Clifford v Vegas Enterprises Pty Ltd (No 5) - [2010] FCA 916

FEDERAL COURT OF AUSTRALIA
Clifford v Vegas Enterprises Pty Ltd (No 5) [2010] FCA 916

Citation: 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 28 of 2009

Judge: BARKER J

Date of judgment: 24 August 2010

Catchwords:
TRADE PRACTICES - misleading or deceptive conduct – applicant alleged respondents made misleading or deceptive representations to induce share purchase in first respondent – whether representations were in relation to the supply or possible supply of financial services – whether Part V of the Trade Practices Act 1974 (Cth) applies – Part V held not to apply

CORPORATIONS – misleading or deceptive conduct – whether alleged representations were in fact made – whether in any event applicant relied on alleged representations – whether respondents failed to disclose material facts – whether respondents had reasonable grounds for non-disclosure – Corporations Act 2001 (Cth), s 1041H, s 1041I

Legislation:
Corporations Act 2001 (Cth) s286, s 763A, s 764A, s 761A, s 1041H, s 1041I, s 1325,
Fair Trading Act 1987 (WA) s 10, s 77, s 79
Trade Practices Act 1974 (Cth) s 51A, s 51AF, s 52, s 82, s 87

Cross on Evidence (8^thAustralian Edition, 2010) JD Heydon

Cases cited: Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119
Austin v Keele (1987) 72 ALR 579
Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 71 ACSR 1
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199;
Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211;
Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 179 FCR 46
Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408
Clifford v Vegas Enterprises Pty Ltd (No 4) [2010] FCA 326
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Donald Financial Enterprises Pty Ltd v APIR Systems Ltd [2008] FCA 1112
Draper v Official Trustee in Bankruptcy [2006] FCAFC 157; (2006) 156 FCR 53
Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Grant v Edwards [1986] Ch 638
Green v Green (1989) 17 NSWLR 343
Green v Green [2003] UKPC 39; (2002-03) 5 ITELR 888
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83
HTW Valuers (Central Qld) Pty Ltd v Astonland PtyLtd [2004] HCA 54; (2004) 217 CLR 640
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653
Pain v Pain [2006] QSC 335
Payne v Parker (1976) 1 NSWLR 191
Port Kennedy Golf Country Club Pty Ltd v Port Kennedy Resorts Pty Ltd [1999] WASC 253
Re Glory Rise Limited [2008] HKCFA 48
Stowe v Stowe (1995) 15 WAR 363
Sui Mei Huen v Official Receiver [2008] FCAFC 117; (2008) 248 ALR 1
Tooheys Ltd v Commissioner of Stamp Duties (1961) 105 CLR 602
Townsend v Roussety & Co (WA) Pty Ltd (2007) 33 WAR 321
Vitek v Estate Homes Pty Ltd [2010] NSWSC 237
Watson v Foxman (1995) 49 NSWLR 315
Western Australia v Watson [1990] WAR 248
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97

Dates of hearing: 22 - 26 March 2010, 29 March 2010, 31 March 2010, 1 April 2010 and 16 April 2010

Place: Perth

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 456

Counsel for the Applicant: Mr AP Rumsley

Solicitor for the Applicant: Alan Rumsley

Counsel for the First Respondent: Mr DN Galbally QC and Mr BD Luscombe

Solicitor for the First Respondent: Cochrane Lishman Carson Luscombe

Counsel for the Second and Third Respondents: Ms PE Cahill SC and Mr AD Bereyne

Solicitor for the Second and Third Respondents: Jackson McDonald

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 28 of 2009

BETWEEN:
PHILIP GEORGE CLIFFORD
Applicant

AND:
VEGAS ENTERPRISES PTY LTD (ACN 009 078 148)
First Respondent

RODNEY DESMOND HART
Second Respondent

GEOFFREY BRIAN BACKSHALL
Third Respondent

JUDGE:

BARKER J

DATE OF ORDER:

24 AUGUST 2010

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The application be dismissed.
2.The applicant to pay the first respondent’s and the second and third respondents’ costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

INDEX

OVERVIEW........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...

[1]

A BRIEF HISTORY OF THE PARTIES’ INVOLVEMENT IN VEGAS........ ........ ..

[10]

THE APPLICANT’S PLEADED CASE........ ........ ........ ........ ........ ........ ........ ........ ........

[22]

WHETHER PART V OF TPA APPLIES........ ........ ........ ........ ........ ........ ........ ........ ......

[50]

DEALINGS BETWEEN THE PARTIES........ ........ ........ ........ ........ ........ ........ ........ .....

[56]

THE SALES REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ....

[195]

THE BANK DEBT REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ .

[244]

THE PRODUCT REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ .....

[265]

NON-DISCLOSURE OF MATERIAL FACTS........ ........ ........ ........ ........ ........ ........ ...

[284]

ENTITLEMENT TO RELIEF........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......

[378]

ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........

[456]

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 28 of 2009

BETWEEN:
PHILIP GEORGE CLIFFORD
Applicant

AND:
VEGAS ENTERPRISES PTY LTD (ACN 009 078 148)
First Respondent

RODNEY DESMOND HART
Second Respondent

GEOFFREY BRIAN BACKSHALL
Third Respondent

JUDGE:

BARKER J

DATE:

PLACE:

