Alan Marshall Irving and Robert Marshall Irving v Alinkite Pty Ltd, Roslyn Marie Melrose and Irving Air Pty Ltd No. SCGRG 94/725 Judgment No. 4996 Number of Pages 16 Contracts

[1995] SASC 4996

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ(1), MATHESON(2) AND MILLHOUSE(3) JJ

CWDS
Contracts - misrepresentations and warranties - Deed relating to investment by third parties in construction of hay compacting machine - misrepresentations and warranties given by defendants in relation, inter alia, to labour costs - breaches thereof - guarantees subsequently given by Drs Irving to secure bank overdraft - whether guarantors signed in reliance on initial representations - whether liability under s7(1) of MisrepresentationAct established. Gould v Vaggelas (1985) 157 CLR 215, considered. De Vries v Australian National Railways Commission (1993) 67 ALJR 528 at 531, applied.

HRNG ADELAIDE, 8, 13 February 1995 #DATE 24:4:1995 #ADD 23:5:1995

Counsel for appellants and respondent
Irving Air Pty Ltd:   Mr R J Whitington

Solicitors for above:  Sykes Bidstrup

Respondent/appellant Alinkite Pty Ltd: In person

Respondent/appellant Roslyn Melrose:     In person

ORDER
Appeal dismissed.

JUDGE1 KING CJ In my opinion the appeal and cross-appeal should be dismissed for the reasons given by Millhouse J.

2. The only aspect of the case which has caused me hesitation is the alleged liability of Alimkite for the misrepresentations. That is because it is difficult to distinguish satisfactorily between Mrs Melrose's actions in her personal capacity and as a director of Marawa on the one hand from her actions as a director of Alimkite on the other hand. In the end I have reached the conclusion that the learned trial judge correctly held that Alimkite was not liable for misrepresentation and deceptive conduct.

3. Alimkite was established by Mrs Melrose's father and, one gathers, was the repository of what might be regarded in substance as her personal assets. It had invested in Marawa, but the project which is the subject of this action arose out of Mr Melrose's engineering activities and did not relate to Mrs Melrose's personal assets. The natural inference is that Mrs Melrose's involvement was as the wife of the engineer and a director of Marawa. This was emphasised by Mrs Melrose's unwillingness to have Alimkite involved as a party to the Deed, especially as a party warranting the accuracy of statements concerning the project. In the end, at the insistence of the Irvings and after receiving an indemnity from Mr Firth, she agreed to Alimkite being made a party to the Deed.

4. It was argued for the Irvings that the learned judge should have treated the post-contractual representations as a continuance of the representations made before the contract and included in it as warranties, and that, as Alimkite was a party to the Deed, it remained a party to the subsequent misrepresentations. I think that the argument is fallacious. As I apprehend the evidence, the transaction which has given rise to this action had no relation to Alimkite's purpose as the repository of Mrs Melrose's assets. Alimkite was made a party to the Deed to make its assets responsible for any breach of warranty. Alimkite accepted legal liability for any failure to make good the warranties, but that did not make it a party to the representations upon which they were based.

5. The subsequent misrepresentations were also unrelated to the purpose and objects of Alimkite. Mrs Melrose's actions were linked to those of her husband, but there is no reason to impute them to Alimkite.

6. As the learned judge observed, the Irvings failed to prove that Mrs Melrose's actions as a party to the misrepresentations, were on behalf of Alimkite.

JUDGE2 MATHESON, J Mr Robert Charles Melrose, one of the defendants in the action, was the inventor of a hay compacting machine, the purpose of which was to compress bales of hay to about half their usual size, thereby reducing the cost of transportation upon sale. In his judgment, the learned trial Judge introduced the other parties in the action, and the dispute between them, in this way:
    "A company Marawa Pty Ltd ("Marawa") was incorporated which
    became the trustee of the Marawa Unit Trust. Mr Melrose sold the
    intellectual property in the proposed machine to Marawa in
    return for an issue to him of units in the Trust. Another
    company Hay Australia Pty Ltd ("Hay Australia") was also
    incorporated and became the trustee of the Hay Australia Unit
    Trust which was to operate the machine and sell the compacted
    hay. Mr and Mrs Melrose were directors of each company. A number
    of persons bought shares in each company and units in the Marawa
    Trust. The defendant Alimkite" (Pty Ltd) "was controlled by Mrs
    Melrose. It lent money to Marawa and held a debenture charge
    over its assets. Mr Melrose had no direct involvement in
    Alimkite. Mr Melrose proceeded with the development and
    construction of the compacting machine on behalf of Marawa. By
    1989 it was substantially, but not wholly, completed, but Marawa
    had run out of money. Marawa retained Executor Trustee Company
    Ltd to find new investors for the project.

