Aneve Pty Ltd v Bank of Western Australia Ltd - [2005] NSWCA 441

No judgment structure available for this case.

CITATION:
Aneve Pty. Limited & Ors. v. Bank of Western Australia Limited [2005] NSWCA 441

HEARING DATE(S):
19 and 20 September 2005

JUDGMENT DATE:

12 December 2005

JUDGMENT OF:
Hodgson JA at 1; Santow JA at 76; Bryson JA at 77

DECISION:
Appeal dismissed with costs.

CATCHWORDS:
TRADE PRACTICES - Misleading, deceptive and unconscionable conduct - Primary judge not satisfied that alleged representations made, or that, if made, they were relied on - Whether errors or deficiency of reasons shown

CASES CITED:
Briginshaw v. Briginshaw (1938) 60 CLR 336
Helton v. Allen (1940) 63 CLR 691
Watson v. Foxman (2000) 49 NSWLR 315

PARTIES:
Aneve Pty. Limited - 1st appellant
Aniello Iannuzzi - 2nd appellant
Paraskevi Iannuzzi - 3rd appellant
Bank of Western Australia Limited - respondent

FILE NUMBER(S):
CA 40670/04

COUNSEL:
Mr. B.M. Toomey QC with Mr. A.G. Diethelm for appellants
Mr. B. McClintock SC with Mr. R.J. Brender for respondent

SOLICITORS:
R.F. Bergagnin & Co., Marrickville for appellants
Blake Dawson Waldron, Sydney for respondent

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
ED1063/03

LOWER COURT JUDICIAL OFFICER:
Palmer J

CA 40670/04
ED 1063/03

HODGSON JA
SANTOW JA
BRYSON JA
Monday 12 December 2005

ANEVE PTY. LTD. & ORS. V. BANK OF WESTERN AUSTRALIA

Judgment

1 HODGSON JA: On 20 July 2005, Palmer J gave reasons for judgment in proceedings brought by the appellants (Dr. Iannuzzi, his wife Dr. Tsironis and their company Aneve) against the respondent (BankWest) seeking relief in relation to a guarantee and indemnity given to BankWest and an associated Performance Bond issued by St. George Bank Limited (St. George), on the basis of misleading or deceptive or unconscionable conduct in breach of the Trade Practices Act 1974, in which proceedings BankWest cross-claimed for a declaration that it was entitled to call on the Performance Bond, for interest and for damages pursuant to an undertaking as to damages. On the basis of those reasons and further reasons given on 29 July 2005, the primary judge gave judgment for BankWest on the appellants’ Statement of Claim, made the orders sought by BankWest in its cross-claim, and ordered the appellants to pay the costs of the proceedings on an indemnity basis. The appellants appeal from those orders.

CIRCUMSTANCES

2 Aneve and Dr. Tsironis’s parents are the shareholders of a company called Darcy Byron Pty. Limited (Darcy Byron). In December 1999, Darcy Byron purchased an established vineyard known as The Mount Eyre Vineyards (Mount Eyre) in the Hunter Valley for $1.15 million, for the purpose of conducting a grape-growing and wine-production business. Dr. Iannuzzi intended to run the business, although he had no previous experience in the wine industry.

3 Barrington Estates Limited (Barrington) was an established wine-producing company that owned a vineyard and wine-production facilities called the Yarraman Road Estate in the Hunter Valley, not far from Mount Eyre. Mr. Gary Blom was the managing director and major shareholder of Barrington.

4 In January 2000, Mount Eyre and Barrington concluded two contracts, each for a term of three years. One was a grape supply contract under which Barrington bought half the crop of grapes grown by Mount Eyre, and the other was a wine making contract under which Barrington would manufacture wine for Mount Eyre using the other half of the crop.

5 On 27 July 2001, BankWest and Barrington concluded a facility agreement under which BankWest advanced about $22 million to the Barrington group of companies for the purchase of vineyards in Western Australia, South Australia and Victoria. On 28 July 2001, agreements and mortgages were executed so that BankWest held security over real estate and other assets of the Barrington group in first priority to a number of other lenders, namely, a Dr. Morrison (a vendor to Barrington, with security for $1.5 million), a Mr. Earl Slick (a United States investor) and Perpetual Trustee Company Limited as trustee for the Quadrant Capital Fund. BankWest’s priority was for $22 million and interest, fees, costs and expenses.

6 By December 2001, the Barrington group was experiencing financial difficulties.

7 On 4 December 2001, Mr. Slick’s solicitors served Notices of Demand on the Barrington group calling up his loans of about $4.5 million. The Barrington group did not have funds the repay the loans. Mr. Slick was also a 25% shareholder of Barrington and, having lost confidence in Mr. Blom, wanted him removed as managing director. On 10 December 2001, Mr. Blom resigned as a director of Barrington, leaving a Mr. Seward and Mr. Tom Slick (Mr. Earl Slick’s son) as the two remaining directors.

8 A report by Deloitte Touche Tohmatsu (Deloittes) dated 14 December 2001 to Barrington, which was also provided to BankWest, showed net assets of the Group at 30 November 2001 as $467,184.00; although a subsequent letter of 20 December 2001 indicated possible adjustments which would produce net assets of $5.667 million.

9 On 19 December 2001, there was a meeting at BankWest to discuss Barrington’s position and the injection of further capital to allow the group to continue trading. Attending the meeting were David Lennon (BankWest’s Director, Structured Finance), Paul McGarry (Manager, Structured Finance), Greg Wynne (Chief Manager, Credit, NSW & Queensland), Leo Seward (Managing Director, Barrington), Charles Gibb (Chief Operating Officer, Barrington), Chris Hadley (Managing Director, Quadrant Capital Fund) and lawyers representing Mr. Slick. Mr. McGarry took notes of the meeting, which were later incorporated into a memorandum dated 3 January 2002. This memorandum recorded that Mr. Seward was concerned about potential liability of directors for insolvent trading, and was considering appointment of voluntary administrators. The memorandum continued:

To assist with current cash needs and provide Barrington with ‘breathing space’ it was proposed that $2.5M in new funding be provided to Barrington by the following parties in the proportions set out below:–
Slicks – $1.0M
Quadrant - $0.5M
Gary Blom $1.0M (Credit support to be provided by a third party investor).

Leo Seaward agreed that the directors would not appoint Voluntary Administrators pending the negotiation of the injection of $2.5M of additional funding.

The Slicks sought instructions from Earl Slick overnight in relation to the proposal (he resides in the USA). Mr Slick advised that he would not support any proposal that involved Gary Blom. It appeared at that stage that the injection of the new funding would not occur. We were concerned that a Voluntary Administrator would be appointed to Barrington.

10 On 20 December 2001, Mr. Blom’s solicitor sent a facsimile to Mr. Lennon and the other parties’ representatives, advising inter alia:

In a fax yesterday I set out some terms on which our client, Gary Blom, is prepared to arrange the provision of $1 million as 40% of a $2.5 million secured debt facility to Barrington Estates Limited (to rank behind BankWest and Dr. Morrison but ahead of all other existing shareholder debt). Following discussions yesterday afternoon I advise that:

the $1 million will be provided through Viticulture Professional Co. Pty Limited by interests associated with Dr. Aniello Ianuzzi of Mount Eyre Vineyards;

confirmation from Dr. Ianuzzi that the funds will be placed with this firm by close of business on Thursday, 27 December 2001 is to be provided by 10:00 am on Monday, 24 December 2001;

11 On 21 December 2001, Charles Gibb from Barrington sent an email to Mr. Lennon, in the following terms:

Thanks for our conversation earlier today, and for the information concerning the potential timing of the capital injection into the business. As mentioned, if there is no cash available in the business until 9th January, there are significant implications in terms of our ability to generate business to keep ourselves "above water" early in the New Year.

Our current position is that we have $168k in the bank, with a payroll of $167 which will be completed today. With one or two minor receipts to be deposited, we are barely in the black next week. Thus there are insufficient funds available to revive the business from within at present, yet we have a number of critical pressing issues that must be resolved for us to move forward.

