box on the eighth day of the hearing (Thursday 11 April 2002), but was recalled briefly for further cross-examination early in the following week. On 12 April 2002 I was told that there was an expectation of settlement as between the applicants and the second, third and fourth respondents (KPG, Keywest and Colliers Jardine). No evidence was taken on that date and the settlement was confirmed on the following Monday. 225 On Tuesday 16 April 2002 (day eleven of the hearing) the applicants foreshadowed an application for leave to make substantial amendments to the statement of claim. This was to be expected, given the rather dramatic turn of events i.e. discontinuance against Colliers Jardine and settlement of the claims against the second and third respondents on the basis that the applicants would make the substantial payments referred to in the April Deed. However, the applicants also foreshadowed what turned out to be a very significant proposed amendment to paragraph 26. On 18 April 2002 they obtained leave, without objection from the respondent, to make that amendment. The amendments to paragraph 26 are reflected by the deletion and underlining below: "26. In reliance on the Second Royal Representation and on the proposal its repetition by Royal to Mr Saffron, and because the Royal Valuation did not disclose the true value of the land and hotel, and in the belief that the land and the hotel had a value of in the order of at least $13,000,000, Cordelia negotiated with KPG and Keywest to settle the Disputes." 226 Until that point of the proceedings, there had been no suggestion that if the true value of the Property had been disclosed in the Royal Valuation, Cordelia would not have negotiated with KPG and Keywest to settle the disputes and the applicants would not have acted to their prejudice in the manner which I have summarised above. Mr Stone did not open the case on that basis, no evidence was led from Mr Saffron on the point and consequently Mr Saffron was not cross-examined on that point. 227 Apart from the amendment to paragraph 26, the first reference to the new argument appeared in the applicants' written submissions filed on 11 June 2002 in which the applicants relevantly submitted: "The significance of the Royal Valuation is that it failed to disabuse Mr Saffron of that belief [a reference to Mr Saffron's asserted belief that Mr Morrone would come up with a purchase price for the Property at least higher than the price paid by Cordelia] – and it was on the basis of that belief that the Getum mortgage was extended, the Vendomatic mortgage granted and Cordelia committed to payment of fees etc totalling $654,000. For that reason it was a substantial cause of the losses that followed." 228 Mr Derham objected to the applicants being allowed to make such a submission. The objection was maintained in subsequent written submissions filed by the respondent. Mr Derham submitted that the applicants had not run their case as being one in which the respondent had failed to warn them that the value might be less. Part of the oral submission was that there had been no plea to that effect. I think that aspect of the submission overlooks the relevant part of the amendments which were foreshadowed on the eleventh day of the hearing and made on the thirteenth day of the hearing. 229 Despite the fact that leave was granted, without opposition, to make that amendment, I do not think that, as a matter of procedural fairness, the applicants should be allowed to rely on this alternative basis to establish causation. 230 It was a major change in the basis upon which the applicants eventually put their case in submissions on causation. Mr Saffron was the primary witness who would normally have given evidence about what he would or would not have done had a figure of about $7 million (or $10 million on my assessment) been the valuation figure in the Royal Valuation. He was not recalled to give that evidence. 231 I have not overlooked the fact that such evidence is often regarded as self-serving and on occasion perhaps not given great weight. But in my experience, when such evidence is given by a credible witness, it does carry great weight, notwithstanding the fact that it might be self-serving. 232 If Mr Saffron had been recalled to the witness box to give this evidence, I think that there was a reasonable prospect that in cross-examination he would have admitted, in the end, that he would not have done anything different, even if the valuation set out in the Royal Valuation had been in the order of about $10 million. That is what happened in the witness box in relation to his claim that he relied upon the figure of $13 million when he entered into the Settlement Documentation and caused the other relevant applicants to do the same. 233 Nor have I overlooked the fact that the respondent could have required the applicant to be produced for cross-examination on this point. But, in my view, it would be rather a strange course to criticise a respondent for not requiring a witness to be recalled for further cross-examination on a point in respect of which that witness had not given any evidence and in respect of which there was no other evidence. 