Clifford v Vegas Enterprises Pty Ltd - [2011] FCAFC 135

FEDERAL COURT OF AUSTRALIA
Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135

Citation: Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135

Appeal from: Clifford v Vegas Enterprises Pty Ltd (No 5) [2010] FCA 916

Parties: PHILIP GEORGE CLIFFORD v VEGAS ENTERPRISES PTY LTD (ACN 009 078 148), RODNEY DESMOND HART and GEOFFREY BRIAN BACKSHALL

File number: WAD 231 of 2010

Judges: NORTH, BESANKO & JESSUP JJ

Date of judgment: 3 November 2011

Catchwords:
TRADE PRACTICES — appeal from decision of trial judge dismissing appellant’s application for relief pursuant to ss 1041H, 1041I, 79 and 1325 of the Corporations Act 2001 (Cth) (‘the Corporations Act’) and ss 10, 68, 79 and 77 of the Fair Trading Act 1987 (WA) (‘FTA’) in connection with the purchase of shares by a trustee company controlled by him in the first respondent company — where second and third respondents were directors of respondent company — where appellant pleaded that the respondents were guilty of misleading and deceptive conduct in connection with the purchase of the shares by making a false representation in a spreadsheet containing financial information about the first respondent and by failing to disclose certain information about the first respondent to him — where appellant, a barrister, had long history of involvement with the first respondent as its legal advisor — whether trial judge erred in failing to find that the spreadsheet conveyed a false representation — whether trial judge erred in failing to find that the appellant relied on spreadsheet — whether appellant’s evidence that he relied on spreadsheet was challenged during cross-examination — whether trial judge erred in finding that the representations made in the spreadsheet were made on reasonable grounds — whether spreadsheet was provided to the appellant as information material to his decision — whether trial judge failed to give sufficient weight to his finding that appellant was entitled to rely on the spreadsheet — whether trial judge disbelieved the applicant — whether trial judge erred in finding adverse inference could be drawn from appellant’s failure to call his accountant — whether trial judge erred in finding that the third respondent was acting on behalf of the second respondent in respect of the provision of the spreadsheet for the purpose of s 10 of the FTA — whether trial judge erred in holding that respondents had not engaged in misleading or deceptive conduct by failing to disclose certain information to the appellant — whether trial judge erred in finding that appellant not entitled to expect that certain information would be disclosed — whether trial judge misapplied test of reasonable expectation — whether trial judge erred in holding that had misleading and deceptive conduct been made out it was appropriate to order a refund of the amount paid for the shares pursuant to ss 1325(5)(d) of the Corporations Act and s 77(3)(d) of the FTA — whether the appellant was beneficial owner of the shares — whether order could be made to transfer the shares in absence of…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2011] FCAFC 135
Decision Date: 3 November 2011

CaseChat Overview and Summary

The appeal in Clifford v Vegas Enterprises Pty Ltd was heard by the Federal Court of Australia. The appellant, Clifford, sought relief from misleading and deceptive conduct by the respondents, Vegas Enterprises and its directors, in relation to the purchase of shares. Clifford claimed that the respondents misled him through a false representation in a spreadsheet and by failing to disclose certain financial information about the company. The case revolved around whether the trial judge had erred in dismissing Clifford's application for relief under the Corporations Act 2001 (Cth) and the Fair Trading Act 1987 (WA). The court was required to determine whether the spreadsheet conveyed a false representation, whether Clifford relied on the spreadsheet, and if the trial judge correctly assessed the reasonableness of the representations. Additionally, the court needed to examine whether the trial judge appropriately considered the non-disclosure of certain information and whether the failure to disclose constituted misleading or deceptive conduct. The court also had to consider the appropriate remedy if misleading or deceptive conduct had been established.

The court found that the trial judge did not err in his assessment of the representations in the spreadsheet or in his conclusion that the representations were made on reasonable grounds. The court held that the trial judge's findings regarding Clifford's reliance on the spreadsheet and the reasonableness of the representations were supported by the evidence. The court also found that the trial judge correctly determined that there was no misleading or deceptive conduct in the non-disclosure of certain information. Furthermore, the court upheld the trial judge's decision that, even if misleading or deceptive conduct had been established, ordering a refund of the share purchase price was not an appropriate remedy. The court emphasized that ordering the transfer or cancellation of shares in the absence of the trustee company and Clifford's former wife, who had been transferred a portion of the shares, was unconventional and impractical.

The appeal was dismissed, and the appellant was ordered to pay the respondents' costs of the appeal, including the costs of the notices of contention. The court observed that the trial judge's findings were supported by the evidence and that the relief sought by Clifford, which required the re-transfer or cancellation of shares, was not feasible without the trustee company and Clifford's former wife as parties to the proceeding. The court's decision underscored the importance of considering the practical implications of the relief sought in cases involving share transactions and the necessity of all relevant parties being included in the proceedings.

