Campbell v BackOffice Investments Pty Ltd - [2008] NSWCA 95

No judgment structure available for this case.

Appeal Outcome: Special leave granted by the High Court - 26 August 2008

New South Wales

Court of Appeal

CITATION: Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95

HEARING DATE(S): 8 August, 2 October 2007

JUDGMENT DATE:
19 May 2008

JUDGMENT OF: Giles JA at 1; Basten JA at 172; Young CJ in Eq at 224

DECISION: (1) Appeal allowed and cross-appeal allowed in part; (2) Set aside the declaration and orders (1), (2) and (3) made on 29 March 2007 and the judgment for the first plaintiff against the first defendant in the amount of $853,000 given on 13 April 2007; (3) In lieu thereof, order that there be judgment for the first plaintiff against the first defendant in the amount of $850,000 taking effect on 13 April 2007; (4) Appellant pay 90 per cent of respondents' costs in this Court.

CATCHWORDS: CORPORATIONS- Oppression- Sections 232-233 Corporations Act 2001 (Cth)- Share Sale Agreement/Shareholders Agreement/Services Agreement- Whether vendor's conduct in excluding the purchaser of a 50% share in company from the management of the company amounted to oppression- Whether necessary for the oppressive conduct to be continuing at the time of hearing- Whether the trial judge's order of a share buy-out appropriate in light of a provisional liquidator being appointed- (By majority) No order should be made. - MISLEADING OR DECEPTIVE CONDUCT- Whether the vendor's giving of contractual warranty misleading or deceptive- Whether purchaser relied on the alleged misrepresentations- (By majority) Yes- Consideration of proper amount of damages.

LEGISLATION CITED: Corporations Act 2001 (Cth) ss 232, 233
Fair Trading Act 1987 ss 42, 72

CATEGORY: Principal judgment

CASES CITED: Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470
Alati v Kruger (1955) 94 CLR 216
Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568
Aloridge Pty Ltd v West Australian Gem Explorers Pty Ltd (1995) 127 ALR 410
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Bessounian v Australian Wholesale Mortgages Pty Ltd [2007] NSWSC 35
Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426
Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249
Castlemaine Tooheys Ltd v Carlton & United Breweries (1987) 10 NSWLR 468
Club Hotels Operations Pty Ltd v CHG Australila Pty Ltd [2005] NSWSC 998
Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134
Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670
Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60
CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 80 ALJR 458
Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) The Valuer vol vii 299
De Tocqueville Private Equity Pty Ltd v Linden & Conway Ltd; Re Linden & Conway Ltd (2006) 59 ACSR 587
E S Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536
E W Blanch Pty Ltd v Cooper [2005] NSWCA 217
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Fitzgerald v Penn (1954) 91 CLR 268
Fox v Percy (2003) 214 CLR 118
Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] 4 All ER 164
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Gould v Vaggelas (1985) 157 CLR 215
H T W Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640
Henville v Walker (2001) 206 CLR 459
Hewlett Packard Australia Pty Ltd v Siltek Holdilngs Pty Ltd [2005] NSWSC 672
Ho v Powell (2001) 51 NSWLR 572
Hogg v Dymock (1993) 11 ACSR 14
House v The King (1936) 55 CLR 499
Irish Press plc v Ingersoll Irish Publications Ltd [1995] 2 ILRM 270
Jenkins v Supscaf Pty Ltd [2006] 3 NZLR 264
Kent v Commissioner of Taxation (1945) 3 Aust Property LJ 65
Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281
Lam v Ausintel Investments Australia Pty Ltd (1989) 12 ATPR 40-990
Manning Shire Council v Caernarvon Pty Ltd [1977] 1 NSWLR 202
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1
McWilliams Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723
Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz (1992) 34 FCR 348
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274
Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388
Music Sales Ltd v Shapiro Bornsdtein & Co Inc [2006] 1 BCLC 371
O'Neill v Phillips [1999] 1 WLR 1092
Re a Company [1987] BCLC 562
Re a Company (No 002567 of 1982) [1983] 1 WLR 927
Re a Company (No 00477 of 1986) [1986] BCLC 376
Re a Company (No 008126 of 1989) [1992] BCC 542
Re a Company (No 3017 of 1987); Ex parte Broadhurst [1990] BCLC 384
Re Anti-Corrosive Treatments Ltd [1980] ACLC 40-625
Re Astec (BSR) plc [1998] 2 BCLC 556
Re Baumler (UK) Ltd [2005] 1 BCLC 92
Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184
Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648
Re Campbell Tube Products Ltd [1976] 1 NZLR 64
Re Charnley Davies Ltd (No 2) [1990] BCLC 760
Re Chime Corporation Ltd; Nina Kung v Tan Man Kou (2004) 7 HKCFAR 546
Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247
Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588
Re H R Harmer Ltd [1959] 1 WLR 62
Re Hailey Group [1993] BCLC 459
Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042
Re London School of Electronics Ltd [1986] Ch 211
Re Meyer Douglas Pty Ltd [1965] VR 638
Re Polyresins Pty Ltd [1999] 1 Qd R 599
Re Richard Pitt & Sons Pty Ltd (1979) 4 ACLR 459
Re Spargos Mining NL (1990) 3 ACSR 1
Re Tivoli Freeholds Ltd [1972] VR 445
Re Westbourne Galleries Ltd [1971] 2 WLR 618
Reid v Bagot Well Pastoral Co Pty Ltd (1993) 12 ACSR 197
Ross v White [1894] 3 Ch 326
Scottish Cooperative Wholesale Society Pty Ltd v Meyer [1959] AC 324
Smith v Moloney (2005) 92 SASR 498
South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191
Taylor v Anstis [1940] VLR 300
Thomas v H W Thomas Ltd [1984] 1 NZLR 686
Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2005] NSWCA 68
Turnbull v National Roads and Motorists' Association Ltd (2004) 50 ACSR 44
Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459
Webb v Stanfield [1991] 1 Qd R 593
Yazbek v Aldora Holdings Pty Ltd (2003) 45 ACSR 53
Zempilas v J N Taylor Holdings Ltd (No 6) (1991) 5 ACSR 28

PARTIES: Douglas Ronald Campbell (First Appellant)
Sentinel Construction Managers Pty Ltd (Second Appellant)
BackOffice Investments Pty Ltd (First Respondent)
Timothy Andrew Weeks (Second Respondent)

FILE NUMBER(S): CA 40201/07

COUNSEL: A J L Bannon SC and J T G Gibson (A)
J B Simpkins SC and T L Wong (R)

SOLICITORS: Rodd Peters Lawyers (A)
Watson Mangioni (R)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50047/05

LOWER COURT JUDICIAL OFFICER: Bergin J

LOWER COURT DATE OF DECISION: 8 March 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Backoffice Investments v Campbell [2007] NSWSC 161

40201/07

GILES JA
BASTEN JA
YOUNG CJ in EQ
Monday 19 May 2008

CAMPBELL v BACKOFFICE INVESTMENTS PTY LTD

Judgment

1 GILES JA: Healthy Water (NSW) Pty Ltd (“the Company”) carried on the business of selling and maintaining water filtration systems to and for corporate and private customers. The business was established in 1993 by Mr Douglas Campbell, who in 1994-5 incorporated the Company which thereafter carried on the business. As at January 2005 Mr Campbell held the two issued shares in the Company and was its sole director.

2 On 24 January 2005 contracts were signed (“the contracts”) whereby Backoffice Investments Pty Ltd (“Backoffice”), of which Mr Timothy Weeks was shareholder and director, became an equal shareholder in the Company and Mr Weeks became co-director and joint managing director with Mr Campbell. By the share sale agreement Backoffice purchased from Mr Campbell one of the issued shares in the Company for $850,000. By the shareholders agreement Mr Campbell and Mr Weeks “for and on behalf of Backoffice” were to be directors with equal voting power, and were as joint managing directors to have the day-to-day conduct and management of the Company and its business. Two services agreements were signed, one between the Company and Mr Campbell’s company Sentinel Construction Managers Pty Ltd (“Sentinel”) and the other between the Company and Backoffice, by which the two companies were to provide the services of Messrs Campbell and Weeks respectively as joint managing directors in return for fees and other reward payable by the Company.

3 Unless there is reason to do otherwise, I will refer to Mr Campbell and Backoffice intending where appropriate to include Sentinel acting through Mr Campbell and Mr Weeks acting for and together with Backoffice.

4 There had been some rather tempestuous meetings between Mr Campbell and Mr Weeks in the week or so prior to 24 January 2005, and within days thereafter there were conflicts between them which continued and escalated. Solicitors became involved on behalf of Mr Weeks early in February 2005, and by mid-February 2005 solicitors were trading letters in addition to the constant acrimonious communications between Messrs Campbell and Weeks.

5 On 1 April 2005 Backoffice and Mr Weeks began proceedings against Mr Campbell, Sentinel and the Company, in which amongst other relief there was claimed -

(a) on the ground of conduct within s 232 of the Corporations Act 2001, an order that the Company be wound up, or alternatively an order that Mr Campbell repurchase Backoffice’s share at a value to be determined by the Court;

(b) on the ground of misleading or deceptive conduct inducing entry into the contracts, an order declaring the contracts void and for return of the $850,000, or alternatively damages; and

6 On 7 April 2005 an order was made in the proceedings, by consent, whereby a provisional liquidator was appointed to the Company. The Company remained in provisional liquidation until the trial, and for all that appears the provisional liquidator still holds office.

7 The proceedings were heard in November-December 2006, and judgment was delivered on 8 March 2007: Backoffice Investments Pty Ltd v Campbell [2007] NSWSC 161.

8 The trial judge held that there had been conduct within s 232 of the Corporations Act, and ordered that Mr Campbell repurchase Backoffice’s share for $853,000 (“the buy-out order”). The order later became an order that Mr Campbell pay $853,000 to Backoffice, without provision for transfer of the share to him. It is not clear why this occurred, but it need not be explored.

