3MEG.COM Pty Ltd v TM and SM Pike Pty Ltd - [2010] WADC 174

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: 3MEG.COM PTY LTD -v- TM & SM PIKE PTY LTD [2010] WADC 174

CORAM: STAUDE DCJ

HEARD: 20 JULY 2010

DELIVERED : 29 NOVEMBER 2010

FILE NO/S: CIV 1317 of 2008

BETWEEN: 3MEG.COM PTY LTD
Plaintiff
AND
TM & SM PIKE PTY LTD
First defendant
SUSANNE MARIE PIKE
Second defendant
AUSTRALIAN STAFFING SOLUTIONS PTY LTD
Third defendant
PIERRE MICHAEL HIMMELMANN
Fourth defendant

Catchwords:

Trade practices - Misleading or deceptive conduct - Advertisement for sale of business - Representation of profitability - Representations with respect to future matters - Defence of puffery - Whether actionable breach of s 52 proved - Reliance - Causation of loss - 'Knowingly concerned' in a contravention of s 52 - Turns on its own facts

Procedure - Pleadings - Deficiencies in pleadings - Failure to amend - Identification of issues by reference to parties' outlines of submissions

Legislation:

Trade Practices Act 1974 (Cth) s 51A, s 52, s 75B, s 82

Result:

Plaintiff's claims against first, second and fourth defendants dismissed

Representation:

Counsel:

Plaintiff:     Mr A Metaxas
First defendant             :     Mr A Godecke
Second defendant         :     Mr A Godecke
Third defendant            :     No appearance
Fourth defendant          :     No appearance

Solicitors:

Plaintiff:     Metaxas & Hager
First defendant             :     Griffiths & Godecke
Second defendant         :     Griffiths & Godecke
Third defendant            :     Not applicable
Fourth defendant          :     Not applicable

Case(s) referred to in judgment(s):

ACCC v Universal Sports Challenge Ltd [2002] FCA 1276
Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Dare v Pulham (1982) 148 CLR 658
Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) ATPR 46‑248
Fico v O'Leary & Ors [2004] WASC 215
Fubilan Catering Services Pty Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164
Given v Pryor (1979) 24 ALR 442
Gould v Vaggelas (1984) 157 CLR 215
Henville v Walker (2001) 206 CLR 459
Jainran Pty Ltd v Boyana Pty Ltd [2008] NSWSC 468
Pappas v Soulac Pty Ltd (1983) 50 ALR 231
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Quinlivan v ACCC [2004] FCAFC 175; (2004) ATPR 42‑010
Sanders v Glev Franchises Pty Ltd [2002] FCA 1332
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Ting v Blanche (1993) 118 ALR 543
Water Board v Moustakas (1988) 180 CLR 491
Yorke v Lucas (1985) 158 CLR 661

STAUDE DCJ:

Introduction

The plaintiff's claim is for damages for losses it incurred with respect to the purchase of a business from the first defendant in August 2006. The plaintiff claims that in representing the business in a newspaper advertisement to have an annual profitability of $200,000 the first and second defendants engaged in misleading or deceptive conduct. The claim against the first and second defendants is $57,028.02, being the price paid for the business and expenses thrown away, and interest.
There is a discrete claim against the third and fourth defendants. This claim is based on a number of factual representations alleged to have been made to the plaintiff by the fourth defendant as agent for the third defendant which the plaintiff contends amounted to misleading or deceptive conduct and upon which the plaintiff allegedly relied in deciding to purchase the business advertised by the first defendant.
A defence denying liability was filed on behalf of the third and fourth defendants by the fourth defendant in person on 25 July 2008, but there was no appearance at trial by either. It was common cause as between counsel that the third defendant had been deregistered. It is therefore a non‑entity against which no action can be maintained. Counsel for the plaintiff submitted, however, that the evidence would prove a claim for damages against the fourth defendant. Relevantly, O 34 r 2 of the Rules of the Supreme Court 1971 provides that if a party does not appear when a trial is called on the judge may proceed with the trial in the absence of that party.

