Adelaide Olive Company Pty. Ltd. v. Federal Commissioner of Taxation.

Judges:
Wells J

Court:
Supreme Court of South Australia

Judgment date: Judgment handed down 12 March 1974.

Wells J.: These three appeals, all of which are concerned with the sale and disposal of land once belonging to the taxpayer, raise substantially the same issues and were, by consent, heard together.

When Mr. Fisher Q.C. (for the taxpayer) was opening, I enquired of counsel whether the issues were to be left entirely at large and counsel for the taxpayer was to be faced with the task, in effect, of demonstrating a negative, or whether a discussion between counsel might lead to a limitation of the issues (and hence of time and money expended by the parties). A short conference between counsel ensued after which I was told -

(1) That the Commissioner would not be relying on sec. 25 of the Commonwealth Income Tax Assessment Act 1936-1967 (in this judgment called ``the Act'') at all; and
(2) That the Commissioner would be relying on both limbs of sec. 26(a) of the Act, and to that end would be contending that one of the following dates (to be treated as alternatives) was the date upon which the taxpayer converted the disposition of the two parcels of the subject land into a profit-making undertaking or scheme:
- (a) The dates, respectively, upon which the two parcels of the subject land was first acquired;
- (b) 28 June 1963 (the date upon which application was first made for approval for subdivision of the subject land);
- (c) 23 June 1964 (the date upon which a contract was concluded for the removal of olive trees from the subject land); and
- (d) 13 May 1965 (the date upon which letter Form A issued with respect to the subject land).

The assessments objected to were assessments of income tax based on income derived during the years ended, respectively, 30 June 1967; 30 June 1968; and 30 June 1969.

The grounds relied on in respect of the year ended 1969 were -

``1. THE said assessment is wrong in fact and in law or alternatively excessive in amount.

2. NO part of the sum assessed as taxable income is assessable income or taxable income in the taxpayer's hands under sec. 25(1) of the said Act or at all.

3. INSOFAR as the assessment was based on the inclusion as assessable income of the sum of $32,009.00 being `profit from land selling' as shown in the adjustment sheet forming part of the assessment and insofar as the Commissioner may rely upon the provisions of paragraph (a) of sec. 26 of the abovementioned Act: -

(a) The taxpayer did not acquire the land to which the assessment relates for the purpose of profit making by sale.

(b) The said sum of $32,009.00 is not profit arising from the carrying on or carrying out of any profit making undertaking or scheme.

(c) The taxpayer purchased the land to which the assessment relates as a capital purchase and for use as a capital asset in the business of cultivation and sale of olives and olive trees conducted by the taxpayer to which use the taxpayer intended at the time of the said purchase to put the said land for an indefinite time.

4. THE Commissioner was wrong both in fact and in law in determining the sum of $36,607.00 as being the taxable income of the taxpayer for the year of income. The taxpayer had no taxable income in

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the said year by virtue of the matters set out in para. 3 hereof and by virtue of the fact that the taxpayer was properly and correctly entitled to carry forward pursuant to the provisions of sec. 80 of the abovementioned Act from the previous years of income losses totalling the sum of $5,686.00.

5. THE Commissioner was wrong both in fact and law in failing to allow the taxpayer to carry forward to the said year of income any losses and should have allowed the taxpayer to carry forward to the year of income losses totalling $5,686.00.

6. THE said assessment is not authorised by either sec. 25(1) or sec. 26(a) of the said Act or any other provision or provisions of the said Act.''

The other two sets of grounds were, mutatis mutandis, the same except that neither included a ground corresponding to ground 5 above. The carrying forward of losses (pursuant to sec. 80 of the Act) was a formal issue, but only passing reference was made to it at the hearing, and it was not debated by counsel in their final addresses.

The land with whose history this appeal is concerned comprised, in its original form, about 133 acres, and is situated at Stoneyfell in the foothills to the east of Adelaide. By the year 1955 the land had belonged to Stoneyfell Olive Company Ltd. (which I refer to as SOCO) or to the Crompton family for getting on for 100 years, and during that period successive generations of the Crompton family had operated the olive plantation established on it. (I shall refer to the land in its entirety as ``the SOCO land'').

The taxpayer company (which I shall abbreviate to ``AOCO'') was promoted by a syndicate of businessmen; they were known as the Stoneyfell Park Syndicate, but I shall call them, collectively, ``the syndicate''. The membership of the syndicate underwent some changes: originally it comprised Stanley Elias Antonas, Kevin Joseph Powell, Alfred Ernest Trim and a person called Mr. Juttner. At a very early stage - January 1957 - Mr. Juttner withdrew and his place was taken by Mr. Dring (who died in 1963). I should add that Trim and Dring throughout their membership of the syndicate were represented by, and acted through, companies controlled by them - in order, I imagine, to limit liability - but nothing turns on that fact, and it will be convenient to refer to them as if they were natural persons. Antonas was bought out of the syndicate in June 1960. AOCO was incorporated on 1 July 1957: it became a proprietary company in 1964.

A written agreement to buy the SOCO land was concluded on 10 July 1957 between SOCO, AOCO and the syndicate: it provided that part of the land would be transferred into the names of the syndicate members, and part into the name of AOCO. Evidence - which I accept - was led to show that the parcel received into the names of the syndicate members was intended to be subdivided and sold at a profit, which was to be used to assist in providing finance for the plantation project discussed in this judgment; and the much larger parcel, on which remained standing several thousand olive trees, was to support an olive plantation. In October 1958 part of the syndicate's land was purchased by, and transferred to, AOCO; the former retained a strip on the western side. Of the two exhibits depicting the various parcels of land mentioned in evidence, Exhibit 3 was more frequently referred to by counsel, so it will be convenient to adopt the colouring used in that exhibit and call the parcel of SOCO land originally bought by AOCO (comprising 85 acres and including an isolated factory site for the olive crushing plant) ``the pink land''; the parcel first bought by the syndicate (comprising about 46 acres) ``the green land''; the parcel of green land subsequently transferred by the syndicate to AOCO (comprising about 31 acres) ``the green hachured land'', and the parcel retained by the syndicate after the green hachured land had been transferred to AOCO (comprising about 15 acres) ``the green unhachured land''.

On 22 October 1958 Dring, the Trims, Antonas and Powell agreed to purchase from Penfolds Wines Pty. Limited (and in due course acquired) 31½ acres of land adjoining, and immediately to the west of,

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the green unhachured land: by a similar reference to Exhibit 3 I shall call this ``the yellow land'', and the company ``Penfolds''.

What may be termed the forensic issues debated before me were: what were the real plans of the syndicate members (and derivatively of AOCO) when, in 1957, the pink and the green lands were, respectively, first acquired from SOCO, and what business or businesses were they (and it) conducting between the dates of those acquisitions and (respectively) the ends of the three financial years that are the basis of the three assessments challenged in this appeal. AOCO undertook to prove that the purpose for which the pink land was acquired was to conduct on and from it the business of producing olives and olive oil; that the purpose so conceived and pursued was frustrated by (inter alia) the combination of a bad harvest, the drop in the price of olive oil, and the lifting of restrictions on the importing of olives and olive oil; that, insofar as the green unhachured land was from time to time subdivided and sold, the syndicate was doing no more than (as previously explained) had been planned - tax had been paid on the profits of the subdivision and sale of that land; and that, insofar as the green hachured land and the pink land have since been sold, AOCO has been doing no more than realising its fixed capital assets in an enterprising manner, and accordingly any profit therefrom cannot be brought to tax. Counsel for the Commissioner has been concerned primarily to challenge the appellant's evidence and contended that I should at least find that the appellant has not proved its case and that it was open to me to find that throughout, alternatively from and after one of the dates particularised above, AOCO fell within the first or (as the case may require) the second limb of sec. 26 of the Act.

It will be necessary, in due course, for me to examine the facts in some detail, but in order to provide a framework into which my findings may be fitted I must first discuss and formulate the relevant rules of law by which I am to be governed.

At the heart of this contest lie sec. 26, 187 and 190 of the Act. Paragraph (a) of sec. 26 reads -

``26. The assessable income of a taxpayer shall include-

(a) profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale or from the carrying on or carrying out of any profit-making undertaking or scheme;''

The material parts of sec. 187 provide-

``187. A taxpayer dissatisfied with the decision may, within sixty days after such service, in writing request the Commissioner... -

...........................

(b) to treat his objection as an appeal and to forward it..... to the Supreme Court of a State.''

Section 190 runs-

``190. Upon every such reference or appeal -

(a) the taxpayer shall be limited to the grounds stated in his objection; and

(b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.''

By reading those three sections together it can be deduced that, in a case limited as this has been, when a taxpayer requests the Commissioner to refer his decision to this Court he accepts the onus of demonstrating by evidence and argument that, more probably than not, the assessment is excessive either because neither limb of para. (a) of sec. 26 - I shall refer to this paragraph hereinafter simply as ``Section 26(a)'' - applies to the assessment, or, if there was a carrying on or carrying out of a profit-making undertaking or scheme within the meaning of the section, the date upon which it commenced was such that the profits yielded from it did not warrant the liability imposed by the assessment under appeal. Mr. Fisher tendered a special argument about the operation of para. (b) of sec. 190: in his submission, if the Commissioner was constrained to rely upon a period during which the profit-making undertaking or scheme was being carried on or carried out that commenced on a date other than that which would have

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represented its commencement if the assessment under appeal had been correct, para. (b) no longer shifted the onus of proof to the taxpayer, because it was no longer upon ``the assessment'' that the Commissioner was relying. That argument has an attractive simplicity about it, but its implications are far-reaching, and I shall not determine its validity unless I am compelled to do so. The answer to it may be simply that the passage ``the assessment'' refers only to the amount of the assessment, disengaged from its legal and logical bases: some corroboration for that answer may be gleaned from the test to which the impugned assessment is subjected, namely, whether or not it is ``excessive''; if Mr. Fisher's construction were correct it might be claimed that the passage would have read ``is wrong in law, or is for any reason excessive''. Be that as it may, a number of other questions call for prior examination.

The Commissioner's concession at the threshold of the hearing that he is not invoking sec. 25 of the Act has relieved me of the task of resolving what is said to be a conflict of judicial opinion as to the precise relationship, in meaning and operation, between that section and sec. 26(a). But whether there is a conflict or not, it is, I think, beyond dispute, according to Gibbs J. in
F.C. of T. v. N.F. Williams 72 ATC 4188 at page 4195, that sec. 26(a) provides a statutory criterion that must be applied directly, and cannot be treated as going no further, and producing no different result, than would a criterion expressed as ``exercising trade'' or ``carrying on a business''; and that a case under sec. 25(1) is, in rerum natura, independent of sec. 26(a), although in certain situations the two may overlap, and produce identical results.

Several important aspects of sec. 26(a) must be clearly understood before it can be applied to the facts of this case. The first limb brings to tax profit arising from the sale of property that, when the taxpayer initially acquired it, was acquired for the purpose of profit-making by sale. Plainly it is the original purpose that is decisive. But every word must be accorded its full weight; in particular, the word ``profit-making'' is crucial. The first guiding rule is this: that the Act does not ``(require) one to start with a presumption that all moneys which a taxpayer receives from any source form part of his assessable income'': see Windeyer J. in
Elsey v. F.C. of T. 69 ATC 4115 at p. 4120. As I understand his Honour's remark, he is drawing a distinction between the effect of the evidence as a whole (to which sec. 190 relates) and the effect of individual primary facts, none of which, taken alone, receives from the Act the benefit of a statutory presumption. The meaning of sec. 26(a) may be developed in the manner described by the same learned judge in
Buckland v. F.C. of T. (1960) 12 A.T.D. 166, 169 where he expresses himself thus -

``When a person buys property, as a commercial money-making transaction and not for his personal use or enjoyment, the purpose he has in view is the use to which he intends to put the property to achieve this end. He may intend either to sell it at a profit, or to keep it as a revenue producing asset. In relation to sec. 26(a) it is the main or dominant purpose of the acquisition that is significant. If, a property, say a house or farm, were bought for the purpose of resale at a profit it would be immaterial that the purchaser also had in mind to take the rents and profits in the meantime or pending selling to use it for some purpose of his own. In such a case two purposes, one primary and dominant, the other secondary and subordinate, are not incompatible and could both be accomplished. And similarly along with an intention to retain property as a revenue producing asset, the purpose for which it was acquired, there may exist an appreciation that, if at some time it were necessary or desirable to do, it could be sold at a profit. I do not understand, however, how two inconsistent and incompatible modes of use could both be the purpose for which property was acquired.''

