WAIRAKEL, LTD.

Auckland Star, Volume 55, Issue 49, 27 February 1924, Page 7

WAIRAKEL, LTD.

ARTHUR CLEAVE SUED.

MISREPRESENTATION ALLEGED

AUSTRAIIAN CLAIMS £-2..r.00.

An action arising out of the formation of the company known as Wairakei, Ltd., was heard before his Honor Mr. Justice Herdman and a jury of 12 at the Auckland Supreme Court to-day, when the non. George Roy William McDonald, M.L.C., of Sydney, N.S.W., sought to recover £2500 from Arthur Cleave, publisher, Auckland, plaintiff alleging misrepresentation by Cleave in regard to 3000 £1 shares in Wairakei, Ltd Mr Northcroft and Mr. Jaeka appeared for plaintiff and Mr. R. McVeagh and Mr. Towle represented the defendant. The allegations made by McDonald were that in 1018 Cleave, who was engaged in promoting the company, induced him to apply for 3000 shares in Wairakei, by falsely representing (1) That the only remuneration defendant was receiving in connection with the promotion was a commission on the shares; (2) That defendant had no financial interest in the sale of the property; (3) That the Graham family, the then owners of the property, had intimated that they would take up shares to an amount representing the srreater proportion of the purchase price; (4) That the price of £.10.000, at which the property was being sold, was the proper market price, and that no addition had been made thereto by way of "loading;" (5) That £50,000 represented such a value as would be accepted by the National Bank of Xew Zealand for the purpose of advances; (li) That .lames Rolleston, then manager of the Grand Hotel Auckland, had agreed to become manager of the Wairakei Hotel. The defence was a complete denial of the misrepresentations alleged against defendant. Case for Plaintiff. Opening plaintiff's case. Mr. Xorthcroft explained that Wairakei was a thermal area, owned by Mrs. Grierson, formerly Mrs. Graham. Cleave obtained an option over the property for £24.000. apparently with the idea of forming a company. In Sydney he induced plaintiff to take shares.

"We say in simple language." continued counsel, "that Cleave perpetrated a fraud upon McDonald. We realise we are making accusations against Cleaa-e of such a nature that they cannot, be explained by any matter of an innocent mistake. If you believe that the incidents, of which we speak, did owur, if the evidence satisfies you, then there ran be no question that the fraud was perpetrated." Had Cleave formed a company for the express purpose of buying Wairakei from himself he would have had to disclose the price at which he was selling. Cleave did not want that to occur, because lie wanted to sell the property at a very substantial profit, and he wanted to conteal the extent of the profit lie would make.

_ "Without mincing words,'' said Mr. i Northcroft, "we say Cleave started to ; build his trap for the catching of the unwary at the very moment he got this thing. Instead of giving out that he was vendor of the property at foO.OOO, he gets a special partnership agreement between himself and Mrs. Grierson." Under that document he was able to say the company was buying the property at £50.000 from the Graham family. Had he said he was forming the company to buy Wairakei from himself there would have been some close inquiry as to his profit. Cleave (lodged that—and plaintiff's contention was that the scheme was designed deliberately—by entering into a deed of partnership with Mrs. Grierson, which was really an option, and one cunningly devised to conceal the fact that he was buying the property and reselling it. " He Loved Wairakei."* Cleave, said counsel, declared he loved Wairakei and had had sentimental associations with it practically from boyhood: he had been there over and over again, arir h>> appreciated its possibilities. Therefore he was determined that the big public thing he would do would be to put Wairakei on a good, firm footing, and make it available to the public of Xew Zealand and Australia. '-That," commented Mr. Northcroft. "was the fine, large public spirit in which Cleave was doing this. He was not a common, sordid promoter, but a benefactor, giving this thing to the community. I am instructed that is the spirit and as far as .possible the very words with which Cleave introduced himself." Cleaves "Public Spiritedness." After plaintiff had given a short answer to Cleaves scout, the defendant made his personal visit on McDonald after hearing that the latter was disposed to invest in companies if they were worth while. Accordingly Cleave laid siege on him and gave him this "hot air." Konsense though it now appeared in cold blood and in tha town in which Cleave lived and was known, it was not so apparently nonsensical in Sydney, where Cleave had been able to become associated with prominent men, which lent some colour to the story. However, plaintiff did riot make any complaint about that, but it showed the way in which .Cleave wormed his way into his confidence. Cleaves attitude was that he was not making a profit out of the business; he was doing it purely dn a public-spirited way, and all he was getting out of it was a paltry 10 per cent. McDonald, however, was not rising to the bait, and Cleave next showed him the names of the directors, which included that of James Rolleston, the manager of the Grand Hotel. Plaintiff knew Rolleston, and, declared counsel, Cleave apparently did not scruple to invent a ready lie if it suited his purpose, for he told plaintiff that Rolleston was very much impressed with the thing, and that he had promised to manage the hotel at Wairakei. That was an absolute fabrication, said -Mr. Northcroft; it had never been discussed with Rolleston.