The plaintiffs Alan and Robert Irving are brothers and
    veterinary surgeons practising near Adelaide. In January 1990
    they placed an advertisement in the Advertiser Newspaper stating
    that they had "$50,000 venture capital available for equity
    share in any worthwhile project". That money was to come from
    the first plaintiff" (Irving Air Pty Ltd) "which was controlled
    by them and also in part from their brother-in-law Freidel
    Thies. However, as Thies is no longer a plaintiff in these
    proceedings I will ignore his involvement in the matter. In all
    relevant transactions the Irvings acted as his agent and he had
    no direct involvement. Executor Trustee Company Ltd and Mrs
    Melrose each separately answered the advertisement. On 7
    February 1990 the Drs Irving met Mr and Mrs Melrose and
    discussed the project generally and were then given various
    documents about it including some prepared by Executor Trustee
    Company Ltd. On 1 March 1990 Dr Alan Irving inspected the
    incomplete compacting machine where it was then situated in a
    shed at Farrell Flat. Protracted negotiations ensued in which
    the Irvings sought to investigate and verify as best they could
    the details of the project and to hammer out the exact terms
    upon which they were to be admitted into Marawa and Hay
    Australia and the Marawa Unit Trust. The Irvings insisted upon a
    Deed, which was drafted by their solicitors, being entered into
    by all parties concerned. This document went through numerous
    drafts before the final version was produced. Its terms required
    many persons associated with Marawa, including each of the
    defendants, to WARRANT THE ACCURACY OF BOTH PAST AND FUTURE
    FINANCIAL INFORMATION CONCERNING THE PROJECT WHICH WAS CONTAINED
    IN SCHEDULES AND ANNEXURES TO THE DEED. In late July 1990
    Alimkite refused to give such warranties. There were then
    further negotiations in which the Irvings required an increase
    in their proportionate allocation of shares and units from 20 to
    25%. In circumstances which will be related later in these
    reasons on about 2 August 1990 each of the defendants
    reluctantly executed the Deed. The plaintiffs executed it on 3
    August although it bears the date of 2 August."

(I interrupt this quotation to point out that only the first plaintiff, and not the Drs Irving personally, was a party to the Deed, and the Drs Irving merely signed as Director and Secretary as witnesses to the affixing of their company seal)
    "The first plaintiff and Thies then paid a total of $50,000 for
    shares and units. Another company Advomin Pty Ltd at this stage
    contributed a further $25,000. As part of the implementation of
    the Deed the Drs Irving were appointed directors of each of
    Marawa and Hay Australia and Dr Alan Irving became the managing
    director.

The schedules to the Deed envisaged that the compacting machine
    would be completed and operating in November 1990 which would
    enable Hay Australia to take advantage of the 1990-91 hay
    season. However, by late September 1990 Mr Melrose had made
    little progress in completing the compactor. At a board meeting
    on 14 October approval was given to employ extra workers in an
    effort to keep the project running on schedule. By the time of a
    board meeting on 18 November the compactor was still not
    operational and Marawa had run out of money. It was then agreed
    that various participants in the project would contribute a
    total of an extra $30,000 of which the first plaintiff put in
    $7,500 for further units in the Marawa Unit Trust. By early
    December 1990 Hay Australia was entering into sales contracts
    with Japanese buyers for the compacted hay on the assumption
    that the machine would soon be in full operation. On 17 December
    there was an extra-ordinary general meeting of Marawa called by
    the Melroses over their dissatisfaction with the first plaintiff
    having obtained additional units in the Trust by its further
    contribution in November. The first bale of compacted hay was
    produced by the machine on 23 December, but it had not gone
    through its trial stage which had previously been envisaged. By
    early 1991 the project was in serious financial difficulties. At
    an acrimonious board meeting on 3 January 1991 the Irvings
    insisted on the transfer of the office administration of Marawa
    from Mrs Melrose to Dr Alan Irving's practice office. At that
    meeting each of the directors, including the Drs Irving and Mr
    and Mrs Melrose, agreed to give personal guarantees to the ANZ
    Bank to enable the companies to raise operating capital by
    overdrafts of $30,000 which were later increased to $50,000. The
    Melroses then set in train protracted negotiations to buy out
    the plaintiffs, but they came to nothing. The relationship
    between the plaintiffs and the defendants deteriorated to such
    an extent that no business was able to be transacted at board
    meetings. For various reasons Marawa and Hay Australia were
    unable to produce the quantities of compacted hay which were
    needed to fulfil the orders which had been accepted. In fact
    only 450 tonnes of compacted hay was ever produced. In mid April
    1991 the compactor broke down. The plaintiffs refused to allow
    the necessary funds to be drawn on the overdraft to meet the
    cost of repairs. This effectively put an end to the production
    of compacted hay. Shortly afterwards Marawa went into
    receivership and Hay Australia into liquidation. Neither has, or
    can, return any moneys to its members, unit holders or unsecured
    creditors." (My emphasis.)