9 Without fully finding whether there had been the incorrect representations said to constitute the misleading or deceptive conduct, the trial judge found that Backoffice did not rely on the representations. Her Honour did not consider whether, if there had been the misleading or deceptive conduct inducing entry into the contracts, avoidance of the contracts was an appropriate remedy. Damages on the ground of misleading or deceptive conduct did not arise and was not considered.

10 The trial judge held that there had been breaches of the share sale agreement and the shareholders agreement in certain respects, but considered that damages should not be awarded for the breaches because damages in addition to the $853,000 to be paid for the repurchase of the share would over-compensate Backoffice.

11 Mr Campbell appealed against the order for payment of $853,000, and Backoffice cross-appealed against the failure of the claims on the ground of misleading or deceptive conduct and to damages for breach of contract. Almost everything in issue at the trial was reprised on appeal.

12 Backoffice said that it was content with the order for payment of $853,000, and only maintained the cross-appeal if the appeal was successful. I consider that the appeal should succeed, but in any event the first question should be avoidance of the contracts on the ground of misleading or deceptive conduct. If they are avoided, the claims to an order for repurchase of Backoffice’s share on the ground of conduct within s 232 of the Corporations Act and to damages for breach of contract do not arise. If the contracts are not avoided, the next question should be repurchase of the share. Either in addition to repurchase of the share or if an order for repurchase is not made, the claims to damages for misleading or deceptive conduct and/or for breach of contract then arise.

Misleading or deceptive conduct – avoidance of the contracts

13 Section 42 of the Fair Trading Act 1987 provides that a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive. I refer to this simply as misleading or deceptive conduct. Section 68 provides that a person who suffers loss or damage “by” conduct of another person in contravention of s 42 may recover the amount of the loss or damage from the other person. By s 72, there may be made in favour of a person who has sustained loss or damage by the contravening conduct such order or orders against the other person as the Court thinks appropriate if the Court considers that the order or orders will compensate the person wholly or in part for the loss or damage. The orders which may be made include one or more of a variety of orders stated in s 72(3), amongst which are an order declaring a contract between the persons void and an order directing the other person to refund money or return property to the person who suffered the loss or damage.

14 In order to obtain an order declaring the contracts void and return of the $850,000, or to obtain damages, it was necessary that Backoffice had suffered loss or damage by conduct of Mr Campbell in contravention of s 42.

15 Backoffice pleaded that there had been misleading or deceptive conduct by making representations. The making of the representations was alleged to have been by -

(a) providing Schedule 3 of the share sale agreement, which comprised a balance sheet for the Company as at 30 November 2004 and a statement of profit and loss for the five months ending 30 November 2004 and was the subject of warranties in the share sale agreement;

(b) providing on or before 11 December 2004 a document stating non-recurring expenses for the period July to November 2004 and operating results for the five months to 30 November 2004; and

16 The representations alleged to have been made by providing these documents were -

(a) although not directly so pleaded, that the balance sheet and profit and loss account in Schedule 3 were correct (the pleading was that Mr Campbell “represented to Backoffice the contents of Schedule 3”);

(ii) that the Company’s EBIT for the five months to 30 November 2004 was $163,590;

(c) (i) that the Company’s estimated sales revenue and EBIT for December 2004 were $100,000 and $37,500 respectively;

(ii) that the Company’s estimated sales revenue for the financial year ended 30 June 2005 was $1,289,582;

(iii) that the estimates were reliable predictions, suitable to be used for estimating the value of the Company;

(iv) that there was no information known to Mr Campbell material to the accuracy of the estimates and which showed or tended to show that they were wrong; and

17 Adopting some of the shorthand used by the parties, I will refer to the representation in (a) as the Schedule 3 representation; to the representations in (b) as the add-backs representation (the non-recurring expenses were added back in arriving at operating results) and the EBIT representation; and to the representations in (c) as the December 2004 estimates representations.

18 The add-backs representation, the EBIT representation and the December 2004 estimates representations were alleged to be continuing representations. It was alleged in substance that the various representations were incorrect and were not corrected or qualified, in the case of the Schedule 3 representation because of the many matters which were said to be breaches of the warranties in the share sale agreement upon which Backoffice in part relied for its claim to damages for breach of that agreement. These breaches were described in the pleading as the Schedule 3 Deficiencies, and included that the non-recurring expenses of $96,100 and the EBIT of $163,590 in the profit and loss account were incorrect.

19 It was alleged that making the representations constituted engaging in misleading or deceptive conduct in contravention of s 42 of the Fair Trading Act, and that Backoffice entered into the share sale agreement, the shareholders agreement and its services agreement, and paid $850,000 to Mr Campbell, in reliance on Schedule 3 and on the truth of the other representations and induced thereby. Backoffice’s case was that but for the misleading or deceptive conduct, it would not have purchased the share at all.

20 A detailed account of the negotiations leading to the purchase of the share can be found in the trial judge’s reasons, and I will not repeat it. The following is a summary.

21 In the latter part of 2004 Mr Campbell engaged Mr Horn of Bato Partners, a merchant bank, with a view to sale of or finding an equity investor for the Company. Mr Horn prepared an information memorandum. It included financial summaries in relation to gross sales and EBIT for 2001-2004 and budgeted gross sales and EBIT for 2005, and proposed a value of the business “for ‘asking price purposes’” of $2,250,000.

22 Mr Weeks was provided with a copy of the information memorandum. He undertook a due diligence process, assisted by a chartered accountant, Mr Phil Raby. The process did not enable complete substantiation. Mr Weeks asked Mr Horn for the profit and loss accounts for July to November 2004 and the November 2004 balance sheet. From this came the provision in early December 2004, amongst other financial information, of the documents in (b) and (c) earlier referred to. There were various discussions between Mr Weeks and Mr Horn.

23 On 14 December 2004 Mr Weeks made an offer to purchase the share in the Company. It was based on EBIT and expressly upon “the operational results provided for the Company as tabled above (adjusted but unsupported)”, and the table calculated three and four times EBIT for the years 2001 to 2004 and as estimates for 2005. The four times EBIT for 2005 was $1,600,000, and the offer said that “the value of 100% of the Company is around $1.6M - $1.7M tops”. The offer was $850,000 with a performance bonus to be paid to Mr Campbell if the forecast level of profitability was exceeded.

24 Mr Campbell wanted the bonus payable earlier, and Mr Weeks produced a revised offer on 16 December 2004 of the same amount but with a different performance bonus regime. The offer was again said to be “[b]ased upon the operational results provided for Healthy Water, which form part of this offer” and said that the value of the Company was estimated to be $1,700,000.

25 On 22 December 2004 Mr Weeks sent to Mr Horn a “P & L Forecast” as a “summary of the various information provided”. Mr Weeks advised that “these numbers are the basis” of the offer he had made to purchase the 50 per cent share in the Company, and said:

26 The share sale agreement when prepared included warranties as to the Schedule 3 documents.

27 For the moment I pass over the trial judge’s consideration of the Schedule 3 representation. Her Honour’s findings as to the other representations were as follows.

28 The trial judge was not satisfied that the add-backs representation had been made. Her Honour found that Mr Weeks was told that the relevant part of the document was Mr Campbell’s estimate, and that there was not the firm statement of a specific amount as pleaded. She found that in any event Mr Weeks did not rely on the representation, expressing her conclusion -

“237 I am satisfied that Weeks was, as he said, “concerned” about these estimates. He did not rely upon them but went about trying to obtain documentary support for them. When that proved futile he decided that rather than rely upon them, he would rely upon a statement of warranty by Campbell in the Share Sale Agreement. ... That is why Weeks abandoned his quest to arrive at a conclusion that he could rely upon them and opted instead for the contractual warranty.

238 I have referred to Weeks’ evidence in relation to the way in which he structured his offer to purchase the share in the Company in the section of this judgment below dealing with the Sales Revenue Report. The observations I have made in relation to that offer apply equally to this alleged representation. Weeks did not rely upon these estimates. He structured his offer to ensure that if the estimates turned out to be wrong, he was, as he put it, ‘protected’ from having to pay an extra $300,000 to Campbell by way of performance bonus.”

29 The trial judge then considered the December 2004 estimates representations. Her Honour found that Mr Campbell knew prior to 24 January 2005 that the actual results for December 2004 were less than the estimates, the management accounts showing sales revenue for December 2004 at $92,000 when the estimate was $100,000, and that he knew that Mr Weeks did not know of that difference. She did not, however, come to a concluded view as to the representations, saying -

“260 There are real issues in relation to the representations that are alleged to have been made by the provision of the Sales Revenue Report to Weeks in December 2004. There is also the issue of whether the representations were continuing up to the date of execution of the Agreements on 24 January 2005. I will assume for the purposes of this analysis that there was a representation that Campbell knew of no information that was material to the accuracy of the estimates in the Sales Revenue Report, which tended to show that they were false, misleading or deceptive. I will assume for the purposes of this analysis that the representation was false.”

30 The trial judge was not satisfied that Mr Weeks had relied on the representation so assumed, concluding a lengthy consideration -

“269 Weeks is a sophisticated businessman with the capacity to review financial records and make judgments about the prospects of a business, using his commercial common sense to his own advantage. That is what he did in making his offer to purchase the share in the Company. I am satisfied that the evidence extracted above establishes that Weeks did not rely upon the estimated sales figures in the Sales Revenue Report. Rather, it establishes that Weeks doubted those figures to the point that he built in a protection for himself if the figures were not achieved. That was a “protection” that was included in clause 6.2 of Sentinel’s Service Agreement, that provided for a “Performance Bonus based upon the Company’s profitability, of up to $300,000” to be paid to Sentinel only if there was “Available Profit”. I am not satisfied that Weeks relied upon the representation as pleaded.”

31 The trial judge then returned to the EBIT representation, and said -

“270 The plaintiffs also claimed that in providing the financial documents to Weeks in December 2004, Campbell represented that the Company had an EBIT (after adjustment for the add-backs) for the 5 months to 30 November 2004 of $163,590. Without deciding on whether the representation was made, the observations I have made in relation to the Add Backs document and the Sales Revenue Report and the structure of Weeks’ offer, also apply to this alleged representation.”