These critical "revival" payments include:
a. Label producers. We need to produce specific labels for export market orders currently in the system. They have refused to work until such time as these invoices are paid. Total across two suppliers is in excess of $20k.
b. Export licence. This has been suspended due to failure to pay their bills, totally (sic) $51k. They will not give any export approvals until full payment is made. This is overdue since August.
c. Warehousing, transport and freight fwding (sic) agency. They have refused to assist us with stock movements from our warehouse to the docks, and thus must be paid to facilitate orders in January. Total of $30k
d. Bottling. We are overdue on a total of $200k, and thus need to pay approx $50k (our estimate), to ensure that we get the service we need for January bottling schedules. This will need to be agreed by 7th to meet orders in mid/late Jan.
e. Marketing agency. We are anticipating a couple of orders from Canada and have been asked to provide new labels to their specifications. These have to be in Canada by 21st Jan, and again they will not work with us unless we have paid current invoices. Total approx $20k.
f. Sales Materials. We have materials generated that we are unable to access as these are being withheld pending payment of invoices. Adrian has significant plans for the use if these from Jan 2nd onwards which we will have to cancel should these invoices not be paid, thus losing sales and further damaging relations with key customers. Total $40k.

In addition to these we have certain demand notices and critical supplies (ie. electricity) where services will be terminated shortly or legal action will be taken if these are not met immediately. These total close to $90k.

Ideally, I would like to be making payments as early as 28th or 31st Dec, and certainly from Jan 2nd onwards. I fear that if we do not start making payments until 9th Jan, we will start significantly behind in the New Year, and will have substantial out of stock problems in some international markets.

12 On 22 December 2001, Mr. Blom met with Dr. Iannuzzi at his home in Coonabarabran, while Dr. Tsironis and the rest of the family were at the family property in Blue Bay, to discuss Barrington’s financial situation. According to Dr. Iannuzzi, Mr. Blom proposed a transaction in which Dr. Iannuzzi would provide $1 million for Barrington. During the meeting, there was a three-way telephone conversation involving Mr. Blom, Dr. Iannuzzi and Mr. Lennon of BankWest, which lasted about 18 minutes. According to Dr. Iannuzzi, during this conversation Mr. Lennon said the proposed transaction was safe, and a meeting was arranged to take place at Dr. Iannuzzi’s holiday home at Blue Bay on 28 December.

13 On 24 December 2001, Dr. Iannuzzi sent an email to a Mr. Kennedy at NAB, containing the following information concerning the proposed transaction:

– equity component of the deal: Mr Blom is offering 900,000 shares in the Barrington Estates group. Darrell should make sure that assurances are made that between the execution of the deal, and the sale of the group to another party that the following conditions apply, and should be included in the agreement:

* The letter of credit deal is to be in the name of Dr Aniello Iannuzzi, so it can act as a tax deduction. The 900,000 shares are to be by way of a $1 option (in total, for all 900,000 shares), able to be executed at any time after the letter of credit is approved by the NAB, and I have paid to execute such a letter of credit.

* Mr Blom does not sell or transfer or forfeit any of his shares to any other party in this time, with the exception of the 900,000 shares being transferred to Aneve.

* Aneve’s total shareholding does not fall below 6.9% of the company if Slick does not convert his note, and below 6% of the company if Slick converts his note. The meaning of all of this will be apparent after Mr Blom makes his presentation.

– Aneve will re-invest the profits from the convertible note interest rate deal into its debt with the NAB. Any cash (post-tax) earned from the sale of the 900,000 shares will also be for Aneve debt reduction, of the Blue Bay property.

14 On or about 24 December 2001, by arrangement with BankWest, Barrington engaged D.A. Dransfield & Co. Services Pty. Limited (Dransfield) to prepare a cashflow for the period 30 June 2002, prepare a balance sheet at historic cost value, review the controls currently in place and make any recommendations where processes can be corrected, and to assist the company to update any deficiency in its ASIC records.

15 On 29 December 2001, Mr. and Mrs. Lennon went to meet Dr. Iannuzzi and Dr. Tsironis at their holiday house in Blue Bay. One child of Dr. Iannuzzi and Dr. Tsironis, then about three weeks old, was present and in close proximity to Dr. Tsironis for most of the meeting, due to a serious liver condition diagnosed a few days earlier. The meeting lasted about 1½-2 hours.

16 It was at this meeting that, according to the appellants, Mr. Lennon made the representations complained of. These were stated in the Statement of Claim to be (1) that the financial position of the Barrington Estates group of companies was total assets $59,462,956 (current assets $25,268,362.00, non-current assets $34,194,594.00), total liabilities $37,206,988.00 (current liabilities $12,722,637.00, non-current liabilities $24,484,351.00), net assets/shareholders’ equity $22,255,968.00 (the Balance Sheet Representation); (2) that the Barrington group of companies was not at that time in financial difficulties and was not expected to experience such difficulties throughout the 2002 calendar year (the Solvency Representation); (3) that the amount of $2.5 million would be sufficient to allow the Barrington Group to trade until 30 June 2002 (the Bridging Tranche Representation); (4) that the sale of assets of the Barrington Group would commence in January 2002 and would be complete by 30 June 2002 (the Asset Sales Representation); and (5) that BankWest would not at any time appoint receivers to Barrington or to other members of the Barrington Group (the Receivership Representation).

17 It does seem clear that, at this meeting, there was discussion of a “pro-forma balance sheet” of Barrington, which showed the following assets and liabilities:

Closing Cash $ 1,875,914
Inventories – Finished $ 4,952,110
Inventories – Bulk $13,203,447
Inventories – WlP $ 1,321,802
Accounts Receivable $ 3,862,216
Other $ 52,873
Total Current Assets $25,268,362

Investments $ 70,000
Development Costs & Capex $ 1,306,204
Freehold Land $ 2,624,800
Vineyards $ 6,615,400
Buildings $ 6,654,800
Equipment $ 11,450,000
Capex Equip/Barr Equip $0
Intangibles $ 5,473,390
Total Non Current Assets $34,194,594
Total Assets $59,462,956

Trade Creditors $ 5,414,364
Provisions & Accruals $ 308,253
Borrowings –Slick Bridge $ 3,000,000
Borrowings – Addn Slick Bridge $ 4,000,000
Total Current Liabilities $12,722,637

Other Borrowings $ 69,405
Senior Debt $22,000,000
Provisions and Accruals $ 420,418
Lease Liabilities $ 2,123,338
Total Non-Current Liabilities $24,484,351

Total Liabililties $37,206,986
Net Assets $22,265,968

18 There is in evidence a copy of this document which has on it figures written by Dr. Iannuzzi, showing totals of “13” (presumably $13 million) for total current assets and “15.6” (presumably $15.6 million) for non-current assets, and a further total of “28.6” (presumably $28.6 million).

19 Shortly after this meeting, Dr. Iannuzzi contacted the Marrickville branch of the National Australia Bank (NAB) to request that they provide a letter of credit for $1 million. On 2 January 2002, Mr. Coupe of NAB sent Dr. Iannuzzi an email in the following terms concerning this request:

I need your help to get this proposal through to a stage that would be acceptable to the Bank. The main issue that the Bank has is overall group serviceability plus amortisation of commercial facilities (Darcy Byron P/L) over a commercial term not exceeding 10 years.

Then followed a detailed table showing income available to Dr Iannuzzi and Dr Tsironis and their associated entities and the liabilities which that income would have to meet. The analysis shows surplus funds to meet living expenses of $13,883 per year.

Nello, we understand that you wish to get this proposal approved and due to the value we place on your relationship we’re endeavouring to piece the proposal together to meet both the Bank’s and your satisfaction. Clearly, there is risk evident against this lending, or BankWest themselves would be providing the $2.5M that Barrington Estates needs against their existing security held. Notwithstanding that point, the potential for upside is also strong with flow on effects to Darcy Byron in terms of product sale and to yourself in investment and shareholding return.

20 Dr. Iannuzzi replied to this email on the same day, identifying those assets to be sold “if we got into trouble”. The email continued:

I do not have the same gloomy picture about our servicing the debt as you do … obviously if we default on the loan, then the securities can be called upon by the NAB. Isn’t that the whole point of having security?

21 On 3 January 2002, Mr. Coupe replied to Dr. Iannuzzi by email, in the course of which he said:

In this high risk proposal, we want you to be clearly aware of the position and take care of the ‘what ifs’.

22 On 8 January 2002, Mr. Coupe sent Dr. Iannuzzi an email advising him of NAB’s reasons for declining his funding request, which included the following:

The level of risk attributable to new borrowing -- 3rd party security risk - i.e. the need to further involve your parents in law & their financial position to secure the new facility.

– the speculative nature of the investment -- i.e. dependent upon Barrington meeting cashflow projections when balance sheets provided reveal prior loss trading accumulation. Noted - past financials are not included in information memorandum.

– failure of Barrington’s Banker BankWest to provide funding direct - after all they have 1st Registered Mortgages over property & business assets.