Orders

Orders of the court

1. The appeal be dismissed.

2. The appellant pay the first respondent’s costs of the appeal and the second and third respondents’ costs of the appeal including the costs of the respective notices of contention.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The trial judge held that the respondents had not been guilty of misleading or deceptive conduct. Nevertheless, he went on to consider the appellant’s case on the relief to which he was entitled ‘for completeness’. In broad terms he found in favour of the appellant on the question of relief. In addition to the appeal, there are notices of contention from the respondents challenging the trial judge’s conclusions with respect to relief.THE FACTS – AN OVERVIEW The trial judge arranged his reasons for judgment in the following way. First, he made a number of findings about the dealings between the parties. He did that because he considered that the dealings between the parties and the relationship between them were relevant to the question of whether, in connection with the share transactions, the respondents owed disclosure obligations to the appellant such that a failure to disclose was misleading or deceptive conduct. Secondly, he considered the sales representations and in the course of that consideration he made a number of specific findings of fact and expressed his conclusions. Thirdly, he then did the same thing in relation to the alleged non-disclosure of material facts. I will adopt a broadly similar structure, that is to say, after a very brief description of the parties and the key transactions, I will set out an overview of the facts in chronological order and then outline the trial judge’s key findings with respect to the alleged sales representations and the alleged non-disclosure of material facts. I will then deal with the matters raised on the appeal. The details of the share transactions which were at the centre of the appellant’s case were as follows. On 19 December 2006, Sheraz Pty Ltd (‘Sheraz’) a company associated with the appellant, acquired 600,160 newly issued shares in Vegas (about 8 per cent of the company) for $2,370,986.57 and a further 41,229 shares from an existing shareholder (C Breeze Pty Ltd) for $170,000. The allotment by Vegas to Sheraz followed an invitation from Mr Hart to the appellant in October 2006 to become an investor in Vegas’ business. Immediately prior to the share transactions the appellant was a barrister who provided legal services directly to the first respondent. Vegas was a company which carried on a business of designing and marketing surfing apparel and surfing-related products and the wholesale distribution of surfing apparel and surfing-related products. It had carried on business since at least 1983 (albeit under a different name) and initially it was primarily a surfboard manufacturer. Mr Hart was a director and company secretary of Vegas and he was the sole director of a company that owned shares in Vegas. Mr Backshall was a director, the chief executive officer of Vegas and the owner of shares in Vegas in his capacity as trustee of a family trust. Between them Messrs Hart and Backshall controlled Vegas. From 1999, Mr Chris Rayney was the chief financial officer of the first respondent and a shareholder in the company.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The trial judge rejected this argument and I am disposed to think that he was correct to do so.CONCLUSIONS For these reasons the appeal must be dismissed. The appellant must pay the costs of the appeal of the first respondent and the costs of the appeal of the second and third respondents. It was neither inappropriate nor unreasonable for the respondents to advance the notices of contention and some of the grounds have been successful. The costs of the appeal should include the costs of the notices of contention. I agree that the appeal should be dismissed for the reasons given by Besanko J, and desire to add only a brief observation with respect to one aspect of the Notices of Contention. Where the relief sought by the appellant necessarily carried with it the need either for Sheraz Pty Ltd to re-transfer its shares to the first respondent, or for those shares to be cancelled, I cannot, with respect to the primary Judge, understand how such an outcome might be contemplated in the absence of Sheraz Pty Ltd as a party to the proceeding. The problem is not overcome by a finding that it was the appellant who beneficially owned the relevant shares. That such a finding should be made in the absence of the presumptive trustee – the entity whose interests would be affected by the finding – strikes me, with respect, as all the more unconventional.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

Citation:		Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135
Appeal from:		Clifford v Vegas Enterprises Pty Ltd (No 5) [2010] FCA 916
Parties:		PHILIP GEORGE CLIFFORD v VEGAS ENTERPRISES PTY LTD (ACN 009 078 148), RODNEY DESMOND HART and GEOFFREY BRIAN BACKSHALL
File number:		WAD 231 of 2010
Judges:		NORTH, BESANKO & JESSUP JJ
Date of judgment:		3 November 2011
Catchwords:		TRADE PRACTICES — appeal from decision of trial judge dismissing appellant’s application for relief pursuant to ss 1041H, 1041I, 79 and 1325 of the Corporations Act 2001 (Cth) (‘the Corporations Act’) and ss 10, 68, 79 and 77 of the Fair Trading Act 1987 (WA) (‘FTA’) in connection with the purchase of shares by a trustee company controlled by him in the first respondent company — where second and third respondents were directors of respondent company — where appellant pleaded that the respondents were guilty of misleading and deceptive conduct in connection with the purchase of the shares by making a false representation in a spreadsheet containing financial information about the first respondent and by failing to disclose certain information about the first respondent to him — where appellant, a barrister, had long history of involvement with the first respondent as its legal advisor — whether trial judge erred in failing to find that the spreadsheet conveyed a false representation — whether trial judge erred in failing to find that the appellant relied on spreadsheet — whether appellant’s evidence that he relied on spreadsheet was challenged during cross-examination — whether trial judge erred in finding that the representations made in the spreadsheet were made on reasonable grounds — whether spreadsheet was provided to the appellant as information material to his decision — whether trial judge failed to give sufficient weight to his finding that appellant was entitled to rely on the spreadsheet — whether trial judge disbelieved the applicant — whether trial judge erred in finding adverse inference could be drawn from appellant’s failure to call his accountant — whether trial judge erred in finding that the third respondent was acting on behalf of the second respondent in respect of the provision of the spreadsheet for the purpose of s 10 of the FTA — whether trial judge erred in holding that respondents had not engaged in misleading or deceptive conduct by failing to disclose certain information to the appellant — whether trial judge erred in finding that appellant not entitled to expect that certain information would be disclosed — whether trial judge misapplied test of reasonable expectation — whether trial judge erred in holding that had misleading and deceptive conduct been made out it was appropriate to order a refund of the amount paid for the shares pursuant to ss 1325(5)(d) of the Corporations Act and s 77(3)(d) of the FTA — whether the appellant was beneficial owner of the shares — whether order could be made to transfer the shares in absence of…