The issues

The advertisement, published in The West Australian newspaper of 22 July 2006, was in the following terms:
AN EXCEL OPPORTUNITY
BE YOUR OWN BOSS
NET $200k pa
Join in training and placing agency network for hospitality and childcare pos. Around world and Aus, great cash flow, world travel, ongoing support and training provided. Not a franchise. ph [telephone number] after 5.00 pm.
The plaintiff pleads in par 7 of the statement of claim that the advertisement represented that the first defendant was offering to sell a business which had either made a profit of $200,000 in a 12‑month trading period (described as the first representation), or would generate such a profit in a like period (the second representation).
As against the fourth defendant, Mr Himmelmann, the plaintiff pleads in par 9 of the statement of claim that in an email on 31 July 2006 he, on behalf of Australian Staffing Solutions Pty Ltd, made a number of representations (the third representations) about the viability and prospects of the business as follows:
9.1the scope and structure for the Business in Western Australia was to provide a professional recruitment company in the hospitality, nanny and au pair markets;
9.2the components of the Business were:
(a)overseas hospitality positions;
(b)WA hospitality positions;
(c)developing the WA nanny/au pair market; and
(d)overseas nanny positions;
9.3the plaintiff could reasonably expect to derive custom for the Business from the "mining market";
9.4"international sign-ups would generate instant cash‑flow and income" for the Business and at the same time the plaintiff could start the training side of the Business as the plaintiff would have a captive market for its candidates seeking overseas placements;
9.5with the captive market for candidates seeking overseas placements would come the "local market" and this might also influence the international placements;
9.6the plaintiff should "sign up plenty of people through newspaper and internet advertising";
9.7the third defendant always had more positions to fill overseas than candidates for those positions;
9.8although there was some seasonality in demand the third defendant was always able to place all applicants;
9.9at other times of the year other than the end of the year, end of semester, end of schooling time of the year, November to January, April to July and October to December, the third defendant derived extra income from "other legs" of its business so that the "highs and lows" were minimal;
9.10there was no "cap" in terms of monthly placements available from Australia, only a slow down during the European summer as hotels were staffed and families away on holidays;
9.11the third defendant would allocate advertised opportunities to the Business if it had the best candidates;
9.12the plaintiff would retain all income it generated from training and local placements, for international placements the plaintiff would collect a fee of $285 out of which $110 was payable to the third defendant and the plaintiff would be paid $220;
9.13international recruitment should comprise 50% of the income of the Business;
9.14the third defendant was expanding internationally to assure the continued promotion and opportunity for overseas placements; and
9.15as long as the plaintiff supplied the third defendant with files and handling fees the third defendant would locate placements for the plaintiff's candidates, the "more the better".
The plaintiff pleads further in par 10 that it was implicit in these representations that they could reasonably be relied upon by the plaintiff (the fourth representation).
The plaintiff claims that:
(a)the first representation was misleading or deceptive in that the business had not made a profit of $200,000 in a 12‑month trading period;
(b)that the second, third and fourth representations were representations with respect to future matters deemed to be misleading by s 51A of the Trade Practices Act 1974 (Cth) (TPA);
(c)in reliance on the representations the plaintiff decided to purchase the business advertised by the first defendant;
(d)the second defendant, Ms Pike, was knowingly involved in the making of the first and second representations;
(e)the fourth defendant, Mr Himmelmann, was knowingly involved in the making of the third and fourth representations; and
(f)by reason of the misleading or deceptive conduct of the defendants it suffered loss and damage as the business had no value.
In their outline of submissions for trial the first and second defendants state that the statement of claim purported to establish liability on the basis of a breach of s 51A of the TPA, which is an evidentiary not a liability provision, and that the claim should be dismissed as disclosing no reasonable cause of action. This submission, though not pressed orally at trial, does expose a number of problems with the pleadings generally.
At trial, the plaintiff, without formally amending the statement of claim, abandoned the first representation as a basis for claim. This left in issue the second, third and fourth representations. The statement of claim characterises these representations as misleading or deceptive (par 19), but does not plead that the making of them constituted conduct in breach of s 52.
Section 51A is not proscriptive. It does not create a cause of action for damages pursuant to s 82: Ting v Blanche (1993) 118 ALR 543, 552 (Hill J), Fubilan Catering Services Pty Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 [545] (French J). The question raised, but not pressed, is whether by failing to plead a contravention of a provision of Part V of the TPA as the basis of s 82 liability the plaintiff's claims should fail.
As I have noted, no application to dismiss the claims against the first and second defendants was made at trial. Rather, the trial was fought on the basis that the plaintiff’s claims were for damages pursuant to s 82 for breach of s 52. In my opinion it should be so adjudicated.
The main problem with the statement of claim as pleaded is that it obscures the relationship between s 51A, s 52 and s 82 of the TPA. Another problem is that it pleads in par 17 that the second defendant was knowingly involved in making the first and second representations in order to attach liability to her pursuant to s 75B(1)(c), but does not plead any particulars of knowledge in accordance with O 20 r 13(1) of the Rules of the Supreme Court. The same goes for the fourth defendant.
The defendants had good reason to object to the statement of claim or, at least, to seek further particulars. If conferral between the parties were not fruitful, a timely interlocutory application by the defendants to strike out the statement of claim or for particulars would probably have prompted corrective amendments. Pleadings serve a very important purpose in civil litigation in terms of defining the issues and establishing the factual and legal pathways to the outcomes sought by the parties. In doing so they enable the merits of the respective cases to be evaluated (which is particularly important for mediation purposes) and the issues for trial identified. It is not just the statement of claim in this case which is problematic. The defence of the first and second defendants has problems of its own. Consisting largely of general traverses, it fails to articulate fully the defence made at trial.
This is not a case, in my opinion, to which the observations of the chief justice in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281 about the inappropriate litigation of pleading issues would apply. In my respectful view nothing said in that decision should deter a party from challenging bona fide a delinquent pleading in the interests of ensuring that it serves the purposes set out by the learned chief justice at [4], namely, to identify the issues, enable an assessment to be made as to whether there is an arguable claim or defence as the case may be, and apprise the other party of the case it has to meet. True it is that there are other means by which these purposes may be accomplished, including the exchange of written submissions. As his Honour observed [6]:
Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met.
In my respectful opinion it is unsatisfactory for the parties' positions not to be fully revealed until just before trial when outlines of submissions are lodged and served. This having occurred, however, and neither party prior to trial having objected to the other's outline on the basis that it went beyond the pleaded case, on the authority of Barclay Mowlem I propose to have regard to the positions of the parties as outlined in the submissions as well as the formal pleadings.
In doing so I note that the first and second defendants' defence made a bare denial of the first and second representations. In their outline of submissions filed prior to trial and at trial, counsel argued puffery. Whilst counsel for the plaintiff complained in closing that this was not available as a defence because it was not pleaded, no prejudice to the plaintiff was shown. The plaintiff was on notice from the date of service of the other side's outline and at the end of the trial the plaintiff's counsel handed up supplementary submissions addressing the issue.
Despite the deficiencies in the formal pleadings I am satisfied that the trial proceeded fairly on the basis that each side knew the case to be met even though no amendments were made: see Dare v Pulham (1982) 148 CLR 658, 664; and Water Board v Moustakas (1988) 180 CLR 491, 496 ‑ 497.
In respect of the plaintiff's claim against the first and second defendants it is clear that the only conduct relied upon to prove a contravention of s 52 is the use of the phrase 'Net $200k pa' in the advertisement.
The first defendant is a company of which the second defendant is a director. In their defence the first and second defendants deny that the conduct complained of in the statement of claim was conduct in the course of trade or commerce. At trial, however, there was no issue. They admit that the advertisement was placed by the second defendant, but do not admit that she did so on behalf of the first defendant. At trial Ms Pike could give no reason for the non-admission and admitted that she placed the advertisement for the company.
The first and second defendants deny the alleged first and second representations, but do not plead what other meaning, if any, should be given to 'Net $200k pa'. As noted, in their outline of submissions the first and second defendants say that the expression was a mere puff and that the words used were merely of hope and expectation. The first and second defendants contend that this was obvious from the words themselves and the discussions between Mr Karageorge and Ms Pike. Thus, it is argued, there was no representation as to a future matter and s 51A has no application.
The issue in this regard is whether there was a representation as to a future matter. It is not the first and second defendants' case that if words used amounted to a representation as to a future matter there were reasonable grounds for making it. Nor is it their case that Ms Pike was a mere conduit of information from Mr Himmelmann and had disclaimed any belief in its accuracy as in Yorke v Lucas (1985) 158 CLR 661.
If it is found that the advertisement contained a representation which is deemed to be misleading by s 51A, the next question is whether the making of the misleading representation constituted an actionable contravention of s 52.
The first and second defendants contend that the plaintiff was not in fact misled. They deny that the plaintiff relied on the second representation in deciding to buy the business. Although not spelled out in the defence, it was clear at trial that there were two aspects to this issue, namely, whether it was reasonable for the plaintiff to rely on the representation as to profitability and whether in fact the plaintiff did so.
The first and second defendants contend that the reference to $200,000 was not one on which a reasonable person would rely having regard to the context in which it appeared and the information subsequently provided by the second defendant to the plaintiff, and that in fact the representation did not bear materially on the plaintiff's decision which was based rather on what the plaintiff was told by Mr Himmelmann.
As to the alleged loss and damage the first and second defendants put causation in issue, arguing that the business operated by the plaintiff after the purchase was of broader scope than the business that it purchased. As I understand their position at trial, no issue is taken as to quantum.
The defence also pleaded a contractual disclaimer by reference to cl 5 and cl 6 of the agreement between the plaintiff and the first defendant, the first and second defendants arguing that the terms of the agreement should be taken into account in considering liability.
The second defendant denies the allegation that she was knowingly involved in the making of the first and second representations.
In his defence the fourth defendant admits that he sent the email on 29 July 2006, but denies that any information in it was misleading or deceptive or induced the plaintiff to buy the business. It is implicit in the fourth defendant's defence that he denies that Australian Staffing Solutions Pty Ltd contravened s 52 and that he was knowingly involved in the making of the third and fourth representations.