2. The plaintiffs in the Action were therefore Irving Air Pty Ltd and the Drs Irving, and the defendants were Alimkite, Mr Melrose and his wife Roslyn Mary Melrose. The plaintiffs claimed damages for, inter alia, breach of warranty, misrepresentation under the Misrepresentation Act, under s52 of the TradePractices Act and under s54 of the Fair Trading Act, and negligent representation. Their claim was heard in the District Court by Judge Lunn who entered judgment for the first plaintiff against all defendants for $56,584, and judgment for the Drs Irving only against Mr and Mrs Melrose for the sum of $22,843. In this appeal, the Drs Irving say they are entitled to judgment against the defendant Alimkite also for the sum of $22,843. The defendant Alimkite cross-appeals and seeks an order setting aside the judgment against it in favour of Irving Air Pty Ltd. I agree with the reasons of Millhouse J for dismissing the cross-appeal.

3. It is convenient to mention here that clause 20 of the Deed read:
    "In the event that any warranty on the part of the members"
    (which expression was defined in such a way as to include the
    Melroses and Alimkite) "shall prove to be incorrect untrue
    invalid breached the members shall indemnify and save harmless
    from and against any loss damage claim demand or other liability
    whatsoever occasioned as a consequence direct or indirect of
    IRVING AIR PTY. LTD. or FRIEDEL THIESS entering into this Deed
    and carrying into effect their respective obligations hereunder
    or otherwise acting on the faith of such averment warranty or
    covenant to its his or their detriment."

4. One of the annexures to the Deed was Annexure V. It was headed "Cash Flow Budget to 30/11/90". Under the heading of Payments, an expense was included, and described as, "labour at $400/Container", and that expense was shown as commencing in the second week of October and continuing to and including the fourth week in November.

5. The argument on the appeal focused on what, if any, representations the Drs Irving relied upon in executing the personal guarantees of an ANZ Bank overdraft on 3 January 1991 but, in my opinion, it is necessary first to look at his Honour's findings in relation to earlier events.

6. His Honour made the following relevant findings:
    "Each of the defendants by the terms of the Deed warranted
    the truth and correctness of the contents of the schedules
    and annexures to the Deed. By this they undertook an
    obligation of a promissory nature ...

I find there to have been express or implied terms of the
    Deed, when read as a whole, as alleged in paragraphs 11(b),
    (c), (d), (e), (f), (g), (h) and (i) of the statement of
    claim, as follows:
    (1) That the development of the machine would be completed
    to trial start up stage within about six weeks after
    2 August 1990.
    (2) That the cost of labour during the development phase
    would be $5,760 and the cost of materials in that phase
    would be $9,850.
    (3) That the development of the machine would be completed
    to the point of trial production by early October 1990.
    (4) That the trial phase would take approximately one month
    being October 1990 during which the machine would produce
    compacted hay in accordance with the projections set out in
    Annexure V to the Deed.
    (5) That the machine would be fully developed by the first
    week in November.
    (6) That in the first month of production in November 1990
    the machine would produce compacted hay in accordance with
    the projections set out in Annexure V to the Deed.
     (7) That income from the sales of the compacted hay would
    first be received in the second week of October 1990 and
    would thereafter continue to be received in accordance with
    the projections set out in Annexure V to the Deed.
    (8) THAT THE COST OF PRODUCTION WOULD BE IN ACCORDANCE WITH
    THE PROJECTIONS CONTAINED IN ANNEXURE V TO THE DEED.

I find that each of the defendants warranted each of these
    terms." (My emphasis.)

7. Having made these findings, he proceeded to find that the defendants were in breach of those warranties as follows:
    "(1) The development of the machine to a trial start up
    stage was not completed until about 23 December 1990.
    (2) The cost of labour and materials in the development
    stage considerably exceeded the $5,760 and $9,350
    respectively warranted.
    (3) The development of the machine was not completed to a
    point of trial production until about 23 December 1990.
    (4) The machine did not produce 900 tonnes of hay by the end
    of November 1990, and no hay at all in that period.
    (5) The machine was not fully developed by November 1990,
    and was never fully developed. To be developed within the
    meaning of the Deed, as explained by the evidence of the
    negotiations, it was necessary, inter alia, for an automatic
    tying device for the bales to be fitted to the machine. This
    was never done while the machine was owned by Marawa.
    (6) The machine did not product 700 tonnes in November 1990
    and produced no hay at all in that period.
    (7) Income of $216,000 for the sale of hay was not received
    by the end of November 1990 and no income was received in
    that period.
    (8) THE COST OF PRODUCTION TO THE END OF NOVEMBER 1990 WOULD
    NOT HAVE BEEN $241,550 IF PRODUCTION HAD TAKEN PLACE AS
    CONTEMPLATED BY ANNEXURE V TO THE DEED. THE COST OF
    PRODUCTION WOULD HAVE BEEN FAR GREATER BECAUSE, INTER ALIA,
    THE LABOUR COST WOULD HAVE BEEN CLOSER TO $2,000 PER
    CONTAINER INSTEAD OF $400 AS WARRANTED."