32 The trial judge concluded this part of her reasons -

“271 I am satisfied that Weeks and/or Backoffice did not rely upon the representations. The plaintiffs’ claim of misleading or deceptive conduct fails.”

33 The trial judge gave extensive reasons for her conclusions that Mr Weeks had not relied on the add-back representation, the EBIT representation and the December 2004 estimates representations, with reference to evidence given by Mr Weeks. On a reading of the reasons as a whole, and culminating in the reliance on contractual warranty and built-in protection, she came to the conclusions because -

(i) Mr Weeks had the academic qualifications and business experience by which he could review financial records, including their weaknesses, and assess for himself the prospects of success of a business;

(ii) the financial information initially provided to Mr Weeks in the information memorandum contained disclaimers of accuracy and reliability;

(iii) the non-recurring expenses figure was understood by Mr Weeks to be an estimate and he abandoned the quest to be satisfied;

(iv) the sales revenue figures the subject of the December 2004 estimates representations were also estimates, and Mr Weeks was “not happy to rely on” them (at [264]) without checking but was unable to check them;

(v) Mr Weeks was optimistic about the Company’s prospects;

(vi) in cl 7.4 of the share sale agreement Backoffice acknowledged that it had availed itself of the opportunity of inspecting “the Company and its Assets” and that it had “relied upon its own conclusions as to the Company and its Assets arising out of those inspections”;

(vii) Mr Weeks had conducted an extensive due diligence with the assistance of his accountant, albeit without obtaining satisfaction as to the non-recurring expenses estimate or being able to check the sales revenue estimates;

· built in protection for himself if the forecast level of profitability was not achieved, by the bonus provision in Sentinel’s services agreement; and

· initiated discussions leading to the warranties in the share sale agreement.

34 Amongst the evidence recited by the trial judge was, in relation to the non-recurring expenses figure, that Mr Weeks said that he needed “some kind of comfort level” and thought “If I can’t have an accounting comfort level or a documentary comfort level, I need some other kind of comfort level and initiated the warranty discussion”. In relation to the protection, the evidence recited was that in making his offer with a performance bonus to be paid to Mr Campbell (through Sentinel) only if there was available profit, Mr Weeks said -

35 Backoffice submitted that, on a proper understanding of his evidence, Mr Weeks obtained the warranty principally to ensure that he could continue to rely on the estimates provided to him, and that the estimates remained material to him notwithstanding that he sought to protect himself against the possibility that they were inaccurate. There was no inconsistency, it submitted, between obtaining a warranty of correctness and belief that the information is correct. It referred in particular to Mr Weeks’ evidence, given in relation to the non-recurring expenses, that the estimate mattered to Mr Weeks because it represented more than 50 per cent of the profitability of the Company and he did not believe that the estimate was “out”; and Mr Weeks’ evidence concerning relying on the warranty was in fact -

36 As to the protection by the bonus provision, Backoffice pointed out that the estimated sales revenue and EBIT figures for December 2004 were incorporated into calculations Mr Weeks made when coming to the price he was prepared to pay for the share in the Company. It said that the protection was against failure to achieve the level of profitability forecast in the original information memorandum, which was higher than that in the December 2004 estimates, not because of doubt about the later figures incorporated in the calculations; and that the fact that Mr Weeks could not obtain documentary support for the latter figures did not mean that he did not rely on them in determining whether to proceed with the purchase.

37 The statutory test of causation in s 68 of the Fair Trading Act is embodied in the word “by”. In Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 525 Mason CJ and Dawson, Gaudron and McHugh JJ said of the equivalent s 82 of the Trade Practices Act 1974 (C’th) -

March v Stramare (E & M H) Pty Ltd

38 Reliance on a representation is a commonly expressed way of inquiring into loss or damage by conduct contravening the proscription on engaging in misleading or deceptive conduct. In Wardley Australia Ltd v The State of Western Australia their Honours went on to say, at 525, that when concerned with contravention in the form of misleading or deceptive conduct constituted by misrepresentation -

“In this situation, as at common law, acts done by the representee in reliance upon the misrepresentation constitute a sufficient connexion to satisfy the concept of causation.”

39 It should nonetheless not be forgotten, in determining reliance, that the essential question is causation. Causation in law is not a scientific matter, but was said in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 515, repeating from Fitzgerald v Penn (1954) 91 CLR 268 at 277-8, to be “ultimately a matter of common sense”.

40 Causation in a statutory context must be determined in the light of the subject, scope and objects of the statute, see for example Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) HCA 26; 221 CLR 568 at [41] per McHugh J; [99]-[100] per Gummow, Hayne and Heydon JJ, and with identification of the purpose of the enquiry into causation (ibid at [97] per Gummow, Hayne and Heydon JJ). In Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [135] McHugh J observed, in connection with causation when determining the loss or damage suffered by conduct contravening the Trade Practices Act, that “[t]he purposes of the Act include promoting fair trading and protecting customers from contraventions of the Act”.

41 Those purposes are material in determining reliance as the enquiry into causation. In a passage since frequently applied, Wilson J said in Gould v Vaggelas (1985) 157 CLR 215 at 236 that if a material misrepresentation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract, there arises a fair inference of fact that the person was induced to do so by the representation; his Honour said that the representation need not be the sole inducement, and it is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract. Wilson J exemplified as circumstances rebutting the inference that the person knew the true facts and that they were true, or “made it plain that whether he knew the true facts or not he did not rely on the representation”. He spoke at 238 of the plaintiff “either by his words or conduct disavow[ing] any reliance on the fraudulent representation”.

42 However, lack of reliance can be found beyond overt words or conduct. An illustration is Lamv Ausintel Investments Australia Pty Ltd (1989) 12 ATPR 40-990, where it was found that the plaintiff did not enter into a subordination agreement in consequence of misleading or deceptive representations, but because he saw it as in his own interests to do so dictated by the pressure he was under from his creditors. The plaintiff was regarded as an unreliable and unsatisfactory witness, and his assertion of reliance was rejected. He could avert forced sale of his hotel only if he entered into the subordination agreement, he regarded himself as having no practical choice in the matter, and the judge found that “the precise arithmetical arguments now urged on me were of no significance to Lam at the time”.

43 On the other hand, there may be reliance notwithstanding doubt about the representation. An illustration is Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2005] NSWCA 68. Transglobal represented that there were good prospects in a capital raising. The directors and shareholders of Yolarno were family members. They decided to go ahead with the capital raising. Yolarno’s founder and ultimate controlling shareholder, Mr J R McDonald, distrusted the representation, having a “gut feeling”, but felt “out of his league” and while voicing that “it would be Disneyland time” let the other family members go ahead. Brownie AJA, with whose reasons Handley and Hodgson JJA agreed, said -

“13 That is, JR did not know the true position, namely that the fact that the respondent’s business was meat processing was an important, if not very important factor for the consideration of potential investors, and others necessarily involved in the proposed IPO. He distrusted the representation, but that was all, and assuming for the moment that his state of mind represented the respondent’s state of mind, this is an insufficient basis for the appellant to succeed, in resisting the claim under the Trade Practices Act : Haas Timber and Trading Company Pty Ltd v Wade (1954) 94 CLR 593, 601 and Gould v Vaggelas (1984) 157 CLR 215, 228.

…

44 Reliance can itself be a difficult concept, and is not a substitute for the essential question of causation. It may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known: see Smith v Maloney (2005) 92 SASR 498 at 514-5 and Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 at [161]. Of particular significance to the present case, causation may be found notwithstanding that any belief in a representation is qualified by doubt, and even when the representee seeks to protect itself against the possibility that the doubt is justified. If the representation still operates on the representee’s action or inaction which occasions loss or damage, the loss or damage is suffered by the misleading or deceptive conduct, notwithstanding that the label of reliance may not appropriately describe what occurred.

45 That Mr Weeks was concerned about the estimates which included the add-backs representation, and sought to obtain documentary support for them, did not mean that they played no part in Backoffice’s purchase of the share. Concern to the point of disregarding the estimates may have had that consequence. But they were not disregarded, they were part of arriving at profitability and EBIT, and when documentary support could not be obtained a warranty was obtained. When Mr Weeks said that he “initiated the warranty discussion” when he could not have “an accounting comfort level or a documentary comfort level” and needed “some other kind of comfort level”, that did not exclude regard to (in that case) the add-backs figures as represented, albeit without the accounting or documentary comfort. Obtaining the warranty suggested reliance, if that language be used, in that when the estimates could not be objectively verified Mr Weeks wanted the assurance of a warranty in addition to Mr Campbell’s say-so; but it would not be likely that he went ahead in the expectation of an action claiming damages for breach of the warranty. Similarly as to the EBIT representation. I respectfully have difficulty with the trial judge’s statement at [237] that Mr Weeks decided to rely on the warranty rather than rely on the representations. While in some fact situations reliance may be on the one rather than the other, they are not mutually exclusive, and I do not think the evidence warranted a finding of exclusive or dominant reliance on the warranty.

46 The protection which the trial judge considered Mr Weeks had built in is also, in my view, not destructive of reliance, and left the representation causally operative in Backoffice’s purchase of the share. Protection if the various representations were not borne out was consistent with the representations contributing to Backoffice’s purchase. The dot point referred to in the passage from Mr Weeks’ evidence earlier set out, which the trial judge considered significant, was concerned with a performance bonus if performance exceeded the then forecast profitability. It was really not protection in the event that the Company turned out to be worth less than if the representations were borne out; rather, Mr Campbell would receive more by way of a bonus paid to Sentinel if profitability exceeded the then forecast profitability. It may be that Backoffice would receive less in dividends, and in that way pay more, because a bonus was paid to Sentinel, but that would be consistent with the representations being borne out. As Mr Weeks said, if the Company exceeded his expectations “then there was a potential up side but I didn’t think there was”. Even if the bonus provision suggested that Mr Weeks had general doubt about the reliability of the figures, particularly for estimated sales revenue and earnings, the figures as represented were still material to his decision that Backoffice would purchase the share.