The business

At the centre of this dispute is the purchase of what is said to be a business. Before examining the circumstances of the transaction it will be helpful to determine what in fact was purchased by the plaintiff.
It is not disputed that in a telephone conversation on 24 July 2006 with Mr Peter Karageorge, the sole director and shareholder of the plaintiff, the second defendant, Ms Pike described the business, as Mr Karageorge recounted in his statement (exhibit 2), as follows:
The business is a recruitment agency. The main catchment is 18 to 32 years olds for the hospitality industry and childcare positions in Australia and around the world. We are associated with a company based in Queensland which has contracts with groups such as the Sheraton, the Hyatt and Manor houses in England. The overseas vacancies are notified to the Queensland company, which circulates them around Australia. We select the positions we want to advertise on seek.com which allows for advertisements on a regional basis so that people looking for positions in WA will look at the ads we place. We pay for the ads we place on seek.com. The applicants pay a deposit fee of $285 for our services to assist them with preparing a CV and processing the application. If they don't have any relevant experience, we encourage them to undergo a two‑day training course we organise. The courses are usually for groups of eight, who each pay $500 for the revenue of $4,000. We organise a venue, which is usually a meeting room in a hotel, employ a contract trainer, and provide lunches. We help them prepare their applications and assist them with their visas, flights, travel insurance and finance if required. People who attend the courses receive a certificate, which improves their employment prospects overseas. Candidates can be sourced from TAFEs, universities, Centrelink for the unemployed, high schools and English language schools.
The Queensland company is operated by Pierre and Carole Himmelmann and they are fantastic people. They have a two-storey office in Brisbane where I did my training and they have an office on the Gold Coast. They have a lot of money invested in this business.
You will have to go to Brisbane to be trained, and you will have to pay $5,000 for a week's training.

As to how the business worked on a day‑to‑day basis Mr Karageorge was told:
The Queensland company has contracts with overseas placement agencies and gets information about positions available overseas. Pierre and Carole have a contract with the Fairmont Group in Canada which operates many hotels, including two hotels you may have seen in travel brochures at Lake Louise and Bamff. There are opportunities in the US as well. … Pierre tells us which positions are available and we decide which of those positions we want to advertise in Seek.com. For the positions that are available and that we want to advertise, Queensland sends us a proforma list of advertisements and we pay for a position to be advertised in seek.com.
It was Ms Pike's evidence that she had purchased the business six weeks before and had advertised it on the same terms as the advertisement which led to her purchasing the business. She had placed advertisements with seek.com. The advertisements had attracted a number of CVs (curricula vitae), but she had not been able to respond to them. She had not taken any fees, conducted any training or made any placements. She had not done anything with the CVs because she had not obtained approval from the local authority to run the business from her home. Her reasons for selling were that her son, whom she intended would run the business, had taken other work and she, holding two nursing positions, had no time to run it herself.
Ms Pike's company, the first defendant, had purchased the business for $44,000, the same amount for which she advertised and sold it to the plaintiff. Her evidence of her understanding of what the business involved was as follows:
Well, the information I had was from Mr Himmelmann. He said that it involved – if I bought the business that I would be the sole, you know, kind of participant in that business in WA. It means that nobody else – he wouldn't sell the business to anybody else in WA. That you could set up training programs for local nannies or – all I had to do was advertise on seek [.com] … and basically get the clients that applied to fill out a contract which was from what I can recall a two‑page contract, send it over to him with all the details once they'd signed it and he would take it from there.
Ms Pike said the business was not a going concern when she sold it, even though the agreement for sale stated that it was. She believed she had paid GST on the sale price. The accountant who prepared the sale agreement was not called. Although the business was stated to be a going concern for the purposes of GST liability, it had not been operated as such.
Mr Karageorge told Ms Pike that he wished to speak with Mr Himmelmann and get more information from him. Ms Pike provided Mr Karageorge with Mr Himmelmann's contact details. Mr Karageorge subsequently had a telephone conversation with Mr Himmelmann which he followed up with an email on 29 July 2006. In his email Mr Karageorge stated:
We are very keen in the opportunity [sic] and due to Sue's circumstances to exit the business [sic], we can make a decision quickly, therefore, I have outlined below our understanding of the business and some questions for you.
Our understanding of the scope and structure of CBI for WA is:
1.Provide a professional recruitment company that focuses on combining the synergies of a local WA company in hospitality with global reach.
2.As we see it, there are four parts to this business:
(1)overseas hospitality positions;
(2)WA hospitality positions;
(3)developing WA nanny/au pair market;
(4)training for both hospitality and childcare staff.
3.Run a professional training company to support the business (two‑day courses CBI has accredited).
We believe that our existing strong business relationships and understanding of the WA market will be integral to our and your success in WA.
Predominantly, we will focus on overseas' placements as a priority and develop the local/domestic market as a fundamental base to our business to support the international front.
There followed a series of questions directed at the day‑to‑day running of the business and the proposed contractual arrangements between the plaintiff and the third defendant. Mr Himmelmann responded on 31 July 2006. His email contained the representations pleaded in par 9 of the statement of claim.
In the agreement for sale made between the first defendant and the plaintiff (undated, but on the evidence of Mr Karageorge signed on 22 August 2006) the recitals stated that the plaintiff
wishes to purchase the "Australian Staffing Business Development Program for CBI Recruitment and AAA Nannies for Profit Generation in the Recruitment Industry", including standard documentation, systems and procedures, hereby known as "the business".
The agreement was made subject to the consent of Australian Staffing Solutions Pty Ltd. In a subsequent deed made on 8 September 2006 between Australian Staffing Solutions Pty Ltd, the plaintiff and Peter and Gloria Karageorge (in the document AUSTRALIAN STAFFING, 3MEG and PGK) the recitals stated:
(a)PGK and 3MEG wish to purchase "AUSTRALIAN STAFFING Business Development Program for Profit Generation in the Recruitment Industry".
(b)AUSTRALIAN STAFFING, throughout its operation and experience, has cultivated overseas contacts that currently provide foreign au pairs, mother helpers, nannies, hospitality staff and other staff to be placed in Australia on working holiday visas and/or other work visas.
(c)AUSTRALIAN STAFFING organises international career/working holiday arrangements through its preferred travel and/or other agents for Australian au pairs, nannies, child carers, hospitality staff and other staff as developed in the past, at present or in the future.
(d)PGK and 3MEG wish to use their skills and expertise to conduct the "business" as outlined in (b) and (c) in the Territory of Western Australia on the terms and conditions as agreed in this agreement.
Clause 5 set out the responsibilities of the parties as follows:
(a)AUSTRALIAN STAFFING will be responsible for providing PGK and 3MEG with a business development program for profit generation in the recruitment industry. AUSTRALIAN STAFFING will refer persons to PGK and 3MEG whenever possible on a regular basis.
The program includes:
·Provision of software to create appropriate forms and documents
·Provision of initial training in using the software to create appropriate forms and documents
·Provision of international working holiday arrangements for PGK and 3MEG clients.
(b)PGK and 3MEG will be responsible for providing the following services during the term of the business relationship and any costs in relation thereto arising in this designated territory:
(1)Advertising for Australian au pairs, nannies and families as well as hospitality and other staffing in various media, including but not limited to newspapers, magazines, TV, radio and other media that may be appropriate and within reason.
(2)Selling services to Australian au pairs, nannies and families as well as hospitality and other staff.
(3)Interviewing Australian au pairs and nannies as well as hospitality and other staff.
(4)Conducting reference checks on Australian au pairs and nannies as well as hospitality and other staff.
(5)Completing interview reports on Australian au pairs and nannies as well as hospitality and other staff overseas and or domestic placements.
(6)Organising clients' international career/working holiday arrangements through Australian staffing or other appropriately nominated international recruitment or travel agencies approved by Australian staffing.
(7)Employment and payment of wages/salaries for office staff as required and any issues arising with respect to that employment.
(8)Office premises, including but not limited to, lease and rental, outgoings and expense in relation thereto.
Clause 7, dealing with fees and commission payments, provided:
The fees and commissions associated with the AUSTRALIAN STAFFING International Career/Working Holiday Programs are as follows:
(a)Handling fee
PGK and 3MEG will pay AUSTRALIAN STAFFING a handling fee of $110 (one hundred and ten dollars) including GST for every international career/working holiday program application sent to Australian Staffing for placements in the UK, Europe, Canada or the USA.
(b)Commission payment
AUSTRALIAN STAFFING will pay PGK and 3MEG a commission of $220 (two hundred and twenty dollars) inclusive of GST for every one of PGK and 3MEG's clients who is placed and travelling to Europe, the UK or Canada who fulfils all of the following conditions:
(a)has booked through and paid to AUSTRALIAN STAFFING's nominated entity or preferred travel agent the balance of the international career/working holiday program component applicable at that time.
(b)has paid all other remaining costs and fees to AUSTRALIAN STAFFING as published and accepted in this service agreement between the client and AUSTRALIAN STAFFING or nominated entity. AUSTRALIAN STAFFING will pay PGK and 3MEG a commission of $220 (two hundred and twenty dollars) inclusive of GST for every one of PGK and 3MEG's clients who is placed and travelling to the USA and fulfils all of the following conditions:
(a)has booked through and paid to AUSTRALIAN STAFFING's nominated entity or preferred travel agent the balance of the international career/working holiday program applicable at that time; and
(b)has paid all other remaining costs and fees to AUSTRALIAN STAFFING as published and accepted in the service agreement between the client and AUSTRALIAN STAFFING or nominated entity.
The fees and commissions associated with domestic working and or employment arrangements are as follows:
All fees collected by PGK and 3MEG for domestic arrangements including family registrations, placements, babysitting services and nanny or hospitality training as well as domestic hospitality placement activities will be retained by PGK and 3MEG.
All fees and commissions are to be reviewed on a yearly basis or upon request.
All fees and commissions will be calculated and invoiced at the end of each month and paid on the 14^th day of the following month.
By cl 10 of the agreement Mr and Mrs Karageorge and the plaintiff acknowledged that the business development program and associated intellectual property would remain at all times the property of Australian Staffing.
Clause 11 provided that Australian Staffing would provide assistance with the business development program as may be required by Mr and Mrs Karageorge and the plaintiff at a cost of $770 per day inclusive of GST plus expenses.
I find on the evidence that the subject business amounted to no more than an opportunity to enter into a contractual arrangement with Australian Staffing Solutions Pty Ltd by which it would provide intellectual property, information and training which could be applied to generate fee income from services rendered to job applicants. No goodwill, work‑in‑progress, debtors or tangible assets were comprised in the business. It was in reality no more than what it was defined to be in the abovementioned recitals of the agreement for sale and the agreement with Australian Staffing Solutions Pty Ltd, namely, 'a business development program'.
Because this fact is important, and for clarity of meaning, in these reasons the expression 'business development program' will be used rather than 'business'.