Whilst we certainly do value your business & can understand your desire to be involved in this dealing due to the benefits available to you (i.e. potential interest return, shareholding, vineyard sales, etc), the proposal does carry a strong degree of risk with Barrington clearly needing funding going forward to meet substantial growth plans and against a financial track record that does not yet show a continued record of trading profitability. Saleability of a controlling interest in Barrington is yet to be determined.

23 An internal note of the same date prepared by Mr. Coupe provided the following comment on Dr. Iannuzzi’s application to NAB:

RISK
: $1M is part of $2.5M syndication to principals of Barrington for working capital purposes pending sale of that business – Rabobank to broker sale with potential purchasers. If sale does not eventuate then letter of credit issued on behalf of Iannuzzi via Gary Blom – is likely to be called upon – debt to be raised.

FACTORS/INFORMATION
: Dr Iannuzzi is well aware of risk however is prepared to undertake same in view of upside.

24 Meanwhile, on 3 January 2002, Mr. McGarry of BankWest prepared the memorandum, part of which has been set out above. This memorandum, which was approved by Mr. Lennon, also contained the following:

A third part investor known to Gary Blom is Dr lanuzzi who owns some vineyards and is a supplier of grapes to Barrington. Dr lanuzzi who banks with National Australia Bank ("NAB") will be providing NAB with security so that they will provide BankWest with an unconditional letter of credit in the sum of $1.1M. The arrangement will require the provision of a guarantee by Dr lanuzzi to BankWest supported by the LC in order that Dr lanuzzi has rights of subrogation.

We are unsure of Dr lanuzzi's complete motivation to enter into this arrangement but understand that he has entered into an undisclosed agreement with Gary Blom in relation to Mr Blom's equity interest in return for his credit support of the $1M loan to Barrington.

DETAILS OF THE PROPOSED NEW FUNDING:
Since 19 December 2001 the terms of the new funding have been negotiated further and we have aimed to ensure that Company has the support of the Slicks. (We understand that the Slicks have substantial financial capacity).

The most preferable situation for the Bank is not to be involved in the new funding at all. However to facilitate the new funding it is necessary for the Bank to be involved. At this stage the new funding is in the best interests of Barrington and the Bank. The respective parties have negotiated a draft term sheet from this perspective where the Bank has attempted to facilitate the injection of additional funds.

…
Options available to the Bank.
Options under various scenarios are set out on the following page. All options would include the engagement of Robert Wright by the Bank to oversee and manage the sale process from the Bank's perspective. Robert Wright is known to Director Structured Finance and also to Chief Manager Credit NSW & Qld. Robert Wright is a chartered accountant and has been involved with the reconstruction I sale of distressed companies including wine industry companies. He played a key role in the Adsteam matter and is on the Board of the reconstructed Harris Scarfe group.

As previously advised Barrington at our suggestion engaged Sydney chartered accounting firm D.A Dransfield & Co (two ex Ferriers partners) to prepare inter alia a revised balance sheet and cashflow through to June 2002. They have commenced their brief and aim to complete their report shortly.

We involved D.A Dransfield & Co as the Deloitte's report was seriously inadequate (speaking from experience as I have written several lA reports myself). The Deloittes report was commissioned at the request of the Slicks and was prepared for a particular purpose not in Barrington's best interest. The Deloittes report was reluctantly provided to the Bank under cover of a detailed disclaimer, which also advised that it was a sensitized version as certain information was not appropriate for the Bank.

25 The Dransfield report was finalised on 9 January 2002. It included an Executive Summary, which contained the following material:

· …

· Major equity investors are proposing to provide or procure additional equity investment of $2.5 million on the basis that that will bridge a perceived funding gap until the BEL Group or it's assets are sold.

· The most likely cash needs of the BEL Group over the six months to 30 June 2002 (in addition to the $2.5 million equity injection) are estimated at an additional $4.4 million on a "business as usual" basis. This funding shortfall is identified in the Base Case Cash Flow.

· We have worked with management to identify a range of favourable cash flow opportunities not identified in the Base Case Cash Flow that may reduce or eliminate the funding shortfall. These options include:

· …

· Reporting at present is inadequate as it is neither timely nor provides the relevant information management needs to monitor the BEL Group. Part of the reason for this is that steps were not taken to ensure that there were common, appropriate systems across the BEL Group after acquisitions occurred. The finance team has advanced work in this area and is continuing to do so.

· The short term operating environment will continue to be uncertain and hence there may be further losses above expectation both in profit and cash terms.

· Significant recent opportunities have been lost because of the absence of immediate cash. Further delays in the provision of equity funding will exacerbate the level of any adverse impact.

· We have made a series of recommendations, which have been discussed with management. The Board will also have to consider and endorse these as considered appropriate.

In summary, this schedule suggests that additional favourable cash flow opportunities (not included in the Base Case Cash Flow), totalling $4.460 million may eliminate the Base Case Cash Flow shortfall of $4.432 million.

The funding options to eliminate the Base Case Cash Flow shortfall exclude any contemplation of asset divestments.

26 On 10 January 2002, a further memorandum was prepared by Mr. McGarry, and approved by Mr. Lennon. It contained the following:

UPDATE OF EVENTS:
1. An investigating accountant's report was prepared for the Bank by D.A. Dransfield & Co and reviewed by Robert Wright. The report included the preparation of a cash flow that sees the $2.5m support the company through to 30 June 2002 but it was noted that this would require changes to Barrington's business plan. These changes were considered achievable by Robert Wright and Dransfield.

2. Robert Wright has commenced work at Barrington's office implementing the cash flow (albeit without the cash yet available), reviewing stock, debtors, proposed purchases and identifying other areas for savings. Robert has also spent his time in making the business investment ready for an orderly sale. Robert will have draft accounts prepared by the end of the week (Management previously estimated 28 February 2002).

3. Considerable time has been spent drafting and negotiating the documents relating to the injection of the $2.5m in funding as discussed in the memo of 3 January 2002.

We now believe that the Slicks have "shown their hand" in relation to their agenda which was to cause Barrington to fail financially. The Slicks Australian solicitors Freehills have advised that their client is "taking a hard line", that he is an "eccentric US billionaire" and is "not making commercial decisions" as they have advised that he should support the current process.

WAY FORWARD:
The directors have provided the Bank with a deadline of 5pm EST tomorrow to provide an alternative proposal moving forward otherwise they will appoint voluntary administrators to Barrington. If this occurs the Bank will be forced to appoint a Receiver & Manager.

We are of the view that given the multiple corporate structures, regional locations of assets and complex security arrangements that a Receivership would be costly in terms of Receivers' fees and expenses. We are also of the view that an orderly realization will result in a higher return than a distressed sale by a Receiver.

We have begun work on an alternative proposal as follows: -
1. The Bank provides $1m in extra funding to Barrington senior secured.
2. Quadrant and Iannuzzi provide $0.5M and $1M respectively in subordinated funds to Barrington.
3. The Company follows the orderly sale exit strategy.

Effectively this is the same proposal as previously approved on 3 January 2001 without the Slicks. The Bank will be increasing its exposure by $1M without the benefit of a letter of credit. The Bank's $1M will rank equally with its current exposure of $22M senior secured. All other funds remain subordinated to our debt.

The Banks current facility agreement provides for our priority to increase from $22M to $25M.

ADDITIONAL REQUIREMENTS:
This proposal will require the Slicks as a shareholder to agree to the further funding and priority and to agree to the proposed exit strategy (i.e. orderly realization of assets). Barrington and its shareholders would be obliged to accept the highest possible offer for its assets and not frustrate the process. We have the support of Quadrant and the other subordinated lenders and shareholders.

Additionally we will require further control over the affairs of Barrington and its operations over the next 6 mths. We propose that Robert Wright be appointed as Managing Director to lead the new process with support from D.A Dransfield where required.

27 On 9 January 2002, BankWest’s solicitors sent to Dr. Iannuzzi’s solicitors, Tress Cocks & Maddox, for approval a draft guarantee and indemnity and a draft letter of credit.

28 On the same day, Dr. Iannuzzi prepared a document which he emailed to his solicitors and a mortgage broker. This document is important, and it is set out a length below:

Barrington Estates Deal Summary

CONFIDENTIAL

Dr Aniello Iannuzzi, for the benefit of prospective financiers and those providing him with legal advice, has prepared this summary. The contents of this summary are confidential, and represent the views of Dr Aniello Iannuzzi only.

Background on Barrington Estates

Founded by Gary Blom about 6 years ago, with the purchase of Barrington Estate from Rosemount. Apparently was a messy affair. Barrington Estate is now called Yarraman Road, as it is on Yarraman Road, Wybong, in the Upper Hunter.

Gary Blom has invested a lot of money and energy into the estate, with new plantings and a new winery. The winery is modern and worth about $5M in replacement value.

