New South Wales Supreme Court CITATION : Warwick George Malouf v John George Malouf & Anor [2005] NSWSC 9 HEARING DATE(S) : 09.08.04; 10.08.04; 11.08.04; 12.08.04; 13.08.04 JUDGMENT DATE : 3 February 2005 JUDGMENT OF : Nicholas J DECISION : Para 87 CATCHWORDS : Agreement for sale of shares in family company - whether representations as to profits were fraudulently understated - whether plaintiff induced to sell shareholding at undervalue - whether claim for damages established Briginshaw v Briginshaw (1938) 60 CLR 336 CASES CITED : Watson v Foxman (1995) 49 NSWLR 315 Warwick George Malouf - Plaintiff PARTIES : John George Malouf - First Defendant Osmal (Holdings) Pty Limited - Second Defendant FILE NUMBER(S) : SC 1477/01 W G Malouf - In person COUNSEL : S Finch SC/J Stephenson - Defendants W G Malouf - In person SOLICITORS : Phillips Fox - Defendants LOWER COURT JURISDICTION : THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Nicholas J 3 February 2005 1477/01 Warwick George Malouf v John George Malouf & Anor JUDGMENT Introduction 1 His Honour: These proceedings arise from a dispute concerning an agreement made on 21 February 1995 (the agreement) between Warwick George Strauss Malouf (the Plaintiff) as seller and John George Malouf (John), the First Defendant, and Pamela Mary Malouf (Pamela) as buyers under which the Plaintiff sold his shares in Osmal (Holdings) Pty Limited (Holdings) to the buyers for the price of $1,262,500.00. 2 At the hearing the Plaintiff was self-represented. Mr S Finch SC and Mr J Stephenson of counsel appeared for John and Holdings. 3 At all relevant times Holdings was the registered proprietor of a warehouse and office buildings at No. 586 Crown Street, Surry Hills which is known as Osmal House. Osmal Products Pty Limited (Products) is its wholly owned subsidiary carrying on business at Osmal House as an importer and wholesaler of garments, including mens and boys shirts, shorts and pyjamas. Garments are imported primarily from China and India and are supplied to major variety and department stores including Coles Myer Limited and Lowes Manhattan Pty Limited. 4 The Plaintiff is the brother of John and Pamela, and was a shareholder in Holdings from 1955 until 21 February 1995. His shareholding was of 22.79% of the total issued shares and consisted of 716 "B class shares", 25 "C class shares", 25 "F class shares" and 2,000 "H class shares". He held no "A" class shares, and was not a director of Holdings. He had not been paid a dividend since 1974. 5 Pursuant to cl 3(a) of the Articles of Association of Holdings only the holders of "A" class shares are entitled to attend and vote at meetings of the company. Clause 3(b) provides that each class of shares entitles the holder only to such dividend as the directors shall determine and in such proportions as the directors shall fix. Clause 3(c) provides that the directors may determine that a dividend be paid to the holders of any one or more class or classes of shares to the exclusion of the holders of any other class or classes of shares. The articles impose a restriction on the transfer of shares to the effect that none may be transferred without the approval of the directors and must be made available to existing members in the first instance. 6 John is, and at all relevant times has been, the managing director and company secretary of, and a shareholder in, Holdings. 7 By his further amended statement of claim filed 27 December 2002 the Plaintiff claims that as a result of fraudulent misrepresentations made by John at a meeting on 16 February 1995 he entered into the agreement of 21 February 1995 to sell his shares in Holdings for a price to which he would not have agreed had the misrepresentations not been made. 8 Relevantly, the further amended statement of claim pleads the following: "11A Certain information supplied by the defendants to the plaintiff, and certain representations made by the defendants to the plaintiff, prior to and on 16 February 1995 was, as the defendants knew, false and misleading and deceptively and fraudulently so, and were intended by the defendants to be relied on by the plaintiff, so as to induce the plaintiff to sell his shares in the second defendant for less than the true and fair value of the plaintiff's shares in the second defendant. The plaintiff relied on the said information and representations and suffered loss and damage. (A) Particulars of the said information and representations at common law; (i) the 1994 operating profit represented to be $850,000 was knowingly false and fraudulently understated; (ii) the 1994 operating profit represented to be $850,000 included inter alia suppression of the full sales figures; (iii) the 1995 net profit represented to be nil or near to nil was knowingly false and fraudulently understated". 9 The Plaintiff's claim is for damages in the amount of $2,068,337.00 which is the difference between the amount received as the agreed sale price and the amount he claims he should have received as the true and fair value for his shares, namely the sum of $3,330,837.00. He also claims interest pursuant to s 94 Supreme Court Act 1970 (NSW). 10 With regard to the conduct of the proceedings the following is noted. On 2 August 2004 the Plaintiff informed the court that the solicitors, Dennis & Company, were no longer instructed to act for him, and leave was granted to the solicitor, Mr Bruce Dennis, to file in court a notice of ceasing to act. The Defendants' case closed early in the afternoon of 13 August 2004 and there was no case in reply. The Plaintiff was then unable or unwilling to make any submissions of substance in support of his case and was directed to serve written submissions by 20 August 2004. Mr Finch SC then proceeded with oral submissions in elaboration of written submissions for the Defendants which had been provided to the court and to the Plaintiff. On 26 August 2004 the matter was next before the court when leave was given to the Plaintiff to tender, without objection, a handwritten post-it note being the original of Annexure C to his affidavit sworn 17 May 2002. 