The purchase of the business development program

Mr Karageorge read the advertisement for the sale of the business development program on Saturday, 22 July 2006 and, as I have noted, spoke by telephone with Ms Pike on 24 July 2006 and on a number of other occasions. At a meeting at her home the following week Ms Pike told Mr Karageorge that she had purchased the business development program for her son. She and her son had done the training course. Her son, however, had subsequently decided to take up another work opportunity. She could not run it alone because she was working long hours as a nurse.
Mr Karageorge said that when he met Ms Pike on the first occasion he asked for profit and loss reports and was told that there was none. Ms Pike told him that she had only owned the business development program for six weeks. She had advertised on Seek.com and had received a number of CVs. I find it was clear from what she said that she had not done more than obtain a number of CVs by that stage.
After Mr Karageorge and his wife met Ms Pike, he spoke by telephone with Mr Himmelmann, as I have noted, and sent him the email to which I have referred. Having met and spoken with Ms Pike and having obtained the information provided by Mr Himmelmann, Mr Karageorge decided to purchase the business development program for the plaintiff. He stated:
In making that decision I was relying on the advertised income projection of $200,000 per annum and the other information provided to me by Sue Pike and Pierre Himmelmann … I had no other information available to me about the business or its prospects.
Mr Karageorge said that he met with Ms Pike on 22 August 2006, signed the agreement for sale and gave Ms Pike a cheque for $44,000. She gave him the CVs and four books for which he paid.
Mr Karageorge said that on that occasion he did not discuss with Ms Pike the amount of $200,000 mentioned in the advertisement. His evidence was as follows:
GODECKE, MR: I gather that when you met with my client there was no mention between you about this business generating a profit of $200,000 or thereabouts? – We'd already seen that in the advertisement.
Why didn't you mention that to my client? – I asked for a profit and loss and she said she didn't have one.
So you accepted that the business had never made $200,000 in the – in the past, didn't you? – Yes.
Ms Pike gave evidence that she told Mr Karageorge that the figure of $200,000 net per annum had come from Mr Himmelmann. It was put to her that she was lying because this assertion had not been made in her defence and had not been put to Mr Karageorge in cross-examination. On neither of these bases would I reject her evidence. I accept that the fact was not pleaded, but I do not consider that it was a fact that the first and second defendants had to plead, although it might have been pleaded as the basis of a conduit defence. In any event, it is not a proper basis on which to reject evidence of a fact as untruthful that the fact was not pleaded by that party. I also accept that Mr Karageorge's evidence that there was no mention of the figure of $200,000 at his first meeting with Ms Pike was unchallenged, but Mr Karageorge gave evidence of a number of telephone conversations with Ms Pike and he accepted that she told him during their first telephone conversation that all the information she had about the business development program came from Mr Himmelmann.
I find that Ms Pike did tell Mr Karageorge that the figure had been given to her by Mr Himmelmann, but that it was probably in a telephone conversation rather than at the first meeting. Indeed, I am unable to find any real issue between the evidence of Mr Karageorge and Ms Pike as to what was discussed on that occasion. Ms Pike described the business development program to Mr Karageorge in the same terms as Mr Himmelmann had described it to her. Mr Karageorge knew and understood that. That is why Mr Karageorge was concerned to speak with Mr Himmelmann before making a decision and why he communicated his later complaints about the non‑viability of the business development program to Mr Himmelmann rather than Ms Pike.
Mr Karageorge and his wife went to Queensland on 3 September 2006. On 8 September 2006 he signed the agreement with Australian Staffing Solutions Pty Ltd to which reference has been made.
Mr Karageorge has extensive business qualifications and experience. He graduated from Curtin University with a business degree majoring in property. He worked as a licensed property valuer for about seven years and during that time was involved in a car audio and mobile phone business with his two brothers which expanded to comprise nine stores. His involvement in this business ceased in 2002. He then purchased a master franchise for a vending machine operation which operated for some time. After getting out of that business he engaged in real estate investment. He said (ts 27):
I could see that the real estate market was heavily inflated and I wanted to move out of that and get back into business. And that's why I got into this business. I had a bit of passion about the travel industry. I did a lot of backpacking. In my time as a valuer, I was working for the Valuer General's office in Perth and I managed to gather a lot of holidays and a bit of extended leave here and there and I went overseas on two big trips. And this business here gave me that ability to see the opportunities of young people travelling overseas and also working overseas. And also with what was happening in the WA mining industry and also employment and recruitment, I saw that as a huge growth business. And that's why I got involved. Since I've been involved in this business, I … also bought and sold property. And then I've recently … bought into a large West Australian franchise … and I own and operate that franchise currently.