The Barrington Estate property is worth about $10M in my eyes.

Gary Blom has a business, and not a wine, background. This has resulted in his approach to the business being focussed on business primarily, with wine as a secondary, albeit important, consideration. This has led to a credibility problem in the industry. However it has also resulted in perceptive assessments of the market in broad, international terms. Gary Blom is very aware of market trends, corporate plays and facts and figures.

Gary Blom then came to the realisation that medium sized wine interests like his have little future, unless they have superlative brand recognition and quality-for-price ratios. Barrington Estate failed on both accounts. This meant that Barrington Estate had the following options available, with the following likely outcomes:

· Try to trade its way to better market profile and size. This would fail.

· Sell out to recover funds and make a profit. This would fail in the Upper Hunter and with poor brand recognition and sales.

· Go bankrupt.

· Downsize. This was not an option, as Gary Blom had invested too much money to not realise an income or profit.

· Upsize. This would allow market penetration, acquisition of brands and better sales. It would also mean it becomes a significant buy-out target for larger domestic firms or overseas firms.

Gary Blom decided to take the last option. He needed more money, and did a deal with Quadrant, the investment arm of Westpac. They bought a share of the company, which allowed development of the Yarraman Rd site, and paved the way for acquisitions.

It then became apparent that money was again drying up. Quadrant referred Blom to a Mr Slick, a USA investor, in his eighties. Allegedly a billionaire, Mr Slick was thought by Blom and Quadrant to be a good ‘silent partner’ and source of funds. Slick therefore becomes the third major shareholder.

· Hayshed Hill – a medium Margaret River company, with a good reputation at the lower to medium end of the market.

· Mount Avoca – a small, successful producer in the Victorian Pyrenees.

· Haselgrove – a medium producer in McLaren Vale, with an excellent portfolio of reds.

The new mother company is called Barrington Estates. The original Barrington Estate is now known as Yarraman Road. Together, the four companies have a capacity to produce almost 500,000 cases per year. The company is in the top 30 in terms of size in Australia. It has spread its risk and wines all around Australia; this is good in terms of variety of wine styles, but awkward in terms of co-ordinating administrative tasks.

The three new acquisitions are all more accepted, credible and better quality than Yarraman Road in terms of sales, distribution and wine.

Barrington Estates is putting together a smart group of personnel, with good industry experience, to handle the marketing and distribution of their wines.

Sales are slow. Export has suddenly become tougher since September 11, 2001.

The expansion from one site to four sites was rapid. More money was needed.

Gary Blom also wanted to remain the major shareholder.

In order to remain the largest shareholder, Gary led the company to borrowing money, rather than raising capital through selling more shares in the company, hence diluting his holding.

· Quadrant and Slick both lent money to the company, despite being shareholders. These loans amount to about $15M.

· Slick has taken out a convertible note, valued at about $5M. If he exercises this note, it will be at about $2.08 per share. If he exercises, the company debt falls by $5M, however shareholdings dilute for all but Slick.

· Partial payment of Hayshed Hill, so that Dr Morrison, the original owner, is still owed $1.5M.

· BankWest has lent them $22M.

In addition, one new shareholder was taken in, Leo Seward. This man was involved in the Hayshed Hill business. He purchased 900,000 shares for $1.5M.

As I understand it, Barrington Estates has about 13,000,000 shares, not including Slick’s convertible note.

Before any deal goes ahead, the number of shares in Barrington, and all options etc need to be determined, so that we suddenly do not end up owning nothing . [Emphasis in original.]

Background on Gary Blom
I do not know as much as I should. What I do know is that he is seen as shady by many, and a businessman and dealmaker.

He brought IMAX to Australia, and was the chairman on Darling Harbour Harbourside development. I believe he got many off side in that time. He also got Rosemount off side when he bought the first vineyard.

Why is he not liked? I have no proof. It could even be that people are jealous of him.

May need more research.

State of the wine industry
… (not relevant)

Mount Eyre & Barrington Estates
The Iannuzzi and Tsironis families bought Mount Eyre Vineyards, Broke, in mid-1999. We signed a grape sale and winemaking contract with Barrington Estate (then, still the one estate) for 3 years. The last year will be the upcoming 2002 vintage.

We helped Barrington Estates sign an important export agency agreement for Canada, which will be potentially worth millions to them over the years.

As our relationship has built over the years, and Barrington Estates has grown. It has become apparent that distribution would be very difficult to achieve for Mount Eyre, given its production is 5000-9000 cases per year.

Now that Barrington Estates has set up a nationwide distribution, we have agreed that they will also distribute our wines. This has clear benefits to us in terms of sales, but also helps Barrington, as it gives them a broader product range, and ensures we have common goals in producing good fruit and wine. It also means that if Mount Eyre cannot keep up with its own demands, then Barrington can supply us with bulk wine, sales of which is a small, but important source of business for them at Haselgrove.

The Need for the current deal
Barrington has again hit a cash crisis! Sales have basically not hit projections, and everyone is getting edgy.

It was decided that to raise capital, the company would merge with a public ASX company, Hotham Wines. This would effectively be a takeover of Hotham by Barrington, but importantly giving them access to the stock market. This would solve the issue of cash and capital.

The deal was set up for November-December 2001. Slick vetoed the merger. This annoyed the other shareholders, not least Blom, who was MD of the company.

Slick then made a call on his loan, and the motivation then became clear: send the company into liquidation, and then take over Barrington for a pittance.

Blom resigned, and the board of directors became unworkable. Seward took over as interim MD. BankWest got edgy, too. BankWest, while secure, need this deal to not fall over, as it would be a blemish on their lending. David Lennon, in the corporate lending in Sydney, overseeing this deal.

A deal amongst the shareholders has been brokered along these lines, in order to settle the impasse:

· Deloittes audited the company and concluded that $2.5M is needed to keep the company afloat until 30 June 2002.

· Company assets valued by BankWest as $59M.

· Company debt $42M. Not including convertible note.

· Net assets, therefore about $17M.

· Shareholders to sign agreement that if a ‘bailout’ is to occur, then company to be put up for sale immediately.

· Major international banks to tender for the rights to the sale.

· Current state of wine industry, with globalisation and consolidation, plus weak Australian dollar, means buyers should be forthcoming.

· BankWest insists company be sold by 30 June 2002.

· Quadrant and Slick agree to freeze their $15M in loans, effectively removing a major cash flow problem from the company.

· All agree that to sell a trading company is far preferable to selling a company in liquidation.

· My advice is that the company worth $50-$70M if still trading.

· Company worth only $40M if insolvent, according to BankWest.

· The $2.5M needed to keep company trading to be put in by 3 major shareholders.

· Quadrant to put in $500K.

· BankWest $1M

· Blom $1M

· The $2.5M is to be a loan to the company for 12 months, at 10% p.a.

· This $2.5M will be secured against second mortgages, and only be underneath the $22M owed to BankWest and the $1.5M owed to Dr Morrison.

The problem is that Blom cannot access $1M, and has approached us for help.

If Blom cannot raise the $1M in time, the deal falls over, and the company is doomed. Blom’s $6M invested over the years will effectively be worthless.

What Blom has offered us

· Blom has negotiated privately with BankWest to accept a back-to-back letter of credit for $1M.

· In other words, we do not need to draw the $1M, unless Barrington fails to repay the loan after 12 months (this needs to be spelt out very clearly in the documentation). [Emphasis in original.]

· Regardless of whether the $1M is drawn, we get the 10% interest anyway.

· For providing the line of credit, Blom will give us an option over 900,000 shares, exercisable for $1 in total. The value of these shares will depend on the sale price of the company. If the company is sold for net assets, then the price per share is about $0.75.

Assuming the company stays liquid, the 900,000 shares will be worth anywhere from $600K to $1.5M.

If the company goes bust, the shares are worth nothing.

Our reply
Given the problems faced by Barrington, it is likely that the $1M will indeed be drawn upon. Given interest rates for such loans will be about 8%, this leaves a margin of 2%, or $20K. In this scenario, the shares are also worth zero. Therefore to expose us to this deal for only $20K is pointless.

Therefore we insisted on certain other conditions, which were agreed to by Blom.

The deal is not to go ahead unless documentation for what appears below is completed to our satisfaction before the $1M is made available.

· We receive $50K of the first $1M Blom makes from his entire share sale when Barrington is sold, exclusive of our 900,000 shares. Once Blom has made $1M, then our shares should be worth a significant amount.

· We can exercise our $1 at any time, without conditions.

· Full shareholder entitlements pass to us for the 900,000 shares.