8. His Honour went on to say:
    "I am satisfied that but for these warranties the first
    plaintiff would not have entered into the Deed and would not
    have contributed its moneys ... If the warranties had been
    fulfilled, it is likely that the first plaintiff would have
    made a substantial profit on its investment. I find that the
    additional capital contributions by the first plaintiff to
    the project of $7,500 on 19 November 1990, $500 on 7
    December 1990 and $1,500 on 27 December 1990 were made in an
    effort to mitigate its loss and in the reasonable
    expectation induced by the representations of the Melroses
    that these payments would assist the project to succeed.
    Accordingly, they are recoverable by the first plaintiff as
    part of its damages for the initial breaches of contract."

9. Later in his reasons his Honour found that it was necessarily implicit in representations made about the general financial projections for the business that the moneys initially contributed by the first plaintiff would be returned within twelve months. His Honour said:
    "The representations upon which this implied representation
    is founded were false, misleading and deceptive in a number
    of respects. It suffices to mention one which was crucial to
    the failure of the whole enterprise. MR MELROSE REPRESENTED
    THAT THE LABOUR COST FOR THE PRODUCTION OF EACH CONTAINER OF
    COMPRESSED HAY WOULD BE $400. THIS WAS BASED ON THE MACHINE
    INCORPORATING AN AUTOMATIC TYING DEVICE WHICH WOULD STRAP
    THE BALES AS THEY WERE EMITTED FROM THE MACHINE SO THAT THEY
    WOULD NOT BURST. UNLESS SUCH AN AUTOMATIC TYING DEVICE WAS
    AVAILABLE THE PROPER LABOUR COST PER CONTAINER WAS SOMETHING
    IN THE VICINITY OF $1,500 TO $2,000. This effectively
    eliminated the profit margin. Prior to the making of the
    Deed Mr Melrose had spoken to Gerard Strapping in Melbourne
    which manufactured such automatic tying devices and had
    ascertained that to purchase the necessary device from it
    would cost about $120,000. He rejected this course as it
    would have made the capital cost of completing the machine
    unacceptably high. He relied upon his own ingenuity to be
    able to devise a suitable component for the machine to do
    this work at a minimal cost and within the budget which he
    had put forward for labour and materials to complete the
    machine. However, in the relevant period he was either
    unable or unwilling to design and construct such a device
    for the machine. At the time at which the representations
    about the labour costs were made he had no reasonable basis
    to believe that he either could make such an automatic tying
    device or that if he could do it it could be done within the
    overall costs which he had forecast for the construction of
    the machine and its accessories. In this he was negligent.
    THE REPRESENTATION WAS MATERIAL TO THE PLAINTIFFS AND IF
    THEY HAD BEEN TOLD OF THE LIKELY TRUE LABOUR COST THEY WOULD
    NOT HAVE ENTERED INTO THE DEED. I reject the defence
    contention that on this matter the plaintiffs relied on
    their own expertise and investigations. Their calculations
    on the point were of necessity based on the representations
    made to them by Mr Melrose which they believed to be
    correct." (My emphasis.)

10. His Honour then referred to the reliance by the plaintiffs on further representations made by the Melroses that the completion of the machine was imminent and that the labour cost was STILL $400. He said the Melroses did not challenge the accuracy of budgetary figures at directors' meetings held on 18 November, 1990 and 17 December, 1990. These budgets, like Annexure V, were prepared by Dr Alan Irving, but on spreadsheets and information supplied by the Melroses. His Honour held that the Melroses had no reasonable grounds for making such representations which were false, deceptive, misleading and negligent. Then he found that shortly prior to 3 January, 1991, Mr Melrose represented that the machine could produce 300 pounds of hay that month and that the labour cost would be $400 per container "AS PREVIOUSLY REPRESENTED". His Honour held that these representations were misleading, false and negligent, and that the Drs Irving relied on them in executing the guarantees of the ANZ overdraft.