The conduct of the business development program by the plaintiff

Following Mr Karageorge's return from the training program provided by Mr Himmelmann in Queensland he employed a Ms Rosie Radford to work with him in the business. Mr Karageorge said (ts 17):
We started the business in Perth in September 2006 trading as Star Recruitment Services from North Fremantle. Rosie and I placed advertisements on seek.com and in local newspapers and other media and we got good responses.
Rosie would call the applicants. We started to develop our own documentation. The business did not operate successfully because the applicants were not interested in pursuing their application for an international career/working holiday program. They wanted everything for nothing.
Rosie left after about 10 weeks and we took about three placement fees in total and placed a couple of nannies locally for very short commitments. The business closed in about February 2007. I tried to sell the business in The West Australian without success.
In cross‑examination Mr Karageorge was questioned about a letter he sent by email to Mr Himmelmann on 6 December 2006 (exhibit 3) confirming a conversation with Mr Himmelmann on 29 November 2006 in which he (Mr Karageorge) purported to terminate the contract between the plaintiff and Australian Staffing Solutions Pty Ltd. In this email Mr Karageorge stated that due to competition the plaintiff had to cut its fees for nanny service applications and placements from $770 to $498. He also stated that even with a reduction of the fee charged for training workshops from $495 to $200 no substantial business had been attracted. The situation was the same with respect to overseas placements. Mr Karageorge pointed out that the advertisements placed by Australian Staffing Solutions Pty Ltd on Seek.com for the same placements created confusion for potential applicants. He said overseas packages had become more expensive and that it was impossible to sell the US package which had gone up by approximately one‑third.
Mr Karageorge's email requested Mr Himmelmann to pay the plaintiff $50,000 or, alternatively, buy back the business development program. In the meantime he said he would advertise it for sale for $75,000 ‑ $80,000. The email stated:
I will not make any disclosed representations about the profitability as was the case when we purchased the business. I still have the advertisement from The West Australian newspaper business pages from when Sue listed it on July 22, 2006 as "An Excel Opportunity To Be Your Own Boss Net $200K pa".
We would market the sale of the business on the attributes of the business to a potential owner/operator with the huge growth potential of all facets of the business but I'm not going down the lines of profitability or financials.
This then begs the question if there are no projections for profitability and no financials to go on what is the true value of the business there is no history to go on and it is here where you run into problems and hence the question of value and business worth comes into mind and therefore I would have plenty of problems trying to justify the value at $75 – 80 K and don't think that it would in fact sell at anything near this figure!

In another document prepared by Mr Karageorge dated 6 December 2006 and headed 'CBI/Star Recruitment Services: Why The Business Doesn't Work', which was apparently emailed to Mr Himmelmann that day, Mr Karageorge set out the reasons why in his opinion the business development program was not viable.
As to what he advertised Mr Karageorge said in evidence (ts 33):
We were advertising right across the board, your Honour. We were advertising for international placements. We were advertising for local nanny candidates. We were advertising for local training. So these workshops, we were trying to advertise for local people that wanted to become nannies or au pairs or wanted a job in hospitality whether it was local or an overseas' placement, we'd help them, train them up, skills–set them so their CVs looked better so that we could help prepare them for an overseas' placement. So it was quite expensive.
The overseas placements that were advertised were notified by Mr Himmelmann and advertised on Seek.com. As time went on it appeared to Mr Karageorge that those placements were merely lures, advertised solely for the purposes of selling training services and CV services to those who applied for them. Certainly, this was the clear understanding I formed from the evidence given. At ts 36 – 37:
STAUDE DCJ: Now, can I just ask you another question so I can understand the relationship between your advertising locally and the advertising on Seek.com? So you would place advertisements on Seek.com that describe specific vacancies? – Yeah.
And what – how did that differ from what you were advertising locally? – Locally, we tried to generate our local Perth/WA market; whether that was training for these workshops, these $500 two-day workshops, or whether it was ‑ ‑ ‑
CV preparation and that sort of thing? – Yeah. So we were trying to get local candidates into the training. And Sue – Sue Pike – this one of the things that actually really attracted me to the business, was that you actually had two licks at making money. One was that you'd – you'd get these local candidates in, they'd pay their $500 for a two-day workshop, they'd walk away with a certificate, you'd skill set them up so that then they could either get placed in the local network or they could become potentials for the international. So then you'd – you'd charge them for the international on top of the local.
And when you refer to "skill set", what skills are you referring to? – Well, the two-day workshop was meant to get them to – basically, fast track them into either hospitality or the nanny industry. So some of them might have had part experience, some might not have had any experience, because back in 2006 we had a huge labour shortage in Australia. And one of the things that I saw was if there's a labour shortage, there'd be a lot of people willing to leave Australia to take up an overseas job.
If there's a labour shortage in Australia, people would want to leave Australia? – Well, people weren't interested in getting placed here.
Mr Karageorge said that many applications were received in response to advertised positions. He said that sometimes 200 or 300 applications were received. He thought the highest number of applications may have been 400. Asked how these applications were processed, Mr Karageorge said (ts 41):
As best we could. We just had to try and look through the CVs. I'd give her a hand to try and have a look through them, see if people were experienced, whether they weren't experienced, and what actually happened was a lot of the time you'd have people trying to ring in and they were usually the ones that you'd try and get money off because most of the people, as soon as there was money involved, they didn't want to know about it. So basically it was a scam. The whole thing was virtually a scam.
As to the nanny placement side of the business Mr Karageorge said that very little support was given by Australian Staffing Solutions Pty Ltd and that he had to find out his own information about the business development program. He said (ts 47):
We believed when we bought the business that we were buying into a network – and support and intellectual property and all these things that contributed to us thinking we were buying a business that was going to net 200 grand.
In relation to training workshops Mr Karageorge was asked why he thought the rates indicated by Mr Himmelmann were not competitive. At ts 50 he said:
Well, what do people pay for training? It's – you know, how long is a piece of string? You know, from what Sue Pike told me and what Pierre told me it was easy to place up to eight people in one of these training workshops at 500 bucks a piece. And in the end, if you read further down, we did two sisters or something, I think, for either – I think it was $199 or $99 for both of them. And we ended up returning their fees as well because we wound the business up.
All right. So had you done any comparison of market rates for these services? – Well, there wasn't exactly any competitors doing overseas training workshops.
I am satisfied on the evidence of Mr Karageorge that the business development program was implemented over a reasonable period of time by the plaintiff in accordance with the agreement between Australian Staffing Solutions Pty Ltd, the plaintiff and Mr and Mrs Karageorge dated 8 September 2006, but was not profitable because there was no demand for the services that were offered to those who responded to the advertisements that were placed.