11 As no submissions had been received from the Plaintiff he was directed to provide them by 8 September 2004. On that date, time was extended at the Plaintiff's request until 15 September 2004. On 19 October 2004 the matter was before the court for the purpose of affording the Plaintiff to explain his failure to comply with the latest direction. He attended and was directed to provide submissions by 25 October 2004, and informed that after that date it was proposed to proceed to judgment irrespective of whether any were received from him. 12 On 17 December 2004, 31 January, and 1 February 2005 the court received from the Plaintiff written submissions by facsimile, a copy of which was sent to the Defendants' solicitors. The documents should remain in the court file. I have taken these submissions into account in preparing these reasons for judgment. Background 13 From at least 1991 the Plaintiff was in dispute with John and Holdings concerning the management and conduct of the companies and his entitlements as a shareholder. In particular, he alleged he was the victim of minority oppression, and threatened litigation unless satisfactory settlement, including the sale of his shares, could be reached. He retained Blake Dawson Waldron (BDW), solicitors, to act on these claims. 14 On 3 November 1992 the Plaintiff agreed with the Defendants, Enid Malouf (his mother) and Pamela that in consideration of certain payments to him he would surrender his rights of occupancy of offices in Osmal House and abandon any claim to any entitlement in the building or in the proceeds of sale thereof. 15 By BDW's letter of 23 December 1993 to John the Plaintiff alleged that he had been denied substantial dividends from the profits of Holdings. He demanded accounting, banking and other records of the companies and alleged impropriety in its conduct e.g. that wages were paid to non-existent employees; clothing stock was sold for cash which was not accounted for; personal expenses of family shareholders were paid for but not reimbursed. Demand was made that these practices cease and be explained, failing which litigation for appropriate relief was threatened. 16 The claims and allegations were denied in the letter from F C Bryant & Co (Bryant), Holdings' solicitors, to BDW of 21 January 1994. It was pointed out that the directors had no obligation to pay any dividend on the Plaintiff's shares. By separate letter of the same date to BDW they advised of the offer of John and Pamela to purchase the Plaintiff's shareholding for $200,000.00 and to procure the release of his loan accounts with the companies which, as at 30 June 1993, amounted to more than $300,000.00. The letter included the following: "Our clients have no need to acquire the shareholding and it has no substantial value to them, having regard to the restrictions affecting the shares under the Articles of Association. Their sole purpose in making the offer is to avoid the breakdown of family relationships which would arise from litigation. For the reasons set out in our accompanying letter it is considered that there is no substance to any claim of oppression but if your client prefers to test the matter by applying to the Court he should proceed on the assumption that the threat of doing so will not produce any higher offer". 17 In the letter to Bryant of 3 February 1994 BDW complained in strong terms of the failure to provide documents to which the Plaintiff claimed to be entitled to enable scrutiny of the companies' operations and suggested irregularities. The offer was rejected as baseless and made without regard to the value of his interest. A claim was foreshadowed " … about the apparent loan account discrepancies, the irregularities in the conduct of the directors that are recognised in your two letters and the misleading and deceptive conduct in breach of the Corporations Law". (Ex 2, p 132). 18 On 3 March 1994 Mr G S Ralph, of Gould Ralph Services Pty Limited, chartered accountants, provided his preliminary report to BDW on Holdings and Products. He recorded that Mr Ralph Goodman, the companies' auditor, had provided to him the audited financial statements of each company for the years ending 30 June 1987 to 30 June 1993 inclusive, and the minute books of each company. He provided his preliminary observations based on these documents and an indicative valuation of the company. He expressed the view " … that a reasonable capitalisation range for Products would be 6 to 10 times maintainable earnings after taxation". Using a mean of 8 times earnings he valued the company of $8,760,000.00. It was also his view that as the only real asset of Holdings was its investment in Products it should be considered to have no independent value, and valued it on a total equity basis at the same figure. A copy of his report was sent to the Plaintiff. 19 By the letter to Bryant dated 24 June 1994, BDW asserted that the accounting information provided was designed to mislead and deceive the Plaintiff as to the value of the group. Legal proceedings were threatened including the appointment of an administrator, the removal of John and Pamela from control, and an order excluding Bryant and Mr Goodman from further involvement with Holdings. It included an assertion that the value of the Plaintiff's shareholding was $3,792,718.18. It stated that the Plaintiff was willing, but not keen, for negotiation for the acquisition of the shares. It proceeded as follows: "He sees the conduct of the advisors to Osmal as designed to mislead him as to the value of his shares. Mr Goodman's recent failure to give explanation for his audit on such basic issues as the total stocktake procedure and the totally abnormal $1/3 million commission are seen as designed to mislead Warwick and to frustrate negotiation". It concluded as follows: "Accordingly Warwick Malouf sees the most practical remedy as either · cancellation of his shares for full value, or · the foreshadowed legal actions which will achieve the object of removing John and Pamela from administration of the group, the appointment of an administrator to regularise the affairs of the group and recovering the benefits paid out to John, Pamela and Julie and Mrs Enid Malouf, and exposing John and Pamela to the possibility of substantial civil and criminal penalties". 