New South Wales Supreme Court CITATION : Lakshmanan v Reddy [2010] NSWSC 1455 HEARING DATE(S) : 22, 24, 25, 26 February; 1, 2, 3, 4 March; 1, 2, 3 September; and 8 October 2010 JUDGMENT DATE : 21 December 2010 JURISDICTION : Equity Division JUDGMENT OF : Bergin CJ in Eq DECISION : Plaintiff entitled to recover loss of $4,593,048 CATCHWORDS : MISLEADING OR DECEPTIVE CONDUCT - whether representations were made - whether representations were false - whether the plaintiffs relied upon the representations - whether the plaintiffs are able to recover amounts paid in reliance on representations - CONRACT - alternative claim not necessary for decision where written contract did not reflect purchase price of shares - whether written contract reflected agreement reached - whether defendants entitled to recover damages for breach of contract on cross-claim LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 (Cth) CASES CITED : Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Limited (2008) 238 CLR 304 Arunchalam Lakshmanan (First Plaintiff / Second Cross-Defendant) Arun Lakshmanan (Second Plaintiff / First Cross-Defendant) Anand Lakshmanan (Third Plaintiff / Third Cross-Defendant) Roman Reddy (First Defendant) PARTIES : Venilla Reddy (Second Defendant / Second Cross-Claimant) Meshona Pty Limited (Third Defendant) Sumeshin Reddy (Fourth Defendant / First Cross-Claimant) Redmint Pty Limited (Fourth Cross-Defendant) Anand Nominees Pty Limited as Trustee for the Lakshmanan Family Trust (Fifth Cross-Defendant) FILE NUMBER(S) : SC 2007/255422 J Stevenson SC / VE Whitaker (Plaintiffs / Cross-Defendants) COUNSEL : C Branson QC / P Knowles (Defendants / Cross-Claimants) (22 February 2010) C Waterstreet (Defendants / Cross-Claimants)(from 24 February 2010) SOLICITORS : Gillis Delaney Lawyers (Plaintiffs / Cross-Defendants) Holman Webb Lawyers (Defendants / Cross-Claimants) - 126 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BERGIN CJ in Eq 21 DECEMBER 2010 2007/00255422 ARUNCHALAM LAKSHMANAN & ORS v ROMAN REDDY & ORS JUDGMENT 1 This litigation arises out of a dispute between two families, the Lakshmanan family: Dr Arunchalam Lakshmanan, the first plaintiff (the plaintiff) and his two sons Arun Lakshmanan, the second plaintiff (Arun) and Anand Lakshmanan, the third plaintiff (Anand); and the Reddy family: the late Roman Reddy, the first defendant (the defendant), his wife Venilla ("Dolly") Reddy, the second defendant (Mrs Reddy) and their son Sumeshin Reddy (Mr Reddy), the fourth defendant. The defendant's daughter, Ramona Reddy, was involved in some of the events the subject of the proceedings but is not a party to the proceedings. 2 The plaintiff claims that he was misled by the defendant into agreeing to pay $9 million for a 49% shareholding in Meshona Pty Ltd (Meshona), the third defendant, a company controlled and owned by the Reddy family. The plaintiff claims that the defendant made misleading statements in relation to the value, profitability and debt of Meshona. It is also alleged that the defendant made misleading statements about the due diligence process that would be available to the plaintiffs. The plaintiff claims that in reliance on the misleading statements he made payments totalling $4,593,048.22 ($4.59 million) of the agreed $9 million that he claims he would not otherwise have made. The plaintiff makes an alternative claim for damages for breach of contract and seeks the return of the $4.59 million plus interest plus costs. 3 The defendants deny the allegations of misleading or deceptive conduct and by way of Cross Claim against the plaintiffs and their companies, referred to later, seek payment of the balance of the purchase price of the shares and other relief. Procedural history 4 On 16 September 2009 the matter was listed for hearing for 14 days commencing on 22 February 2010. On Monday 22 February 2010 Mr J Stevenson SC leading Ms V E Whittaker, of counsel, appeared for the plaintiffs and Mr C Branson QC leading Mr P Knowles, of counsel, appeared for the defendants. Mr Stevenson made an application to amend the Statement of Claim to include claims that were reflected in the affidavit evidence. That amendment was allowed. Mr Branson made an application for an adjournment of the trial because he had only been briefed the previous Thursday evening, 18 February 2010. I adjourned the trial to Wednesday 24 February 2010. 5 On 24 February 2010 Mr C Waterstreet, of counsel, announced his appearance for the defendants and sought an adjournment to Thursday, 25 February 2010 to enable him to prepare for the trial. That adjournment was granted. The trial then proceeded on 25 and 26 February 2010 and 1, 2, 3 and 4 March 2010. The plaintiffs' case concluded on 4 March 2010 and by consent the matter was referred to mediation and for various reasons, the proceedings were adjourned for further hearing for five days on 28 May 2010 and 1 to 4 June 2010 inclusive. Unfortunately the defendant died in May 2010 and the hearing dates in May and June were vacated. The further hearing of the matter proceeded on 1, 2 and 3 September 2010 and 8 October 2010. On 2 September 2010 an order was made by consent that pursuant to Uniform Civil Procedure Rule 7.10(2)(b) Mr Reddy be appointed as the representative of the estate of Roman Reddy for the purposes of the proceedings. That order and this judgment and orders subsequently entered bind the defendant's estate: UCPR 7.10(3). The Parties 6 The plaintiff was born in India and moved to Australia in 1970. He has practised as a medical practitioner in general practice in Holbrook, New South Wales since 1971. The plaintiff's wife died in 1986. Arun was admitted to practice as a solicitor in New South Wales in 1998. He then worked in a number of legal firms. Anand holds a Bachelor Degree in Commerce, majoring in Accounting and a Masters Degree in International Business. He worked in various finance companies from 1998 to 2003. Neither Arun nor Anand were employed in mid 2004 and the plaintiff was keen to provide them with employment opportunities. 7 In 2004 the plaintiffs were involved in a number of companies including Anand Nominees Pty Limited (Nominees) and Redmint Pty Limited (Redmint). The plaintiffs, Nominees and Redmint own commercial and residential properties in New South Wales and Victoria (the Properties). The Properties include home units in Prahran in Victoria and in Eastwood and Kingsford in New South Wales and commercial premises in Camberwell in Victoria. Redmint as the trustee of the AAA Family Trust, is the registered proprietor of an hotel in Sydney known as the Marrickville Tavern. The plaintiff in his own right owns units in York Street, Sydney, Parramatta Road, Cronulla and Market Street, Sydney. 8 The defendant was born in South Africa and lived there until 1986 when he and his family moved to New Zealand. The defendant had been working with National Mutual Life of Australasia (National Mutual) as the General Manager, Distribution since 1983 and was transferred to the New Zealand office of National Mutual in Wellington in 1986. The defendant and his family lived in New Zealand until 1992 and during this time the defendant changed his employment to General Manager, Financial Services, with Westpac Banking Corporation. In 1992 the defendant and his family migrated to Australia. At this time the defendant ceased his employment with Westpac Banking Corporation and took up employment with GIO Australia Limited (GIO) as General Manager, Financial Planning, in which his responsibilities were to obtain and develop business in relation to the funds management business of GIO. The defendant remained in that employment until 1996 when he resigned with the intention of setting up his own business. It is not clear what the defendant did between 1996 and 1999 other than investigate various business opportunities. 9 In February 1999 the defendant established a business of "marketing mortgages" operated by a company, Flexi Mortgage Group Pty Limited (Flexi Mortgage) that was incorporated at about that time. Meshona holds all the issued shares in Flexi Mortgage. The defendant and Mr Reddy worked together in the business of Flexi Mortgage, which also employed sales, marketing and administration staff. Those staff were subsequently employed by another company established for that purpose, Flexi Group (Holdings) Pty Limited. 10 In 2001 the defendant investigated changing the business to that of a programme manager whereby Flexi Mortgage would borrow moneys from wholesale suppliers of funds and on-lend those moneys to other mortgage originators or directly to retail borrowers. Negotiations took place with various funders and Resimac Limited (Resimac) agreed to be the principal funder for the business. In November 2001 Meshona House Pty Limited (Meshona House) was incorporated to carry on that business and to enter into the agreement with Resimac. Mr Reddy became the Chief Executive Officer and sole director of Meshona House. Once Meshona House commenced the new business, Flexi Mortgage ceased arranging loans. At this time Flexi Group (Holdings) Pty Limited changed its name to Meshona Group Holdings Pty Limited (Meshona Group Holdings) and certain aspects of the Meshona House business were conducted through it. Mrs Reddy and Ramona managed the business of Meshona Group Holdings. 11 In 2002 Meshona acquired an interest in the Financial Directions (Australia) Unit Trust and its trustee, Financial Directions (Australia) Pty Limited (FDA). Meshona set up subsidiaries, First Community Finance Pty Limited and Tula Grace Pty Limited through which the financial products and services of Meshona House were distributed. This included investment funding, commercial lending and debt restructuring. An additional subsidiary company, WYD Pty Limited (WYD) was established to provide marketing services to the distribution companies 12 The defendant claimed in his affidavit that the Meshona Group of Companies was essentially family operated and owned in which he acted as the "figurehead" and assisted the members of his family to carry out their duties. Mr Reddy was responsible for supervising the distribution of products and for maintaining the computer systems of the business of the Group of Companies. Ramona was responsible for supervising the administration of the business and the processing of applications for borrowers. Mrs Reddy was the sole shareholder and director of Meshona (which owned all the companies in the Group) and was responsible for supervising the maintenance of the books and records of the Group. 13 The defendant's affidavit includes reference to a South African consortium, headed by a Mr Isaacs, that became interested in either investing in or purchasing outright the Meshona Group of Companies. It is apparent that this interest may have been expressed in about 2001. The defendant's affidavit included a claim that he advised Mr Isaacs that the family would not take less than the equivalent of $9 million and would not sell more than 49% of the Group. The defendant also claimed that there was interest from other quarters including Interstar Securities (Australia) Pty Limited, which was later taken over by Challenger Financial Services. 14 In 2003 the defendant decided to investigate whether the Meshona Group could obtain a loan facility directly from either a bank or a superannuation fund because he was of the opinion that loans could be made at more competitive rates and the companies would not have to rely upon wholesale funders who themselves borrowed from such lenders. The defendant expected that a direct facility would effectively be unlimited, but that mortgages securing the loans made by Meshona House would be securitised for every $100 million lent under a securitisation program with the lender. The defendant understood that to establish a direct facility, significant additional issued capital of not less than $5 million would be required. The defendant's affidavit included a claim that this could only be done by significantly increasing the number of distributors associated with the Meshona Group and expanding the marketing program principally through television marketing. The defendant also believed that it would be necessary to employ an experienced credit manager and risk manager. 15 As at the end of 2003 the Meshona Group had loans or facilities from the Commonwealth Bank of Australia totalling $2.8 million guaranteed by the defendant and secured by mortgages on the family home in Mosman in Sydney. The defendant's affidavit included a claim that he was not willing to encumber his home any further and it was therefore essential that if such a business plan were to be implemented that another party should become involved in the Group to provide funds for development. The defendant's affidavit also included a claim that Mr Isaacs informed him in July or August 2004 that the consortium was willing to pay the equivalent of $9 million for 49% of the Meshona Group on the condition that the consortium had two out of four directors. Plaintiff's plans for Refinance 16 In 2004 the plaintiff was planning to refinance the Properties for the purpose of raising $15 million to invest in companies known as Revetec Pty Limited (Revetec) and VIP Vending Pty Limited (VIP). The plaintiff had already invested $1 million in Revetec on the advice of Ray Tually and was taking further advice from Mr Tually and Mr Robert Kelly to whom Mr Tually had introduced the plaintiff and his sons. Introduction to the defendant 17 On Friday 13 August 2004 the plaintiff and his sons met with Mr Tually and Mr Kelly and a representative from VIP at the Radisson Hotel in Sydney. Mr Kelly provided the plaintiff with some information about the defendant and advised him that the defendant would be arranging the refinance of the Properties. Mr Kelly also advised the plaintiff that the defendant wanted to meet him because of the large amount involved. 18 On the same day the plaintiff, his sons, Mr Tually and Mr Kelly attended Meshona's premises in Sydney. The plaintiff's version of the conversation at this meeting was that the defendant informed Mr Tually that he could have the funds in his trust account within two weeks and the finance would be for three years on an interest only basis secured against the Properties. The defendant's affidavit includes a denial that the defendant said that he could have any funds available within two weeks. It includes conversations between the plaintiff and the defendant at this meeting in which the defendant informed the plaintiff that Meshona House could arrange the loans that he was seeking and that the processing of loan applications would commence when he paid a fee of $5,000 that day and an additional fee of $35,000 would have to be paid subsequently. 19 After this meeting the plaintiff, his sons, the defendant, Mr Tually and Mr Kelly then went to the Radisson Hotel for dinner. During this dinner the defendant informed the plaintiff of his family's background including that they had travelled from South Africa and lived in New Zealand prior to settling in Australia. The plaintiff claimed that the defendant informed him that he had been the head of GIO and responsible for the public float of that company. The plaintiff claimed that the defendant also informed him that he had decided to go into business for himself and his family and had started his own "private bank" which had become an international operation with offices all around Australia and in New Zealand with some business interests in South Africa. The defendant informed the plaintiff that his son, Mr Reddy, was the CEO of Meshona and his daughter, Ramona, was the managing director of Meshona and responsible for approving the loans. The defendant's affidavit includes a denial that he had said that he was the head of the GIO. It also includes a conversation in which the defendant alleged he informed the plaintiff that he had taken a "backward step" and that his two children were "effectively running the business". It also included a claim that what he said to the plaintiff about his children was that Mr Reddy was the director of Meshona House responsible for the distribution of the products of the Meshona Group and the computer systems and that Ramona "runs the back office and credit". 20 The plaintiff informed the defendant that all that he had done in his life was for his sons and their future and that he wanted them to be in successful careers like the defendant's children. The plaintiff also informed the defendant that this was why he was refinancing the Properties to invest in business opportunities for his sons' futures. It is clear that the plaintiff and the defendant got on very well at this meeting and a further meeting was arranged on the following Sunday, 15 August 2004, at a Chinese restaurant in Mosman. At this meeting the defendant introduced the plaintiffs to the other members of his family. 21 On Friday 3 September 2004 the plaintiff travelled from Holbrook to Sydney and although there was no mention in his affidavit of a meeting on 3 September 2004, the plaintiff recalled that he attended Meshona's offices on that day. He agreed in cross-examination that on this occasion he wrote a cheque for $35,000 for fees for the valuations of the Properties to support the loan applications. The plaintiff recalled that his sons and Ramona were present at this meeting and he signed further loan applications. 22 The plaintiff and the defendant also had lunch at Miltons Restaurant in Sydney not far from the Meshona offices, although the timing of this luncheon is not clear. The defendant's affidavit puts it as "late August" and the plaintiff did not refer to it in his affidavit, although he accepted in cross-examination that it occurred. The discussion at this luncheon is of some significance in relation to a preliminary issue referred to later. The Agreement - 5 September 2004 23 On Sunday 5 September 2004 the defendant picked the plaintiff up from Arun's apartment in Market Street, Sydney and drove to the Mosman RSL Club (the Club). The discussion at the Club is of importance because it was during this meeting that the plaintiff claims he was misled. It is therefore appropriate to set out that discussion in detail. The plaintiff's version of the conversation at the Club was as follows: Defendant: Laks I think very highly of you and your sons, I think our families get on very well together and that we could get together and form a great business partnership. I want to talk to you about you investing in my companies. You know that our families get on very well and I would like to bring our families together through my company. Instead of investing in the Vending Machines which is risky and you may lose everything, why don't you invest in my business. I will sell you 49% of my business for $6 million now and $3 million to be paid over 5 years. We will be business partners. The business is making $850,000.00 net profit. I don't have to lift a finger, I can just sit in my backyard and the money flows. I could sell the business for $20 million or more, but I like you and your sons. They can work together with my family and keep it a family business. The Packer Group wanted to buy my business for $20 million but if I sell it to them my family won't have a business. As you know my background was through GIO and I then formed the Meshona Group of companies for the benefit of my family. The Meshona Group with its various subsidiaries is worth at least $20 million and I would rather enter into a partnership between our families than sell it off to someone else. I can then give some very good business opportunities for you and employment opportunities for your sons. Plaintiff: Roman as you know I am concerned about my sons' futures. They are not working even though they are educated. That is why I met with Ray Tually. He promised to help Anand get a job in his accounting firm. I have worked hard all my life and my sons are my life. Defendant: I like Arun and Anand. I think that they are very smart. They get along so well with Ramona and Sam. I will teach Arun and Anand everything about the finance industry. I will also introduce to you and the boys all of my contacts in Sydney and in South Africa. During my time with GIO I have made some very influential friends. By you joining with me we will make two families who are strong by themselves into a force to be reckoned with. Plaintiff: Yes Roman this all sounds very exciting but I would need to know more about the companies in which you are asking me to invest. Defendant: There has been strong market interest in purchasing my business, but I want to give you the first opportunity. It is a great business. The profit that we derive from the business and its subsidiaries is in excess of $850,000.00 with little effort and without capital expenditure. If you put in some money we can even increase this profitability. The investment will enable our families to work together in a relationship of trust for the benefit of both families. The companies are squeaky clean. You will have the opportunity to go through the financials and undertake due diligence. That won't be a problem. I am very excited for the opportunity for our families to work together. The company is worth more than $20 million and as I said I propose that you put in $9 million from the refinance of your properties for a 49% interest in the companies. We will have no trouble getting you that money as a refinance. We will use your funds to expand the business. Are you interested? Plaintiff: Yes, I'm very interested, let's look at doing something together for my sons. Defendant: We would need to organise the refinancing of your properties so that you can make the contribution. I will be able to give your boys employment with the company and get them to help us with the refinance. Your investment in the company will give you a much higher return than the investments you were looking at and is much safer. You will also be looking after the interest of your sons. Plaintiff: That sounds good Roman. You would need to provide me all the financial documents so I can look at it. Defendant: Yes, I will have Ramona provide you with all the financials. She will sign off and show you that the business you are buying is a squeaky clean company. You and me will be designated as principals of the company. The money will be used as capital in the business. With your capital invested in the companies the business will flourish and both families will be stronger. Plaintiff: This will all be conditional on us reviewing all of the financials and conducting a due diligence. Defendant: Yes I will give you all the financials. You will be able to do a due diligence. I will provide you with all the documentation. Plaintiff: That is wonderful Roman. I accept your offer. I look forward to doing business with you and your family. Please make sure that I get all the documentation before you complete the finance because I will need to give all the financial documentation to my accountant. 24 The plaintiff claimed that the defendant then reached out and shook his hand and the two men "toasted with champagne". The plaintiff's affidavit evidence was that he and the defendant then travelled to the defendant's home in Mosman where an announcement was made to Arun, Anand, Mrs Reddy, Mr Reddy and Ramona. 25 The defendant's affidavit included a claim that in a conversation with the plaintiff the defendant asked him to arrange for Aran and Anand to go to the defendant's home so that "after you and I have spoken, we can speak to our families". The defendant's affidavit included the following conversation that he claimed occurred at the Club: Defendant: Doctor, I have spoken to my family. As far as I am concerned it would be a good idea for your family to acquire an interest in the Meshona Group. But you will have to convince my family, particularly Sam. There is a problem with Sam as he favours the South Africans. The price if your family buys in will be $9 million for 49% of the Meshona Group. Meshona's gross commission and trail income is around $800,000 per annum. Plaintiff: Roman, I agree. Thank you very much. Defendant: You will have to come home and convince my family, particularly Sam. 26 The defendant's affidavit includes a claim that "during the balance of the conversation" he said the following to the plaintiff: I have been talking to Macquarie Bank about obtaining funding so Meshona House can lend money directly, so that it does not have to borrow from intermediate lenders. This will involve a substantial investment. I believe that it will require issued capital of at least $5 million. If your family buys into Meshona, your family will have to contribute its share of that amount. That amount will be the minimum which will be required to develop the business to the stage where it will be able to obtain this line of funding. Banks like Macquarie Bank require evidence of systems and resources sufficient to enable large amounts of money to be lent, otherwise they are not interested. No-one in our group understands prudential credit and lending criteria and guidelines acceptable to Macquarie Bank. We will have to engage managers with the necessary experience. I am currently speaking to a senior officer at Commonwealth Bank who has expressed an interest in taking one of these positions. We have a satisfactory credit rating but we'll need a credit rating report from a credit rating agency acceptable to Macquarie Bank or a similar lender before we can obtain such a funding line. We will have to develop appropriate computer systems including management systems as well as develop extensive distribution networks to enable the business to develop to the level required by the funder. Your son Arun has legal qualifications. We have been considering engaging an in-house counsel to assist the development of the business. Anand has accounting qualifications. These would be of great assistance to our company as well. The only debt the company really has is to the Commonwealth Bank of about $2.8 million. There are normal trade creditors. The money paid to acquire 49% would be used to pay off the Commonwealth Bank so that the company does not have that debt. It will also be used for the development of the company. Your family will also have to put in its share of the development costs over and above the money paid to acquire 49% of Meshona. 27 The defendant's affidavit included the following paragraph in relation to the version of the conversation referred to earlier that Dr Lakshmanan had included in paragraph 26 of his affidavit: 152. I refer to paragraph 26 of Dr Lakshmanan's affidavit. To the extent that it differs from the paragraphs immediately above, the version of Dr Lakshmanan's and my conversation at the Mosman RSL Club set out in that paragraph 26 does not accord with my recollection and I dispute it. In particular, I never said anything to Dr Lakshmanan about us becoming "business partners" or entering into a "partnership" and I would not have considered this to be consistent with his family acquiring less than a 50% interest in the Meshona Group. Additionally, at no point in this conversation did I suggest that $3 million of the $9 million to be paid for 49% of the Meshona Group could be paid over a period of time, such as 5 years. I said the price would be paid in full when the shares were transferred. Announcement to the families 28 The defendant claimed that when they returned to the defendant's home he asked everyone to stand around the table and he said that the plaintiff had an announcement to make. He claimed that the plaintiff said: Roman and I have had a discussion. I have come to a decision that our family purchase 49% of the Meshona Group for $9 million. What do you all think of that? 29 The plaintiff's version is slightly different. He claimed in his affidavit that he said to the respective families: I was going to refinance so that I could obtain moneys to invest on my sons' behalf for their future. Because our families get along so well Roman and I have agreed that it would be in both our families' interests to join together. I intend to purchase 49% of the Meshona Group. I will be paying $6 million upfront from a refinance and then a further $3 million over the 5 years. 