The implications of a passage in Owen J.'s judgment in
Smithfield Pastoral Co. Pty. Ltd. v. F.C. of T. (1966) 14 A.T.D. 170 at p. 172 give further shape to the same section -

``I have no doubt that any prudent man who was considering the purchase of land

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in the Smithfield District, to whatever use he proposed to put it, would have taken into account the possibility or probability that, as time went on and the `satellite' town developed, land values in the surrounding countryside would increase. It would be, however, to take a long step to say that, because a purchaser expects an increase in the value of property which he is thinking of buying, it should be inferred that his purpose in buying is to resell at a profit. The existence of such an expectation is obviously a relevant fact to be considered in determining the purpose for which land is bought but it is a consideration which, I think, would be in the mind of any sensible person who was considering making a purchase of land whether he intended to farm it, use it as a residence or for business purposes, or resell it. I have no doubt that, in buying land at Smithfield, Becker, Pickering and Haseldine took into consideration the prospect, which eventuated, that land values would increase. It would be surprising if they did not do so.''

The implication, to my mind, is that such expectations were relevant, but not decisive.

Where, as here the taxpayer is a company... ``it may be both permissible and essential to consider its authorised objects in connection with the actual transaction in question and even to seek for the principle purpose of its formation'' -
C. of T. v. Bawra (1931) A.C. 224 at p. 251 - while not overlooking the distinction between its main object and its incidental or ancillary powers (see Williams J. in
Scottish Australian Mining Co. v. F.C. of T. (1950) 81 C.L.R. 188 at p. 192). But a company's authorised objects may not be conclusive on the issue of purpose, for in order to resolve such an issue it will almost certainly become necessary to make findings, and rely, on the purposes and intentions of the natural persons - the directors - who were in control of the company's business at the material time:
H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham and Sons (1956) 3 All E.R. 624 at p. 630; and
Geo. W. Cheverton v. F.C. of T. (1962) 12 A.T.D. 461 at p. 468. The dominant purposes and intention of the directors, assessed in the light of the company's objects, will provide sound material from which the purposes and intentions of the company can be inferred when sec. 26(a) is to be applied.

It must, of course, be borne in mind that purpose is not always the simple thing that it appears in a legislative context. A purchaser may, in one acquisition, purchase a res that is divisible and, in contemplation of the subsequent division of that res, form one purpose as to one part, and another purpose as to the remainder. The Court's recognition of such a possibility is explained by Menzies J. in
Chapman v. F.C. of T. (1968) 15 A.T.D. 21 at p. 23: -

``I have no doubt that the board of review was correct in its conclusion that the purpose of the taxpayers, in acquiring that part of the land which they did not intend to keep, was to sell it at a profit. This is so notwithstanding that they would not have acquired that land otherwise than as a means of getting the seventeen acres which they wanted as a home and small farm. Looked at by itself, the land other than the seventeen acres was acquired for the purpose of sale at a profit. The problem which has troubled me is whether this can be done, and whether it is possible to treat what was one acquisition as having been made with one purpose as to part and another purpose as to the remainder. I have reached the conclusion that it is, and that to do so, is in accordance with common experience. I do not rely particularly on instances such as the purchase of shares to sell some and keep the rest; or, the purchase of a herd of cattle to keep some and sell the rest; because, in such cases it is comparatively easy to treat the purchase of say 1,000 shares or 1,000 cattle as the case may be as the purchase of 1,000 separate units. There is no doubt, however, that where the purchase is of an entirety it often happens that the purchaser in making the purchase has the purpose of breaking up the entirety and of using part in one way and part in another. The simplest instance of this no doubt is the sort of purchase which I am now considering. In such a case it is in vain I think to search for a dominant purpose

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for the purchase. There are in truth two purposes and it cannot be said that one is dominant and the other servant. In a case where one purpose for acquisition is to sell part of what is bought at a profit to meet or reduce the cost of the part to be retained perhaps, the only fair course is to attribute to what is proposed, two independent purposes; otherwise it could be that the part to be retained would have to be treated as property acquired for the purpose of profit making by sale, e.g., if it were to be found that the dominant purpose for the purchase was to obtain a profit by selling part.''

But complexity afflicts the question of purpose in other ways. For example, it may be tempting for a Court, where property has been transferred from a partnership to a company controlled by persons who, or some of whom, constituted the partnership, to infer or, at all events, to assume that the purpose of the former with respect to the property, without more, became the purpose of the company. To reason in that way would plainly be contrary to principle and to the authority of
Lucy & Sutherland Ltd. v. Hunt (1961) W.L.R. 7 at p. 13, where Cross J., as he then was, followed the decision of the Court of Session in Glasgow Heritable
Trust Ltd. v. I.R. Commrs. (1954) 35 T.C.. As I read the judgments in those cases, the purpose adopted by the partnership may or may not bear on the question of the purpose adopted by the company, but it is wrong to assume or infer that it must; the relevance of the former purpose and its connection (if any) with the latter purpose must be made positively to appear from the evidence.

Again, a taxpayer may bona fide have a purpose (other than the making of a profit on resale) for which he acquires property, even though the chances of fulfilling it may appear uncertain or even remote; and it is, in my opinion, consistent with that proposition that the same taxpayer may, without incurring liability under sec. 26(a), contemporaneously have it in mind that if, for some reason, he cannot proceed with his original project, he will resell the property in question and believe - even hope - that he will do so at a profit. I respectfully invoke the reasoning of Walsh J. in
Eisner v. F.C. of T. 71 ATC 4022 at p. 4032 -

``I find that in May and June 1958 when the lands were bought the appellant had the purpose of erecting a building on the land and of letting flats in the building to tenants. I am not disposed to accept his evidence that he did not consider at all any alternative that might be adopted and in particular that he gave no thought to the alternative of developing the land for home units, if for some reason he could not proceed with his original project. But if it ought to be inferred that he did have it in mind that in that event he would resell the land and believed that he would be able to do so at a profit, in my opinion that would not render him liable to be taxed under the first limb of sec. 26(a).

Although the appellant's project had not been properly investigated and there was no certainty that it could be carried out, I do not regard this as a case in which he bought simply because of a belief that in one way or another it would prove profitable and intended to decide later whether it would be better to retain it or to realise it. On my view of the evidence the dominant purpose was to retain it, even if the appellant had it in mind that if later the land were to be sold it could be sold at a profit: see
Buckland v. F.C. of T. (1960) 34 A.L.J.R. 60 at p. 62.''

A study of
F.C. of T. v. McClelland 69 ATC 4001 (High Court) and (1969-70) 70 ATC 4115; 120 C.L.R. 487 (Privy Council) and of the High Court's pronouncements, since that decision, in such cases as Eisner v. F.C. of T. (supra), and
N.F. Williams v. F.C. of T. 72 ATC 4069 and, on appeal from Stephen J. to the Full High Court, in the same volume p. 4188, yields clearly enough, for the purposes of this appeal, the meaning of the second limb of sec. 26(a), which can be expressed in the following propositions -

1. There is no necessary inconsistency between the assertion that the profits of a taxpayer have not been caught by the first limb of sec. 26(a), but that they have been caught by the second.

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2. Where an owner of property is doing no more than realising a capital asset in an enterprising manner he cannot be made liable to tax under the second limb simply because he makes a profit by that realisation. A reasonable corollary to that proposition, in my opinion, is that where he is effecting the realisation by the only practicable means open to him he will likewise be exempt from liability to tax.

3. Profits arising from the sale of a capital asset may be brought to tax under the second limb where, whatever the purpose may have been for which it was first bought, the owner commits it to, or ventures it in, an undertaking or scheme for the purpose of which the asset is constituted the circulating capital of a business, and the profits sought to be assessed arise from its disposal in the course and furtherance of that business.

4. Although the criterion suggested by the majority of their Lordships in McClelland's case (supra at p. 4120) for determining whether assessable income has been produced under the second limb of sec. 26(a) was formulated with respect to a single transaction, it was expressed widely enough to make it, ex facie, applicable to several transactions. According to their Lordships' advice (at p. 4120) ``the question to be asked and answered is... whether the facts reveal a mere realisation of capital, albeit in an enterprising way, or whether they justify a finding that the appellant went beyond this and engaged in a trade of dealing in land (albeit on one occasion only)..... in a case where profit is made by the acquisition and sale of some asset a similar notion (that is, the notion of `an operation of business') must be implied if profit is to partake of the character of assessable income.''

5.
Fox's case (1956) 96 C.L.R. 370 at p. 387 yields the further precept, which has a practical significance for this appeal, that ``given the basal fact that land of a definite value was... made to yield net proceeds considerably in excess of what otherwise could be obtained, it seems too difficult to deny that (the taxpayer-appellant) adopted and pursued an undertaking or scheme that from his point of view satisfied the description `profit-making' and that he carried it out''. Having regard to the facts in Fox's case (supra) I should read the passage ``what could otherwise be obtained'', in the context in which it appears, as referring to what could have been obtained without improving and developing the land as, and to the extent that, the taxpayer-appellant had improved and developed it. There is, in other words, a clear implication that the subject land could have been realised by carrying out improvements and developments that were much less extensive than those actually carried out.

6. It is a question of fact in each case whether liability to income tax has been incurred or not.

In a case where many of the relevant facts are in the power of one side to produce rather than the other, it is important to bear in mind the extent to which that power was exercised. A passage in Kitto J.'s judgment in
Craddock v. F.C. of T. 69 ATC 4108 at p. 4109 typifies the attitude of courts to this aspect of proof -

``The appellant has given evidence before me to the effect that the purpose was to carry on farming as a hobby. He has not suggested that there was any difference as to purpose between his fellow purchasers and himself, but for some reason none of them has gone into the witness-box and their absence has not been accounted for. It does not follow, of course, that the appellant's evidence should necessarily be disbelieved; but the inference may fairly be drawn that if the brother or the wives had come forward as witnesses their evidence would not have assisted the appellant. His evidence must therefore be scrutinised with care.''

That passage is, of course, a particular application of the wider principle that ``all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted'' (per Lord Mansfield, in
Blatch v. Archer (1774) 1 Cowp. 63 at p. 65: 98 All E.R. 969 p. 969). That same principle is embodied, in a more dramatic form, in the speech of the Lord Chancellor in
Morgan v. Evans (1834) 3 Cl. & F. 159 at pp. 202-203: 6 All E.R. 1397 at pp. 1413-1414. It is to be

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observed that the appellant in this case avoided the pitfall of not tendering proof that it was in its power to produce: Dring died long before the appeal was instituted, but Antonas, Powell and Trim were all called. Of course, the calling of these witnesses does not, by a supposed converse operation of the above principle, per se add any special weight to the proof offered, but no adverse criticism can be directed against the appellant's case based on an absence of essential witnesses. Rather to my surprise the Commissioner adduced no oral testimony and, apart from several exhibits tendered through the appellant's witnesses when they were under cross-examination, relied on correspondence between the Commissioner and the taxpayer's agent which constituted the only material tendered as the Commissioner's independent case. It is not to be thought, however, that in making these observations I have overlooked the onus of proof imposed by the Act.