47 Mr Weeks had the ability both to review financial records and to assess the prospects of success of a business, but it is plain from the evidence that his primary regard in assessing the prospects of the Company’s business, and more particularly the value of the business for the purchase of a share in the Company, was to financial information. It stands out in the evidence that he was a numbers man. He was optimistic about the Company’s prospects, and saw ways in which he thought the profitability of the business could be increased, but on my reading of the evidence there is no basis for concluding that his enthusiasm was such that he paid no regard to the financial information provided to him. On the contrary, he was calculating (in a literal sense) in the offers made to purchase the share.

48 On the evidence as a whole, in my opinion the representations remained causally operative. Backoffice was paying for a share in the Company, not for a cause of action against Mr Campbell for breach of warranty. The non-recurring expenses went to profitability, and the revenue and EBIT figures were directly important to Mr Weeks’ calculations of the value of the Company. The representations were calculated, in the sense used by Wilson J, to induce Mr Weeks to purchase the share. Respectfully differing from the trial judge, I do not think that the inference thus arising was displaced, and I consider that the representations played a material part in Backoffice’s purchase of the share.

49 It is then necessary to return to the making of the representations and whether they were incorrect, and to whether there was causation in that the share would not have been purchased at all or would have been purchased for a lesser price if Mr Weeks had known the true position.

50 It is unclear whether the trial judge was not satisfied that the EBIT representation had been made, as well as not being satisfied that the add-back representation had been made. Both representations were through the same document, and the EBIT figure was affected by the non-recurring expenses which Mr Weeks was told was Mr Campbell’s estimate (“you know, plus or minus a few thousand dollars”), and so I conclude that the lack of satisfaction was as to both representations.

51 But it does not seem to me that, other than at a pleading level, being told that the figures were estimates negated misleading or deceptive conduct by their provision. That they were estimates was relevant, but representations were still made. Pleading points were not overlooked in the trial, but as a pleading point I do not think this was of substance when the document spoke for itself and the qualification as an estimate was relatively slight. Again respectfully differing from the trial judge, I consider that representations were made on which it was open to Backoffice to rely in the proceedings.

52 The trial judge dealt with the non-recurring expenses in her consideration of damages for breach of the warranties in the share sale agreement. The profit and loss statement in Schedule 3 arrived at an adjusted operating profit of $163,078.99 for the five months ending 30 November 2004 after adding back non-recurring expenses of $96,100. The non-recurring expenses were as in the document provided in December 2004, and the question for breach of warranty was whether “to the best of [Mr Campbell’s] knowledge” the $96,100 was “materially accurate and complete and not misleading” (cl 10.2 in Schedule 1).

53 The document provided in December 2004 relevantly read -

Non-recurring expenses:

Obsolete inventories
Rental stocks included in books as inventory at original cost, although for accounting/tax purposes, they are written off at replacement cost at the expiration of the rental periods.
Replacement cost averages 20% higher than original cost	$2,000
Consulting fees
Balto Partners	$16,000
Doug Campbell
Current annual salary	120,000
Motor vehicle allowance	16,000
General expense allowance	10,000
“Business” expense allowance	60,000
Credit card reimbursement ($5,000/$6,500 pmth)	65,000
(All of the above are paid monthly)	271,000
Estimated salary for general manager/$1 million turnover business	85,000
Excess per annum	186,000
5 months to 30/11/05	$77,500

54 Backoffice alleged breach of warranty in that the estimate of non-recurring expenses included -

(i) obsolete inventories;

(ii) the general expense allowance;

(iii) the business expense allowance; and

55 The trial judge accepted that the item for obsolete inventories in the estimate “suffers from … flaws of description” (at [198]), and that what it referred to was the utilisation of stock otherwise written off. She said (at [198]) that this “falls more appropriately into the category of the usual operations of the Company rather than of a non-recurring expense” and that she was “satisfied that the item for obsolete inventories was not accurately described as a ‘non-recurring expense’.”

56 On the basis that the general expense allowance was for telephone and travel reimbursements to Mr Campbell, the trial judge said of the views of two expert accountants -

“201 Mr Gower expressed the view that there should be no amount added back for general expenses. He identified the expense as one relating to telephone and travel reimbursements to Campbell. He expressed the opinion that the payment of such expenses of business executives is usual business practice. He considered it was reasonable to assume that such reimbursements would continue to be paid in the ordinary course of business.

202 Mr Russell expressed the view that $4,778 (and not $4,167, as included in the schedule) should be added back as a non-recurring expense. Mr Russell’s conclusion was based on the instruction that the amount of $4,778 represented undocumented telephone and travel claims paid to Campbell. Mr Russell’s reasoning to characterise this item as a non-recurring expense seems to have been based solely on the fact that Campbell had not provided any substantiation or supporting documentation for these claims. The sloppiness of Campbell’s approach to these claims does not mean that they were not incurred for travel and telephone expenses. I understand that Mr Russell formed the view that such expenses, if unsubstantiated, should not be allowed, but on the methodology adopted it does not mean that such expenses (properly substantiated) would not recur. However, it seems to me that Mr Russell’s approach to these particular amounts as properly added back should be preferred.”

57 The trial judge found unsatisfactory Mr Campbell’s evidence of what the business expense allowance was. She resolved the matter -

“207 Mr Gower conducted a detailed review of all of the expenses posted in the Company’s MYOB system for the five months to 30 November 2004. Mr Gower was unable to identify any payments amounting to $25,000 paid to Campbell which could be regarded as a ‘business’ expense allowance. Mr Gower did identify ‘financing costs’ amounting to $25,000 paid to Campbell in that period. Both Mr Gower and Mr Russell agreed that it would be incorrect to allow for an add back adjustment for $25,000 of ‘financing costs’ paid to Campbell, because it was not reflected as an expense in the warranted profit and loss statement. Mr Gower concluded that the expenses listed by Campbell largely reflected ordinary business expenses and were not appropriate to be characterised as non-recurring expenses required to be added back.

58 Going finally to credit card reimbursement, on reviews of Mr Campbell’s credit card expenditure Messrs Gower and Russell identified private expenditure which should be added back because non-recurring expenditure; in Mr Gower’s case $22,937 out of the $65,000 and in Mr Russell’s case $25,720. The trial judge said (at [210]) -

“What is clear from the experts’ evidence is that some part of the amount for this item should not have been added back, however it is not necessary to decide the specific amount because of the conclusion I have reached as to whether Campbell committed a breach in this instance.”

59 As to that conclusion the trial judge said, it seems referring to all four items in issue in the estimate of non-recurring expenses and not just credit card reimbursement -

“213 The question for decision in relation to the estimates of the add-backs or non-recurring expenses is whether the plaintiffs have proved Campbell breached clause 10.2, that is, whether the plaintiffs have proved that Campbell knew that the estimates in the add-backs document were inaccurate, incomplete and/or misleading.”

60 Her Honour’s ultimate conclusion was -

The New Oxford Dictionary of English,

218 The evidence establishes that Campbell made the estimates in a less than disciplined manner, but that does not equate to knowledge that the estimates were inaccurate or incomplete and/or misleading. Campbell’s evidence in relation to the preparation of these estimates was unsatisfactory in the respects identified above, but I am not satisfied that the plaintiffs have discharged the onus of proving that Campbell knew the estimates were inaccurate or incomplete and/or misleading. The plaintiffs’ claim that Campbell breached the warranty in clause 10.2 in relation to the add-backs fails.”

61 The trial judge’s ultimate conclusion turned on Mr Campbell’s knowledge, an ingredient in the warranty. It is an ingredient in misleading or deceptive conduct so far as the figures were estimates, but if the figures were incorrect as estimates there was misleading or deceptive conduct; the ultimate conclusion as to breach of the warranty does not govern a finding as to conduct in contravention of s 42.

62 On the trial judge’s findings, the figures were incorrect in relation to obsolete inventories ($2,600), and credit card reimbursement (circa $40,000), but not the general expense allowance or the business expense allowance. On the findings, there was misleading or deceptive conduct; the obsolete inventories figure was not a non-recurring expense at all, and the figure for credit card reimbursement was excessive well beyond an allowance for estimation.

63 Mr Campbell did not directly challenge on appeal the underlying findings that the obsolete inventories figure was not a non-recurring expense and that the figure for credit card reimbursement was excessive. He submitted, however, that minds could differ as to reasonable add-backs (instancing the differences of opinion of Messrs Gower and Russell), and that both experts considered that there should have been a “negative add-back” of $14,500 because of the sale of a motor vehicle, the income from which had been otherwise disclosed in the accounts. It was said that total add-backs going close to the $96,100 could reasonably be seen, and that in his calculations for earlier years Mr Weeks had arrived at add-backs in broadly comparable figures. I do not think that the first is correct or that calculating for earlier years answers the incorrectness found by the trial judge.

64 Backoffice challenged on appeal the trial judge’s conclusions in relation to the general expense allowance, the business expense allowance and (as to amount) the credit card reimbursement.

65 As to the general expense allowance, it said that Mr Campbell had not given evidence that telephone and travel expenses were incurred through the Company for non-business purposes, so that Mr Russell’s instructions were unsupported, and that the expenses would recur even if not substantiated by documentation, so that Mr Russell’s reasoning was incorrect. In my opinion there is substance in this, and evidence from Mr Campbell was necessary to explain why the general expense allowance of $10,000 was not something which would recur as part of usual business practice.

66 As to the business expense allowance, Backoffice’s submissions came down to saying that Mr Gower’s opinion was the better one. The trial judge did not choose between the opinions, but considered that the unsatisfactorily explained add-back would not recur when Mr Campbell was not in sole control, at least in part it seems because of the absence of satisfactory explanation. It was for Backoffice to establish that the figure was an incorrect estimate, and the trial judge’s conclusion was in substance that it had not done so. The detail of Backoffice’s submissions does not persuade me that such a conclusion was wrong.