Business valuation evidence

Mr Geoff Kidd, a chartered accountant and the chief executive of WHK Horwath in Perth, gave unchallenged evidence in relation to his valuation of the business development program in the terms of a report dated 13 May 2010 (exhibit 6). He stated that he understood 'that the business was a recruitment agency in the hospitality, nanny and au pair markets, operating in Perth'. His opinion was as follows:
5.4The discounted cashflow method is a methodology often used for start‑up businesses. The methodology requires future cashflow forecasts. No evidence was provided to show the business could generate future earnings and no future cashflow forecasts were provided. Consequently, I could not apply this method.
5.5In the absence of historical and forecast earnings, I have considered the asset value of the business. As no physical assets were transferred at the time of acquisition, the business had no asset value.
5.6When acquiring an agency business, an investor often acquires the intellectual property necessary to run the business. The value of this intellectual property is usually significantly based on the future earnings the intellectual property can generate.
5.7At the date of acquisition Peter Karageorge had no knowledge of other business agencies operating in Australia and I had no evidence of other agencies generating income using the business model. In summary, there was no evidence available to Peter Karageorge at the time of the acquisition to indicate earnings could be generated from the intellectual property associated with the business. In my opinion, therefore, the value of its intellectual property had negligible, if any, value.
The first and second defendants did not challenge Mr Kidd's evidence. I accept that by conventional valuation methodology no value could reasonably be given to the business development program.

Was the second representation a representation as to a future matter?

For present purposes 'representation' simply means a statement relating to a matter of fact: Given v Pryor (1979) 24 ALR 442. As a matter of ordinary meaning, the phrase 'Net $200K pa' in the context in which it was published was a statement about profitability. The first and second defendants do not seek to characterise it differently. Nor do they contend that there were reasonable grounds for making it. Rather, as I understand the puffery defence, they say that it was not sufficiently meaningful to be a representation.
The words and figures used do not indicate whether it relates to past performance or future potential. The advertisement contains no information as to any factual or theoretical premises on which it might be based. Indeed, there is nothing to meaningfully inform the reader what 'Net $200k pa' signifies, if anything. The advertisement does not speak of a business as such. The word 'business' is not even used. The advertisement does not use the word 'sale' either. There is no price specified.
The advertisement reads as an invitation to join an agency network. It describes an opportunity for self-employment in the training and placement of personnel in hospitality and childcare positions, locally and abroad. It invites, as it were, an expression of interest. The terms of the advertisement taken as a whole are composed in a manner which is clearly intended to attract attention.
Despite the vagueness of the subject matter, the only reasonable meaning to be ascribed to the phrase is that a person who joined the agency network could earn a net profit of $200,000 per annum. It is a representation as to potential profitability.
The first issue raised is whether the representation 'is a statement in the nature of commendatory puffery and not of an actionable kind': Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 at [270]. The representation is to be considered in the light of the particular facts and 'in the light of the ordinary incidents and character of commercial behaviour': General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164, 178 (Davies and Einfeld JJ). See also Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 200 (Gibbs CJ).
In Pappas v Soulac Pty Ltd (1983) 50 ALR 231, 234, Fisher J explained puffery in the context of that case, which involved the sale of a shopping centre, as follows:
It is important to appreciate that many of the statements alleged or admittedly made by Mr Spencer were wholly or in part statements of opinion, not capable of being objectively proved to be true or false. They were also essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations for the purpose of attracting the interest of a possible purchaser. As such they became irrelevant or of little if any significance when detailed information is subsequently given a fortiori, to a potential purchaser with commercial experience. To the extent that they are essentially puffery, it is proper to be reluctant to elevate them to the status of potentially misleading conduct.
These remarks are quite apposite to this case, but not in all respects. His Honour was speaking of a number of statements which were essentially descriptive: qualitative, rather then quantitative in nature.
In Jainran Pty Ltd v Boyana Pty Ltd [2008] NSWSC 468 Bryson AJ suggested at [117] that the word 'puffery' connoted a statement which the person to whom it was addressed was not expected to take literally or treat seriously.
In my opinion the representation was no mere puff. It was specific in amount and therefore carried with it an implication that it was substantiated. It was not merely commendatory as other words in the advertisement clearly were. I find that it was intended to be read, and likely to be read, as more than a mere slogan to attract the attention of anyone perusing the classified advertisements section of the weekend paper for business opportunities. It is clear, nevertheless, that the inclusion of a particular profit figure in the context of a vaguely described business venture would yield very little meaning to a reader beyond a sense of the broad potential of the opportunity.
The second issue is whether it amounted to a representation with respect to a future matter. A statement as to the net profitability of a business venture may be a prediction or projection which amounts to a representation as to a future matter: Ting v Blanche. In Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) ATPR 46‑248 it was held that a statement that two telecommunications investment products had 'high revenue and profit potential', made by reference to specific revenue and gross profit forecasts contained in documents supplied to investors, was a representation as to a future matter. The Court of Appeal held at [113] that even though the products had not been launched and research, development and testing yet to be carried out, the purveyor of the products was in 'a relatively reasonable position to forecast the revenue and profit the products might make in the future' and did so. In so doing, 'it thereby expressed its belief and opinion, implicitly in the form of a forecast or estimate, as to the high revenue and profit … that could well be made in the future'. Other examples abound.
I am satisfied that the representation was one to which s 51A applied. As previously stated, the first and second defendants do not contend that there were reasonable grounds for it, submitting, rather, that it was self‑evidently an exaggeration.

Did the second representation amount to an actionable breach of s 52?