I turn now to consider the evidence at large. The Commissioner relied principally on the history of the land as revealed by the land transactions to which AOCO and the syndicate were parties. AOCO, while not disputing those transactions, led a substantial body of evidence in order to provide a setting against which, in Mr. Fisher's submission, it may be seen that AOCO and the syndicate set out, initially, to run an olive plantation and an olive crushing business, but that, when it became apparent that the proposed venture was a failure, they began to realise the land as best they could; any profits made on that realisation (Mr. Fisher says) reflect no more than that it was done in an enterprising manner.

It is necessary to look in some detail at the members of the syndicate, their businesses, experience, plans and aspirations.

It may be fairly claimed that by the year 1952 Antonas answered the description, and held the reputation of, a successful business man. He described the years 1950, 1951 and 1952 as the best years of his life. He had established butchering and fellmongering businesses, which were complementary to one another, and he had assembled substantial assets represented by property investments: he owned the Antonas Building on the corner of King William Street and South Terrace, and two butcher shops and a slaughter yard in Port Pirie. During the years 1950-1957 he undertook the purchase, renovation and sale of three or four properties in the City - presumably at a profit. For some years immediately before 1956, Antonas had developed and maintained an interest in olives - their production, marketing and consumption. He and his family had traditionally bought and consumed olives and olive oil, but he had long been aware, from his friends and associates in the Greek community to which he belonged, that there was a steady and strong demand for olives and olive oil amongst the migrants from Europe and the Baltic countries, and amongst the Greek community.

Olives produced in South Australia (and elsewhere) are not homogeneous: they have been developed in two varieties - the small dark olive used for crushing, and the much larger olive or table olive, used for pickling, of which the two best known by name are the Verdale and the Spanish Queen. (I shall refer, in this judgment, simply to ``crushing olives'' and ``table olives''.) Migrant groups, at all material times, were eager to obtain a steady supply of both varieties, and of olive oil. Antonas gained a better knowledge of the olive producing through his acquaintanceship with the Crompton family. The Cromptons each year hired extra workers during the picking season: most of them were Greeks and could not speak English well. Three or four times before 1956, Antonas was engaged by the Cromptons to act as interpreter, and, naturally enough, Antonas conversed regularly with the workers, some of whom came from Volos and Kalamata - both olive growing districts - and who, accordingly, knew something of the skills of that industry. He learnt - or at all events believed that he learnt - that the Cromptons were running the SOCO plantation inefficiently: the trees were not being properly pruned; no use of terracing or benching was being made and much precious water was running away unused; soil was not - as it ought to be - piled round the roots

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of the trees; no good use was being made of the art of engrafting - scions from table olives could have been united with old stock of the crushing olives to good effect. Antonas gradually became convinced that if the plantation was managed and improved in accordance with his ideas, and supported by a thriving nursery, its yield could be increased three or four-fold. His opinions received indirect support from his conversations with Alan Crompton: it appeared to him that the Cromptons were unduly conservative and unenterprising in their methods; in particular, the grafting of table olive scions onto old stock had advanced only as far as the experimental stage. The efficient use of water on the plantation was of outstanding importance. Much of the plantation was established on steep ground, and rain tended to run away without being absorbed.

It must be borne steadily in mind that olive harvests are likely to be marked by vicissitudes to a degree not generally observed in other harvests: the success of an olive harvest, which is usually picked about June of each year, depends materially on the plantation's receiving, two or three months before the gathering in, ample falls of rain so that the olives swell to their proper size. Figures given in evidence by Crompton representing tons harvested between the years 1951 to 1957, inclusive, present extraordinary variations. The figures given were -

1951, 45 tons;
1952, 142 tons;
1953, 63 tons;
1954, 151 tons;
1955, 17 tons;
1956, 185 tons; and
1957, 205 tons.

The difference in value between the two sorts of olives is exemplified by the difference in prices per ton obtainable in 1956: crushing olives brought £20 to £25 a ton; table olives brought about £300-£400.

Accordingly to Antonas's recollection, Alan Crompton told him that in one season - it could have been 1957 or a season not long before that - the harvest yielded 300 tons. I am satisfied that Antonas was wrong about this: I find that a figure of about 200 is the highest that would have been given to him. Antonas was also in error in his testimony that he was told that in one year the Crompton's ``got up to 25,000 gallons'' of olive oil from a harvest. I find that the highest figure of which he learnt would have been 20,000 gallons. But I am satisfied that Antonas, and later his colleagues Powell and Trim, were induced to undertake the olive growing venture described in evidence by their confidence in what the plantation could be made to yield in the future, rather than by what the Cromptons had achieved. I shall recur to their belief in the project later.

Antonas's interest in olive producing was not wholly academic. He bought olive oil from SOCO from time to time, which he later sold in the migrant market: indeed, Alan Crompton spoke of him as being one of SOCO's important customers. Moreover, he visited factories and plantations in the olive growing business frequently: he had many discussions at the Dover Oil Company's plantations and factory with a friend of his, Joe Norman, who owned the business; he travelled to Bordertown, inspected the young plantation established at Baugham, and talked with the managing director, the manager and the Greek workers there; he explored the possibility of buying one of a number of olive plantations at Renmark, but the purchase ultimately was not proceeded with; he was shown over the crushing plant operated, not far from the West End Brewery, by or on behalf of a friend of his, one Stavros Cratsis, who started the Star Grocery business; he examined a bottling plant in Melbourne.

Mr. Legoe, both through the medium of his cross-examination of the appellant's witnesses and by his address, pressed on me the argument that the members of the syndicate, in general, and Antonas, in particular, manifestly failed to make of the Cromptons, or of any other persons who might have been supposed to be well-informed on the subject, the sort of financial enquiries that should have been made if they and he were genuine in their plans to undertake the business of producing olives and olive oil for profit. This argument would have been difficult to reject if AOCO's

ATC 4059

case was that the syndicate planned to do no more than take over SOCO's business - say, on a walk-in-walk-out basis - and run it more or less as it had been run. But Antonas, Powell and Trim maintained that they were planning for an expanded and rejuvenated business, not for an unimaginative continuance of the old. I believe them. It is only fair to add that I think Antonas was a victim of his own enthusiasm and self-assurance, and, to their chagrin later, fired his colleagues with that enthusiasm and misled them with that self-assurance.

Powell came to Adelaide from Melbourne in 1950 to manage the office in this city of Willmore and Randell, real estate agents: he had previously been a land salesman for the same firm. In 1953, he left Willmore and Randell and started a general land agency on his own account: by 1954, he had established four or five suburban offices. He had never had direct experience of the business of developing land for subdivision. In 1953 he first met Trim, although for some years they knew one another simply as fellow businessmen: they had no discussions with one another or with Antonas till 1956.

Trim was at all times an established and well-known Adelaide business man: he and his brother (J.F. Trim) owned substantial business interests, and plainly were well content to extend those interests by investing in the project sponsored by Antonas. I am satisfied that, both by temperament and performance, Antonas impressed Trim and Powell (and presumably Dring, too). Trim gave in evidence a succinct and vivid account, which I accept, of the impression made on him by Antonas -

``Q. Is this the position; that you really relied on Kevin Powell to ascertain what the profits were in this venture and ensure that they were realistic?

A. I would say that would be the position, yes.

Q. As far as you were concerned, I mean.

A. As far as we were concerned.

Q. You didn't yourself ever personally make any check to find out?

A. Not that I can remember.

Q. What you have just said - I take it you think it unlikely that you would have done?

A. I wouldn't say that it could have been likely too, but this is going back sixteen years ago.

Q. Do you have any figure in mind as to the possible profit by way of a percentage on capital?

A. No, I didn't. I was a little bit caught up with Antonas's enthusiastic approach about it. I think we all went into it - one thought that it had a great future because of the coming of the migrants into Australia.

Q. I was asking about the possible profit you expected to get from this Adelaide Olive Co., and you said it was a long time ago, and you were caught up with Antonas's enthusiastic approach.

A. Yes.

Q. Before you actually put your money into this venture how many times had you actually met Antonas? I mean before you signed the first of those letters, which was on the 16th January.

A. I think I met him 2, 3 or maybe 4 times.

Q. All of them out on the property?

A. No. If I remember rightly once or twice in the shop and maybe once or twice on the property.

Q. Apart from your meetings with Antonas you didn't know anything about him personally other than what Powell had told you?

A. Yes.

Q. You did not know whether Antonas was a good businessman or not?

A. I did not enquire whether he was a good businessman, but I must say that he was not the Mr. Antonas that appeared before this Court the other day. If I can put it more properly, 15 or 17 years ago he was a very upstanding, good type, full of enthusiasm, and ran a very good motor car, and had 4 or 5 high grade properties, and had a wool scouring business, and he was on top of the world. He gave every

ATC 4060
indication of a very successful businessman in every way. Certainly he has not got the same approach now.

Q. As far as your own enquiries of him were concerned, did they go any further than your meetings with him and your discussions?

A. None at all.''

It was suggested by Mr. Legoe, more especially in his cross-examination but also in argument, that Powell and Trim were predisposed, by experience and, in Powell's case, also by training, to see in Antonas's project the promise of profits from the subdivision and sale of land. The evidence, to my mind, does not support the suggestion. I have no doubt that, from the year 1958 onwards, Powell acquired, in the hard school of experience, knowledge of, and some skill in, the business of subdividing and selling land; but that, before the olive-growing enterprise appeared to be on the point of failing, his experience and training in the real estate world had not fitted him for taking part in that esoteric business. Trim's previous ventures did not include the promotion and exploitation of subdivisions. In 1954, he and one, Mr. Swanson, had bought 5 acres of land at Brighton on which they planned to build racing and agistment stables, but the proposed manager of this establishment became mortally ill, and, between 1957 and 1958, the land was disposed of through Powell, who acted as land agent for Trim and his colleague. I am satisfied that Trim undertook this venture for the purpose stated; that the sales through Powell represented the realisation of a capital asset no longer wanted; that neither Trim nor Powell regarded the disposal of the land as a profit-making scheme; and that even assuming that the means of disposal was by subdivision and sale by allotment, neither man then acquired any worthwhile skill in, or particular taste for, the subdivider's business.

In the year 1956, from January to October, Joe Crompton (the father) was out of the country, and Alan Crompton was left in charge of the family business. During this year, Antonas's interest in the SOCO plantation and in the prospect of taking it over grew: in about February he first took up with Alan Crompton the possibility of obtaining an option to purchase the plantation. Crompton's were not, at the time, seriously thinking of selling, although costs were rising; they were benefiting from a protective Commonwealth tariff which enabled them still to make a profit. Antonas's first definite move was made towards the end of February 1956 when he wrote to SOCO, enclosing a £15 cheque, and asked for an option to buy its land, buildings and plant for £45,000. The SOCO directors discussed his request on 29 February 1956, but rejected it and returned his cheque. They did not, however, discard the possibility of a sale. Discussions were held with SOCO's accountant, and on about 23 March 1956, a letter was sent to Antonas offering the plantation at the figure of £58,865. Antonas's response to this was to seek an option at £53,500. A cheque of £100 accompanied his letter, which was considered by the directors on 10 April 1956. The directors thereupon called a meeting of shareholders which was held on 19 April 1956: the meeting authorised the directors to negotiate with Antonas for the sale of the land, buildings, plant and other capital assets at a figure to be agreed with the purchaser. On the same day they rejected Antonas's most recent request, and returned his cheque for £100, but negotiations continued. I regard these moves as of paramount importance; I have no doubt - and I find - that Antonas's efforts to acquire the SOCO land and factory were prompted exclusively by a wish to enter the olive growing business, and that he at no time was concerned with the prospect of land development and sale.