30 There is no issue that Mr Reddy questioned the decision. The defendant claimed that Mr Reddy said that he would be happier with the "South African deal". The plaintiff claimed that Mr Reddy said that he had spent his life building the company up and that the plaintiff had come in and taken half of it in just a couple of hours. The plaintiff also claimed that Mr Reddy said that if the company was being sold he was glad it was to the plaintiff as he liked Arun and Anand and believed that they could work well together. Both the plaintiff and the defendant recalled Anand asking why "we have to rush into this" and after the plaintiff asked him to "give it a go" or "give it a chance" he agreed. 31 After the announcement the families had lunch together at the defendant's family home. The defendant also claimed that after lunch he said to the plaintiffs: Arun and Anand can come into the Meshona offices and look at whatever they want to satisfy themselves about the business. We will set them up in an office of their own and they can have access to all of the Group's records. 32 The defendant claimed that for around a fortnight from Tuesday, 7 September 2004 Arun and Anand attended the Meshona Group offices on a daily basis. The defendant observed them meeting with Mr Reddy and claimed that he observed Mr Reddy "explaining to them the Group's business and its finances". The defendant's evidence included the following: I also saw a number of folders piled on the table in the Boardroom where Mr Reddy, Arun and Anand were meeting, including a number of red folders which contained the Group's financial information. I observed that Arun and Anand were allocated an office of their own within the Meshona Group's offices for the purpose of conducting their due diligence and that a large number of other folders containing the Group's business records of various kinds were in that office. 33 The defendant claimed in his affidavit that Ramona advised him after 5 September 2004 but before 10 September 2004 that the valuations of the Properties were not coming up to the values in a schedule that had been provided by the plaintiff. He also claimed that Ramona also advised him that the mortgage insurers were declining some of the loans because they had seen the Properties previously. Retainer/Mandate Agreement 34 On 10 September 2004 the plaintiffs each signed a document headed "Retainer/Mandate Agreement" addressed to Meshona Group and headed "Finance Application". It included the following: We, being the person(s) named in Item 1 appoint you to arrange finance on our behalf for the amount stated in Item 2 ("Loan") or such other amount as we agree for the term set out in Item 3 to be secured in the manner set out in Item 4. 35 Item 2 was in the following terms: The loan amounts will be based on the security offered, exposure, and serviceability of the debt based on Meshona and/or Lenders Guidelines. 36 Item 3, the loan term, was "As per lender requirements". Item 4, the Security, referred to a Schedule annexed to the agreement which identified the Properties, the owner, the valuation at estimated market value and the gross annual income. The total value of the Properties in the Schedule was recorded as $21.4 million. The agreement also acknowledged that the loan was to be used "solely or predominantly for business or investment purposes". Drafting the Agreements 37 Arun's affidavit evidence was that on 6 or 7 September 2006 he attended Meshona's offices where he was arranging for the insurance policy certificates on the Properties and preparing other documents required for the refinancing. He claimed that the defendant informed him that he and Mr Reddy should get together and formulate an agreement. Arun claimed that the defendant informed him that if the company was sold to the plaintiffs for $9 million they would have to pay a lot of stamp duty and suggested that Mr Reddy and Arun get together and work out how they could avoid paying unnecessary money to the government. After this conversation Mr Reddy provided Arun with a disc containing a pro forma agreement and advised him that he could use it to draft the agreement. 38 Arun met with Mr Reddy to discuss the draft agreement that he had prepared for the sale of the shares. During that meeting Mr Reddy suggested that they could have one contract and agree to sell 49% of Meshona to the plaintiffs for a nominal amount of say $90,000, and then treat the other payments as a loan. Arun suggested that this would "raise questions" and said: I mean we are talking about a lot of money and because of what Meshona is worth, I just think we should make it a more realistic amount of say $200,000 but even then to me this seems risky. This is a big transaction and Meshona is worth so much more. 39 Mr Reddy counselled Arun not to worry. Arun met with Mr Reddy on a number of occasions over the next "week or so" to amend the draft agreement. Arun claimed that at one of those meetings the following conversation took place: Mr Reddy: What we will do is have a separate agreement that states your lending me the balance of $6 million. When the money is coming in I will sign the acknowledgement of receipt of the money. I also want you to sign a document that is undated that states I have paid all the money back. Arun: Sam you do realise that if anything goes wrong the Courts wont look kindly on this. Mr Reddy: Don't worry nothing will go wrong, this is only a formality. I just want something that shows your family is paying $6 million. Don't worry we are joining our two families together. It will work out. I'm looking forward to working with you for the rest of our lives. You have nothing to worry about. Arun: I am looking forward to working with you too Sam. 40 Arun gave evidence that at a later meeting the following conversation took place: Mr Reddy: You'll be putting in $9 million. The purchase of the shares will occur when the refinance goes through. Arun: Sam when will we be getting the financial documents? Dad asked me to ask you if you know when they would be available. Mr Reddy: I am not sure matey. That is Ramona's department. I will ask her and let you know. I know that she has started it but she is very busy with the refinance. You have to be careful not to show them to anyone when you get them. I am trusting you with our personal information. 41 Arun's affidavit included the following: 39. I never intended to loan any money to Sam even though this is reflected in the documents. I did not intend for the documents to have any legal effect. … 43. Up to the date of signing the documents, I did not conduct any due diligence. I did not sight any financial statements relating to the Meshona Group and had no real understanding of its value or annual income. During this week before signing the documents Roman said to me words to the following effect on several occasions: Roman: You are buying a squeaky clean company. You will be getting a debt free company. 44. In late September 2004, Roman said to me: I want Ramona to present the financials to your Dad to show you are buying a squeaky clean company. We are very private people and there are a lot of thieves in this industry. There are a lot of confidential documents that our competitors could steal from us. I want you to promise you wont give them to anyone. I want you to learn everything about the Company. I want you, Sam, Ramona and Anand to be in the top 3% of the country. 42 The defendant's version of events is that he informed Mr Reddy that the agreements did not reflect what had been discussed with the plaintiffs and he asked for an explanation. The affidavit includes a conversation with Mr Reddy as follows: Mr Reddy: Dad, the Lakshmanans do not have all the money they thought they would have. The money will take time to come through. They can only borrow $6 million at this stage and will have to advance the rest over a period of five years. Arun says they can pay the balance over five years from investment income and income from his father's practice. They also have money in India. If necessary, this can be used. Arun has agreed that none of the shares are to be transferred to his family until the initial $6 million has been paid in full. The Commonwealth Bank has to be paid and most of the balance of $6 million will be required for working capital for the Meshona Group. I have spoken to Arun and he has agreed that when all the money is paid, we will work out what has been paid for the shares and what has been paid for working capital. I want to give Arun a chance. He is very pressured by this. He wants to work with me in the business and I want him to be involved. The initial $6 million will enable us to develop the business as I want it to be developed. Defendant: What happens if they get their shares and then try to get their money back by demanding repayment of the loan? Mr Reddy: Don't worry, I have got a document saying the loan has been repaid and I do not have to repay it. 43 The defendant's affidavit also includes a claim that he confronted Arun in relation to the draft agreements and informed him that he was "not happy" with them. It includes claims that he said "they do not reflect my discussions with your father" and that he asked "why are you drafting these agreements". The defendant's affidavit also includes a claim that he informed Arun of the identity of a solicitor who did all "our legal work". The defendant claimed that Arun informed him that: there was no need to get another solicitor; the arrangement was between the families and there was no need to spend money; the agreements were fine; and he knew what he was doing. Execution of the Agreements 44 In October 2004 the plaintiff travelled to Sydney from Holbrook and attended the Meshona offices with his sons after which the two families went to Miltons Restaurant. Shortly after arriving at the restaurant the plaintiff asked whether Ramona was going to give her presentation about Meshona's financials. Mrs Reddy informed the plaintiff that they had all been very busy and because it was a busy time of year Ramona had not had time to present the financials. The defendant informed the plaintiff that he had asked Ramona to present the financials before the launch in December 2004. The plaintiff claimed the defendant also said: Don't worry this is the joining of our families. You are getting a good business. With the money we will make we will build this business into an empire. I will teach your sons everything about this business. I am an empire builder. 45 The plaintiff claimed that he was then given the Share Sale Agreement that he had not previously sighted. His affidavit evidence was that he was concerned that the document did not show that he was intending to purchase a 49% interest for $9 million and would be given the opportunity to undertake due diligence. Share Sale Agreement 46 The Share Sale Agreement is between Meshona, as Vendor, and each of the plaintiffs, as Purchasers. Mrs Reddy is also referred to in another schedule under the heading Vendor's shares. Mrs Reddy is the shareholder and it is not clear why the Agreement referred to Meshona as the Vendor. 47 The Share Sale Agreement is dated 1 October 2004 and includes the following: Recitals A. The Vendor is the registered and beneficial owner of the Shares in the capital of the Company set opposite the Vendor's name in item 3 of schedule 1, which are fully paid. No other shares have been issued to the Vendor. B. The Purchasers has (sic) offered to purchase the Shares and the Vendor has agreed to sell the Shares for the price and upon the terms and conditions of this agreement. 48 Item 3A entitled "Details of Vendors Current Shares" records Mrs Reddy as the vendor with two fully paid shares. Item 3B entitled "Detail of Vendor's Shares at Completion" records Mrs Reddy as the vendor of 100 fully paid shares. Item 4 of the schedule identifies Meshona with the Issued capital of the Company recorded as "$200,000.36 in respect of 49 ordinary shares at $4,081.61 per share". 49 The Share Sale Agreement also includes the following: 2 SALE AND PURCHASE 2.1 The Vendor agrees to sell to the Purchasers 49% of all shares in the Company in accordance with the terms and conditions detailed in schedule 1. 3 PRICE 3.1 The consideration for the sale of the Shares is the payment by the Purchasers to the Vendor of the Purchase Price. 3.2. The Purchase Price is payable as follows: (a) the Deposit on the date of execution of this agreement, receipt of which is acknowledged by the Vendor; (b) the Balance on the Completion Date. 3.3 Any money payable in accordance with this agreement will be made or tendered in Australian currency either in cash or by a draft or cheque drawn by a bank as defined by the Banking Act 1959. 4 DUE DILIGENCE BY THE PURCHASERS 4.1 The Vendor will ensure that the Purchasers has (sic) access to the premises, records, officers, employees and advisers of the Companies for the purpose of enabling the Purchasers to make such enquiries as are in its opinion necessary to: (a) verify the accuracy of the Warranties; and (b) without limiting this Clause 6.1(a) (sic) , conduct such due diligence enquiries as, in the absolute opinion of the Purchasers, are necessary in relation to the company. (c) The Purchasers will execute a letter confirming that they are satisfied with their due diligence which is to be annexed hereto (Annexure "A"). 5 COMPLETION 5.1 Completion will occur on the Completion Date at such place or on such other date and place as the Vendor and the Purchasers agree in writing. 5.2 The Vendor will when satisfied with completion increase the number of shares from 2 to 100 as detailed in item 3b for the following to happen: (a) Make available to the Purchasers: (i) the share certificates in respect of the Shares; (ii) properly executed transfers of the Shares to the Purchasers, such transfers to be in registrable form; (b) procure the Board to resolve that the aforesaid transfers of Shares are registered (subject to the payment of any stamp duty on the said transfers which will be borne by the Purchasers) in the books of the Company; (c) procure the Directors nominated by the Purchasers to be appointed to the Board as detailed in annexure "B". 6 WARRANTIES 6.1 The Vendor warrants to the Purchasers that the Company is financially sound and is not subject to any fiduciary issues at the date of this agreement. 50 The Purchase Price was recorded in the Schedule as $200,000.36 with a deposit of $100.36. Schedule 2 included the following: SCHEDULE 2 Warranties 1. The Vendor[s] [jointly and severally] warrant[s] that: … The agreement 1.5 The execution and delivery of the agreement by or on behalf of the Vendor and the transactions contemplated hereby: (a) do not result in a breach of the terms and conditions of, or constitute a default under, any agreement or undertaking, oral or written, or any instrument by which the Vendor may be affected or bound; and (b) do not breach any order, writ, rule, regulation, injunction or decree of any court, administrative agency or government body or any statute, rule or regulation which applies to or binds the Vendor. 1.6 This agreement constitutes a valid and binding agreement on the Vendor which is enforceable in accordance with its terms and conditions. … Books, records and company returns 1.13 The statutory books and books of account and records of the Company at the date of commencement of the Relevant Financial Year are written up to date and in a proper manner. … Accounts and Financial Matters 1.16 The accounts being the income statement for the relevant financial period and no adverse material change detrimental to the interests of the Purchasers has taken place or will take place prior to the Completion Date in the position of the Company as disclosed by the accounts. 1.17 The Company has since the last day of the Relevant Financial Year carried on and conducted its business and conserved its assets in the normal manner and since such last day of the Relevant Financial Year there has not been, nor is there, anything existing which would have a material adverse effect on the financial position of the Company. 1.18 There are no contracts, agreements, arrangements, acknowledgements, liabilities or obligations of any description (whether actual or contingent) entered into or incurred by the Company which have not been disclosed to the Purchasers in writing prior to the date of this agreement. Borrowings 1.19 The Company is not indebted either absolutely or contingently to any person, firm, corporation or government or semi-governmental authority in any sums of money not disclosed by its accounts at the time of completion. 1.20 The Company has not since the last day of the Relevant Financial Year created or given any debentures or charges or indulged in any borrowings. … Material Disclosure 1.24 Full disclosure has been made by the Vendor to the Purchasers of all information which the Vendor knows or should reasonably know and which would be material to a reasonable Purchasers (sic) of the Shares. 51 Annexure A to the Share Sale Agreement (the due diligence Acknowledgment) is in the following terms: 1. The Purchasers acknowledges (sic) that they have completed their due diligence in accordance with Clause 4. 2. The Purchasers further acknowledge that all information has been provided b (sic) the Vendor in accordance with Clause 4. Loan Agreement – $5.8 million 52 At the same meeting at Miltons Restaurant, Arun and Mr Reddy signed two documents entitled "Terms of Arrangement" (First Loan Agreement). The First Loan Agreement is in the following terms: I as the lender agree to advance the borrower the sum of the loan amount for term set out in the in (sic) Schedule. The repayment of the funds advanced will be repayable in full on the last calendar day of the month set out in the Schedule and or when payment is made in full before the end of the term agreed in the Schedule. The cost and fees associated with placing a fixed and floating charge and or Caveat over the security in the Schedule will be at the borrowers expense. In an event of default of the terms set out in the Schedule, the Lender may give you notice stating you are in default. If you cannot remedy or correct the default with in the grace period stated. The Lender may at the end of that period and with our (sic) further notice to you the total amount owing become immediately due for payment. The Lender may Sue you for that amount, or enforce the caveat or fixed and floating charge on the security or both, noted on the schedule. During this period the security offered as collateral will be insured for the full replacement commercial value. The cost and or fees associated with removing the fixed and floating charge and or a caveat over the security in the Schedule will be at the borrowers express. A notice of discharge of the loan will be issued by the Lender to discharge the debt and release the collateral offered as security as to described in the Schedule. It is agreed that both parties have soughed (sic) their own independent legal and financial advice. 53 The Schedule is entitled "Loan Agreement Schedule". It is in the following terms: Date of Agreement: 1 October 2004 Lender: Mr Arun Lakshmanan Borrower: Mr Sumeshin Reddy Loan Amount: $5,800,000.00 (Five Million and Eight Hundred Thousand Australian Dollars). Term of Loan: 10 Years (120 Months) – Base on a 365 Calendar Year. Security: Un-Secured. Interest: 10% (Ten per cent) 54 A "Notice of Discharge" signed by Arun and Mr Reddy is attached to the First Loan Agreement that identifies the Lender as Arun, the Borrower as Mr Reddy and includes the following: The Lender has received a full repayment of the $5,800,000.00 (Five Million and Eight Hundred Thousand Australian Dollars) advanced as per original loan contract dated 1/10/04. Loan Agreement – $3 million 55 The second document entitled "Terms of Agreement" (the Second Loan Agreement) is in identical terms to the First Loan Agreement except that the Schedule identifies Mr Reddy as the Lender and Arun as the Borrower of a loan of $3 million for a period of five years at 10% with security "As per Property Schedule". The attached Property Schedule is blank. Trip to South Africa – October 2004 56 In October 2004 the plaintiff travelled to South Africa with the defendant. The plaintiff claimed that during this trip he had a conversation with the defendant in which he asked how Ramona was going with the financial documents. The defendant informed the plaintiff that Ramona would have them ready by the time they returned home. The plaintiff claimed it was during this conversation that the defendant once again said the company was worth over $20 million, that the plaintiff was getting a "good deal" and that "[we] make $850,000 profit now with little effort and with moneys you invest and with your sons we will make much more money". Payments by the plaintiff in 2004 57 On 8 November 2004 Arun signed a letter to Mr Reddy in the following terms: I enclose herewith cheque in the amount of $831,729.04 made payable to the Commonwealth Bank as partial payment of the total monies I am loaning to you. I understand that the balance of the loan is now $8,168,270.96. Please sign, in the presence of a witness, the acknowledgement detailed below to confirm your receipt of the above amount. 58 On the same day Mr Reddy signed the following acknowledgement: I, Sumeshin Reddy of … Acknowledge receipt of cheque in the amount of 831,729.04 representing partial payment of the total loan from Arun Lakshmanan …. to me. 59 The plaintiff paid to the defendant/Meshona the following further amounts in 2004: $941,291.40 on 9 November; $30,755.56 on 10 November; and $489,272.22 on 18 November; and $1.5 million on 30 December. Cabot Square Retained – December 2004 60 On 13 December 2004 Aaron WK Yeung (Mr Yeung), the principal of Cabot Square Accountants, wrote to the plaintiff and the defendant outlining the terms of engagement to "support and strengthen Meshona Group". The fees referred to in that letter were $24,000 for the following accountancy services: (1) to review and submit BAS returns; (2) to prepare Corporation Tax returns for Meshona Group, Redlaks & Dr Lakshmanan; (3) to prepare income tax returns of 8 individuals; and (4) to provide taxation advice. That letter was signed by Arun as General Counsel of Meshona Group and on behalf of Redlaks and Dr Lakshmanan and also by Mrs Reddy, as financial controller, based on a number of amendments that were notified in a "letter of appointment" dated 21 December 2004. The addition to the signed retainer was the requirement to prepare the BAS statement and tax returns for the plaintiff's group of companies including his medical practice and his real-estate portfolio. 61 Soon after Cabot Square were retained, Mr Yeung wrote to the defendant and Mrs Reddy advising that he understood that the plaintiff's family 2004 accounts were "urgent" and it was on his "priority list". That communication included the following: They are financial statements, BAS and tax returns for previous years. There are some BAS for year ended 30 June 2004 and 2005. I need to have the books and records for the family accounts, ie the information used to prepare the BAS. Is there a bookkeeper recording the books? The previous accountant has not replied my ethnical (sic) letter, and it is fine. I can telephone him later but I would like to telephone for questions on the family's accounting and tax issues rather than general questions. 62 Mr Yeung also provided some draft job descriptions for the various roles within the Meshona Group. Those included the Financial Controller (Mrs Reddy); the Supply and Distribution Manager (Anand); the International Commodity Manager (Mr Reddy); the Chief Executive/General Manager (Ramona); and the Company/General Counsel (Arun). The job description in respect of the General Counsel included the following: maintains the company and subsidiary share registers, and accounts for dividend payments. Liaises with other managers, auditors, stockbrokers, bankers, legal advisors and other parties concerned with the acquisition and distribution of assets and share transfers. oversees preparation of the company's annual report. 63 The job description for Mrs Reddy as Financial Controller included the following: plans and oversees the financial operations of the organisation and directs the formulation of budgetary and accounting policies in consultation with other managers. provides financial information and interprets the implications for business performance and funding needs. coordinates the development, implementation and monitoring of accounting systems. directs the collection of financial and accounting information and the preparation of budgets, reports, forecasts and statutory returns. The Launch – December 2004 64 In early December 2004 the plaintiff attended a cocktail party at the Miltons Restaurant at the request of the defendant. Prior to the party the plaintiff went to the Meshona offices and met with the defendant. During this meeting the plaintiff asked when the presentation of the financial statements would occur and the defendant called Ramona into his office. The defendant informed Ramona that the plaintiff wanted to know how she was going with the sign-off and financial statements. Ramona apologised to the plaintiff and said that she had been "so busy" she had not been able to get it all done but would get them for him soon. At this meeting Mrs Reddy informed the plaintiff that Ramona had been so busy working late into the night and it was just "so busy at the moment". The plaintiff said that he really needed to look at the financial documents. However the defendant suggested that he should not worry but rather go to the launch party and just "enjoy this moment". Meeting – 11 January 2005 65 At a meeting on 11 January 2005 attended by the defendant, Mr Reddy, Arun, Anand and the accountants, it was decided that Anand's role in Meshona would be as the representative for Meshona's operations in India with assistance from Arun. It was noted that Anand was leaving for India the following Thursday night. It was also noted that the question of setting up a company in Hong Kong or Singapore was discussed and that the accountant would collect information and make a presentation at the next meeting. There were also discussions in relation to the specification and unit price of garments and fabrics to be imported to South Africa. It was noted that the new trading business was to be funded between the plaintiff and the defendant as to $50,000 each, wholly owned by Meshona Group and would be called "RedLaks". The accountant suggested that a company should be set up in Hong Kong or Singapore with branches in India and South Africa for its trading operations for "taxation issues and simplicity". It was also noted that: "Arun will explain to Dr Lakshmanan about this new trading business operation when Dr Lakshmanan is in town." 66 In late January or early February 2005 the plaintiff had a telephone conversation with the defendant in which he said he was "just chasing up" to see when the financials would be provided to him. The plaintiff claims that the defendant said that he did not know but he would get Ramona to call the plaintiff. Ramona did not call the plaintiff. 