20 By letter dated 20 July 1994, Phillips Fox (PF) as solicitors for John and Pamela replied to BDW's letter of 24 June 1994. It was denied that any financial information about Holdings or Products had been withheld, and that there had been any wrongdoing in respect of commissions, remuneration or expenses, or that there were any irregularities in the accounts of Products or Holdings. It stated that the Plaintiff was at liberty to commence proceedings, and explained why such proceedings were unlikely to succeed. It concluded by stating that John was happy to have the Plaintiff's shareholding remain in Holdings indefinitely, but indicated a willingness to negotiate its value and agreement for sale and purchase. 21 By letter dated 2 August 1994 the Plaintiff replied to PF's letter. He said: "The choice confronting the Osmal Group will now be clear to John and Pamela: · agree to cancellation of my shares for full value and preserve the whole Osmal group for your clients. · not agree and face the planned Federal Court action, winding up of the group, liquidators' enquiries into the dissipation of assets and irregular conduct, enquiries by criminal investigators as to the diversion of company profits and income for the personal benefit of directors and others; and the possibility of criminal proceedings – in short the loss of the whole Osmal group, the loss of the directors' jobs, the loss of the goodwill, the loss of a 40 year business. I feel deep anger at the treatment I have been subjected to by these directors in what is a family company. I have been deceived and mislead with nefarious intent by them. My shareholding and his rights have been completely disregarded while directors and associates have helped themselves in a secretive and possibly criminal manner". In summary, the letter proceeded with a detailed response to the points made in PF's letter the main thrust of which was to contend that John and Pamela sought to obtain his shares at an undervalue, and were guilty of consistently deceitful conduct towards him. He stated his view that they were "devoid of credibility in this matter" and that he completely distrusted them. He pressed for disclosure of information as to the company's affairs without which he was unable to judge the value of his shares, and stated his certainty that they had a value in excess of what he was being led to believe. He said that he had a valuation of his shareholding in preliminary draft form and would provide copies of the final form once settled. He concluded by stating that if they wanted the whole financial benefit of the company it was necessary to either buy or cancel his shareholding for its full and genuine value otherwise it was pointless to negotiate further. 22 By letters dated 8 August and 16 August 1994 PF requested the Plaintiff to provide the valuation report to advance negotiations. 23 By letter of 7 September 1994 Mr Ralph requested Mr John Banks, of KPMG Corporate Pty Ltd to prepare a valuation of the Plaintiff's shareholding. With it were included extensive notes on Holdings and Products prepared by the Plaintiff who claimed to be an oppressed shareholder. Included was the statement that it was clear that the intention of John and Pamela was to " … defraud the minority and to buy my shares at an enormous undervalue". (The Plaintiff sent the same material to Mr Banks on 9 September 1994). 24 On 31 October 1994 Mr Aleco Vrisakis, as solicitor for the Plaintiff, sent PF a copy of KPMG's valuation dated 14 October 1994. 25 On 17 November 1994 there was a meeting at Osmal House between the Plaintiff and John to consider resolution of the dispute. John made a note of the topics discussed which, in substance, the Plaintiff accepted as accurate. (Ex 2, pp 350-351). 26 By facsimile of 16 December 1994 to PF, Mr Vrisakis said: "I am instructed that Mr John Malouf, in a discussion with my client, Ric Malouf, said that nobody disputed Ric Malouf's entitlement to 22.79% of the cash that the Company has on deposit. My client estimates that cash to be some $5,300,000.00". Demand was made for payment to the Plaintiff of a dividend equal to 22.79% of the companies' cash on deposit. Refusal would be taken as unwillingness to reach a reasonable settlement with the consequence of litigation as foreshadowed. 27 In his letter to John of 20 December 1994 the Plaintiff included the following: "I am left with a deeply uncomfortable feeling after our discussion today. I am most concerned that you are contemplating a property purchase at this particular time rather than after a proposed settlement between us. I am concerned that you had not told me of this proposal. This is oppressive to my interest and goes to the very core of our dispute. Your verbal refusal of my requirement in Aleco Vrisalis' (sic) letter of 16 December 1994 (copy attached) clearly indicates that you fail to recognise my entitlement to 22.79% of the companys (sic) cash deposits. … Your behaviour about the property has been deceitful and under all of these burdens I am not seeing how we can arrive at a settlement. … I think that you are yet again misleading me in your intentions and actions. To tell me that the matter is proceeding and that we will negotiate over valuations when yours is received, while secretly rushing to acquire a property asset at this particular point is quite misleading and obviously a transparent tactic by which you seek to advantage yourself and yet again use your position as a director to oppress my interest and to keep me in the dark". 