On 29 May 1956, Antonas succeeded in obtaining from the directors an ``option'' to purchase, at £60,000, which was to be taken up by 2 July 1956: it was not supported by consideration or recorded in writing. Antonas was, at all material times, although owning substantial assets, unable to find the purchase money from his own resources, and at once started to search for co-venturers. He attempted to interest a legal practitioner named Mr. A.L. Pickering (now deceased) but he refused to join in the scheme.

ATC 4061

Meantime the SOCO directors, probably thinking, perhaps, that the company held a more valuable asset than had previously been realised, engaged a firm of surveyors, Calder and Associates, to survey the SOCO land and to report whether it would be suitable for subdivision and sale. That report was submitted some time between 18 September and 20 December 1956 - probably nearer the later date than the earlier. I shall recur to this report in due course.

In 1956 Powell married; he returned from an overseas honeymoon in August of that year, and shortly afterwards was approached by Antonas who broached the subject of the olive plantation. Antonas was probably led to make Powell's acquaintance from his having, while Powell was away on his honeymoon, placed in the hands of Powell's firm the task of selling the land at Port Pirie on which he had established the slaughteryards previously mentioned. Antonas had, through surveyors, procured approval for the subdivision of that land, and had engaged Powell's firm to sell the allotments in subdivided form.

From about September 1956 until about January 1957 Antonas saw Powell very many times - Powell described it as ``almost daily'' - and discussed the project. One meeting at least took place in the offices of Mr. Pickering's partner Mr. Mohr. To a degree that the evidence leaves far from clear, Antonas seems, in the early stages of their discussions, to have been secretive about the precise character and location of the business he was asking Powell to join, but by December 1956 all had been revealed. By that month Powell had discussed the SOCO business with Alan Crompton and had approached Trim and Juttner - it is not certain whether Dring was approached before Juttner's withdrawal from the syndicate in January 1957. If Dring had not been invited to join in the scheme by that date he was certainly invited soon afterwards.

By 20 December 1956, the latest option held by Antonas had, of course, lapsed; on that date SOCO resolved to grant to Antonas an option to purchase the SOCO plantation for £78,000. The directors had probably by this time received a valuation of the land on a subdivisional basis, and, in any event, upon a review of the financial position of the company, had concluded that the shareholders would be better off receiving income from investments representing the proceeds of the sale of the company's assets than receiving dividends from the original family business.

The directors acted without delay. On the following day they sent, on behalf of SOCO, an offer to grant, in consideration of £100, an option (which was to be good for twenty-one days) to purchase the plantation for £78,000. (The business had just been revalued in the company's books at £74,000.) The letter containing the offer was addressed to Antonas personally, and contemplated payment by instalments, the last of which would be made on or before 31 January 1959.

It is worth here remarking that the subject of all these and subsequent negotiations - the SOCO land, factory and appurtenant assets - were by no means insubstantial. At the end of 1956 there were some 8,000 to 9,000 trees in the plantation: the number of trees in the original plantation, which had been started getting on for a century ago, had, in time, reached the 10,000 mark, but in the fourth decade of this century some thinning was carried out. From time to time, new trees were planted, and an experimental strip, where grafting was essayed, was established, but a policy neither of steady expansion nor of continuous replacement was maintained. The olive oil produced by SOCO was of high quality - better than imported oils - and it found a ready market; it is important to bear in mind that the olive producing industry had for many years been protected by import restrictions (mentioned above). (They remained in force till 1959 when, to the dismay of olive oil producers, they were lifted.) In short, the plantation was old, well-established and producing, on the average, adequate quantities of olives and olive oil of good quality, from which, for a long time, reasonable profits had been derived.

Antonas did not respond directly to the letter of 21 December 1956. By mid-January 1957 he had marshalled financial aid - Powell, Trim and Juttner had agreed to join

ATC 4062

him in his enterprise - and on 16 January 1957 a letter signed by Antonas, Powell, Juttner and A.E. Trim (for Trim's Investments Limited) was sent to the Secretary of SOCO offering to purchase the SOCO land ``with all improvements and erections and all machinery and other plant and equipment on the land and import licences held by (SOCO) (but excluding the olive crop to be picked during 1957) for the sum of £75,325.0.0'' upon certain terms and conditions. The property bought was to be paid for by stated instalments and the land was to be transferred as to an ``area of 40 acres or thereabouts'' to the members of the syndicate as tenants in common and the balance to a company to be formed for whom those members were acting as trustees. It is unnecessary to particularise further; the SOCO directors declined the offer because some of the terms and conditions were not acceptable to them.

On 18 January 1957 the syndicate renewed its offer but varied the terms and conditions. This offer elicited a reply from SOCO which, although technically a counter offer, amounted to an acceptance in substance: five reservations were stated, including one according to which SOCO would retain the right to operate the plant till 31 March 1958. The reservations were unconditionally agreed to in a letter from the syndicate members dated 21 January 1957 with which was forwarded a cheque for the deposit.

It should be observed that, by 16 January 1957, Juttner had dropped out of the syndicate, and his place had been taken by Dring who operated through Greenhill Investments Pty. Ltd.

I have related these negotiations in some detail because they furnish the basis of an important inference. There is no doubt that the members of the syndicate were brought to a participation in the olive venture through the efforts of Antonas and, at all events initially, Antonas alone. The history of Antonas's interest in, and investigation of, the olive business and of his pursuit of the negotiations with the Crompton family, to my mind, justifies the inference, which I unhesitatingly draw (and which is confirmed by his direct testimony and that of Powell and Trim), that Antonas was enthusiastic and steadfast in the belief that the development and exploitation of the plantation would prove a profitable business venture - more especially from the pickling and sale of the table olives. There is no doubt in my mind that at the outset Powell and Trim were infected by, and shared, that enthusiasm and belief. I am satisfied that the evidence, taken as a whole, is consistent with those findings.

The month of March 1957 marked the beginning of the syndicate's efforts to receive official approval for the subdivision of portions of the green land. On 3 March 1957, Alexander and Symonds (acting as agents for the syndicate) lodged with the Town Planner an application for the subdivision of the green land (46 acres) into 10 allotments. (At about the same time - the evidence is vague on this subject - there must also have been an application for a subdivision of the original SOCO land into the two parcels that were to be transferred, the one to the syndicate and the other AOCO: the transfers, at all events, were duly registered on 25 February 1958 and 24 April 1958, respectively.) The fortunes of this and other negotiations with Government planners will assume importance as the account of AOCO's land transactions unfolds. Plans in support of the application of 9 March 1957 were forwarded three days later.

At about the end of March 1957 the syndicate received two valuations, previously bespoken, from Adelaide valuers in relation to the SOCO land. Mr. Legoe pressed witnesses, in cross-examination, and me, in his address, with the suggestion that - and here I epitomise - it could hardly be coincidence that no sooner is the bargain for the sale of the land struck than Powell (acting for the syndicate) is found receiving valuations of the SOCO land obviously based upon the land's potential for subdivision. Can this admit of any other rational explanation, Mr. Legoe asks, than that the plan to subdivide and sell had, by that time, been in existence for some months - probably since the syndicate was first formed? There would be force in this suggestion if the valuations related to the

ATC 4063

land in globo, but they do not. Each valuer showed by his valuation that he had been required to value, and had valued, the subject land in two parts (the same two parts in each case) which corresponded, in effect, with the pink land and the green land. I say, ``in effect'', because the evidence discloses that there were some minor variations, from time to time, in the area given for the land I have identified as the green land. The reason for this variation was never made entirely clear, but although Mr. Legoe carefully probed the testimony on the subject, he did not suggest that the variation masked any hidden manoeuvre by the syndicate. I am satisfied - and I find - that the valuations were ordered for no other or further reason than that, because the correspondence between the syndicate and SOCO named only one price for the SOCO land and failed to specify the proportions of that price that were to be attributed to the green land and the pink land respectively, the syndicate sought some independent opinion as the basis for a proper division. It may well be, too, that taxation considerations prompted the syndicate to proceed in this manner.

On 11 April 1957, Burnside Council reported to the Town Planner that it was willing to grant approval to the proposed subdivision. At about the same time Powell approached Penfolds to obtain rights to a 66 foot strip near the western boundary of the yellow land; the use first proposed for that strip was that of a road that would greatly improve the access to the subdivision on the green land and I am satisfied that when the initial approach was made the hope uppermost in Powell's mind was to obtain that improved access. These particular negotiations were unsuccessful, but eventually (as will later appear) the whole of the yellow land was purchased. Shortly after the negotiations about the access road began, Powell also suggested to a Penfolds representative (one Mr. Bateup), but this time speaking as agent for his own real estate company, that Penfolds should subdivide the yellow land and that Powell's company should act as agent for the sale of the blocks. At the time, Powell's suggestion probably did not represent the aspirations of a subdivisional entrepreneur, but by the end of 1957 the situation with respect to the yellow land changed.

On 29 May 1957 the then Engineer in Chief (Mr. Dridan) wrote a formal letter to the Town Planner, the contents of which, I find, were revealed to Powell and through him to the syndicate. The opinions expressed and events foretold in that letter are of such importance for the purpose of understanding the subsequent activities of the syndicate that I reproduce it in full -

``The Town Planner,

Town Planner's Office,

Victoria Square,

ADELAIDE.

Dear Sir,

Re Proposal Plan of Proposed New Sub-Division Section 1083 and Part Sections 905 and 907 Stoneyfell.

The following is advised in connection with the above: -

(1)Re Water Supply

The area is on the eastern side of the Wattle Park Reservoir which supplies the district. Ground surfaces range from RL. 690 to RL. 870 compared with the high water level RL. 735 of the Reservoir. The area is too high to be satisfactorily supplied from the existing system.

A new high level trunk main is being planned, but this is a major project which is not likely to eventuate for a number of years. It is therefore not practicable to supply the area under present conditions.

(2) Re Sewerage

Investigation shows that because of the steep falls of the land, lines of sewers will be required to be laid at the backs of houses situated on the low side of the streets and in the fronts of those houses situated on the high sides of streets. This would involve almost double the length of the sewers required for a normal area of similar size and the cost of sewering it will be considerably greater than for an ordinary area. Furthermore there is no access provided for an outlet sewer either by easement or by public road through the adjoining private land to reach the nearest sewer in Penfold Road.

ATC 4064

In view of the foregoing I am not able to certify that the land can be advantageously and economically sewered and reticulated with water. The Department therefore withholds its approval of the proposed sub-division.

Yours faithfully,

(Sgd.) J.R. Dridan.''

Mr. Dridan's report with respect to the future water supply dealt a severe blow to the syndicate's plans for subdividing the green land. Powell was cross-examined about this letter and was asked, ``Q. So at the time that the company purchased the syndicate land, you knew that there was this proposition for the future?'' Powell replied, ``A. Yes, but there was no indication of how long it might be; it could have been twenty five years.'' Having regard to the circumstances then obtaining, I do not think that Powell was exaggerating when he gave that answer; in his position, I should have regarded Mr. Dridan's carefully guarded language and negative forecast as particularly ominous.

On 12 June 1957, the Town Planner, founding himself on Mr. Dridan's report, predictably refused approval to the proposed subdivision, but invited further discussions to be held. That invitation was taken up and led to discussions with the Attorney-General of the day to which I shall refer later.

Meanwhile the syndicate proceeded with the necessary steps for the acquisition of the land. Conformably with the understanding already reached, an intermediate document dated 14 June 1957 (the exact nature of which never finally emerged in evidence), apparently signed by the syndicate members, declared that the object of the syndicate was to purchase the parcel of land containing 46 acres and to develop, and sub-divide and sell the same in such manner and for such price and upon such terms and conditions as the petitioners shall from time to time agree upon. The document seems to have been akin to an exchange of letters of intention. AOCO was incorporated on 26 June 1957 (it was converted to a proprietary company on 1 July 1964): the objects clause in its Memorandum of Association reads -

``2. The objects for which the company is established are:

(a) To acquire 90 acres or thereabouts being portion of the land in Certificate of Title Register Book Volume 2282 Folio 99 and the fixed improvements plant and equipment thereon and the vendors share of the growing crops thereon and

(b) To carry on upon the said land the cultivation and sale of olives and olive trees, the purchasing of olives and olive trees, the expressing and manufacturing of olive and other oils, the preserving of olives, the rendering marketable and selling of olives and olive oil whether the same are the produce of the land or not and generally the carrying on of the business of an olive garden and oil factory and dealers in olives, olive trees and olive oil and other products of a like nature.''