67 As to credit card reimbursement, Backoffice submitted that Mr Russell’s figure for private expenditure was founded on an unreliable classification of credit card debits made by Mr Campbell. The reasons for unreliability, apart from Mr Campbell’s general credibility, were quite petty, and the difference between Mr Gower and Mr Russell was not of great significance. I do not regard them as material to an estimation.

68 To the trial judge’s findings there should be added that the figures were incorrect in relation to the general expense allowance ($10,000). The total misrepresentation was of the order of $52,000 for the five month period, or $37,500 if account be taken of the $14,500.

69 The EBIT for the five months to 30 November 2004 was not dealt with as such in the consideration of damages for breach of warranties in the share sale agreement. The EBIT of $163,590 was the figure for operating results “as per Management Accounts” plus the added-back $96,100. It was pleaded that it was incorrect because of the adding-back and failure to disclose the $14,500 from the sale of the motor vehicle. The EBIT representation was therefore incorrect in the same manner as the add-backs representation.

70 I go then to the December 2004 estimates representations. The trial judge at [260] assumed a representation that Mr Campbell knew of no information “that was material to the accuracy of the estimates … which tended to show that they were false, misleading or deceptive”, and that the representation was false.

71 The trial judge referred to “real issues” in relation to the December 2004 estimates representations, apparently their nature as estimates. The representations were made by provision of documents. They were plainly enough estimates, because round numbers were used and line items were pro rata figures obtained by applying a derived percentage for the past to the round figures. This certainly gave point to estimation, but it remained that the figures were put forward as estimates for which there was a sound basis.

72 By 24 January 2005 Mr Campbell knew that actual results were less than those estimated. While the trial judge noted “the issue of whether the representations were continuing up to the date of execution of the Agreements on 24 January 2005”, there does not seem any reason why they were not continued when left uncorrected by Mr Campbell although he came to know that the actual result was less than the estimate. The question is not continuance, but whether there was misleading or deceptive conduct, and in my opinion, there was misleading or deceptive conduct.

73 On the findings made by the trial judge, her assumptions were justified. Mr Campbell knew that Mr Weeks would be interested in the actual sales revenue for December 2004; the trial judge noted that he volunteered that the comparison would be material to a purchaser. Mr Campbell said he gave the information to Mr Horn to be passed on to Mr Weeks, but this evidence was not accepted. Leaving the estimated sales revenue for December 2004 uncorrected, knowing that Mr Weeks did not know that the actual sales revenue was less, would leave Mr Weeks with an incorrect understanding of the Company’s trading. The difference of about $8,000 when extended beyond the one month was not trivial. In my opinion, there was misleading or deceptive conduct in this respect in providing the documents and leaving them to stand as estimates.

74 By the misleading or deceptive conduct, then, the Company’s earnings for the five months to 30 November 2004 were represented to be estimated at about $37,500 or $52,000 more than a correct estimate, and the representation of EBIT for December 2004 was consequently falsified. As to future earnings, the estimates for December 2004 and to July 2005 were falsified and put in doubt to the extent of about eight per cent of the estimate. This would markedly impact on the EBIT on which the offer to purchase the share was based.

75 Mr Weeks detailed in his affidavit evidence how he came to the offered $850,000, and what difference it would have made to him had he known of various matters including those the subject of the representations this far considered. The thrust was that the various matters would each have caused him not to purchase the share because reduced profitability of the Company or less net tangible asset value would have meant that it could not meet its expenses or liabilities. Mr Weeks was not cross-examined to any extent on these assertions – the cross-examination was at the more general level of lack of reliance apparent from what I have said earlier in these reasons. Neither Mr Campbell nor Backoffice presented on appeal a critique of this evidence.

76 The evidence included that Mr Weeks would not have purchased the share if add-backs of approximately $20,000 or more were erroneous, and that he would not have purchased the share if he had known that the estimated December 2004 sales revenue and EBIT were overstated as in substance they were. I have departed from the trial judge’s finding as to reliance and, consider that I can pay regard to this evidence; I should say that having so departed, I do not see in the trial judge’s reasons occasion for the appellate deference to credibility-based findings considered in cases such as Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 and CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 80 ALJR 458. In my opinion, there was causation in the misleading or deceptive conduct thus far considered in that the share would not have been purchased at all if Mr Weeks had known the true position. If Backoffice suffered loss or damage in its purchase of the share, the loss or damage was suffered by conduct of Mr Campbell in contravention of s 42 of the Fair Trading Act.

77 I return to the Schedule 3 representation.

78 The trial judge did not deal expressly with misleading or deceptive conduct in relation to the Schedule 3 representation. It was touched upon when, in considering the EBIT representation, her Honour observed at [234] that Backoffice “repeated the claims made about this document that were made in the breach of warranty claims”, and continued -

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd

Trade Practices Act

Fair Trading Act

79 Backoffice submitted in its written submissions that the trial judge was in error in stating that it was not claimed that the warranties given by Mr Campbell in the share sale agreement were misleading or deceptive, and that the evidence supported that Mr Weeks had relied upon “the representations made in the warranted profit and loss statement and warranted balance sheet”. It said that the add-backs representation and the EBIT representation “were continued and not abated by the inclusion of the same representations in the warranted profit and loss statement and warranted balance sheet”, and that the profit and loss statement and balance sheet comprising Schedule 3 were also misleading and deceptive by reason of the Schedule 3 Deficiencies.

80 Mr Campbell did not respond to the submission that the trial judge had omitted to deal with Backoffice’s case of misleading or deceptive conduct through the provision of Schedule 3. The written submissions made to the trial judge were not before us. Transcript containing oral submissions speaking to them was before us, but was not particularly informative on this point. On my reading, it tends to support that Backoffice maintained a case of misleading or deceptive conduct through the provision of Schedule 3; in particular, its counsel said, after speaking to the breaches of warranty (T573) -

“That is our case essentially on breach of warranty. As your Honour will appreciate we also have a misleading and deceptive conduct case where these elements also figure, but as representation in relation to what the particular faults might be of the statement.

…

81 However, it may be that the case so maintained by Backoffice was limited. Backoffice’s written submissions on appeal asserted, as the basis for the trial judge’s error in stating that it was not claimed that the warranties given by Mr Campbell in the share sale agreement were misleading or deceptive, that -

“121 The Respondents were seeking to rely upon a course of conduct, which commenced with the provision of the 2004 Add-Backs and the 30 November 2004 Results, and culminated in the same representations being made in the warranted profit and loss statement and the warranted balance sheet.

122. For the reasons demonstrated in the context of the breach of warranty claims, both the 2004 Add-Backs and the 30 November 2004 Results were misleading and deceptive, which conduct continued and was not abated by the inclusion of those same representations in the warranted profit and loss statement and the warranted balance sheet.”

82 If this was the case put to the trial judge, the Schedule 3 representation was confined to repetition of the add-backs representation and the EBIT representation, and did not extend to any other of the Schedule 3 Deficiencies.

83 There is a difficulty in what is said in [235]-[236] of the trial judge’s reasons set out above. It was relevant to Mr Weeks’ reliance on the EBIT representation that the EBIT of $163,590 was in the warranted profit and loss account, because Mr Campbell could argue (and did argue successfully at trial) that Mr Weeks so doubted the figure that he “abandoned his quest to arrive at a conclusion that he could rely upon [it] and opted instead for the contractual warranty” (at [237]). But the support sought from Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 had to be a different matter, not truly support for misleading or deceptive conduct through provision of the document stating non-recurring expenses for the period July to November 2004 but rather concerned with an occasion of independent misleading or deceptive conduct through giving the warranties.

84 In Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd it was held by the majority that giving a contractual warranty could constitute engaging in misleading or deceptive conduct. Their Honours pointed out that “conduct” was not confined to representation, and that by s 4(2) of the Trade Practices Act conduct included making or giving effect to the provision of a contract: s 4(4) of the Fair Trading Act is to the same effect. That is, if giving a warranty was misleading or deceptive – which is not necessarily the same as the warranty being breached – there could be conduct contravening s 52 of the Trade Practices Act or s 42 of the Fair Trading Act. But a contractual promise does not necessarily constitute misleading or deceptive conduct, see McWilliams Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 and Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670.

85 The support sought may have been intended to answer an argument that reliance on the EBIT representation was precluded by the inclusion of the EBIT figure in the warranted profit and loss account. If so, the answer was by assertion that a like representation was made as part of the Schedule 3 representation. From the last sentence in [236], in particular, it may be that the trial judge was not fully apprised of the case Backoffice intended to put. If it was put as in the written submissions on appeal earlier set out, it is understandable that her Honour’s attention was focussed on the add-back representation and the EBIT representation, without seeing independent significance in like representations as part of the Schedule 3 representation.

86 However, I do not think that any misunderstanding there may have been matters for the cross-appeal.

87 The pleading rather inelegantly alleged that Mr Campbell “represented to Backoffice the contents of Schedule 3 of the Share Sale Agreement”. The pleading was not that giving the warranties in the share sale agreement in relation to the balance sheet and profit and loss account in Schedule 3 was contravening conduct, but that providing Schedule 3 was the contravening conduct.

88 If Mr Weeks relied on the add-back representation, the EBIT representation or the December 2004 estimates representation, the repetition of the add-back representation and the EBIT representation through the provision of the profit and loss account part of Schedule 3 did not detract from the causal effect of that misleading or deceptive conduct. The repetition confirmed the material on which Mr Weeks was already relying; so far as the provision of the profit and loss account represented the correctness of the relevant figures, estimation took second place, and there was to be the added support of a warranty. The repetition by the Schedule 3 representation was not necessary in order that conduct contravening s 42 of the Fair Trading Act be established, even if it equally gave rise to contravening conduct, and would not add to Backoffice’s position thus far in the cross-appeal.