Counsel said plaintiff's opinion was that in 1918 Cleave was in a difficulty as the period of the option was drawing to a close, and had not yet been confirmed. After sending an emissary to plaintiff. Cleave, who possessed au extraordinarily ingratiating way with him. called on McDonald and tried to persuade him to sec a picture show defendant was running in connection with Wairakei. Cleave represented himself as a aery wealthy man—Mr. Northcroft hoped it was true for plaintiff's sake—that he wanted to retire; that he had made proper provision for his family: that be had built, a magnificent __.__t.i_rc in Auckland, the Safe Deposit

Buildings, of which he had photographs: that he had put his capital into it, and had formed a company in which his family had shares: that his family was looking after the business side, and he was in the sere and yellow leaf, wanting to do something for his country before going out of business. Only 10 Per Cent for Cleave. George Roy William (McDonald said he had been in business in Sydney for 13 years, being a Crown land agent for 10 years. For the last four or five years he had confined himself to investments in companies. He was a director of nine or ten companies and had shares in 13 companies. His policy was to get on the directorate of companies in which he invested. He did not pose as a simpleton.

Witness then gave evidence on the lines indicated "by his counsel. When he saw Cleave in Sydney the latter declared he was not a company promoter: that he had a sentimental reason for what he was doing. Defendant also told him: "I will be quite frank with you; I am only getting 10 per cent; I expect to make £7000 or £8000."

Plaintiff added that Cleave pointed out what was Obvious, namely that if proper provision was made at Wairakei for the entertainment of visitors there was a lot in the project. Defendant referred him to the Xational Bank, which, he said, knew that he never touched duffers.

When studying the prospectus, plaintiff asked Cleave why, if the Grahams were putting back their money, the capital of the company was' only £2.3,000, and he was informed that the £25,000 only referred to outside capital. '•Who gets the £50,000 paid for the ! prapert,'?" was .another point which plaintiff put to Cleave, whose answer i was: "The Grahams get every penny of jit." Witness agreed that "loading" was quite common, but lie added that it was usually shown in the prospectus of a compani'. Defendant practically informed him that he was acting as attorney for the Grahams. He asked Cleave what he thought of the value of £50,000 put on the place, and defendant replied: it is a gift." He added that if the Grahams could get out of the deal they would, and some of them very were annoyed that he had the option. Plaintiff was also assured that there was no doubt that the bank would accept the value of £50,000 for advance purposes. The Judge's Questions. His Honor: Did Cleave at any time say he had a financial interest in the property?—On the contrary, he denied that he had any financial interest in it. His Honor then asked plaintiff to state the alleged misrepresentations upon which he based his claim. Plaintiff mentioned various points already set out in the statement of claim. Replying to counsel, McDonald said had he known that Cleave was buying the property for £24,000, and was reselling it for £50,00 he would have had nothing to do with the company. He contended that Cleave was well aware of that fact. The company was over-capitalised, and, witness alleged, contained dummy capital. "They put in applications for shares in order to get up to 40,000 subscribed shares so that they could rope mc in," he said. "Appalling Documents." Plaintiff said he first learned of the alleged falsity of the statements madby Cleave about October, 1922. He investigated the position on behalf of Australian shareholders, and the records of the company were the most appalling documents he had ever seen in his life. Until then he was not aware of the alleged fraud. He issued a writ against the company to asce.rtan whether he was owner of the 3000 shares. The Court's decision was that the allotment was in breach of the condition that 40,000 shares had to be allotted before he got his shares, but it was held that he had elected to take the shares. His Honor: The result is you are owner of £3000 worth of shares; how much have you paid for them? —£3000. Witness added that the day he got the Court's decision Cleave was informed that he would be proceeded against for alleged fraud. Plaintiff Cross-examined. Cross-examined by Mr. McVcagh, McDonald admitted he had had some legal experience and had been several years in the Attorney-General's Department at Sydney. In course of investigating the affairs of the company he saw documents which showed the profit Cleave was making. Plaintiff contended that defendant took the risk of discovery in making the alleged misrepresentations. What did you find out about the company on investigation?—l found a position of chaos in the company's records; money that did not exist alleged to be in the company's possession when it went to allotment. Did you find that Rolleston had not been appointed manager?—l knew that the hotel was not built so they did not need him as manager. Witness said he tried to find out what was going on. but the answers to his letters, he said, were deliberately intended to mislead him. He did not write to the secretary, but to his eo-direetor. Cleave, who was also managing director. A number of documents recording the company's business were sent to witness in Australia.

The case is proceeding, but will not be concluded to-day.