It is rare to find an objects clause so severely limited, and though, as I have held, the objects clause is not to be taken as conclusive, it has a bearing on the directors' plans for the company which cannot be overlooked. If those who promoted the company were minded to use it as a cover for land development schemes they were creating unnecessarily troublesome obstacles by circumscribing their objects so closely.

Mr. Legoe stressed the absence from the agreement of any reference to goodwill. It is improbable (he maintained) that the taking over of a business would not be accompanied by some provision with respect to goodwill.

Speaking generally, I agree, but the argument loses its force when the surrounding circumstances are considered. In my view, Cromptons would have been extraordinarily sanguine if they had looked for payment for goodwill. The business was adequate, but not a dramatic success. No secret processes or formulae were being passed on. It could not have been a practical proposition to suggest that Cromptons could or would threaten to set up in opposition. From the point of view of taxation I imagine the bargain suited the syndicate well. I regard the absence of reference to goodwill as of no significance.

ATC 4065

On 10 July 1957, a formal agreement for the sale and purchase of the SOCO land was executed. The named parties were the vendor (SOCO), Antonas, Powell, Trim's Investments Limited (representing Trim's interest) and Greenhill Investments Limited (representing Dring's interest) collectively referred to as the syndicate, and AOCO. The agreement included certain complex financial arrangements, but all that it is necessary to recount here is that the syndicate purchased the green land and AOCO purchased the pink land and the factory plant: access to the factory was secured to AOCO over the green land, and SOCO retained a right to emblements. The total price was £75,326 of which AOCO paid £31,747 and the syndicate paid £43,578: it is to be observed that the proportions of the total attributed to AOCO and to the syndicate respectively accorded closely with the corresponding proportions given in the valuations previously mentioned. That accord, in my view, confirms the previous finding with respect to the purpose for which the valuations were obtained, and hence the purpose for which, as I have found, the plantation and factory were acquired. It was in connection with this agreement and the valuations that Mr. Legoe, in cross-examination, pressed Powell with the ex facie discrepancies between the various areas given for the syndicate land, but Powell's explanation that the variations came about as the result of advice from the syndicate's surveyors seems to me probable, and I accept it.

In September 1957, Powell pursued his efforts to transform the green land into a subdivisional state acceptable to the Town Planner. This was, in my view, both necessary and reasonable; inter alia, the syndicate continued to bear the burden of mortgage payments to SOCO for several years. With Alexander (the surveyor), the Town Planner, and others, he inspected the site of the green land and the Penfold land and explored the advantages and disadvantages of various layouts, more especially of roads. Nothing definitive emerged from these discussions, but they form part of steady and continuous efforts by Powell, acting, as I interpret his work, on behalf of the syndicate, to find some effective way to realize the syndicate land in accordance with its members' original plans.

In about September 1957, the syndicate, in the person of Antonas, moved into the plantation and the work to improve it began. Benching was undertaken, banks of soil were built round the trees to preserve water. Later, in about November or December the trees were pruned; and expense was incurred in repairing a well already sunk and in fixing a pump already installed. Later still, in January 1958, further expense was incurred in laying pipes. Antonas was responsible for the work, but the other members inspected the plantation from time to time.

But Antonas looked further ahead. There was no nursery at the plantation when the syndicate took over, and Antonas started one on the far side of Crompton Drive opposite the factory: he planted a batch of young trees in 1957 and another in 1958. As late as December 1958 some 3,000 young trees were grafted on old stock. The nursery (which Crompton said ``impressed him very much'') appears to have been a success and was continued for some considerable time after it had become apparent that the parent venture of olive production had failed. The nursery operation was enlarged by what I shall term the Barossa Valley scheme. Some land upon which vines were then growing, was bought in the Barossa Valley, and a company called the Barossa Valley Olive Plantations Limited (which I shall refer to as ``BVCO'') was incorporated on 11 November 1957. The scheme visualised by Antonas and the other three was that the young trees, once established at the AOCO nursery, would be planted out in the Barossa Valley plantation and there further fostered. The first meeting of Directors of BVCO (Dring (Chairman), Trim, Powell and Antonas) was held on 11 November 1957 and meetings were held and business transacted for about another four years. (In 1962 Antonas became bankrupt and in 1963 BVCO was wound up.) At the meeting of 11 November 1957 it was resolved that 996 shares be issued to the members of the syndicate to bring paid up capital to £1,000.

ATC 4066

Negotiations with Penfolds continued into the late months of 1957, during which the original proposals were enlarged. On about 19 November 1957, the syndicate, through Powell to Penfolds' solicitor, offered, subject to certain conditions, to purchase the Penfolds land for £75,000. This was duly reported to Penfolds, but that particular offer was not successful.

The first half of 1958 represents a watershed in the fortunes of AOCO and the syndicate. Upon the whole of the evidence, I am satisfied that if the 1957-1958 crop had been successful, the events, more especially the dealings with land in which the protagonists subsequently took part, may well have been different. But the season was unfavourable - one could say disastrous; the crop picked in about March 1958 was exceptionally poor; confidence in Antonas's ability and judgment thereafter declined sharply.

On 27 February 1958, AOCO held its first directors' meeting. Mr. Legoe contended that this was a late start and that it came perilously close to moves to abandon the olive growing enterprise. Viewed simply as the date of a first directors' meeting, his contention would in other circumstances be of some force, but the evidence makes abundantly clear that the first formal meeting was preceded by very many informal meetings - especially between Antonas and Powell - and viewed against the earlier meetings the first formal meeting ceases to be remarkable. It must be borne in mind, as mentioned above, that Antonas had carried out not inconsiderable work on the plantation in the latter half of 1957.

It is significant, bearing in mind the company's impending misfortunes, that proposals were advanced immediately for increasing the company's stocks of olive oil by drawing on outside sources: it is reported in the minutes that Antonas suggested importing from Spain olive oil that could be blended with AOCO's ``until the company's plantations were fully bearing and able to supply all demands.''

The Minutes of 13 March 1958 record the following item -

``Expected Crop 1958: Mr. S. Antonas reported that the crop this season is similar to the 1955 crop when Cromptons picked only 17 tons from the Plantation and purchased an additional 68 tons. Will need 4 or 5 men in the mill. The cost of processing in 1955 was 45/8 per gallon, with a selling price of 60/- per gallon. Mr. Antonas estimates that our crushing costs for 1958 will be 34/2 per ton. Figures obtained from Crompton & Sons showed that in 1957, 205 tons of olives were picked from the plantation and an additional 245 tons were purchased at £42.14.7 per ton. The total crushing yielded 11,777 gallons equal to 26.13 gallons per ton. Cost of crushing was 34/- per gallon and selling price 60/- per gallon. The buying commission for olives purchased, charged by Crompton & Sons is 10%. Resolved that an extra 5% be paid to Mr. H.L. Stillwell of Hackham.''

(A letter (shortly to be referred to) discloses that even that forecast was unduly sanguine; and it appears, from figures compiled by AOCO's secretary, that the final crop did not exceed 4 tons.)

At the same meeting, the Secretary was instructed to apply for a licence to import 12,000 gallons of oil. He duly proceeded as he had been directed and correspondence tendered at the hearing (in the course of which, in a letter dated 24 June 1958 from AOCO to the Department of Trade and Customs, 3½ tons expected crop yield was reported) presents the outcome of the application. The Department sought various details to supplement the application, but, as they were not all furnished, the application was held in abeyance and was never subsequently approved. The outcome is hardly surprising: at the time importers were subject to a quota which was based, to a large extent, on current production. All that AOCO was finally able to import was what was permitted under the quota taken over from Cromptons.

The syndicate members did not, however, immediately abandon their plans for olive oil production; in about March 1958, Trim's brother, who was due to visit the U.S.A. on

ATC 4067

business, was asked to investigate the methods used in that country for picking, crushing, labelling and bottling olives. Powell's recollection of the ambit of the report requested was expressed thus -

``Q. He was requested to...?

A. Make some investigations for separating of olive oil, to inspect some machinery for separation of olive oil and also inspect a tree picking plant, a piece of equipment that made it possible to pick olives without having to knock them by hand.''

The brother's report (which was undated, but which was probably submitted with associated documents, somewhere in the first half of 1958) was tendered in evidence. It is not long, but it relates to the topics just mentioned and is not the report of a kind one would expect to be furnished to a company that was playing the part of a mere dabbler in the olive oil industry.

But with the disastrous crop, a failure to dispose of oil produced by AOCO on the interstate market (whose merchants were content with oil imported cheaply from Spain), the company's inability to have its quota lifted, and Antonas's apparent lack of initiative in the emergency (as I understand Powell's and Trim's strictures of his performance in 1958) confidence in Antonas and in his project inexorably waned, and never recovered. Indeed, relations between Antonas, on the one hand, and the other three syndicate members, on the other, became so strained that the final dissolution of the syndicate was inevitable. Speaking of an arrangement proposed early in 1959 whereby SOCO were to lease the factory from AOCO and process the crop (reference to which will be made later in the judgment) Trim succinctly summarises the feelings of disillusionment generated in Antonas's colleagues by Antonas's shortcomings -

``Q. Remember who it was who first suggested the leasing of the factory?

A. No.

Q. Was it you?

A. I can't remember. I don't know whose idea it was. It was evidently Powell or myself, certainly not Antonas.

Q. Antonas wasn't keen on the idea of leasing the factory?

A. No. We leased it because it was about this time that we were disillusioned with Mr. Antonas, and that probably prompted us to lease the factory. It was a very old factory.

Q. When you say you were disillusioned with him, what was your disillusionment?

A. It was obvious that he did not know as much as he told us. He told us he knew all about the olives, but as time went by, we found out he was not (as) clued up as well as he led us to believe, and in our opinion he made a lot of mistakes, and a couple of major ones, which were going to cost us money, unless we did something about it.

Q. What was one major mistake he made that you remember?

A. I can remember two major mistakes. First of all he should have known more about the olive trees. The peculiarity of the olive tree is that one year you get a good crop of say 200 tons, and the next year a crop of 3 or 4 tons, and Mr. Antonas led us to believe you get your 200 tons each year, which we found out was not so. The other big thing was he should have known that the Australian Government allowed olive oil into the country for 25/- a gallon, and our olive oil was costing us about £4 a gallon. Mr. Antonas should have known those things, because it was impossible for us to produce olive oil at £4 a gallon when we could buy it for 25/- a gallon. That was one of the killers. The Australian Government should have given us tariff protection, and I believe at one stage we asked for it.

Q. Remember when it was that you first discovered the second of those two major mistakes?

A. I think when we tried to sell the olive oil in late 1958, at about £5 a gallon, and we were too dear. We approached a firm in Sydney, I think a Mr. King, and he told us it was too dear. He knocked us back on our price. We then had to turn around and import some olive oil at 25/- a gallon and blend it with ours, because the

ATC 4068
Adelaide olive oil was world class. It was a thick oil and you could blend it, which they still do in Australia.

Q. It is a fact that your Board of the Adelaide Olive Company discussed the importing of olive oil right from the first meeting?

A. I could not remember.

Q. Look at the first minute, on 27th February 1958. See the second item. That related to a proposition by Mr. Antonas to import olive oil from Spain?