234 I reject the applicants' submission that there was direct evidence in the form of the belief referred to in paragraph 92 of the applicants' submissions, i.e. that Mr Saffron still trusted Mr Morrone. If it could be characterised as relevant evidence, it was, in my opinion, so oblique as not to form the basis of criticism of the respondent in not requiring Mr Saffron to be called for further cross-examination. 235 In case I am wrong in my conclusion about whether the applicants should be allowed to rely on this plea, I have considered whether it should be inferred that if the Royal Valuation had contained a valuation of about $10 million (on my findings), Mr Saffron would not have entered into the Settlement Documentation or caused the other relevant applicants to do so. 236 The authorities show that when a court makes a finding in relation to causation in matters such as this, that issue can sometimes be resolved not upon the usual self-serving evidence of reliance, but by the court objectively determining the likely effect of the misleading conduct – see Hanave Pty Ltd v Lfot Pty Ltd (1999) ATPR 41-687 at 42,784-42,785-42,786 in the reasons for judgment of Wilcox J and pp 42,791-42,793 in the reasons for judgment of Kiefel J and the cases cited in the latter reasons. The facts of this matter are, of course, somewhat different to those in Hanave. In this case there is Mr Saffron's admission that in negotiating and entering into the Settlement Documentation the Royal Valuation had no influence whatever upon Mr Saffron. By the amendment made to paragraph 26 of the statement of claim I am asked to infer that if the true value of the Property (which I have found to be about $10 million) had been disclosed in the Royal Valuation Mr Saffron and his two companies would not have entered into the Settlement Documentation. 237 I would not make that inference. Mr Saffron wanted the Royal Valuation in order to obtain finance at a time when he was exposed to the very real risk of Cordelia being in breach of the Cordelia Contracts and the guarantee being called up. In other words, he needed funds fairly urgently to complete those contracts. If the value shown in the Royal Valuation had come in at about $10 million, I think Mr Saffron would certainly have taken notice of that. But, based on my impression of him in the witness box and based on the evidence of how he conducted his business with the respondent, I think it more likely than not that he would have remonstrated with Mr Morrone and Mr Ross and said that he wanted a higher valuation to show to would-be financiers. I very much doubt whether Mr Ross would have obliged Mr Saffron in that regard, given my assessment of him. I find that he would not have done so. 238 The impression which I formed of Mr Saffron in the witness box is that, in those circumstances, he would have put the Royal Valuation completely aside and quite probably not paid for it because it had not served his purpose. 239 Given Mr Saffron's business acumen and shrewdness, my assessment is that he would still have wanted to achieve a settlement of the disputes with KPG and Keywest. He would not have wanted the deal to fall through and be left exposed to the risks which would have resulted from default. By that stage, I do not think that he was under any illusions about this situation, particularly those said to have been created by Mr Morrone. He was in a very difficult commercial position which, in my view was unexpectedly precipitated by the fact that the building works had taken far less time to complete than had been anticipated. 240 My assessment is that even if the Royal Valuation had shown a value of about $10 million, Mr Saffron would have acted no differently in relation to entering into the Settlement Documentation. 241 Perhaps the best contemporaneous record of Mr Saffron's keenness to enter into the Settlement Documentation can be seen in a memorandum prepared by his solicitor, Mr Granich about his discussions with Mr Saffron and the two Tkaczyk sisters (Ms T J Tkaczyk's sister also worked for Mr Saffron) on 22 November 1999. The essence of that memorandum was that Mr Saffron acknowledged that there were risks in entering into the Settlement Documentation, said that he was prepared to take those risks, that he had Mr Abrusci "where he wanted him at that stage" and that he had no option but to agree with Mr Abrusci's terms. 242 As Mr Granich readily agreed, in about September 1999 Mr Saffron was "between a rock and a hard place". He could not get the money to complete. He could not find a buyer, but he wanted to hang on to the Property. 243 I was puzzled by the fact that Mr Saffron did not take a more cautious approach, given his business acumen and shrewdness. I think that, in normal circumstances, Mr Saffron would have realised at some time between, say August and November 1999 that he should redouble the steps taken to obtain finance for the settlement of the Cordelia Contracts and thereby secure a reasonable time in which to extricate Cordelia and Mrs Saffron from their respective financial exposures. Given his net assets and the assumption, which I make, that they had not decreased since March 1996, my assessment is that he would have been able to raise the money, had he put his mind to it. 244 In the end, I resolved what was in my mind something of a puzzle as being attributable to the sad fact that on 3 September 1999 Mrs Saffron died in hospital. She was admitted to hospital two weeks before her death and the evidence is that, quite naturally, Mr Saffron spent most of those two weeks by her side. Judging by the age of Mr Saffron's grandchildren, he and Mrs Saffron must have been married for about 50 years. My assessment of Mr Saffron in the witness box is that Mrs Saffron's death was a shattering blow to him. I think that that circumstance, rather than the contents of the Royal Valuation, resulted in his failure to unravel the problems into which Cordelia had descended in the latter half of 1999. 