67 The plaintiff claims that in about March 2005 he had a further conversation with the defendant in which he said that he needed to get the financials so he could convince himself that he had "bought a genuine business". The plaintiff claimed that the defendant said, "I will speak to Dolly who is handling all the accounting". The plaintiff's evidence was that he did not receive a return call. 68 In late March 2005 the plaintiff had a telephone conversation with Arun in which he advised him that he had not received the financials and asked him what was happening. The plaintiff claimed that Arun informed him that they were still trying to refinance the Properties and there was a problem because the defendant and Mrs Reddy had informed him that the valuations were coming in low and they wanted to meet with him. Arun advised the plaintiff that the defendant and Mrs Reddy sounded really unhappy. When the plaintiff asked Arun why he had not been advised of this before, Arun said he did not know but that the defendant and Mrs Reddy would come to Holbrook to speak to him. Holbrook Agreement – April 2005 69 Sometime in April 2005 the defendant and Mrs Reddy attended the plaintiff's home in Holbrook. The plaintiff claims that during that meeting the defendant advised him of the difficulty of refinancing the Properties and said: Obviously we want to go ahead with the deal, but you will need to make your contribution. I suggest that we look at changing the deal so that instead of relying on the refinance you give to us half of your properties to complete the original deal. 70 The plaintiff observed that if he did as asked he would be paying more than originally agreed and asked what would happen to the $4.6 million he had paid already. The defendant informed the plaintiff that he could have sold the business for $20 million but because they were now two families together it was the only way they could move forward. The defendant said that if he had sold to "the Packers" they would have received the money upfront even though his children would no longer have the business. The plaintiff claimed that the following conversation took place: Mrs Reddy: People of our kind need to stick together in this foreign country. People never accept us. We have worked hard all our lives and we have built a very successful business. I love your sons like they are my sons. Your sons will be looked after for the rest of their lives. Our families have now joined together. Defendant: Look we have brought the documents with us for you to sign. Plaintiff: But Roman when we were doing the original deal you arranged the valuation of the properties. You told me they were worth $20 million. Now you want me to transfer half of my properties which is a lot more than the original deal where we agreed I would pay $9 million for 49% of the Meshona Group. Defendant: We couldn't raise enough money on your properties. That is why I want you to transfer 50% of your properties to us. Plaintiff: That will mean I will be paying you a lot more than what we agreed. 71 The plaintiff claimed that the defendant then raised his voice whilst pointing his finger at him and said: I have lost an opportunity to sell Meshona to the Packer Group. The only way to move forward is for you to transfer the properties to us. 72 After this was said, the plaintiff asked the defendant how the loan would be serviced and the defendant responded that the rental income from the Properties would be used to service the loan. The plaintiff claims the following conversation then took place: Plaintiff: The rental income will also need to be used for the maintenance of the properties. Meshona will also need to contribute to service the existing loan on the properties. Defendant: Yes that is fine. If there is a shortfall you will have to top it up. It probably won't happen but just in case there is a shortfall then you will need to ensure that the account is topped up. Plaintiff: But there will also be profit from Meshona. My share of the property should be used to service the loan, as well as yours too otherwise I am paying everything myself. Defendant: Yes you will have income from Meshona through your 49% of the shares and from the rental income from the properties. You will receive 49% of the profits. The loan will be repaid from those funds. Plaintiff: I will be paying a lot more than we had agreed. So if I agree to do this then it will complete the transaction to purchase the 49% of the companies including the $3 million which was due in five years. Meshona should also service 51% of the existing loans on the properties. Defendant: Yes Laks that's fine. This will complete the deal. Plaintiff: It is still more than the $9 million we had agreed. Defendant: That is a secondary thing. We will discuss the extra payment later. 73 The plaintiff reminded the defendant that Ramona was to present the financials of the business and sign off to him. He once again said that he needed to be satisfied that the company was worth $20 million. The defendant informed the plaintiff that there was no problem and that he would have Ramona provide the documents to him. Mrs Reddy informed the plaintiff that Derrick, the bookkeeper, had been going into the office to do the accounts and that when he was finished she would get the documents to him. Mrs Reddy once again said that Ramona was "so busy" she had not had the time to complete the documentation. 74 There was some further discussion about the two families joining together and the defendant said that because they were "family" he had not called the deal off. The defendant said that he could have sold his company and not had any of the headache, but because he thought so highly of the plaintiff he was proposing the Holbrook Agreement. The plaintiff agreed to go ahead with the agreement but said that he still wanted all the financial documents that the defendant had been "promising from day one". The defendant said that he would get the documents to the plaintiff but whilst they were all in Holbrook the document needed to be signed. 75 The agreement that was signed on that day (the Holbrook Agreement) iss in the following terms: RECITALS: A. Dr Arunachalam Lakshmanan agrees to appoint Venilla Reddy as Trustee for Kayalami Family Trust as manager of the properties detailed in schedules A and B B. Venilla Reddy as Trustee for Kayalami Family Trust agrees to maintain and service each of the properties detailed in schedule A and B. NOW IT IS AGREED as follows: 1. Dr Arunachalam Lakshmanan 1.1 In lieu of management rights and/or entitlements Dr Arunachalam Lakshmanan agrees to take out an unregistered 2 nd mortgage to the value of 50% (including CPI increases) over the properties detailed in schedule A in favour of Venilla Reddy as Trustee for Kayalami Family Trust. 2. Redmint Pty Limited and/or Trustee 2.1 In lieu of management rights and/or entitlements Redmint Pty Limited agrees to issue and/or transfer 50% of its shares to Venilla Reddy as Trustee for Kayalami Family Trust. 3. Anand Nominees Pty Limited as Trustee for the Lakshmanan Family Trust 3.1 In lieu of management rights and/or entitlements Anand Nominees Pty Limited agrees to issue and/or transfer 50% of its shares to Venilla Reddy as Trustee for Kayalami Family Trust. IT IS FURTHER AGREED as follows 1. The total rental income for the properties detailed in schedules A and B will be used to service the loans attached to each individual property and shall continue to service each individual loan until it is discharged. 2. In the event that rental income received for any particular month is not able to meet the monthly interest loan payment, then Dr Arunachalam will personally pay the balance for any short fall for that particular month. 3. The properties detailed in schedules A and B will be used for the benefit of securing loans as agreed to by Dr Arunachalam Lakshmanan, Roman Reddy and Venilla Reddy. GOVERNING LAW This Agreement shall be governed by and be construed and take effect in accordance with the laws of New South Wales and the parties irrevocably submit to the non exclusive jurisdiction of the Courts of New South Wales. 76 Schedule A to the Holbrook Agreement recorded 5 properties of the plaintiff. Schedule B recorded 1 property of Redmint and 16 properties of Nominees. 77 Shortly after the Holbrook Agreement was signed Mrs Reddy commenced managing the rental income of the Properties that had previously been managed by Arun and Anand. Weekly Report – 3 May 2005 78 On 4 May 2005 Arun sent his weekly report dated 3 May 2005 to the defendant, Mr Reddy, Mrs Reddy and Ramona which included the following: Lakshmanan and Reddy Family – I am pleased to announce that we have finalised the joining of the 2 familles (sic). It is agreed to that 50% of Dr Lakshmanan's real estate portfolio will be transferred to Dolly. I will not go into the specifics of the agreement as we are all aware of them but I would like say (sic) that now both families have the opportunity to move forward in a very big way. With what is happening in Meshnoa (sic) at the moment only goes to show that together we have the backing to go far. No one will ever think of messing with us. Further payments by the plaintiff 79 On 10 May 2005 Arun and Mr Reddy signed the following document: I, Arun Lakshmanan … agree to loan to Sumeshin Reddy … an amount of $800,000 at 10% interest per annum. Acknowledgment I, Sumeshin Reddy … acknowledge receipt of cheque in the amount of $800,000 representing the full amount of the monies loaned to me at 10% interest per annum from Arun Lakshmanan Acknowledgment of Payment I, Arun Lakshman … acknowledge and confirm that the monies loaned by me to Sumeshin Reddy … in the amount of $800,000 plus interests (sic) accrued has been paid in full. 80 This brought the total amounts paid by the plaintiff or on the plaintiff's behalf to the defendant/Meshona to $4,593,048.22. Weekly Report – 28 June 2005 81 Arun's weekly report of 28 June 2005 included the following: Meshona Porfolio – Aaron Yeung has provided Martin with the 2004 financials. I have provided Aaron the service trust deed that he requires to update the files. I understand that Westpac have provided further funds or will provide further funds once they have had the chance to view the financials. It may be necessary to utilise this source of funds if we need to move quickly on the Money Shop. I will be working closely with Dolly and Ramona to have all maters (sic) finalised as Roman has requested. Lakshmanan – v – Janarthanan – I met with Hugh Williamson last week as Janarthanan had finally provided his affidavit in response. The affidavit is at best vague and evasive. Although Janarthanan admits to receiving the funds from Dad, he does not admit to the having the conversations Dada states he had requesting the monies. Hugh has written to Janarthanan solicitors requesting that they provide full and proper evidence in chief. The matter is before the court on 14 July. Hugh believes that we are in a position to take a hearing date. Hopefully this will bring matters to a head and Janarthanan will seriously start thinking about settling the matter. The evidence as it stands implicates Janarthanan with fraud which if, found, will lead to criminal prosecution. Obviously we do not want a drawn out case but we must proceed as if we are prepared to have the matter heard before the court. As a matter of strategy we will not be inviting offers. Weekly Report – 5 July 2005 82 In his weekly report of 5 July 2005 Arun reported on the "Funding Lines" as follows: Martin has indicated that Aaron will provide the up-to-date figures by Friday. These figures are what Suncorp require. Martin will then meet with Aaron next week to finalise any outstanding questions he has. In the mean time Ramona is sending the financials that Aaron has provided together with the rental schedule for the pub to Westpac. Westpac is probably our best avenue to obtaining the initial $400,000 for The Money Shop deal. It is hoped that we will have approval and the funds next week. Weekly Report – 30 August 2005 83 In his weekly report of 30 August 2005 Arun advised that he had provided Martin with "all outstanding information that he has requested of me for Westpac". Proposed Heads of Agreeemnt 84 On 4 April 2006 Arun forwarded Heads of Agreement to the defendant which were in the following terms: 1. In addition to the $4million paid, Dr Lakshamanan to pay $2million. $1million is to be used for working capital & $1million re purchase of Meshona. 2. Dr Lakshmanan will pay a further $3million, to be paid periodically, for the next 4 years from 6 August 2006. $1million is to be used for working capital and balance for purchase of Meshona. 85 The plaintiff claimed that a few weeks after the meeting in Holbrook he had a telephone conversation with the defendant and asked him once again when he would give him the accounts because he had still not "been able to do the due diligence you promised me". The plaintiff also said that his accountant needed to submit his tax returns and needed the details for the returns. The defendant once again said he would ask Mrs Reddy to attend to this. 86 The plaintiff claimed that on several occasions during 2005 he also telephoned Mrs Reddy asking for "the financials" to be told by Mrs Reddy that the "financials are not ready". On one occasion in November or December 2005 Mrs Reddy became quite agitated and informed the plaintiff that he was not entitled to the financials as he was not yet a partner. Mrs Reddy said that he had no rights and that she was under no obligation to provide him with anything. 87 Towards the end of 2005 the defendant telephoned the plaintiff and informed him that the solicitor had advised him that the stamp duty on the transfer of the Properties would be about $1.5 million and that he had gone to an accountant to get another advice. The defendant said that the accountant wanted $15,000 upfront before he did anything. The plaintiff had no recollection of any further conversation about the proposed transfer of the Properties or the stamp duty issue. The "return" of the Properties 88 In mid 2006 the defendant visited the plaintiff in Holbrook and stayed with him at his home. It was during this visit that the plaintiff informed the defendant that he was not happy with the way the Properties were being managed by Mrs Reddy and he wanted to take the management of the Properties back. When the defendant asked why this was so, the plaintiff informed him that it took more than a year to renovate the premises in York Street and Cronulla and that Mrs Reddy had refused to renovate Anand's apartment. The defendant advised the plaintiff that he was going overseas and that he would advise his family on his return. The plaintiff said that he wanted the Properties back immediately. Approximately a week later, Mrs Reddy telephoned the plaintiff to ask him for some "top-up money" because the Properties were not bringing in enough money. During this conversation the plaintiff complained about the lack of renovations and informed Mrs Reddy that he was not happy with her "running things". It is apparent that Mrs Reddy hung up on the plaintiff in this conversation. 89 Approximately a week or so later when the defendant returned from overseas, he and the plaintiff had a telephone conversation in which the plaintiff asked to meet to finalise the matter about the Properties. The plaintiff informed the defendant that by transferring the Properties to him along with the money already paid, it would amount to more than $16 million. The plaintiff said: [w]hat am I left with? I have been topping up the account every two or three months from my own personal income. This has been coming from my practice income as if Meshona owns my practice too. You agreed to service the loan but you never did so. Is there any profit being made by Meshona? 90 The plaintiff also asked why he had not received the financial documents as promised. The defendant invited the plaintiff to "come up and we will talk". The plaintiff travelled to Sydney from Holbrook and met with Arun and the defendant for lunch at a restaurant in the City. At this meeting the plaintiff claimed that the defendant agreed that the plaintiff should take the Properties back. When the plaintiff asked the defendant where the financial statements were, the defendant informed him that they would be provided "when they are ready". 91 In about August 2006 the defendant telephoned the plaintiff and informed him that the business needed capital and that the only way to obtain that capital was for the plaintiff to refinance his Properties and that he, the defendant, was trying to organise a refinance through BankWest or the Bank of Queensland. The plaintiff informed the defendant that he was not prepared to pay any more money because he had not received the financials of the company. He asked for "some proof that the company is doing transactions and making money". The 2006 correspondence 92 The plaintiff gave evidence that he became more and more frustrated with the arrangements and started corresponding with the defendant. On 16 August 2006 the plaintiff wrote to the defendant thanking him for his telephone call the previous evening. That letter included the following: I like put (sic) those agreements in the following chronological order, without going into details. 1. Meshona will bear all borrowing costs and costs of breaking contacts from Westpac and Challenger. 2. Meshona will meet interest payment burden because the properties, rental income, net will be around 650K. Because we are borrowing 11 mil., which is 1. mil. more than originally agreed, and I am financing a million more than originally agreed. 3. Also I have already financed by way of loan to Meshona an amount will be most loan for 20K which shall be paid back to me, so that I can clear my overdraft and pay my and my sons income. 4. Three million to be paid in 3 years has been scraped (sic). It was mutually agreed to not to be paid at all. 5. Out of the 11 million loan 3.8 mil is mine which will be paid by me. The balance 7.2 mil will be paid by Meshona. 6. All future investments by Meshona Group will be through Redlaks on 50/50 basis. 7. Financial, business activity statements shall produced (sic) by Meshona Group to me. 8. Formal documentation, statement of our business arrangement to our accountant immediately. Please document all the above agreements at once. The stress is intense which is tearing me and my sons apart. We are stressed out. Please pay your attention at once. 93 It is apparent that on the evening of 16 August 2006 the defendant telephoned the plaintiff but he was unable to take the call because he was unwell. On 17 August 2006 the plaintiff wrote to the defendant thanking him for his call and advising him that the stress was taking its toll on him and his sons. That letter included the following: Please ensure the loan arrangements shall be according to the tax law. Everyone involved shall concentrate to build up the business, and servicing the loan shall be priority. Buying houses for our children is secondary. 94 On 9 September 2006 the plaintiff prepared a document that was described as "points for discussion urgently". That document included the following: 1. partnership deeds; 2. how is the business performing; a. Financial statements were not provided even though I have been asking for b. What is Meshona's income for the past two years; c. At that time my joining the business you said that Meshona's income was $850,000, later Dolly said $700,000. d. What was the worth of the business at the time of buying in? would (sic) you pay $6 million. If so what would be the return. 3. I did not know that the purchase price was $350,000.00 and the rest was a personal loan to Mr Reddy by Arun, which was paid back on paper. The loan shall be written to Meshona and an interest minimum of 2.6% shall be paid so that I could negative. 4. Working capital shall be equally provided by the both of us. I am providing $1.76 million more than originally agreed. 5. Clearing all my loan (sic) by Meshona shall be the first priority. I have cleared all your debt by that I have borrowed heavily on your advice, which is killing both myself and my son's (sic). My request is that Meshona shall start to clear my loans as soon as possible. Say if Meshona pays $1 million, your portion will be $510,000.00 and my portion will be $490,000.00 plus $80,000.00 interest minimum, for that $1 million. How can I retire, which you are advising myself to do and move to Sydney, unless the debt is cleared. It looks to me death is my retirement. 5. Arun or Anand shall be involved in all financial transactions. 7. Property, promissory note shall be returned to myself or Arun at once. 8. Until all these points of importance's (sic) are resolved, I and my sons are unable to rest easily. My health is affected immensely and I am aged terribly during the past two years. Your cooperation is important and appricated (sic). 95 It is apparent that the defendant became ill and was unable to discuss matters with the plaintiff for a short while. On 12 September 2006 the plaintiff wrote to the defendant expressing his hope that the defendant was recovering from his recent flu and advising that he was looking forward to finalising "our business deeds" on 23 September 2006. The plaintiff indicated that if the defendant could not make it to Holbrook then he would go to Sydney. It is also apparent that a meeting occurred on 24 September 2006 at which the plaintiff claims there was an "outburst" in which the defendant accused the plaintiff of not fulfilling his obligations and claimed that the plaintiff did not have any rights to ask about the financial activities of Meshona. 96 On 5 October 2006 the plaintiff wrote to the defendant setting out the payments that he had made over the previous two years. That letter included the following: I have contributed a total of 8.1 mil in two years without any income and unable to claim any tax benefit because of your refusal to give financial statements. I have been asking for the BAS for 14 months, no one seem (sic) to respond. More than three times you said I should have asked you and in the end you told me I don't have any right ask (sic) for it. You took a bet with saying that you got proof that we did diligence before joining Meshona. I am yet to see that proof. You never provided me any information about the business. I sincerely believe that the price of Meshona was far too high. You said Meshona is bringing 850K/year and you don't have to lift your finger, that will flow in for life. A week later (by that time I accepted your offer) Dolly told that Meshona's income was 700K. So who is correct. On 21-9-06 you accused me that I deliberately over valued my properties. How is it possible for me to over value? You handled, A to Z to arrange loan in such a hurry. Then you said the value has gone further down this year, if so how come BankWest is giving 2 mil more than Challenger. Please don't show finger at me, we are friends, and inseparable as you say. You made me to bear 100% of the loss from the so called Indo-South African venture. How could me justify the price of Meshona, and practically I have paid 8.1 mil, lot (sic) more than what the price asked for. You are telling me that I don't have any rights to ask for the accounts. In the future my sons either Arun or Anand should be involved in financial transactions and account keeping. Roman we are friends, but the way you shouted at me on 24-9-6, I am hurt . You seem to forget the discussion we had. You were angry that I took Redlaks away from with talking (sic) because you are a shareholder. We had discussions about that at least three times and you readily agreed, when we met in Sydney along with Arun. By the way Redlaks was formed, in force long before I gave any properties to be managed. So there was breach of contract. 97 On 24 November 2006 the plaintiff wrote to the defendant "through" Ramona. This was in response to some questions that had been posed by the defendant or Ramona and included the following: Redlaks was established immediately after my buying 49% in the Meshona Group for future investments on 50/50 partnership between Reddy and Lakshmanan, which was long before I offered 50% of my real estate investment portfolio. I wonder why Arun and Anand's salary was paid from Redlaks. Whatever may be the reason the entire amount shall be transferred/reimbursed to my account at once. Meshona Group: 1. I was not aware that I was suppose to have done due diligence before I agreed to your offer to sell 49%. I was never given any information about Meshona's trade figures. All you said was that your yearly income was 850K. You don't have to lift your finger. The money will flow in. A week later Dolly told me that the income was 700K. I never asked the figures were gross or not. 2. Anand was to learn about backroom activities and take over from Ramona. Why was he moved from backroom? No discussion, no warning. … 4. Roman agreed that not only the new loan of 1.5 mil, the previous loan also to be payed by Meshona Group not from 49% dividend. … 6. Do I have to pay $200K plus stamp duty to Reddy family to transfer 49% share? What happened to the 4.6 mil cash given to you. Please note, this loan arranged by you cost me 700K, and I had been paying at least 8% interest on that amount, and I saved you equal amount of interest to you. If you would have told me that you overlooked to register the partnership deed with ASIC, that would have been comforting to me, Arun and Anand. By the way, Arun tells me that Meshona have to provide an audited financial statement or financial report for four or five years to the registry. … 10. Please justify the 49% of Meshona is worth 9 mil by providing facts and figures. I believe the family should involve in detailed discussions about every aspect of the business and come to a cordial agreement. Roman, you often quote Gandy's (sic) preaching. Gandy (sic) preached and followed Saltyajaha (holding onto trust) and followed a higher law (the voice of conscience). I believe my conscience, I took your word as to the true fact and figure of your Meshona's worth. I never new (sic) that I was to do due diligence before I agreed to join. My son's (sic) were never given an opportunity to do due diligence. I believe truth is strength. Cooperation and transparency will help to succeed. 98 On 25 November 2006 the plaintiff wrote a similar letter directly to the defendant that included the following: To lodge partnership deed for registering we need past five years financial statements of the company including balance sheets and profit and loss statements. Also evidence to the market value, valuation of the company should be attached to the application. Partnership shall be on 50/50 basis. The documents shall be written by and registered by an independent law firm. Anand, Arun, Ramona and Mr Reddy shall be four directors of the firm, Meshona Group. All (?) and financial transactions shall be handled by all four directors and at least one director from each side shall be signatories. All business activities shall be open and transparent to directors and proprietors. Salaries shall be equal to all four directors. You and I will be joint proprietors. The purchase price of Meshona shall be deducted from the 4.6 mil cash already I paid you. The balance shall be lent to Meshona as working capital. Each proprietor's (sic) shall lend equal amount as working capital to Meshona. Meshona Group shall pay back interest and capital prior to dividend distribution. Until the partnership is official (shares transfer) you shall pay me interest for the 4.6 mil plus borrowing costs (I could have borrowed from bank at much lower cost) at the current rate. The sooner you provide financial statements, balance sheets, profit and loss statements for the past 5 years, the partnership can be registered. Meshona Group can get on with it. Friendship in cooperation. Friendship is strength. Success in cooperation and in truth. 99 On 29 November 2006 the defendant wrote to the plaintiff in terms that included the following: I am disappointed in the manner that your letter is worded. The initial arrangement has not been completed by your family. Our family has made many compromises to assess the situation and to date we have not come to any positive working relationship between families. You went to South Africa to confirm that you had bought the shares in the Meshona Group of Companies, and the two families would be working together. Yours sons, both Arun and Anand have been trained in all areas of the business, and as a shareholder we unconditionally took responsibilities to provide you with support on various areas not fundamental to our organisation. Just to refresh your memory, last week Arun, Ramona and Mr Reddy met to work suitable arrangements to move forward. It is very disappointing that when we seem to come to a mutual understanding on moving forward, you change the goal post and disagree. We do not agree with your proposal. At this stage we need to assess our current situation with the Meshona Group of companies including the commitments we have made. You have put the group and our family in an embarrassing position. You have drawn out this process for the last 2 years and haven't honoured the agreement which would have enabled the two families moving forward. In hindsight, if I had known what your intentions really were I would not have entertained your offer and all our plans would be well on their way and the Meshona Group would be a leader in the Australian Finance Market. I urge you to accept the compromise that was discussed between Mr Reddy, Arun and Ramona that clearly gives your family an immediate benefit. I do hope you understand our position as it honors (sic) our commitments and takes actions to suit the current situation. If the compromise proposal is not accepted, we will rely on the existing agreement. I trust you will treat this matter as urgent and I look to your response. 