A. Yes.

Q. Your directors continued to discuss that matter at the next meeting on 13th March 1958?

A. Yes.

Q. You would agree right from the start you were discussing the possibility of importing olive oil from Europe?

A. Yes, but we had committed ourselves by then. By the time of the first meeting.''

In the early months of 1958, Powell continued his efforts to have at least some of the green land subdivided. On 15 April 1958 a revised plan for the subdivision of the green land (and the Penfold land) was discussed at an important meeting of Government officers, and representatives of the syndicate, presided over by the Attorney-General. The discussion led to a modification of the official view which was conveyed to the syndicate's solicitors in a letter dated 29 July 1958 which runs -

``Messrs. Pickering, Cornish &

Lempriere Abbott,

51 Grenfell Street,

ADELAIDE. S.A.

Dear Sirs,

Re Proposed Subdivision Section 1083 and Part Sections 905 and 907 - Stoneyfell.

I acknowledge your letter of the 25th March last and refer to my subsequent interview, with you regarding this subdivision and have to indicate that I am prepared to consent to the subdivision of the allotments nod. 1 to 7 inclusive, 9 to 20 inclusive and 58 to 78 inclusive in the above plan of subdivision.

I am informing the Town Planning Committee that I am prepared to consent to the subdivision of the above land into the allotments as specified, pursuant to the provisions of Section 12a(2) of the Town Planning Act, 1929-1957.

The above consent is in accordance with the verbal arrangement made when you called on me and indicated that such consent would be acceptable to your clients.

If there is any point on which you are not quite clear, please do not hesitate to communicate further with me.

Yours faithfully,

(Sgd.) COLIN D. ROWE

Attorney-General''

No map was tendered by either party by which the exact location of the specified allotments can be fixed, but the evidence establishes (and counsel on both sides agree with this conclusion) that those allotments formed part of the green unhachured land. The green hachured land was not subdivided until several years later.

The syndicate maintained, also, its previous interest in the Penfold land. A letter from Powell dated 20 May 1958 and written on behalf of ``a client'' (which must have been the syndicate) conveyed to Penfolds's solicitors an offer to purchase the yellow land for £83,400 on terms. This offer, like the first, was unsuccessful but accord between the parties was becoming nearer.

AOCO's audited accounts for the year ended 30 June 1958 (as disclosed by its taxation returns tendered in evidence) confirms the impression given by the testimony that the company was by no means inactive. Sales of olive trees (which must have come from the nursery) appeared at £1,225; sales of olives reflected the miserable harvest and were recorded at £42.19.0. Expenses include water connection repairs (£75.14.0), purchases (£1,014.4.7), picking charges (£97.19.11), wages (£1,725.6.3), and repairs and replacements (£536.14.0). A trading loss of £1,839.1.9, and

ATC 4069

a net operating loss of £3,553.0.7, were incurred. The company had, as a temporary measure, embarked upon a small livestock venture - the stock were run in the ravines and slopes where olive trees could not prosper - but nothing much ever came of this.

Somewhere between July 1958 and January 1959, a number of olive trees were removed from the green unhachured land and replanted on the heights of the pink land. I am satisfied - and I find - that those removals and replantings were not begun before the approval of 29 July 1958. The decision to replant tends, in my judgment, to reinforce the suggestion that the syndicate did not undertake the Stoneyfell venture to gain riches from the sale of land in subdivision.

By the middle of 1958, Powell's attempts to purchase the Penfolds land were approaching finality. On 1 August 1958 an offer was sent by him, on behalf of the syndicate, to Penfolds's solicitors, to purchase (on terms) the yellow land for £86,797 (the figure actually agreed upon some two months later). Powell must have been reasonably confident that his offer would be successful because within a fortnight, he was pressing the Burnside Council for a decision on the reserves required for such a subdivision.

During the latter half of 1958, development of the Penfolds-Stoneyfell area generally was in the air, but precise information was not available. Powell was cross-examined at some length upon the subject of two articles appearing in the Advertiser of 13 August 1958 which discuss, in terms that purport to be in part factual and in part prophetical, ``a new suburb to be named Vaucluse'' that would ``develop around £250,000 worth of land bought recently from the Stoneyfell Olive Co. Ltd.''. The area of the new subdivision, as shown in a plan below the article, seems to coincide very roughly with the green unhachured land. But I am not disposed to draw any inference from the article. I am satisfied that the article is shot through with error; that it was issued without reference to Powell's, or to his surveyor's firm; and that, although I have no doubt it caused the Deputy Commissioner's eyebrows to be raised when he read it - as I am sure he did - it would be unsafe material for a Court to act upon. It is important to observe that Powell was immediately provoked to write (through his agent, Cliff Hawkins) formal letters of disavowal to the Town Planner (whose reply evidenced a refreshing departure from the well-worn paths of bureaucratic precedent) and the Burnside Council.

Between the end of August and the beginning of October 1958 the minutes of AOCO directors' meetings tell the story of discussions about the desirability of AOCO's purchasing from the syndicate the green hachured land. The first minute (dated 28 August 1958) reads -

``Transfer from Stoneyfell Park.

Owing to a permit not having been granted for subdividing the whole of the land acquired by Stoneyfell Park (that must refer to the syndicate) for a subdivision it was decided to examine whether the land could be transferred to (AOCO) to be used for olive growing.''

It was by this time quite plain that the syndicate's chances of obtaining approval for the subdivision of the green hachured land were extremely remote, and the proposal for such a transfer seems to me to be the logical outcome. The terms of the foregoing minute embody a contemporaneous declaration as to the purpose of the transfer and, as it was made ante litem motam, some importance, in all the circumstances, may fairly be attached to it. In reliance upon the testimony of Antonas and Powell, I find that Powell, Trim and Dring were entirely justified in the view, then entertained by them, that the Engineering & Water Supply Department did not contemplate that water would, for a very long time, be made available to that land for subdivisional purposes. I accept Powell's assertion that there was ``no point in the syndicate holding the land, so the syndicate may just as well sell it back to the Adelaide Olive Co. because they could get some use out of it and that would tidy up the syndicate's business. They (that is, the syndicate) were there mainly to sell subdivided land.'' Authority for AOCO's seal

ATC 4070

to be affixed to the memorandum of transfer was given by resolution passed on 9 October 1958: it was executed on 15 October 1958. Powell could not remember how the purchase price named in the memorandum of transfer - £28,000 - was determined, and the remaining testimony does not provide the answer, but I do not find that surprising. To my mind, the price was not unreasonable, and I can discern in the evidence nothing to suggest that the transfer was in aid of a realisation by subdivision. I am persuaded that any argument attributing to the persons controlling AOCO the plans and intentions made and held by those same persons as members of the syndicate would be quite specious, both in principle and on the evidence.

Mr. Legoe very properly and thoroughly probed the transaction and its attendant circumstances, by cross-examination of Antonas and Powell (especially the latter) but, to my mind, nothing suspicious emerged from his investigation, and I am satisfied - and I find - that the transfer was undertaken, substantially for the reasons given by Powell.

(It will be convenient to mention here a strange sequel to this transaction that occurred almost a year later. On 25 September 1959, Antonas lodged at the Lands Titles Office a document headed `caveat'

``FORBID(DING) the registration of a memorandum of transfer which I signed some three months ago transferring in common with the other registered proprietors of the land our estate and interest therein to the ADELAIDE OLIVE COMPANY LIMITED which said transfer should not be registered because

(a) the transfer was made without consideration and I have since revoked the transfer

(b) I signed the document on representations made to me by my co-tenants which I have since found not to be true.''

The factual and legal basis for this document were so unsubstantial that it is not surprising to discover that the so-called caveat was withdrawn by agreement on 14 April 1960. There are excellent grounds for supposing that the whole thing was done by Antonas in a fit of pique; by September 1959 he was well and truly at arm's length with the other syndicate members.)

Negotiations with Penfolds proceeded favourably, and on 22 October 1958 a formal agreement of sale and purchase of the yellow land was duly executed. This agreement marked the beginning of the end of the business relationship between Antonas and the other three syndicate members. Antonas soon recoiled from this latest development, to which he had lent a reluctant assent, and 18 December 1958 saw the taking of the first major step leading to the final separation between Antonas and the rest. On that day, the three syndicate members other than Antonas withdrew from the Barossa Valley project and Antonas withdrew from the Penfolds plan. A formal agreement, to which the original syndicate members, AOCO and BVCO were parties, brought the withdrawals into effect, and made the necessary adjustments in the shares and interests respectively held. Clause 7 of this agreement is significant of Antonas's continuing concern with olive growing, and of the AOCO's resources. It reads -

``7. For the consideration aforesaid the ADELAIDE OLIVE COMPANY LIMITED and BAROSSA VALLEY OLIVE PLANTATIONS LIMITED hereby undertake and agree the one with the other as follows -

(a) That for a period of five years commencing on the 5th day of December 1958 the said Adelaide Olive Company Limited will supply to the said Barossa Valley Olive Plantations Limited rooted and established olive trees of the Verdale and Spanish Queen varieties in such number as the Barossa Valley Olive Plantations Limited shall require but not exceeding 4,000 trees per year at a price of Ten Shillings (10/-) per tree and during such period will supply to the said Barossa Valley Olive Plantations Limited olive cuttings of at least two feet in length of the said varieties at a price of Two Shillings (2/-) each and the said Barossa Valley Olive Plantations Limited shall order at least 500 such trees and at least 500 such cuttings each year and shall

ATC 4071
make payment therefor in cash 30 days after receipt of invoice.

(b) During the period aforesaid the Adelaide Olive Company Limited shall replace free of charge with trees of the type and varieties aforesaid all trees now planted or hereafter to be planted in the plantations operated by the Barossa Valley Olive Plantations Limited and which shall or shall have been supplied by the said Adelaide Olive Company Limited and which are now dead or shall die after proper irrigation and attention at any time during such period of five years (damage by fire flood or inevitable accident only excepted).

(c) The said Adelaide Olive Company Limited shall during the period aforesaid supply at Stoneyfell free of charge suitable scions of the varieties aforesaid for the purpose of grafting all trees now established but not grafted by the said Barossa Valley Olive Plantations Limited in its plantations which trees the parties agree number approximately 5,000 and the said Adelaide Olive Company Limited shall further supply at any time or times if so required by the Barossa Valley Olive Plantations Limited the services of an expert grafter in its employ subject to the Barossa Valley Olive Plantations Limited paying all wages travelling and other expenses of such expert.''

I am satisfied that the immediate cause of Antonas's withdrawal was his inability to meet the periodic payments in respect of development costs both for the green unhachured land and then for the yellow land, but other causes of dissension were of much longer standing. Antonas continued to hold shares in AOCO.

Between May 1958 and April 1959, the records disclose a series of loans by AOCO to the syndicate: they were made on 22 May 1958 (£1,000), 9 October 1958 (£1,000) 27 October 1958 (£1,000) and 11 December 1958 (£3,000). On 4 December 1958, however, Dring, Trim and Powell, in their respective personal capacities, lent £1,000 to AOCO. Mr. Legoe, when cross-examining Powell and Trim, very properly probed the circumstances in which these loans came to be made, but no other explanation came to light than that they were advances designed to assist the syndicate to defray development expenses. It is important to remark that on 6 April 1959 AOCO directors resolved that the loans to the syndicate should carry 8% interest. In my view, these loans, though naturally warranting investigation, were neither so numerous nor so consistently made as to suggest, in all the circumstances, that AOCO had changed or was changing in character so that the syndicate was no more nor less than its alter ego (or vice versa).

By the end of 1958 the situation stood thus: BVCO was still an active business - the company had between them bought some 200 to 250 acres; the syndicate was still bending its efforts to subdividing and selling the yellow and the green unhachured land; and Antonas was organising performance of the various tasks on the AOCO land that needed to be done from time to time. AOCO, however, did not, after the end of 1959, harvest olives again and, as will be seen, SOCO's solitary attempt to harvest in 1959 proved a heavy loss. Some roads, also, had been made to the south and north of the mill; and, by 3 January 1959, some olive trees, to the north west and north east of the mill, had been removed. Roads had, in addition, been laid in the Penfolds land - it does not appear whether they were formed and paved.