· We will not be directors of the company, and therefore not liable for losses of the company.

· Full disclosure of all relevant, completed shareholders’ agreements regarding security of the $2.5M and sale of the company.

· Signing of a 3-year grape sale agreement with Barrington Estates for the sale of a minimum of 40t Semillon grapes @ $1200/t, applicable to vintages 2003-2005.

· Signing of a 3-year winemaking agreement with Barrington for winemaking @ $800/t, with other associated charges at reasonable market rates.

· Signing of a 3-year national wine distribution agreement, with Barrington agreeing to sell a minimum of 2000 cases per year of our wine (using the current allocations of product range as a guide). If the 2000 cases are not achieved, then the 2000 will be purchased from us by Barrington regardless. Mount Eyre to guarantee a minimum stock of 4000 cases available for sale on the local market at any one time (no vintage to be specified). We do not require legal advice on these contracts at this point in time, and will satisfy ourselves that they are correct before going ahead.

· The above three agreements between Barrington and Mount Eyre must be such that it is specified that any sale of Barrington must carry conditions that the 3-year contracts with Mount Eyre are to be honoured by the new owner.

[Emphasis in original.]

The benefits to our company are self-explanatory.

If the shares become worth nothing, and the company remains solvent and sells, the contracts must be honoured by the new owners, guaranteeing us income. In this respect the deal is still of great benefit to us.

If Barrington goes bankrupt, then the contracts are worth nil.

Possible outcomes

· Barrington goes bankrupt. This is the worst case. This would mean a ‘fire sale’ takes place and assets are sold off one by one. I have calculated that even in fire sale conditions, that $30M will be realised. Given BankWest and Dr Morrison are only owed $23.5M, we still recover our $1M, and go home a lot wiser and sober! If the $1M is not recovered, we take some good land, wine or equipment very cheaply.

· Barrington sells for less than net assets. The 900,000 shares are worth only a small sum, but we still make the 10% and whatever the shares are worth. We also have ongoing contracts and sales distribution.

· Barrington sells for net assets or better. The shares are worth a lot of money. Blom is hopeful that the company will sell for 1-2 times net assets, but that there have been industry precedents of 3 times net assets (this was for Petaluma, and they are not Petaluma!)

Whoever buys Barrington will have to keep dealing with Mount Eyre. This will either help us grow, or lead to them wanting to buy out of the contracts or buy out our business.

29 On 14 January 2002, Earl Slick’s lawyer confirmed that Mr. Slick would not agree to provide further funding to Barrington.

30 On 15 January 2002, Mr. McGarry emailed the Dransfield report to Mr. Blom’s solicitors, requesting that it be provided to Mr. Blom, and suggesting that it be provided to Dr. Iannuzzi. However, it appears that Dr. Iannuzzi and Dr. Tsironis did not receive a copy until August 2002.

31 By an instrument dated 21 January 2002, Aneve guaranteed to BankWest repayment by Barrington of an advance of $1 million.

32 On 28 February 2002, Drs. Iannuzzi and Tsironis guaranteed to St. George the repayment of all moneys payable to it by Aneve, supported by securities over four pieces of real estate owned by Drs. Iannuzzi and Tsironis, and Dr. Tsironis’s parents. When executing this guarantee, Dr. Iannuzzi and Dr. Tsironis each made a statutory declaration that he or she had received independent legal advice regarding the transaction, and there was a certificate given by their accountant Mr. Bellos that he had given each of them financial advice in respect of the transaction.

33 St. George then issued a Performance Bond dated 4 March 2002 to support the guarantee and indemnity, under which it undertook to pay BankWest on demand a sum of up to $1 million. This was later replaced by another bond dated 28 January 2003 containing the same terms.

34 On 13 May 2002, Mr. Lennon suffered a major stroke, from which he has not recovered; and Mr. McGarry formally assumed all responsibility for the Barrington account at BankWest.

35 The sale of Barrington’s assets did not proceed quickly. In May 2002, Mr. Slick demanded full repayment of money owing to him, and the directors invited BankWest to appoint a receiver. BankWest did so. Ultimately, the assets of Barrington were sold for about $22 million, with receiver’s expenses amounting to about $4 million. BankWest did not therefore recover all money owing to it, and it sought to call on the St. George Performance Bond. That gave rise to these proceedings.

EVIDENCE BEFORE PRIMARY JUDGE

36 Dr. Iannuzzi and Dr. Tsironis filed affidavit evidence, which did not refer to communications with Mr. Coupe of NAB or to the Deal Summary, or to any advice from their solicitor or accountant. The Deal Summary in fact came to light as a result of a subpoena issued by BankWest to Tress Cocks & Maddox, the appellants’ solicitors in relation to the transaction. The second affidavit of Dr. Iannuzzi contained the following assertion:

At no time during these communications did David Lennon say (nor did anyone else from the Bank say) anything to the effect of any of the following propositions:

a. that there was any pressure from BankWest or any other creditor to sell Barrington Estates (“Barrington”) (or its assets) in part or in whole;

b. that we should make our own enquiries about the financial status of Barrington;

c. that we should not rely upon anything he said;

d. that Earl Slick (or anyone else) had already taken steps towards legal action and calling in his loans;

e. that the balance sheet we were looking at (referred to in paragraph 44 of my previous affidavit) was out of date or wrong in any way;

f. that he had updated valuations that valued the assets of the company at less than $46 million in one report and less than $40 million in another;

g. that Barrington was in default under any facility or loan or security document;

h. that Bankwest was proposing an ‘informal workout’ as compared to a formal receivership;

i. that Earl Slick had imposed unacceptable ultimatum conditions which might require Bankwest to enforce its security;

j. that the company had suffered a significant downturn in sales, and that it had lost important sales and distribution agreements;

k. that Bankwest had employed independent accountants with expertise in insolvency and receiverships to assess the state of the company;

l. that Bankwest had entered into an Option Agreement with Barrington in July 2001 under which it had taken options over shares in the company in consideration for providing facilities;

m. the Bank’s interest, fees and other costs would rank ahead of our letter of credit;

n. that Bankwest was dissatisfied with Barrington’s accounts and record keeping, and there were gaps in significant historical and financial information which it had about the company;

o. that previous financing from Bankwest had imposed a condition that Barrington raise $15 million in equity, which condition had not been fulfilled;

p. that a Bank report indicated that Barrington would require a further $8 million in equity during the calendar year of 2002;

q. that senior management at Barrington had warned Lennon of a serious lack of funds in the company, and that $2.5 million would not be enough to keep the company afloat.

37 No other witness gave evidence for the appellants. For BankWest, evidence was given by Mr. McGarry. No evidence was called from Mr. Blom, Mr. Lennon, Mrs. Lennon, Mr. Chung of Tress Cocks & Maddox (the solicitor at that firm concerned with the transaction on behalf of the appellants) or Mr. Belos (the appellants’ accountant in relation to the transaction).

38 At the hearing, Senior Counsel for BankWest sought a direction that evidence of the principal conversations relied on by the appellants (the telephone conversation of 22 December 2001 and the meeting on 29 December 2001) be given orally in the first instance. The primary judge acceded to that request, and he rejected the paragraphs in the appellants’ affidavits relating to those conversations. Subsequently, after cross-examination of the appellants, their Counsel sought to tender the paragraphs from the affidavits, and this material was again rejected.

DECISION OF PRIMARY JUDGE

39 The primary judge addressed two issues. The first was whether the alleged representations had in fact been made, and the second was whether, if that was the case, the appellants relied on the representations in entering into the transaction. In circumstances where there was no contemporaneous note of either discussion, and the only persons present at the two conversations who were called to give evidence were Dr. Iannuzzi and Dr. Tsironis, the primary judge considered that the credit of these witnesses was critical to determining the issues.

40 The primary judge gave detailed consideration of the cross-examination of Dr. Iannuzzi, and particularly to alleged inconsistencies between his affidavits and evidence in chief on the one hand, and the contents of the Deal Summary on the other hand. The primary judge referred to many examples of evidence by Dr. Iannuzzi which he was unable to accept, in some cases because of inconsistency between this evidence and the contents of the Deal Summary, and also to the unsatisfactory manner in which Dr. Iannuzzi gave evidence. He then continued:

130 In the light of this evidence I conclude that Dr Iannuzzi’s statement in paragraph 46 of his first affidavit that “I was never under the impression that the company was in any sort of precarious position” was a serious and deliberate falsehood at the time that the affidavit was sworn, and that that false statement was made with the intention of inducing the Court to believe that Dr Iannuzzi, in entering into the Transaction Documents, had relied implicitly only upon representations which he claimed Mr Lennon had made to him in the meetings of 22 and 29 December 2001. Confronted in the witness box with the evident falsity of his evidence in paragraph 46 of his affidavit, Dr Iannuzzi nevertheless chose to adhere to it.