100 On 30 November 2006 the plaintiff responded to the defendant denying that he had put the defendant and his family or the company into an embarrassing position. That letter included the following: You never told me Meshona group partnership was not registered with ASIC. Now I was informed that I did not pay the 200K in stamp duty and that was the reason. So what happened to the 4.6 mil paid in cash, don't you think you should have registered the business from that amount, and used the rest of the money in the business to obtain the funding line. The business would have grown as you promised. Unfortunately my cash was misused by you. … It seems you planned everything from day one of our meeting and you never told me why I have not fulfilled the obligation. You only handled all my loan arrangements, you never discussed with me the final outcomes. I sincerely believe that meshona group is over valued by you. I unable to pay 9 mil for a over valued business. If you are unwilling to register the partnership you shall pay me 4.6 mil cash at once with interest at once. 101 On 5 December 2006 the defendant wrote to the plaintiff in terms that included the following: 1. The shares are elected to be registered immediately on an honour agreement that the balance of funds owing will be paid over 5 years and a suitable payment plan can be structured. 2/3. The $1.5 working capital is not a part of the initial arrangement. This was merely a compromise for both families as agreed for the growth of the business. Meshona has agreed to make these repayments for funds drawn down for the use of the company for the purpose of growth. 4. Dividends will be distributed on a 49/51 basis yearly after the working capital loan repayments have been made. 5. Salaries will be paid on merits for each individual input and results. 6. As per the initial agreement the business was to be owned by two families. If you are interested in selling your shares to a private party it is open for discussion. However this has nothing to do with the balance of funds owing to our family for the purchase of 49%. Please let me refresh your memory the sale of the 49% was to include a partner in our family business was for both families to work together to grow the company and build an empire, which is an unusual opportunity in Australia. I do believe your point regarding the interest is unreasonable seeing you will be the owner of 49% of the company. You cannot expect the company to pay back interest for shares that you have purchased in the company. I believe the following needs to be included: ` 1. $200,000 for the purchase of the shares to be registered needs to be paid to the nominated Reddy Family member for the proper compliance issues to be executed. 2. The initial agreement is still to be executed and we are prepared to put you on a payment plan for the balance outstanding. Please advise us on how you would like to structure the payment plan? 3. Staff will be paid on merits. 102 The plaintiff did not respond to the letter of 5 December 2006 and the defendant's attempts to make contact with any of the plaintiffs by telephone were unsuccessful. Mr Reddy wrote to the plaintiffs on 20 December 2006 in terms that included the following: Arun and Anand have abandoned their positions within the group which is to the detriment of the company. That has caused other individuals within the group to take on their responsibilities. It is very disappointing to hear from third parties such as BankWest that you are no longer with the Meshona Group. It has become a concern that your remarks are hurtful and damaging personally and on a business level. We find it hard to understand why you have not returned our calls or responded to our faxes as our aim was to progress with the business at hand and honour the integrity of the agreement. Your non-performance and non-communication is unethical as it was our understanding that we were two families working together. As a result you have stifled us in fulfilling our commitments to the plans for the future which you were aware were very reliant on a partnership to grow this business. Hence the business has suffered financially as the Companies (sic) future plans cannot be completed. We will have to take drastic measures due to this disruption to restructure and downsize the organization if your family does not adhere to the agreement. We hereby inform you that you have 14 days to complete our agreement from the date of this letter. 103 On 4 January 2007 Mr Reddy wrote to the plaintiffs enclosing what purported to be a resolution that Mr Reddy, as a director, had made in relation to Meshona Group Holdings Pty Limited. That resolution was in the following terms: There is a dispute concerning Meshona Pty limited (sic) between the Reddy Family and the Lakshmanans. As a result of this dispute the Reddy Family will not advance any further moneys to the Meshona Group of Companies. Consideration is been (sic) given to a call on the loan due to Mr Reddy by Meshona Pty Limited. The Lakshmanan Family has refused to provide further advances for Mr Reddy for the purpose of the development and growth of the group. In these circumstances I resolve that Meshona Group Holdings Pty limited (sic) can not proceed to incur any further liabilities that can not meet (sic) from operating profit and consequently can not proceed with any opportunity to enter into any of the projects that we have placed on hold, such as Pay TV advertising, Loan Sellers, Business Development Managers, Lead generation, launching the funding program and the purchase of mortgage trail books. Challenger and other institutions will be placed on notice that Meshona will not be proceeding with the above. 104 On 8 January 2007 Mr Reddy wrote to the plaintiffs advising that their mobile telephone numbers would be cancelled within 48 hours. 105 On 10 January 2007 Arun wrote to Mr Reddy referring to his previous letters rejecting the allegations contained in them and stating as follows: With respect to your continued allegation that Anand and I abandoned our positions in the Meshona Group, I remind you that on the last occasions (sic) that you and I met outside of the office, you made it very clear that Anand and I were not welcome in the office. 106 On 4 June 2007 the plaintiffs' then solicitors, Gordon & Johnstone, wrote to the defendants' solicitors in terms that included the following: On or about 1 October 2004, you and each member of the Lakshmanan Family entered into a Share Sale Agreement for the sale of shares in Meshona Pty Limited ("Meshona"). By virtue of clause 4.1(b) of that Share Sale Agreement, it was a fundamental term of the Share Sale Agreement that you would ensure that the Lakshmanan Family had access to the premises, records, officers, employees and advisers of Meshona and its subsidiaries for the purpose of enabling them to make such enquiries as were in their opinion necessary to conduct such due diligence enquiries as, in the absolute opinion of the Lakshmanan Family, were necessary in relation to Meshona and its subsidiaries. You have refused to permit the Lakshmanan Family to carry out due diligence in relation to the financial and legal affairs of Meshona and its subsidiaries. You have thereby breached your obligations pursuant to the Share Sale Agreement and have repudiated the Share Sale Agreement. Our clients hereby accept that repudiation and terminate the Share Sale Agreement. 107 On 14 June 2007 the defendants' solicitors, Holman Webb, wrote to the plaintiffs' solicitors advising that the defendants denied that any member of the Lakshmanan family was unable to carry out due diligence in relation to the financial and legal affairs of the Meshona Group of Companies. That letter included a claim that both Arun and Anand had access to the MYOB system of the companies. Reference was also made to the acknowledgement that was signed on 1 October 2004 that the plaintiffs had completed their due diligence and had been provided with all information in accordance with clause 4 of the Share Sale Agreement. Proceedings commenced 108 On 18 June 2007 the plaintiffs commenced these proceedings by the filing of a Statement of Claim. 109 The plaintiffs' main claim is for damages for misleading or deceptive conduct under the Fair Trading Act 1987 (NSW) and/or the Trade Practices Act 1974 (Cth). Although there were a number of claims made in the pleadings, the parties conducted the trial and made their final submissions on a narrower basis than that contained in the pleadings. Although the plaintiffs pleaded a number of representations, those relied upon at trial and in final submissions were as follows: (1) the value of the business carried out by Meshona and its various subsidiaries was at least $20 million (the value of the business representation); (2) profit derived from the business carried out by Meshona and its various subsidiaries was $850,000 per year and such profit was achieved with little effort and capital expenditure (the profit of the business representation); (3) the Lakshmanan family would have the opportunity to investigate the financial circumstances of Meshona and its subsidiaries and to carry out due diligence in relation to the financial and legal affairs of Meshona and its subsidiaries before being bound by any agreement to purchase shares in Meshona or to invest in the business of Meshona (the due diligence representation); and (4) Meshona and its various subsidiaries were debt free companies (the debt free representation): (collectively the Meshona Representations). 110 The plaintiffs also claim that the defendant and Mr Reddy made representations at the time the Share Sale Agreement and Loan Agreements were executed that although the plaintiffs were to sign the due diligence Acknowledgment it was only a formality and the plaintiffs would still have the opportunity to conduct their due diligence. It is appropriate to consider this alleged representation with the due diligence representation. 111 The plaintiffs claim that each of the Meshona representations was made during the meeting between the plaintiff and the defendant on 5 September 2004 at the Club with repetition of some of them during later discussions. Although the defendant's affidavit has to be viewed in the light of the fact that it was not able to be tested, the defendants submitted that, in any event, the irresistible conclusion from the evidence of the plaintiffs is that representations (1), (2) and (4) were not made, and if made, were not relied upon. The defendants accept that representation (3) was made. However the parties are at issue in respect of whether the relevant financial information or documentation to enable the plaintiffs to carry out their due diligence was made available to the plaintiffs prior to the execution of the various agreements on 1 October 2004 and/or whether the plaintiffs requested access to such information and/or documents. 112 The plaintiffs claim that the representations were made, that they were false and that the plaintiff relied upon them in entering into the various agreements with the defendants. The plaintiffs seek the return of the $4,593,048.22 ($4.59 million). 113 The plaintiffs make an alternative claim for damages for breach of contract. The plaintiffs claim that an oral contract was entered into on 5 September 2004 pursuant to which the plaintiff agreed to purchase 49% of the shares in Meshona for $9 million. The plaintiffs claim that it was agreed that the defendant and Meshona would arrange for the refinance of the plaintiff's Properties so that funds would be available to pay the purchase price of the shares. The plaintiffs also claim that the agreement was conditional upon the plaintiffs conducting due diligence in relation to the financial and legal affairs of Meshona. An integral aspect of the plaintiffs' claim in this regard is that the agreements executed on 1 October 2004 do not reflect the true arrangement or agreement between the parties. 114 The defendants claim that there was no binding contract entered into on 5 September 2004 and that the arrangements reached that day were preliminary to a final contract which was entered into on 1 October 2004. The defendants claim that the agreements executed on 1 October 2004 reflect the real contract between the parties and that they have not breached the terms of those contracts. The defendants claim that the plaintiffs failed to comply with their obligations under those contracts and deny that the plaintiffs are entitled to any damages for breach of contract. The defendants seek relevant declarations consistent with these claims that the plaintiffs are indebted to them for the balance of the purchase price of the shares, as reflected in the Share Sale Agreement and the payment of the $3 million pursuant to the Loan Agreement of 1 October 2004. Meshona Representations 115 The determination of a number of issues in these proceedings depends upon whether the evidence of the various parties about conversations should be accepted. Many of the conversations in issue are not supported by contemporaneous documentation, however there are non-contemporaneous documents that have some relevance. The determination of which versions of conversations are to be accepted is made complex by reason of the second plaintiff's admissions under protection of a certificate under the relevant provision of the Evidence Act 1995 (NSW), that he and Mr Reddy created documents that did not reflect the true agreement between the parties which is denied by Mr Reddy. The determination is made even more complex by reason of the fact that the defendant's affidavit could not be tested by cross-examination. However the defendant was available to give instructions during the cross-examination of the plaintiffs. This last-mentioned matter has some significance to the determination of whether one of the alleged representations was made in that it was not suggested to the plaintiff in cross-examination that the defendant did not make the representation and the defendant had not expressly denied certain of the alleged words. 116 In Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592, in a passage cited with approval in the joint judgment (Gummow, Hayne, Heydon and Kiefel JJ) in Campbell v Backoffice Investments Pty Limited (2009) 238 CLR 304 at 341, McHugh J, in a dissenting judgment, said at 625 [109] as follows: The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the Court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. 117 The majority of the relevant events occurred in 2004. The trial of the matter occurred six years after the events and affidavits were not prepared for at least three years after the relevant events. Although I have extracted and referred to particular evidence in relation to individual representations and topics I have reached my conclusions on an overall assessment of the whole course of conduct of the parties. Preliminary issue 118 There is an issue as to whether it was the plaintiff who proposed that he make an investment in Meshona prior to the meeting at the Club on 5 September 2004 or whether it was an initiative of the defendant first raised at the meeting at the Club. The parties rely on this aspect of the matter in support of their submissions generally that the evidence of their respective clients should be preferred in relation to the Meshona Representations. 119 The defendant claimed in his affidavit that in late August 2004 the plaintiff telephoned him and asked to meet with him. The defendant claimed that he met with the plaintiff for lunch at Miltons Restaurant in Sydney and that during this meeting the plaintiff advised him: (1) that the investment he made in Revetec and the proposed investment in VIP was for his sons' benefit; (2) that he was not happy with the investment in Revetec; (3) that he was concerned about the advice that he had been given by Mr Tually and requested a referral to a solicitor who could help him get his money back from Mr Tually; and (4) that he would like to join the defendant's family in business in Meshona. 120 The defendant claimed that he informed the plaintiff that he had "a problem" in that he and Mr Reddy were considering an offer from a South African consortium and that Mr Reddy liked their proposal. The defendant claimed that he informed the plaintiff that the South African consortium had offered to buy 51% of Meshona for 45 million rand, then equivalent to $9 million and that he had rejected that offer but had agreed to sell 49% of Meshona for the same price so that he could keep control. He claimed that he advised the plaintiff, "we would have great difficulty in giving up this opportunity". 121 The defendant claimed that the plaintiff informed him that his sons had become close to the defendant's children and that they were lonely in Sydney. He claimed that the plaintiff said that he had let his sons down because he had not visited them as regularly as he should have. The defendant also claimed that the plaintiff said that the moneys he was intending to invest in VIP could be used to acquire an interest in Meshona and then said, "I am begging you to give my children a break. You have looked after your children and I need to look after mine". 122 The plaintiff agreed that he met with the defendant for lunch but denied that there was any discussion about his family investing in Meshona prior to the discussion at the meeting at the Club on 5 September 2004. He agreed that he discussed the Revetec investment with the defendant and also his dissatisfaction with that investment. He denied that at this luncheon meeting he asked the defendant to assist him with recovering his money from Mr Tually or that he had "begged" the defendant to allow him to invest in Meshona (tr 143). 123 The defendant claimed in his affidavit that after this meeting with the plaintiff he spoke with his family about the conversation with the plaintiff and continued to discuss the proposal for a number of days. 124 Mr Reddy gave the following affidavit evidence: 17. In the period between the 15 August 2004 lunch and early September 2004, I had a drink after work with Arun Lakshmanan at least three times a week and we also met socially on the weekends. Arun and I spoke about his relationship with his father, his concerns about his father's investments in VIP and Revetec (which I understand to be investments for the purposes of which the plaintiffs were seeking to refinance the Lakshmanan properties), his concerns about Mr Tually (who I understand to be his father's accountant and also to be providing his father with investment advice) and his intentions about carrying on a business of his own. During these conversations we also discussed my family's business and how it worked. After about three of these conversations, Arun said to me words to the effect of: "Wouldn't it be cool if we could work together and do this all the time" 18. Towards the end of August 2004 Arun Lakshmanan and I met for a drink at the Hunter Bar in Hunter Street, Sydney. In that conversation Arun Lakshmanan said to me words to the effect of: "We should be looking more at investing in a company like yours than in VIP or Revetec." 19. I said to him words to the effect of: "Well you have to be in line because, as you know, we are talking to other people." 20. I told my father about this conversation. 21. On each occasion we met socially thereafter, prior to 5 September 2004, Arun Lakshmanan said words to the same effect. 22. I told my father on a further three occasions that Arun Lakshmanan had expressed an interest in investing in our business. 23. In late August 2004 my father told my mother, my sister and me that he had met Dr Lakshmanan and that in the conversation with him Dr Lakshmanan had expressed an interest in the Lakshmanan family investing in the Meshona Group of Companies. 125 Mr Reddy was cross-examined as follows (tr 568 – 569): Q. Did you know before the two fathers met on 5 September 2004 that there was to be any discussion between them about an acquisition by the Lakshmanan family for 49 per cent for that figure, $9 million? A. At that stage it was more - sorry, let me say this properly. At that stage it wasn't something that I looked at in terms of, because Arun and myself were friends. Q. Did you father tell you before this occasion on 5 September 2004 that he was going to make a proposal to Dr Lakshmanan about Dr Lakshmanan's family buying an interest in Meshona? A. Well, from my recollection there was a meeting on the Friday or so where the doctor and Roman went to lunch and a few drinks were passed and it was decided that they would meet at another time, which I guess is that weekend, to discuss with more clarity. Q. Will you go to my question. Did your father tell you that he had in mind that he would make a proposal on 5 September about the Lakshmanan family buying 49 per cent of Meshona for $9 million? In other words, did he foreshadow to you that that's what he was going to do? A. Well, he foreshadowed a meeting in regards to what's on the table. I don't believe that Roman is the person that went there to make a proposal, rather so the outcome of the Friday or the teacups episode whereby a fair bit was drunk at Milton's. Q. What are you talking about now? A. On the Friday, so Dr Laks and Roman went for lunch and had a few drinks, right, and this was, I understood it, to be a follow-up because Laks came down to discuss something with Roman. Q. There were many things that you were involved in where business meetings were held between the Lakshmanan family and the Reddy family where drinking occurred? A. Yes, however, this was quite different because it was only Roman and Laks. Q. I am just trying to get you to focus on this point. Did your father tell you before the Sunday meeting in [at the family home in Mosman] on 5 September that he was going to make a proposal to Dr Lakshmanan about acquisition by the Lakshmanan family of an interest in Meshona? A. I don't believe Roman made the proposal. Q. I didn't ask you that. Did he say anything to you about whether he was going to propose to Dr Lakshmanan that Dr Lakshmanan acquire an interest in Meshona? A. Well, my understanding was the Lakshmanan family was interested and they were going to discuss what's going on. Q. Did your father say to you before the Sunday occasion that he was going to propose that the Lakshmanans pay $9 million for a 49 per cent interest? A. I believe that's what was on the table. Q. Did your father tell you that or can't you remember? A. No. The thing is he never proposed it. HER HONOUR Q. Stop, please. Focus on the question. Let's assume that he didn't. You are just being asked did he tell you? A. Yes, he did. Q. What did he tell you? A. That there was an offer that the Lakshmanan's may be looking at equalling the deal from the South Africans. STEVENSON Q. When did he tell you that? A. That would have been on that weekend or prior to the meeting on the fifth. 126 The defendant claimed in his affidavit that he telephoned the plaintiff in early September 2004 and asked him to come to Sydney so that they could have further discussion "about his (the plaintiff's) proposal". He also claimed that he advised the plaintiff that they would "speak first" and asked him to arrange for Arun and Anand to go to his home so that they could speak with the families after their meeting. 127 The plaintiff gave the following evidence in cross-examination (tr 79-80): Q. And so that prior to you attending at Mosman had you had, on the Monday (sic) the 5 th had you had discussions with your family about investing in Meshona? A. No. Q. Not at all? A. No, not at that time, we didn't, I didn't know that I am going to be asked by Mr Reddy until Mr Reddy mentioned it to me on the Sunday the 5 th . … Q. Did Arun tell you that he thought it would be a good idea if you were to invest with Mr Reddy in the Meshona Group? A. As far as I could recollect until Mr Reddy mentioned to me on that Sunday nothing was mentioned by Arun to me. 128 The plaintiff also gave evidence that when the defendant picked him up to drive him to the Club, Arun and Anand were "ordered" (later changed to "directed") by the defendant to go to the defendant's home (tr 218). He then gave evidence that "the boys told me that they were going to the Reddy's house" and that Arun had told him that the defendant was coming to pick him up (tr 219). 129 The defendants submitted that although the defendant's affidavit was not able to be tested by cross-examination, it is more probable that it was the plaintiff who proposed that he should invest in Meshona rather than the defendant first raising it at the Club. It was submitted that it was very curious that the families would be asked to and agree to gather together at the defendant's home and await the plaintiff's and defendant's return after their meeting at the Club without any advance notice of the purpose of such a gathering. One matter relied upon by the defendants in support of the submission that the defendant's evidence should be preferred over the plaintiff's evidence is the fact that the plaintiff did not include in his affidavit any mention of the luncheon meeting that he had with the defendant at Miltons Restaurant in Sydney prior to the meeting of 5 September 2004 at the Club. 130 There were a number of meetings between the two families prior to the meeting between the plaintiff and the defendant at the Club on 5 September 2004. It would appear that there were no notes taken of any of these meetings. The plaintiff's affidavit was not sworn until 26 September 2008. I do not regard the plaintiff's failure to mention the luncheon meeting with the defendant in that affidavit as a basis to reject the whole of the plaintiff's evidence in relation to this issue. Rather it is a factor to be taken into account in determining which of the two men raised the proposal for the investment in Meshona. 131 Arun was cross-examined about his advance knowledge of what was to be discussed at the meeting between the plaintiff and the defendant at the Club. He said that he knew that the plaintiff was coming to Sydney to meet with the defendant but he did not know that the meeting was about the plaintiff investing in Meshona. However he said that he "suspected" that the meeting might be about such an investment (tr 347). He gave the following evidence in cross-examination (tr 347-348): Q. You suspected your father was coming up to talk about it? A. Yes. Q. Did you suspect that your father and Roman Reddy had already discussed it? A. No, they hadn't discussed it. Q. You don't know, do you, if you weren't there? A. Sorry, could you repeat that question. … Q. And you were sent to the Reddy household to await the two senior members to come back after the meeting? A. Yes. Q. And you suspected when you picked your father up that he was going to make an offer to invest in Meshona? A. Not my father, no. I suspected that Roman was going to make an offer. Q. And you hadn't discussed it with your father? A. No. I remember giving my suspicions to my father when he arrived. … Q. An investment in Meshona might be a subject matter? A. I said – I recall saying, "I think Roman is going to offer for you to purchase into Meshona." Q. What did he say? A. "That's interesting", or something like that. Q. So I take it you two had a further discussion about it? A. Well, not really no. I don't recall any specific conversation. 