245 My factual finding, for the reasons set out above, is that even if a figure of about $10 million had appeared as the valuation of the Property in the Royal Valuation, Mr Saffron would still have entered into the Settlement Documentation and caused the relevant applicants to expose themselves financially or increase their financial exposure as guarantors. the fiduciary claim 246 The applicants assert in the statement of claim that the respondent was in a fiduciary relationship with each of Arcadia and Cordelia. They rely upon numerous pleaded facts for that assertion. First, they refer to a series of transactions, which I discuss below. They also rely on the fact (so they assert) that Mr Saffron had accepted the respondent's advice in respect of those transactions and in respect of the proposed purchase of the Property (advice which was described as "the Advice" and which is particularised in paragraph 4A of the statement of claim and which is said to include the First Royal Representations, the statements made at the time of the Second Royal Representation and the Second Royal Representation itself) and the nature of the roles taken (referred to in the statement of claim as "the respects") by the respondent in those transactions. The applicants say that by reason of the relationship of agent and principal and manager and client in the various transactions and because · Arcadia and Cordelia had relied on the respondent's advice in relation to those transactions; · a close friendship subsisted between Mr Saffron and Mr Morrone; and · the respondent knew that Arcadia and Cordelia were likely to rely and did rely on the respondent's advice in deciding whether to enter into the Arcadia Contract and the Cordelia Contracts respectively and that those companies trusted the respondent to advise them fairly and in their best interests, the first respondent was in a fiduciary relationship with each of Arcadia and Cordelia. 247 As part of the circumstances upon which the applicants rely for their plea that such a fiduciary relationship existed, the applicants say that at all material times Mr Saffron and entities related to him had reposed trust in the respondent as its adviser, agent, project manager, administrative manager and cheque signatory and that the respondent was aware of the trust reposed in it. 248 The applicants' claim that there were the following incidents of that fiduciary relationship, namely, that the respondent was required: · to disclose all those facts which it knew, or ought to have known, were material to Arcadia's decision and Cordelia's decision to enter into, respectively, the Arcadia Contract and the Cordelia Contracts; · not to place itself in a position of conflict of interest between its duty to Arcadia and Cordelia and: o its self interest; and o its duty (as agent) to KPG and Keywest save to the extent that Arcadia and Cordelia gave their fully informed consent; · not to advise Arcadia and Cordelia in a manner contrary to their interests; and · to act with due care and skill in advising each of Arcadia and Cordelia. 249 The applicants plead that the First Royal Representations and the Second Royal Representation were made negligently in breach of the last two of the abovementioned alleged duties. 250 The applicants also plead that the respondent acted in breach of all of the fiduciary duties referred to above by failing to disclose any of the following facts to either Arcadia and Cordelia: · on or about 12 December 1996 KPG had contracted to purchase the Property for the price of $1.8 million; · on or about 23 January 1997 the respondent had valued the Property at $2 million; · on or about 5 May 1997 the respondent had valued the Property with the benefit of approved plans for the construction of a hotel, at $3 million, and had valued the Property when complete at $12.5 million; · that the valuation of 5 May 1997 made an allowance for developer's profit and risk (i.e. the risk that the price of $12.5 million would not be realised on the sale of the Property and/or that the Property would not have a value of $12.5 million when complete); · that in May 1997 the respondent had endeavoured to sell the Property for the price of $11 million, but had been unable to do so; · that the practical effect of the Arcadia Contract and the Cordelia Contracts was that Arcadia and later Cordelia took the risk of the development of the hotel on the Property and that because, in the respondent's view, the value of the Property was likely to be $12.5 million when complete, neither of those companies would receive adequate compensation for assuming the risk referred to above; and · the respondent made the First Royal Representations and the Second Royal Representation notwithstanding knowledge of the facts referred to immediately above. 