41 The primary judge found that the appellants had failed to prove any of the representations relied on, setting out his reasons in the following paragraphs:

135 First, I must bear in mind that what is alleged against Mr Lennon, if true, brands him as a deliberate and blatant liar: it is quite clear from the evidence as to the discussions in which Mr Lennon had participated prior to 22 and 29 December 2001 that, if he made the statements about Barrington attributed to him, particularly those about the company’s trading position, prospects and solvency, then he must have known that those statements were false. Further, if he had given any assurances to Drs Tsironis and Iannuzzi to the effect that the proposed letter of credit transaction with BankWest was “safe” or that he would not let them get into the deal “if he thought that [their] million was at all at risk” , then, not to put too fine a point upon it, he must have been a complete fraudster. That is a very serious allegation of misconduct to allege against a senior bank officer.

“guarantee in support of Blom’s funding in the package”

“The deal with Iannuzzi is between them, not us. Blom’s arranged this, let’s not get involved. Issues can arise in these sorts of situations. Be careful of what you say to Dr Iannuzzi.”

Mr Lennon replied: “I’m not stupid, Paul.” Mr McGarry was cross examined about this conversation. I have no hesitation in accepting Mr McGarry’s evidence that the conversation occurred as he said.

137 Second, I must bear in mind that Mr Lennon has not been able to give evidence or to defend himself in any way. The serious accusations of misconduct against him depend solely on the uncorroborated evidence of Drs Iannuzzi and Tsironis, both of whom have, of course, a strong motivation for accusing BankWest and Mr Lennon of wrongdoing and thus escaping their liabilities.

138 Third, I take into account that in the only document which Dr Iannuzzi brought into existence to record his analysis of the proposed transaction, i.e. the Deal Summary, there is no reference whatsoever to any assurances by Mr Lennon that the transaction was “safe” or that it had no risk or little risk, or that Dr Iannuzzi was relying on something said by Mr Lennon. There is no reference at all in the document to the meetings with Mr Lennon which occurred on 22 December and 29 December. This is surprising if, as Dr Tsironis and Dr Iannuzzi would have it, they made up their minds to enter into the transaction on the basis of what Mr Lennon had said at the meeting of 29 December.

139 Fourth, I take into account that I am unable to accept Dr Iannuzzi as a witness of any credit.

140 Fifth, I regard it as improbable in the highest degree that Dr Iannuzzi would have accepted trustingly and at face value anything that Mr Lennon had said at the meetings of 22 and 29 December. The content of Dr Iannuzzi’s communications with NAB, with their valuers, and with St George immediately after his execution of the Transaction Documents, taken in conjunction with his demeanour in the witness box, convince me that he is the sort of person who takes nothing and nobody on trust in his business dealings, who regards himself as knowledgeable and experienced in business matters, who always makes his own enquiries to the fullest extent possible, who makes his own judgments and who is not backward in criticising in blunt terms those who do not agree with him.

141 Sixth, I take into account that Dr Tsironis’ credit generally is adversely affected by the fact that, if her evidence in cross examination is to be believed, she falsely swore a statutory declaration as to the independent advice which she had received from Mr Belos prior to executing the Transaction Documents, knowing that the statutory declaration was to be relied upon by St George Bank.

142 Seventh, it is clear that at the time of the meeting on 29 December and thereafter Dr Tsironis was wholly and understandably preoccupied with the serious medical condition of her new-born baby. I think it highly unlikely that at the meeting on 29 December she was in a state of mind in which she could focus on what was being said between Mr Lennon and her husband or could afterwards retain an accurate recollection of it.

143 Eighth, it is clear that Dr Tsironis left implementation of the transaction entirely to Dr Iannuzzi. Her evidence generally and her demeanour, coupled with the very assertive manner of Dr Iannuzzi, leaves me with the strong impression that in matters of business Dr Tsironis is prepared to acquiesce in decisions made by Dr Iannuzzi and that she is very much directed by him in that regard. I am of the view that in business matters Dr Tsironis would be prepared to support Dr Iannuzzi to whatever extent he felt necessary, if he required it of her.

144 Ninth, I take into account generally as to the Plaintiffs’ case that they have not been willing to call as witnesses those from whom they had received advice in connection with the transaction and who could have given direct evidence on the issue of reliance, namely, the NAB officers, Mr Coupe and Mr Leeson, their accountant, Mr Belos, and their solicitor, Mr Cheung. In my view, their evidence was required to explain what advice they gave to Dr Iannuzzi, if any, as to the subject matter of the Representations and as to what response Dr Iannuzzi made, if any, to that advice. Without their evidence, the inference is clearly open that Dr Iannuzzi discussed with them, or some of them, what he had been told both by Mr Blom and by Mr Lennon and sought their assessment. I conclude that the evidence of those witnesses would not have assisted the Plaintiffs’ case.

145 Tenth, as against the foregoing, I take into account that BankWest has not called Mrs Lennon, who was present at the meeting of 29 December. Mrs Lennon could possibly have given evidence contradicting the evidence of Dr Iannuzzi and Dr Tsironis as to what Mr Lennon said at the meeting. However, I am not satisfied that the failure to call her has the same significance as the Plaintiffs’ failure to call the four witnesses to whom I have referred above. The Plaintiffs’ absent witnesses were all professional people directly involved in the transaction and must have had an intelligent understanding of what had been discussed between Dr Iannuzzi and themselves respectively. On the other hand, there is nothing to suggest that Mrs Lennon was knowledgeable in business affairs generally or about this transaction in particular so that she could be expected to have paid any particular attention to what was being said between Mr Lennon and Dr Iannuzzi. She was present at the meeting only because Mr Lennon was using the opportunity of taking her on a brief holiday. In view of what I regard as the overwhelming evidence as to the credit of Dr Iannuzzi and Dr Tsironis, and in view of the inherent improbability of their accounts of the 29 December meeting, I do not find that BankWest’s failure to call Mrs Lennon has any great significance.

146 Eleventh, in addition to all of the foregoing reasons, I find it inherently improbable that Mr Lennon would have made the Balance Sheet Representation in light of the fact that the balance sheet being discussed was out of date and BankWest was then in the process of obtaining an urgent, up-to-date review of Barrington’s financial position.

147 In summary, I must be satisfied on the balance of probabilities that Mr Lennon made one or more of the Representations, bearing in mind that a finding that he did so requires a finding of serious dishonesty on his part. I bear in mind also that before making a finding of fact that Mr Lennon made any of the Representations, I must feel “an actual persuasion” that he did so: Briginshaw v Briginshaw (1930) 60 CLR 336, at 361.

Rhesa Shipping Co SA v Edmunds

“The judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take.” Quoted with approval in Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58 per Heydon JA, and in Timms v Commonwealth Bank of Australia [2004] NSWSC 76 per Barrett J.

149 In the present case I may well have been able confidently to make a finding of fact as to whether any of the Representations were made had Mr Lennon’s evidence been available. In the absence of Mr Lennon, the state of the evidence generally is not nearly as satisfactory as it could have been. In those circumstances, I prefer to make a decision on the basis of whether or not the Plaintiffs have discharged the burden of proof which lies upon them.

42 On the question of reliance on the representations, the primary judge said this:

152 For the same reasons which I have given above in support of my conclusion as to the making of the Representations, I am far from feeling an actual persuasion that the Plaintiffs relied on anything said by Mr Lennon at the 22 or 29 December meetings pertaining to the subject matter of the Representations. My assessment of Dr Iannuzzi’s willingness to rely on others has been given elsewhere. In particular, the Deal Summary shows that he made his own assessments and judgments, doubtless with the benefit of the advice of Mr Belos and Mr Cheung, whom he has not called to give evidence.

153 In particular, Dr Iannuzzi’s assessment of the value of Barrington’s assets was clearly his own opinion, not that of Mr Lennon. For example, he said in the Deal Summary that the Barrington Estates property was worth “$10M in my eyes” . He said: “My advice is that the company is worth $50-$70M if still trading” although neither Dr Iannuzzi nor Dr Tsironis said that Mr Lennon ever referred to a figure of $70M.

154 For the reasons which I have given, I cannot accept that Dr Tsironis, in making a decision to execute the Transaction Documents, relied upon anything other than Dr Iannuzzi’s decision and his views. If it is true that she signed a statutory declaration that she had received independent advice from Mr Belos when she had not received that advice, or that she signed the statutory declaration without reading it, then she demonstrated thereby that she did not wish to take any active and informed part in deciding whether the transaction should proceed. I find it difficult to believe that she made up her mind that the transaction should proceed on the basis of what was said on 29 December and had no further discussion with Dr Iannuzzi about the matter between then and the time that she came to execute the Transaction Documents.

