Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 7)

[2008] FCA 1364

FEDERAL COURT OF AUSTRALIA

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364

TRADE PRACTICES – misleading or deceptive conduct pursuant to sections 52 and 53A Trade Practice Act 1974 (Cth) (the Act) – sale of citrus orchards – multiple alleged representations – written and oral representations – whether falsity of representations established on evidence – whether materiality in inaccuracy of trading figures a relevant consideration  – silence as misleading or deceptive conduct – possibility of employee resigning – non-disclosure of management records – non-disclosure of internal working documents – whether obligation to disclose

TRADE PRACTICES – representations with respect to future matters pursuant to section 51A of the Act – reversal of onus of proof – whether representations made – whether reasonable grounds for making representations – nature of budgetary forecasts – relevance of past performance to reasonableness of future representations

TRADE PRACTICES – accessorial liability pursuant to section 75B of the Act – test established in Yorke v Lucas – knowledge of the essential elements of contravention – adequacy of pleadings

TRADE PRACTICES – whether applicants suffered loss or damage by conduct of respondents pursuant to section 82 of the Act

TRADE PRACTICES – authority to bind body corporate pursuant to section 84 of the Act – whether third respondent’s conduct within scope of actual or apparent authority

EVIDENCE – expert agronomist – admissibility of expert opinion evidence – whether practice direction breached – reliance on unidentified third party data – existence of basis rule pursuant to section 79 Evidence Act 1995 (Cth) – whether expert opinion hearsay – relevance of opinion evidence pursuant to sections 55 and 56 Evidence Act – failure of expert to visit property – discretion to exclude evidence pursuant to section 135 Evidence Act – weight attributed to expert opinion based on unidentified sources

EVIDENCE – assessment of witness credibility – weight of evidence given to witness – findings of fact influenced by credit – competing evidence by key witnesses – failure to call witnesses – whether negative inference drawn

EVIDENCE – unsigned statement – weight attributed to unsigned statement – witness not called

PRACTICE AND PROCEDURE – clarity of pleadings – whether pleadings have sufficient clarity for respondents to meet case

PRACTICE AND PROCEDURE – interest on damages – correct rate of interest owing pursuant to section 51A Federal Court of Australia Act 1976 (Cth)

Held: application dismissed – cross-claim allowed – no accessorial liability in second or third respondents

Corporations Act 2001 (Cth) Pt 5.3A
Evidence Act 1995 (Cth) ss 55, 56, 79, 135
Federal Court of Australia Act 1976 (Cth) s 51A
Trade Practices Act 1974 (Cth) ss 4, 51A, 52, 53A, 75B, 80, 82, 84, 87
Supreme Court Act (Qld) s 47

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CITRUS QUEENSLAND PTY LTD (ACN 110 885 359), PETER MICHAEL TRACY and SUNSTATE CITRUS PTY LTD (ACN 112 847 560) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) v SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733), ANDREW COLIN STRAHLEY and DAVID BREED

QUD 400 OF 2005

COLLIER J
5 SEPTEMBER 2008
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD 400 OF 2005

BETWEEN:

CITRUS QUEENSLAND PTY LTD (ACN 110 885 359)
First Applicant

PETER MICHAEL TRACY
Second Applicant

SUNSTATE CITRUS PTY LTD (ACN 112 847 560) (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
Third Applicant

AND:

SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733)
First Respondent

ANDREW COLIN STRAHLEY
Second Respondent

DAVID BREED
Third Respondent

JUDGE:	COLLIER J
DATE OF ORDER:	5 SEPTEMBER 2008
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.The Amended Application filed 16 February 2006 be dismissed.

2.        The Cross-Claim filed 5 June 2007 be allowed as follows:

(a)the Cross-Respondent pay the Cross-Claimant damages in the sum of $385,383 for breach of the Packing Shed Agreement;

(b)the Cross-Respondent pay the Cross-Claimant the sum of $150,000 for a loan which remains due and owing; and

(c)the Cross-Respondent pay the Cross-Claimant interest at the annual rate of 10% on the sums ordered to be paid in sub-paragraphs 2(a) and 2(b) herein pursuant to section 51A Federal Court of Australia Act 1976 (Cth) to be calculated from the date the relevant cause of action arose.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD 400 OF 2005

BETWEEN:

CITRUS QUEENSLAND PTY LTD (ACN 110 885 359)
First Applicant

PETER MICHAEL TRACY
Second Applicant

SUNSTATE CITRUS PTY LTD (ACN 112 847 560) (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
Third Applicant

AND:

SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733)
First Respondent

ANDREW COLIN STRAHLEY
Second Respondent

DAVID BREED
Third Respondent

JUDGE:	COLLIER J
DATE:	5 SEPTEMBER 2008
PLACE:	BRISBANE

TABLE OF CONTENTS

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[1]
BACKGROUND........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[5]
The parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[5]
The relevant properties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[14]
The decision to sell the properties........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[17]
The preliminary discussions between the parties........ ........ ........ ........ ........ ........ ......	[19]
The first meeting........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[22]
Correspondence after the first meeting........ ........ ........ ........ ........ ........ ........ ........ .....	[30]
The second meeting........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[34]
Correspondence after the second meeting........ ........ ........ ........ ........ ........ ........ ........ .	[36]
First inspection of the properties........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[38]
Third meeting........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[41]
Events after the third meeting........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[46]
Second inspection........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[52]
Discussions between Mr Tracy and Mr John Owen-Turner........ ........ ........ ........ ....	[54]
Mr Bailey’s valuation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[58]
Discussions between Mr Tracy and Mr Dan Papacek........ ........ ........ ........ ........ .....	[64]
The contract phase........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[66]
Completion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[89]
THE CLAIMS OF THE APPLICANTS........ ........ ........ ........ ........ ........ ........ ........ ........ .	[90]
CLAIMS OF THE APPLICANTS – RELEVANT LEGAL PRINCIPLES........ ........ ..	[95]
Section 51A........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[96]
Section 52........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[97]
Section 53A........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[98]
EVIDENCE OF MR STRAHLEY AND MR TRACY: CREDIT........ ........ ........ ........	[101]
Mr Strahley........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[103]
Mr Tracy........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[108]
EVIDENCE OF MR BREED........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[112]
HISTORICAL REPRESENTATIONS: PARAGRAPH 11........ ........ ........ ........ ........ ..	[124]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[124]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[128]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[130]
“Packout rates” and “Yield”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[137]
Relevant evidence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[140]
Was provision of the 1 June 2004 Valuation Report “engaging in conduct”?........ ....	[144]
1.  Financial years........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[146]
2.  Misleading or deceptive........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[147]
3.  Qualified representations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[148]
4.  Block summary data (exhibit R30)........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[152]
4(a)  Disclosure and assistance by the first respondent and Mr Strahley........ ........ ....	[163]
4(b)  Evidence of Mr Douglas........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[166]
4(c)  Preference........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[170]
HISTORICAL REPRESENTATIONS: PARAGRAPH 12(c)........ ........ ........ ........ ......	[175]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[175]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[177]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[179]
HISTORICAL REPRESENTATIONS: PARAGRAPH 14(a)........ ........ ........ ........ ......	[187]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[187]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[190]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[192]
SILENCE GROUND: PARAGRAPHS 17A AND 19A........ ........ ........ ........ ........ ........	[198]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[198]
Relevant principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[203]
Resignation of the horticulturalist: paragraph 17A(a)........ ........ ........ ........ ........ .......	[205]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[205]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[207]
Did Mr Burns inform the first respondent of his intention to resign?........ ........ ........ ..	[208]
Did the circumstances give rise to an obligation in the respondents to disclose this information to the applicants?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[218]
Farm Manager Reports: paragraph 17A(b) and (f)........ ........ ........ ........ ........ ........ ...	[226]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[226]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[228]
Did the circumstances give rise to an obligation in the respondents to disclose this information to the applicants?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[236]
Did the first respondent disclose the fact that EBS affected the Nova, Ellenor and Murcott fruit crops?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[241]
Historical records: paragraph 17A(e)........ ........ ........ ........ ........ ........ ........ ........ ........ .	[255]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[255]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[256]
Emails: paragraph 17A(g)-(k)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[263]
FUTURE REPRESENTATIONS: GENERAL OBSERVATIONS........ ........ ........ ......	[274]
1.  Section 51A........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[275]
2.  “Would be”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[281]
3.  Admissibility and relevance of the expert report of Mr Frick........ ........ ........ .....	[285]
(a) Reliance on documentation not annexed to expert report........ ........ ........ ........ ..	[290]
(b) Substantive objections to Mr Frick’s expert report........ ........ ........ ........ ........ ......	[297]
Factual premises of expert report........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[299]
Objection: Failure to check accuracy of material provided in Brief to Crop Expert and failure to consult Mr Burns........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[305]
Objection: Failure to visit relevant properties........ ........ ........ ........ ........ ........ ........ .....	[307]
Objection: Primary reference material DPI publication........ ........ ........ ........ ........ ......	[313]
Objection: Failure to identify third parties consulted or location of comparable properties used as source of opinion........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[320]
Hearsay and expert opinions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[328]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[332]
FUTURE REPRESENTATIONS: PARAGRAPHS 12(a) & (b)........ ........ ........ ........ ...	[357]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[357]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[362]
Consideration: “the lemon crop on the land was due to be picked in early January 2005” (paragraph 12(a))........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[364]
Consideration: “the proceeds of the sale of the lemon crop on the land after deduction of picking and processing costs would be $1.5 million”(paragraph 12(b))	[373]
FUTURE REPRESENTATIONS: PARAGRAPH 13........ ........ ........ ........ ........ ........ ...	[387]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[387]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[397]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[403]
Relevant historical performance issues........ ........ ........ ........ ........ ........ ........ ........ ......	[414]
Have the respondents discharged their onus under section 51A?........ ........ ........ ....	[418]
General issue - the budgetary process........ ........ ........ ........ ........ ........ ........ ........ ........	[425]
Paragraph 13(a) Yield – approach of management........ ........ ........ ........ ........ ........ ...	[431]
Paragraph 13(a) Yield – historical records........ ........ ........ ........ ........ ........ ........ ........	[433]
Paragraph 13(a) Yield – management reform and asset refurbishment........ ........ ...	[434]
Paragraph 13(a) Yield – absence of scientific yield estimate........ ........ ........ ........ ....	[437]
Paragraph 13(a) Yield – industry standards........ ........ ........ ........ ........ ........ ........ ......	[441]
Paragraph 13(a) Price – approach of management........ ........ ........ ........ ........ ........ ...	[446]
Paragraph 13(a) Price – historical events........ ........ ........ ........ ........ ........ ........ ........ ..	[449]
Paragraph 13(a) Packout rates – approach of management........ ........ ........ ........ .....	[453]
Paragraph 13(a) Packout rates – historical records........ ........ ........ ........ ........ ........ ..	[455]
Paragraph 13(a) Packout rates – improvements in cultural practices........ ........ .....	[458]
Paragraph 13(a) Packout rates – packout realised for lemons........ ........ ........ ........ .	[461]
Paragraph 13(a) Packout rates – absence of packout study........ ........ ........ ........ ......	[462]
Paragraph 13(a) – Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[466]
Paragraph 13(b) – Lack of evidence by applicants........ ........ ........ ........ ........ ........ ....	[467]
Paragraph 13(b) – Inputs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[468]
Paragraph 13(b) – Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[471]
Paragraph 13(c)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[472]
Paragraph 13(d)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[474]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[475]
Paragraph 13 – necessary qualifications........ ........ ........ ........ ........ ........ ........ ........ ...	[476]
FUTURE REPRESENTATIONS: PARAGRAPHS 14(b), (c) & (d)........ ........ ........ .....	[484]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[484]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[487]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[489]
FUTURE REPRESENTATIONS: PARAGRAPH 15........ ........ ........ ........ ........ ........ ...	[494]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[494]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[497]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[499]
FUTURE REPRESENTATIONS: PARAGRAPH 16........ ........ ........ ........ ........ ........ ...	[507]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[507]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[510]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[513]
Did Mr Breed have authority to make representations to Mr Tracy?........ ........ .......	[515]
Was Mr Breed the author of the Most Likely Scenario?........ ........ ........ ........ ........ ...	[524]
Did Mr Breed represent the Most Likely Scenario to be the “most accurate prediction” of the yield in 2005?........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[528]
Conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[529]
FUTURE REPRESENTATIONS: PARAGRAPH 17........ ........ ........ ........ ........ ........ ...	[531]
The claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[531]
Submissions of the parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[534]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[536]
PACKING SHED RECORDS: PARAGRAPH 19........ ........ ........ ........ ........ ........ ........	[541]
Further Amended Statement of Claim........ ........ ........ ........ ........ ........ ........ ........ ........	[544]
Did the first respondent and Mr Strahley attempt to destroy the Packing Shed records?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[549]
The “true position”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[553]
CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[564]
RELIANCE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[568]
1.  Email of 6 December 2004........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[575]
2.  Knowledge of history of the orchards........ ........ ........ ........ ........ ........ ........ ........ ....	[582]
3.  Conduct of due diligence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[584]
4.  “Corporate doctor”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[586]
5.  Lack of experience in citrus........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[592]
Specific comment: 1 June 2004 Valuation Report........ ........ ........ ........ ........ ........ .....	[594]
CASE AGAINST MR STRAHLEY AND MR BREED........ ........ ........ ........ ........ .......	[603]
CROSS-CLAIM BY FIRST RESPONDENT........ ........ ........ ........ ........ ........ ........ ........	[612]
COSTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[616]