251 The applicants say that had the respondent disclosed the facts referred to immediately above and/or not made the First and/or Second Royal Representations, then Arcadia would not have made the Arcadia Contract, Cordelia would not have made the Cordelia Contracts and Cordelia would not have suffered the loss which it incurred by entering into those contracts, the Settlement Documentation and the April Deed. Similar pleas are made by Mr Saffron (as executor and in his own right) and the other applicants. The applicants rely upon the alleged repetition of the Second Royal Representation as founding similar breaches of fiduciary duties. findings of fact in relation to the prior transactions 252 I turn first to the various transactions which formed a significant basis for the applicants' claim that the respondent was in a fiduciary relationship with each of Arcadia and Cordelia. There were several such sets of commercial transactions or circumstances upon which the applicants so relied. I shall deal briefly with each of them. The Warwick Hotel 253 I accept that in about February or March 1988 Mr Morrone (before the respondent set up in business) was carrying on business as a real estate agent. In the course of doing so he introduced a company called Northside Holdings Pty Ltd ("Northside") to Mr Saffron as a prospective purchaser of the business of the Warwick Hotel and prospective lessee of that Property. I find that Mr Morrone acted as agent for Mr Saffron's respective companies in relation to that transaction and carried out the normal duties one would expect of such an agent. Mr Morrone did the same again about twelve months later when Messrs Harris and Adams acquired the business and a leasehold interest in the hotel property. Mr Saffron accepted that this was the normal function for such an agent. The services rendered by Mr Morrone included various inspections of the Warwick Hotel in connection with the carrying out of works to comply with work orders issued by the Licensing Court in relation to the proposed transfer of the licence in 1988. The Cloverdale Hotel 254 I accept the evidence that in July 1993 Mr Morrone, this time as a director of the respondent, carried out the same agency functions for one of Mr Saffron's companies, Cloverdale Investments Pty Ltd ("Cloverdale") as he had done in relation to the Warwick Hotel i.e. introduced prospective tenants for the Cloverdale Hotel. Mr Morrone also acted as property manager of the hotel, in the sense that he oversaw the tenants' compliance with the terms of their leases. 255 I also accept that in late 1996 the respondent's role was extended. Cloverdale appointed the respondent to be project manager for the re-development and subdivision of the land upon which the business of the Cloverdale Hotel had formerly been conducted. I accept, and it was not really in issue, that Mr Morrone, as a director of the respondent, oversaw that development work (reporting from time to time to Mr Saffron and obtaining his authority for certain expenditure) and acted as Cloverdale's agent for the sale of the subdivided lots. I accept that Mr Morrone gave Mr Saffron some advice in relation to the subdivision, and that Mr Saffron (eventually) accepted that advice. The evidence suggested that Mr Saffron did not always act upon Mr Morrone's advice in relation to the Cloverdale re-development. 256 Mr Morrone's role as project manager involved obtaining the necessary approvals for demolition and subdivision from the relevant authorities, engaging the contractors and professional advisers and generally overseeing the works. My impression is, and I so find, that Mr Morrone did not make any major financial commitments without obtaining Mr Saffron's approval. One would expect that to be the case. I also note that Mr Morrone had authority to sign cheques to be drawn on Cloverdale's bank account until as late as 1999. The respondent also kept accounts for the re-development and the sale of the subdivided lots. The respondent was paid consultancy fees and commissions for its work. 257 I think that it is necessary to get this project into perspective. The essential aspects of it were the demolition of the hotel, the preparation of a plan of subdivision and the carrying out of such roadworks and other civil engineering works as were required by the conditions of approval of the subdivision. Consulting engineers had been retained for the project. I infer that they would have overseen the physical performance of the works. As I see it, Mr Morrone, on behalf of the respondent acted as agent for Cloverdale to co-ordinate these activities and to keep Mr Saffron informed. Merriwa 258 I have already referred to this transaction much earlier in these reasons. My assessment is, and I so find, that Mr Saffron first came upon this opportunity in about May 1996 by noticing an advertisement in a newspaper for the sale of this site. He drew Mr Morrone's attention to the advertisement and then used the respondent as a means of acquiring the property. Mr Saffron suggested to Mr Morrone that the respondent should ask Messrs Knight Frank (the original agents for sale) for a commission for introducing Mr Saffron as purchaser. As Mr Saffron must have expected, the respondent became conjunctional agent with Messrs Knight Frank for the vendor. The respondent was not, in my view, acting in any real sense as agent for Arcadia. I think, and so find, that Mr Morrone's function was limited to being a conduit for the offers and counter-offers made by Mr Saffron on behalf of Arcadia and the vendor respectively, with Mr Saffron deciding what figures to put in each progressively offered purchase price. 