For the purpose of determining whether s 52 has been contravened the court must examine the relevant course of conduct as a whole: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592, [109] (McHugh J). The misleading representation must not be considered in isolation, but in the context of the discussions which followed, i.e. Mr Karageorge's initial telephone call to Ms Pike and his subsequent conversations and email correspondence with Mr Himmelmann. No conduct can mislead or deceive unless the representee labours under some erroneous assumption: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177, 200.
It is clear on the facts that the plaintiff knew that Ms Pike's company had done no more with the business development program than place a number of advertisements and that what was for sale was merely the benefit of an exclusive contract with Australian Staffing Solutions Pty Ltd. In the circumstances, it was clear to Mr Karageorge that there was no basis for the representation, apart from information provided by Mr Himmelmann with whose company any prospective purchaser would have to deal contractually in order to acquire the business development program.
Although the first and second defendants do not rely on Yorke v Lucas for absolution from liability, in my view it was apparent to Mr Karageorge that Mr Himmelmann was the source of the information contained in the advertisement and that Ms Pike, though not a conduit as such for Mr Himmelmann's company, was simply passing on what she had been told in the expectation that a prospective purchaser would deal with Mr Himmelmann directly. The sale of the business development program by the first defendant was subject to his company giving its consent. I am satisfied that Mr Karageorge knew that Ms Pike had purchased the business development program from Mr Himmelmann's company only six weeks before she advertised it, that she had not operated the business other than to place a number of advertisements, that she had not generated any income, and that she had no means whatsoever of vouching for its profitability.
When Mr Karageorge responded to the advertisement he became aware within a short time that what was being offered was the opportunity to enter into a contract with Mr Himmelmann's company. That knowledge led him to communicate with Mr Himmelmann from whom he obtained detailed information about the business development program, including the services for which fees would be charged and the suggested amounts of such fees. With the information Mr Karageorge was given by Mr Himmelmann in his email of 31 June 2006 Mr Karageorge was able to calculate for himself what the represented profitability meant in terms of business turnover. He knew, too, that the success of the business development program depended largely on information about overseas positions which Mr Himmelmann's company was expected to supply. It is also clear that Mr Karageorge expected that his own knowledge would enhance the prospects of the business development program as he stated in his email to Mr Himmelmann of 29 July 2006.
The first and second defendants did not know whether the figure of $200,000 was meaningful or not. In my view the figure was such as to attract the attention of prospective purchasers and to lead them to make inquiry into the subject matter of the advertisement, but lacked sufficient meaning to be an inducement to purchase.
I find that the plaintiff did not rely at all on the representation as to profitability but rather made its own judgment on the merits of the business development program on the strength of information provided by Mr Himmelmann. As Ms Pike had not implemented the business development program to any significant extent before advertising it, a fact of which the plaintiff was aware, the plaintiff could not reasonably have relied on anything she said about the business and in fact did not do so, dealing instead with Mr Himmelmann with whose company Australian Staffing Solutions Pty Ltd the plaintiff entered into a contract after Mr and Mrs Karageorge undertook a five‑day training program provided by Mr Himmelmann's company.
Mr Karageorge is a well educated professional valuer and an experienced business operator. The evidence shows that he undertook his own 'due diligence' investigation of the viability and prospects of the business development program before agreeing on behalf of the plaintiff to purchase it from the first defendant. For these reasons I do not accept his self‑serving evidence that he relied on the second representation in deciding to purchase the business. I am satisfied that he made his own judgment on the basis only of what he was told by Mr Himmelmann.
Reliance cannot be inferred on the basis of Gould v Vaggelas (1984) 157 CLR 215. Nor is this a case to which Henville v Walker (2001) 206 CLR 459 applies. The fact that the representation induced Mr Karageorge to make inquiry of Ms Pike does not establish that it was material to his decision to purchase. The steps taken were discrete. By the time that the decision to purchase was made Mr Karageorge knew full well that there was no reasonable basis for any prediction or projection of profit. Indeed, it is established as a matter of fact on the evidence, and is also a matter of commonsense, that the nature of the business development program was such that no rational empirical basis existed for any projection of profitability and that the assumptions that would have to be made in order to arrive at the represented figure would necessarily be arbitrary and incapable of substantiation. The causal nexus contended for by the plaintiff was broken by the further inquiries made by Mr Karageorge and the information so derived.
These facts distinguish this case from others wherein profit projections have been represented on the basis of factual assumptions upon which it has been reasonable for the representee to rely in deciding to purchase a business as, for example, in Digi-Tech (Australia) Ltd v Brand and Fico v O'Leary & Ors [2004] WASC 215.

Conclusion: the case against the first and second defendants

The plaintiff has not proved that in deciding to purchase the business development program it laboured under some erroneous assumption by reason of the representation as to profitability. My findings in relation to the second representation are, therefore, that:
(a)it was a representation as to a future matter and therefore deemed misleading for the purposes of s 51A;
(b)it was not a mere puff;
(c)it was, nevertheless, in effect, no more than an inducement to make an inquiry about the subject matter of the advertisement;
(d)it was, in the context of the advertisement, too empty of meaning to be an inducement to purchase the advertised business development program;
(e)the representation did not cause the plaintiff to labour under any error as it was made clear to Mr Karageorge when he made his inquiry that the source of the figure of $200,000 was Mr Himmelmann;
(f)it was solely on the basis of what Mr Himmelmann told Mr Karageorge that the plaintiff decided to purchase the business development program; and
(g)accordingly, the representation did not cause the alleged or any loss.

I find, provisionally, that the contractual clauses relied on by the first defendant would not, in my opinion, if an actionable misrepresentation had been made, relieve it of liability. They are directed at contractual liability, not liability for conduct in breach of s 52 capable of inducing the plaintiff to enter that contract. Furthermore, the contractual provisions have no evidential value in terms of proving lack of reliance.
It is also necessary to deal, on a provisional basis, with the issue of the liability of the second defendant pursuant to s 75B. Part V of the TPA proscribes certain conduct by corporations. Section 75B provides for accessorial liability on the part of natural persons. As I have observed, no particulars were pleaded by the plaintiff of the allegation that the second defendant was knowingly concerned in the alleged breach of s 52 by the first defendant.
As a matter of law a person will not be regarded as 'knowingly concerned' unless that person is an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention: Yorke v Lucas, 670. Furthermore, it is clear that s 51A does not apply to a person who is alleged to be liable under s 75B: Quinlivan v ACCC [2004] FCAFC 175; (2004) ATPR 42‑010; ACCC v Universal Sports Challenge Ltd [2002] FCA 1276. Accordingly, the plaintiff must show that the second defendant had actual knowledge that the profitability representation was misleading, or that the first defendant had no reasonable grounds for making it.
It may be inferred from the fact that the first and second defendants are jointly represented that no conflict of interest subsists between them. They have entered a joint defence. At trial no submissions were made that the outcomes of the claims against them might be different, or at least determined on different principles. It was their case that the profitability representation was self‑evidently exaggerated, implying that there was no reasonable basis for it. That admission is sufficient to discharge the plaintiff's onus. Intention is a state of mind. It can be inferred that the second defendant intentionally participated in a contravention of s 52 by the first defendant, but only insofar as it involved attracting expressions of interest in the business development program. My findings as to causation apply to the second defendant as well as the first.
I would also deal on a provisional basis with the issue of loss and damage. I am satisfied that the business development program was not viable. I accept the evidence of Mr Karageorge as to the conduct of the business development program by the plaintiff. I do not accept the suggestion that the failure of the business development program that evidently occurred was due to the plaintiff seeking business outside the scope of the program.
The business development program involved the advertising of overseas placements in hospitality and childcare, not, it seems, with a view to actually placing personnel in such positions, but to attract applicants for such positions to whom services in the form of CV development and skills training could be sold. Mr Karageorge described the program as a complete scam (ts 46). He tried to adapt it in order to mitigate the plaintiff's losses, but was unable to do so successfully. I am unable to find that it was a scam, but I am satisfied that the potential value of the business development program represented to Mr Karageorge was illusory. Had liability been established against the first and second defendants I would have allowed the claim for damages pursuant to s 82.