PERTH

REASONS FOR JUDGMENT
OVERVIEW

At material times:
·The first respondent (Vegas) was in the business of design and marketing of surfing apparel and surfing related products and the wholesale distribution of surfing apparel and surfing related products;
·The second respondent (Mr Hart) was a director and company secretary of Vegas and the sole director of a company that owned shares in Vegas;
·The third respondent (Mr Backshall) was a director, chief executive officer of Vegas and the owner of shares in Vegas in his capacity as trustee of a family trust;
·Between them, Mr Hart and Mr Backshall controlled Vegas; and
·The applicant (Mr Clifford) was a barrister who provided legal services directly to Vegas.
On 19 December 2006, Sheraz Pty Ltd (Sheraz) – a company associated with Mr Clifford – acquired 600,160 newly issued shares in Vegas for $2,370,986.57 and a further 41,229 shares from an existing shareholder (C Breeze Pty Ltd) for $170,000.
Mr Clifford claims that the acquisition of those shares was affected by the misleading or deceptive conduct of the respondents who, he alleges, made representations to him about Vegas’ bank debts, sales and product and failed to disclose material facts to him, as a result of which he has suffered loss and damage. He says the shares are now unsaleable. Mr Clifford seeks in substance an order that he be refunded the price paid for the shares and compensated for other related costs he has incurred (with interest) upon return of the shares to Vegas.
In the result, I do not consider that the applicant has made out the case of misleading or deceptive conduct he has brought against the respondents.
So far as alleged bank debt and product representations pleaded by the applicant are concerned, I am not satisfied they were made.
So far as the sales representations pleaded by the applicant are concerned, I do not consider the applicant has established that he relied on information he received from Mr Backshall in about mid November 2006 about the projected income from sales. I consider, in any event, the respondents have established they had reasonable grounds for the projections made.
So far as the alleged non-disclosure of material facts or misrepresentation by silence is concerned, I consider that, in the unusual circumstances of this case, the respondents were entitled to expect that the applicant would request from them any particular information he considered material to his due diligence in relation the acquisition of the Vegas shares. In particular, I do not consider that the non‑disclosure by the respondents of information about Vegas’ sales performance, movements in its overdraft account and shareholders’ loans prior to the acquisition of the shares, constitutes misleading or deceptive conduct. I consider this information was not or would not have been material to the applicant’s investment decision in any event. I also find that an allegation that the respondents used the applicant’s share acquisition funds to pay down the overdraft facility and shareholders’ loan accounts is not proved.
If the applicant had established that the respondents were liable to him for misleading or deceptive conduct as alleged, I would have considered it appropriate to make a refund order. I would have considered that damages alone would have been an inadequate remedy in the circumstances of the case as there seemed not to be a ready market for the shares and, in practical commercial terms, the applicant had established the shares he continued to hold beneficially were unsaleable. I would also have awarded damages for costs associated with acquiring and holding the shares.
However, because the applicant has failed to make out the misleading or deceptive conduct case he has brought, his case must fail.
A BRIEF HISTORY OF THE PARTIES’ INVOLVEMENT IN VEGAS
In 1983, Mr Hart took a 40% equity investment in Vegas (then known as Santosha Surfboards) as a silent investor. Vegas was then primarily a surfboard manufacturer with four retail outlets in Western Australia, which sold mainly surfboards, sailboards, surf and sailboard accessories and surf apparel. The business was supported by a licence from Mr Rusty Preisendorfer, a respected United States surfboard shaper and designer, to use the “Rusty” brand in Australia.
In 1986, Mr Clifford first had contact with Vegas. Mr Hart, who had previously dealt with Mr Clifford in his capacity as a lawyer at the Perth office of the law firm, Freehill Hollingdale and Page, engaged Mr Clifford to provide legal advice to Vegas in relation to its licensing arrangements concerning the Rusty brand. Before many years passed, Mr Clifford was regularly engaged to provide legal services to Vegas on a variety of issues.
In 1987, Vegas decided to develop its wholesale apparel and surfboard business. Mr Backshall was then hired to assist this business initiative. From 1987-1992, he was the national sales manager and successfully grew sales. As a result, between 1988-1989 Vegas closed its retail operations to focus on the wholesale business.
In 1987, Mr Hart was appointed managing director of Vegas and remained in this role until 1992, when Mr Backshall was elevated from his role of national sales manager to replace him as managing director. Mr Hart then became an executive director and the company secretary of Vegas and has held those positions ever since. Mr Hart’s role in Vegas has since been focussed on the company’s business culture and philanthropic programs. When Mr Backshall was promoted to Managing Director of Vegas, he was given 10% of the equity of the company as an incentive to remain with it.
In 1999 there was a restructuring of Vegas. A shareholder retired and interests associated with Mr Chris Rayney (then the Chief Financial Officer, or CFO, of Vegas), Mr Dean Whiteman (then the New South Wales sales agent) and Mr Mark Sutton (then National Marketing Manager) each purchased 8% of the equity of the company from the retiring shareholder. As part of the restructuring, interests associated with Mr Mick Button purchased another 6% of Vegas, to take his total interest in the equity of the company to 16%. The family trust of Mr Backshall purchased another 10% of the company to take his interests to 20%. The balance of the company of 40% remained with interests associated with Mr Hart. At the time of the 1999 restructuring, the shareholders signed a Business Owners Agreement. However, both immediately before and after this restructure, until 2009, Messrs Hart and Backshall controlled the company and were its only directors.