On 8 January 1959, Antonas became Chairman of BVCO, and the other three formally resigned from the Board.

During the early weeks of 1959, AOCO showed clear signs of wishing to curtail its operations as an olive producer and merchant. By 22 January a proposal had been made that AOCO's licence to import Spanish olive oil should be offered to Crompton's. No decision was reached at the meeting of 22 January or at the meeting of 29 January; indeed, it was resolved at the director's meeting of 30 April 1959 to seek a renewal in AOCO's name. But in the meantime a further move had been made. At the meeting of 29 January 1959 there appeared on the agenda the item entitled ``Lease of factory''. Business under this head was deferred at the meetings of 26 February, 5 March, 13 March, 26 March, 6 April, and 16

ATC 4072

April; on 20 April, Antonas suggested that BVCO might be interested in leasing the factory on terms that he then named; on 30 April the same business was deferred again; but, finally, on 7 May 1959 it was resolved by the Directors that the offer of SOCO to lease the factory on the terms specified be accepted. The same resolution stipulated that SOCO were not to acquire the table olives. The lease was for a year. Powell referred to this move in his testimony -

``Q. It was about the end of 1959 that the proposition came up for the coming year Cromptons should buy the olives and lease the factory?

A. Yes.

Q. What was Antonas's reaction? Was he pleased or displeased with that idea?

A. I think he was probably displeased with it.

Q. He still indicated that he had faith in the business?

A. That's right.''

But the Fates did not smile even on this limited venture.

From about the end of 1958 the price of locally made olive oil had been dropping steadily, and in about August 1959 the import restrictions were lifted. The consequences were momentous for the olive industry. Speaking of SOCO's operations in 1959, Crompton, whose account I accept, testified as follows -

``Q. And you came back again and leased the factory from the 1959 year?

A. Yes.

Q. And you also bought the olives on the trees from the Adelaide Olive Co.?

A. That's right.

Q. At the time there were restrictions on the import of olive oil?

A. Yes.

Q. It was possible for you to import a limited amount?

A. Yes. I take that to be 1959.

Q. First of all, up to 1956, 1957, there were these restrictions?

A. Yes.

Q. You could import a certain amount, but not very much?

A. No.

Q. Likewise when you took over the lease of the factory these restrictions were still in existence, weren't they?

A. Yes.

Q. The 1959 year you did produce about 11,000 gallons of olive oil?

A. Yes, can I just refer to that - yes, that's right. 11,320.

Q. This was, of course, not only from the olives picked from the Adelaide Olive property, but bought from elsewhere?

A. Yes.

Q. I think you produced it at a cost of about 42/-?

A. 42/-, 43/- a gallon.

Q. Which is after you finished production I think something happened in respect of import restrictions?

A. They were lifted.

Q. What were the results of that?

A. Imported olive oil was available on the Australian market for considerably less than we had produced it for.

Q. Can you give us some idea as to how much you mean by considerably less - how many shillings?

A. About 10/- a gallon.

Q. I think these restrictions had been in existence for about ten years.

A. It must have been about that long. It was quite a long period.

Q. No doubt you lost money - did you have difficulty in selling your olive oil?

A. We certainly did. I estimate that that little venture cost the company about £10,000. I am talking pounds because that was the currency of the day.

TO H.H.:

Q. When you say `that little venture' what do you mean - that final year's production?

ATC 4073

A. No, the occasion we leased the property back, the mill, back from the Adelaide Olive - 1959 production was very expensive as far as we were concerned.

XN:

Q. Were you interested in negotiating the lease of the factory for another year?

A. No, we were not.''

It may well have been, if Cromptons had been successful in their operations pursuant to the lease, that the AOCO directors would have their faith in the olive project restored, but Crompton's heavy loss confirmed the majority opinion.

Reference has already been made to the attempts that were made to subdivide and sell at least part of the syndicate's land and, later, the Penfolds land. In March 1959, some final approvals began to emerge from the Town Planner's administrative machinery, on 10 March final approval was given for a small block to the west of the factory site, and on 12 March for a large section of the Penfolds land and another smaller strip of the same land.

On 4 April 1959, Powell's company put on auction the Vaucluse subdivision, which certainly comprised the yellow land, and probably also the green hachured land - or at all events most of it. The evidence is not clear as to the outcome, but the auction seems not to have been an outstanding success.

The AOCO accounts submitted with the taxation returns tendered in evidence were not themselves challenged. In June 1958 the liability on land stood at £10,792.10.0 and loan account (Stoneyfell Park, Greenhill Investments, Trim Investments, Antonas and Powell) at £22,563.1.1. In the following June liability on land had been reduced to £2,679.0.11 and loan account had risen to £55,676.14.1 (Stoneyfell Park - loan account £33,005.4.1; Greenhill Investments Limited, Trim Investments Limited, and Powell, each £6,167.17.6; and Antonas £5,167.17.6). By June 1960 the land had been paid off and the loan account stood at £58,295.3.7 (Stoneyfell Park £33,789.13.7; Greenhill Investments, Trim's Investments and Powell, each £8,168.10.0). In June 1963 the loan account had been reduced to £56,322.15.11: in particular, the amount referable to Greenhill Investments, to Trim's Investments and to K.J. Powell Holdings (as it now stood) was, in each case, now £7,968.10.0. In June of each of the years 1967, 1968, and 1969 the current liabilities shown in the balance sheets appear as (respectively) $209,133, $115,358 and $249,729 (in each case sundry debtors must be added). The creditors no longer include the syndicate or its members.

I am satisfied that the series of accounts tendered in evidence, in all the circumstances of the case, are in no way inconsistent with the statements made by the AOCO witnesses to the effect that the true and paramount purpose of AOCO was to run an olive plantation and factory, and of the syndicate to sell land for profit in order to assist in providing funds for the plantation and factory. The loans coming from the syndicate and its members may, in my opinion, fairly be regarded as payments made in advance, and without the backing, of profits that were expected to be derived from expeditious and successful subdivision of the green land.

By June 1959 it can, I think, be safely affirmed that the plantation undertaking was moribund, and thenceforward the question of fact to be determined is whether AOCO, through its agents, was engaged on a new profit-making enterprise, or whether, viewing the history of its transactions fairly and as a whole, it was doing no more than realising capital assets (acquired for use in a business that had failed) in an enterprising manner.

At the beginning of the financial year July 1959 to June 1960 the auguries were not propitious. On 29 July 1959 AOCO sent a letter to SOCO informing the latter's directors that AOCO was unable to meet its mortgage payments and requesting a three months extension of time. Two days later SOCO replied: the Board were surprised at the request and refused it; but to assist AOCO that company was offered, for £6,000, four blocks of land fronting Crompton Drive and the buildings, plant

ATC 4074

and materials on them. The offer was to be open for five days. Nothing more was heard of the request or the offer, but the two letters confirm that AOCO were facing real financial difficulties due, I infer, to the failure of the first olive crop and the syndicate's inability to obtain early approvals to the subdivision of the yellow and green land.

In August 1959 the AOCO directors discussed a proposal for disposing of 73 acres of AOCO land including the factory and portion of the factory land to Antonas for £85,000 (on terms). Apparently Antonas was not interested, or could not take up the offer, because it was withdrawn a fortnight later. At the same time as the withdrawal, AOCO's secretary was instructed to offer the 73 acres to a businessman named Roach who was in charge of Adelaide Development Company (whose business was that of land developer). It seems to me probable that the approach mentioned was part and parcel of an approach mentioned by Trim in his evidence which I accept -

``Q. Did you ever really go back into the olive business again after the Cromptons lease expired?

A. I don't think so.

Q. I think it is correct to say that there were considerable efforts made certainly by the time Mr. Antonas was paid out to sell the Adelaide Olive property?

A. We tried to sell it on many occasions but we failed.

Q. I suppose it would be fair to say the greater part of the effort that was put into selling the property was on the part of Mr. Powell?

A. I only played two parts in it, I approached Mr. Roach of the Adelaide Development Co. to buy the Adelaide Olive Co. land out and Mr. Roach would not consider it because he considered it had no subdivisional quality and that was the end of that. The other time I went with Mr. Powell to Melbourne and saw a firm, I believe it was the Kingsway Group, but nothing came of that either. That was all I had to do with it, only two occasions. That was the only twice.

Q. That is the only part you played?

A. Yes.

Q. Can I switch your mind back to the beginning again - 1956 - the latter part of the year - early 1957 - did you personally have in mind the sale of the Adelaide Olive land?

A. No, not at the time, no.

Q. Did you give any consideration to the question whether or not the Adelaide Olive land could be sold profitably?

A. Never gave it a thought, never at all.''

Powell's evidence (which I accept) disclosed the extent of the attempts to sell in broadacre form -

``Q. You told us in 1961 and 1962 you did make application for approval to sub-divide small portions at the same time as you make this application - were you making efforts to sell the land in broad acre form?

A. We were - yes, we were trying all the time.

Q. Can you remember any of the people whom you approached during that period?

A. Hookers, Wilmot in Melbourne, Kaliff of Hooker Rex, of course Marcus Miller came into it.

Q. From Sydney?

A. From Sydney. Rod Miller group, the Kingsway.

Q. Did he come in the early days?

A. Towards the end.

Q. Lewis?

A. Lewis of Lewis Estates. In actual fact I have an idea there is a contract showing that Lewis Estates were interested. They were submitted through Cliff Hawkins.

Q. Were interested conditional upon...

A. Subdivisional approval.

Q. Did you ever receive any firm offer to buy the land in broadacre form?

A. No, never.

ATC 4075

Q. Were all of the purchasers putting conditions to the effect that parts of the land or all of the land had to be approved for subdivision?

A. Well, conditional on approval for a fair amount of it.

..................

Q. Were you making these subdivisions for the purpose of yourself trying to sell off some blocks or trying to interest purchasers?

A. Well it was a little of both, I think. You couldn't attract a purchaser without you could get an approval, and we felt by hammering away at it we'd - when we did get approval they'd be more acceptable to a likely purchaser.

Q. What was the company's attitude at the time? If you had received an offer of broadacre, offer from a purchaser who was prepared to buy broadacre which recouped your investment, would the company have been prepared to sell?

A. Yes.

Q. But you did not receive any offer?

A. No offers at all.

Q. Did you receive any interest from anyone who would have taken over the olive grove as a business proposition as opposed to a subdivision?

A. Only Antonas.

Q. But Antonas never came up with a firm offer to buy?

A. He didn't have any funds available.''

The running down of the olive oil project continued. During a period that I can only place generally as the latter half of 1959 the AOCO directors held a series of discussions about pulling down the factory and selling the proceeds. Probably before the end of the year a majority of the directors had decided to dismantle and sell, but I am sure that Antonas was opposed to the move. Whether Antonas's attitude was dictated by a heroic but forlorn faith in the survival of the olive oil venture, or whether he was just perverse is hard to determine, but his opposition, to say the very least, was entirely consistent with an earlier, deep-seated enthusiasm for that venture. Powell stated that Antonas was opposed to the move and that he was ``upset''; Trim could not remember precisely; part of his evidence on the topic reads -

``Q. How were relations between yourself and Mr. Antonas between 1959 towards the end of 1959?

A. They were strained.

Q. For example I think a decision was made to pull down the factory?

A. Yes.

Q. Was that a matter in which a decision was made with a concurrence as you remember of Mr. Antonas?

A. I don't think you can really blame Antonas for the pulling down of the factory. I think it was a sequel of events such as the import of olive oil, the bad crop and Mr. Antonas.

Q. The decision to in effect cease crushing there, to give up the crushing of olives, do you remember whether that was a point of contention between yourself and Antonas?