132 Arun also gave evidence that he was disenchanted with Mr Tually and he "quite admired" the Meshona set-up. He agreed that he advocated an investment in Meshona to his father, albeit that the timing of this advocacy was not established (tr 348). He gave the following further evidence (tr 369-370): Q. You had a funny feeling in your tummy on 3 September when you picked your father up that there was an offer in the wind? A. Yes. … Q. You were excited, weren't you? A. Yes. … Q. On 5 September, after the fathers came back from the club, he told you he had already made a deal, had he? A. Yes, he made the announcement. Q. And you had nothing to do with his decision one way or the other? A. No. Q. You couldn't alter his view? A. I didn't want to alter his view. Q. You wanted to go into the deal? A. Yes. 133 Anand gave evidence that he was "shocked" when the plaintiff returned from the Club with the defendant and advised the families that he had decided to purchase 49% of the shares in Meshona for $9 million. It is not in issue that Anand expressed reticence about the investment and that he said he did not understand why they had to "rush into" the investment. It is also common ground that the plaintiff suggested to Anand at the meeting that he should "give it a go". 134 Arun's evidence was that just prior to the meeting at the Club he informed the plaintiff of his "suspicion" that the defendant was going to make an offer to the plaintiff to "purchase into Meshona". The plaintiff was not asked about this conversation because Arun gave evidence after the plaintiff. Arun was not cross-examined about the source or basis of his suspicion and it is not possible to know with certainty what triggered it. However Mr Reddy's affidavit evidence extracted above refers to conversations in which Arun suggested that "we" (I take that to mean the plaintiffs) "should be looking more at investing" in Meshona rather than in VIP or Revetec. It may have been that Arun's suspicion was fostered by these conversations with Mr Reddy. 135 The two families had only met each other on about 15 August 2004. It is clear that the plaintiffs were impressed with the presentation of Meshona's business operations and that the two families were socially compatible. The defendant dealt directly with Arun and Anand whilst the plaintiff was in Holbrook. The defendant suggested that they conduct some further research into VIP and/or Revetec into which the plaintiff was intending to invest the monies that he would obtain from the refinance of the Properties. The defendant asked Arun and Anand to give him a presentation on their further research. They concluded that an investment in VIP or a further investment in Revetec was not a good idea. This was discussed with the defendant and the plaintiff was advised accordingly. 136 I am satisfied from the evidence that neither Arun nor Anand had discussed with the plaintiff a proposal that he should invest in Meshona prior to 5 September 2004. I have little doubt that Arun was hoping that such an investment might be possible because he obviously got on very well with Mr Reddy and was impressed by the Meshona "set-up". It was not suggested to Arun that his evidence that he did not discuss an investment in Meshona with his father, other than to tell him of his suspicion, was not accurate or truthful. There is no doubt that there was no discussion with Anand having regard to his obvious shock at the announcement at the defendant's family home on 5 September 2004. 137 When Arun informed the plaintiff of his suspicion as to what might happen at the meeting with the defendant at the Club, his only response was "that's interesting". It seems to me that if the plaintiff had discussed the proposal of an investment in Meshona with the defendant at the time that Arun raised his suspicion, the plaintiff probably would have asked him what he thought about it. The evidence suggests that the plaintiff was more on the periphery of the whole process of refinancing the Properties and depended upon his sons to manage the loan applications, obtain the valuations and guide him in respect of the proposed investments. I accept that the plaintiff was motivated to establish employment opportunities for his sons and that this was the reason that he had decided to raise further monies by refinancing the Properties. 138 The defendant was well aware of the plaintiff's large portfolio of properties. In many respects the plaintiff was duchessed by the defendant. He and his family were invited to dinner with the defendant and his family within 48 hours of their first meeting and his sons were invited to utilise the offices of Meshona to research the proposed investment. On the defendant's own evidence, he was willing to sell 49% of the Meshona Group to a person that he had only met three weeks earlier in preference to a consortium with which he had been engaged in discussions for some years led by a friend, Mr Isaacs, with whom the plaintiff and defendant stayed when they travelled to South Africa. 139 Mr Reddy's evidence on this topic was unsatisfactory. When he was pressed to finally focus on the questions being asked of him he said that what the defendant informed him of prior to the meeting at the Club on 5 September 2004 was that there was "an offer that the Lakshmanans may be looking at equalling the deal from the South Africans". The affidavit evidence that Mr Reddy gave about what his father informed him of prior to the meeting at the Club makes no mention of the "equalling" of the "deal of the South Africans". That affidavit evidence was limited to a suggestion that the plaintiff had expressed "an interest" in his family investing in Meshona. There was no suggestion made by Mr Reddy that his father had asked the family what they thought about such a proposal that had allegedly been made. The veracity of Mr Reddy's evidence on this topic is not assessed in isolation from his other evidence referred to later. For the reasons given later I do not regard Mr Reddy as a reliable witness. 140 On balance I favour the plaintiff's evidence in respect of this matter. I am satisfied that the plaintiff did not propose to the defendant prior to the meeting at the Club on 5 September 2004 that he should acquire an interest in Meshona. I am also satisfied on the balance of probabilities that the plaintiff did not say to the defendant "I am begging you to give my children a break. You have looked after your children and I need to look after mine". Although the parties proffered this issue for decision, it is not decisive in respect of whether the Meshona Representations were made or relied upon. It is an aspect of the evidence that will be taken into account in weighing up all the other evidence, particularly where there is no corroboration. 141 I will deal now with the Meshona Representations alleged by the plaintiffs. It is appropriate to deal first with the questions of whether the representations were made and if made, whether they were false prior to considering the question of reliance. The value of the business representation 142 The plaintiffs allege that the defendant represented to the plaintiff that the value of the business carried out by Meshona and its subsidiaries was at least $20 million. The plaintiff's evidence in paragraph 26 of his affidavit sworn on 26 September 2008 of the conversation with the defendant at the Club included statements by the defendant as follows: (1) I could sell the business for $20 million or more; (2) The Packer group wanted to buy my business for $20 million but if I sell it to them my family won't have a business; (3) The Meshona Group with its various subsidiaries is worth at least $20 million and I would rather enter into a partnership between our families and sell it off to someone else; and (4) The company is worth more than $20 million and as I said I propose that you put in $9 million from the refinance of your properties for a 49% interest in the companies. 143 The defendant made a rather general claim in paragraph 152 of his affidavit extracted earlier in respect of paragraph 26 of the plaintiff's affidavit that to the extent that it differed from his version of the conversations it did not accord with his recollection and he disputed it. He did not specifically deny that he had said that the business was worth $20 million. He expressly disputed the use of the word "partnership" but did not take particular issue with that part of the alleged representation as to the value of the companies. The plaintiffs submitted that the conclusion to be drawn from the defendant's approach in this regard is that he did not deny making such a representation, except for the use of the word "partnership". The plaintiff was cross-examined over three days and it was not suggested to him that the defendant did not inform him that the Meshona Group was worth $20 million. The plaintiffs relied upon this failure to cross-examine the plaintiff in support of the submission that the representation was made. 144 Arun agreed in cross-examination that he had informed the plaintiff that a third party was interested in purchasing the Meshona Group for $20 million. However it was not suggested to the plaintiff that his source of knowledge about the $20 million was his son, Arun. The defendant was available to give instructions during the course of the cross-examination of the plaintiff and the fact that it was not suggested to the plaintiff in that cross-examination that the defendant did not represent that the Meshona Group was worth $20 million is a factor to be taken into account in determining whether the representation was made. 145 When the relationship between the plaintiff and the defendant deteriorated in the latter part of 2006 the plaintiff commenced writing to the defendant. There is no express mention in any of that correspondence to a representation having been made by the defendant to the plaintiff that the Meshona Group was "worth $20 million". However the plaintiff did make specific reference to some of the statements that he claimed had been made by the defendant at the time the plaintiff agreed to make the investment in Meshona. For instance in the document entitled "Points for Discussion Urgently" the plaintiff wrote: c. At the time my joining the business you said that Meshona's income was $850,000, later Dolly said $700,000. d. What was the worth of the business at the time of buying in? Would you pay $6 million? If so, what would be the return? 146 This was a document created two years after the relevant events and the plaintiff was not cross-examined about the content of these paragraphs to suggest that the absence of any mention of a value of $20 million from them was because the defendant did not make the representation. Another document that was created by the plaintiff on 24 November 2006 was a letter to the defendant "through" Ramona referred to earlier that included the following: 1. I was not aware that I was suppose to have done due diligence before I agreed to your offer to sell 49%. I was never given any information about Meshona's trade figures. All you said was that your yearly income was $850K. You don't have to lift your finger. The money will flow in. A week later Dolly told me that the income was $700K. I never asked the figures were gross or not. (Emphasis added) 147 The plaintiff was not cross-examined in relation to this paragraph. Nor was it submitted by the defendants that the absence of any mention of Meshona being worth $20 million from this paragraph leads to the conclusion that the representation was not made. The topic that the plaintiff was addressing in this paragraph in which he identified "all" that the defendant had said at the time was the amount of yearly income, not the value of the business. However, in his letter of 30 November 2006 the plaintiff claimed that he sincerely believed that the defendant had "overvalued" the business. This was a general claim without any specificity as to the amount that the defendant had placed on that value. However the plaintiff said in that letter that he was unable to pay $9 million for an "overvalued business". Notwithstanding the absence of any cross-examination or submissions as referred to above, the fact that there is no mention of the $20 million value of the business is another factor to be taken into account in determining whether the representation was made. 148 The defendant's failure to expressly deny the representation in his affidavit, combined with the failure to put to the plaintiff in cross-examination that the representation was not made are important matters. The defendant's affidavit evidence was that he had informed the plaintiff that the South African consortium was willing to purchase 49% of the shares in the Meshona Group for the equivalent of $9 million. It was not suggested to Arun in cross-examination that the defendant had not informed him that the Packer Group was interested in purchasing the Meshona Group for $20 million. I am satisfied that just prior to 5 September 2004 the defendant made that statement to Arun. The fact that the defendant was referring to the Packer Group interest at $20 million tends to suggest that it would certainly have been on his mind at the time of the meeting with the plaintiff at the Club on 5 September 2004. 149 Factors tending to suggest that the representation was made include the fact that the defendant made mention of the $20 million to Arun so close to the meeting with the plaintiff; the defendant's failure to expressly deny the representation in his affidavit; and the failure to put to the plaintiff in cross-examination that the representation was not made. A factor tending to suggest that the representation was not made is the absence of mention of the $20 million in the 2006 correspondence. In balancing these matters in assessing the probabilities of whether it was said, I am satisfied that the absence of any mention in the 2006 correspondence is outweighed by the other matters referred to above. 150 On balance I am satisfied that the plaintiff's evidence should be accepted. I am satisfied that the defendant made the representation to the plaintiff at the Club on 5 September 2004 that the Meshona Group was worth $20 million. 151 Mr Reddy claimed that the $9 million figure was not calculated as a result of any assessment made by the defendant or by him as to the "value" of the Group (tr 570). Rather it reflected what the Group needed to "move forward" including to pay off a $3 million loan from the Commonwealth Bank of Australia and to establish a direct lending facility (tr 571). The defendants did not call any evidence to establish that the value of the business, if it did "move forward" in this way was worth $20 million. 152 The evidence establishes overwhelmingly that the representation on 5 September 2004 that the Meshona Group was worth $20 million was false. Mr Reddy acknowledged that falsity in his cross-examination (tr 577). Its falsity is also established by the expert opinion of John Henry Williams, the principal of the accounting firm Lumina and a chartered accountant with approximately 16 years experience in business and corporate advisory services, forensic accounting and litigation support. Mr Williams was asked to address the following relevant issues: (1) whether the value of the business carried out by the Meshona Group was at least $20 million as at 5 September 2004; (2) the market value of the business conducted by the Meshona Group as at 30 June 2004 and 5 September 2004; (3) whether as at 5 September 2004 the profit derived from the business carried on by the Meshona Group was $850,000 per year; and (4) the net profit after tax of the business or businesses conducted by the Meshona Group as at 30 June 2004. 153 Mr Williams summarised the balance sheets for four companies: Meshona Group Holdings, FlexiMortgage, Financial Directions (Australia) Pty Limited (FDA) and WYD Pty Limited (WYD). Although the Meshona Group of Companies included additional companies, Mr Williams was satisfied that those companies did not have any income or expenses and there were no significant assets or external liabilities in any company in the Group other than those four companies. 154 For reasons that were not challenged, Mr Williams concluded that the appropriate methodology for the valuation of the business was the balance sheet method. 155 Mr Williams identified the total shortfall of assets over liabilities at 30 June 2004 at $1,676,834 and at 30 June 2005 at $2,250,292. He concluded that this implied that there was a "nil value" in the Group at 30 June 2004 and 30 June 2005. He also concluded that in order for the Group to be valued at or around $20 million, one or more of the assets of the Group on a combined basis would need to have a fair value which exceeded the value recorded in the financial statements by approximately $22 million after adjusting for taxation effects. Mr Williams reported: 45. In my opinion, while these assets may or may not be undervalued in the financial statements, it is inconceivable that the fair value exceeds the book value by an amount of $22 million which would be necessary for the group to have a value of $20 million. If the value of these assets amounted to $22 million they would be expected to generate earnings significantly in excess of the earnings of the Meshona Group. The existing earnings of the Group do not support a valuation of this amount. … 47. As stated above the balance sheets of the Group indicate a net deficiency, as the total assets are less than the total liabilities. Further, the profit and loss statements provided indicate the Group has not achieved profitability from the 2002 financial year to the 2008 financial year. Accordingly, in my opinion the Group did not have a valuation of, or close to, $20 million. Based on the information provided, in my opinion, the valuation of the Group at 30 June 2004 and 30 June 2005 is likely to be nil. 156 I am satisfied that the representation was made and that it was false at the time that it was made. The profit of the business representation 157 The plaintiff's evidence was that at the meeting at the Club on 5 September 2004 the defendant said: "The business is making $850,000 net profit. I don't have to lift a finger, I can just sit in my backyard and the money flows in" and "the profit that we derive from the business and its subsidiaries is in excess of $850,000 with little effort and without capital expenditure". 158 Although Mr Stevenson suggested in his cross-examination of Mr Reddy that the plaintiff may have been an "unsophisticated investor", it seems to me that at the time of these negotiations the plaintiff had quite a deal of investment experience. He had a very large portfolio of properties with corporate and trust arrangements for dealing with ownership and rental income. He had been in general medical practice for over thirty years and, although I am of the view that he depended on his sons for advice in some respects, he would obviously have been in a position to understand the difference between gross income and profit. The plaintiff was cross-examined as follows (tr 220 –221): Q. And he [the defendant] told you at the Mosman club that the net income was in the order of 800,000 per annum? A. 850,000, yes. Q. I'm sorry, gross income? A. Income, yes, he mentioned as income. 159 It was submitted that the plaintiff's evidence during this exchange should be understood as being that the defendant informed him that the net income of Meshona, that is the profit, was in the sum of $850,000 per annum. It was also submitted that it is clear from the plaintiff's correction of the sum in the answer to the first question from 800,000 to 850,000, without correction of the description of "net income", that the plaintiff accepted the proposition that the representation was in relation to net income. It was submitted that the second question is confusing and the plaintiff only agreed to the mention of income not to the description of "gross income". There was no re-examination of the plaintiff to clarify this alleged confusion. I am of the view that the plaintiff was intending to convey in this evidence that the defendant did not describe the income as either "net" or "gross" but simply as "income". 160 When the plaintiff wrote the earlier referred to document of 9 September 2006, he specifically referred to the statement made by the defendant that the "income" was $850,000 and that Mrs Reddy had said that it (meaning the income) was $700,000. The plaintiff repeated the use of the word "income", as opposed to "profit", in his letter dated 24 November 2006 when he wrote that "all" the defendant had said was that the yearly "income" was $850,000 and that a week later Mrs Reddy had informed him that the "income" was $700,000. The plaintiff then wrote "I never asked the figures were gross or not". That is a significant statement. It is a recognition that the plaintiff did not clarify with the defendant whether he was referring to the gross income or net income/profit when he made that statement. 161 The first time the plaintiff used the word "profit" to describe what the defendant had said to him at the Club was in his affidavit sworn on 26 September 2008 in which he claimed that the defendant said that the business was making $850,000 "net profit". I do not accept that the defendant said the words "net profit". On more than one occasion in the correspondence in 2006 the plaintiff claimed that the defendant had said the business was making $850,000 "income". In his cross-examination extracted above the plaintiff specifically said that the defendant referred to "income". The defendant admitted that he referred to certain commissions and income in the amount of $800,000. 162 It is clear that the plaintiff translated the word "income" as used by the defendant into the words "net profit" in his affidavit. It may well have been that by this time the plaintiff understood and/or believed that the word "income" in the context in which it was used meant "profit", however he did not suggest in his evidence that when he referred to the word "income" he meant "profit" or "net profit". Having regard to his own correspondence with the defendant I am satisfied that the plaintiff cannot establish the representation as pleaded. 163 Mr Williams reviewed the financial information and calculated the annual profit or loss for the Group by combining the annual profit for each of the four entities Meshona Group, FlexiMortgage, FDA and WYD. That calculation resulted in a total loss in the 2004 financial year of $378,566. 164 Mr Williams reviewed the annual revenue for the Group and adjusted the turnover to exclude revenue from parties within the group because it did not represent revenue to the Group as a whole. The annual revenue for the year 2004 for Meshona Group was $866,990; for FlexiMortgage was $26,549; for FDA was nil; and for WYD was nil. Mr Williams deducted $264,545 from Meshona Group because that was revenue from FDA as a management fee rather than any revenue from an external source into FDA. He described it as an intercompany charge and said that in order to determine what the Group revenues were, it was necessary to eliminate intercompany Group revenues (tr 531). Mr Williams said that if the business of FDA had been transferred to Meshona Group it would be in the net revenue figure of the Group (tr 534). But this did not happen. The revenue from external parties amounted to $601,840 and there was additional interest income of $603.66. Mr Williams said (tr 535): So if the business of FDA had been wound into Meshona Group Holdings so that those commissions were received in the Meshona Group Holdings books, it would be in the total commission figure, which per the financial statements are $601,840.88. It may significantly assist to look at the profit and loss statement. 165 When it was suggested to Mr Williams that the revenue of FDA was accounted for in Meshona Group and no adjustment was required, Mr Williams said it was "incorrect" (tr 535). 166 The annual revenue of FDA for the years 2002 and 2003 were recorded as $166,035 and $943,666 respectively. The annual revenue for WYD was recorded as $37,964 for 2002 and $233,345 for 2003. These were the only years in which those two companies recorded any annual revenue. 167 The total annual revenue of the Group for the years 2001 to 2004 was as follows: $1,062,293 for 2001; $1,000,127 for 2002; $1,569,494 for 2003 and $628,994 for 2004. Mr Williams' adjustment to the 2004 year meant that the annual revenue for Meshona Group of $866,990 was reduced by $264,545. Mr Williams reported that the Group's revenue for each financial year prior to 2004 was above $850,000. The revenue in 2004 without the adjustment would have been $893,539 and with the adjustment was $628,994. 168 I am not satisfied that the defendant said that the "net profit" or the "profit" was $850,000 per year. I am satisfied that the defendant represented that the income, without further description, of the business was $850,000 per year. Having regard to the expert evidence, that representation does not seem to me to be false. The adjustment performed by Mr Williams in respect of the year ending 30 June 2004 may be quite appropriate, but it is not something that would convince me that the representation as to income made by the defendant was false. In any event the plaintiffs have failed to prove that the representation as pleaded was made and this part of the plaintiffs' claim will be dismissed. Due diligence representation 169 The plaintiff claimed that the defendant represented that the plaintiffs would have the opportunity to investigate the financial circumstances of Meshona and its subsidiaries and to carry out due diligence in relation to the financial and legal affairs of the Group before being bound by any agreement to purchase the shares. There is no real issue about this representation, the issue is whether the plaintiffs were given the opportunity to conduct their due diligence. There is also the issue of the Acknowledgement in Annexure "A" to the Share Sale Agreement. As referred to earlier the plaintiffs claim that this was signed as "a formality" and did not reflect the true position. The defendants claim that the contents of the due diligence Acknowledgement reflect the true position. 170 The plaintiff's evidence was that in the meeting at the Club he informed the defendant that he would need to be provided with all the financial documents and that the defendant said that he would ask his daughter, Ramona, to provide the plaintiff with all the "financials". The plaintiff claimed that the defendant said that Ramona would "sign off and show" him that the business he was buying was a "squeaky clean company". The plaintiff also claimed that he informed the defendant that it would "all be conditional" on the plaintiffs reviewing all of the financials and conducting due diligence. The plaintiff also gave evidence of the requests for the financial information he made subsequently. Although the plaintiff's evidence referred to Ramona advising him that she had been "so busy" and would get them to him "soon", Ramona did not give evidence in the proceedings denying that such requests and conversations took place. 171 It is clear that there was great excitement in the plaintiffs' camp at the prospect of becoming part of what obviously appeared to be a very successful operation with capacity to organise very promptly what the plaintiff believed to be at least $9 million by way of loan funds from refinancing his Properties. 172 Arun and Anand were invited into the premises of the Meshona Group with apparent access to the MYOB documents. They were obviously busy trying to finalise the applications for the refinancing of the plaintiff's Properties and at the defendant's suggestion, they conducted further research into VIP and Revetec. 173 Anand gave evidence that he unsuccessfully sought access to Meshona's financial statements but did not put any of his requests in writing because he understood his father was dealing with these requests. Arun and Mr Reddy seemed to have been intent on reducing the exposure to taxation and/or stamp duty by creating a Share Sale Agreement that bore no resemblance to the real purchase price that had been agreed to between the parties. 174 Mr Reddy claimed in cross-examination that the $9 million purchase price was not reflective of the value of the Group but rather the value of an "opportunity" to grow the business. The defendant's affidavit refers to a conversation in which he advised the plaintiff at the Club that the "price" was $9 million for 49% of the shares in Meshona. The defendant made no reference in this part of the conversation to any due diligence being carried out by the plaintiffs. Indeed the defendant claimed that the plaintiff agreed to buy into the Group for $9 million unconditionally without any questions or conversation other than to say, "I agree. Thank you very much". The defendant claimed that after the meeting at the Club when the two men went to his home to speak to the families, he said: "You will have to do your due diligence, understand the company and what we do and how we operate. Nothing is agreed yet. You should satisfy yourselves about what we're proposing to do". 