In July 2006, Vegas acquired from Mr Preisendorfer a controlling stake in R … And Everything Else Inc (Rdot) (a corporation incorporated in California), which was and still is the ultimate owner of the “Rusty” trademarks and associated intellectual property, and the global licensor for the Rusty brand. Vegas also negotiated the termination of a royalty stream that it was obliged to pay to interests associated with Mr Preisendorfer for the use of the Rusty brand in Australia. At the same time, Mr Preisendorfer purchased a small stake in Vegas.
On 19 December 2006, 600,160 ordinary shares in the capital of Vegas, representing around 8% of the company were allotted to and registered in the name of Sheraz Pty Ltd (Sheraz). An additional 41,229 shares were also transferred to Sheraz by C Breeze Pty Ltd, an entity associated with Mr Sutton. The allotment to Sheraz followed an invitation from Mr Hart to Mr Clifford in October 2006, to become an investor in Vegas’ business.
In 2009, 224,486 of the shares registered in the name of Sheraz were transferred to Mr Clifford then further transferred to Mr Clifford’s former wife pursuant to an order of the Family Court of Western Australia made in late 2008.
In March 2009, following a capital raising by Vegas, a new shareholder (New Force Holdings Pty Ltd) took a controlling interest of approximately 53% in the company. This had the effect of diluting the shareholding of all the existing shareholders.
At the time of the hearing of this proceeding, the current shareholders of Vegas were:
·New Force Holdings Pty Ltd – approximately 53%.
·A company associated with Mr Hart – approximately 17.4%.
·Mr Backshall’s family trust – approximately 8.7%.
·Mick Button and associated interests – approximately 6.95%.
·A company associated with Mr Rayney – approximately 3.53%.
·A company associated with Mr Whiteman – approximately 3.53%.
·C Breeze Pty Ltd, a company associated with Mr Mark Sutton – approximately 3.27%.
·Sheraz – approximately 1.97%.
·Mr Clifford’s former spouse – approximately 1%.
·A trust associated with Mr Preisendorfer – approximately 0.9%.
For about 17 years until about April 2008, Mr Clifford was the sole lawyer providing legal advice to Vegas and its associated companies, other than some advice from other law firms regarding small debt collections and some leasing work. Initially he provided the services through Freehills, but later, after he joined the independent bar in 1995 (and undertook in 1998 to the Supreme Court of Western Australia thereafter to practice solely as a barrister and no longer as a barrister and solicitor), he provided his services directly to Vegas. When Sheraz became a shareholder in December 2006, Mr Clifford accepted an in‑house counsel role at Vegas as an agreed part of the share allocation, although he also maintained his practice as a barrister. His role as in‑house counsel of Vegas was ultimately terminated in April 2008.
In the period after Mr Clifford began advising Vegas regularly, he became close to both Mr Hart and Mr Backshall and was trusted by them. Mr Backshall and Mr Clifford regularly socialised and surfed together. Both Mr Hart and Mr Backshall came to rely considerably on Mr Clifford’s advice. Mr Clifford was, for example, deeply involved in Vegas’ acquisition of a controlling interest in Rdot, the termination of the royalty payments payable by Vegas to interests associated with Mr Preisendorfer and the dealing by which Mr Preisendorfer took a small stake in Vegas. It was following these dealings, in about October 2006 that Mr Clifford was invited to acquire equity in Vegas. However, by mid 2007, the relationship between Mr Clifford, on the one part, and Mr Hart and Mr Backshall, on the other, had soured when they disagreed regarding the future plans for Rdot and Vegas.
THE APPLICANT’S PLEADED CASE
Mr Clifford pleads (amended statement of claim, [5] – [13]) that at the time he received the invitation to acquire the equity interest in Vegas, up to and including the time that he paid Vegas for the equity interest on 19 December 2006, he was not informed by Vegas, Mr Hart or Mr Backshall of the following material facts, namely that:
·By mid August 2006, Messrs Hart and Backshall were aware that Vegas was not meeting its budgeted sales for the 2006/2007 year.
·In or about late July 2006, Messrs Hart and Backshall in discussions with Westpac Banking Corporation (Westpac) as the bankers for Vegas, requested of Westpac an increase in borrowings by an additional $2,500,000 to provide working capital for Vegas to meet a shortfall in cash flow.
·In or about 2 August 2006, Westpac agreed to increase the level of Vegas’ borrowings by $2,500,000 until the end of September 2006 under an existing overdraft facility Vegas had with Westpac, on the condition that the existing shareholders of Vegas provide an additional $1 million as shareholder loans for working capital for Vegas.
·Vegas, through Messrs Hart and Backshall, accepted the Westpac facility increase and arranged for the existing shareholders to pay an additional $1 million to Vegas for working capital of Vegas, by way of shareholders’ loans to Vegas.
·In or about October 2006, Messrs Hart and Backshall, who were aware that Vegas was still not meeting its budgeted sales, again met with Westpac to request an extension until the end of December 2006 of the $2,500,000 increase on the limit of the overdraft facility. Westpac agreed to extend the overdraft facility to $3 million until the end of November 2006, alternatively, December 2006, on the condition that the existing shareholders of Vegas provided an additional $500,000 as shareholder loans for working capital for Vegas.
·Vegas, through Messrs Hart and Backshall, accepted the Westpac facility extension and by about late October or early November 2006 arranged for the existing shareholders to pay an additional $500,000 to Vegas for working capital of Vegas, by way of shareholder loans to Vegas.
·Amounts were drawn down in excess of $1.5 million by Vegas on the Westpac overdraft account between 25 July 2006 and 30 November 2006.
·On or about 19 December 2006, at the direction of Messrs Hart and Backshall, Vegas paid the $2,370,986.57 received from Mr Clifford as follows:
(1) $500,000 to repay the shareholder loans pleaded; and
(2) $1,870,986.57 to reduce Vegas’ overdraft facility with Westpac.
Mr Clifford pleads (amended statement of claim [14]) that if these material facts had been disclosed to him, he would not have:
·Paid to Vegas the sum of $2,370,986.57 in return for the issue of 600,160 newly issued shares in Vegas.
·Paid C Breeze Pty Ltd the sum of $170,000 in return for the transfer of 41,229 existing shares in Vegas to Mr Clifford.
·Borrowed the sum of $2,370,986.57, paid to Vegas, from the ANZ Bank.
(I will refer to these transactions, for ease of reference, as the three transactions).