REASONS FOR JUDGMENT

INTRODUCTION

1. This matter arises from the sale of two citrus orchards and a Packing Shed in southeast Queensland, near the towns of Bundaberg and Tiaro, in 2005, by the first respondent to the first applicant. The primary proceedings involve a claim by the applicants, seeking relief against the respondents in respect of conduct in breach of ss 51A, 52, and 53A Trade Practices Act 1974 (Cth) (“the Act”).

2. The first respondent is a corporation alleged by the applicants to have engaged in the impugned conduct. The second and third respondents are individuals alleged by the applicants to have, inter alia, aided and abetted the first respondent in engaging in that conduct. There is also a secondary claim in the nature of a cross-claim by the first respondent against the first applicant in the sum of $385,383 for loss suffered by the first respondent upon the failure of the first applicant to complete the contract for purchase of the Packing Shed, in the sum of $150,000 for a loan which remains due and owing by the first applicant to the first respondent, and interest on those sums under s 51A Federal Court of Australia Act 1976 (Cth). The success of this cross-claim is dependent upon the outcome of the primary proceedings.

3. The applicants in their amended application filed 16 February 2006 seek the following forms of relief:

   1.A declaration that the first respondent, in engaging in the conduct alleged in the Statement of Claim, has engaged in misleading or deceptive conduct and has thereby contravened section 52 and/or section 53A of the Act

   2.An order pursuant to section 82, or alternatively 87 of the Act, that the First Respondent pay to the Applicants the amount of loss and damages suffered by them by reason of such conduct

   3.An order pursuant to section 87 of the Act declaring the following contracts void ab initio:

   a.The Agreement for Sale dated 16 February 2005 made between the First Respondent and the First Applicant as Trustee for the Sunstate Orchards Unit Trust, as Purchaser, for the sale of the property listed in Schedule 1 of the said agreement (“the First Contract”)

   b.The Agreement for Sale dated 16 February 2005 made between the First Respondent as Vendor and the First Applicant as Trustee for the Sunstate Orchards Unit Trust, as Purchaser, for the sale of the land described as Lot 1 on Registered Plan No 862574, County of March, Parish of Young, Title Reference 50030075 and the other property listed in Schedule 1 of the said agreement (“the Second Contract”)

   c.The Crop Lien dated 18 March 2005 made between the First Respondent as Lienee, and the First Applicant as Trustee of the Sunstate Orchards Unit Trust, as Lienor (“the Crop Lien”)

   d.Mortgage Dealing No 708592357 registered in the Queensland Registry (“the Mortgage”)

   4.An injunction pursuant to section 80 or alternatively section 87 of the Act restraining the First Respondent from enforcing any of the provisions of the Mortgage or Crop Lien

   5.An order pursuant to section 87 of the Act requiring the First Respondent to execute a Release of the Mortgage in registrable form and to delivery such Release to the Applicants

   6.A declaration that the Second and Third Respondents have aided, abetted, counselled or procured, or were directly or indirectly knowingly concerned in, or party to, the conduct engaged in by the First Respondent alleged in the Statement of Claim within the meaning of section 75B of the Act

   7.An order pursuant to section 82 or alternatively section 87 of the Act that the Second and Third Respondents pay to the Applicants the amount of loss and damages suffered by the First, Second and Third Applicants by reason of such conduct

   8.Interest on damages pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth)

   9.Costs

   10.Such other relief as the Court deems necessary.

4. The hearing in this matter took place over twelve months, and resulted in the parties tendering a substantial amount of material as evidence. As is common in proceedings involving claims pursuant to Part V of the Act, the success or otherwise of the applicants’ claim turns on the facts before the Court. For this reason, it is appropriate before moving on to a more detailed consideration of the claims of the applicants to outline the background facts.

   BACKGROUND

   The parties

5. The applicants in these proceedings are the first applicant, Citrus Queensland Pty Ltd; the second applicant, Mr Peter Michael Tracy; and the third applicant, Sunstate Citrus Pty Ltd.

6. At all material times the first applicant was a company duly incorporated according to law, was the sole shareholder in the third applicant, and was the trustee of the Sunstate Orchards Unit Trust.

7. The second applicant, Mr Tracy, was at all material times the sole director and shareholder of the first applicant, and the sole director of the third applicant. In his statement of 17 November 2006, Mr Tracy said that he held tertiary qualifications, namely an Associate Diploma of Arts, a Post Graduate Diploma of Management, and a Masters of Business Administration. Mr Tracy also stated that his work experience was primarily in human resource management with particular emphasis on the mining industry, and that he had no experience, either professional or practical, concerning the citrus or horticultural industries. However it became apparent during cross-examination of Mr Tracy that he was also a director and principal of a company known as The RT Group Pty Ltd, which specialised in assisting the small to medium sector with business turnaround and management techniques (exhibit R21). Under cross-examination from Mr Bell QC, Mr Tracy conceded that he was in fact a “corporate doctor” whose role was to make badly performing operations perform better (TS 309 ll 31-32).

8. The third applicant was at all material times a company duly incorporated according to law and was the trustee of the Sunstate Citrus Trust. It was incorporated by Mr Tracy on 8 February 2005 for the purpose of being the operating entity for the business which was to be conducted on the orchards and Packing Shed (Peter Michael Tracy statement sworn 17 November 2006 at [97]). The third applicant entered voluntary administration on 23 June 2005.

9. It is clear that Mr Tracy was, at all times, the directing mind and will of the first and third applicants.

10. The respondents in these proceedings are the first respondent, Sunstate Orchards Pty Ltd; the second respondent, Mr Andrew Strahley; and the third respondent, Mr David Breed.

11. The first respondent, formerly Sunstate Acquisitions Pty Ltd, is a wholly owned subsidiary of Hancock FARM Company Pty Ltd (Hancock). It had originally acquired 80% of the properties in January 2001 for the sum of $5.6 million plus the cultural costs of growing the 2001 crop prior to the purchase (Andrew Colin Strahley affidavit sworn 12 July 2006 at [11]-[14]), and later acquired the remaining 20%. The primary relief sought by the applicants in these proceedings is against the first respondent.

12. The second respondent, Mr Strahley, was a director of the first respondent from 19 January 2001, and became Managing Director of Hancock in July 2003. I understand that his role included oversight of the financial and administration operations of the farms under the management of Hancock.

13. The third respondent, Mr Breed, was employed by the first respondent at the orchards from June 2003 to manage the orchards and Packing Shed. He remained an employee of the first respondent until 18 March 2005 and was subsequently employed by the third applicant until 23 June 2005. An unsigned statement of Mr Breed was filed by the applicants on 21 June 2006. Subsequently, Mr Breed swore an affidavit in these proceedings on 14 July 2006, which was filed by the respondents and tendered in evidence (exhibit R20). Mr Breed was not represented in these proceedings nor called as a witness by any party to the proceedings.

    The relevant properties

14. The three properties the subject of this litigation are located in the Maryborough-Bundaberg area of south east Queensland, and are two citrus orchards and a Packing Shed (“the relevant properties”).

15. The orchard located at Tiaro (“the Tiaro orchard”) had approximately 26,000 trees, including lemons and a number of mandarin varieties. The orchard located at Bundaberg (“the Bundaberg orchard”) was slightly larger, with approximately 33,000 trees (predominately citrus trees including limes, lemons, mandarin varieties, navels and pomellos). There was also a small crop of mangoes at the Bundaberg orchard.

16. The Packing Shed was located just outside Maryborough (Strahley affidavit sworn 12 July 2006 at [15]-[17]).

    The decision to sell the properties

17. According to evidence of Mr Strahley, in around May 2004 Hancock decided to consider various options as to the future of the relevant properties because they were not performing in accordance with Hancock’s return criteria (Strahley affidavit sworn 12 July 2006 at [48]). Mr Strahley deposed further that in the ordinary course of business the Hancock properties were re-valued every 2 years, and in June 2004 a valuation report (“1 June 2004 Valuation Report”) was sought from Mr Rex Neubecker of Herron Todd White Valuers (“HTW”) (Strahley affidavit sworn 12 July 2006 at [49]-[55]).

18. Mr Peter Douglas, a real estate agent with Ray White Rural, was engaged from September 2004 to market the Bundaberg and Tiaro orchards and the Packing Shed for the first respondent (Peter Colin Douglas affidavit sworn 6 July 2006 at [13]). The property went to auction on 26 November 2004 and was passed in on a vendor’s bid (Strahley affidavit sworn 12 July 2006 at [60]-[61]).

    The preliminary discussions between the parties

19. The negotiations between Mr Tracy and the first respondent commenced in November 2004. Mr Tracy had had no previous involvement in either the citrus or horticultural industries, however his attention was drawn to the relevant properties by Mr Douglas in late November 2004 (Douglas affidavit sworn 6 July 2006 at [13]; Tracy statement sworn 17 November 2006 at [1]-[2]). Mr Tracy and Mr Douglas had known each other for several years at that time. Mr Tracy deposed that he expressed an interest in the relevant properties and Mr Douglas suggested that he would arrange a meeting between Mr Tracy, Mr Strahley and himself, and provide Mr Tracy with an information package (Tracy statement sworn 17 November 2006 at [2]-[5]).