175 The plaintiff gave affidavit evidence that on 1 October 2004 when he signed the Share Sale Agreement he trusted the defendant and believed that he would have the opportunity to conduct due diligence. He said that he would not have signed the Share Sale Agreement (and the Annexure) if he had been informed that he would not have the opportunity to undertake due diligence. The plaintiff gave affidavit evidence that when the due diligence Acknowledgement in Annexure "A" to the Share Sale Agreement was provided for signature he asked the defendant, "Why are we signing this?" to which the defendant responded that it was "just for completeness, for the file". The plaintiff also claimed that the following conversation took place at this time: The defendant: In due course you can do your due diligence, we are preparing the papers. Ramona can provide you with all the information you need to do your due diligence. I will have her to provide you with all the financials of the company. Ramona, when can you have this ready? Mrs Reddy: This will take some time as this is a very busy time for the company. Ramona: I will get it as soon as I can. 176 The plaintiff was cross-examined about his willingness to sign the Acknowledgement and gave the following evidence (tr 126 - 127): Q. So you were signing and you were allowing your sons to sign a document that you knew was false? A. I didn't have any choice. Q. You didn't have any choice, I suggest to you that you and your two sons had been sitting at Meshona for the weeks before this? A. Yes. Q. And that they were responsible for drafting this? A. I don't know who is responsible for drafting this, I didn't know who drafted it. Q. So you allowed your son and, your two sons to sign a document that you knew at that time was false? A. Yes, I would say, yes. … Q. As at 1 October you had been told by both of them that they had no documents to look at for due diligence? A. That's right. Q. Yet you allowed them to sign this document that you knew was absolutely contrary to what they told you? A. Yes, I did, I did sign and they did sign too because of Mr Reddy's advice and insistence. 177 Arun gave the following evidence in cross-examination in relation to signing the Acknowledgement (tr 312 –314): Q. You signed that with your father and brother intending that that was truthful? A. No. Q. You signed a document that was a lie, did you? A. Yes. … Q. You signed a document that was false on its face? A. Yes. … Q. Why did you sign a document that was false? A. We hadn't, I signed it because Roman assured us that we would still get the financial documents to complete our due diligence, he suggested, he said that this was just a formality. … Q. You drafted it? A. Yes. Q. You had given it some considerable thought? A. Yes. Q. And you were a solicitor of the Supreme Court at that time? A. Yes. Q. You knew that it was contrary to every ethical standard that you as a solicitor had sworn to uphold? A, Yes. Q. And yet you chose to breach that ethical standard? A. Yes. I accept my responsibilities in this. … Q. But do you fully expect that your answers in these proceedings will be drawn to the attention of the Law Society? A. Yes. … Q. Do you admit that in signing this you were stating something you knew to be false but were willing to go along with? A. Yes. 178 Mr Reddy accepted in cross-examination that part of his responsibility in 2003 and 2004 was to participate in the preparation of the financial accounts of the Meshona Group of Companies. He agreed that he was aware that as at August 2004 the most recently prepared accounts for the Meshona Group were those for the year ended 30 June 2003, which he had signed off in around June 2004 (tr 560). He also agreed in cross-examination that it was obvious to him from the plaintiff's enthusiasm that his belief was that 49% of Meshona was worth $9 million. He gave the following evidence (tr 575 – 577; 590): Q. And you knew that 49 per cent of Meshona at that time, the Meshona Group, was worth nothing like $9 million, didn't you. A. Well, around about that time it was worth $2 because that's the issued share capital. Q. Not just that, the most recent accounts produced for Meshona at the time of this meeting showed it was trading at a loss? A. Correct. Q. The most recent accounts produced for Flexi Group Mortgage showed trading at a loss? A. Right. Q. The most recent accounts produced for both those companies showed both companies had a deficiency of liabilities over assets? A. Yes. Q. So, your view was it that Meshona, the Meshona Group at that time was worth $2? A. No, it's what it was said on paper. Q. I don't understand what you mean by that? A. Well, essentially the Meshona group of companies had a gross trail income of around $850,000 per annum which was to be used as a base and the additional capital and so forth for the company was to basically allow the company to grow, so realistically the $9 million was to buy an opportunity to grow the business. Q. You know that $800,000 income you referred to includes finance received by Meshona from other Meshona companies don't you? A. Yes because Meshona Group of companies or Group Holdings is the main account company and of which there are several distribution companies that do different things. However, the money has to be received from somewhere for it to be accounted for. Q. Nonetheless you knew, didn't you, at the September 2004 meeting the two trading companies in Meshona Group were Meshona Group Holdings and Flexi Mortgage, correct, at that time? A. There were more trading companies but there were income coming in from those companies. There was also WYD. There is also Tula Grace. Q. And all of those companies were trading at a loss? A. Yes but the gross income of the group was $800-$850,000. Q. Against which expenses were set-off in each company resulting in each of them trading at a loss? A. No, some companies had nil return. … Q. You understood, didn't you, on 5 September 2004 when Dr Lakshmanan was expressing enthusiasm for an investment of the $9 million into Meshona Group Holdings that the companies were nothing like $9 million, didn't you? A. It was the purchase for the opportunity going forward. Q. Do you agree that it would have been wrong, false for some someone to have said to Dr Lakshmanan on 5 September 2004 that as at that the date the companies were then worth $20 million? A. No one actually said that. … Q. Don't you agree it would have been false for them to have said to Dr Lakshmanan on 5 September 2004 that the Meshona companies were then worth $20 million? A. That day? Q. Yes. A. It would be false because the company wasn't at that point as yet. … Q. You agree with this, don't you, that the 49 per cent of Meshona as at 5 September 2004 certainly wasn't then worth $9 million? A. Correct. … Q. Trading. You knew as at 5 September 2004 that the financial statements of the trading entities of the Meshona Group would have made clear at a glance that the Meshona Group was not worth anything like $9 million? A. At that time, well, the company had a gross turnover of $850,000 per annum. The trading figures would not reflect a company worth $9 million, the basis of which is the $850,000 was to be used as a base for moving forward for the additional capital coming into the company. Q. The most recent accounts for the two trading entities, namely, Meshona Group Holdings and Flexi Mortgage, showed both companies were trading at a loss? A. That's correct, they were trading at a loss. Q. And had a deficiency of liabilities over assets? A. Yes. Q. So it was obvious to you that anyone reading those accounts could see that as at 5 September 2004 the Meshona Group was not worth anything like $9 million? A. That's true. 179 Mr Reddy gave the following evidence on the topic of due diligence in relation to the opportunity that he claimed was being purchased by the plaintiffs (tr 593 – 594): Q. Mr Reddy, you agree, don't you, that as at 5 September 2004, the Meshona Group was not then worth $20 million? A. Correct. Q. So you agree, can I suggest it follows, that 49 per cent of Meshona was not then, that is 5 September 2004, worth $9 million? A. That's correct. Q. And I think what you were saying before lunch was that though what we have just agreed is true, there was a potential - or an opportunity, I think you said - for the value of the Meshona business to grow? A. Correct. Q. And is your understanding that what Dr Lakshmanan and his family had agreed to do was to pay $9 million for 49 per cent of that opportunity or potential? A. Correct. Q. And in order for the opportunity to be realised, Meshona would have to establish what your father described as being a direct line? A. Yes. Q. That is a direct funding line, is it? A. Correct, yes. Q. With banks or superannuation funds or other like institutions? A. Yes. Q. That in order for that to occur, Meshona would have to get a credit rating from such institutions as Moody's or Standard & Poor's? A. Yes. … Q. You know that there was provision in the documents for there to be a due diligence-- A. Yes. Q. --of Meshona. And do you say that you understood that what that due diligence would have enabled the Lakshmanan family to do was to assess the value of the opportunity or potential of Meshona in the way you have described? A. Yes. 180 Mr Reddy was then cross-examined about the types of documents from which such an assessment could be made and gave the following evidence (tr 594 - 596): Q. And what sort of documents do you say would be necessary in order to satisfy someone that Meshona had that opportunity? What kind of documents would be needed, do you think? A. In terms of the documents provided? Q. Sorry? A. In terms of the documents provided? Q. No, just generally. Just generally? A. Well, first of all you will need a - a residential loan programme manual, right, in terms of how the operations of the fund will be done, right, a terms paper. Right. You will also require - let's see, how would you say it - you will require the characteristics of the borrowers, what type of loans you are going to be doing under your programme. Q. And wouldn't you need also some communications with a bank or a superannuation fund which would indicate the probability of a direct line being established? A. That was worked on, yes. Q. Wouldn't you also need a document showing the likelihood or otherwise of a Standard & Poor's or Moody's rating satisfactory to the relevant bank or superannuation fund being established? A. Well, at the - well, let's see if I can answer this correctly in terms of what you are asking me. The due diligence was done on the basis of the company of where it stood. That being that its relationship with funders, its strategic partners, its operations, what it currently carried out as the business as of that time. Our vision for the company was that we would get ourselves a direct funding line and that was done going forward. Q. But the position of the company as it stood was - companies as it stood were, weren't they - that the two trading companies were trading at a loss and had more liabilities than assets? A. That is correct. However - sorry? Q. So how would that-- A. Pardon? Q. How would-- A. How would - sorry? Q. --looking at that kind of material assist anyone make an assessment of the potential of Meshona to go down the path that you have described? A. Well, where Meshona sat at that present time when due diligence was carried out was as a programme manager. Right. Which is what we did was a private label and sourced funds from-- Q. Private label? A. Private label. Q. And what sort of funds? A. I am sorry? Q. Source? A. Yes. We'd source funds as a private label programme manager. In essence what Meshona was doing was re-badging a current programme in the market place and that was provided by RESIMAC in terms of their back office services. Q. Can you help me with this: How would anyone looking at the financial statements of the trading Meshona companies be able to come to any view as to what opportunities might be available for Meshona in the future, bearing in mind that the companies were trading at a loss and had more liabilities than assets-- A. Yes, however the -- Q. As they stood? A. Sorry? Q. As they stood? A. Correct, but as the basis of the deal instant was that the company had a gross revenue of 850,000 which was used to be - sorry, was to be used as a base in going forward with marketing and distribution and also sourcing a direct lending line. Q. Do you say that in the folders that you claim you showed Arun and Anand-- A. Yeah. Q. --that there were documents which would enable them or anyone to make some kind of assessment as to how probable it was that Meshona would be able to realise the opportunity of which you have been speaking? A. Sorry, are you saying that what documents were shown to them to create the funding programme? … Q. Were there, within the documents you claim to have given Arun and Anand, documents which would point to the probability of the Meshona companies getting a Standard & Poor's or Moody's rating? A. No, they wouldn't at that time. Q. And were there any documents, do you say, in these folders which would point to what back office system Meshona was going to develop? A. There would be documents about what systems are required and what requirements - sorry, what systems were required and the requirements of those systems and what processes that would need to be done, for example your collections, your arrears management, your direct debit facilities and so forth. 181 Mr Reddy was taken to paragraphs 56 and 57 of his affidavit in which he had described the documents that he claimed were available to the plaintiffs for inspection including print-outs of information maintained on the MYOB system. He was then cross-examined as follows (tr 597 –598): Q. All those documents would tell the reader is what the current financial position of the companies was? A. Correct, yes. Q. And that is that they were trading at a loss? A. Yes. Q. And had an excess of liabilities over assets? A. Yes. Q. So that wouldn't tell the reader anything about the future, would it? A. Well, no, it wouldn't. Q. I withdraw that. That wouldn't tell the reader, any reader, anything about what potential or opportunity was available to Meshona? A. Well, it will tell you that the income coming into the group was around 800 to 850,000 per annum. Q. And that that income was exceeded by the outgoings? A. Yes. Q. By the way, you agree with this, don't you, that as at 8 September 2004, which is when you say you delivered these folders, the most recently completed financial statements for the trading entities were for the year ended 30 June 2003? A. Right. 182 Mr Reddy was referred to other documents that he claimed were in the red folders provided to the plaintiffs and agreed that they would not inform the reader of anything about what potential Meshona had to establish a direct line with banks or superannuation funds (tr 599). He gave evidence that on 8 September 2004 he delivered to the office occupied by Arun and Anand folders containing "print outs of information maintained on the MYOB system of the companies in the Meshona Group of companies". His affidavit evidence was that these documents "related to the Business Activity Statements" prepared for the companies. He claimed he also delivered the monthly commission statements for the previous two years recording all trail income received in that period and documents recording payments of commission to other parties. Mr Reddy claimed that he gave Arun and Anand "22 or 23 lever-arch folders" and that those folders included agreements with funders, documents relating to the arrangements with mortgage insurers and documents recording the arrangements between the parties with whom the Group of Companies did business. His evidence was: I no longer have the folders in exactly the form that I provided to Arun and Anand, but the documents provided to them have been retained as part of the records of the Meshona Group's business. 183 Mr Reddy was cross-examined as follows (tr 601 – 604): Q. Do you say that the folders still exist somewhere? A. Pardon? Q. Do you say that these 22 or 23 lever arch folders still exist somewhere? A. No, they have been, well, modified over the years in terms of different agreements, different changes in the law and so forth. Q. Changes in the law? A. Pardon? Q. Did you say changes in the law? A. Yes. Well, in terms of disclosure of commissions and so forth had to be changed into your contracts and so forth. So the - what do you call, the -- Q. Do you say that - sorry, had you finished, sorry? A. Yeah, I was just going to say the historical or the past documentation didn't keep up as - at that stage disclosures of commissions structures and so forth had to be divulged and so those contracts were amended. Q. Did you have to create these 22 or 23 folders of documents in order to give them to Arun and Anand or did they already exist somewhere? A. Some of them already existed, yes. And some of them were actually made. Q. By which you mean you gathered together documents, you say, and put them in a folder-- A. Correct. Q. --to give to Arun and Anand, you say? A. Yes. Q. When you say you no longer have the folders in exactly the form that you gave to Arun and Anand-- A. Yes. Q. --does that mean the folders exist in some form? A. Yes, well, the - well, the contents of the folders exist, if that makes sense. Q. They are no longer in the folders that you say you gave-- A. Yes. Q. --to Arun and Anand but the documents still exist? A. Correct. … Q. What I would like you to do at some convenient time, perhaps after court today or before court tomorrow, is to go through them-- A. Yeah. Q. --and identify, if you can, any documents which you say would have conveyed to the reader any information as to the opportunity or potential available to Meshona of which you have described? Can you do that? A. Well, it's more in a sense of that's where we were currently and what the information shows is where Meshona stood, not where it was going to go to. So if I were to take those same folders and say, okay, where is this about Meshona, it will be two different things. Q. Well, are you saying that there were no documents within those folders which touched in any way upon the opportunity that you say was available to Meshona? Not a single one? A. Not - the opportunity to Meshona? Q. Yes? A. Well, the opportunity to Meshona was to get and source a direct funding line. In those manuals, it covers it from the basis of other funders so I am not really sure how to answer that because-- HER HONOUR Q. Can I just understand your evidence. The documents that you claim that you gave to Arun and Anand would not show them that there was this opportunity in the future? A. That's correct. Q. And so what you gave them were documents that reflected the company on your version of events as it stood as at 8 September 2004? A. Yes. Q. Without any detail of the prospect of the opportunities about which you have spoken today? A. That is correct. 184 Mr Reddy denied that Arun and Anand had made requests for financial information (tr 651). In paragraph 205(d) of his affidavit he claimed that the plaintiffs had engaged Mr Yeung of Cabot Square as their accountant. He also claimed that Mr Yeung was engaged as the accountant for the Meshona Group and had access to the Group's financial information "which he was at liberty to provide to the Lakshmanans if requested". The defendant made a similar claim in paragraph 313 of his affidavit. Mr Reddy agreed that Mr Yeung was engaged to prepare the Lakshmanan family's accounts and to prepare Meshona's accounts. Mr Reddy accepted that as at 11 January 2006, Mr Yeung had not started doing any work in relation to the Meshona accounts (tr 654). He also agreed that Mr Yeung was contending that he could not start doing the Meshona accounts until he received what he called an "ethical letter" from Meshona's previous accountant, Mr Mishra at ACM Partners. 185 Mr Reddy's suggestion that what the plaintiff was purchasing with the $9 million was an "opportunity" to grow the business was in my view devised by Mr Reddy to meet the obvious problem established by the plaintiff's evidence that Meshona's value was probably "nil" at the time of the Share Sale Agreement. Mr Reddy's evidence, referred to later, in relation to the loan agreements, with suggestions that they were "more like" personal guarantees" than a disguise of the true purchase price was also unacceptable and assisted in leading me to the conclusion that his evidence is quite unreliable. 186 The Meshona accounts for the year ended 30 June 2003 recorded a trading loss of $170,147 whereas the MYOB documents showed a profit of $651,842.10 (tr 662). Irrespective of whether Arun and Anand accessed the MYOB documents that were said to be available to them, those documents did not reflect the true position of the Meshona Group. In 2004 the accounts recorded a negative equity of $530,971.28 whereas the MYOB documents recorded a profit of $714,816. In 2005 the accounts recorded a negative equity of $792,763.90 whereas the MYOB documents recorded a profit of $669,750. Additionally the $3 million debt to the Commonwealth Bank was not recorded in the MYOB documents. 187 The problem with the defendants' proposition that the plaintiffs could have had access to Meshona's financial information through Mr Yeung's office is that Mr Yeung had been trying for many months to obtain the relevant information from Mrs Reddy and from Meshona so that he could advance the task of preparing Meshona's financial statements. It is obvious that as at 11 January 2006 Mr Yeung had not received any financial information to prepare those statements. Mrs Reddy did not agree that this was the position but rather suggested that Mr Yeung did not attend to it because he was attending to other matters for the plaintiffs (tr 709). Mrs Reddy claimed that she advised Mr Yeung to liaise with the bookkeeper in relation to such information that was needed and to work with the bookkeeper. Mrs Reddy resisted the suggestion that as at 11 January 2006 the accountant did not have the financial information (tr 709). However Mrs Reddy agreed that the email communications evidenced that Mr Yeung had been chasing her up for the financial information (tr 710). 188 In the face of a number of emails from Mr Yeung asking for the details of the previous accountant, Mrs Reddy claimed that Mr Yeung already knew of the identity and details of that previous accountant (tr 712). She was cross-examined further as follows (tr 713): Q. Mrs Reddy, it was obvious to you from the sentence I just read out that Mr Yeung was asking you to name the previous accountant? A. Yes. Q. And you say, do you, that you had already told him that information many times before the date of this email, 3 May 2006? A. Yes, I told him that. Q. Did you ring Mr Yeung or contact him and say, "Why are you asking me who the previous accountant was, Aaron, I have told you many times before"? A. I already did, in a telephone call. 189 Mrs Reddy was then shown an email that she wrote to Mr Yeung on 9 May 2006 in which she advised him that the bookkeeper "Derek" was in the process of finalising the current BAS and would provide the outstanding issues relating to the tax returns to Mr Yeung "shortly". Mrs Reddy gave the following further evidence in cross-examination (tr 713 – 714): Q. So it is clear from that, isn't it, that as at the date of your email the information that Derek was processing had not then been given to Mr Yeung? A. Yes. Q. And you see Mr Yeung then replies to you in the top half of the page, and if you look at the last two lines he says, "How is Derek going with the BAS and the accounts of Meshona? I would not be able to do very much as I have not contacted and got ethical clearance from the previous accountant." Do you see that? A. I'm still looking for-- Q. First of all, do you see that part? A. Just looking at this, the bottom email, and you didn't complete it. It says Roman will be getting back in a few days regarding that issue and Dr Laks's details of the accountant, and my discussion previously to liaise with Derek re the Meshona accounts. You didn't read that because I told him to liaise with Derek on the Meshona accounts. This is the last bit of the email you stopped reading. Q. What's the point you are making about that? A. Because I did write to Aaron to tell him that he needs to liaise with Derek on the Meshona accounts. That's not completed there because I did tell him that on the email. You stopped the email at the place where I addressed those issues to him, to Aaron Yeung. … Q. It is quite plain, isn't it, from Mr Yeung's response to you that what he is saying is he can't do very much until he gets what he called the ethical clearance from the previous accountant. That's what he said? A. He did say that. Q. So he is saying to you: Dolly, I can't start doing work on the Meshona accounts until I get clearance from Mr Mishra? A. But I understand that, but he always asked about the accounts and he didn't do it but he could have got the information because he was supposed to liaise with Derek. That's what I can't understand, because as much as - as much as he didn't do it, he didn't ask. 190 Mrs Reddy paused at length before answering the questions posed in cross-examination. I am satisfied that Mrs Reddy knew that the financial statements for Meshona for the years ending 30 June 2004 and following had not been commenced as at January 2006. I am satisfied that Mr Yeung was not in a position to complete the Meshona accounts for two reasons. The first was that he needed clearance from the previous accountant, Mr Mishra. The second was that he had not been provided with the financial documentation and materials that he needed to complete the financial statements of the Meshona Group of Companies. 191 The 2006 correspondence between the plaintiff and the defendant includes the plaintiff's claims that he had asked for the financial information and documents on numerous occasions and had been effectively fobbed off. On one occasion he was advised that he was not entitled to ask for the documentation because he had not completed his obligations under the agreement, that is the payment of $9 million for 49% of Meshona. 