Mr Clifford further pleads (amended statement of claim [15]) that in or about October and November 2006, Vegas, through Messrs Hart and Backshall acting with the approval of the Vegas shareholders, invited Mr Clifford to invest about $2.6 million by purchasing 7% to 8% of the issued capital shares in Vegas and in so doing made the following representation, namely, that the $2.6 million would be used to repay part of the bank debt incurred by Vegas in July 2006 to purchase 51.4% of the issued shares in Rdot, the intellectual property holder in respect of the “Rusty” brand of apparel. Mr Clifford calls this representation the “bank debt representations”. He says these representations are oral and were made in discussion in October and again in November 2006 in the offices of Vegas between Mr Clifford and Messrs Hart and Backshall.
Mr Clifford pleads (amended statement of claim [16]) that the bank debt representations were with respect to future matters for the purposes of the s 51A of the Trade Practices Act 1974 (Cth) (TPA) and s 769C of the Corporations Act 2001 (Cth).
Mr Clifford further pleads (amended statement of claim [19]) that in or about October and November 2006, Vegas, through Messrs Hart and Backshall, represented to him that Vegas could increase sales and earn international royalties, as represented in a sales, costs and EBITDA (earnings before interest, taxes, depreciation and amortisation) schedule given to Mr Clifford, because it was and had always been the case that Vegas/Australian designed, manufactured and distributed Rusty apparel was of the highest standard of all “Rusty” brand apparel worldwide and would be acceptable, alternatively, substantially acceptable in any market worldwide retailing the “Rusty” brand products, including in particular in the United States. Mr Clifford calls these representations the “product representations”. He says these representations were partly oral and partly written. Insofar as they were oral, they were made in discussions in October and November in the offices of Vegas between Mr Clifford and Messrs Hart and Backshall. Insofar as they were written, they were set out in the schedule given to Mr Clifford.
Mr Clifford further pleads (amended statement of claim [22]) that in or about November 2006, Vegas, through Messrs Hart and Backshall represented to him the following financial performance and gross profits (EBITDA) figures for Vegas, which he collectively calls the “sales representations”:
(1)       For the year ending 30 June 2007:
·           Sales would be $45,512,163; and
·Taking account of costs, selling expenses and other items, the operating income (before interest, tax and depreciation) (EBITDA) would be $4,068,809.
(2)       For the year ending 30 June 2008:
·           Forecast sales were $48,400,000;
·           Forecast international royalties received by Vegas were $3,290,000; and
·Allowing for the costs of sales and receipt of royalties the EBITDA would be $9,324,200.
(3)       For the year ending 30 June 2009:
·           Forecast sales were $52,030,000;
·           Forecast international royalties received by Vegas were $4,880,000; and
·Allowing for the costs of sales and receipt of royalties, the EBITDA for the year ending 30 June 2009 would be $12,239,740.
Mr Clifford particularises the sales representations in his pleading (amended statement of claim [22]) as being in writing contained in a spreadsheet provided by the respondents to Mr Clifford in November 2006.
Mr Clifford pleads (amended statement of claim [23]) the sales representations were representations with respect to future matters for the purposes of s 51A of the TPA and s 769C of the Corporations Act.
Mr Clifford pleads (amended statement of claim [17], [20] and [24]) that in reliance upon the bank debt representations, the product representations and the sales representations he entered into the three transactions.
Mr Clifford further pleads (amended statement of claim [18], [21] and [25]) that had these representations not been made or each of them had not been made he would not have entered into the three transactions.
Mr Clifford pleads (amended statement of claim [26]) that the bank debt representations, product representations and sales representations and each of them separately continued in effect to and including 19 December 2006, at which time he paid the sum of $2,540,986.57 in total to Vegas and in part to C Breeze Pty Ltd.
Mr Clifford pleads (amended statement of claim [27], [28] and [29]) that each of those representations were false:
·Firstly, the bank debt representations were false in that the monies paid to Vegas in reliance upon the bank debt representations was not used to pay down bank debt owing by Vegas to Westpac related to the acquisition by Vegas of the issued stock in Rdot and was used instead to repay shareholders loans of $500,000 and to reduce a short term overdraft facility which had been increased to $3 million in the period August 2006 to November 2006 which increase was not disclosed to him.
·Secondly, the product representations were false in that the Australian designed, manufactured and distributed apparel was not acceptable in any market worldwide retailing the “Rusty” brand and, in particular, in the United States;
·Thirdly, the sales representations were false in that:
(1) For the year ending 30 June 2007:
·The sales were $40,926,448 and not $45,512,163;
·The EBITDA was no more than -$306,000 and not $4,068,809.
(2) For the year ending 30 June 2009:
·The sales were about $40,245,091 and not $48,400,000;
·The international royalties received by Vegas were about $1,895,616 and not $3,290,000; and
·The EBITDA was significantly less than $9,324,200.
Mr Clifford pleads (amended statement of claim [30]) that Messrs Hart and Backshall at material times were aware of the bank debt representations, the product representations and the sales representations and were aware of the pleaded material facts.
Additionally, that (amended statement of claim [31]) Mr Backshall was responsible for overseeing the preparation of the document setting out the sales representations.
Mr Clifford further pleads (amended statement of claim [32]) that Mr Hart was at all material times aware that Mr Backshall was responsible for overseeing the preparation of the documents setting out the sales representations and informed Mr Clifford he ought to rely upon the information in those documents provided upon the instructions or through the supervision of Mr Backshall.
Mr Clifford further pleads (amended statement of claim [33]) that Messrs Hart and Backshall were at all material times aware the sales figures in the sales representations were incorrect.
Mr Clifford pleads (amended statement of claim [34]) that Mr Backshall at all material times held the view that a global approach to design, manufacture and distribution of apparel utilising Vegas Australian products was bound to fail and licensees must be allowed to customise products for their own markets to a large degree particularly in the United States market.
Mr Clifford further pleads (amended statement of claim [35]) Mr Backshall was at all material times aware that allowing customised product within the various markets was a trait shown by the two market leaders in the relevant industry.
Mr Clifford pleads (amended statement of claim [36]) that Mr Backshall was at all material times aware that Vegas’ staff responsible for the design, manufacture and distribution of apparel did not have the skill set to carry out such activities in relation to global markets and, in particular, the United States.
Mr Clifford pleads (amended statement of claim [37]) that Mr Backshall at all material times informed Mr Hart of these matters concerning customised product.
Mr Clifford pleads (amended statement of claim [38]) that it follows that by not informing him of the pleaded material facts and in making the bank debt representations, the product representations and the sales representations, Vegas engaged in conduct which was misleading or deceptive or likely to mislead or deceive contrary to s 52 of the TPA including, without limitation, by operation of s 51A of the TPA.
Mr Clifford further pleads (amended statement of claim [39]) that it follows that Messrs Hart and Backshall were directly or indirectly knowingly concerned in or a party to the contravention of s 52 of the TPA constituted by the conduct of Vegas, by the operation of s 75B of the TPA.
Mr Clifford pleads (amended statement of claim [40]) that Vegas’ conduct in breach of s 52 of the TPA was a cause of the loss or damage suffered by Mr Clifford for the purposes of s 82 and s 87 of the TPA and particularises his loss as follows:
(1)The cost and expense Mr Clifford has incurred to 17 February 2009 in the sum of $2,713,871.47.
(2)“Minority shareholdings in Vegas are unsaleable”.
To this point, these claims are all dependent upon the TPA. However, Mr Clifford pleads further and in the alternative (amended statement of claim [41]), that the shares issued in Vegas and the existing shares in Vegas transferred to Vegas were respectively a “financial product” for the purposes of s 764A(1) of the Corporations Act and that the pleaded conduct of the respondents that led Mr Clifford into entering into the three transactions constitutes “dealing in a financial product” for the purposes of s 766C(1) and s 766A(1) of the Corporations Act.
Mr Clifford pleads (amended statement of claim [42]) that it follows that by engaging in the conduct of inviting him to acquire an equity interest in Vegas, of not informing him of the material pleaded facts and in making the bank debt representations, and/or the product representations and/or the sales representations, Vegas engaged in conduct which was misleading or deceptive or likely to mislead or deceive, contrary to s 1041H of the Corporations Act, including, without limitation, by operation of s 769C of the Corporations Act.