28 With the letter to Mr Vrisakis of 23 December 1994 PF enclosed a copy of a report from Coopers & Lybrand (Securities) Limited and draft accounts for the year ending 30 June 1994 for Products, and advised that there was no proposed purchase of real property by Holdings. It stated John's denial of the words attributed to him in the facsimile. The report, of which Mr Wayne Lonergan was the author, stated the fair market value of the Plaintiff's shareholding in Holdings to be $100,000.00. 29 In his letter to PF of 6 January 1995 Mr Vrisakis advised of the Plaintiff's willingness to meet John for settlement discussions. He also said: "I have … now had the opportunity to consider a further claim that he will make in the event that this matter is not resolved. I am instructed that Mr E M Malouf bequeathed his A shares in the Company to his widow. A short time after Mr E M Malouf's death Mr J G Malouf procured a transfer of those shares to himself in circumstances which (inter alia) constitute a breach of section 129(1) of the Companies Code and a breach of his statutory and common law duties as a director of the Company". 30 On 31 January 1995 there was a meeting attended by the Plaintiff, John, Mr Ralph and Mr Goodman for the purpose of resolving the value of the Plaintiff's shares in Holdings and to agree on their sale. There is a file note (Ex 2, pp 371-372) which is an accurate summary of the discussion, the substance of which was accepted by the Plaintiff. It records that Mr Goodman declined to value the company, that Mr Ralph gave a "kerb-side" valuation of about $3,000,000.00 which he might reduce to $1,800,000.00, that John refused to make an offer, that both parties were prepared to negotiate, and that the 1994 results appear to be accepted. 31 On about 9 February 1995 there was a conversation between the Plaintiff and John in which John said: "Given that we have had such a big difference in valuing your shareholding in Holdings, and it's all getting too difficult to reach a resolution, you are welcome to remain as a shareholder in Holdings with the rest of us". The Plaintiff said: "I definitely want to get out quickly". 32 On 9 February 1995 there was a meeting between the Plaintiff and John at which factors relevant to the valuation of the shares were discussed. John's note of the discussion is at Ex 2, p 375 and, in substance, the Plaintiff accepts its accuracy. It records, inter alia, an expected profit of $500,000.00, and the application to it of a price earnings multiple of 6, and that the 1989 dividend of $559,000.00 was reversed in favour of the Plaintiff. It records John's valuation at $1,675,679.00 and the Plaintiff's at $1,782,791.00. The meeting was inconclusive. 33 On 16 February 1995 there was a meeting between the Plaintiff and John at which John tabled a handwritten note (the meeting note) prepared by him for discussion. (Annexure A, Plaintiff's affidavit 17 May 2002). The discussion proceeded to the effect that John was willing to purchase the shares on the basis set out in the meeting note. The several factors included net tangible assets at $5,200,000.00, operating profit at $850,000.00, and adjustments for wages, rent, interest received and taxation. To the resultant figure of $331,000.00 was applied a price earnings multiple of 6 which produced the figure of $1,986,000.00. After adjustment for dividend of $560,000.00 the value of the company was calculated at $7,746,000.00, and 22.79% of which was $1,765,313.00. From this last figure deductions totalling $547,141.00 were made for items including long service leave, salaries, interest, building buyout, and the Plaintiff's loan account at $314,000.00. The final figure referable to the Plaintiff's shares was $1,218,172.00. The Plaintiff accepted these figures as fair and reasonable. During the discussion further adjustment of the figure was made to take account of some matters of concern to the Plaintiff. At the end of the discussion the Plaintiff agreed on the figure of $1,262,500.00 as the price for his shares. The note of these matters was made by John on the meeting document as shown at Exhibit A p 382. 34 On 21 February 1995 the formal agreement for the sale and purchase of the Plaintiff's shares for the sum of $1,262,500.00 was made. The sum was paid shortly thereafter. 35 On 23 February 1995 a deed of compromise and release was made between the Plaintiff as the releasor and John, Pamela, Products, Holdings and others as releasees. The recitals summarise the allegations made by the Plaintiff against the directors of Holdings and Products since about 1990 of unlawful and oppressive conduct in breach of the Corporations Law and the Trade Practices Act 1974 (Cth), and the denial of such conduct. Clause 2.15 recites that at about 19 February 1995 the loan accounts of the Plaintiff were in debt to Holdings for $214,194.00 and to Products for $100,547.00. Clause 2.16 recited the Plaintiff's threat in about September 1994 to commence proceedings in the Federal Court of Australia for relief under the Corporations Law. Clause 3.1 provided that in consideration of John, Pamela and others paying the Plaintiff the sum of $1,262,500.00 and of Holdings and Products forgiving the loan accounts, the agreement for the share sale would be implemented, and the Plaintiff would release and discharge the releasees from all claims and causes of action in respect of, inter alia, his shareholding in Holdings. 36 On 28 June 1996 Products purchased a property (the St Peter's property) for the price of $1,610,000.00 assisted with a bank mortgage of $1,045,300.00. 37 In his affidavit of 26 November 2001 the Plaintiff says: "20. I was put on notice that the representations made to me by D1 on 16 February 1995 were not correct when, from about late August 1997, I became aware of the size and nature of the new premises which had been purchased by D2 for the conduct of the business of Products, from among others Mr Adam Bisits of Blake Dawson Waldron who had acted for me. I went to inspect the new building (from the outside) and I conducted real property searches and made inquiries from Marrickville Council. Those searches and inquiries tended to confirm my apprehension that the representations made to me by D1 on 16 February 1995 were false". 