192 The plaintiff was cross-examined about his discussion with the defendant in relation to his investment in Meshona in particular in relation to conducting due diligence. He gave the following evidence (tr 88 - 89): Q. I suggest that you said nothing about a deal being conditional on reviewing all financials and conducting due diligence on that day? A. I did mention that I have to look into the papers and I have to give it to my accountant. Q. Who was your accountant? A. At the time Fodera. Q. Fodera? A. Yes. Q. Did you ask Mr Fodera to ring up and get them? A. I didn't ask him, no. Q. Who did you ask? A. I requested Mr Reddy to provide me with the papers so that can I show them to my accountant. … Q. You had done what you say, your case is that this handshake deal at the Mosman RSL? A. Yes. Q. Is the contract, a binding contract that, is your case? A. Yes, gentlemanly, binding contract, yes, that's right what I believe, yes. Q. When did you tell your accountants that you made such a deal to investment nine million? A. I couldn't exactly remember when I said, it was some time later probably, some time later I did say. Q. Did you instruct your accountant to get the financials? A. There was, yes, some time ago, some time after that, yes I did and, but that's the reason I was asking for the papers all the time. Q. But Mr Fodera, did you give any outline of the deal you made to Mr Fodera? A. No. Q. Did you give him any information about the deal you made? A. No, no. … Q. Did you tell your solicitor who was acting for you in the Federal Court proceedings, did you tell him about your deal? A. Yeah, about handshake, yes. 193 The plaintiff was also cross-examined in relation to proceedings in the Federal Court to which he was a party as follows (tr 46 - 50) Q. You had solicitors acting for you in 2004 in the litigation in the Federal Court, didn't you? A. Yes. Q. Who were they? A. I can't remember the names. Through Mr Fodera, that is the accountant, the accountant advised to that firm. I can't remember the name now. Q. As you signed a dozen affidavits in those proceedings between 2004 and 2006, didn't you. A. Possible. I can't remember exactly how many I signed, no. Q. And you signed those, didn't you, pursuant to legal advice from the firm that was retained? A. Yes. Q. You gave evidence in the Federal Court in 2006? A. Yes Q. And that litigation was continuing all through your association with the Reddys? A. At the time, yes. Q. Did you tell them about it? A. No. Q. Why not? A. I didn't tell, no. Q. You were involved in litigation for a significant amount of money; is that right? A. I am not sure. I'm sorry, I am not sure whether – I could have told him, too. Q. You haven't put it anywhere in your -- A. No, I didn't put it anywhere, but I am sure in the course of conversations, yes. Q. Your complaint was a complaint that you had put in a significant amount of money into a group of companies, the furniture group of companies; is that right? A. Yes. Q. That weren't worth as much as you were told? A. By advice from my accountant. Q. They weren't worth as much as you were told? A. I didn't know about it, but on the advice of my accountant, yes, telling that. Q. You invested $600,000, on your memory, into a venture with a furniture company; is that right? A. Yes. Q. You say not knowing anything about it? A. Yes, on the advice of my accountant. Q. And you sued on the advice of your accountants and on the advice of your lawyers in 2004? A. Yes. Q. And those Federal Court proceedings went on for two years? A. I don't think so. Q. You gave evidence in 2006. You discontinued in 2006? A. Yes. Q. You paid the costs of the other side? A. I don't know what – how it was settled, but it was settled out of court. Q. But you paid money to the other side, the respondents? A. Would you please put it in -- Q. You didn't get one dollar of the money you were seeking, did you? A. Yeah, I did get $160,000, I think. Q. Did you? A. Yes. It was around $160,000. Q. Did you discontinue the proceedings in 2006? A. Yes. Q. And you were represented when those proceedings went to court from time to time by the solicitor Debney Williamson; does that ring a bell? A. That sounds, yes. Q. Who was your solicitor there? A. I can't remember the name, no. Q. But that firm acted for you in 2004; is that right? A. Yes. Q. 2005? A. Maybe the same firm, I am not sure. Q. 2006; is that right? A. I don't remember the name. I thought it was the same firm continuing, yes. Q. You were signing statements of claim and affidavits through 2004, 2005, 2006 and gave evidence in 2006? A. Yes. Q. And these documents were prepared for you by your solicitors; is that right? A. Yes. … Q. Why didn't you ask them about your investment in the Meshona Group of companies? A. I never thought I should ask anybody. I mean the same firm or something, I didn't think that way, no. Q. You didn't think. You had invested -- A. I was relying to approach my accountant. Q. Sorry? A. I was relying to approach my accountant. Q. And did you approach your accountant? A. No. Q. Why not? A. I couldn't have any figures or any facts and figures to produce to the accountant. Q. Are you serious doctor? Are you serious that you didn't approach your accountant or your lawyers because you didn't have any figures? A. Yes, I am serious. Q. They were acting for you on this investment of hundreds of thousands of dollars; is that right? A. You mean -- Q. In the Just in Time group of companies? A. My accountant, yes. Q. And your solicitors, they were acting for you in this litigation in the Federal Court? A. Yes. Q. And you never thought you could ask them one question for three years because you didn't have figures? A. No, I didn't. … Q. Is there any other reason you didn't ask for their assistance? A. There is no other reason I could think, no. 194 Anand's affidavit evidence was that he did not on any occasion view any financial information relating to the business of Meshona. He was aware that folders were stored in the cupboard of Mrs Reddy's office but did not look at those documents. He denied that he had a meeting with Mr Reddy in which he was provided with a number of red folders that contained the Group's financial information. He claimed that on a number of occasions between mid 2005 and mid 2006 he asked what was happening with the financials for the business and that on one occasion Mrs Reddy said, "I do not report to you". His evidence was that he gained the clear impression from Mrs Reddy that his enquiries were "not welcome". 195 Anand accepted in cross-examination that he did not ask to have a look at the documents in Mrs Reddy's office. He also accepted that he did not put any of his requests in writing. He gave the following evidence in cross-examination (tr 518): Q. I want to suggest to you that in the period after 5 September that you and your brother had discussions and were shown around the offices of Meshona and were invited to look at the any documents you wished? A. We were shown around the office and shown where documents were kept but we did not go through specific documents. Q. The question was you were invited to look at them? A. We did not look at-- Q. I am putting to you, you were invited? A. Yes. Q. And you were invited to look? A. To my knowledge, yes. 196 In re-examination Anand gave the following evidence (tr 522 – 523) Q. Do you recall a little more recently Mr Waterstreet was asking you questions about whether Mr Reddy showed you where documents were in the office in the period, I think, September 2004. Do you remember that question? A. Yes. Q. And you said, I think, he showed you some cupboards where he said documents were? A. Yes. Q. And then you were asked whether you had been invited to look at the documents, remember that, and you said you had? A. Yes. Q. My question was did you look at the documents? A. No. Q. Was there a reason for that? A. No. At that stage I didn't look at any documents because I didn't feel at that stage entitled to go through any documents, because there was one area with cupboards where there was all loan applications and documents that were pointed out on the left-hand side going into the back office and also where the actual other financial documents that were pointed out was in Dolly's office, and in reference to actually looking at specific documents, especially with the loan applications and the loans files for clients, I didn't feel comfortable at that stage looking through such information. Q. What about the documents in Mrs Reddy's office? A. No, I did not. Q. Was there a reason for that? A. Because I just didn't feel like - feel comfortable going into her office to look at the documents. HER HONOUR Q. Mr Lakshmanan, the cross-examiner has suggested to you that you did not ask for access to the financials. Do you recall that? A. Yes. Q. And it has been suggested to you that you didn't ever put any request in writing. Do you understand that? A. Yes. Q. It may be suggested that your evidence should be rejected because there's nothing in writing about this. Do you understand that? A. Yes. Q. I want to give you an opportunity to explain to me why it was that you didn't put anything in writing. I think you have referred to it at least six times in your affidavit. Why didn't you put something in writing asking for the access to the financials? A. Because at that stage my father at various times was asking-- Q. No, why didn't you put it in writing? A. I don't know. I mean with my father asking for it, questions, I thought he was handling it, so I just don't know why I didn't. 197 In support of the defendants' submission that their evidence should be preferred over that of the plaintiffs, reliance was placed on the manner in which the plaintiff's personal and trust tax returns recorded transactions in relation to Meshona. It was submitted that those tax returns are inconsistent with the plaintiffs' claims in this case. In cross-examination the plaintiff said he was not sure how he dealt with his "investment in Meshona" in his 2008 tax return (tr 157). He agreed that when his tax returns were being prepared, without specifying a particular date, he became aware that he could not claim deductions for his investment in Meshona (tr 199). The plaintiff was cross-examined in relation to the tax returns of the AAA Family Trust. Redmint is the trustee for the AAA Family Trust and Redmint owns the Marrickville Tavern. The plaintiff accepted that the notes to the financial statements of the AAA Family Trust for the year ending 30 June 2005 included a loan to Meshona of $2.3 million. The plaintiff was cross-examined as follows (tr 242 - 244 ) Q. When did you lend $2.3 million to Meshona or when did AAA Family Trust? A. I couldn't answer the question. I don't know, don't know. … Q. You have never said that you have ever participated in a loan of $2.3 million to Meshona Group? A. I am sorry, I couldn't answer the question. … Q. I want to ask you in what circumstances did that loan take place? A. I don't know about the technicality of the loan. I don't know. Q. You have made no statement in your affidavits that you ever lent Meshona $2.3 million, have you, nothing in your affidavits about that? A. Not as a loan, I don't think so. Q. But in your filed accounts with the Taxation Office you have claimed a loan to Meshona of $2.3 million? A. According to this statement, yes, I did. Q. Is it a true statement that the AAA Family Trust lent $2.3 million to Meshona? A. Yes, it is. Q. It is true? A. Yes. Q. And when did you do that? A. I don't know the answer for that, no. I don't know, I can't remember. Q. But it did happen? A. According to my statement, yes. Q. According to your filed tax return? A. Yes. HER HONOUR: Q. According to AAA Family Trust's. 198 The plaintiff agreed that the loan of $2.3 million to Meshona was recorded in the AAA Family Trust tax returns for the years ending 30 June 2005, 30 June 2006 and 30 June 2007. The plaintiff was further cross-examined on this topic as follows (tr 249 – 250): Q. And you remember that I was putting to you that Triple A Family Trust accounts a loan of 2.3 to Meshona appears, do you remember those questions? A. Yes. Q. I want to suggest to you that they appear as a current asset in the years 2005, 2006 and 2007? A. Yes. Q. And they appear in the Triple A Family Trust accounts as an asset by way of loan to Meshona? A. Yes. Q. That you would agree with me that 2.3 represents $1.5 million commercial bill plus the 800,000 commercial bill? A. Yes. Q. For your own tax purposes, is it? A. Yes. Q. And it is not a reflection of the truth, is it? A. Well, yes. … Q. Sorry, how is it that Triple A Family Trust lent to 2.3 million to Meshona? A. It's all very technical to me, I don't know. Q. You were just hiding behind that, I suggest to you? A. No, no, I'm not. Q. Because you work with your accountant Mr Yeung to so arrange your affairs as to pay the least amount of tax? A. Yes, of course. … Q. I suggest to you that the loan to Meshona is a sham, I put it to you it is a sham? Was there a loan with Triple A Family Trust to Meshona for 2.3? A. It is, yes. Q. And that was in 2005, 2006 and 2007? A. Yes. Q. And what were the terms of that loan? A. I don't think there were any terms at all? Q. No terms at all? A. No. Q. Any interest on it? A. Interest, not earned. Q. When was that deal done? A. I couldn't say exactly, no. … Q. I suggest you entered 2.3 Meshona Trust to suit, Meshona loan to suit yourself, to suit Triple A Family Trust? A. To suit Triple A Family Trust, yes. Q. And you have no idea at all when that loan was made under what terms? A. No. No. 199 Arun was also cross-examined in relation to the $2.3 million loan to Meshona in the AAA Family Trust tax returns. His evidence in cross-examination included the following (tr 335 – 336; 339): Q. I want to show you the notes for June 2005 for the Triple A Family Trust. I show you part of exhibit 11, do you agree with me that the notes for 2005 Triple A Famly Trust, of which you are a director of the trustee, indicate that there is a loan to Meshona of 2.3 million? A. Yes. Q. Is that true in fact? A. No. Q. That's a false entry, isn't it? A. Yes. Q. And you a director of the trustee company? A. Yes. Q. And you signed off on those accounts? A. Yes Q. Knowing there was a false entry? A. I didn't know at the time, I believe that Aaron Yeung drafted the, submitted the tax returns based on what his instructions were as to the documents that we gave him. I didn't actually give him any copies at the tiem, I told him what the documents reflected. Q. In 2005 the year ended 2005, it appears that the trustee, which you are a director of, the trustee company, has given documents to the tax office that suggest that lent 2.3 million to Meshona which is false? A. Yes. Q. That happened in 2006 returns, I suggest? A. It says year ended 2005. Q. That's 2005. Give it back to me and I will get you 2006. In 2006, it is again the year ended 2006, again shown is it not, as a loan to Meshona? A. Yes. Q. Again a false entry in your accounts? A. Yes. Q. For which you are responsible? A. Yes. … Q. Did you knowingly put in a false entry? A. No. Q. How do you explain it? A. I explain it by this is what Aaron was discussing with my father. He was also discussing our accounts with Martin Lee and Sam Reddy when he was preparing the documentation for Suncorp and BankWest and … Martin Lee was employed at the Meshona Group, he was responsible for packaging our properties, our accounts, and submitting them to Suncorp. That application was rejected. It then was – he repackaged the application with Sam's help and he was liaising with Aaron Yeung. I remember them liaising with Aaron Yeung to prepare the accounts, which was then submitted to BankWest. … Q. I suggest that you have turned your investment in Meshona into a loan purely for tax purposes? A. I don't agree. Q. What other purposes could it be? A. Well, it is for tax purposes. Q. You have called it a loan, despite the fact it was no where near a loan? A. Yes. Q. You have told a lie to the Tax Commissioner, haven't you? A. Yes. Q. And you do that to suit your family's purposes? A. No. Q. To pay the least amount of tax? A. Yes. 200 Arun also gave evidence of a conversation with Mr Yeung in 2006 in which he advised Mr Yeung that the amount was not a loan to Meshona but was "actually investments into Meshona for the purchase of 49 per cent" (tr 500). He said that he could not explain why the $2.3 million was "put like that" in the accounts (tr 500). 201 Neither the plaintiff nor Arun was able to explain why the $2.3 million was recorded as a loan. I do not accept that there was any agreement between the plaintiff and Meshona to loan Meshona $2.3 million. I should observe also that there was nothing within the accounts to suggest that there was any loan of $5.8 million from Arun to Mr Reddy or a loan of $3 million from Mr Reddy to Arun. 202 Although the evidence of the plaintiff and Arun does not reflect well on their responsibilities as directors of a trustee company to make sure their tax returns reflect the reality, there may have been reasons why the accountant, Mr Yeung, decided to describe the transaction as a loan to Meshona. I do not consider that this evidence warrants a finding that I should reject the plaintiffs' evidence in relation to whether due diligence was completed. However this evidence is to be taken into account when determining whether it was completed. 203 The plaintiffs submitted that there are four matters which make it inherently improbable that the defendants facilitated due diligence by the plaintiffs at any time prior to the payments being made by the plaintiff. First, it is not in issue between the parties that the financial statements of the Meshona Group as at 30 June 2003 and 30 June 2004 showed that it was trading at a loss. Secondly, Mr Reddy's evidence was that as at 5 September 2004, 49% of the Meshona Group was not worth $9 million. Thirdly, Mr Reddy's evidence was that the plaintiff was paying $9 million for 49% for the "opportunity" or potential for the value of the business to grow through the establishment of the direct funding line. Fourthly, Mr Reddy's evidence was that as at September 2004: the project for funding had not commenced; no communications had been made with any bank or superannuation fund with whom Meshona might develop a direct funding line; and there were no documents available to the plaintiffs which would convey any information about the opportunity available to Meshona. 204 It was submitted that if the defendants' case is accepted that no representations were made as to value, profit or debt, the defendants ask the Court to accept that the plaintiff was content to pay $9 million for 49% of a group of companies which due diligence would have revealed was trading at a loss and without any documentation whatsoever about how the financial circumstances of the Group might improve. It was submitted that this proposition is contrary to basic commercial common sense. The plaintiffs also submitted that the defendants had a powerful motive to ensure that the financial position of the Meshona Group of Companies was not revealed to the plaintiffs prior to the payment of the purchase price for the shares. It was submitted that this motive may be inferred from the indebtedness of approximately $3 million to the Commonwealth Bank of Australia; it was a business that did not generate a profit and was worth next to nil; there was a vague aspiration to move the Company to the next level through a direct funding line which had not even reached the stage of being forecasted or communicated to a potential bank or superannuation fund which might facilitate such an expansion. 205 It was also submitted that the defendants had a powerful motive for gently postponing the provision of the financial information to the plaintiffs rather than flatly refusing to do so. It was submitted that if there had been a flat refusal it would have alarmed the plaintiffs and may have resulted in more persistent and formal attempts by them to procure the financial information. It was also submitted that the process of gently postponing the provision of the financial information partly explains why the requests for the financial material was not documented until the relationship became strained in 2006. 206 The plaintiffs submitted that it is easy with the benefit of hindsight and standing outside the dynamic of the relationship to wonder why the plaintiffs did not request the financial material in writing. However it was submitted that it must be borne in mind that the overriding sentiment of the plaintiffs was that they believed in the defendants and wanted the venture to work. The plaintiff's evidence under cross-examination was that until the last minute he was trying to solve the problem one way or the other. He said "I wanted to bring up the business, yes, that is what my intention till the last minute" (tr 195). The plaintiffs submitted that the tone of the 2006 correspondence from the plaintiff to the defendant demonstrates that is what the plaintiff was trying to do. 207 The plaintiffs also submitted that it must be understood that Arun was in a position of some difficulty because on the one hand he was representing his father and his family and on the other he and Mr Reddy were working together and had developed a friendship (tr 329). There is no doubt that the communications between the defendant and Arun (Ex G) demonstrate that both the plaintiffs and the defendants believed that the most important thing in their lives at that time was to have the Meshona Group seize every opportunity. It was submitted that in this context it would have been inflammatory and against the ethos of the venture for the plaintiffs to have produced a written demand for due diligence prior to the breakdown of the relationship in 2006. 208 The plaintiffs submitted that the tone of the plaintiff's correspondence in 2006 referred to earlier in this judgment demonstrates the frustration and emotion of a person writing on the spur of the moment. Although it was suggested by the defendants that the correspondence was created as a paper trail for litigation, it does not seem to me that such a description is appropriate because these are matters within that correspondence that clearly do not assist the plaintiff. 209 The defendants submitted that if the plaintiff had genuinely been concerned about having access to Meshona's financial statements he would not have signed the Holbrook Agreement without either having had access to them or making such access a condition of that agreement. It was submitted that the absence of any such condition supports a finding that the plaintiff was not requesting access to the financial statements and that his claims should be rejected. 210 The defendant did not contradict the plaintiff's claims in the 2006 correspondence that he had been requesting access to the financial information over a lengthy period. It was not suggested in any of the defendant's letters in response that the plaintiff's claims in this regard were false or exaggerated or erroneous. It is also of significance that the defendant did not claim either in his affidavit or in 2006 correspondence that he personally provided financial information in relation to Meshona to the plaintiff. I am satisfied that the plaintiff had been asking for access to the financial information from the time that he signed the Share Sale Agreement and was not provided with it. 211 I accept Anand's evidence that Mrs Reddy gave him the impression that his enquiries about access to the documents were unwelcome. I am also satisfied that the plaintiff requested access to the financial information and that he was, as he claimed, informed that Ramona was getting it ready and as soon as it was available it would be provided to him. I am also satisfied that the plaintiff advanced the $4.59 million, concurrently with his requests for access to the financial information and in the belief that the information would be provided to him. 212 There was no possibility of the defendants providing the financial information to the plaintiffs when requests were made for it because it was simply not ready. The accountant had not commenced preparing the financial statements before January 2006. The disclosure of the financial position of the Meshona Group of Companies would have demonstrated that it had always and was still operating at a loss. I am satisfied that the defendants manoeuvred the position to ensure that the plaintiffs did not have access to the financial information prior to signing the Share Sale Agreement and/or the Holbrook Agreement. 213 I am satisfied that the representation was made and that it was false. The defendants did not intend to provide the plaintiffs with a proper opportunity to carry out the due diligence prior to the Share Sale Agreement being signed and prior to the plaintiffs making payments. 214 The defendants submitted that the plaintiffs have "waived" any entitlement to rely on the representation by signing the due diligence Acknowledgement (tr 745). It was submitted that it would be "wrong" to allow the plaintiffs to escape responsibility of a clause they not only assisted in drafting but agreed to by formally signing it. In this respect reliance was placed on the following passage of Heydon J's judgment in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation (2008) 238 CLR 516 at 567 [176] as follows: Rectification is a remedy granted where the parties are in complete agreement as to the terms of their dealings, but by an error wrote them down wrongly. Here they were incomplete agreement, and one of the terms of that agreement was that in part they be written down as they were written down in the Raftland Trust deed. 215 It was submitted that the parties were in complete agreement that the due diligence Acknowledgement be written down as it was and signed as a true reflection of the plaintiffs having been provided with all information to conduct their due diligence and having completed their due diligence. I am not satisfied that the plaintiffs waived any entitlement to rely upon this representation. I am satisfied that at the time this document was signed the plaintiffs were informed that it was a formality and that an opportunity would be provided to complete the due diligence. Debt free representation 216 The plaintiff claimed that the defendant represented that the companies were "squeaky clean" and when he asked for clarification, the defendant informed the plaintiff that this meant that it was "a debt free company". The defendant's affidavit includes a claim that he informed the plaintiff that the "only debt the company really has is to the Commonwealth Bank of about $2.8 million". That affidavit also includes a claim that the defendant informed the plaintiff that there were normal trade creditors and that the money paid to acquire 49% of Meshona would be used to pay off the Commonwealth Bank so that the Company did not have any debt. The affidavit also includes a claim that the defendant informed the plaintiff that the money paid to acquire the 49% of Meshona would be used for the development of the Company. 217 The plaintiffs submitted that if the defendant's evidence is to be accepted then on the defendants' case the plaintiff agreed to pay $9 million for companies about which the defendant had given no indication of value or profitability, that earned gross income of $800,000 a year and had debts of about $3 million. It was submitted that it is inherently improbable the plaintiff would have agreed immediately to invest $9 million on the provision of such information. 218 There was reference in the plaintiff's 9 September 2006 document to the plaintiff "clearing all" the defendant's debt with a request that Meshona "clear" all the plaintiff's loans. I am of the view that this is a reference to the plaintiff having to bear the "debt" in respect of the "so called Indo-South Africa venture", as referred to in the plaintiff's letter of 5 October 2006. I am satisfied that the plaintiff's evidence is to be preferred over that in the defendant's affidavit. The debt to the Commonwealth Bank was not recorded in the MYOB documents and could not have been uncovered by the plaintiffs without access to the financial information that, I am satisfied, was not provided to the plaintiffs. 219 The Share Sale Agreement included a schedule in which it was warranted that the Company had not created or given any debentures or charges or indulged in any borrowings since the last day of the Relevant Financial Year. I am satisfied that the defendant was promoting Meshona as a debt free company and at no stage was it disclosed to the plaintiff that Meshona had a debt to the Commonwealth Bank of $2.8 million. 220 The parties are not at issue that if the "debt free" or "squeaky clean" representation was made then it was false. Conclusion 221 Accordingly I am satisfied that the defendant made the value of the business representation, the due diligence representation and the debt free representation and that each was false. I am satisfied that the plaintiff has failed to prove that the profit of the business representation was made. Reliance 222 I accept the plaintiff's evidence that he placed a deal of trust in what the defendant said to him. I am satisfied that the plaintiff relied upon the defendant's representation that Meshona was worth $20 million in making his decision to agree to pay $9 million for 49% of the shares in Meshona and in making the payments of $4.59 million. I am satisfied that the plaintiff would not have proceeded with the Share Sale Agreement or with the payments amounting to $4.59 million if the representation had not been made. I am also satisfied that the representation that Meshona was debt free was also relied upon by the plaintiff in agreeing to purchase 49% of the shares in Meshona. 