Mr Clifford pleads (amended statement of claim [43]) that it also follows that Messrs Hart and Backshall were directly or indirectly knowingly concerned in or a party to the contravention of s 1041H of the Corporations Act constituted by the pleaded conduct, by operation of s 79 of the Corporations Act.
Mr Clifford pleads (amended statement of claim [44]) that Vegas’ conduct in breach of s 1041H of the Corporations Act was a cause of the loss or damage suffered by Mr Clifford for the purposes of s 1041I and s 1325 of the Corporations Act. Mr Clifford pleads and particularises that the loss or damage in the same terms as that claimed and particularised in relation to the TPA.
Finally, Mr Clifford pleads (amended statement of claim [45]) that the conduct of Messrs Hart and Backshall in breach of s 10 of the Fair Trading Act 1987 (WA) (FTA) was a cause of the loss or damage suffered by Mr Clifford for the purposes of s 77 and s 79 of the FTA. Mr Clifford again particularises his loss and damage in the same terms as he particularises his loss and damage under the s 52 TPA misleading and deceptive conduct claims.
WHETHER PART V OF TPA APPLIES
The applicant’s primary claim is that the non-disclosure of material information and the making of the pleaded representations is conduct that contravenes s 52 of the TPA, which 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, although the applicant also seeks to maintain actions in respect of this alleged misleading or deceptive conduct under the Corporations Act and the FTA.
However, s 51AF(1) of the TPA provides that Pt V of the TPA, which includes s 52, does not apply to the supply, or possible supply, of services that are financial services. The respondents submit that the conduct alleged against them relates to the sale and acquisition of shares – and so involves the supply of financial services – with the result that s 51AF applies in this case. The applicant submits otherwise and frames his submissions this way:
·The material difference between the different statutory regimes is that individuals are not principally liable under the TPA and Corporations Act, but may be liable as accessories to the conduct of a corporation. However, under the FTA, an individual may be held liable as a principal for contravening conduct. In Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 at [13], the Full Federal Court observed that such principal liability is incurred on the basis that a director of a corporation who acts on its behalf in the course of trade or commerce “also acts for himself or herself in trade or commerce” and if the corporation is liable the director may also attract “primary liability” under the State legislation. In such cases it is not necessary for an applicant to establish that a respondent director has knowledge of or is aware of the ingredients of the contravention, as is required to establish accessorial liability under the TPA or Corporations Act.
·Section 1041H of the Corporations Act does not replicate s 52 of the TPA by proscribing a company from engaging in misleading conduct per se. Rather, s 1041H relevantly applies where a person has engaged in conduct “in relation to” a financial product or a financial service that is misleading or deceptive or is likely to mislead or deceive. This point was recognised by Jacobson and Gordon JJ, in a joint judgment, in Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211, at [29].
·By s 9 of the Corporations Act a “financial product” has the meaning given to it in Ch 7 of that Act. Section 763A provides that a financial product is a facility through which or through the acquisition of which, a person does one or more of the following: makes a financial investment; manages financial risk; makes non-cash payments. Section 764A(1)(a) provides that subject to Subdiv D a “security” is a financial product. A “security” is defined by s 761A to mean, amongst other things, “a share in a body”.
·Accordingly, for the applicant to establish that the Corporations Act applies in place of the TPA in this case, it is necessary to establish that the relevant conduct was “in relation to the shares” of Vegas. However, as the relevant misleading and deceptive conduct may be seen to go to matters in relation to the business of Vegas, rather than the shares in Vegas, the preferable view is that the TPA provisions apply.
The respondents submit that by virtue of s 51AF of the TPA, the TPA does not apply as each of the representations alleged, including the allegation of non-disclosure of material facts (as a species of misrepresentation by silence), has occurred in connection with the acquisition of financial products or financial services, being 600,160 newly issued shares in Vegas and a further 41,229 shares from an existing shareholder.
In my view, the respondents’ submissions should be accepted. Section 1041H of the Corporations Act is complementary to s 51AF TPA, and fixes on and proscribes conduct “in relation to a financial product or a financial service”. It ensures that, following the operation of s 51AF of the TPA, there is no gap in the Commonwealth legislation governing fair dealing in relation to financial products and services. As noted above, the term “financial product” is defined in Pt 7.1, Div 3 to include security (s 764A(1)) and the term “financial service” is defined in Pt 7.1, Div 4 to include a “dealing” in a financial product. A “security” includes “ a share in a body” (s 761A). The term “dealing” is defined to include applying for or requiring, or issuing, a security (s 766C(1)). Having regard to s 1041H(2), in Donald Financial Enterprises Pty Ltd v APIR Systems Ltd [2008] FCA 1112 (Donald Financial Enterprises) Edmonds J at [176], considered it clear that s 1041H applied to conduct which consisted of the applicant’s application for and respondent’s issues of shares as well as the applicant’s acquisition of shares from an existing shareholder. The force of this finding, with which I agree, is emphasised by the breadth of the words “in relation to” that appear in s 1041H(1). They are words with a very expansive meaning: see Tooheys Ltd v Commissioner of Stamp Duties (1961) 105 CLR 602 at 620. The same finding should be made here, for the same reasons, in relation to the conduct concerning the acquisition by Sheraz of the shares in Vegas on 19 December 2006.
While in his written opening submissions counsel for the applicant tended to leave open the question whether s 51AF of the TPA applied in this case, in his closing written submissions he submitted that it did not and referred to my earlier decision in Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 179 FCR 46 at [231]-[238]. In Avoca, I held that a representation conveyed in an agreement whereby one person authorised another person to be their representative for the purpose of providing financial product advice was not an instance of the first person “engaging in conduct in relation to the providing of financial product advice”. However, the circumstances of that case were quite different from those here. In my view, there is little doubt that the conduct and representations pleaded by Mr Clifford, in order to fix liability on the respondents for misleading or deceptive conduct, are “in relation to a financial product or a financial service”, because they are connected with the acquisition of a security or securities.
I find, therefore, that the provisions of Pt V of the TPA are not relevant to the applicant’s claims. Consequently, it is only his claims pursuant to the Corporations Act and the FTA that remain open for consideration. These claims, however, also depend on the applicant establishing that the conduct of the respondents complained of constituted misleading or deceptive conduct.
DEALINGS BETWEEN THE PARTIES
Put shortly, Mr Clifford says the respondents misled and deceived him by:
·Failing to disclose to him: changes in Vegas’ borrowing facilities with Westpac; that Westpac had made it a condition of a $2.5 million loan facility increase that shareholders should provide Vegas with loans of $1 million for working capital; that shareholder loans had been increased by a further $500,000 in October/November 2006; their intention to use Mr Clifford’s investment monies of $2,370,987 to pay down the undisclosed increase in Vegas’ loans.
·Making the sales representations.
·Making the product representations.
·Making the bank debt representations.
Mr Clifford’s basic contention is that, from at least 19 July 2006, when Vegas purchased the termination of the royalty stream to interests associated with Mr Preisendorfer and gained control of Rdot, Vegas was under significant financial pressure. He says the evidence of this is incontrovertible. He seeks to imply the respondents were anxious to invite his investment in Vegas because of the financial pressure Vegas was under, and held back vital information that would have disclosed the problem and caused Mr Clifford to decline the investment opportunity. Indeed, Mr Clifford says he did not initiate the investment discussions; rather, Mr Hart did.
The respondents deny the applicant’s pleaded case, reject the proposition that Mr Hart initiated investment discussions with Mr Clifford, refute the construction that the applicant places on known facts, seek to clarify the sequence of events, say that Mr Clifford knew all he needed to know about Vegas’ financial position when he chose to take up the investment and should have asked for more information if he needed it, and contend none of the representations or conduct complained of was material to Mr Clifford’s investments decision in any event.