155 Aneve, of course, was merely the corporate manifestation of Dr Iannuzzi and Dr Tsironis.

43 In a separate judgment on costs, the primary judge gave the following reasons for making an indemnity costs order against Dr. Iannuzzi and Dr. Tsironis:

8 It seems to me that upon the basis of the finding as to credit which I have made in the proceedings as against the Second and Third Plaintiffs, this is a case which falls within the category of relevant delinquency on the part of the Plaintiffs such as to attract the imposition of an indemnity costs order.

9 It seems to me that the situation may be briefly described thus. The Plaintiffs must have known by May 2002 that Mr Lennon, who was alleged to have made the misrepresentations upon which they relied, had suffered a severe and incapacitating stroke and was unlikely ever to be able to give evidence to contradict their version of what had occurred in their meeting with him. It must have been apparent to the Second and Third Plaintiffs, therefore, that their version of events would be largely uncontradicted by any other witness and that the case must turn essentially upon whether their credit could be accepted by the Court.

10 In those circumstances, for the reasons which I have given in my judgment, it seems to me that Dr Iannuzzi, the Second Plaintiff, embarked upon a deliberate course of endeavouring to mislead the Court in his affidavit evidence as to vital matters which I have elaborated upon at some length in the judgment. The Second Plaintiff really controls the First Plaintiff. As I have recorded in the judgment, I think that the Third Plaintiff acts in business matters in accordance with the wishes of the Second Plaintiff.

ISSUES ON APPEAL

44 The Notice of Appeal contains 34 grounds. These grounds raise the following issues, which I will consider in turn:

45 No significant submissions were advanced in relation to grounds 5 and 17, and they do not require separate consideration.

REJECTION OF DR. TSIRONIS’S EVIDENCE

Submissions

46 Mr. Toomey QC for the appellants submitted that the primary judge made errors in par.[141] of his judgment when he said of Dr. Tsironis “that, if her evidence in cross-examination is to be believed, she falsely swore a statutory declaration as to the independent advice which she had received from Mr. Belos”. In fact, Mr. Toomey submitted, the statutory declaration asserted “independent legal advice”, not independent advice generally; and Dr. Tsironis’s evidence was that she had not read the documents to which she put her signature, and therefore did not deliberately swear something untrue. Furthermore, Mr. Toomey submitted, the primary judge’s statements in pars.[142] and [143] of the judgment were glaringly improbable, in the light of the firm and detailed evidence given by Dr. Tsironis.

47 In effect, Mr. Toomey submitted, the primary judge said that Dr. Tsironis was prepared to conspire with her husband to commit perjury, in circumstances where this was unsupported by the material before him, and had not even been put to her. That the primary judge took this view was confirmed by pars.[9]-[11] of the costs judgment, and plainly indicated error.

Decision

48 I do not read the word “falsely” in par.[141] of the primary judge’s decision as conveying a finding that Dr. Tsironis deliberately swore something she knew to be untrue. In my opinion, the gravamen of the criticism being made of her was that she was prepared to make a statutory declaration that she knew would be relied on by St. George, without checking whether it was true or not. In my opinion, the primary judge was correct to regard that as reflecting adversely on her credit. In those circumstances, the circumstance that the advice which Mr. Belos could have given was financial advice rather than legal advice is not of material significance. I note in any event that there is in evidence a certificate given by Mr. Belos that he did give financial advice to Dr. Tsironis. That certificate carries evidentiary weight as a business record, and the appellants chose not to call Mr. Belos to give evidence. This certificate was also provided by the appellants to St. George, presumably with the knowledge that St. George would rely on it. In those circumstances, it would be a reasonable inference that Mr. Belos did give financial advice to Dr. Tsironis, contrary to her evidence.

49 I do not read the paragraphs referred to as saying that Dr. Tsironis conspired with her husband to commit perjury: they are directed to unreliability of evidence, and do not address the question as to the explanation for the unreliability. In assessing evidence of this kind in cases such as this, in my opinion it is important to have in mind the considerations which were set out with admirable clarity by McLelland CJ in Eq. in Watson v. Foxman (2000) 49 NSWLR 315 at 318-9:

Where in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as “misleading”) within the meaning of s52 of the Trade Practices Act (or s42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the Court (1) what the alleged conduct was, and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the Court, which means that the Court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not ... attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding” (Helton v Allen (1940) 63 CLR 691 at 712).

50 In my opinion, the primary judge gave ample reason for considering Dr. Tsironis’s evidence to be unreliable, and no material error has been identified in those reasons.

COSTS JUDGMENT

Submissions

51 Mr. Toomey QC submitted that, whereas in the main judgment the primary judge decided against the appellants on the basis that they had not discharged their burden of proof, in the costs judgment he said that Dr. Iannuzza had embarked on a deliberate course of trying to mislead the Court. Part of the reason given for this was that the appellants knew they would not be contradicted; and there was no valid basis for saying this. In relation to Dr. Tsironis in particular, if the primary judge did not make a finding that she conspired with her husband to commit perjury, then the case against her fell far short of what was required for indemnity costs.

Decision

52 In my opinion, there is no inconsistency between the main judgment and the costs judgment. For reasons given later in relation to the submissions concerning Dr. Iannuzzi, it was in my opinion well open to the primary judge to make a finding in this case that he gave deliberately false evidence on the question of inducement. In the main judgment, the primary judge found to the effect that Dr. Iannuzzi gave deliberately false evidence and that Dr. Tsironis’s evidence was unreliable; but this does not mean that the primary judge could make a determination as to what was said and what was not said in the conversations. Particularly was this so in the absence of any evidence of the conversations by Mr. Lennon and in the absence of any record of the conversation either by Mr. Lennon or anyone else.

53 There is some force in the submissions that, for all the appellants knew at the time they commenced the proceedings, Mr. Lennon could have made a memorandum of the conversation on 29 December 2001, and also that Mr. Lennon may have made some recovery from his stroke of May 2002 and Mrs. Lennon may have been able to give evidence of the conversation; so that the judge’s view that it was apparent to the appellants that their version of events would be largely uncontradicted could be considered as somewhat overstating the position.

54 It was conceded before the primary judge that, by reason of a Calderbank letter, an order for indemnity costs against the appellants as from 11 December 2003 was justified. The hearing took place in April and May 2004, so that what was in issue was whether the appellants should be liable for indemnity costs up to 11 December 2003. It is not clear how significant those costs would be; but it is reasonable to assume that the greater amount of costs of the proceedings were incurred after 11 December 2003.

55 In my opinion, the order for indemnity costs against Dr. Iannuzzi was plainly justified, and the primary judge’s statement concerning the appellants’ expectation that they would not be contradicted could not be considered a material error. In the light of the primary judge’s finding that Dr. Iannuzzi gave deliberately false evidence on the question of inducement and set out to mislead the Court on this issue, the order for indemnity costs was appropriate.

56 The situation is less clear in the case of Dr. Tsironis. The justification for indemnity costs in her case must lie in her preparedness to make a statutory declaration which she knew would be relied on by St. George Bank without checking to see whether or not it was true; and in her acting in accordance with the wishes of Dr. Iannuzzi, in effect leaving it to him to determine whether or not proceedings should be commenced and how they should be conducted. A decision whether to award costs on an indemnity basis is a discretionary decision, and on the whole I do not think a sufficient basis is made out for appellate intervention in that decision in the case of Dr. Tsironis.

CIRCUMSTANTIAL SUPPORT

Submissions

57 Mr. Toomey submitted that the circumstances were such that, at the meeting of 29 December 2001, there must have been discussion of the financial position of Barrington and the safety of the transaction: there could have been no other purpose for the meeting. It was clear, he submitted, from the notations on the pro forma balance sheet that this was discussed and that there was discussion as to the realisable value of assets if they had to be sold. After the meeting, these two doctors, with assets totalling about $2 million, went ahead with a transaction in which they committed half their worldly wealth, indicating that they must have received assurances during this meeting as to the safety of the transaction.

Decision

58 I accept that it is a reasonable inference that there was discussion at this meeting of the financial position of Barrington and the safety of the transaction; and I accept that there is a strong inference that the pro forma balance sheet was discussed and that it is likely that the figures in the handwriting of Dr. Iannuzzi were placed on that pro forma balance sheet during the meeting. However, as highlighted by the passage quoted above in Watson v. Foxman, the matter at issue is not the subject matter of the conversation but what was actually said, and in particular whether representations were made and, if so, whether they were made with or without appropriate qualifications and generally whether they were made in such a way as to be misleading. An inference as to the subject matter of a conversation falls far short of enabling an inference that misleading representations were made.