20. In late November 2004 Mr Strahley was informed by Mr Douglas that Mr Tracy might have an interest in looking at the properties. Mr Strahley subsequently provided Mr Douglas with the 1 June 2004 Valuation Report, and information and historical data about the performance of the orchards in the form of Block Summary data (which had been created by Mr Breed for internal management purposes) (Strahley affidavit sworn 12 July 2006 at [62]-[67]; Douglas affidavit sworn 6 July 2006 at [17]).

21. Mr Douglas gave evidence that during a telephone conversation with Mr Tracy on 1 December 2004 the prospect of a meeting with Mr Strahley was discussed as well as a proposal he had received from Mr Strahley containing broad terms of sale. These broad terms of sale included:

    ·a purchase price of $4.5 million plus cultural costs;

    ·progressive payment with due dates in January-March 2005; and

    ·the current management team remaining to operate the properties (Douglas affidavit sworn 6 July 2006 at [18]-[19]).

    The first meeting

22. Throughout the proceedings it was clear that the key players in respect of negotiation of agreements for sale and purchase of the relevant properties were Mr Tracy and Mr Strahley.

23. The first meeting between Mr Tracy and Mr Strahley took place on 3 December 2004 (Strahley affidavit sworn 12 July 2006 at [68]; Peter Michael Tracy statement in reply sworn 26 September 2006 at [3]). Mr Douglas also attended this meeting as an observer and as the real estate agent engaged by the first respondent in respect of sale of the relevant properties.

24. Mr Tracy deposed that Mr Strahley explained that the decision of the first respondent to sell the orchards was because the company wanted to concentrate on other agricultural products (Tracy statement sworn 17 November 2006 at [7]). He also deposed that Mr Strahley told him that the lemons were selling for $70 per carton; that they needed to move quickly so as to take advantage of the high prices; that the lemons would produce $1.5 million in revenue after production costs and that the budgeted sale price for lemons was $30 per carton (Tracy statement sworn 17 November 2006 at [8]). Mr Tracy deposed that at this meeting he indicated his interest to Mr Strahley, and indicated that he would like to obtain further information (Tracy statement sworn 17 November 2006 at [9]).

25. Mr Strahley gave evidence that the matters discussed at the meeting included:

    ·Mr Tracy said that one of his businesses was purchasing distressed assets, addressing management issues and turning the business around in order to on-sell the business;

    ·the Board of Hancock has made the decision to sell based on past performance (the orchards had incurred losses in the 2003 and 2004 years) and the fact that citrus no longer fell within the desired portfolio;

    ·citrus canker and its adverse impact on the performance of the orchards;

    ·the market and pricing of fruit;

    ·the block summary documents;

    ·the budgeted revenue for the 2004/2005 year;

    ·as between Mr Douglas and Mr Tracy – the possibility of Mr Tracy on-selling the Packing Shed, stripping the fruit and reselling the orchards;

    ·that picking of the lemon crop could be started in January 2005 and that higher prices are achieved for picking early (although early picking is selective picking so incurs higher picking costs) and that you could get up to $70 per carton for grade 1 lemons;

    ·the actual packout rates for 2004 and a notional packout rates for 2005 and the factors that influence packout rates (Strahley affidavit sworn 12 July 2006 at [69]).

26. Mr Douglas deposed that at this meeting he placed the Ray White Information Memorandum about the property (which had originally been prepared by the former estate agents for the sale of the property by tender) and the Block Summary data on the table for discussion, and that they were not there at the end of the meeting. Mr Douglas further deposed that he saw Mr Tracy put a number of documents in his briefcase during the meeting (Douglas affidavit sworn 6 July 2006 at [22]).

27. Many of the events of this meeting are the subject of dispute in these proceedings.

28. Mr Strahley also gave evidence that at this meeting he provided Mr Tracy with a folder of due diligence documents from the time that the first respondent had purchased the orchards, and that Mr Tracy took this folder with him at the end of the meeting (Strahley affidavit sworn 12 July 2006 at [70]).

29. Mr Tracy met with Mr Douglas after the meeting with Mr Strahley. Mr Tracy deposed that Mr Douglas informed him that he would need to make a conditional offer to purchase the properties to show bona fides, and that the properties represented “a good opportunity”. Mr Tracy indicated that he had not finished his enquiries but that he could be interested in making a conditional offer to purchase of $4 million subject to due diligence (Tracy statement sworn 17 November 2006 at [10]-[11]).

    Correspondence after the first meeting

30. On 6 December 2004 Mr Tracy sent Mr Douglas an email noting his interest in the properties, and requesting audited end of year accounts for 2002, 2003 and 2004 and the financial cash flow model (exhibit A6). In reply Mr Douglas indicated that the figures for 2003 would be sent to Mr Tracy that day, and that 2004 figures were not yet available. Mr Douglas also noted that lemon prices had continued to climb with prices of $65 and $74 (exhibit A6; Tracy statement sworn 17 November 2006 at [12]-[13]).

31. Later in the day of 6 December 2004 Mr Tracy sent Mr Douglas an email with an offer to purchase the properties, plant and equipment, water rights, know-how and fruit stock, and all other assets for $4 million “as is where is”, with crop included, subject to a 14 day due diligence period and an independent report declaring the property free of canker (exhibit A8).

32. Mr Douglas forwarded Mr Tracy’s email offer to Mr Strahley on 6 December 2006. Mr Strahley replied by email to Mr Douglas, who forwarded the email to Mr Tracy, indicating that the first respondent was prepared to accept an offer of $4.5 million (inclusive of the new season crop) (exhibit A9). Mr Tracy responded by email agreeing to the sum of $4.5 million, but subject to, inter alia, a guarantee by the directors of the parent company of the first respondent as to the value of the lemon crop at $1.5 million (exhibit A10; Tracy statement sworn 17 November 2006 at [17]).

33. On 7 December 2004 Mr Tracy also requested further information and another meeting with Mr Strahley.

    The second meeting

34. A second meeting between Mr Douglas, Mr Tracy and Mr Strahley took place on either 9 December 2004 or 10 December 2004 (the differing recollection of the date is in my view not material) at the premises of the first respondent. At this meeting Mr Tracy deposed that the parties discussed the first respondent’s budgeting process, historical expenses, marketing agreements, supplier-negotiated pricing on consumables, and the SGARA accounting methodology used by the first respondent (Tracy statement sworn 17 November 2006 at [19]).

35. Mr Strahley deposed that this meeting lasted for approximately 2 hours and involved discussion of the emails of 6 December 2004 relating to the first applicant’s offer and a discussion about the bank guarantee which was requested by the first applicant. At that meeting Mr Strahley and Mr Tracy signed a copy (in duplicate) of the Confidentiality Agreement that Mr Strahley had sent to Mr Douglas on 6 December 2004 (Strahley affidavit sworn 12 July 2006 at [83]-[84]).

    Correspondence after the second meeting

36. On 10 December 2004 Mr Tracy was provided with various documents by email from Mr Strahley, including:

    ·Australian Fruit Report for 10 December 2004;

    ·a Microsoft excel document entitled “2005 Sunstate Budget.xls”;

    ·audited reports for 2001-2002 and 2002-2003 (unsigned);

    ·a Microsoft excel document entitled “Sunstate Budget Nov 04”.

    (Tracy statement sworn 17 November 2006 at [26]-[27]; Strahley affidavit sworn 12 July 2006 at [86]-[87]).

37. Mr Tracy deposed that he was concerned about the figures in the Sunstate Budget Nov 04 and as a result telephoned Mr Strahley. Mr Tracy said he was informed by Mr Strahley that the outbreak of citrus canker had resulted in lost sales of up to $500,000: further that the expenses were high because in the non-revenue season expenses still needed to be incurred, and because of an arrangement for contract packing for Abbotsleigh (Tracy statement sworn 17 November 2006 at [29]).

    First inspection of the properties

38. Mr Tracy inspected the properties, including the Packing Shed at Maryborough, on 13 December 2004 and met with various employees of the first respondent at those properties including Mr Breed (Tracy statement sworn 17 November 2006 at [31]; Douglas affidavit sworn 6 July 2006 at [48]). Mr Douglas gave evidence that Mr Tracy asked a number of questions during this time, and while he did not recall the substance of the conversations, he did recall that Mr Tracy’s questions were answered by Mr Breed and Mr Burns without any hesitation (Douglas affidavit sworn 6 July 2006 at [48]).

39. Mr Tracy gave evidence that around this time he was provided with a folder of documents by Mr Strahley, which contained information relevant to due diligence enquiries made by the first respondent when it purchased the orchards (Tracy statement sworn 17 November 2006 at [32]).

1. On 16 December 2004 Mr Tracy sent Mr Douglas an email outlining a number of issues that needed to be progressed to maintain due diligence (exhibit R23).

   Third meeting

2. A third meeting was held on 17 December 2004 at the offices of the first respondent, attended by Mr Tracy, Mr Strahley and Mr Douglas. Mr Strahley gave evidence that at that meeting the contractual terms were discussed, as was the email from Mr Tracy to Mr Douglas of 16 December 2004, and that during this meeting Mr Tracy expressed interest in negotiating the sale of the Packing Shed before he settled the purchase of the Property (Strahley affidavit sworn 12 July 2006 at [101]-[104]).

3. During the course of this meeting, a written contract of sale of the Properties at the sale price of $4.5 million was executed on behalf of Peter Tracy Nominees Pty Ltd and the first respondent, contemplating settlement on 28 January 2005. Mr Strahley gave evidence that Mr Tracy told him that Mr Tracy wanted the income from the lemon crop included as part of the contract and as a result a clause was included in the contract that the picking of the lemon crop was to commence in the first week of January, subject to weather conditions (Strahley affidavit sworn 12 July 2006 at [101]-[104]).

4. Mr Strahley deposed that Mr Tracy said his bank would not accept a valuation of the property produced in June 2004, and that he needed to obtain another valuation by 10 January 2005 to enable settlement to proceed. Mr Strahley gave evidence that the parties discussed steps to allow Mr Tracy to obtain an expedited valuation, and that he gave Mr Tracy the contact details for HTW (Strahley affidavit sworn 12 July 2006 at [104]).

5. Mr Bailey, a director of HTW, deposed that he received a telephone call from Mr Tracy on 16 December 2004 during which Mr Tracy:

   ·requested that he prepare a valuation of the relevant properties;

   ·said that the crop which was worth more than $300,000; and

   ·told him that he (Mr Tracy) had completed due diligence on the relevant properties.

6. Mr Bailey deposed that he told Mr Tracy that he could provide a valuation within 15 working days (Bailey affidavit sworn 19 July 2006 at [3]-[4]).

   Events after the third meeting

7. On 20 December 2004 Mr Bailey spoke again with Mr Tracy, who said that he needed the report by 12 January 2005, and that the property was worth $8 million (Bailey affidavit sworn 19 July 2006 at [7]). Mr Bailey advised that he would do his best to provide it by 12 January 2005.

8. Mr Strahley said that shortly after the 17 December 2004 meeting, he had a telephone conversation with Mr Tracy in which Mr Tracy told him that he was looking for someone to obtain a crop status report to ascertain yields and condition of the crop. Mr Strahley gave Mr Tracy the telephone numbers for Mr Dan Papacek, an entomologist who was providing consulting services to the first respondent, and Mr John Owen-Turner, a horticulturist who had provided consulting services to the first respondent, and suggested that Mr Tracy contact them directly (Strahley affidavit sworn 12July 2006 at [105]).