To properly consider the applicant’s basic contentions and the respondents’ denial of them, it is necessary to fill out the evidence with an outline of Mr Clifford’s involvement in Vegas. Much of the account I will provide is not in dispute and is drawn from the uncontested evidence of the parties. However, I will make findings in the course of providing this account about some disputed facts. Other disputed facts will be left for determination when considering whether the pleaded representations and other conduct said to be misleading or deceptive have been made out.
In the course of the hearing and also in closing written submissions, counsel for the applicant maintained objections concerning the relevance of evidence led by the respondents and in particular arising from the line of questioning and documents put to the applicant in cross‑examination. Broadly speaking, the applicant submitted that only the evidence closely related in time to the three pleaded representations and the pleaded undisclosed material facts was admissible evidence. The respondents, however, took a broader view. They submitted that the question of the knowledge that the applicant had about Vegas affected the extent to which it could be said, in a practical sense, that the respondents owed any duty to disclose information to him in connection with the acquisition of the shares, as well as his general credibility in relation to the pleaded representations, entitling them to pursue the line of questioning that they did.
In general terms I accepted, and accept, the submissions made on behalf of the respondents in this regard. I allowed into evidence a range of materials on this basis. In the event, some of that evidence – for example, evidence disclosing what ordinary, day‑to‑day or week‑to‑week legal advice the applicant provided to Vegas, did not bear on the issues that finally needed to be determined. But nonetheless it was of marginal relevance in helping to define the nature of a relationship between the applicant and Vegas, and the second and third respondents at material times.
As I say the credibility of the applicant was also placed firmly in issue by the respondents, if not from prior to the commencement of the trial then certainly from the commencement of the trial. It was well understood by all concerned that there is a finality rule in relation to cross‑examination on collateral facts, that is to say facts not constituting the matters directly in dispute between the parties or those which are not facts in issue or facts relevant to a fact in issue. Under this rule, those facts could be pursued but, in effect, the questioner would be bound by the answers given. That is not to say, however, that the questioner may not in cross‑examination endeavour to challenge or shake the answers given: see Western Australia v Watson [1990] WAR 248 at 288 – 9. See generally in relation to the finality rule in relation to collateral questions Cross on Evidence (8^th Australian Ed, 2010) by JD Heydon at [17580].
In this case, I do not consider the finality rule was breached. While the applicant plainly considered that the respondents, particularly the first respondent, during the cross‑examination of the applicant went to unnecessary lengths, that is a matter of judgment. As I say the applicant took the view that the case could be and should have been confined to the dealings between the parties in a very narrow compass – namely, during the latter part of 2006, whereas the respondents took the view that it was necessary to have a much more detailed understanding of the relationship between the parties in order to be able to deal with the defences they had put on and the applicant’s credibility. As I have indicated, I generally accepted and accept the submissions made on behalf of the respondents. The respondents had put the applicant to proof about his claimed lack of knowledge of pleaded material information. Vegas, by [23(c)] of its defence, put in issue that if the applicant had suffered loss or damage, then it was due wholly or party to his failure to take reasonable care before investing in Vegas, in that he failed to undertake a detailed and proper due diligence of Vegas before investing. The second and third respondents expressly pleaded that the applicant relied on his own due diligence inquiries (see second and third respondents’ defence [17(c)], [20(c)], [24(c)], [40(b)], [44(b)], [46(b)]).
As noted above, Mr Clifford first provided advice to Vegas in 1986 in relation to its licensing arrangements concerning the Rusty brand. He was then a lawyer with Freehills, Hollingdale and Page in Perth.
At that time, in 1986, Vegas held the exclusive rights to design, market, manufacture and sell products bearing the Rusty trademark in Australia and New Zealand.
The Californian corporation, Rdot, was originally controlled by Mr Preisendorfer and some other Californian investors. However, in 1989, C&C Partners LLC (C&C) entered into an agreement with Rdot to become the worldwide master licensee for the Rusty brand. This allowed C&C to grant sub-licences in countries around the world and to collect royalties for the use of the Rusty trademark. C&C retained the rights for North America.
Around that time, Vegas entered into an agreement with C&C whereby Vegas remained the exclusive sub-licensee in Australia and New Zealand.
Vegas’ licence arrangements with C&C were renegotiated in the early 1990s, and in 1998 they were renegotiated again to extend the sub-licence for Australia and New Zealand to 2009 and to modify and reduce fees.
In the early 1990s, C&C acquired equity in Rdot up to 42%.
In January 2000, Vegas again renegotiated the sub-licence with C&C to incorporate a sliding scale in respect of the royalties payable to C&C and Mr Preisendorfer and to further extend the sub-licence for Australia and New Zealand to 2017.
Ultimately, in June 2007 – after the primary events in issue in this proceeding – Vegas replaced C&C as the global master licensee of the Rusty trademarks. More recently, in March 2009, Vegas acquired C&C’s remaining interests in Rdot to take Vegas’ interests to around 99.66%. In November 2009, Vegas acquired the remaining interests in Rdot so that it now wholly owns it.
From the time Mr Backshall became managing director in 1992, Mr Clifford advised Vegas regarding the Vegas sub-licence from C&C. Mr Backshall says, and I accept, that from that time, Mr Clifford expressed the view to him that getting control of the Rusty trademarks and global licence was the only way to truly secure Vegas’ future and the investments he and others had made in Vegas.
In February 2004, Mr Clifford and Messrs Hart and Backshall met Mr Preisendorfer and his advisers at Eagle Bay in Western Australia and discussed the potential buyout of a controlling stake in Rdot and the worldwide master licence. The discussions were based in part on Mr Clifford’s advice in December 2003, regarding potential breaches by C&C of its sub‑licence agreement with Rdot.
In April 2004, Mr Clifford prepared a memorandum, draft letter and draft confidentiality deed regarding the due diligence associated with this potential deal, and drafted letters for Mr Backshall to send to Rdot and C&C. This advice concerning the potential deal was in addition to commercial legal advice that Mr Clifford continued to provide to Vegas from time to time.
In June 2004, Mr Hart, Mr Backshall, Mr Clifford and other senior Vegas accounting staff travelled to the United States of America to undertake due diligence regarding C&C’s and Rdot’s financial records and to negotiate with both Mr Preisendorfer and C&C. Mr Clifford’s travel was arranged and paid for by Vegas. Mr Clifford reviewed the Rdot and C&C sales and financial figures for the USA and Europe. He was provided with copies of all relevant documents.
In June 2004, Mr Clifford also drafted a heads of agreement regarding the proposed deal. He also assisted Mr Backshall with a draft business plan for Vegas. This will be referred to again later in relation to the pleaded product representations.
In July 2004, Mr Clifford prepared a memorandum for Messrs Hart and Backshall entitled “Working capital, debt & equity funding alternatives”.
In July, he also prepared a memorandum for Messrs Hart and Backshall regarding financing options for Vegas. The memorandum included a suggestion that Mr Clifford take a management role in Vegas. According to Mr Backshall, Mr Clifford had not been instructed by Vegas to undertake these investigations or prepare the memorandum. I accept this evidence. Mr Clifford plainly was taking a proactive role and it may be seen that his role was moving between that of a traditional commercial lawyer providing legal advice on matters requested by the client, to that of a strategic adviser providing strategic commercial advice that he considered Messrs Hart and Backshall would appreciate. There is no evidence to suggest that either Mr Hart or Mr Backshall resisted Mr Clifford’s initiatives in this regard.
In August 2004, Mr Clifford organised advice from US lawyers regarding the possible termination of C&C’s worldwide master licence.
Also in August, Mr Clifford provided Vegas with advice as to whether it could provide Rdot with information obtained from C&C during the due diligence process.
On 20 August 2004, Mr Clifford updated Mr Backshall regarding his discussions with Mr Preisendorfer’s lawyer on the potential value of the “Rusty brand assets” held by C&C and Rdot, excluding the Australian sub-licence to Vegas.
In December 2004, Mr Clifford prepared a further memorandum regarding the Rusty transaction and a further draft heads of agreement.
Mr Clifford also settled letters to go from Mr Backshall to Rdot and C&C.
In early 2005, Mr Clifford corresponded with Mr Preisendorfer’s lawyers regarding the Rusty transaction.
In March 2005, Mr Clifford advised Mr Backshall regarding a potential new purchase of the Rusty assets and the Australian sub-licence.