38 In his letter to the Plaintiff of 24 September 1997 John alleged that he had been misled and deceived by John about the state of Holdings and its future prospects, and was thereby induced to sell his shares for much less than their true value and the amount for which he would otherwise have been prepared to sell. He threatened to commence proceedings against John and Holdings in the Federal Court of Australia and enclosed a copy of the proposed statement of claim. 39 In his letter of 16 October 1997 to the Plaintiff John denied the allegations and said: "Your proposed threats and actions are ill-advised. You have been paid in full for your shares at an agreed value, advised by your experts. Should you commence proceedings such proceedings may necessarily include your advisers as cross-defendants in the proceedings. In 1995 Pamela and I purchased your shares amidst similar threats of personal and corporate wrongdoing, none of which were ever substantiated. I do not intend to revisit that settlement or open further commercial discussions about it". 40 Between 27 October 1997 and about 12 August 1998 there was extensive correspondence between the Plaintiff and his solicitors and John and his solicitors in which allegations were made that John had engaged in fraudulent conduct in relation to the agreement and that the information in the meeting note was false and misleading. It was contended that the deed of release was ineffective, production of accounts for year ending 30 June 1995 was demanded, and proceedings were threatened. The allegations and entitlement to the information were denied. 41 On 12 June 1998 the Plaintiff made application to the Federal Court of Australia against John, Pamela and Holdings for an order for preliminary discovery of financial documents of Holdings and Products. The application was dismissed, and application for leave to appeal was dismissed on 27 May 1999. 42 On 16 February 2001 the statement of claim in these proceedings was filed. The claim 43 The Plaintiff claims that he was induced at the meeting on 16 February 1995 to sell his shares in Holdings for much less than their true worth in reliance upon information and representations provided and made by John which were false and misleading and known to be so. The matters complained of are: (1) The 1994 operating profit represented to be $850,000.00 was knowingly false and fraudulently understated; (2) The 1994 operating profit represented to be $850,000.00 included, inter alia, suppression (sic) of the full sales figures; (3) The 1995 net profit represented to be nil or near to nil was knowingly false and fraudulently understated. 44 In deciding the issues raised by these claims I have regard to the principles stated in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq: "Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not ...attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712. Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), in the absence of some reliable contemporaneous record or other satisfactory corroboration. …" 45 Although His Honour was dealing with conduct alleged to infringe s 52 Trade Practices Act 1974 (Cth) or s 42 Fair Trading Act 1987 (NSW) what he says is equally applicable to the Plaintiff's claims in this case. 46 I have also kept in mind the requirement that the Plaintiff's onus of proof is to the civil standard applied with regard to the gravity of the issues as explained, for example, in Briginshaw v Briginshaw (1938) 60 CLR 336 per Dixon, J at pp 362-363: "But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the Tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences … It is often said that such an issue as fraud must be proved "clearly", "unequivocally", "strictly" or "with certainty" … This does not mean that some standard of persuasion is fixed intermediate between the satisfaction beyond reasonable doubt required upon a criminal inquest and the reasonable satisfaction which in a civil issue may, not must, be based on a preponderance of probability. It means that the nature of the issue necessarily affects the process by which reasonable satisfaction is attained. When, in a civil proceeding, a question arises whether a crime has been committed, the standard of persuasion is, according to the better opinion, the same as upon other civil issues … But, consistently with this opinion, weight is given to the presumption of innocence and exactness of proof is expected". 47 It is convenient to deal with each matter in turn. The first allegation 48 The information that the 1994 pre-tax operating profit was $850,000.00 appears as an item in the meeting note and was discussed at the meeting on 16 February 1995. The accounts of Products for the year ended 30 June 1994 show the audited pre-tax operating profit to be $841,626.00 and $555,595.00 after tax. There was no evidence to the contrary. The Plaintiff's evidence was that the figure of $850,000.00 was correct and in line with the accounts that he had seen earlier. He accepted the suggestion that John had rounded up the actual figure in his favour. He accepted that he did not know what the profit should have been (T p 273). 49 The Plaintiff's failure to put forward any evidence to support it compels me to find that the allegation that the $850,000.00 was a figure which was false and fraudulently understated is entirely baseless, should never have been made, and provides no support for the Plaintiff's claim for damages. It is rejected. The second allegation 50 The second ground is that the information that the 1994 pre-tax operating profit was $850,000.00 was false. The gravamen of the complaint is that John and Holdings fraudulently omitted cash sales figures for the year ending 30 June 1994 with the consequence that $850,000.00 was an amount less than the true profit. 