9. Mr Strahley also arranged for Mr Tracy to speak with Ms Carolyn Bailey, manager of Client Accounting and Reporting, Hancock Agricultural Investment Group, in Boston Massachusetts, on 20 December 2004, so that Ms Bailey could explain the SGARA accounts system used by the first respondent (Strahley affidavit sworn 12 July 2006 at [106]).

10. Between 20 December 2004 and 22 December 2004 Mr Strahley emailed Mr Tracy the following documents:

    ·Microsoft excel document entitled “Yield Summary.xls”;

    ·an email authorising expenditure for continuing cultural costs on the orchard;

    ·Microsoft excel document entitled “Carton Yield Summary.xls”;

    ·Microsoft excel document entitled “sstrnd-nosgara.xls”;

    ·Microsoft excel document entitled “Valuation Yield Summary 2004.xls”;

    ·an email from Mr Strahley concerning the current lemon prices.

11. In summary, these documents contained information relevant to:

    ·the total number of cartons of fruit picked between 1998 and 2004, with forecasts for 2005-2007;

    ·predictions of cartons of fruit to be packed and sold in 2005;

    ·accounts for the orchards for the financial years 2001-2002 and 2003-2004, with budgeted figures for the financial year 2004-2005;

    ·current lemon prices;

    ·financial year to date actual figures; and

    ·costs savings suggestions with respect to the 2005 projections.

12. At some point, Mr Tracy instructed Tierney & Company Solicitors to act on his behalf in the transaction.

    Second inspection

13. On 5 January 2005 Mr Tracy undertook a second inspection at the Packing Shed, at which time he met with Mr Breed at length. Mr Strahley was on leave on this date. Mr Tracy deposed that, during the meeting with Mr Breed, he created spreadsheets for scenarios which he titled “brilliant”, “optimistic”, “most likely” and “worst case”. Mr Tracy deposed that Mr Breed completed these spreadsheets for him, and that Mr Tracy did not change these spreadsheets (Tracy statement sworn 17 November 2006 at [49]-[50]).

14. Following this second inspection, on 6 January 2005 Mr Breed emailed a further document to Mr Tracy entitled “Production Pricing Schedule Jan 05.xls”.

    Discussions between Mr Tracy and Mr John Owen-Turner

15. On 7 January 2005 Mr Tracy had a conversation with Mr John Owen-Turner, a horticultural consultant, about a number of issues. Mr Tracy deposed that the discussion included the orchards, the appointment of Mr Matthew Burns as horticulturalist at the orchards, and the role of Mr Dan Papacek in relation to pest control at the orchards (Tracy statement sworn 17 November 2006 at [76]).

16. Mr Owen-Turner kept some notes of this conversation. He deposed in his affidavit sworn 6 July 2006 that he and Mr Tracy discussed the varieties of fruits grown at the orchards, and that Murcott, Nova and Ellenor mandarin varieties should not be grown at the orchards because the orchards were coastal orchards and those varieties of fruit were susceptible to Emperor Brown Spot disease (“EBS”). Mr Owen-Turner deposed that he did tell Mr Tracy that the Nova and Murcott varieties were affected by EBS. Mr Owen-Turner also deposed that they discussed thinning, pruning, irrigation and harvesting, and a possible visit by Mr Owen-Turner to prepare a report on crop yields and the state of the fruit (John Charles Owen-Turner affidavit sworn 6 July 2006 at [9]).

17. Mr Owen-Turner’s version of this conversation is contested by the applicants.

18. Mr Owen-Turner also gave evidence that on or about 18 January 2005 he telephoned Mr Tracy and asked Mr Tracy to provide him with written instructions and to gain permission from the first respondent for him to visit the orchards. Mr Owen-Turner deposed that Mr Tracy said he would do so by email that day, but no written instructions were provided by email or otherwise by Mr Tracy. Mr Owen-Turner deposed that on 19 January 2005 en route to the orchards he spoke with Mr Burns, the chief horticulturalist at the orchards, who advised that Mr Tracy had not approved a visit by Mr Owen-Turner. Accordingly, Mr Owen-Turner returned home and did not thereafter provide a report to Mr Tracy (Owen-Turner affidavit sworn 6 July 2006 at [10]-[11]).

    Mr Bailey’s valuation

19. On 4 January 2005 Westpac Banking Corporation faxed Mr Bailey a letter of instruction regarding the valuation requested by Mr Tracy (Bailey affidavit sworn 19 July 2006 at [8]). On the same day Mr Tracy provided Mr Bailey with a number of documents regarding the properties. Mr Bailey deposed that after reviewing these documents he determined that they were not relevant to the valuation and did not impact on the valuation report (Bailey affidavit sworn 19 July 2006 at [9]).

20. Mr Bailey inspected the properties on 11 January 2005. During the visit Mr Bailey was provided with a number of documents by Mr Breed, which Mr Bailey said he used for the valuation of the crop at $407,000. Mr Bailey deposed that he recalled that Mr Breed telephoned Mr Strahley to seek instructions as to whether information could be provided to Mr Bailey (Bailey affidavit sworn 19 July 2006 at [10]-[11]).

21. A telephone conversation subsequently took place between Mr Tracy and Mr Bailey on or around 14 January 2005 concerning the valuation of the properties. Mr Tracy deposed that Mr Bailey said during that conversation that he had inspected the property on 11 January 2005 and valued the orchards at $4.5 million (Tracy statement sworn 17 November 2006 at [77]). It was clear that a valuation this low would pose a significant problem for Mr Tracy in relation to arranging finance (Tracy statement sworn 17 November 2006 at [79]-[81]). Mr Bailey deposed that Mr Tracy said words to the effect that “Dan Papacek would be astonished if the valuation was not close to $7 million”. Mr Bailey deposed that he told Mr Tracy that his valuation report had not been completed, but that the valuation would be closer to $5 million than $7 million (Bailey affidavit sworn 19 July 2006 at [12]).

22. Mr Bailey’s report was completed on 17 January 2005. The total value of the relevant properties plus the crop was assessed as $4.5 million, being land at the orchards and the Packing Shed ($3,638,923), plant and equipment ($450,000) and crop ($410,000) (Bailey affidavit sworn 19 July 2006 at [14]-[15]).

23. A further version of the valuation report was later provided to the National Australia Bank on 17 February 2005 which excluded the Packing Shed at the request of Mr Tracy, and valued the remainder at $4,050,000 (Bailey affidavit sworn 19 July 2006 at [17]-[19]).

24. Mr Tracy deposed that he received the valuation report on or about 27 January 2005 (Tracy statement sworn 17 November 2006 at [91]).

    Discussions between Mr Tracy and Mr Dan Papacek

25. On or about 13 January 2005 Mr Tracy had a telephone conversation with Mr Papacek about the citrus industry. Mr Papacek was an entomologist who was providing consulting services to the first respondent at the time (Tracy statement sworn 17 November 2006 at [83]; Daniel Francis Papacek affidavit sworn 6 July 2006 at [18]). Mr Papacek deposed that he and Mr Tracy discussed the following matters:

    ·the proposed purchase of the properties by Mr Tracy;

    ·EBS and the fact that Mr Tracy should be aware that a property at the coast would be significantly affected by diseases like EBS;

    ·that the crops at the Tiaro and Bundaberg orchards were affected by EBS and this had affected profitability;

    ·that the mandarin varieties Novas and Murcotts are especially susceptible to EBS;

    ·because the orchards are on the coast the incidence of all diseases is greater because the rainfall and humidity is higher; and that coastal fruit are more prone to wind blemish because of the stronger winds and higher humidity near the coast;

    ·wind blemished fruit has a lower market price (Papacek affidavit sworn 6 July 2006 at [18]).

26. Mr Papacek’s version of this conversation is contested by the applicants.

    The contract phase

27. Drafts of the contracts were exchanged between the parties during the period 18‑21 January 2005, and Mr Tracy and Mr Strahley corresponded by email on 21 January 2005 regarding purchase proposals (Tracy statement sworn 17 November 2006 at [85]-[86]).

28. Mr Strahley deposes that to the best of his recollection, on 21 January 2005 he had a telephone conversation with Mr Tracy in which:

    ·they discussed the terms of the contract and an extension of time, and in which he advised that the first respondent was prepared to provide vendor finance in the sum of $1 million;

    ·Mr Tracy said during that conversation that the due diligence was completed;

    ·Mr Strahley asked Mr Tracy to put that fact in writing (Strahley affidavit sworn 12 July 2006 at [145]).

29. On 21 January 2005, Mr Strahley received a facsimiled letter from Mr Tracy formally requesting an extension of time for settlement of the transaction (exhibit A40). The letter read in part as follows:

    We have satisfied ourselves as to the operations of the properties. We advise that we are not in a position to provide an unconditional contract today.

30. In the letter, Mr Tracy requested an extension of time before the contract became unconditional until 11 February 2005. Mr Tracy also attached a cheque in favour of the Ray White Rural trust account for $200,000 by way of further deposit.

31. On 21 January 2005 Mr Strahley responded to Mr Tracy’s letter by email confirming that an extension of time before which the contract became unconditional was granted on the basis that due diligence was completed, the $200,000 further deposit would be paid that day and the contract would become unconditional on 11 February 2005.

32. On 21 January 2005 Mr Strahley also provided Mr Tracy with the contact details of Mr Michael Sommerville, a Marketing Manager for Carter and Spencer, one of the largest fruit marketing agents within the Brisbane markets, and encouraged Mr Tracy to meet with Mr Sommerville to gain an understanding of the citrus industry marketing process and pricing (Strahley affidavit sworn 12 July 2006 at [199]).

33. On 27 January 2005 Mr Tracy caused the Sunstate Orchards Unit Trust to be established in anticipation of the purchase (Tracy statement sworn 17 November 2006 at [92]).

34. On 6 and 7 February 2005 Mr Tracy requested further financial information from Mr Strahley, namely:

    ·the Fixed Asset Register;

    ·the Ernst and Young audited accounts, cash flows, balance sheets and profit and loss account for 2002, 2003 and 2004;

    ·the profit and loss cash flow for 1 July to 31 December 2004.

35. In response Mr Strahley sent Mr Tracy a document entitled “Sunstate Budget Jan05.xls” (Tracy statement sworn 17 November 2006 at [94]; Strahley affidavit sworn 12 July 2006 at [159]-[161], [168]).

36. On 8 February 2005 Mr Tracy sent Mr Breed an email (exhibit A46) with a document entitled “net cashflows 2005” as well as the document entitled “Most Likely Scenario”. Mr Tracy deposes that Mr Breed telephoned him a few days later and agreed that the “net cashflows 2005” document was consistent with the “Most Likely Scenario” (Tracy statement sworn 17 November 2006 at [95]-[96]).

37. On 8 February 2005 Mr Tracy caused the third applicant to be incorporated for the purpose of being the operating entity of the business that was intended to be conducted at the orchards and Packing Shed (Tracy statement sworn 17 November 2006 at [97]).

38. On 15 February 2005, Mr Strahley sent an email to Mr Tracy attaching the Sunstate Orchards financial documents titled “financials04.pdf”which included the profit and loss statement of the years ended 30 June 2002, 2003 and 2004, which had been forwarded to him by Ms Bailey (exhibit R31; Strahley affidavit sworn 12 July 2006 at [176]).