In May 2005, Mr Clifford advised Vegas regarding a variation of the sub-licence agreement with C&C to include Singapore in Vegas’ territory;
In September 2005, Mr Clifford provided a memorandum to Vegas regarding funding options for Rdot.
From September onwards he worked closely with a business adviser brought in to assist Vegas with the negotiations with C&C and Mr Preisendorfer.
In October 2005, Mr Clifford organised tax advice for Vegas regarding the proposed Rusty transaction.
By mid December 2005, Mr Backshall had negotiated a price with Mr Preisendorfer regarding Vegas’ potential purchase of Mr Preisendorfer’s shares in Rdot and the royalty stream to Rusty Inc which he owned. But, around March 2006, Mr Preisendorfer visited Vegas in Australia and informed Mr Backshall that he and C&C had agreed to sell their interests to a third party. This sale did not proceed, however, and in mid May 2006, negotiations recommenced between Vegas and Mr Preisendorfer.
Mr Clifford continued to provide advice regarding the negotiations with Mr Preisendorfer.
I accept the evidence of Mr Backshall that throughout this time he updated Mr Clifford on all correspondence and information received from C&C. This included an email from C&C regarding Rdot’s debt. It also included an email from C&C regarding a 10% drop in sales at Vegas in the first half of the calendar year 2006.
The funds for the acquisition of Mr Preisendorfer’s shares in Rdot and the buyback of the royalty stream came from Westpac, via two commercial bills.
As at July 2006, in addition to the two commercial bills, Vegas had a number of other facilities with Westpac which included an overdraft facility of $1.5 million.
In July 2006 the shareholders of Vegas provided guarantees to Westpac for varying percentages of the monies owing by Vegas to Westpac under the finance arrangements overall.
At this time, Mr Backshall obtained Mr Clifford’s advice regarding the Westpac documentation for this transaction. Mr Clifford also provided a letter of undertaking to Westpac in respect of the transaction.
On 7 July 2006, Mr Clifford provided a closing checklist to Vegas in respect of the purchase of Mr Preisendorfer’s shares in Rdot.
I accept Mr Backshall’s evidence that in June and July 2006 Mr Clifford sat in on at least two of the weekly budget meetings that were generally held on Thursdays at the Vegas offices, and attended by all shareholders of Vegas (who were also the executive management team). At these meetings, Mr Clifford updated shareholders on the progress of negotiations with Mr Preisendorfer.
In July 2006, as part of the final closing of the purchase from Mr Preisendorfer, Mr Hart, Mr Backshall and Mr Clifford undertook a further due diligence of Rdot in the USA. As part of this process they were given access to the books and records of Rdot, including the bids that Rusty and C&C had received for their assets in 2005. These included one from Mitsui which valued Rdot and the global licence and royalty streams at $US26 million.
On 18 July 2006, while in the USA, Mr Clifford sought taxation advice for Vegas and Rdot from KPMG. As part of that request he noted that C&C had threatened litigation against Rusty Inc to prevent the sale to Vegas.
On 19 July 2006, the transaction with Mr Preisendorfer was closed at the offices of his lawyers, Sheppard Mullin in San Diego. Mr Clifford was present for the closing negotiations. The ultimate purchase price for Mr Preisendorfer’s shares in Rdot and the buyback of the royalty stream that Vegas paid to Mr Preisendorfer’s personal interests was around $US6.5 million (AUD$8.5 million), plus 2% of Vegas and an option to acquire a further 5% of Vegas. The strike price of Mr Preisendorfer’s option was based on a valuation of Vegas that had been prepared by Sheppard Mullin some time previously. Mr Backshall says he was not provided with a copy of the valuation, but was informed by Sheppard Mullin that it valued Vegas at US$26.66 million. Mr Backshall says Mr Clifford was present when this valuation was discussed with Sheppard Mullin. I accept that this is so, something discussed in more detail below.
On 21 July 2006, following Vegas’ acquisition of a controlling stake in Rdot, there were meetings of shareholders and directors of Rdot at which Mr Hart, Mr Backshall and Mr Clifford were appointed to the board representing Vegas, and Messrs Dac Clarke and Paul Carr were re-elected as directors representing C&C. Messrs Hart and Backshall asked Mr Clifford to be a director and chairman of Rdot. He accepted. Mr Backshall was appointed president of Rdot, the equivalent of a managing director in the Australian corporate governance system. Mr Clifford acted in his roles until 2008.
Mr Backshall says that during Rdot board meetings the directors discussed the need for Rdot to raise about US$1 million in working capital. I accept this is so.
During the trip to the US, Messrs Hart and Backshall met with C&C to discuss how Vegas and C&C could work together cooperatively. Part of the proposal was that Vegas would purchase from C&C the global master licence, C&C would retain the US sub‑licence, and together they would investigate the possibility of an IPO (public float of the company) in four to five years time. Mr Backshall says, and I accept, that while Mr Clifford did not attend that meeting with C&C (as he was at the offices of Sheppard Mullin continuing his review of Rdot’s records), he kept Mr Clifford informed of the discussions with C&C.
At this point in July 2006, Mr Backshall says, and I accept, Vegas approached Westpac to increase its overdraft facility to meet an anticipated shortfall in its cash flow in August. However, Westpac would only provide a further $500,000. As a consequence, Mr Backshall approached the shareholders to loan $1 million in aggregate to Vegas.
On 2 August 2006, Westpac agreed the variation to Vegas’ finance arrangements to increase the limit on the overdraft facility by $500,000 to $2 million on the basis that the limit was to reduce to $1.5 million by 8 September 2006.
Between 4 and 23 August 2006, all of the shareholders of Vegas provided shareholder loans to Vegas in the aggregate sum of $1 million to provide working capital.
On 5 August 2006, the company secretary of Rdot, Cindy Halleman, emailed Mr Clifford and Mr Backshall to advise that Rdot had little cash and required additional funds to pay team contracts and payroll.
In August 2006 all of the shareholders of Rdot provided the company with loan funds of US$500,000 pro rata to their respective interests in Rdot. The total contribution from Vegas was AUD$339,746, one instalment being paid on 15 August and another on 24 August 2006.
Around 10 August 2006, the monthly board package was sent out to shareholders of Vegas for the August board meeting. It showed Vegas’ actual sales figures from 1 July 2006 to the end of July 2006. Total income was AUD$2.011 million against a budget of AUD$2.632 million. Total expenses were $1.322 million against a budget of $1.362 million. There was then a net loss before tax and interest of $619,000 against a budgeted loss of $405,000.
There is an issue whether this and other monthly “board packages” were sent to Mr Clifford. Mr Backshall explained in his evidence, which I accept, that it was standard practice at Vegas for shareholders to collect their monthly shareholder packs containing management accounts from the offices of Vegas. To the best of his knowledge, from the time of Sheraz’s investment in Vegas, until around early 2008, shareholders packs were made available to Mr Clifford. There is no suggestion, however, or evidence to ground the submission that prior to the Sheraz acquisition, Mr Clifford had ordinarily received the monthly board pack. Mr Clifford says that he only received the monthly shareholder packs from mid 2008. In the light of the evidence as a whole, I find Mr Clifford did not receive the monthly board packs at material times in the latter part of 2006 leading up to 19 December 2006. However, I am inclined to accept that after that into 2007, once Sheraz had become a shareholder, the board packages were made available to all shareholders including Mr Clifford (as representative of Sheraz) and that he did take advantage of this access. I find Mr Clifford’s evidence to the contrary implausible in light of his overall diligence in relation to his oversight of his interests, through Sheraz, in the affairs of Vegas at material times.
I have already accepted Mr Backshall’s evidence above, that in June and July 2006, Mr Clifford sat in on at least two of the weekly budget meetings that were generally held on Thursdays and attended by all shareholders at which shareholders were updated on the progress of negotiations with Mr Preisendorfer. This emphasises that even before the investment proposal was raised and discussed in September/October, something I will shortly come to, Mr Clifford was kept actively involved in the matters concerning Rdot, C&C and Mr Preisendorfer. The items in the monthly board packages for those months were dealt with at those meetings.
In early September 2006, Vegas reduced the overdraft facility with Westpac to $1.5 million as they had agreed to do on 2 August 2006.
Around 10 September 2006, the monthly board package was circulated which contained the Vegas actual sales figures from 1 July 2006 to the end of August 2006. The total income was AUD$6.398 million against a budget of AUD$9.366 million. Total expenses were $3.202 million against a budget of $3.289 million. There was net loss before tax and interest of $681,000 against a budget profit of $476,000.
On 14 September 2006, Mr Backshall received an email from Mr Clarke at C&C regarding a proposal to purchase all of C&C’s Rusty assets for US$15 million. Mr Backshall forwarded this email to Mr Clifford. Mr Clifford during this period provided legal advice in relation to C&C performance issues.