MR. LENNON

Submissions

59 Mr. Toomey submitted that the primary judge’s statements in pars.[135] and [136] of the judgment to the effect that it was “inherently improbable” that Mr. Lennon would make representations suggest misconception and pre-judgment. The circumstance that Mr. Lennon was a senior officer of a major bank was not a matter to be taken into account in the way in which the primary judge did; and it was notable that the primary judge did not put against this the consideration that there were two professional people of unimpeached credit asserting that the statements were made, in circumstances where it was being suggested that at least Dr. Iannuzzi was giving deliberately false evidence. Mr. Lennon’s action in going to the appellants’ home in order to discuss the transaction with them suggested that he was motivated to have the transaction proceed, this being in circumstances where he had been involved in an advance by the Bank of $11 million in July 2001 and where it was clear as early as September 2001 that there was danger of receivership or voluntary administration. It would not have been helpful to Mr. Lennon’s career if Barrington had failed in January 2002.

Decision

60 In my opinion, the primary judge was in these paragraphs essentially stating what was said in Briginshaw v. Briginshaw (1938) 60 CLR 336 at 361-2 and Helton v. Allen (1940) 63 CLR 691 at 712, to the effect that the reasonable satisfaction of the Court as to the occurrence of something is not attained or established independently of the nature and consequence of the matter to be proved, including the seriousness of an allegation and the inherent unlikelihood of an occurrence of a given description. It is reasonable to look for strong evidence where serious misconduct is alleged against a person, particularly a person of apparent good character; and I do not take the primary judge’s reference to Mr. Lennon’s position as a senior officer of a major bank as suggesting that wrong-doing by such a person is less likely and requires greater proof than wrong-doing by a person of apparently good character in a less senior position. However, Mr. Lennon’s position in the Bank is of some consequence, because of the particularly serious consequences to a person in that position if the making of fraudulent statements is exposed. There is nothing in the judgment that suggests the primary judge did not fully take into account the appellants’ apparent good character in assessing whether or not to accept their evidence.

61 Accordingly, in my opinion, no error by the primary judge is made out in this respect.

DR. IANNUZZI’S EVIDENCE

Submissions

62 Mr. Toomey submitted that although in some respects Dr. Iannuzzi did not give evidence in a satisfactory way, the primary judge erred in placing too much weight on the manner of his giving evidence and in the way he approached the Deal Summary. Mr. Toomey submitted that the Deal Summary, far from indicating that Dr. Iannuzzi was a sophisticated investor with a firm grasp of the issues, rather indicated his confusion. It was an email written at one sitting over four hours, being an expression of a stream of consciousness rather than a systematic attempt to set out precisely the state of his mind and belief concerning the transaction.

Decision

63 In my opinion, the primary judge’s careful analysis of Dr. Iannuzzi’s evidence, particularly his evidence in cross-examination, amply justified his rejection of Dr. Iannuzzi’s evidence and his finding that Dr. Iannuzzi had set out to mislead the Court.

64 In my opinion, a fair assessment of Dr. Iannuzzi’s affidavit evidence is that it was intended to convey the impression that Dr. Iannuzzi entered into the transaction in the belief that Barrington was not in financial difficulties and that the transaction was safe; and that evidence contained no reference to Dr. Iannuzzi’s communications with NAB (see pars.[17]-[20] above) or to the Deal Summary (par.[26] above). The appellants put on no evidence from the solicitor and accountant who acted for them in the transaction. In these circumstances, and having regard to the deficiencies in Dr. Iannuzzi’s evidence identified by the primary judge, it was well open to the primary judge to reach the conclusions he did. There was no material error in what the primary judge said about the Deal Summary.

MR. McGARRY AND MRS. LENNON

Submissions

65 Mr. Toomey submitted the primary judge was in error in accepting and placing weight on Mr. McGarry’s evidence to the effect that he warned Mr. Lennon to be careful of what he said to Dr. Iannuzzi. He submitted this was improbable because of the comparative ages and experience of Mr. McGarry and Mr. Lennon, and because of illogicality of the words allegedly used.

66 As regards Mrs. Lennon, Mr. Toomey submitted that the appellants’ evidence of the relevant conversation included evidence of statements made concerning Mrs. Lennon, in particular a statement by Mr. Lennon that he and Mrs. Lennon were in a business and lost money. If such a thing had been said, Mrs. Lennon would have taken notice, and this also indicates that Mrs. Lennon had business experience, contrary to what was said by the primary judge in par.[145] of his judgment.

Decision

67 The primary judge saw and heard Mr. McGarry giving evidence, and it was well open to the primary judge to accept that evidence. The reasons suggested by the appellants to the contrary fall far short of what would be required to intervene in a primary judge’s assessment of a witness.

68 As regards Mrs. Lennon, the primary judge did not say that the failure to call her was of no significance, only that it was not of great significance. In my opinion, this was a reasonable assessment. In my opinion, it was also a reasonable assessment that the appellants’ failure to call a number of witnesses, in particular their accountant and solicitor, was of greater significance.

AFFIDAVIT EVIDENCE OF CONVERSATIONS

Submissions

69 Mr. Toomey submitted that it was unfair to the appellants to exclude from evidence a carefully considered statement brought into existence only about a year after the events to which they referred.

Decision

70 The use of affidavits for the purpose of evidence is not dealt with by the Evidence Act 1995. It is permissible because of various qualifications to the operation of the Act, particularly s.52, which is in the following terms:

52 Adducing of other evidence not affected

71 The Evidence Act, like the common law, requires oral evidence in chief generally to be given in response to non-leading questions; and the desirability of this is particularly strong in the case of conversations where considerations of the type referred to in Watson v. Foxman apply. It was open to the primary judge to require evidence of the vital conversations to be given orally, in response to non-leading questions, and to reject the account of those conversations given in the affidavits.

72 If either of the appellants had then been cross-examined on the relevant part of the affidavit that had been excluded in such a way that, as a matter of fairness, the evidence should have been admitted, then refusal to admit the evidence could have been a material error. However, Mr. Toomey was unable to point to any cross-examination which could possibly fall into that category.

RELIANCE

73 There was no specific appeal ground concerning error in relation to reliance, but it was submitted that if the Court of Appeal found error in relation to the primary judge’s findings as to representations, the judgment could not then be supported on the basis of the primary judge’s finding that there was no reliance. The question therefore does not arise, in circumstances where no error has been found concerning the primary judge’s conclusion as to representations.

CONCLUSION

74 For those reasons, in my opinion the appeal should be dismissed with costs.

75 A submission was made that these costs should be on an indemnity basis. On the whole, I do not think the circumstances surrounding the bringing of the appeal justify such an order in relation to the costs of the appeal.

76 SANTOW JA: I agree with Hodgson JA.

77 BRYSON JA: I agree with Hodgson JA.

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Citations

Aneve Pty Ltd v Bank of Western Australia Ltd [2005] NSWCA 441

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CITATION:	Aneve Pty. Limited & Ors. v. Bank of Western Australia Limited [2005] NSWCA 441
HEARING DATE(S):	19 and 20 September 2005
JUDGMENT DATE:	12 December 2005
JUDGMENT OF:	Hodgson JA at 1; Santow JA at 76; Bryson JA at 77
DECISION:	Appeal dismissed with costs.

CATCHWORDS:	TRADE PRACTICES - Misleading, deceptive and unconscionable conduct - Primary judge not satisfied that alleged representations made, or that, if made, they were relied on - Whether errors or deficiency of reasons shown
CASES CITED:	Briginshaw v. Briginshaw (1938) 60 CLR 336 Helton v. Allen (1940) 63 CLR 691 Watson v. Foxman (2000) 49 NSWLR 315
PARTIES:	Aneve Pty. Limited - 1st appellant Aniello Iannuzzi - 2nd appellant Paraskevi Iannuzzi - 3rd appellant Bank of Western Australia Limited - respondent
FILE NUMBER(S):	CA 40670/04
COUNSEL:	Mr. B.M. Toomey QC with Mr. A.G. Diethelm for appellants Mr. B. McClintock SC with Mr. R.J. Brender for respondent
SOLICITORS:	R.F. Bergagnin & Co., Marrickville for appellants Blake Dawson Waldron, Sydney for respondent

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED1063/03
LOWER COURT JUDICIAL OFFICER:	Palmer J