39. On 16 February 2005 Mr Tracy, on behalf of the first applicant, executed the Agreement for Sale for the orchards and a separate agreement for the Packing Shed. The orchard sale contract was conditional upon finance approval being obtained by 18 February 2005. Finance approval for the transaction was obtained by Mr Tracy on 18 February 2005.

40. On 17 February 2005 Mr Strahley sent an email to Mr Tracy (copied to others including Mr Breed, Mr Palfreeman and Mr Douglas) as to the procedures to be followed up to settlement and to the lines of communication with staff of first respondent (Strahley affidavit sworn 12 July 2006 at [183]).

41. On 17 February 2005 Mr Tracy received an email from Mr Strahley attaching “Sunstate Orchards P/L summary report key numbers summary (lemons)” (Tracy statement sworn 17 November 2006 at [106]).

42. In the last week of February during a meeting with Mr Strahley, Mr Tracy was informed that poor weather and labour supply problems had delayed the lemon picking. Mr Tracy deposed that he estimated at the time that this could reduce the gross sales revenue by $200,000 (Tracy statement sworn 17 November 2006 at [109]). During that same week, Mr Tracy was informed that Mr Burns, employed as a horticulturalist in the orchards, had resigned, and was leaving on 25 February 2005. Mr Tracy said that on learning of Mr Burns’ resignation he telephoned Mr Burns to attempt to convince him to stay on (Tracy statement sworn 17 November 2006 at [111]). Mr Tracy gave evidence that Mr Burns told him that he had informed Sunstate of his intention to resign months earlier (Tracy statement sworn 17 November 2006 at [110]-[111]).

43. On 28 February 2005, by email to Mr Strahley (exhibit A53), Mr Tracy expressed concern at the lack of performance of the lemons, and sought advice as to the performance of the lemon crop. The email also raised the following issues:

    ·the failure of Mr Strahley to provide details of the budget of costs for March 2005;

    ·details of sales price and volume forecasts;

    ·that offers to current employees would be made by 4 March 2005 on similar terms and conditions;

    ·his disappointment that Mr Burns’ resignation was not brought to his attention until after the contract became unconditional;

    ·the intentions of management to limit or rectify the impact of EBS on the crops during January;

    ·the failure of Mr Strahley to provide audited statements for 01/02, 02/03 and 03/04.

44. A detailed response to this email was sent by Mr James Palfreeman on 4 March 2005 (exhibit A55; Tracy statement sworn 17 November 2006 at [116]). Mr Palfreeman was Hancock’s acting marketing and commodities manager, reporting to Mr Strahley.

45. In the week commencing 7 March 2005 Mr Tracy met with Mr Strahley to discuss his outstanding concerns from the 28 February 2005 email and Mr Palfreeman’s response. At this stage it appears that Mr Tracy was aware that he would have difficulties settling on 18 March 2005 because the cash from sale of the lemon crop had not been as high as anticipated by him (Tracy statement sworn 17 November 2006 at [118]-[120]).

46. On 8 March 2005 Mr Tracy was provided with the TotalPak report for the end of February 2005 which disclosed sales of lemons in the amount of $208,917. This could be contrasted with Mr Tracy’s expectations of sales of $500,000- $850,000 (Tracy statement sworn 17 November 2006 at [122]-[123]).

47. On 11 March 2005 Mr Tracy sent an email to Mr Strahley and Mr Douglas with further questions (exhibit A57).

48. On 12 March 2005 Mr Strahley emailed Mr Tracy a document entitled “Lemon Picking history.xls” which disclosed lemon crop volumes for 2002-2005. (Strahley affidavit sworn 12 July 2006 at [197]). Mr Tracy deposed that this information was very different from that contained in an email from Mr Strahley to him on 18 February 2005 and the 2005 Sunstate Budget (Tracy statement sworn 17 November 2006 at [125]-[127]). A further email was sent on 14 March 2005 from Mr Strahley to Mr Tracy attaching a document titled “Indicative Sales Pricing” which contained an external fruit pricing market report (Strahley affidavit sworn 12 July 2006 at [198]).

49. The first respondent agreed to accept $150,000 less on settlement on the basis that the first applicant provide a crop lien in favour the first respondent for that amount. This crop lien was executed on 21 March 2005.

    Completion

50. The contract was completed on 21 March 2005. On 22 March 2005 the third applicant entered into a lease agreement with the first applicant to allow the third applicant to occupy and operate the orchards. Between 21 March 2005 and 22 June 2005 the third applicant conducted an orchard business on the land and incurred trading losses of over $500,000. Administrators under Part 5.3A Corporations Act 2001 (Cth) were appointed to the third applicant on 23 June 2005.

    THE CLAIMS OF THE APPLICANTS

51. The Further Amended Statement of Claim (Further Amended Statement of Claim) filed 16 November 2006 alleges, in summary, that:

    ·misrepresentations were made as to matters including the yield of the land, the number of cartons of fruit the land produced, the prices of fruit and projected forecasts of yields and fruit prices;

    ·the respondent failed to disclose information and documents concerning the existence of fruit diseases in the crops, the resignation of the horticulturalist Mr Burns, historical records showing agricultural performance, farm managers reports and spray records, in circumstances where there was a reasonable expectation that such information or documentation would be disclosed;

    ·the applicant acted in reliance upon the truth of the information provided to him, and the respondents’ silence concerning these matters;

    ·the representations were misleading or deceptive or likely to mislead or deceive, and the respondents knew this;

    ·Mr Strahley and Mr Breed aided, abetted counselled or procured, or were directly or indirectly knowingly concerned in, or party to, the conduct of the first respondent;

    ·the applicants have suffered loss and damage as a result in the amount of $3,208,705.20.

1. In relation to these claims the applicants contend that:

   ·as to the “future representations” in paras 12(a), 12(b), 13, 14(c), 14(d), 15, 16(a)-(f) and 17, the first respondent did not have reasonable grounds to make those representations; those representations were misleading in consequence of the matters referred to in para 19, and the applicants therefore rely on the provisions of s 51A of the Act (para 20 Further Amended Statement of Claim); and

   ·conduct of the first respondent as alleged in paras 11 to 17A Further Amended Statement of Claim was misleading or deceptive or likely to mislead or deceive, and constituted the making of false or misleading representations concerning the character of the land and the use to which the land was capable of being put, in contravention of s 52 and/or s 53A of the Act (para 20A Further Amended Statement of Claim).

2. The respondents have helpfully summarised the conduct the subject of the applicants’ claims in the following categories, with specific reference to paragraphs in the Further Amended Statement of Claim:

   1.Historical representations: paras 11, 12(c) and 14(a).

   2.Silence representations: paras 17A and 19A.

   3.Future representations: paras 12(a),(b), 13, 14(b), (c), (d), 15, 16, 17, 20.

   4.Packing Shed Records: para 19.

3. Given the number of instances of allegedly misleading or deceptive conduct, I propose to adopt this formulation. I also propose to address the issues concerning reliance raised in paragraph 18 later in this judgment.

4. However before examining each claim I propose to broadly outline the legal principles relevant to claims under ss 51A, 52 and 53A of the Act, and consider two factual issues which are relevant to the entirety of the applicants’ case as pleaded, and which are also relevant to my consideration of that case. These issues are:

   ·the credibility of evidence given by Mr Strahley and Mr Tracy, which was in many ways fundamental to this litigation; and

   ·the evidence of Mr Breed.

   CLAIMS OF THE APPLICANTS – RELEVANT LEGAL PRINCIPLES

5. In view of the complex factual dispute in this case, neither party made extensive submissions as to the legal principles relevant to claims under ss 51A, 52 or 53A of the Act. Many of these principles are well-settled, and include the following.

   Section 51A

6. Section 51A does not provide an independent cause of action separate from s 52 or other sections in Part V of the Act (Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR 46-179 at 54,432, cf Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513-514). Rather, s 51A provides, in summary, that where a corporation makes a representation with respect to any future matter and it does not have reasonable grounds for making the representation, the representation shall be taken to be misleading (s 51A(1)). Section 51A in that respect is a “subset of section 52”: Phoenix Court Pty Ltd (1997) ATPR 46-179, Sykes 88 FCR 511 at 514, Quinlivan v Australian Competition & Consumer Commission [2004] FCAFC 175 at [5]). I shall consider s 51A in further detail later in this judgment in the context of the future representations alleged by the applicants.

   Section 52

7. Section 52 of the Act provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Proceedings before this Court involving s 52 claims are not infrequent and feature widely varying factual scenarios. A number of principles should be kept in mind in considering claims in the context of s 52. These include the following:

   1.Section 52 of the Act requires that the relevant corporation engage in conduct that is misleading or deceptive. Section 4(2)(a) of the Act provides that:

   a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant.

   “Conduct” is not co-extensive with “representation” in s 52 (Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 504, Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 per Gleeson CJ, Hayne and Heydon JJ at 603, McHugh J at 622) however engaging in conduct does encompass making representations (cf McGrath;in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2 at [150]).

   2.Where a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive, it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court the nature of the alleged conduct and the circumstances which rendered the conduct misleading: McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318 (cf for example, Lahoud v Lahoud [2006] NSWCA 169 at [91], Yang v American International Assurance Co (Australia) Ltd [2008] FCA 39 at [89]).

   3.Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances: Watson 49 NSWLR 315 at 318 (cf for example Christofidellis v Zdrilic [1999] FCA 39, Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) (2007) 63 ACLR 1 at 107, Yang FCA 39 at [89]).

   4.The essential characteristic of misleading or deceptive conduct is that it contains or conveys a meaning which is false (Global Sportsman Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88).

   5.There will be no contravention unless error or misconception results from the conduct of the corporation, and not from other circumstances for which the corporation is not responsible (Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR 40-994 at 50,950; Miller’s Annotated Trade Practices Act (29th ed) 1.51.5).

   6.Whether or not conduct is misleading or deceptive is a question of fact to be decided by considering what is said and done against the background of all surrounding circumstances (Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202).

   7.The words likely to mislead or deceive add little to s 52; at most they make it clear that it is unnecessary to prove that the conduct in question actually deceived or misled anyone (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198). Conduct will be likely to mislead or deceive if there is a real or not remote chance or possibility of misleading or deceiving, regardless of whether it is more than 50% (Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at [6], [15], Equity Access Pty Ltd ATPR 40-994 at 50,950, Global Sportsman Pty Ltd 2 FCR 82, McHugh J in Butcher 218 CLR 592 at 626).

   8.Silence, or failure to disclose information, can fall within the gamut of misleading or deceptive conduct in the sense that having regard to all the relevant circumstances, it constitutes conduct that has been misleading or deceptive or that is likely to mislead or deceive (Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, 41; Fleetman Pty Ltd v Cairns Pty Ltd [2005] FCAFC 80 at [1]-[2]).

   9.The conduct of a corporation must be viewed as a whole. It would be wrong to select some words or act which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at 199).

   10.As a general rule intention (or lack of intention) to mislead or deceive is not a necessary element of conduct proscribed by s 52 (Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228). The liability imposed by s 52 is unrelated to fault (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at 197).

   11.The court must decide objectively whether the conduct is misleading or deceptive or likely to mislead or deceive, and that evidence that members of the public have actually been misled is not conclusive, although it can be very persuasive (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at 198-199, McWilliam’s Wines Pty Ltd v McDonald’s System of Australia (1980) 33 ALR 394 per Smithers J at 399 and Fisher J at 414, Equity Access Pty Ltd ATPR 40-994 at 50,950).