259 I also accept that, in July 1997, the respondent, as agent for Arcadia, arranged the necessary applications for approvals to build a tavern on the site and for a tavern licence. It also obtained a quote from a builder and negotiated the sale of the Merriwa property to KPG for $520,000. Payment was partly in cash ($270,000) and partly by the transfer of a residential unit in Northbridge. Subsequently the respondent acted as Arcadia's agent for sale of the Northbridge residential unit. Dunlop House 260 On 22 March 1996 Arcadia entered into a contract to purchase a property in Murray Street, Perth known as Dunlop House. I have also referred to that transaction above. I infer, and so find, that the respondent had been retained by the owner of Dunlop House, Show Business Australia Pty Ltd, to find a purchaser. The respondent acted as agent for the vendor in that transaction. I make that finding on the basis of the offer and acceptance which was signed by Mr Saffron on the 21 March 1996 and accepted by the vendor the next day. On the face of that document the respondent is described as agent for the vendor. I reject the allegation, made in the applicants' further and better particulars of the statement of claim, that in relation to this purchase by Arcadia, the respondent acted as its agent. Mr Morrone, in the capacity of agent for the vendor, introduced Mr Saffron to the Property. The purchase price was $3.3 million. 261 Neither Arcadia nor the respondent advertised Dunlop House for sale. However, there had been an advertisement in relation to a development approval for the Property. I infer that, as a result of that advertisement or by some other means related to the proposed development, Mr Francis Choy became aware of the property. The result was that on 30 July 1996 Mr Choy's company, Blessed Asset Pty Ltd, submitted an offer to the respondent (as agent for Arcadia) to purchase Dunlop House for $3.85 million. The offer was not accepted. Later, as I have mentioned earlier, the respondent obtained a higher offer from Blessed Asset Pty Ltd which resulted in a sale of the property for $4.45 million and a consequent profit to Arcadia of about $1.15 million. It was at the time of execution of that contract that Mr Saffron applied sufficient pressure on Mr Morrone to reduce the respondent's commission from $124,000 to $100,000. In relation to the nightclub conducted by Arcadia at Dunlop House, Rumours Nightclub, I find that the applicants' further and better particulars somewhat overstate Mr Morrone's role. Mr Saffron acknowledged that he had appointed a manager, Ms Karen Kuehlmann, to the nightclub who ran the business and once a week reported the outcome to Mr Morrone. Mr Morrone also undertook payment of the bills for the nightclub, using his signing authority on the relevant company's bank account. When Mr Chippindale became Mr Saffron's manager for Western Australia, in early 1998, he took over those responsibilities from Mr Morrone. South Lakes Tavern 262 On 4 July 1997, by an offer and acceptance form of that date, another of Mr Saffron's companies, Jendra Pty Ltd, contracted to buy the land and building known as "South Lakes Tavern" for a price of $1.1 million, conditional upon another of Mr Saffron's companies, Destone Pty Ltd, purchasing the business of the tavern for a price of $115,000. The evidence was that the vendor gave the respondent a written authority dated 25 June 1997 to sell the business and the freehold. The respondent was named as agent for the vendor in each of those contracts. Mr Saffron was provided with the turnover figures for the tavern and made an assessment of them. He agreed that his decision to buy the tavern was based on those figures. Mr Saffron caused a manager to be appointed to run the tavern. He agreed that Mr Morrone had an overseeing role. An employee of the respondent paid accounts for the South Lakes Tavern. I have mentioned earlier that, initially the respondent's management of the South Lakes Tavern descended to matters of some detail and was more extensive than Mr Morrone was prepared to admit, until confronted with contemporary documentary evidence. Once again, in early 1998, Mr Chippindale took over the respondent's role in relation to the South Lakes Tavern. Hilton Park Tavern 263 This was the transaction to which I have referred at paragraph 62 above in which a company controlled by Mr Morrone, Astle Corporation Pty Ltd, sold a property known as the Hilton Park Tavern to another of Mr Saffron's companies called Nuwest Enterprises Pty Ltd ("Nuwest"). The contract was made on 15 July 1997 conditional, in similar fashion to the contract for the purchase of the South Lakes Tavern, upon Destone Pty Ltd acquiring the business of the South Lakes Tavern. 