89 Further misleading or deceptive conduct because of other matters said to be breaches of the warranties in the share sale agreement, being the remainder of the Schedule 3 Deficiencies, also would not in the light of my conclusion in [76] above add to Backoffice’s position thus far in the cross-appeal. There is no occasion to go into it.

90 As I have said, Backoffice claimed an order avoiding the contracts and return of the $850,000. The trial judge did not consider whether, if misleading or deceptive conduct had been established causally operative upon entry by Backoffice into the contracts, it would be appropriate so to order. That must now be considered.

91 An order pursuant to s 72 of the Fair Trading Act may be made if the court finds that a person “has sustained, or is likely to sustain, loss or damage” by contravening conduct, and can be made only if the court considers that the order “will compensate … wholly or in part for the loss or damage or will prevent or reduce the loss or damage” (s 72(1)). Prevention or reduction of future loss or damage did not arise in the present case. What was Backoffice’s suffered loss or damage?

92 If the loss or damage was the difference between the value of the share and what Backoffice paid for it, on the valuation of the share in the Company at which the trial judge arrived for the buy-out order, Backoffice did not suffer loss or damage. The trial judge valued the share as at 24 January 2005 at $853,000, some $3,000 more than Backoffice paid for it, and Backoffice received full value for what it paid. Mr Campbell challenged the trial judge’s valuation in his appeal, but for obvious reasons Backoffice stood by it.

93 Backoffice submitted that its loss or damage was not the difference between the value of the share and what it paid for it, but the complete loss of its investment of $850,000. I come to that, and to the value of the share, later in these reasons. For the present, it is sufficient that I consider that Backoffice did suffer loss or damage; but for the reasons now given I do not think an order should be made avoiding the contracts and for return of the $850,000.

94 It is necessary to say more of the provisional liquidation and the sale of the Company’s business and assets.

95 On 31 March 2005 Mr Campbell’s solicitors wrote to Mr Weeks’ solicitors saying that there had “occurred a loggerheads in the management of the company” and that senior counsel had advised that the Company should be placed into voluntary administration. The letter enclosed proposed minutes of a meeting of directors of the Company, signed by Mr Campbell, resolving that in the opinion of the directors the company “is insolvent, or is likely to become insolvent at some future time” and that it should be placed into voluntary administration. The solicitors said that if they did not receive the minutes signed by Mr Weeks by 1 April 2005 they held instructions to approach the Court to seek the urgent appointment of a provisional liquidator.

96 Mr Weeks’ solicitors replied, also on 31 March 2005, saying that Mr Weeks knew of no reason why the Company should be considered to be insolvent or likely to become insolvent in the future, but offering to review its solvency if access to the Company’s financial records was restored. They said that if Mr Weeks came to that view, he would agree to the necessary resolution.

97 Mr Campbell’s solicitors responded on 1 April 2005, saying that Mr Campbell did not contend that the Company was then insolvent “but it is his contention that it will soon become so as a result of the frozen bank overdraft facility and the general inability of the two directors to agree on any matter including the signing of cheques”. They said that they had instructions to apply for an order appointing a liquidator “on just and equitable grounds” as soon as possible, and urged reconsideration of appointment of a provisional liquidator.

98 As earlier noted, Backoffice and Mr Weeks began their proceedings against Mr Campbell, Sentinel and the Company on 1 April 2005. The claims included an order that the Company be wound up, as an alternative to a buy-out order.

99 On 2 April 2005 Mr Campbell’s solicitors sent an e-mail to Mr Weeks’ solicitors stating -

“I confirm you will be seeking the appointment of a provisional liquidator on Monday morning and that this can be done by consent. Further, I confirm you will forward to us draft orders to be made on Monday and that we will be available to attend court with you on Monday morning. We await your advices as to when you are ready to attend the Court and also we await a copy of the draft consent orders.”

100 The order appointing the provisional liquidator was made on 7 April 2005.

101 On 10 May 2005 the provisional liquidator advertised the business and assets of the Company for sale. On 31 May 2005 the provisional liquidator sold the business and assets of the Company to Healthy Water International Pty Ltd, a company controlled by Mr Campbell, for $196,815. Beyond the fact of the sale, the evidence did not reveal how or why it came about. Ordinarily a provisional liquidator would not dispose of the company’s entire undertaking, and the sale must have been with the consent of Backoffice.

102 The money paid to the Company was eaten up in meeting its liabilities and the provisional liquidator’s fees and expenses. Thus within months of the commencement of the proceedings there was no business of the Company to be conducted, and well before the trial in late 2006 the Company was an empty shell and the shares were worthless.

103 Mr Weeks agreed that he gave instructions to his solicitors that a provisional liquidator should be appointed. He gave the evidence -

…

104 Beyond this and the correspondence to which I have referred, the evidence did not disclose why the parties came to agree upon the appointment of the provisional liquidator and the sale of the Company’s business and assets. The agreement upon the appointment of the provisional liquidator was for practical purposes contemporaneous with the commencement of the proceedings. Mr Weeks agreed that he saw as a possibility that the Company’s business would be sold as a consequence of the appointment of a provisional liquidator, and I understand the resolution of the financial situation to which he referred to have been recoupment of his investment. That was not the way it turned out.

105 In considering an order avoiding a contract under s 87 of the Trade Practices Act or s 72 of the Fair Trading Act “the equitable principles concerning rescission give safe, if not necessarily exclusive, guidance”: Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 at 288 per Fisher, Gummow and Lee JJ. One of those principles is concerned with restitutio in integrum, of which Dixon CJ and Webb, Kitto and Taylor JJ said in Alati v Kruger (1955) 94 CLR 216 at 243-4 -

Clarke v. Dickson

Erlanger v. New Sombrero Phosphate Co

Brown v. Smitt

Spence v. Crawford

Reese River Silver Mining Co. v. Smith

Abram Steamship Co. Ltd. v. Westville Shipping Co. Ltd

527 The "underlying source materials" for the figure recorded for trade creditors in the balance sheet would include the invoices or similar records from trade creditors and the various entries in the MYOB documents of the Company, relating to the amounts outstanding as at 30 November 2004. Those documents are not in evidence. Although an officer from the liquidator's office, Thomas James Dawson, gave evidence in the plaintiffs' case that he printed the subject balance sheet out on 27 May 2005, there was no cross-examination of him in relation to the underlying documents.

528 The primary judge held that she was satisfied that she was able to take the figure recorded for trade creditors in that balance sheet as some support for the accuracy of the figure that Mr Eustace recorded in the balance sheet as at 13 January 2005.

529 The financial documentation provided to Weeks by Mr Horn in December 2004 recorded the Company's liabilities for trade creditors as at 30 November 2004 at $49,983. The figure in the warranted balance sheet was $51,388.27. The figure "adjusted" by Mr Eustace on 13 January 2005 was $63,625.75.

530 The judge found that the additional liability of $12,630 was in the circumstances of this Company's operations for the year to 30 November 2004 a matter of moment or significance and thus material. She relied on Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz (1992) 34 FCR 348, 352; Manning Shire Council v Caernarvon Pty Ltd [1977] 1 NSWLR 202, 204-205.

531 The primary judge held at [158] that she was satisfied that the entry in the warranted balance sheet of the amount for trade creditors of $51,388.27 was $12,360 less than the actual liability of $63,625.75. She was also satisfied that such entry was a breach of the warranty in cl 3.1(a) of Sch 1 of the Share Sale Agreement, that the Company had no liabilities other than the liabilities disclosed in Sch 3 of the Agreement.

532 Her Honour went on to say at [159] that an essential aspect to the plaintiffs' claim that this was also a breach of cl 10.1 and/or 10.2 of the Share Sale Agreement, was Campbell's knowledge that this figure was inaccurate or incomplete or misleading, which I will discuss later in this judgment.

533 She said that on this aspect of the warranted balance sheet, she was satisfied that Campbell did have the requisite knowledge that this figure was inaccurate and that she was satisfied that this was in breach of cll 10.1 and 10.2 of the Share Sale Agreement.

534 The judge then considered the matter she described as “Campbell's loan”. The warranted balance sheet recorded under the heading "Non-current Liabilities", the entry "Doug Campbell Loan to HW $74,507.24". The next entry was recorded as "Total Non-Current Liabilities", with a negative figure of $74,507.24. Mr Gower's report (Ex B) referred to that entry as follows: "item is a negative liability in warranted balance sheet - ie Doug Campbell owed $74,507".

535 Weeks admitted in cross-examination that Mr Horn had advised him that Campbell claimed he did not owe the Company the amount in the loan account. He also admitted that Mr Horn advised him that Campbell had leave entitlements that would possibly allow an offset against the loan account amount. The balance sheet printed out by the provisional liquidator included the entry "Doug Campbell Loan to HW $3,759.76".

536 Weeks claimed that he did not receive any response to his email dated 13 January 2005 to Mr Horn, in which he sought a reconciliation of Campbell's loan and an agreement on the treatment to discharge the loan prior to completion. It was the work of Mr Eustace on 13 January 2005 that reversed the amounts stated in the accounts as owed by Campbell to the Company and converted it into a liability of the Company to Campbell of $3,759.76.

537 Mr Horn's evidence in relation to this reversal was that as at 13 January 2005 he did not believe that the matter had been properly reconciled or finalised. Mr Horn went so far as to suggest that Mr Eustace was "unsure of what he was doing" and that he really did not place "much reliance on what he had done" (Tr 279). This was an explanation provided after he agreed that he had not informed Weeks of the changes made by Mr Eustace.

538 Her Honour said that she considered that this observation was unfair to Mr Eustace. Mr Eustace was the Company's bookkeeper and at the time of trial was still providing services to Campbell. She said that if Mr Horn held that view, it is very odd that he would not communicate it to Campbell at that time. Mr Horn knew that Weeks wanted to finalise the matter of Campbell's loan account prior to the entry into the agreements. The only “response” to Weeks' query was the warranted balance sheet.