   Section 53A

8. Turning to s 53A of the Act, that section provides, so far as relevant in the context of these proceedings:

   (1)  A corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land:

   …
   (b)  make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land; or…

9. Section 53A, unlike s 51A which is an evidentiary provision, gives rise to a separate cause of action under the Act.

10. In essence, the case of the applicants was that the respondents had acted in breach of s 52 of the Act in relation to all representations, and in breach of ss 51A and 52 in relation to the future representations. Both parties made extensive submissions on this basis. However, although the subject of these proceedings was “land” upon which orchards and a Packing Shed were located, other than pleading that:

    ·the first respondent has acted in breach of s 53A in para 20A Further Amended Statement of Claim; and

    ·Mr Strahley and Mr Breed had accessorial liability in relation to s 53A in para 20B Further Amended Statement of Claim,

    no issue was made of s 53A in these proceedings by the applicants, and no submissions were made by either party with respect to this section. I shall return to this issue later in the judgment.

    EVIDENCE OF MR STRAHLEY AND MR TRACY: CREDIT

11. Mr Strahley and Mr Tracy were, obviously, the two key witnesses in these proceedings, an importance reflected in the nature of their evidence and the amount of time each witness spent subject to cross-examination. Indeed Mr Tracy was the only witness whose evidence was adduced by the applicants as to the factual events relevant to the applicants’ claims. Both parties made extensive submissions as to the credit of Mr Tracy and Mr Strahley.

12. The applicants also made submissions concerning other witnesses whose evidence was adduced by the respondents. I will deal with the credit of other witnesses during the course of the judgment.

    Mr Strahley

13. Counsel for the applicants described the evidence of Mr Strahley as, in summary, uncertain, evasive and unresponsive, and submitted further that Mr Strahley was not an impressive witness. I reject these submissions. In my view Mr Strahley was an impressive witness, who:

    ·clearly had a thorough knowledge of the citrus industry, the operation of the relevant properties as a business, and performance issues relevant to those properties; and

    ·gave responsive and frank answers in the course of rigorous cross-examination over several days.

14. In written submissions the applicants submitted that Mr Strahley gave the impression of being a witness who was “looking for the trap” in every question rather than a witness who was genuinely concerned and enthusiastic to assist the Court to determine the truth of the matters before it. I reject this submission. I find that, while Mr Strahley endeavoured to be careful in his answers, he was nonetheless attempting to properly answer questions put to him and was not attempting in any way, either in his demeanour or his oral answers, to be evasive or unhelpful. Overall I found Mr Strahley’s answers clear and comprehensive over the significant length of time during which he was subject to cross-examination.

15. In their written submissions the applicants further invited me to make adverse findings as to Mr Strahley’s credit in relation to evidence given by Mr Strahley as to contents of Hancock’s financial statements which Mr Strahley had signed as a director, and referred me in particular to an exchange between Mr Perry SC for the applicants and Mr Strahley during cross-examination (TS 992 ll 1-44). However as I indicated to Mr Perry SC during closing submissions, in my view that the evidence given by Mr Strahley in that context indicated no more than the confusion of a company director who, when confronted unexpectedly with the need to explain and justify financial reports he or she may have signed, which reports had been prepared by an expert accountant, is unable to do so properly without a briefing from that accountant. I note that the respondents tendered evidence of an accountant who had participated in preparation of the relevant financial reports, which they submitted explained the relevant financial details and Mr Strahley’s confusion. While it is perhaps regrettable that Mr Strahley as a company director was not able, during rigorous cross-examination on wide-ranging issues over five days, to properly explain the company’s financial reports from several years earlier, I consider that it is not surprising in the circumstances, and that it would not be unusual for many directors in similar circumstances. It does not, in my view, necessarily mean that I should make adverse findings with respect to Mr Strahley’s credit.

16. The applicants also made submissions in relation to Mr Strahley’s evidence during cross-examination (TS 983-992). Leaving aside the fact that the issue of whether the vendors had called for expressions of interest in the sale of the properties during the period ending 30 June 2003 (approximately 18 months before Mr Tracy expressed any interest in the properties) was of minimal (if any) relevance in these proceedings the evidence again simply shows the confusion of the witness under cross-examination. In my view Mr Strahley, quite properly, made concessions under cross-examination where appropriate.

17. In summary, contrary to the applicants’ submissions, I am not persuaded that I should draw adverse inferences in relation to Mr Strahley’s evidence.

    Mr Tracy

18. I consider Mr Tracy was a witness who endeavoured to be truthful in relation to his evidence. I also consider him to be an able businessman who sought to investigate the business opportunity represented by the relevant properties to the best of his ability in light of his lack of knowledge of the citrus industry. However, both the evidence and his demeanour in Court also show that he is a person of considerable determination who, once he forms a view, is loath to relinquish it or even modify it notwithstanding evidence (even compelling evidence) to the contrary. Two clear examples of this are:

    ·Mr Tracy’s insistence during the hearing that representatives of the first respondent “came up [to the properties] with the intention to destroy records, and luckily, Mr Devenny stopped them” (TS 269 ll 4-40). No reliable evidence was produced to support this very serious accusation (including no sworn evidence of Mr Devenny). I shall return to this issue later in the judgment.

    ·Mr Tracy’s insistence, until the conclusion of the proceedings, and reflected in paras 17A(c) and (d) of the Further Amended Statement of Claim, that the first respondent had caused the orchards to be either improperly sprayed (17A(c)) or sprayed contrary to good agricultural practice (17A(d)). Mr Tracy’s allegations at the hearing in relation to the pesticide Rovral extended to an accusation that the first respondent had illegally sprayed the orchards (TS 305 ll 1-3, ll 21-22, 293 ll 5-24). Yet despite this very serious allegation, the claims in paras 17A(c) and (d) were abandoned by the applicants in written submissions. (In my view the decision of the applicants not to press these claims was not surprising, as there was no evidence to support the claims, and indeed I consider that the evidence of the horticulturalist, Mr Burns, at the hearing (TS 705) completely answered those claims.)

19. Second, I perceived Mr Tracy to be a witness who, to use the applicants’ own expression in their written submissions in relation to Mr Strahley, was constantly “looking for the trap” in questions posed to him during cross-examination, with the result that his evidence was characterised on occasion by qualifications and an absence of genuine responsiveness. Examples of this can be seen at TS 341-342, 415 l 39, 416 l 13, and 493 ll 17-26.

20. Third, where there was a conflict between the evidence of Mr Strahley and Mr Tracy as to events which had occurred, on balance I preferred the evidence of Mr Strahley. As I have already noted, Mr Strahley had what was demonstrated during the proceedings to be a thorough understanding of the citrus industry and the relevant properties. When information was provided by Mr Strahley to Mr Tracy during negotiations for the sale of the relevant properties, it is clear that Mr Strahley would have both understood the information, and its relevance to the discussions with Mr Tracy at the time. Because of that understanding, Mr Strahley would in my view have been able to better retain memory of discussing issues with Mr Tracy relevant to the properties and the citrus industry than would Mr Tracy. In contrast Mr Tracy as at the first meeting with the respondents on 3 December 2004 had no experience of and very little (if any) understanding of the citrus industry. I observed throughout the hearing that his recollection of discussions concerning the relevant properties and the citrus industry was imperfect, and I consider that a fundamental reason for this imperfect recollection was that he simply did not appreciate the significance of what he was being told at the time. An example of this is Mr Tracy’s recollection of when he first heard of the disease EBS in relation to the orchards. At the hearing Mr Tracy said that he had never heard of EBS before January or February 2005 (TS 301 ll 17-18). Yet Mr Burns deposed that he had discussed EBS with Mr Tracy in December 2004 in the context of the need to thin the fruit (TS 299-300). In my view Mr Tracy simply had not understood the implications of what he was being told by Mr Burns at that time, and therefore did not remember it. Indeed I consider that circumstances involving the provision to Mr Tracy of important information concerning either the citrus industry or the performance of the relevant properties, but of which, because of his lack of experience in that industry, he simply did not appreciate the significance at the time, was a recurring theme in these proceedings.

21. I make these findings because they are relevant to my evaluation of the evidence given by these witnesses throughout the proceedings and the substantiation (or otherwise) of the claims of the applicants. I shall return to these issues throughout the judgment.

    EVIDENCE OF MR BREED

22. Mr David Breed, formerly the general manager of the business conducted at the orchards and the Packing Shed, swore an affidavit on 14 July 2006 in which he gave evidence as to, inter alia, the nature of the SmartPak records system and the reliability of information produced by that system. The affidavit was tendered by the respondent as evidence.

23. Annexed to Mr Breed’s affidavit was an unsigned statement, purporting to contain comments of Mr Breed relevant to the historical packout rates and the nature of information in the SmartPak computer records system. Mr Breed swore in his affidavit that the unsigned statement had been prepared by Mr Lynch, the solicitor for the applicants, on or about 31 May 2005, following discussions between Mr Lynch, Mr Tracy and Mr Breed (Breed affidavit sworn 14 July 2006 at [74]-[80]). Under cross-examination, Mr Tracy agreed that the unsigned statement was prepared following discussions between himself, Mr Lynch and Mr Breed (TS 253 ll 26-27).

1. It is clear that the contravening conduct need not be the sole inducement in sustaining the loss (Gould v Vaggelas (1985) 157 CLR 215; National Australia Bank Ltd v Cunningham [1990] FCA 310 at [6], Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229 at 233, Elitegold Pty Limited v CM Holdings Pty Ltd, Australia Fair Shopping Centres Pty Limited and CM Developments (Qld) Pty Ltd [1995] FCA 1336 at [49]) although it is necessary that the contravening conduct had a substantial rather than a negligible effect (Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 41–550 at 43,619; McHugh J in Henville v Walker (2001) 206 CLR 459 at 494).

2. Further, it is not fatal to a claim of reliance that the applicant does not give express and direct evidence of reliance : see analysis of Lindgren J in MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 358 and observations of the Full Court in Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 245-246.

3. However, where it appears that the applicant had knowledge of the true facts by the time it allegedly acted on the impugned conduct, it is clearly much more difficult for the applicant to demonstrate reliance on such conduct: cf Rumpe v Camrol Pty Ltd [1985] FCA 5, McMahon v Pomeray Pty Ltd [1991] FCA 289. Similarly, where the applicant makes its own inquiries or retained its own advisers to ascertain the true position there is some authority that reliance on the impugned conduct is negated: cf The Australian William E Simon Graduate School of Business Administration Incorporated v Minister Administering the National Parks and Wildlife Act 1974 (NSW) (1994) 51 FCR 243.

4. In my view the evidence demonstrates that Mr Tracy, and through him the first and third applicants, were determined to purchase the properties from an early date, and did not rely on the representations in paras 11-17A Further Amended Statement of Claim to enter the transaction to acquire the relevant properties or any transaction associated with that purchase. I form this view in relation to the applicants’ alleged reliance on representations in these paragraphs for the reasons I set out below in relation to:

   1.The email of 6 December 2004.

   2.Mr Tracy’s knowledge of the history of the orchards.

   3.Mr Tracy’s conduct of the due diligence.

   4.Mr Tracy’s experience as a “corporate doctor”; and

   5.Mr Tracy’s lack of experience in relation to citrus.

5. Because extensive submissions were also made concerning Mr Tracy’s reliance on the 1 June 2004 Valuation Report, I will also make an additional comment concerning the applicants’ claims of reliance on that report which I set out below.