The claim against the fourth defendant

The fourth defendant's defence admits that he was at all material times a director of the third defendant, Australian Staffing Solutions Pty Ltd. His alleged liability pursuant to s 75B(1)(c) falls to be considered in circumstances where there is no claim maintainable against the third defendant, which is de‑registered, and where the fourth defendant himself has not appeared at trial.
I have set out above the main principles that apply to accessorial liability. Relevantly, they require proof, unaided by s 51A, that the company engaged in conduct that was misleading or deceptive in contravention of s 52, and further proof that the fourth defendant was knowingly concerned in the contravention, i.e. that he intended to participate in such misleading or deceptive conduct. Intent, of course, is not an element of primary liability under s 52.
The allegation against the defunct third defendant is that certain statements by the fourth defendant, Mr Himmelmann, were representations with respect to future matters. If that is established, then such representations are deemed misleading as there is no evidence that they were made on reasonable grounds. The third and fourth representations are not alleged to have been misleading or deceptive on any other basis. There is no evidence of them apart from the email of Mr Himmelmann sent on 31 July 2006.
I express my findings in relation to the statements comprising the third representation by reference to par 9 of the statement of claim.
Subparagraphs 9.1 and 9.2 are statements by Mr Karageorge, not Mr Himmelmann. In any event, they are not representations with respect to future matters.
Subparagraph 9.3 relates to Mr Himmelmann's response to a statement by Mr Karageorge that:
We believe that our existing strong business relationships and understanding of the WA market will be integral to our and your success in WA.
Mr Himmelmann responded:
Good to hear. Perth is a nice place, a bit far away and people want to work either here or overseas. Not to forget the mining market further north.
The meaning of the reference to the mining market is somewhat obscure, but in any event I do not interpret Mr Himmelmann's reference to it as being anything more than an observation. It is not a representation with respect to a future matter.
Subparagraphs 9.4, 9.5 and 9.6 are based on a statement by Mr Himmelmann in the following terms:
Yes, international sign-ups will generate instant cashflow and income. At the same time you can start the training side of the business as you have a captured market in your candidates looking for placements overseas. With this comes the local market and you are correct, long term this might also influence the international placements, however, you should sign up plenty of people through our normal ways of newspaper and internet advertising.
These statements were made in response to Mr Karageorge's stated intention to 'focus on overseas placements as a priority and develop the local/domestic market as a fundamental basis to our business to support the international front'. I find the words used by Mr Himmelmann to be words of hope and expectation rather than a representation with respect to a future matter upon which any reliance could reasonably be placed.
Subparagraphs 9.7, 9.8 and 9.9 refer to the following passage in Mr Himmelmann's email:
We'd always have more jobs to fill overseas than we can source candidates for in Australia. There is some seasonality, being end of year, end of semester, end of schooling time of the year, November to January as well as going over to Europe for the summer as in April to July and Canada for the winter, October to December. But as a rule of thumb we can always place all applicants. The other times of the year, the other legs of the business bring extra money in, so the highs and lows are very minimal.
These are merely factual statements of Mr Himmelmann's experience and have not been shown to be representations with respect to any future matter.
Subparagraph 9.10 refers to a statement by Mr Himmelmann in a response to a question by Mr Karageorge. Mr Karageorge asked:
From your experience of the last 10 years, is there a cap in terms of the monthly placements available for the Australian market?
The response was 'No, only a slow down during the Europe summer as hotels are staffed and families away on holidays'. Again, this is a statement of fact, not a representation as to a future matter.
Subparagraph 9.11 relates to Mr Himmelmann's response to a question by Mr Karageorge as to who was given priority for an advertised opportunity. Mr Himmelmann responded:
There is no priority. We are sending all files as they come to our offices overseas. The offices match employers and candidates and the best ones are taken first.
This is not a representation as to a future matter.
Subparagraph 9.12 relates to fee income. Mr Himmelmann, in answer to a question as to the breakdown of the commission payable to the plaintiff, referred to a draft agreement, which I take to be the agreement eventually entered into by the plaintiff and Australian Staffing Solutions Pty Ltd, and summarised the fee sharing arrangement provided in the agreement, pointing out also that income received from local training and placements would be entirely the plaintiff's. The statement is merely one about the proposed contractual arrangement and does not constitute a representation as to a future matter.
Subparagraph 9.13 relates to a statement made by Mr Himmelmann in response to Mr Karageorge's statement that the plaintiff would require an exclusive agency in Western Australia. Mr Himmelmann said in response:
The agreement talks about Perth and as long as you actively advertise and recruit international candidates for placements through us there is no reason why we would give other parties access to the Perth market. If you don't supply us with a reasonable amount of candidates we will be in our right to source candidates either directly or through third parties. Having said [that] I must also say that the international recruitments should be 50% of your income, so why would you not advertise and use our service.
The prediction that 50% of income should come from international recruitment is an expression of opinion rather than a prediction amounting to a representation as to a future matter. It is not sufficiently meaningful to amount to an actionable representation.
Subparagraph 9.14 relates to Mr Himmelmann's response to Mr Karageorge's request for an assurance that CBI Recruitment, which I understand to be a business operated by Australian Staffing Solutions Pty Ltd, of 'continual promotion and opportunity of overseas placements'. Mr Himmelmann replied 'This is our bread and butter and we are expanding internationally solely for this purpose'. This is a statement about the state of the business at the time it was made. It has not been shown to be false.
Subparagraph 9.15 relates to Mr Himmelmann's statement that the plaintiff's candidates would be placed. Again, this is a statement of intention that has not been shown to be false. The plaintiff did not attract any candidates for overseas placement.
Section 51A is an evidential provision that relates to proscribed conduct. It facilitates the proof of such conduct when promised or predicted events do not occur. The plaintiff has sought to construe all of the statements particularised in par 9 of the statement of claim as representations as to future matters, but has adduced no evidence that they were not true or that the actions and events they describe were not done or did not occur.
The fourth representation is implied. It is that the plaintiff could reasonably rely on the statements comprising the third representations. No submissions were advanced in support of the implied representation. In my opinion it is redundant. Even if I had found that the third representations or any of them were representations as to future matters, the alleged fourth representation would add nothing to their legal effect.
On the evidence I am unable to find that the plaintiff has proved any of the matters pleaded in par 9 of the statement of claim to be representations with respect to future matters which are actionable as misleading or deceptive conduct. As I have noted, that is the sole basis upon which liability was sought to be proved. Accordingly, and without more, Mr Himmelmann is not liable pursuant to s 75B.
If I am in error as to whether any of the alleged representations by Mr Himmelmann on behalf of the third defendant constitute representations as to future matters it would not follow that Mr Himmelmann would be liable. As I have pointed out, the plaintiff bears the onus of proving intentional participation in misleading or deceptive conduct by Mr Himmelmann. The plaintiff has to prove that he knew there was no reasonable basis for making them. That burden has not been discharged.

Result

In conclusion I find that the plaintiff's claims against the first, second and fourth defendants should be dismissed.