11. It is convenient here to quote sub-paragraphs (c), (d) and (e) of paragraph 21 of the Statement of Claim:
    "(c) Alan Irving and Robert Irving informed a meeting of
    directors of Marawa and Hay Australia on 3 January 1991 that
    each of them would execute personal guarantees in favour of
    the ANZ Bank guaranteeing the repayment of Hay Australia to
    the ANZ Bank of the sum of $20,000.00.

(d) Alan Irving and Robert Irving agreed on 18 January 1991
    that each of them would execute further personal guarantees
    in favour of the ANZ Bank guaranteeing the repayment by Hay
    Australia to the ANZ Bank of the total sum of $30,000.00,
    which sum included the $20,000.00 referred to in (c) above.

(e) Alan Irving and Robert Irving agreed on or about
    31 January 1991 that an approach be made to the ANZ Bank to
    seek the advance to Hay Australia of a further sum of
    $20,000.00 (making a total of $50,000.00) on the basis that
    the guarantees already executed by them be extended to cover
    the further advance."

12. His Honour continued thus:
    "(The Drs Irving) "relied upon these representations (in
    deciding to execute the guarantees) and would not have done
    so unless they had been led to believe by Mr Melrose that
    the orders for 300 tonnes of hay due on 8 and 20 January
    1991 could be fulfilled and that the labour cost, as set out
    in their budget of 3 January 1991, would continue to be $400
    per container.

The representations referred to above were made primarily by
    Mr Melrose. Mr and Mrs Melrose acted in conjunction in their
    dealings with the plaintiffs. INSOFAR AS ORAL
    REPRESENTATIONS WERE MADE BY ONE OF THEM, OR DOCUMENTS WERE
    HANDED OVER BY ONE OR OTHER OF THEM, I FIND THAT IT WAS DONE
    WITH THE KNOWLEDGE AND AUTHORITY OF THE OTHER OF THEM, AND
    THUS THAT ALL OF THE RELEVANT REPRESENTATIONS WERE JOINT
    REPRESENTATIONS BY MR AND MRS MELROSE. THE PLEADING OF
    POSITIVE REPRESENTATIONS IN THE DEFENCE DOES NOT
    DIFFERENTIATE BETWEEN MR AND MRS MELROSE. THUS INSOFAR AS I
    HAVE FOUND THE REPRESENTATIONS TO BE ACTIONABLE THEY ARE
    EACH LIABLE ON THEM.

The question of the liability of Alimkite in
    misrepresentation is somewhat more difficult. The only
    reason that Alimkite was a party to the Deed was because it
    was necessary to restrain it from exercising its powers as a
    substantial secured creditor of Marawa which could have
    thwarted the successful completion of the project. The fact
    that it was a shareholder in Marawa appears to be of no
    consequence because the plaintiffs did not require all of
    the other shareholders of Marawa to be parties to the Deed.
    Paragraphs 41 and 42 of the statement claim plead that
    Alimkite engaged in misleading or deceptive conduct contrary
to S52 of the Trade Practices Act 1974 and that Mr and Mrs
    Melrose were persons involved in that contravention in that
    they aided, abetted, counselled or procured the
    contravention, induced the contravention and were directly
    and knowingly concerned in, and parties to, that
    contravention. There is no direct evidence that either Mr or
    Mrs Melrose were acting as agents for Alimkite in making any
    of the representations in question. Mrs Melrose was a
    director, and the apparent de facto controller, of Alimkite,
    but there is no evidence that in making, or being involved
    in, any of the representations which constituted the alleged
    misleading or deceptive conduct by Alimkite she was acting
    in that role rather than in her own right. The onus is on
    the plaintiffs to prove it, and they have not done so.
    Accordingly, Alimkite is not liable other than to the first
    plaintiff for breach of contract." (My emphasis.)

13. Before considering the argument on the appeal, it is necessary to state that Mrs Melrose was one of two directors and the secretary of Alimkite. The other director at relevant times was her solicitor, Mr. Fletcher, who did not give evidence. Alimkite was a substantial shareholder in Marawa Pty Ltd and a substantial unit holder in Marawa Trust. By paragraph 90.3 of the defence, Mrs Melrose pleaded "During the period April to July, 1990 Roslyn Melrose acting in her capacity as a director of Alimkite had various meetings and discussions with Alan Irving". She further pleaded that Alimkite was the holder of a mortgage debenture charge over the assets of Marawa. In her evidence, she agreed that between April and the execution of the Deed, she entered into discussions and negotiations with the Drs Irving ON BEHALF OF ALIMKITE.