   1.  Email of 6 December 2004

6. First, it is clear that Mr Tracy offered to purchase the relevant properties on 6 December 2004, three days after his first meeting with Mr Strahley to discuss the relevant properties. In an email from Mr Tracy to Mr Douglas at 11.20am on 6 December 2004 (exhibit A8), Mr Tracy wrote as follows:

   Dear Peter

   We offer to purchase the properties, plant & equipment, water rights, know how and fruit stock and all other assets on the following basis:

   •         $4.0 (four million AUD) as is where is with crop included
   •         Existing staff entitlements paid out in full on settlement
   •         Guarantee to reinstate staff through a new entity
   •         14 day due diligence period

   •10% (ten percent $400,000.00) deposit payable upon completion of due diligence by bank guarantee provision of an independent scientist report to warrant that the property is canker free

   •         settlement 12 January 2005
   •         confidentiality agreement to bind both parties during the process.

   Time is of the essence in this matter and we would appreciate your timely response.

7. At the time that Mr Tracy offered to purchase the relevant properties he had had a meeting with Mr Strahley, and had received from Mr Douglas:

   ·the 1 June 2004 Valuation prepared by HTW; and

   ·the Block Summary data.

8. The claims of the applicants in paras 17A(a), (b), (e) and (f) were to varying degrees referable to the period up prior 6 December 2004.

9. However as at 6 December 2004 Mr Tracy had not been provided with documents referable to the applicants’ claims in paras 13, 14, 15, 16, 17, 17A(f)-(k), and (to varying degrees) 17A(b) and (f).

10. Leaving aside for the moment the question whether Mr Tracy and the first and third applicants relied at all on the conduct of the respondents in relation to the acquisition of the relevant properties and related transactions, the inference may be drawn that, in light of the conduct of Mr Tracy in offering to acquire the relevant properties on the terms he proposed on 6 December 2004, neither he, nor the first and third applicants through him, relied on the conduct of the respondents as claimed in paras 13, 14, 15, 16, 17, 17A(f)-(k), and (to varying degrees) 17A(b) and (f) in deciding to purchase the relevant properties.

11. The applicants submitted that the email from Mr Tracy to Mr Douglas constituted only an invitation to treat rather than a legally enforceable final offer to purchase the orchards and the shed, and that this was clear because the email specified that any purchase was expressed to be subject to due diligence.

12. Whether or not the offer by Mr Tracy was a legally enforceable offer to purchase the relevant properties is an issue I need not decide. Further, the fact that an offer was made by Mr Tracy on 6 December 2004 was not conclusive – misleading or deceptive conduct engaged in after entry in contractual relations may nonetheless contravene s 52 (cf Johnson v Eastern Micro Electronics Pty Ltd (1986) 70 ALR 339 at 352). However, that Mr Tracy made such an offer suggests that by 6 December 2004 he had decided to purchase the properties, and that he wished to expedite settlement of the transaction subject to his own due diligence.

    2.  Knowledge of history of the orchards

13. Secondly, I consider the evidence demonstrates that Mr Tracy was determined to purchase the orchards notwithstanding that he had no experience of citrus or indeed of horticulture, and notwithstanding that he was repeatedly informed of issues affecting the potential profitability of the orchards, including:

    ·the orchards had been unprofitable in previous years;

    ·the orchards were in a geographical location which increased the risk of disease including EBS (as explained not only by the respondents but Mr Papacek and Mr Owen-Turner);

    ·the orchards and the Packing Shed had historically required a considerable expenditure of money to enhance their performance, and bore considerable ongoing cultural costs; and

    ·the performance of the orchards (as in the case of all horticulture) was clearly dependent on factors outside the control of the respondents including weather and disease.

14. Further, I consider it significant that Mr Bailey, the valuer engaged by Mr Tracy, valued the properties at the sum paid by Mr Tracy, and no higher. The applicants submitted that the valuation of Mr Bailey was derived using false data supplied by the first respondent, however:

    oI do not accept that submission.

    oEven on the premise advanced by the applicants that Mr Bailey relied on falsely inflated data, Mr Bailey still valued the properties at $4.5million; and

    oIn any event, although Mr Tracy gave evidence that he was shocked by this seemingly low valuation (TS 322 ll 4, 445 ll 9 cf Tracy statement sworn 17 November 2006 at [78]), he proceeded to purchase the properties notwithstanding that “shock” because on his calculations the property would still show a return of capital and because he felt that the “canker scare was over”. I consider it likely that Mr Tracy simply did not believe Mr Bailey’s valuation, and preferred to rely on his own judgment as to the future value of the relevant properties.

    3.  Conduct of due diligence

15. Thirdly, Mr Tracy made it clear in his email of 6 December 2004, and it was a term of the contract of purchase that Mr Tracy would perform his own due diligence in relation to the property. The evidence is that Mr Tracy did conduct this due diligence himself, without seeking the assistance of experts in the citrus industry, and formed his own conclusions on the basis of that exercise. So, for example:

    ·as I have already found, Mr Tracy created the four scenarios including the Most Likely Scenario based on budgetary data provided by the first respondent;

    ·as I have also found, Mr Tracy calculated the sum of $1.5 million for the sale of the lemon crop based on information he adduced;

    ·Mr Tracy obtained his own independent valuation of the property from Mr Bailey, who valued the property at no more than Mr Tracy had offered, and also qualified the valuation referable to external factors such as weather;

    ·Mr Tracy had a telephone conversation with Mr Owen-Turner (although he did not provide written instructions for Mr Owen-Turner to attend the orchards as requested by Mr Owen-Turner) and a telephone conversation and meeting with Mr Papacek. Mr Tracy did not otherwise utilise the expertise of Mr Owen-Turner or Mr Papacek in his due diligence;

    ·Mr Tracy made numerous inspections of the orchards in December 2004 and January 2005 where he met Mr Breed, Mr Burns, Mr Devenny, and the Tiaro supervisor Mr Trevor Schulz;

    ·The first respondent gave Mr Tracy free access to Mr Breed and Mr Burns to seek information, and Mr Tracy took advantage of that access to seek information at his own discretion.

16. The applicants submitted that Mr Strahley did not provide Mr Tracy with “the all important financial model” from Mr Strahley’s own due diligence folder referable to when the relevant properties were acquired by Hancock, however in my view this is of no relevance. Leaving aside the fact that the failure to provide this document was not the subject of any claim by the applicants, Mr Strahley explained during cross-examination that he did not give Mr Tracy the forecast document which formed part of Hancock’s decision to buy the properties because it was “aggressive in its expectations”(TS 973-974). This explanation was reasonable, particularly in light of the significant reforms to the manner in which the orchards had been conducted since the properties were originally acquired by Hancock several years earlier.

    4.  “Corporate doctor”

17. Fourth, Mr Tracy’s interest in, and determination to acquire the orchards, is in my view also explained by his identification of himself as a “corporate doctor”. Evidence in relation to this issue, included:

    ·Mr Tracy told Mr Papacek that he was a corporate doctor and that he utilised his management expertise to get companies operating profitably (TS 310 ll 25-31).

    ·Mr Tracy’s interest was in buying a business which had future prospects of profitability;

    ·Mr Tracy’s belief that he could bring to that business:

    My attention to detail. My capacity to focus on this business rather than, as I think Mr Strahley might have told me at one time, he had so many businesses and he wasn’t able to spend enough time on them. (TS 312 ll 1-5)

    ·The fact that Mr Tracy was offering $4.5 million for the relevant properties whereas Mr Tracy was aware that the properties had been valued by Mr Neubecker in June 2004 at $6.9 million.

    ·A printout from the web-site of the firm of which Mr Tracy was a director, The RT Group Pty Ltd (exhibit R21), which featured a photograph of Mr Tracy and fellow director, and described The RT Group as:

    a business turnaround firm assisting businesses in the small to medium sector secure their long-term survival, profitability and success… We are an intentionally small consultancy providing personalised services to reinvigorate business while maintaining the highest professional and ethical standards. In doing so, our greatest pride comes from knowing our clients have assured their future business success.

18. The RT Group also described its specialisations as:

    ●         Stopping profit leaks,
    ●         Business turnarounds,
    ●         Strategic positioning,
    ●         Mentoring,
    ●         Providing business support, and
    ●         Facilitating supplier alliances.

19. The evidence before the court indicates that Mr Tracy’s expertise in business turnaround made the orchards a particularly attractive business proposition, particularly in light of his perceived ability (unlike Mr Strahley) to focus on the business to the exclusion of other distractions.

20. A manifestation of Mr Tracy’s determination to acquire the properties in the context of his role as a corporate doctor was reflected in his discussions with Mr Douglas to re-sell the Packing Shed immediately following the signing of the purchase agreement on 17 December 2004 (TS 345, exhibit R26). I consider that Mr Tracy saw the orchards and the Packing Shed as an opportunity for a quick profit (as was clear from his email to a colleague on 16 December 2004 exhibit R22).

21. The applicants in their submissions submitted that the respondents knew that Mr Tracy had no citrus experience, and complain that the respondents painted a picture of Mr Tracy as:

    a sophisticated businessman with significant business experience and academic qualifications who did not have an ambition to be a farmer but rather who was only interested in buying the orchards with a view to securing its cash flow, making managing improvements and deriving the benefit of the cash flows from the crop with a view to re-selling the assets purchased for a profit. (Applicants’ Written Submissions p 69)

22. The evidence demonstrates, in my view that this picture was accurate.

    5.  Lack of experience in citrus

23. A significant element of the case advanced by the applicants was that the respondents took advantage of Mr Tracy’s naiveté in horticulture, and the fact that he had no experience in citrus, to deceive him into purchasing the relevant properties. This was made particularly clear during cross-examination of the respondents’ witnesses at the hearing (for example, TS 1091-1092, 1169, 1222).

24. In my view the evidence does not support this premise. The evidence demonstrates that the first respondent, through Mr Strahley, went to significant lengths to provide Mr Tracy with accurate information. I consider that Mr Tracy was a competent and astute businessman who considered his lack of experience in the citrus industry of little importance in relation to this transaction, and who was confident in his own abilities to undertake a due diligence and to profit from the acquisition of the relevant properties.

    Specific comment: 1 June 2004 Valuation Report

25. In relation to the 1 June 2004 Valuation Report, the respondents submitted that, even if the representations of the first respondent in the 1 June 2004 Valuation Report were misleading or deceptive, the applicants had not demonstrated reliance on those representations in entering the transactions to purchase the relevant property, because the applicants made their own inquiries in relation to the historical performance of the relevant properties.

26. In this case there is meagre evidence of reliance by the applicants on the historical production material in the 1 June 2004 Valuation Report as pleaded in para 11. Mr Tracy deposed:

    On 29 November 2004 Douglas e-mailed me a copy of a Herron Todd White (“HTW”) valuation of the orchards dated June 2004 (J48). (Tracy statement sworn 17 November 2006 at [6])

27. Further, under cross-examination by Mr Bell QC, Mr Tracy said as follows:

    Yes, but Mr Tracy, are you really going to say to her Honour that the subject of this complaint did not arise because Breed was telling you about it? “Look, what happened, Peter Tracy,” - when you’re sitting in this room with Mr Lynch – “is when we were getting a valuation, Strahley was misleading the valuer. He wasn’t giving in the information.” That’s how you first got onto it obviously, isn’t it?---No. It wasn’t.
    I see?---No, it wasn’t. Because I knew the bin numbers and the carton numbers of - put forward by the valuer, in the 1 June 2004 valuation, as I recall was the date. That was an important piece of information, in terms of what I relied on, because valuers are proper people and they make proper judgments. (TS 257 ll 8-17)

28. However I consider that, at its highest, the representations as to historical production in the 1 June 2004 Valuation Report induced Mr Tracy to have further discussions with Mr Strahley after 29 November 2004, and to meet with Mr Strahley on 3 December 2004.