223 In Campbell v Backoffice Investments Pty Limited French CJ considered an analogous situation of a person signing a declaration in a contract that they did not rely upon pre-contractual representations. His Honour said: 31 Where the impugned conduct comprises allegedly misleading pre-contractual representations, a contractual disclaimer of reliance will ordinarily be considered in relation to the question of causation. For if a person expressly declares in a contractual document that he or she did not rely upon pre-contractual representations, that declaration may, according to the circumstances, be evidence of non-reliance and of the want of a cause or link between the impugned conduct and the loss or damage flowing from entry into the contract. In many cases such a provision will not be taken to evidence a break in the causal link between misleading or deceptive conduct and loss. The person making the declaration may nevertheless be found to have been actuated by the misrepresentations into entering the contract. The question is not one of law, but a fact. 224 Although the plaintiffs signed the due diligence Acknowledgment I am satisfied that no due diligence had been conducted at the time it was signed and I am satisfied that in signing the Acknowledgment the plaintiffs relied upon the representation made by the defendant that they would have the opportunity to review the financial and legal affairs of Meshona. This was not a situation in which the plaintiff paid the $4.59 million and made no further requests for the financial information. I have not accepted the defendants' claims that there were no requests. The requests made by the plaintiff and on occasions by Arun and Anand, were consistent with reliance upon the representation. 225 I am satisfied that the plaintiffs signed the Acknowledgement because they were informed that it was a "formality". I am also satisfied that they relied upon the representation made by the defendant that they would have a full opportunity to investigate the financial affairs of Meshona. I am also satisfied that in making the payments of $4.59 million the plaintiff did so in reliance on the representations and in the belief that he would have an opportunity to view the financial statements of Meshona. I am satisfied that if the representations had not been made, the plaintiff would not have proceeded to agree to purchase 49% of the shares in Meshona for $9 million nor would he have made the payments of $4.95 million. Relief 226 I am satisfied that the appropriate relief is to order that the defendants repay the $4.59 million to the plaintiff. It was not suggested by the defendants that if I formed the view that this was the appropriate relief that I should reduce this amount by reason of any benefits the plaintiffs obtained for the payment of $4.59 million. The plaintiff's claim for interest had not been the subject of detailed submissions and I will hear those submissions, if necessary, when the matter is next listed. The claim in contract 227 Having regard to the above findings it is not strictly necessary to decide the plaintiff's alternative claims in contract, however Mr Reddy and Mrs Reddy have brought Cross Claims in reliance on the documents executed on 1 October 2004. There is little issue between the parties that at the meeting at the Club on 5 September 2004 the plaintiff and the defendant agreed that the plaintiff would purchase 49% of the issued shares in Meshona for the sum of $9 million. Both parties appear to agree that due diligence was discussed. 228 The plaintiffs submitted that the agreements executed on 1 October 2004 do not reflect the true agreement between the plaintiff and the defendant. It was submitted that on 1 October 2004 Mrs Reddy and each member of the Lakshmanan family knew that pursuant to the real agreement between the plaintiff and the defendant 49% of the shares in the Meshona Group were to be sold to the plaintiffs for $9 million and not $200,000.36 as recorded in the Share Sale Agreement. 229 The plaintiffs also submitted that they have been frank in giving evidence that the Share Sale Agreement erroneously but intentionally recorded the purchase price of the shares. Indeed the plaintiff's evidence was that he knew he was deliberately avoiding stamp duty by signing a document for $200,000 and that he signed and allowed his sons to sign the document that he knew was false (tr 100; 126). 230 Each of the plaintiffs signed the due diligence Acknowledgment in Annexure A to the Share Sale Agreement when in fact they each claim they had not performed due diligence. Arun's evidence was that he signed a document that was false on its face in this respect (tr 312). Arun also gave evidence that he never intended to lend any amount to Mr Reddy nor did he intend to borrow any amount from Mr Reddy pursuant to the two loan agreements that were signed by himself and Mr Reddy. 231 The plaintiffs submitted that the only safe conclusion that can be drawn from the evidence is that the documents executed on 1 October 2004 did not reflect the true agreement between the parties. If the Share Sale Agreement is found not to be a sham document, the plaintiffs claim that the terms as to due diligence have been breached by the defendants. 232 Mrs Reddy gave evidence that she understood that at the meeting on 5 September 2004 the plaintiffs were acquiring 49% of the shares in Meshona for $9 million (tr 686). Mrs Reddy was the owner of the two shares in Meshona and understood that for the transaction to proceed further, shares would have to be allotted so that 49% of those shares could be transferred (tr 686). Mrs Reddy knew in September 2004 that if she sold her shares in Meshona for more than $2 the difference between that amount and the amount that was received for the shares would go into her assessable income as a capital gain (tr 688). She also understood that if that proposal was to be accurately documented there would be a share sale agreement in which she would be the vendor and the plaintiffs would be the purchasers. 233 Mrs Reddy recalled speaking to solicitors at Kemp Strang with the defendant discussing issues of capital gains tax although she was not certain when that discussion occurred (tr 691). Mrs Reddy gave the following evidence in respect of the $200,000 sale price of the shares that was included in the Share Sale Agreement (tr 693 - 695): A. My understanding was the $200,000 was at the time when the funds were not available because the financing of the properties that they were relying on for purchasing the 49% of the Meshona Group for the 9 million wasn't available and Arun Lakshmanan and Sam had a discussion and they came back with some arrangement because Arun was very keen on maintaining that he doesn't want to lose the opportunity and he will allow for an arrangement that will be acceptable so that they will arrange the payment of a portion of the monies and when they completed with that portion and then the transfer of the 49% will go to the Lakshmanans and that arrangements was discussed and that arrangement was the one that was agreed upon and that's what I understood. … Q. But in your mind the amount that had to be paid to you for your shareholding in Meshona was always $9M, wasn't it? A. But as I'm pointing out to you my understanding is that the $9M wasn't available and that's why they rearranged, Arun and Sam. They discussed this and they rearranged what they needed to do so that they could still have the 49% of the shares available until they could complete the certain amount of monies and the agreement was signed to show how the payment was going to be allocated, and when the payment was done for a certain amount of monies then that 49% was going to be transferred and that's what I understood and agreed on it. Q. Are you saying the reason you thought the share agreement said $200,000 not $9M was because of some problem that was occurring about when money to pay the purchase price could be raised? A. I understand that the purchase price couldn't be raised because the funding hadn't been available for the Lakshmanans to complete it. That's what I understand. Q. But can you explain why that circumstance led to the figure $200,000 going into the share sale agreement? A. Well, according to the arrangement the $200,000 was a nominal figure that was addressed by Arun Lakshmanan because he did that and if he didn't put in the obligation of the $9M then the arrangement was - well the $200,000 to the $6M was included with the 5.8 million arrangement that they said that they could raise the 6 million and until that 6 million was raised then only would that 49% get transferred, the shares get transferred to the Lakshmanans and that was addressed by Arun and we agreed with it because that's the way that he decided that they'll get the valuation, the funding for the properties and the shares will be allocated later on when the total amount of monies would be acceptable, and I think when the 6 million was going to be completed the shares was going to be transferred and that was done by Arun because I agreed on that because it was discussed with the family and I didn't see that there was any issues with how they did it. Q. So a nominal amount was put into the shareholders agreement? A. That's what they called it a nominal amount. Q. A nominal amount, you say, was put into the share sale agreement? A. Yes, that's what I understand. Q. Not the real sale price? A. I don't - it was a nominal amount that was put in so they waited for the entire 6 million to come into, from the funding to address the 6 million because they've decided to pay the 6 million because that's how much monies that he could have raised at the time. Q. Ultimately you knew that you as the owner of the shares would get $9 million for the shares, didn't you? A. I would get $9 million for the shares but the arrangement changed because the Lakshmanans didn't get the moneys and Arun Lakshmanan had said - because I didn't have any reason to question anything because it was the arrangement between Sam and Arun, and they came back with what they can do and that was something that was going to be fixed at a later stage when everything was completed. … Q. And you knew that the shareholders agreement had a nominal figure of $200,000, not the real figure of $9 million? A. Because it was going to be addressed when the company was paid those moneys, and that's the way Arun and Mr Reddy came up with the arrangement and Arun drew up a contract to state that that's what would happen, and yes, we did do exactly that because at the time we agreed on the fact that the funding wasn't available. Q. And you understood there to be a capital gains tax issue as at September 2004, didn't you? A. Yes. 234 Mr Reddy was cross-examined in relation to the Share Sale Agreement of 1 October 2004. He gave the following evidence in cross-examination (tr 607 - 608): Q. No matter what mechanical steps had to be taken of that kind you understood that the share transfer or share transfers of the 49 per cent would be liable to capital gains tax in your mother's hands if the transfer price was expressed to be $9 million? A. That would be correct, yes. Q. And that's why you, not anyone else, that's why you proposed that the price on the share transfer be originally $90,000? A. That's not the case. Q. And that's why you ultimately agreed that the price to go on the share sale agreement would be $200,000, not $9 million? A. No. Q. Because you did not want your mother to have to pay capital gains tax on $2 less the $9 million? A. No, that's not the case. Q. Isn't that precisely what you say happened? A. No, it's not. 235 After these denials Mr Stevenson took Mr Reddy to his affidavit and further cross-examined him as follows (tr 609): Q. You understood that so far as capital gains tax was concerned there would be no amounts payable by Arun's family? A. That's correct. Q. It was your family who had to pay tax? A. On the shares, yes. Q. So your position was you didn't want your family, and you meant by that your mother, didn't you, to pay tax if she didn't have to? A. Correct. … Q. You know from what your father and Dr Lakshmanan said on 5 September 2004 that the agreement they had reached in principle was that your mother would transfer 49 per cent of her shares in Meshona to the Lakshmanan family for $9 million? A. Yes. Q. To document that transaction there would have to be, wouldn't there, a share sale agreement which provided for your mother as the vendor to transfer to Dr Lakshmanan or other members of his family as the purchaser those shares for $9 million? A. That would be correct. Q. And the problem with that as far as you were concerned was that if that's how the transaction was documented your mother would pay capital gains tax on $2 less than $9 million, namely, about $4.3 million? A. Well, yes, if you look at it in that context. However, when the deal actually - the evaluations were coming in lower, that is, when the deal actually changed into $6 million and $3 million. Q. What's that got to do with it? A. Well, it does because one of the things 5 September comes about is that the doctor also says that you fellows are in charge, and that's basically talking about myself and Arun, and the whole thing was left to us to actually sort out and that's the way we came up with the strategy. Q. The matter you mentioned about the valuations came in low simply had the result on your case that it was agreed that the purchase price of $9 million would be paid as to $6 million when the properties were revalued and $3 million later? A. Yes, but how would you document that? Q. You would document that by making provision as to when the purchase price would be paid. It doesn't affect the purchase price, does it? A. Well, sorry, I haven't done one of these things before and the way it seemed was that there would be $6 million available and it was discussed with Arun all those times and it was both of us working on this deal so both of us were working together. 236 Mr Stevenson pressed Mr Reddy to admit that the Loan Agreements between himself and Arun did not reflect the "real deal" that had been struck between the two families. He gave the following evidence (tr 620 – 621): Q. You also have in front of you the notice of discharge which you and Arun have signed? A. Yes. Q. Which records Arun as the lender to you of $5.8 million and you as the borrower? A. Yes. Q. And in which Arun as lender states he has received full repayment of the $5.8 million? A. Yes. Q. The notice of discharge constitutes an acknowledgement given by Arun to you, according to its letter, that he has received from you full repayment of the $5.8 million that that document assumes had been lent by him to you? A. That's correct but it doesn't have a date of payment on it. Q. It doesn't have a date of payment? A. Yes. Q. No, no, that's because no money was ever lent to you by Arun, was it? A. It was. Q. You know, don't you, that Arun did not have $5.8 million to lend to you? A. This deal was done between Arun and myself and that's how I understood it and that's why the agreement done this way. … Q. You understood the real deal was between your mother and the Lakshmanans? A. Well, the sale of the shares, yes. Q. For $9 million? A. Yes. Q. And the loan agreement, the document purporting to be a loan agreement where Arun purports to lend you $5.8 million? A. Yes. Q. Didn't reflect the real deal, did it? A. It is the deal that we came through when the valuation of properties came in lower and it was only 6 million. Q. And the truth is that you and Arun agreed that nominal consideration would be on the share sale agreement? A. Yes. Q. To save capital gains tax? A. No, that's not the case. Q. And that you and he agreed that the balance of the purchase price would be a disguise, can I suggest to you, as loan from Arun to you? A. No, it's not disguised as a loan. These documents are, as I say, done by myself, who is not a lawyer, right, with Arun and we negotiated through there and the basis of these documents was to actually get to an end goal and that being to abide by both documents or the Lakshmanans with the moneys coming through. HER HONOUR Q. What does that mean Mr Reddy? A. Sorry. Well, when the valuation started coming in low the $6 million that was available for this wasn't going to be $9 million as originally thought and the excess $3 million was originally supposed to come from other sources, such as India and so forth, and by documenting it and my thoughts was what actually happens is in dribs and drabs of money coming in and if we transfer the shares we will be left short, if that makes sense. STEVENSON Q. You know full well that the arrangement you came to where, with Arun about how the deal would be documented, had nothing to do at all with the shortfall on valuations? A. It actually has a lot to do with it, its because if we look at the whole thing it is about the payments that they come in periodically or in bits and pieces and that's why these documents have been drafted in this fashion. … Q. Look at the notice of discharge? A. Yes. Q. Its not true, is it, that the lender, Mr Arun Lakshmanan, has received full repayment from you of $5.8 million or indeed any dollars? A. Well, the debt of payment hasn't been done yet because of the deal hasn't been completed. Q. So as you and Arun documented the $5.8 million aspect of the matter it was documented as a loan that didn't have to be repaid? A. Yes. 237 Mr Reddy's evidence in this regard was highly unsatisfactory and in parts incomprehensible. That evidence was as follows (tr 623 - 624): Q. The document headed loan agreement schedule with a loan amount of $3 million was never discussed between you and Arun, was it? A. It was discussed because that was the commitment of what happens if we don't receive the full 9 million. And this was more like a personal guarantee from him to say that this would be done. Q. So a personal guarantee? A. Because we were working together. Q. The personal guarantee works this way, does it, that you pretend to lend to Arun $3 million so that you can what, call on him to repay the $3 million, is that how it works? A. Well, in terms of the, the 3 million was supposed to be paid over a period of five years, right, at completion of the 6 million that was received and then the share transfer was going to take place. Q. But you didn't lend Arun $3 million, did you? A. Well, no. Q. So there was no loan agreement between you and he where you lend him $4.8 (sic) million? A. This was a letter or loan agreement based on a commitment that was done between us to say he will take care of that payment over five years because as my thing went on that, the share transfer was supposed to take place when it was at 6 million in the shares transferred across what guarantees did we have that the 3 million will be paid, and that was a personal undertaking. Q. But what it is doing is disguising an obligation to pay $3 million as part of the purchase price of the shares as a loan, isn't it? A. I don't see that because the purchase price, the $3 million wasn't going to be paid right at the same time for the share transfer to take place, it was going to be paid over the next five years. Q. And you say, don't you, that in relation to that $3 million loan that Arun agreed with you that the $3 million loan agreement would be on the same terms as the $5.8 million loan agreement, namely that the full repayment of the loan would be acknowledged at the time of payment of the $3 million? A. The full repayment of the loan of 3 million will be acknowledged at the time of payment? Q. Of the $3 million? A. Sorry, can you explain that in other words please? Q. I am reading from your cross-claim Mr Reddy, that Arun agreed with you that the $3 million to be paid pursuant to this $3 million loan agreement? A. Yes. Q. Will be on the same terms as the $5.8 million agreement, namely that full repayment of the loan will be acknowledged at the time of the payment of the $3 million? A. Yes, that would be correct because that would move the transfer actually into $9 million. … Q. In your cross-claim in these proceedings you are suing him for that $3 million, aren't you? A. Yes. Q. How does that work? A. It is on the basis of completing the deal. Q. You are suing Arun for $3 million that was loaned on the basis of you lent it to him when in fact you did not? A. No, it was based on the commitment that he would carry out to actually pay the $3 million after the $6 million was paid and the shares were transferred and that was his guarantee to me to say that $3 million will be paid and that's an undertaking. … Q. You are seeking to enforce the document that bares no resemblance to the arrangement between you and Arun? A. Well, these documents have been done, right, call it laymen I guess, but at the same time we actually went later in 205, sorry, Horowitz & Horowitz were approached and also Gordon & Johnston were approached to actually bring this whole deal to a close. 238 Mr Stevenson returned to the Share Sale Agreement again in an effort to press Mr Reddy for an admission in relation to the inclusion of the $200,000 as the sale price. That further cross-examination included the following (tr 628 – 629): Q. Let me put these propositions to you. The real deal as you knew it to be was your mother selling 49 per cent of the shares in Meshona to Dr Lakshmanan and his family for $9 million? A. That is the original contrast (sic) of the deal, yes. Q. And you and Arun agreed to document it so only $200,000 went into the share sale agreement; that's right, isn't it? A. The reason for it is that-- Q. But that's right, isn't it? A. Yes, but it's got to do with the 5.8 also being received and that the 200,000 will be the trigger to actually do the share transfer. Q. Yes? A. Yes. Q. That's not the real reason-- A. I am sorry? Q. You are not suggesting that the real reason that the $200,000 went into the loan agreement was so that merely upon payment of $200,000, the Lakshmanans could call for the share transfer, are you? A. No, it was on the basis of 5.8, right, first of all being advanced and the 200,000 being the last amount. Q. Because you well know that the Lakshmanans have paid to your family a lot more than $200,000? A. Well, it's 4.5 something million. Q. Whatever it is? A. Yes. Q. And no shares have been transferred to them? A. Correct, because the deal hasn't been completed. Q. So the reason the $200,000 was put into the share sale agreement had nothing to do with there being a lower figure that the Lakshmanans had to pay in order to get the share transfer, was it? A. No. If you look at it, the actual amount on it is, I think, 200,000 and 36 cents. Q. The real reason that the nominal consideration of $200,000 was put into the share sale agreement was to save your mother capital gains tax? A. That is not the case, no. 239 The purported loan agreements entered into on 1 October 2004 suggested that Arun loaned Mr Reddy $5.8 million and that he had received full repayment of that amount. There was also a purported loan from Mr Reddy to Arun for $3 million. Mr Reddy's evidence was that although he did not intend to lend Arun $3 million it was a "loan agreement based on a commitment" that the balance of $3 million would be paid. He described it as a personal undertaking and/or a personal guarantee. He denied that it was disguising an obligation to pay $3 million as part of the purchase price for the shares. 240 The plaintiffs seek a declaration that the Share Sale Agreement has been terminated. They also claim that the Holbrook Agreement has been terminated by the parties deciding to abandon it. By Cross Claim Mr Reddy seeks a declaration that Arun was obliged to pay him $3 million prior to 1 October 2009 pursuant to the Second Loan Agreement. He also seeks an order for payment of $1,206,051.78 by way of damages for breach of the First Loan Agreement. Mrs Reddy claims $199,900 by way of damages for breach and/or repudiation of the Share Sale Agreement. Mrs Reddy also seeks damages for breach of the Holbrook Agreement. 241 I am satisfied that the Share Sale Agreement and the two loan agreements do not reflect the real agreement that was reached between the parties. The sale price of the shares was not $200,000 and Mrs Reddy's Cross Claim seeking to enforce the Share Sale Agreement and seeking damages will be dismissed. The fact that the plaintiff paid $4.59 million in respect of the transaction said to be only worth $200,000 points up the absurdity of this aspect of Mrs Reddy's claim. The real transaction as agreed between the parties was for the plaintiff to pay $9 million for 49% of the shares in Meshona. I am satisfied that the plaintiff terminated that transaction when it became clear to him that he was not to be given access to the financial information in relation to Meshona. 242 Mr Reddy sought to characterise the loan agreements as personal guarantees when he was confronted with the reality that neither he nor Arun intended to loan any moneys to each other. I am satisfied that the Loan Agreements do not reflect the agreements reached between the parties. Mr Reddy's claims in respect of the Loan Agreements will be dismissed. 243 The Holbrook Agreement was reached at a time when the parties understood that only $6 million of the $9 million could be raised on security of the Properties. At the time the agreement was signed the plaintiff had already paid over $4 million to the defendant and/or Meshona. This agreement was executed at a time when the plaintiff was asking for access to the financial information about Meshona. The Holbrook Agreement was entered into on the continuing understanding that such information would be provided at a time when the plaintiff was relying on the representations referred to earlier that Meshona was worth $20 million and was debt free. 244 In support of the submission that the parties abandoned the Holbrook Agreement, the plaintiff relied upon the absence from a BankWest funding proposal prepared by Meshona in May 2006 using the Properties as security, of any mention of the transfer of 50% of the equity in the Properties to the defendants. I do not regard this absence as indicative of the abandonment of the agreement because at this time the parties were considering the stamp duty impediments to such transfers. Mr Reddy agreed in cross-examination that it may have been the stamp duty issues that impeded the completion of the Holbrook Agreement. However he did not concede that the parties had abandoned the Agreement (tr 651). 245 I agree with the plaintiffs' submissions that the parties decided to abandon the Holbrook Agreement when they realised the implications of capital gains tax liability and/or stamp duty liability were. The defendants' conduct in 2006 in handing back the Properties to the plaintiff is also evidence of the abandonment of the Agreement. Alternatively I am satisfied that the plaintiff terminated the Holbrook Agreement at the same time that he terminated the agreement to purchase the shares when he found out that he was not going to be given access to the financial information. In any event, having regard to my findings in relation to the Meshona Representations I am satisfied that the plaintiff was entitled to repudiate the Holbrook Agreement. The defendants are not entitled to any relief in respect of the Holbrook Agreement. 246 I am satisfied that the Cross Claims brought by Mr Reddy and Mrs Reddy should be dismissed. Conclusion 247 The plaintiffs have established that the defendants engaged in misleading or deceptive conduct. The defendant made the value of the business representation, the due diligence representation and the debt free representation. Each of the representations was false. Each of the defendants engaged in conduct that prevented the plaintiffs from having proper access to the financial information of Meshona. The plaintiff relied upon the representations and suffered loss of $4,593,048. The plaintiff is entitled to entry of judgment against the defendants in that amount. 248 The plaintiffs' claim in respect of the profit of the business representation will be dismissed. The Cross Claims brought by the second defendant and the fourth defendant will be dismissed. 249 The plaintiffs also make a claim for interest and costs. The parties are to confer to see if agreement can be reached in respect of those matters. If agreement is unable to be reached I will hear argument when the matter is listed for the purpose of filing Short Minutes reflecting these findings. 250 The matter is listed at 10.00am on 3 February 2011. ********** 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.