264 In their further and better particulars, the applicants say that the respondent negotiated the purchase of the Hilton Park Tavern as agent for Nuwest. I find this to be an extraordinary assertion, in the circumstances. The contract shows quite clearly that the respondent was agent for the vendor. Mr Saffron acknowledged in cross-examination that he knew before he decided to buy the Hilton Park Tavern that it was owned by an entity controlled by Mr Morrone. I reject the allegation, made by the applicants, that in that transaction the respondent "negotiated the purchase" as agent for Nuwest. The applicants plead that Mr Morrone recommended the transaction to Mr Saffron. On the basis of inherent likelihood, I am prepared to find that he would have made some recommendation about the property which probably included words to the effect $1.2 million was a good price. However, I do not accept that Mr Saffron relied upon anything said by Mr Morrone when he agreed to purchase the Hilton Park Tavern. Given Mr Saffron's business acumen and experience and his knowledge of Mr Morrone's interest in the property and business, that would be, in my view, inherently most unlikely and I find that it did not happen. Re-development of the Raffles Hotel site 265 Mr Saffron has owned the Raffles Hotel site for some 50 years. His relevant company is Raffles Investments Pty Ltd ("Raffles"). I accept the evidence that Raffles retained the respondent to carry out the services necessary to apply for planning permission from the local authority and from the State Planning Commission to re-develop this site. I find that the work engaged in by the respondent primarily involved retaining consultants (including town planners, solicitors and an architect), liaising with the authorities and some public relations. The respondent was paid some quite substantial consultancy fees for doing this. At the relevant time nothing came of this. Other duties undertaken by the respondent 266 I accept that, in addition to the matters mentioned above, the respondent (through Mr Morrone) oversaw the management of a nightclub called Gobbles Nightclub from June 1996 to March 1998 when Mr Chippindale took over this and other like roles from the respondent. 267 The evidence also showed that Mr Morrone assisted Mr Saffron to set up trading trusts in relation to the South Lakes Tavern and the Hilton Park Tavern. He did this not only by introducing him to an accountant for that purpose, but also by agreeing to act as founder of each of those trusts. 268 I also accept the evidence that when Mr Saffron was in Perth he would frequently visit the respondent's offices and on occasion used its boardroom for purposes connected with the carrying on of his business affairs. Mr Morrone accepted that he and Mr Saffron spoke on the telephone several times a day. I am inclined to think that that is an over-statement but I am prepared to find, and do so find, that they spoke frequently on the telephone particularly when Mr Saffron was not in Perth. I also accept that Mr Morrone and Mr Saffron became close friends. That appears to be common ground. The proposed purchase of the Property 269 When one has regard to paragraph 4.1.8 of the statement of claim, when read with paragraphs 4A and 4C, it can be seen that the applicants also rely upon what is said to be advice given by the respondent in relation to the Property (at the respective times referred to in or incorporated by reference into those paragraphs) not only as a basis for the creation of the alleged fiduciary relationship with Arcadia and Cordelia, but also for what are said to be the incidents of that fiduciary relationship which I have summarised above. 270 I find that Mr Morrone told Mr Saffron about the opportunity to acquire the Property, initially from City Inn, and, subsequently, from KPG (in conjunction with the building contract with Keywest). I have already found that Mr Morrone would have said something along the lines that the purchase price of $12.5 million represented good value from a purchaser's viewpoint and that the respondent would probably be able to on-sell the Property on behalf of Mr Saffron at an unspecified higher price before settlement. I have also already found that Mr Morrone did not otherwise make the First Royal Representations or the Second Royal Representation. To the extent that "the Advice" pleaded goes beyond such statements, I do not accept that they were made. 271 Nor do I consider that the statements are properly characterised as "advice" in the sense of counsel or an opinion given about a course of action. Mr Morrone was at all material times a real estate salesman interested in securing a commission on the sale of the Property. Mr Saffron was well aware of that, and was a shrewd and successful property investor with many years of experience, as I have said. Much was sought to be made, on behalf of the applicants, of what was said to be Mr Saffron's lack of expertise in the market for a property of this type in Perth. I have already given my reasons above for discounting that factor. These two men, in my view, dealt at arm's length in relation to the acquisition of the Property. Any statements made by Mr Morrone with a view to achieving the sale of the Property did not have a status any higher than that i.e. as statements. My assessment is that both parties were well aware of that. my reasoning on whether a fiduciary relationship existed between the respondent and arcadia and cordelia in relation to the acquisition of the property 272 I think that the above question might usefully be re-phrased along the lines of the question asked by Dixon A.-J in McKenzie v McDonald [1927] VLR 134 at 145. His Honour, after a meticulous exposition of the facts, posed the question in the following terms: "Did the defendant occupy such a position of confidence towards the plaintiff as to bring him within the equitable requirements of full disclosure and fair and open dealing?" 