Trade practices - Misleading or deceptive conduct - Issue of shares in public company prior to listing - Representations by promoter as to timing of listing, total capital to be raised, shareholdings following listing, and ownership of mining tenements held by company - Whether representations misleading or deceptive conduct

Trade practices - Misleading or deceptive conduct - Damages - Acquisition of shares in reliance upon misrepresentations - Difficulties in proving real value of shares at date of acquisition - Causation of subsequent events which contributed to loss - Whether award of damages or alternatively, statutory relief, appropriate

Legislation:

Fair Trading Act 1987 (WA), s 9, s 10, s 77, s 79

Result:

Orders made under s 77

Category: B

Representation:

Counsel:

Plaintiffs: Mr S Penglis
Respondent: Mr M L Bennett

Solicitors:

Plaintiffs: Freehills
Respondent: Lavan Legal

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

Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Grainger v Williams [2009] WASCA 60
Henville v Walker (2001) 206 CLR 459
Kenny and Good Pty Ltd v MGICA (1999) 199 CLR 413
Kisbeau Pty Ltd v WG and B Pty Ltd (1995) 184 CLR 281
Marks v GIO (1998) 196 CLR 494
PE Kafka Pty Ltd v The Hermitage Motel Pty Ltd [2009] FCAFC 94
Rhone‑Poulenc Agrochimie SA v UIN Chemical Services Pty Ltd (1986) 12 FCR 477
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254

BLAXELL J: Henry James Adams and Julian Fletcher Grill each claim damages for the alleged misleading or deceptive conduct of Ron Morellini. They say they suffered loss when, in reliance upon misrepresentations by Mr Morellini as to the circumstances surrounding the proposed public float of a mining company (Meridian Mining Ltd), they invested in Meridian's shares. They also claim that the shares that they acquired were worthless, and that the loss that each of them sustained was a direct result of Morellini's conduct.
Mr Morellini admits making some of the claimed representations but denies others. He also denies that any of the alleged representations amounted to misleading or deceptive conduct. He further denies that the plaintiffs relied on the representations when applying for the shares, or that they have suffered any loss.

The relevant background

Mr Morellini is 66 years of age and a former real estate agent of long standing. He is also an experienced company director with past involvement in the mining and resources sector in Western Australia.
In 2001 Morellini was interested in acquiring certain mining tenements prospective for gold, then held by a company called IPT Systems Ltd, later known…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Adams v Morellini

Details

AGLC: Adams v Morellini [2010] WASC 61
Case: [2010] WASC 61
Decision Date: 26 MARCH 2010

CaseChat Overview and Summary

In the matter of Adams v Morellini, the court was presented with a dispute regarding misleading and deceptive conduct in the context of trade practices. The plaintiff, Adams, had acquired shares in a public company based on certain representations made by the defendant, Morellini, a promoter of the company. These representations pertained to the timing of the company's listing on the stock exchange, the total capital to be raised, the shareholdings following the listing, and the ownership of mining tenements held by the company. Adams claimed that these representations were misleading or deceptive and that they had acquired the shares in reliance on them, resulting in financial loss. The court was tasked with determining whether the representations constituted misleading or deceptive conduct and, if so, whether damages or statutory relief were appropriate.

The legal issues before the court included whether the representations made by Morellini were misleading or deceptive, and if so, whether Adams' acquisition of shares was a result of these representations. Additionally, the court had to consider the difficulties in proving the real value of the shares at the time of acquisition and the extent to which subsequent events contributed to the loss suffered by Adams. The court also needed to decide whether an award of damages or statutory relief was appropriate in light of these issues.

In delivering its judgment, the court found that the representations made by Morellini were indeed misleading or deceptive. The court held that the representations regarding the timing of the listing, total capital to be raised, and the ownership of mining tenements were not accurate, and that these misrepresentations had a significant impact on Adams' decision to acquire the shares. The court further determined that Adams' acquisition of the shares was directly influenced by these misleading representations. Regarding the award of damages, the court acknowledged the difficulties in proving the real value of the shares at the time of acquisition but concluded that statutory relief was appropriate given the clear evidence of misleading conduct.

Consequently, the court ordered that Morellini be liable for statutory relief in the form of compensation to Adams, reflecting the financial loss suffered due to the misleading representations. The court did not award damages as it found that the evidence did not sufficiently establish the precise value of the shares at the time of acquisition.

Orders