14. The appellants' amended grounds of appeal include:
    "2.3 The learned Trial Judge erred in failing to find
    that:-

2.3.1 The Appellants gave the guarantee to the ANZ Bank and
    incurred the other expenses and loss and damage identified
    at page 22 of his Reasons, inter alia, as a result of and
    induced by the initial representations (as defined in
    paragraph 8 of the Amended Statement of Claim);

2.3.2 the loss and damage sustained by the Appellants was
    suffered in consequence of the negligent breach of duty of
    Alimkite, the misrepresentations of Alimkite in breach of
    the Misrepresentation Act 1971-1972 and the misleading and
deceptive conduct of Alimkite in breach of Section 52 of the
    Trade Practices Act"

15. Mr Whitington said that as the learned trial Judge had not made any finding on whether Alimkite owed a duty of care, he did not press the claim in negligence. He did, however, seek to rely on s7(l)(c) of the Misrepresentation Act, 1972 which states:
    "7.(1) Where a contracting party is induced to enter into a
    contract by a misrepresentation made -
    (a) and (b) ...
    (c) by a person who receives any direct or indirect
    consideration or material advantage as a result of the
    formation of the contract,
    and any person (whether or not he is the person by whom the
    misrepresentation was made) would, if the misrepresentation
    had been made fraudulently, be liable for damages in tort to
    the contracting party subjected to the misrepresentation in
    respect of loss suffered by him as a result of the formation
    of the contract, that person shall ... be so liable to that
    contracting party, in all respects as if the
    misrepresentation had been made fraudulently and were
    actionable in tort."

16. Paragraph 44 of the Statement of Claim states:
    "In the premises referred to in paragraphs 8 to 31 herein
    all the respondents have engaged in conduct contrary to
    Section 7 of the Misrepresentations Act."

17. Mr Whitington submitted that the Drs Irving were induced to execute the guarantees to the ANZ Bank by Alimkite who, as a joint venturer, received "a material advantage" in consequence.

18. I have reached the conclusion that it is quite artificial to draw a line here between pre-Deed representations and post-Deed representations, especially on the critical issue of labour costs, which remained constant at all times. I think the pre-Deed representations had a continual force and were never retracted. I do not agree that they were spent upon the execution of the Deed. I consider that it is a matter of commonsense that the Drs Irving would still be relying on the initial pre-Deed representations at the time they executed their guarantees, and I think his Honour should have drawn that inference. It may not yet be entirely clear whether in a case of misrepresentation the representor is only liable for loss directly flowing therefrom, or whether the representor has to prove that the damage was reasonably foreseeable as well, see Gould v Vaggelas (1985) 157 CLR 215 especially at pp221-224 per Gibbs CJ. However, in my view, at the time of the initial representations it was foreseeable that the Drs Irving to whom they were directed might invest further monies in the venture, directly or indirectly, whether by guarantee or otherwise.

19. I think the Drs Irving are entitled to succeed. I would allow their appeal and enter judgment for them also against Alimkite for the sum of $22,843. As indicated above, I would dismiss the cross-appeal.

JUDGE3 MILLHOUSE J These proceedings arise out of the attempt by Mr Robert Charles Melrose to perfect his invention of a machine to compact small square bales of hay to about half their usual size and to put the machine into operation. The attempt failed, amongst other reasons, because Mr Melrose did not develop an automatic tying device effectively to strap the bales once they had been compacted.

2. In 1990 the appellants who are brothers and practise as veterinary surgeons had $50 000 to invest. They advertised for a likely investment. Mr Melrose and his wife, Mrs Roslyn Mary Melrose, one of the respondents to the appeal, were likewise looking for someone to put money into the hay compacting project. The parties came together and with others, both individuals and companies, entered into a deed dated 2 August 1990. These are the relevant recitals at the beginning of the deed:-
    "WHEREAS Marawa" (Marawa Pty Ltd was the Melrose's vehicle
    for the project) "is constructing a hay compacting machine
    (herein called `the hay compacter') for the purpose of
    compacting hay to facilitate the packaging of same for
    transportation export and sale in Australia and elsewhere AND
    WHEREAS ROBERT CHARLES MELROSE is the inventor of the hay
    compacter..........AND WHEREAS under or by virtue of a
    Memorandum of Agreement..........all patent rights and
    intellectual property rights of ROBERT CHARLES MELROSE in the
    hay compacter and in the design therefor and processes for the
    construction thereof are vested in Marawa AND WHEREAS the
    parties of the first to tenth parts inclusive hereof have
    requested IRVING AIR PTY. LTD." (the appellants' company) "and
    FREIDEL THIES" (their brother-in-law) "to invest moneys by way
    of capital..............subject to and upon the representations
    warranties and averments herein appearing AND WHEREAS the
    parties of the first to tenth parts inclusive hereof aver
    warrant and otherwise covenant that the acts, batters
    representations warranties and other materials set forth in
    Schedules I to V and Annexure l to V are true and correct.....