273 In that case the agent concerned, after acquiring an intimate knowledge of the financial position, obligations and family needs of a war widow, proceeded to buy the family farm at less than market value and to sell her a property, owned by him, at more than market value. The case was clearly one of a gross abuse of confidence. 274 For guidance in deciding this issue I have turned principally to the decision of the High Court of Australia in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. Gibbs CJ in that case, at 69, said: "I doubt if it is fruitful to attempt to make a general statement of the circumstances in which a fiduciary relationship will be found to exist. Fiduciary relations are of different types, carrying different obligations [authorities cited] and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose. … Moreover, different fiduciary relationships may entail different consequences …". 275 At 72 his Honour observed that any test for the existence of a fiduciary relationship can only be stated in the most general terms and that all the facts and circumstances must be carefully examined to see whether a fiduciary relationship exists. That is the course which I have sought to follow in these reasons. 276 Dawson J expressed very similar views to those of Gibbs CJ (at 141-142) when he said this: "Notwithstanding the existence of clear examples, no satisfactory, single test has emerged which will serve to identify a relationship which is fiduciary. It is usual – perhaps necessary – that in such a relationship one party should repose substantial confidence in another in acting on his behalf or in his interest in some respect. But it is not in every case where that happens that there is a fiduciary relationship. If it were, whenever there is "a job to be performed" (Tito v Waddell [No. 2] [1997] 1 Ch. 106, at p.229) and entrusting the job to someone involves reposing substantial trust and confidence in him, equity would impose fiduciary obligations. Clearly, that is not the case. Nor does a fiduciary duty arise because the person to whom a job is entrusted acts in his own interest and thereby fails to perform the job properly, however useful it may appear with hindsight that such protection should have been made available. As Megarry V.-C. put it in Tito v Waddell (at p 230): "If there is a fiduciary duty, the equitable rules about self-dealing apply: but self-dealing does not impose the duty. Equity bases its rules about self-dealing upon some pre-existing fiduciary duty: it is a disregard of this pre-existing duty that subjects the self-dealer to the consequences of the self-dealing rules. I do not think that one can take a person who is subject to no pre-existing fiduciary duty and then say that because he self-deals he is thereupon subjected to a fiduciary duty." The difficulty in identifying and classifying those qualities in individual relationships which give rise to fiduciary obligations is well recognized: see e.g., Phipps v Boardman [1967] 2 AC 46 at p.125 per Lord Upjohn. There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other: see Tate v Williamson (1866) 2 Ch. App. 55, at pp.60-61. From that springs the requirement that a person under a fiduciary obligation shall not put himself in a position where his interest and duty conflict or, if conflict is unavoidable, shall resolve it in favour of duty and shall not, except by special arrangement, make a profit out of his position." 277 Wilson J also agreed with Gibbs CJ, adding (at 118): "In a commercial transaction of the kind here under consideration, where the parties are dealing at arm's length and there is no credible suggestion of undue influence, I am reluctant to import a fiduciary obligation. The courts have often expressed a cautionary note against the extension of equitable principles into the domain of commercial relationships …". 278 And at 119: "As the cases referred to by the Chief Justice in his judgment show, this Court has refused, on several occasions, to find a fiduciary relationship in circumstances where the parties contract with each other freely and more or less on an equal footing in a commercial dealing …" 279 Mason J dissented on the point, but Deane J (as I read his Honour's reasons, in particular at 123-125, and contrary to the headnote) agreed that there was no overall fiduciary relationship or even a particular one in respect of the respondent's local goodwill. However, I think it is most useful in the present context, to note that (at 123) his Honour observed that a conclusion that an overall relationship is not fiduciary does not preclude the possibility that, within or arising from that relationship, a more restricted fiduciary relationship might exist. 280 For example, in the context of this case there would be little difficulty in finding that the respondent was in the position of a fiduciary when it received rents or other income generated by the properties or businesses which it managed for Mr Saffron, and, when using the authorisations to operate upon certain bank accounts, it drew cheques upon those accounts. 281 I shall come to the respective acquisitions of the Property in a moment. But in respect of the other transactions upon which the applicants rely for the existence of a fiduciary relationship in connection with the acquisition of the Property, I do not think that they show the creation of such a relationship. 