51 The evidence of the Plaintiff on this issue was that he had engaged no qualified person to analyse the books of Holdings or Products to determine whether or not the figure was correct. He accepted that he did not know what the profit should have been. To the extent that he relied upon Mr Banks' evidence it may be said that it provides no support whatsoever for the allegations. Mr Banks' report of 14 October 1994 and supplementary report of 27 March 2002 were prepared on the basis of instructions from the Plaintiff. Mr Banks said, and I accept, that he assumed the correctness of those instructions and did not himself undertake any analysis of the underlying information. He said it was no part of his activity to check the veracity of the instructions. In para 5.1.7 of the supplementary report he noted that the cash received by Products from debtors in July 1994 was $843,166.00, a sum higher than the debtors' balance at 30 June 1994 of $515,689.00. He went on to say: " … It would appear to us that the sales have been suppressed for the year ended 30 June 1994. For the purposes of this report, we have assumed that the sales and operating profit for the financial year ended 30 June 1994 have been suppressed by not less than $200,000.00". 52 However in cross-examination he accepted that such a comparison does not necessarily indicate that there has been any suppression of sales, and that there could have been more sales in July. He accepted that a mere comparison of the level of debtors at the end of a month with the cash received the next month does not prove suppression. 53 For the Defendants, Mr Lonergan dealt with the issue at paras 36-47 of his report dated 26 August 2003. I accept his evidence. He had analysed relevant customer invoices and the audit working paper of the aged debtors' trial balance of Products as at 30 June 1994. He disagreed with Mr Banks' assumption of suppression. Based on his analysis his opinion was that the reason the July 1994 receipts exceeded the debtors' balances outstanding at 30 June 1994 is simply explained by short trading terms and the seasonality of sales. His view was that the difference does not indicate suppression of sales. In cross-examination (T pp 405, 406) he said: "Q. What consideration have you given to whether the sales might have been suppressed? A. Mr Malouf, firstly I looked at the collections relatively to the average rating of cheques. On that criteria alone, the cash cheques in the month of July are consistent with the very, very short credit period extended by the company to its customers. Based on that analysis alone, I concluded that the allegation about a suppression of sales of $200,000 was, with great respect, without foundation. Secondly, I then went through the actual receipts for that month and the identification of those receipts with when the invoices had been rendered. What that conclusively proved is that a significant proportion of cash in the month of July came out of sales made for that month and paid for that month. So not only in hindsight was there suppression of sales but in examining in detail, it was clear that was no suppression at all. Q. I see, and you are certain of that? A. That is what the company's figures show". 54 For the Defendants it is submitted that there is simply no evidence to support the allegation. It is inevitable that this submission must be accepted. There was no evidence put before the court in support of the Plaintiff's case of any transaction, and the manner of accounting for it, to prove the allegation. There was no attempt by the Plaintiff to challenge the veracity of the companies' accounts. I hold that he has failed to provide the allegation and it is rejected. 55 Having regard to the background and circumstances which led to the commencement of these proceedings, and to the information available to the Plaintiff and to his advisors prior to the making of this claim, I find it entirely improbable that he ever believed it to have had any prospects of success. The unreasonableness of persisting in the claim which incorporated an allegation that the conduct of the Defendants was fraudulent is self-evident. The third allegation 56 The third ground relied upon is that John falsely represented that the 1995 net profit to be nil or near to nil, and fraudulently understated it. 57 The Plaintiff's evidence is that the representation was made during the meeting. His evidence as to the details of the conversation first appears in his affidavit of 26 November 2001 as follows: "16. At 4pm on 16 February 1995, D1 came to my office … He said to me "Lets talk about the situation" …D1 then said to me "This is the real position of Osmal". After quickly looking at the (meeting note) I said, "Is there any other up-to-date financial information?". He said "No". I said, "Don't you have any half yearly accounts, even draft half yearly accounts?". He said, "There is no other up-to-date financial information, this is the real position of Osmal". After some discussion of the detail in (the meeting note) D1 said to me, "The profit outlook for Osmal is not good. The 1995 profit will be nil or near to nil because we have to move out of warehouse A … The rent is low, we have a very good deal but the owner wants to sell. The move will be very expensive, fittings, fixtures, stock, everything has to be relocated". He then said "the profit outlook in the next two years after that will not be anything like what we have made in past years. We are faced with a lot of competition, things in this end of the trade are very uncertain, there is pressure on our margins. Our margins will be lower and we will have to pay more rent than we pay now. Business will become much more difficult for us". 