539 The judge then agreed with the submission of counsel for the respondents that the logical conclusion to be drawn from the evidence is that Campbell believed that he did not owe the Company any money and that he gave an instruction to Mr Eustace to reverse the entries in relation to his loan account. Further, that it is inconceivable that Mr Eustace acted “on a frolic of his own” and that Campbell was not aware on 13 January or thereabouts of what had been done.

540 Weeks gave evidence that at the time of entering into the Share Sale Agreement, he was not aware that the liability identified on the warranted balance sheet as “Doug Campbell loan to HW” had a balance of positive $3,760 instead of negative $74,507.24. The adjusted balance sheet prepared by Mr Eustace listed Campbell's leave entitlements under "payroll liabilities" and in this way adjusted the "loan" to a positive figure of $3,759.76. The warranted balance sheet did not include those entitlements in the payroll liabilities but listed them on a separate page entitled "entitlement balance". An “offsetting” of these figures against the loan figure would result in a positive figure of either $2,508.13 or $5,129.90, depending upon whether the figure for sick leave accrual is taken into account.

541 The judge held that the information contained in the warranted balance sheet in relation to Campbell's loan was in breach of the warranty in cl 3.1(a) of Sch 1 to the Share Sale Agreement in that the Company did have a liability other than that disclosed in the warranted balance sheet. It had a liability of $3,760 to Campbell. However, she also said that this seemed to be technical rather than a matter of real substance having regard to the fact that Weeks knew that it was probable that Campbell's leave entitlements would probably be set-off against the loan and that those figures were included in the warranted balance sheet.

542 The judge then considered the respondents’ claim that the warranted balance sheet overstated the adjusted net assets.

543 The amount in the warranted balance sheet was $210,856.89 and the figure in the balance sheet adjusted by Mr Eustace on 13 January 2005 was $148,326.10.

544 The claim the respondents made in relation to this part of the warranted balance sheet is that it was a breach of the warranty in cl 10.2 of Sch 1 of the Share Sale Agreement. That was a warranty that "to the best of [the Vendor's] knowledge" the material in the Schedules was "materially accurate and complete and not misleading".

545 The warranty that the information in the warranted balance sheet was "materially accurate" means that there were no significant inaccuracies, or inaccuracies of moment, within it. The figure of $148,326.10 for net assets in Mr Eustace's adjusted balance sheet of 13 January 2005 is a figure reached in consequence of the other adjustments, including the increase in the figure for trade creditors. It could hardly be suggested, and in fact it was not, that the difference between those figures was not a material inaccuracy. Rather, the defendants focused upon the fact that the warranty was prefaced with the words, "to the best of [the Vendor's] knowledge".

546 The appellants’ then counsel submitted that the respondents had failed to plead that Campbell had the knowledge that the figure for net assets was materially inaccurate or misleading and that the pleader had failed to make a claim that recognised the words "to the best of the Vendor's knowledge" in cl 10. Her Honour overruled that objection.

547 As we were reminded in submissions, most of the information that needed to be considered in the accounts was within the personal knowledge of Campbell and his associates, rather than the respondents. Thus, as she did, the judge was entitled to take this factor into consideration when drawing the appropriate inferences: Ho v Powell (2001) 51 NSWLR 572, 576-7.

548 Mr Bannon submits that her Honour’s approach was flawed in a number of respects. In particular, whilst it was arguably correct that there were some errors in the compilations of the figures, there were counterbalancing errors which made the “bottom line” correct within acceptable tolerances.

549 The factual matters are complicated and doubtless they were all submitted to the primary judge. She was not bound to examine all minutiae. I cannot see any defect in her Honour’s assessment of the facts which would justify this Court interfering with her findings of fact on the question of breach of warranty.

550 However, as appears subsequently, this matter is of little moment as the damages flowing from the breaches were only nominal.

(b) The claim for breach of promise to co-operate

551 The respondents’ claim was that Campbell breached his implied duty to co-operate with Weeks in the management of the business as joint managing director, one aspect of which was his refusal to make payments to BackOffice under the Services Agreement.

552 The judge said at [223] that the plaintiffs claimed and the defendants admitted that both the Shareholders Agreement and the Share Sale Agreement contained implied terms that: (a) the parties to the respective agreements would do all such things on their part to enable the other party to have the benefit of the agreements; and (b) neither party would act in a manner calculated to deprive the other party of the benefit of the agreements. This was described as the implied duty to co-operate.

553 There was no claim that the Services Agreements contained any implied duty to co-operate.

554 At [231] the learned primary judge held that there was a breach of the implied term to co-operate by failing to cause the Company to pay the BackOffice invoices.

555 However, her Honour declined to award any damages for this breach on the basis that to do so, if the buyback order stood based on Mr Russell’s figures, would be to overcompensate the respondents.

556 There are considerable problems with this claim. Mr Bannon says that her Honour’s approach goes against the way in which contractual obligations to co-operate are commonly construed.

557 Another problem is that where there is an express term in a contract, it is almost impossible for the court to imply a term that operates in the same area; see eg Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468.

558 This Court analysed implied terms as to co-operation in Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, 123-5. It made it clear that the duty must be to co-operate in bringing about something which the contract requires to bring about.

559 In the instant case, neither the Shareholders Agreement nor the Share Sales Agreement required the payment to Mr Weeks’ company of its service fee. Moreover, although the Services Agreements were schedules to the other agreements, they specifically provided for the payment of the service fee.

560 It follows that there was no breach of any duty to co-operate in the failure to pay the service fees.

561 The trial judge approached this matter on the basis that the only pleaded claim was for loss of fees of $45,751.41.

562 Mr Simpkins puts that the learned primary judge overlooked the claim in the second part of paragraph 32C of his claim viz that as a result of BackOffice’s inability to participate in the management of the company, the share dropped in value from $410,000 to the situation where the provisional liquidator sold its entire assets and goodwill for $196,815.

563 I do not consider that this claim is made out. However, even if it were, there is insufficient material on which a court could conclude that it was the internecine strife between the directors which was the cause or even a cause of any decline in value of the share.

(c) Damages

564 As I have said, her Honour took the view that because of her conclusions in relation to the oppression suit, and the fact that she made an order for Campbell to purchase BackOffice's share in the Company, it was inappropriate to allow relief for breaches of warranty of the Agreement by which the share was acquired.

565 It may be that her Honour should have gone the other way round the problem, that is, to fix the damages for breach of contract and then considered the result of the oppression claim. However, that now is a mere matter of history.

566 Unfortunately, I cannot take the course her Honour took, because, in my view the oppression claim fails.

567 What then are the damages which naturally flow from the breaches which were established? Normally these would be the sum which would put the respondents in the same position as if the warranties were correct.

568 In the ordinary case, the assessment of damages for breach of warranty can be approached by finding that it was more probable than not that if the warranties were correct, the respondents would have paid less for the share than they did. On this approach, in the present case the respondents paid $850,000, they would only have paid $X had the warranties been correct, therefore the damages are $850,000 minus $X. The task is then to ascertain $X. However, obviously, the damages cannot exceed $850,000.

569 Mr Simpkins urges us to follow this procedure and reinforces his submissions by recourse to the decision of the Privy Council in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191. He also referred to EW Blanch Pty Ltd v Cooper [2005] NSWCA 217 at [118] and to the decision of Einstein J in Club Hotels Operations Pty Ltd v CHG Australia Pty Ltd [2005] NSWSC 998 at [188].

570 If this was the correct approach, $X would seem to be in the range of the assessment of the true worth of the share at the time of purchase, $410,000-$455,000, say $435,000, so that the damages would be $415,000.

571 However, there is great doubt in this case as to whether the finding can be made that the warranties did affect the decision to buy the share.

572 Mr Weeks was an experienced businessman. The evidence strongly suggests that he did not approach the question as to what price he would pay for the shares on an assets approach at all, but rather what was the estimated earnings before income tax. Indeed the valuers also valued the shares on this sort of basis.

573 I cannot bring myself to find that in this case that, if the warranties were true, the respondents would have paid less for the share.

574 Mr Simpkins says that one does apply the general approach if a reasonable purchaser would have paid less in the light of the false warranties and it is a minor consideration, if any consideration, that the actual buyer did not address the question in that manner.

575 I do not accept that proposition, nor do I consider that it is supported by authority.

576 Mr Bannon illustrates the fallacy of applying the general approach to all situations by saying that if the true value of a car is $500, but a person paid $1,000 for it and there was a breach of warranty that the car had a full tank of petrol, when it only had half a tank full, it would be absurd to say that the damages for the breach of warranty were $500.

577 Mr Simpkins had great difficulty in endeavouring to meet that proposition.

578 Mr Bannon went on to say that the correct method of approaching the question of damages would be to note that Weeks’ offer of $850,000 for the share was based on his calculation of 4 times estimated EBIT (earnings before interest and tax). The EBIT was estimated at $400,000, that sum times 4 gave $1,600,000, half of which was $800,000.

579 The estimate of $400,000 was based on a forecast for the 2005 year. The EBIT for the six months to the end of December, 2004 was $163,245. Had this figure been used, the share would have been valued at $650,000.

580 It is usual for valuers to look at the past three years’ EBIT to see the sustainable EBIT. Mr Weeks, however, approached the matter on an estimation which produced a figure which had never been achieved by the Company.

581 The estimate was never achieved, indeed, there was a downturn in the Company’s profits in 2005, a downturn which had nothing to do with the internecine disputes between the shareholders. The loss in value of the shares was thus in no way attributable to the breach of warranty.

582 In my view Mr Bannon’s submissions make good sense and I will adopt them.

583 On the basis that there was some breaches of warranty as found by her Honour, Mr Bannon puts that the loss must be between nil and $37,446.

584 It is necessary to analyse the particular breaches of warranties found. Essentially, the breaches are with the warranty as to the liabilities of the business, the warranty as to the net assets of the business and its trade creditors.

585 In my view, Mr Bannon’s submissions that none of the breaches materially affected EBIT. They thus had no bearing on any loss suffered by Mr Weeks.