A. I can't remember.''

On 5 January 1960, it was formally resolved at a Board meeting that the factory building, plant, equipment and fence be sold by public auction. The sale (which was effected on 23 February 1960) was, to use Antonas's phrase, ``to my sorrow''. The syndicate members continued to seek for ways and means to unburden themselves of the remaining AOCO land. The minutes of 8 March 1960, and a plan of proposed subdivision tendered in evidence, disclose that a beginning was made in that month to seek approval for the subdivision of the factory site. This was the first of several later and important applications.

The time had clearly now come for Antonas to go, and at some time early in 1960 he intimated his intention of resigning from the AOCO board of directors. Two months later the legal formalities consequential upon, and giving effect to, his intention were concluded. By memorandum dated 24 June 1960 he acknowledged to have

ATC 4076

received from AOCO £2,346.7.6 in full satisfaction of his loan account with the company conditional upon payment by AOCO to Barossa Valley £3,000 in part satisfaction of Antonas's debt to Barossa Valley. Heads of Agreement between all parties concerned, executed on the same day, provided, inter alia, that -

(1) AOCO would on settlement (which was to be 14 days thence) pay to Antonas £5,346.7.6, the balance of his loan account with it;

(2) The syndicate would on settlement pay to Antonas £2,144.15.0, the balance of his loan account with them and transfer to Mr. Antonas two numbered allotments facing Crompton Drive;

(3) Antonas would sell to Greenhill Investments (Dring) his interest in the syndicate for £3,647.4.4, and his shares in AOCO for £11,361.13.2;

(4) On settlement, Antonas would resign as a director of AOCO and a member of the syndicate;

(5) The customary indemnities would be given.

Antonas, in fact, resigned on the day those Heads of Agreement were executed.

Mr. Legoe subjected this argument to a close scrutiny and invited me to find that the agreement as whole, and the clause fixing Antonas's compensation for his interest in the syndicate and his shares in AOCO, disclosed an estimate by the parties of the worth of the AOCO land that supported the Commissioner's rather than the appellant's case. I do not so regard the agreement. The parties were at arms-length; the syndicate members other than Antonas were anxious to remove him; and his personal financial position no doubt prompted him to drive a hard bargain.

At about the time when Antonas severed his ties with AOCO there were still many thousand olive trees on the pink and green hachured land; Antonas placed the figure at about nine thousand, and although his memory is likely to be unreliable as to this sort of detail I am satisfied that a substantial number remained. Clearing operations carried out in 1964 confirm that conclusion.

After Antonas's departure the AOCO nursery kept going for some time, and it and the plantation continued to act as a source of supply for BVCO and olive buyers from the general public.

The situation generally at the end of June 1960 was summarised by Powell in cross-examination -

``Q. In the years from the end of June, 1960 onwards was the company doing anything else other than making applications to the respective authorities to cut up the land one way or another and when approval was given laying down roads and other necessary matters which were required and selling the land in subdivided or other form?

A. We were, of course, selling the olive crop each year for some years to Dover Oil.

Q. Do you know which year was the last year in which you sold any olives which were picked at Stoneyfell?

A. One day's only within the last few years. We have had people picking olives there every year which they pay us for.

Q. I take it at all times the olives that have been picked off the Stoneyfell plantation have nowhere near paid for the cost of labour which your company has had to pay for picking those olives?

A. We haven't picked them, we have had contractors, people would come in and pick them and pay us for what they picked.

Q. The last year in which your company engaged labour to pick olives for itself, do you know which year?

A. That would be probably 59,60 maybe.

Q. Before Antonas left?

A. Yes, up until Antonas left.''

The period from the middle of 1960 up to 1972, which spans the three years in respect of which assessments were made that led to these appeals, reveal - apart from the previously mentioned attempts to sell in broadacres - a painfully slow, but finally successful, campaign to obtain approvals for subdivision of the remaining pink and green land and to sell the allotments. Virtually all

ATC 4077

the necessary work was done by Powell with the willing assent of the other three directors: I find that he was their delegate to obtain consents - that, and nothing more. Moreover, I can see nothing extraordinary, contrary to the view that I was urged by Mr. Legoe to adopt, in the infrequency of directors' meetings while Powell was so engaged. I have no doubt that he kept his colleagues informed, and, in any case, no change in company policy was likely at that stage.

It is to be observed, in passing, that it was not until 1961 that the last of the allotments, for which approval to subdivide was received in 1958, was finally sold. It was not until 1972 (or thereabouts) that the last of the allotments, for which approval to subdivide was received in 1963, was finally sold; the selling of these allotments had begun in earnest in about 1967, and even today only about a half of these blocks have been built on. Attempts were made at least twice to sell as broadacres, but those attempts fell far short of success; the difficulties, some thought, the impossibilities, of subdivision deterred entrepreneurs.

Final approval to subdivide the area that included the old factory site and other land in the vicinity was received on 4 February 1964 by some people called Floreanis to whom, presumably the land had been transferred in expectation of that approval.

In 1965 a further application was made to subdivide the bulk of the remaining AOCO land and final approvals were received on 23 December 1965 (two) and 22 August 1965. AOCO, as was to be expected, spent regular amounts on clearing and development of the subject land. These amounts were gathered into a schedule and tendered by consent. I reproduce it below as a convenient summary, which I accept -

``ADELAIDEOLIVE CO. PTY. LTD.

Schedule showing the original costs of acquisition of the subject land and the non-recurring expenditure incurred up to 30th June 1969 in the conversion of the property into a suburban sub-division

                                                                        $
 Cost of 85 acres (approx.) acquired in y.e. 30/6/58 from the
  Stoneyfell Olive Co. Pty. Ltd.                                     58,155

 Cost of 31 acres (approx.) acquired in y.e. 30/6/59 from the
  Stoneyfell Park Syndicate                                          56,820
                                                                    -------
 Total expenditure incurred to 30/6/59                              114,975

   Incurred in y.e. 30/6/62
      Cost of preparation of subdivision plan                            98
                                                                    -------
      Total expenditure incurred to 30/6/62                         115,073

   Incurred in y.e. 30/6/64
      Costs of surveys by Alexander & Symonds                           997
                                                                    -------
      Total expenditure incurred to 30/6/64                         116,070

   Incurred in y.e. 30/6/65
      Cost of clearing - MacMahon Construction Pty. Ltd.              6,521
                                                                    -------
      Total expenditure incurred to 30/6/65


                                122,591

Incurred in y.e. 30/6/66

      Sewerage & drainage                                      84,000
      Laying of roads                                          32,174
      Surveying fees                                            7,789
      Clearing                                                    557
      Soil testing                                                124  124,644
                                                               ------  -------
      Total expenditure incurred to 30/6/66                            247,235

   Incurred in y.e. 30/6/67

      Making roads                                             38,266
      Sewerage & drainage                                       4,069
      Surveying fees                                            3,474
      Street signs                                                 61   45,870
                                                               ------   ------
      Total expenditure incurred to 30/6/67                            293,105

   Incurred in y.e. 30/6/68

      Making roads                                             10,820
      Surveying fees                                            1,657
      Sewerage & drainage                                         850   13,327
                                                                ------  ------
      Total expenditure incurred to 30/6/68                            306,432

   Incurred in y.e. 30/6/69

      Making roads                                              1,000
      Surveying fees                                              219    1,219
                                                                -----    -----
                                                                       307,651
      Deduct refunds received from E. & W.S. Dept.                       8,000
                                                                       -------
      Total expenditure incurred to 30/6/69                            299,651
                                                                       -------

In addition to the expenditure listed above the taxpayer company also incurred considerable amounts of recurring expenditure in respect of rates and taxes, accountancy fees, interest on moneys borrowed etc.''

These payments are closely relevant to the question to be answered under the second limb of sec. 26(a) and I have carefully considered them. It was not, and, in my view, it could not have been, suggested that this outlay over the period shown was so great in amount, and so extensive in heads of subject matter, as to suggest that the costs of subdivision were in any way excessive. I am entirely satisfied - and I find - that what was done was done for the purpose of putting the land into saleable form, that is, residential allotments in subdivision. It was, in my opinion, proper that this should be done; I am satisfied - and I find - that it was not practicable to realise the land in any other way. So far as the evidence reveals, no undertaking was even suggested that had as its object some specially expensive or fashionable subdivision, or any other similar commercial enterprise, that constituted more than a fair attempt to realise the remaining land by the means that reasonably and naturally suggested itself. It would seem that, in the event, the gloomy prognostications of the Engineer in Chief were not realised: the land has become subdivisible much earlier than was expected. That event cannot, however, change the situation as it presented itself to the syndicate in May 1957 and in the succeeding two years. No doubt the gross proceeds shown by the accounts in respect of the several years under examination are of an order that one has come to associate with subdivisional enterprises, avowedly embarked on for profit, but without knowing

ATC 4079

the history of the syndicate's business activities it would be easy to misunderstand the implications of proceeds of that order.

When the whole of the evidence is reviewed, it must be owned that the recorded land transactions justified the Deputy Commissioner in entertaining a reasonable suspicion that AOCO's business was originally, or became subsequently, that of land development for profit. But, as often happens, now that all the facts are known, that suspicion has become less than reasonable. A knowledge of the events of 1954-1958 is, in my view, essential to a proper understanding of the land transactions. I have had regard to the foregoing propositions of law and to the united force of all the circumstances put together, more especially the personal narratives of the three witnesses Antonas, Powell and Trim (against which no evidence was independently led by counsel for the Commissioner); and in the result I am satisfied - and I find -

The pink land was acquired by AOCO as a capital asset in the business, which was bona fide undertaken, of olive growing, processing and marketing.

At the time when the enterprise was planned, when the land was acquired, and when the business was embarked upon, neither AOCO nor its directors gave any thought to the likelihood - even to the possibility - of resale either at a profit, or at all. The syndicate arrived at its decision to enter the business not so much upon the basis of the known past performance of the Cromptons, but upon their own plans for rejuvenating and developing that business. Viewing the course of events with the benefit of hindsight, it may be asserted, with some justification, that the venture had no great chance of success; but its then uncertain prospects are not, per se, fatal to the appeal.

The hachured green land was acquired by AOCO at a not unreasonable price as an addition to its capital assets; its acquisition took place in circumstances that, in my judgment, would have been in total disharmony with a plan, whether attributed to AOCO or to the syndicate, to sell it at a profit either shortly after its acquisition or after a substantial delay.

The events of 1958, and miscalculations - both agricultural and commercial - by Antonas rendered the proposed business plainly uneconomic, and destroyed what I find to have been the genuine plans and aspirations of the syndicate with respect to that business. The lifting of the import restrictions in August 1959 rendered the possibility of resurrecting the undertaking quite hopeless.

AOCO and those controlling it accordingly changed the original purpose to a new purpose - namely, the realisation of its capital assets. Attempts to sell the land as broadacres so as to compensate for what was likely then to prove a loss failed.

AOCO and those controlling it then, in an enterprising, but by no means avaricious, pretentious or over sanguine, manner set about subdividing and selling the land in allotment form for residential purposes.

Delays and obstacles were encountered that were most unlikely not to have been foreseen and, in some measure, provided for if the syndicate members had originally planned to engage in the acquisition of land for development and sale.

7. In the process of disposing of those capital assets AOCO and those controlling it did no more than was reasonably warranted for the purpose of a realisation that fell short of a new business venture undertaken for profit.

8. More particularly, I find that AOCO did not embark upon, or (as the case may be) convert the undertaking into, a profit-making undertaking or scheme -

(a) on the dates when the parcels of land or any of them were or was acquired;
(b) on 28 June 1963;
(c) on 23 June 1964; or
(d) on 13 May 1965.

I find that AOCO has discharged the onus of proof imposed on it by sec. 190 and, in my opinion, the three appeals should be allowed with costs.

I shall hear counsel on the question formally in issue as to the carrying forward of the losses and on the form of orders generally that should be made.

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