58 This account was expanded in his affidavit sworn 17 May 2002 as follows: "7. … D1 then said words to the effect of "the 1994 operating profit [in Annexure 'A' to this my present affidavit] was in the order of $850,000. The real position this year is that the profit outlook for Osmal is not good. The 1995 profit will be nil or near to nil" (for the reasons already set out in the balance of paragraph 16 of my said affidavit). I was very surprised. I said words to the effect "that is very low, much lower than I expected. I'm surprised by that". However, we continued going through the figures in Annexure 'A' to this my present affidavit". 59 In his later affidavit he said: "23A Within 24 hours of the meeting with (D1) of 16 February 1995, I wrote on a yellow post-it tab … the key representation that (D1) made which I kept as a record. The words I wrote on it were "Based on Profit to year ended 94 (this is an error, it should obviously be 95 not 94) of nil or near to nil due to move and higher rent and lower margin". (The original of the post-it note became Exhibit B). 60 In cross-examination he said (T p 236) that he attached the post-it note to the meeting note " … stuck it in the drawer, and went to pick up my son from St Joseph's College, because I was late". 61 In his affidavit of 26 November 2001 the Plaintiff said (para 37) that in about late August 1997 he suspected that the representations made by John were false when he became aware of the size and nature of the premises purchased by Holdings (the St Peter's property) and about which he conducted searches and made enquiries from the local council. His suspicions apparently led him to write to John the letter of 24 September 1997 with which he included the statement of claim proposed to be filed in the Federal Court of Australia which contained allegations of misrepresentations including the one presently under consideration. 62 John denies he spoke the words alleged. (Affidavit 30 June 2003, para 61). He was not cross-examined about it. 63 Resolution of the conflict involves deciding which version should be preferred. 64 From early in his cross-examination I formed the firm impression that, generally, the Plaintiff's evidence should not be accepted or relied upon unless independently corroborated or consistent with the accepted evidence. The transcript records many occasions on which he prevaricated and was evasive in answering questions. Often when letters and documents were put to him he feigned ignorance or a lack of understanding of their contents in circumstances where it was simply perverse to do so or where it seemed that he was merely toying with the court and the cross-examiner. It became a practice to affect an inability to understand questions solely, in my assessment, to gain time to formulate a response in order to protect or advance his case. 65 Some examples will suffice to support my finding of the Plaintiff as an unreliable witness: his evidence as to receipt and knowledge of the contents of Mr Ralph's report of 3 March 1994 (T pp 54, 67, 99-102) and referable to the report referred to in his letter to PF of 2 August 1994 (T pp 109-112); and as to whether he was the author of the documents sent to Mr Banks by Mr Ralph on 7 September 1994 (T pp 114-119; pp 125-129); and as to the explanation for the red-herring strategy (T pp 138-142, 146, 187-188); the assertion that John had told him that nobody disputed his entitlement to 22.79% of the cash that the company had on deposit (T pp 160-163) which evidence I am satisfied was false; his explanation for the making of baseless allegations in support of threats of litigation as to the transfer of his mother's shares to John (T pp 170-177); the explanation for the tactics described as "Greenmail – Directors' Inviting" (T pp 205-212); as to the demand for payment of $1,226,500.00 and to forgive the loans (T pp 278-295). 66 John impressed me as a witness of truth. I accept his evidence generally and, in particular, his denial that he made the representation alleged. 67 It follows that I reject the Plaintiff's evidence that John made the representation alleged. I am satisfied that no such statement was made. 68 The only document relied upon to support the Plaintiff's version was the post-it note. In my view it provides no reliable support at all. For reasons already given I am not prepared to accept the truth of his evidence as to the circumstances in which he made the note, or as to the truth of its contents, or that he mistakenly wrote "94" instead of "95". The doubt about it is reinforced by his concession in cross-examination that it was possible that he did not write it until sometime in 1997 (T p 312). 69 I am also satisfied that if it was true that such a statement was made which, as he said, caused him surprise, it is highly unlikely that any note he made of it would refer to the wrong year given the crucial importance to him of the distinction between the 1994 profits and the 1995 expectations as discussed at the meeting. Finding 70 The Plaintiff has failed to prove the claims that at the meeting on 16 February 1995 the representation that the 1994 operating profit was false and/or understated, or that it included suppression of the full sales figures. He has also failed to prove that at the meeting John represented the 1995 net profit to be nil or near to nil. 71 Accordingly I hold that his claim for damages cannot be sustained. Reliance 72 Although it is unnecessary to do so, in deference to the Defendants' submissions it is appropriate I deal briefly with the issue of reliance. 73 The Plaintiff's evidence is that he believed, trusted, and relied upon the alleged representations and, as a consequence, he agreed to adopt a lower price earning multiple, and a lower valuation for his shares than that recommended by Mr Banks. 