3. The Drs Irving were not parties to the deed but their company, Irving Air, was: so were Mr and Mrs Melrose and several other parties, both individuals and companies. One of the companies was Alimkite Pty Ltd, a company of which Mrs Melrose was a director and secretary. Judge Lunn in his Reasons says why it was a party:-
    "The only reason that Alimkite was a party to the Deed was
    because it was necessary to restrain it from exercising its
    powers as a substantial secured creditor of Marawa which could
    have thwarted the successful completion of the project."

4. Budgets and timetables (I use the term to cover "the acts matters representations warranties and other materials" mentioned in the preamble) had been drawn up. These forecast that the machine would have been completely developed, tested and in production within budget by November 1990. Pursuant to the deed Alimkite, as well as the Melroses, warranted this. The representations made to the appellants before their company Irving Air entered into the deed were inducements which caused the company to do so.

5. Apart from what turned out to be the too optimistic timetable, in the "Actual and Planned Cash Flow to 31/12/90", in one of the schedules to the deed was an item "Labour 6 $400/Container." What this meant was that Mr Melrose would develop a device to hold together each compacted bale and the labour cost for the production of each container of compacted hay would be $400. Mr Melrose did not develop the device.

6. This failure meant that the hay could not be compacted within budget. Finally the project collapsed amidst ill feeling between the parties.

7. In the meantime, towards the end of 1990 they were running out of money: more capital had to be found. The appellants would have preferred simply to put in more money themselves - I need not go into the mechanics of the financing - it is complicated and not directly relevant to the appeal - but the Melroses were unwilling to get the money in this way: it would have upset the balance of investment between the parties. The Melroses preferred to go to the bank and borrow. Their view prevailed and the appellants, as well as the Melroses, gave a guarantee to the bank to secure a loan. His Honour found that the appellants did so relying on the representations of Mr and Mrs Melrose that the machine would soon be in operation and money coming in. Although Mr Melrose had not perfected the strapping of the bales the labour cost of $400 for each container was still shewn in projections made late in 1990 and early in 1991. This was despite enquiries which Mr Melrose had made interstate about equipment for strapping. Had this equipment been purchased it would have meant a cost of $1 500 to $2 000 per container.

8. Mr Melrose did not disclose this to the appellants.

9. The venture finally collapsed in April 1991. Only a few bales had been produced: they had been strapped by hand at a cost well above $400 each - so expensive as to make the whole thing uneconomic.

10. His Honour assessed damages in favour of Irving Air at $56 584 against the Melroses and Alimkite. The damages resulted from the representations (which the learned judge found to be false, misleading and deceptive) made to induce the company, through the brothers Irving, to enter into the arrangement in the first place.

11. Alimkite has cross-appealed against Irving Air. Mrs Melrose appeared for herself and for Alimkite both before us and in the District Court. In addition, she sent the Full Court further written submissions dated 23 February 1995.

12. There are two grounds of complaint. The first ground is that Mrs Melrose's evidence as to her delivery of a letter to Dr Alan Irving was rejected. Dr Irving had denied receiving it. This is what the learned Judge said:
    "Mrs Melrose claimed to have delivered a letter to Dr Alan
    Irving on 30 July 1990 informing him of the proposed indemnity
    and stipulating that as a condition of her executing the
    proposed Deed certain of the schedules which were the subject of
    warranties had to be deleted or amended. I reject her evidence
    that such a letter was delivered to Dr Alan Irving. It is highly
    suspicious that such a letter, if it was genuine, was not
    pleaded in what was otherwise a comprehensive defence as it
    would have provided the best available ground to impeach the
    Deed. I accept that Dr Alan Irving was genuinely surprised when
    he was shown this letter in the witness box and his denials that
    he had ever previously seen it. Mrs Melrose is an intelligent
    and well educated person. I cannot accept her explanation that
    she did not check the Deed before she signed it to ensure that
    the amendments which she had allegedly requested in the letter
    of 30 July had been made before she signed it."

13. Mr Richard Whitington, for the appellants, referred us to the decision of the High Court in Devries v Australian National Railways Commission (67 ALJR
528 but especially at 531) where Brennan, Gaudron and McHugh JJ say:
    "More than once in recent years, this Court has pointed out
    that a finding of fact by a trial judge, based on the
    credibility of a witness, is not to be set aside because an
    appellate court thinks that the probabilities of the case are
    against - even strongly against - that finding of fact. If the
    trial judge's finding depends to any substantial degree on the
    credibility of the witness, the finding must stand unless it can
    be shown that the trial judge 'has failed to use or has palpably
    misused his (or her) advantage' or has acted on evidence which
    was 'inconsistent with facts incontrovertibly established by the
    evidence' or which was 'glaringly improbable'."