29. I think it unlikely that the representations as to historical performance in 1 June 2004 Valuation Report would have been a factor causing Mr Tracy to enter into the transactions to purchase the relevant properties. The applicants submitted that the material was conveyed to Mr Tracy as a potential purchaser making enquiries about the subject matter of the sale. However I have already found that on or by 3 December 2004 Mr Tracy was provided with the Block Summary data which contained accurate data as to historical production, and that this material was discussed by Mr Tracy and Mr Strahley at the meeting of 3 December 2004. It is difficult to see how, after 3 December 2004, the applicants could show any continuing reliance on the estimates of historical production in the 1 June 2004 Valuation Report. The Block Summary data and other material such as the Yield Summary.xls, produced by the respondents for Mr Tracy, clearly superseded the heavily qualified material in the 1 June 2004 Valuation Report.

30. A further relevant factor with respect to reliance by the applicants on historical production figures in 1 June 2004 Valuation Report is that on 16 December 2004 Mr Tracy procured his own valuation report by Mr Bailey in relation to the relevant properties as part of an arrangement to seek finance for their acquisition. In relation to this report the applicants submitted in summary that:

    ·The evidence revealed that both the 1 June 2004 Valuation Report and Mr Bailey’s report were derived using false packout rates provided by the first respondent.

    ·When the evidence of Mr Bailey is examined it is clear that he simply copied most of the 1 June 2004 Valuation Report into the report he prepared.

    ·The respondents cannot in equity be entitled to rely on either valuation report because the first respondent (through Mr Breed) rendered the reports unreliable by providing grossly inflated packout rates to Mr Neubecker which the respondents knew vastly exceeded actual historical crop performance data.

    ·Even apart from the falsity of packout rates Mr Bailey’s report is so unreliable and flawed that the Court should find that its receipt could not possibly be held to affect the question of reliance because, inter alia, information as to 2004 production figures were inaccurate.

    ·Evidence of Mr Bailey reflects badly on his credit.

31. The fact that Mr Bailey’s report should contain heavily qualified estimates referable to historical production is surprising given that by January 2005 more accurate material in the form of the Yield Summary and the Block Summary data was clearly available. A comparison of the two valuation reports shows that the material under “Production” in para 7.3 1 June 2004 Valuation Report is identical to that under “Production” in para 7.5 11 January 2005 Valuation Report with the exception of a sentence in para 7.5 which reads “Recent crops were significantly lower due to the effects of citrus canker; and a large percentage of the crop was juiced.” Under cross-examination, Mr Bailey conceded that he used information, including the carton yield data, from the 1 June 2004 Valuation Report in the 11 January 2005 Valuation Report, because that information was available from the work undertaken by Mr Neubecker (TS 824 ll 9-12, ll 29-39, 825 ll 24-31). It is also clear however that Mr Bailey was under pressure from Mr Tracy at the relevant time to expedite production of his valuation report.

1. As the evidence demonstrates, both valuation reports were procured with a view to obtaining finance. It is difficult to identify how, in circumstances where a new valuation report which also addressed historical production data was prepared by another valuer at Mr Tracy’s instigation, it could be said that the applicants were relying on the historical data in the 1 June 2004 Valuation Report at the time of the acquisition of the relevant properties.

2. In any event, while Mr Perry SC in cross-examination of Mr Bailey made much of the fact that Mr Bailey’s report replicated the historical production figures found in the 1 June 2004 Valuation Report, this replication was in no way directed by the respondents. The fact of duplication of the material was, if anything, an issue between Mr Tracy and Mr Bailey. Mr Tracy organised his own valuation report for his own purposes, by a valuer whose valuation of the relevant properties was, in the end result, very different from that of Mr Neubecker and indeed reflected the price which Mr Tracy had offered to pay. Notwithstanding the fact that the historical production data in the two reports was substantially identical, in my view this does not mean that, in the chain of causation, any original influence on the applicants exerted by the 1 June 2004 Valuation Report in relation to this data remained (contrast, for example, Henjo Investments Pty Ltd (No 1) 39 FCR 546). Indeed as the evidence also demonstrates, Mr Tracy clearly took into account Mr Bailey’s report in his decision to purchase the relevant properties (Tracy statement sworn 17 November 2006 at [77], [78]).

   CASE AGAINST MR STRAHLEY AND MR BREED

3. In para 20B Further Amended Statement of Claim the applicants pleaded as follows:

   Each of the Second and Third Respondents is a person who:
   a) has aided, abetted, counselled or procured; or
   b) has been knowingly concerned and/or a party to the contravention by the First Respondent of section 51A and 52 of the Trade Practices Act 1974 as alleged in paragraph 20A.

4. There is no case against either Mr Strahley or Mr Breed in relation to s 53A.

5. In the Defence, the respondents denied this claim so far as it concerned Mr Strahley. Mr Breed was not represented in these proceedings.

6. Although the applicants do not specifically plead the relevant legislation, in prescribed circumstances s 75B of the Act imposes accessorial liability in relation to certain provision of the Act. In Yorke v Lucas (1985) 158 CLR 661 at 666-669 the High Court observed that:

   ·the words “aided, abetted, counselled or procured” in s 75B are taken from the criminal law where they are used to designate participation in a crime as a principal in the second degree or as an accessory before the fact (at 666-667);

   ·notwithstanding that s 75B deals with civil rather than criminal liability, the words in s 75B should be interpreted according to their meaning in criminal law (at 668, 669);

   ·in the criminal law a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he intentionally participates in it (at 667);

   ·to form the requisite intent he must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime (at 667);

   ·a person can only be brought within para 75B if he intentionally aided, abetted, counselled or procured a contravention by the representor of s 52 Trade Practices Act (at 667);

   ·The fact that the representations may have been made by the person is not sufficient to bring the person within s 75B – he or she must have had knowledge of their falsity (at 668)

7. The interplay of ss 51A and 75B was also considered by the Full Court in Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175 where the Court said:

   Accordingly, where s 75B or s 80 accessorial liability is in issue in relation to a representation with respect to a future matter, the existence or otherwise of reasonable grounds will be relevant. If reasonable grounds exist, there will have been no contravention and thus no question of accessorial liability will arise. However, as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that
   •         the representation was made and
   •         it was misleading or
   •         the corporation had no reasonable grounds for making it. (at [15])

8. The respondents in this case submitted that para 20B Further Amended Statement of Claim did not adequately plead the essential elements of the cause of action, and did not allege:

   ·actual knowledge by Mr Strahley of each alleged representation;

   ·that he knew each representation was misleading; and

   ·that he knew that the first respondent had no reasonable grounds for making the alleged representations as to future matters.

9. By way of example the respondents pointed to the allegation regarding the Most Likely Scenario, which the applicants in para 16 pleaded was created by Mr Breed, and submitted that the applicants did not plead that Mr Strahley had actual knowledge of such representations, or that they were misleading, or that there were no reasonable grounds for making the forecasts or predictions.

10. The applicants in response submitted as follows:

    The evidence of accessorial liability for the Second Respondent is as follows:-

    1.Strahley caused the 2004 Valuation containing the false crop production figures to be sent to the Applicants;

    2.Strahley sent the Applicants the 2005 Budget, Yield Summary.xls, Carton Yield Summary.xls, and Valuation Yield Summary.xls to the Applicants.

    The evidence of accessorial liability for the Third Respondent is as follows:-

    1.Breed made the representations about the Most Likely Scenario and the oral representations made on 5 January 2005.

    2.Breed sent the Applicants the Production Pricing Schedule Jan.05.xls

11. In my view the applicants have not properly pleaded the required elements of a s 75B claim against either Mr Strahley or Mr Breed regarding any of the representations in the Further Amended Statement of Claim. Paragraph 20B does not allege actual knowledge by either Mr Strahley or Mr Breed of each alleged representation, that either respondent new each representation was misleading, or that either respondent knew that the first respondent had no reasonable grounds for making the alleged representation as to future matters. The written submissions of the applicants with respect to s 75B constitute an attempt to replead their claims after the hearing has concluded, but in any event continue to fail to address the elements of s 75B as articulated in Yorke v Lucas and Quinlivan. I consider that even if I have erred in my findings that the representations of the first respondent as pleaded in the Further Amended Statement of Claim did not breach ss 51A or 52, the claims of the applicants against Mr Strahley and Mr Breed in respect of accessorial liability failed at the threshold.

    CROSS-CLAIM BY FIRST RESPONDENT

12. The applicants conceded that, if the applicants failed in their action against the first respondent and Mr Strahley, the first respondent was entitled to succeed in its cross-claim against the first applicant.

13. In these circumstances, it is clear that the first respondent has been successful in the cross-claim against the first applicant and I propose to make the orders sought by the first respondent.

14. In this context however the first respondent has not sought interest to be paid at a specific rate of interest on either damages or the sum of $150,000 claimed, other than interest pursuant to s 51A Federal Court of Australia Act 1976 (Cth). Section 51A(1) provides:

    In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either –

    (a)order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

    (b)without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

15. Although s 51A does not prescribe a rate of interest, the usual practice in the Federal Court has been to adopt the rates of interest applied in the Supreme Court of the State in which the application is commenced unless there is evidence that the rates are penal or not commercial: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688 at [7], Gordon v Commonwealth [2008] FCA 603. The current rate of interest prescribed under s 47 Supreme Court Act 1995 (Qld) is 10% per annum. No submissions were made by the parties as to an appropriate rate of interest. I consider that the rate of interest of 10% per annum under the Supreme Court Act should be applied.

    COSTS

16. At the hearing I indicated to the parties that I would not make any orders as to costs when I delivered judgment, but would require the parties to make submissions and then give consideration to appropriate costs to be ordered. Accordingly I make no orders as to costs pending submissions by the parties.

    THE COURT ORDERS THAT:

    1.        The Amended Application filed 16 February 2006 be dismissed.

    2.        The Cross-Claim filed 5 June 2007 be allowed as follows:

    (a)the Cross-Respondent pay the Cross-Claimant damages in the sum of $385,383 for breach of the Packing Shed Agreement;

    (b)the Cross-Respondent pay the Cross-Claimant the sum of $150,000 for a loan which remains due and owing; and

    (c)the Cross-Respondent pay the Cross-Claimant interest at the annual rate of 10% on the sums ordered to be paid in sub-paragraphs 2(a) and 2(b) herein pursuant to section 51A Federal Court of Australia Act 1976 (Cth) to be calculated from the date the relevant cause of action arose.

I certify that the preceding six hundred and sixteen (616) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.

Associate:

Dated:        5 September 2008

Counsel for the Applicants:	Mr R Perry SC
Solicitor for the Applicants:	Lynch & Company
Counsel for the Respondents:	Mr J Bell QC with Mr PP McQuade
Solicitor for the Respondents:	McCullough Robertson

Date of Hearings:	13, 14, 15, 16, 17, 20, 21, 22, 23, 24 November 2006, 8, 9, 10, 11, 14, 15, 16 May and 6 June 2007
Date of Judgment:	5 September 2008