74 In cross-examination he said (T p 246) that by the time of the meeting he had changed his view of John from that previously held. He said that the factors taken into account as set out in the meeting note were reasonable and logical. In particular he regarded the dividend adjustment of $560,000.00 in his favour as a considerable show of good faith. Events leading up to the meeting on 16 February 1995 75 The documentary evidence establishes that from about 1991 until the meeting it was the belief of the Plaintiff, rational or otherwise, that he was the victim of oppression and dishonest conduct by John and Pamela, and that there were irregularities including the suppression of sales in the financial affairs of the company. 76 On numerous occasions he, directly or though his solicitors, threatened the institution of legal proceedings to expose and remedy this conduct. The Plaintiff accepted that the technique adopted by him between 1991 and 1995 was to threaten the directors with litigation unless his shares were purchased. 77 For example, his letter of 2 August 1994 to PF (para 21) expresses his complete distrust of John and Pamela, and asserts seriously dishonest conduct in the management of the companies to the detriment of shareholders in furtherance of John's wish to buy his shares at an undervalue, and states that he was certain that his shares had a value in excess of what he was being led to believe. 78 The Plaintiff's notes to Mr Ralph of about 7 September 1994 assert dishonest financial misconduct such as suppression of sales and phantom wages, and that the intention of John and Pamela is to defraud the minority and buy his shares at an enormous undervalue. 79 Another example is the Plaintiff's letter of 20 December 1994 (para 27) in which he accuses John of deceitful conduct intended to disadvantage and oppress him. 80 By his letter to Mr Vrisakis of 12 January 1995 the Plaintiff suggests steps to be taken to force his brother to write a cheque for his shares, including the threat of protracted litigation alleging breaches of the Corporations Law. 81 Although there were meetings on 31 January and 9 February 1995 for settlement discussions, the Plaintiff's notes written about that time and prior to the meeting on 16 February 1995 recite his grievances against John, and his intention to take action to destroy the companies if he cannot obtain full value for his shares. 82 There is ample evidence for the finding, which I make, that up to the meeting the Plaintiff's distrust of John had been entrenched for a long time. It indicates that it is highly improbable that the Plaintiff would accept and rely upon anything his brother said about the affairs and financial position of the companies. I find his evidence that he changed his view of John during the meeting, and of his reasons for doing so, to be implausible, and I reject it. I find it utterly improbable that on the occasion of the meeting he was induced to agree to the sale of his shares by any belief in, or reliance upon, the truth of what John said of the factors the subject of discussion. 83 Relevant to this issue is some evidence of the Plaintiff which I do accept because it accords with probability and with the impression I formed during the hearing that he was a person of stubborn independence. On a number of occasions in cross-examination he said, in effect, that although he had professional advisors he endeavoured to decide for himself the action he should take (T p 56). For example, in relation to Mr Ralph's suggestion made at the meeting on 31 January 1995 as to the value of his shares, the Plaintiff said (T p 195): " … I make my own decisions … I try to. I try to hear what people say and reason things out myself". 84 He went on to say in respect of the valuation of his shares that he believed he was the person who would make that decision. (See also T pp 197, 198, 259). 85 Bearing in mind that by December 1994 he was pressing for final settlement, and that, as he said (T p 246) he wished to bring the matter to an end, the evidence supports the finding that it is probable that the Plaintiff decided to accept the price finally offered by John upon his own evaluation of the factors discussed at the meeting, and having judged that in all the circumstances it was in his best commercial interests to do so. I do not doubt that he also took into account that the price offered did not allow for the fact the shares had no rights to dividends or to attend and vote at meetings, and that only a few days earlier John had told him that he was welcome to keep his shares. Conclusion 86 By way of comment the evidence makes plain to me that the Plaintiff maintained these proceedings although unable and unprepared to justify the allegations of fraudulent and deceptive conduct by his brother. That the claims were baseless became apparent during the course of the hearing, at the end of which no attempt was made to refer to any evidence to support them. That the Plaintiff would bring the proceedings was foreshadowed in 1997 since when he had the assistance of solicitors and accountants to prepare his case for presentation to the court, and to gather evidence, if it existed, sufficient to prove his claims. At least from the time he knew the matter was defended, and had read the affidavits of John, Mr Goodman and Mr Lonergan it cannot be accepted that he held any rational belief that his allegations could be proved, or that his claim for damages had any prospects of success and/or that there was available admissible evidence to justify proceeding with it. 87 For the above reasons I propose to order that the further amended statement of claim be dismissed, and that there be judgment for the Defendants and that the Plaintiff pay the Defendants' costs. 88 In the circumstances it is appropriate that I direct the Defendants to bring in short minutes and to afford the parties the opportunity to address me in relation to costs only if agreement cannot be reached on that issue. Arrangements should be made with my Associate by 11 February 2005 for the re-listing of the matter. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.