282 The respondent argued that each of the transactions should be regarded as a specific discrete one. I do not think that such an approach would be in accordance with the authorities. 283 In my view, all of the surrounding circumstances and the dealings which took place between Mr Saffron and Mr Morrone are relevant to the question whether a fiduciary relationship was created between the respondent and Arcadia and Cordelia. 284 Each of these other transactions was essentially commercial in nature. On every occasion when Mr Saffron was acquiring a property or a business, I have found that Mr Morrone or the respondent was acting as agent for the vendor. As such it was obvious to Mr Saffron that each transaction was a commercial transaction in which the respondent as such agent could be expected to act in the interests of the vendor and indeed its own interests to secure a commission. In those circumstances, I do not think that any fiduciary relationship evolved, notwithstanding that there was a series of such commercial transactions, c.f. Gonsalves v Debreczeni [1998] NSWSC 588 (BC 9806554 at 17-18). 285 In my view, it is quite clear that in the transactions which involved Arcadia and Cordelia acquiring the Property the respondent was acting as agent of the vendor. It was shown as such in the respective contracts. The evidence establishes that the respondent acted as KPG's agent in relation to the purchase of the Property, as managing agent of it, as co-ordinator of the steps necessary for KPG to obtain development approval and to obtain vacant possession of the Property. I find that Mr Saffron was well aware of that at the relevant times. The evidence also establishes that KPG and Keywest agreed to pay a commission to the respondent on the sale to Cordelia and in fact paid the respondent $100,000 for its services. 286 Until the tenth day of the trial when the applicants' claims against KPG and Keywest and the cross-claims of those parties against the applicants were settled, part of the applicants' case against KPG and Keywest was based on Royal's conduct as agent for those two respondents. Even if, contrary to my finding, the respondent could be said to have acted as Mr Saffron's agent in the acquisitions of the Property, the authorities show that that, in itself, would not give rise to a fiduciary relationship. 287 An important part of Mr Saffron's case was that he trusted Mr Morrone. It is clear that, in some respects, he did trust Mr Morrone in circumstances where, objectively, such trust would be expected and which would give rise to fiduciary duties. I refer to the receipt and expenditure of monies belonging to Mr Saffron's companies. But in my view, on the facts found in this matter, when Arcadia and then Cordelia were acquiring the Property there was no other pre-existing fiduciary relationship and nor was one created by the circumstances in which the acquisitions took place. 288 In Hospital Products there was reference to various factors (none of them determinative on their own) which might indicate a fiduciary relationship. I turn to some of those. 289 First, I do not think that there existed a relation of confidence between Mr Saffron and Mr Morrone such as to point to the existence of a fiduciary relationship. As I have mentioned above, in my view, they were businessmen dealing at arm's length and Mr Saffron in particular knew that the respondent owed duties to the vendor to achieve a sale and that its financial interests lay in that direction. 290 There was no inequality of bargaining power. Mr Saffron was free to enter or not to enter into the purchases as he saw fit. He was not in any position of disadvantage or vulnerability. He was a very experienced property investor and a shrewd businessman. He was not, in my opinion, in a vulnerable position or in a position of reliance upon Mr Morrone. 291 Each case, of course, turns on its own facts. But when one reads the facts of Hospital Products, it seems to me that the relationship between the parties in that case was very much closer to a fiduciary relationship than in the present case. The fact that the New South Wales Court of Appeal and Mason J, on appeal to the High Court, thought there was a fiduciary relationship is evidence of that. However, the majority had little hesitation in rejecting that part of the respondent's claims which had been based upon the existence of a fiduciary relationship. 292 In my view, after taking all of the circumstances into account, the applicants have failed to show that any relevant fiduciary relationship existed between the respondent and Arcadia and then Cordelia such as to give rise to the incidents upon which they rely. Conclusion 293 For the foregoing reasons the application will be dismissed with costs. I certify that the preceding two hundred and ninety-three (293) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate: Dated: 14 August 2002 Counsel for the Applicants: Mr D M Stone with Mr P D C Robinson Solicitors for the Applicants: Messrs Williams & Hughes Counsel for the Respondent: Mr D M B Derham QC with Mr P G McGowan Solicitors for the Respondent: Messrs Phillips Fox Date of Hearing: 2-5 April, 8-12 April, 15-19 April, 23 April, 27-31 May and 14 June 2002 Last Submissions Filed: 11 July 2002 Date of Judgment: 14 August 2002