586 Accordingly, it has not been shown that anything more than nominal damages flows from the breach of warranties.

5. General matters and conclusion

587 I believe that I need to make some general comments before summarising my conclusion and noting the result of the appeal and cross-appeal.

588 First, as to the provisional liquidation, there is not the slightest use leaving the Company in provisional liquidation. It would seem to me that the Company should now be wound up and the provisional liquidator, who has virtually done all that is necessary be appointed liquidator.

589 Secondly, it must be remembered that in the case of the winding up of a partnership, unless one partner has been guilty of relevant misconduct or has acted so as to impede the winding up or there are other special reasons, the costs of winding up are borne equally by the partners. The reasoning behind this is that the expenses of winding up are as much a business expense as the costs of establishing the business: Ross v White [1894] 3 Ch 326.

590 The effect of this rule, indeed whether it is applicable to this case was not traversed in argument either here or below and is not a formal matter to be considered on the appeal, but I believe the reminder may be of use.

591 Finally, it might be noted that whilst the result of the appeal is that the order against Mr Campbell and his interests must be set aside, this is not because the Court has in any way considered that the criticisms by the trial judge should in any whit be set aside or mollified.

592 Of course, there is also force in Mr Bannon’s comments that one must not lay the entire blame for the strife at the feet of Mr Campbell. Mr Weeks’ conduct in only signing cheques selectively and in approaching the company’s bankers and other conduct certainly exacerbated the problems.

593 However, the basal reasons for my decision to allow the appeal and dismiss the cross-appeal is for technical reasons associated with s 232 of the Corporations Act and Mr Weeks’ failure to show that his losses were caused by anything else than his own misjudgement of the value of the share he purchased.

594 It follows from the above that the appeal should be allowed and the orders of the primary judge set aside. I would have ordered the respondents to pay the costs here and below, with the grant of a certificate under the Suitors Funds Act 1951 if they are qualified to receive one and the cross-appeal should be dismissed with costs.

595 However in view of the reasons of my brethren, the orders must be otherwise.

596 GILES JA, BASTEN JA, YOUNG CJ in EQ: Although for different reasons, each of us considers that the order that Mr Campbell purchase BackOffice’s share for $853,000 and the order that Mr Campbell pay BackOffice $853,000 should be set aside.

597 Giles and Basten JJA consider that BackOffice should have in lieu judgment against Mr Campbell for $850,000, as damages for misleading or deceptive conduct (Giles JA) or partly as the consideration for a re-purchase order and as to the balance as damages for misleading or deceptive conduct (Basten JA). Following the course taken by the parties below, the re-purchase order need not be made and can be subsumed within the order for payment of a money sum. Thus there is a majority for a substituted judgment for $850,000.

598 Appeals are against orders, not reasons. The judgment against Mr Campbell has been reduced by $3,000, a barely material sum. The trial judge’s costs orders should stand, and Mr Campbell should pay 90% per cent of the respondents’ costs in this Court.

599 In part by majority, the orders of the Court are:

(1) Appeal allowed and cross-appeal allowed in part.

(2) Set aside the declaration and orders (1), (2) and (3) made on 29 March 2007 and the judgment for the first plaintiff against the first defendant in the amount of $853,000 given on 13 April 2007.

(3) In lieu thereof, order that there be judgment for the first plaintiff against the first defendant in the amount of $850,000 taking effect on 13 April 2007.

(4) Appellant pay 90 per cent of respondents’ costs in this Court.

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Citations

Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95

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Cited Sections

CITATION:	Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95
HEARING DATE(S):	8 August, 2 October 2007
JUDGMENT DATE:	19 May 2008
JUDGMENT OF:	Giles JA at 1; Basten JA at 172; Young CJ in Eq at 224
DECISION:	(1) Appeal allowed and cross-appeal allowed in part; (2) Set aside the declaration and orders (1), (2) and (3) made on 29 March 2007 and the judgment for the first plaintiff against the first defendant in the amount of $853,000 given on 13 April 2007; (3) In lieu thereof, order that there be judgment for the first plaintiff against the first defendant in the amount of $850,000 taking effect on 13 April 2007; (4) Appellant pay 90 per cent of respondents' costs in this Court.
CATCHWORDS:	CORPORATIONS- Oppression- Sections 232-233 Corporations Act 2001 (Cth)- Share Sale Agreement/Shareholders Agreement/Services Agreement- Whether vendor's conduct in excluding the purchaser of a 50% share in company from the management of the company amounted to oppression- Whether necessary for the oppressive conduct to be continuing at the time of hearing- Whether the trial judge's order of a share buy-out appropriate in light of a provisional liquidator being appointed- (By majority) No order should be made. - MISLEADING OR DECEPTIVE CONDUCT- Whether the vendor's giving of contractual warranty misleading or deceptive- Whether purchaser relied on the alleged misrepresentations- (By majority) Yes- Consideration of proper amount of damages.
LEGISLATION CITED:	Corporations Act 2001 (Cth) ss 232, 233 Fair Trading Act 1987 ss 42, 72
CATEGORY:	Principal judgment
CASES CITED:	Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23 Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 Alati v Kruger (1955) 94 CLR 216 Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 Aloridge Pty Ltd v West Australian Gem Explorers Pty Ltd (1995) 127 ALR 410 Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 Bessounian v Australian Wholesale Mortgages Pty Ltd [2007] NSWSC 35 Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 Castlemaine Tooheys Ltd v Carlton & United Breweries (1987) 10 NSWLR 468 Club Hotels Operations Pty Ltd v CHG Australila Pty Ltd [2005] NSWSC 998 Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670 Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60 CSR Ltd v Della Maddalena [2006] HCA 1; (2006) 80 ALJR 458 Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) The Valuer vol vii 299 De Tocqueville Private Equity Pty Ltd v Linden & Conway Ltd; Re Linden & Conway Ltd (2006) 59 ACSR 587 E S Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 E W Blanch Pty Ltd v Cooper [2005] NSWCA 217 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 Fitzgerald v Penn (1954) 91 CLR 268 Fox v Percy (2003) 214 CLR 118 Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] 4 All ER 164 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Gould v Vaggelas (1985) 157 CLR 215 H T W Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 Henville v Walker (2001) 206 CLR 459 Hewlett Packard Australia Pty Ltd v Siltek Holdilngs Pty Ltd [2005] NSWSC 672 Ho v Powell (2001) 51 NSWLR 572 Hogg v Dymock (1993) 11 ACSR 14 House v The King (1936) 55 CLR 499 Irish Press plc v Ingersoll Irish Publications Ltd [1995] 2 ILRM 270 Jenkins v Supscaf Pty Ltd [2006] 3 NZLR 264 Kent v Commissioner of Taxation (1945) 3 Aust Property LJ 65 Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 Lam v Ausintel Investments Australia Pty Ltd (1989) 12 ATPR 40-990 Manning Shire Council v Caernarvon Pty Ltd [1977] 1 NSWLR 202 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 McWilliams Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz (1992) 34 FCR 348 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Music Sales Ltd v Shapiro Bornsdtein & Co Inc [2006] 1 BCLC 371 O'Neill v Phillips [1999] 1 WLR 1092 Re a Company [1987] BCLC 562 Re a Company (No 002567 of 1982) [1983] 1 WLR 927 Re a Company (No 00477 of 1986) [1986] BCLC 376 Re a Company (No 008126 of 1989) [1992] BCC 542 Re a Company (No 3017 of 1987); Ex parte Broadhurst [1990] BCLC 384 Re Anti-Corrosive Treatments Ltd [1980] ACLC 40-625 Re Astec (BSR) plc [1998] 2 BCLC 556 Re Baumler (UK) Ltd [2005] 1 BCLC 92 Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184 Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648 Re Campbell Tube Products Ltd [1976] 1 NZLR 64 Re Charnley Davies Ltd (No 2) [1990] BCLC 760 Re Chime Corporation Ltd; Nina Kung v Tan Man Kou (2004) 7 HKCFAR 546 Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 Re H R Harmer Ltd [1959] 1 WLR 62 Re Hailey Group [1993] BCLC 459 Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042 Re London School of Electronics Ltd [1986] Ch 211 Re Meyer Douglas Pty Ltd [1965] VR 638 Re Polyresins Pty Ltd [1999] 1 Qd R 599 Re Richard Pitt & Sons Pty Ltd (1979) 4 ACLR 459 Re Spargos Mining NL (1990) 3 ACSR 1 Re Tivoli Freeholds Ltd [1972] VR 445 Re Westbourne Galleries Ltd [1971] 2 WLR 618 Reid v Bagot Well Pastoral Co Pty Ltd (1993) 12 ACSR 197 Ross v White [1894] 3 Ch 326 Scottish Cooperative Wholesale Society Pty Ltd v Meyer [1959] AC 324 Smith v Moloney (2005) 92 SASR 498 South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 Taylor v Anstis [1940] VLR 300 Thomas v H W Thomas Ltd [1984] 1 NZLR 686 Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2005] NSWCA 68 Turnbull v National Roads and Motorists' Association Ltd (2004) 50 ACSR 44 Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 Webb v Stanfield [1991] 1 Qd R 593 Yazbek v Aldora Holdings Pty Ltd (2003) 45 ACSR 53 Zempilas v J N Taylor Holdings Ltd (No 6) (1991) 5 ACSR 28
PARTIES:	Douglas Ronald Campbell (First Appellant) Sentinel Construction Managers Pty Ltd (Second Appellant) BackOffice Investments Pty Ltd (First Respondent) Timothy Andrew Weeks (Second Respondent)
FILE NUMBER(S):	CA 40201/07
COUNSEL:	A J L Bannon SC and J T G Gibson (A) J B Simpkins SC and T L Wong (R)
SOLICITORS:	Rodd Peters Lawyers (A) Watson Mangioni (R)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 50047/05
LOWER COURT JUDICIAL OFFICER:	Bergin J
LOWER COURT DATE OF DECISION:	8 March 2007
LOWER COURT MEDIUM NEUTRAL CITATION:	Backoffice Investments v Campbell [2007] NSWSC 161