14. The learned judge made a finding of fact based on the credibility of a witness.

15. The evidence on which he acted could by no means be said to be "glaringly improbable" - far from it. Mrs Melrose said everything which could be said but I am afraid that we are bound by authority, even if I had been inclined to be sympathetic to her argument which I am not. The learned judge's finding must stand. This point fails.

16. The other ground in support of the cross-appeal is that Alimkite would not have been a party to the deed at all if Mr Ralph Firth had not given it an indemnity. Originally Mr Firth was a party to these proceedings. The proceedings began in the Federal Court. O'Loughlin J made an order in favour of Mr Firth for security for his costs. When Mrs Melrose could not comply with the order - unfortunately she just didn't have the money - the action against Mr Firth was dismissed. So far as Irving Air was concerned Mr Firth's indemnity was irrelevant. The indemnity could not affect the company's claim. Mrs Melrose's argument on that point also fails.

17. In my view the cross-appeal should be dismissed.

18. I return now to the second part of the judgment against Mr and Mrs Melrose, by which the brothers Irving personally were awarded $22 843.00 damages. This was on account of the representations which induced them to give the guarantee to the bank so that the venture could continue into 1991. His Honour found that "these representations were false, deceptive, misleading and negligent." The appellants complain that they obtained judgment against Mr and Mrs Melrose but their claim against Alimkite was dismissed. This is what His Honour said:-
    There is no direct evidence that either Mr or Mrs Melrose
    were acting as agents for Alimkite in making any of the
    representations in question. Mrs Melrose was a director, and
    the apparent de facto controller, of Alimkite, but there is
    no evidence that in making, or being involved in, any of the
    representations which constituted the alleged misleading or
    deceptive conduct by Alimkite she was acting in that role
    rather than in her own right. The onus is on the plaintiffs
    to prove it, and they have not done so. Accordingly,
    Alimkite is not liable other than to the first plaintiff for
    breach of contract." (The breach of contract relates to the
    misrepresentations which induced Irving Air to enter into
    the deed.)

19. Mr Whitington attacks this finding on two grounds. First he says that the representations were continuing representations. The effect of the representations before 2 August 1990 when the parties entered into the deed, continued on and influenced the appellants to guarantee the later loan from the bank. Alimkite was liable for the original representations and therefore should be liable for their continuing effect.

20. I do not accept the argument. In my view the force of the earlier representations was spent once the parties had entered into the deed. There is a clear break between those representations and the later representations which induced the appellants to keep on with the project by giving the guarantee to the bank. Those later representations were to the effect that the venture was still on track even if running behind time: they were quite distinct from the earlier representations. Alimkite had no part in the later representations. Alimkite was all along only a vehicle to help the Melrose's (especially Mrs Melrose) to finance the project.

21. Mr Whitington's other point was that Mrs Melrose was the agent of Alimkite: when she spoke for herself (or rather when she was saddled with the representations which her husband made) she spoke for the company as well.

22. I cannot accept that argument either. In the District Court counsel for the brothers Irving attempted to get an admission from Mrs Melrose that she was speaking for Alimkite. He failed. Having obtained an admission from Mrs Melrose that during the time before the deed she had spoken on behalf of Alimkite, the cross-examination continued:

    Q. .... you participated in various discussions and
    meetings and so forth after 3 August for the remainder of
    1990 and into 1991 in your capacity as director of Alimkite
    Pty Ltd didn't you.

A. In my capacity as director of Marawa I did.

Q. And also as director and secretary of Alimkite
    Pty Ltd(1) correct.

A. I was the director and secretary of Alimkite but
    I didn't really cart all its papers and stuff to the
    meetings of Marawa. I met I believe to talk about Marawa and
    Hay Australia.

Q. But that was because you were there as well to
    protect the interests of Alimkite which was a significant
    unit holder - correct.

A. I wouldn't say that. I think we all talked about the
    Hay Company. We didn't talk about Alimkite, nor was
    Alimkite heavy on my mind until later in the proceedings.

Q. No, all I am saying is that the progress of well
    Hay if you like, the progress of Hay Australia and of Marawa
    Pty Ltd obviously was of importance to you in your capacity
    as director of Alimkite Pty Ltd.

A. Of course it was because it had money invested in
    Marawa but it was not something foremost in my mind at
    meetings of Marawa."

23. This was not a case of actions speaking louder than words, as Mr Whitington argued. There was no direct evidence that either Mr or Mrs Melrose were acting as agents for Alimkite in making the representations: the onus to prove that was on the appellants and they did not discharge it. l agree with the view of the learned judge to that effect.

24. That being so the appeal against Alimkite should fail. I suggest that both appeal and cross-appeal be dismissed.