In late September 2006, Mr Hart, Mr Backshall and Mr Clifford met at the offices of Vegas to discuss raising capital for Vegas. On 29 September 2006, Mr Clifford sent Mr Backshall a memorandum summarising the discussion. In the memorandum, Mr Clifford noted (in part) that there were two primary sources of capital raising from an equity investor. His comments concerning “the individual investor” are worthy of note in light of what then occurred:
The first private like minded individuals. The second is from the equity markets meaning seed capital investors prior to a full float.
Individuals
The individual investor will, not unreasonably, want equity in Vegas.
This is good but ideally ought include investors who bring more than money to the table. They ought also bring some expertise for use in the future workings of R.dot.
Seed Capital Investors
It is unlikely there will be a seed capital investor who brings some form of operational expertise to R.dot (Vegas).
In the memorandum, Mr Clifford went on to discuss structures, which included obtaining a public unlisted shell with sufficient capital in it (a cashbox) into which ultimately the Vegas business would be sold. The structures discussed in the memorandum prepared by Mr Clifford were designed to ensure a public float of a new company that Vegas controlled. On all counts the issue of concern continued to be the performance of the organisation holding the US sub-licence, as well as performance in Europe.
On 29 September 2006, Westpac agreed a further variation to increase the limit on the overdraft facility to $2 million again on the basis that it was reduced to $1.5 million on 30 November 2006. The shareholders of Vegas then provided updated guarantees in respect of the liability to Westpac. Mr Backshall says that the reason for Vegas requesting the increase in the overdraft facility was a delay in the shipping of product in the July–September period which would have the consequence of reducing the October–December receivables. He says the delays were in part caused by the fact that in June 2006, Vegas had implemented a new computer operating system responsible for the management of inventory and sales and they had experienced teething problems associated with the implementation. He also anticipated that Vegas may have to contribute further loan funds to Rdot in the event C&C and other shareholders failed to contribute. He was concerned about this because a cheque for shareholder loan funds payable to Rdot from Mr Carr of C&C had bounced in August and C&C had subsequently provided Rdot with the funds. I generally accept Mr Backshall’s explanation for these delays.
Around 10 October 2006 the next monthly board package was circulated which contained Vegas’ actual sales figures from 1 July 2006 to the end of September 2006. Total income was AUD$11.042 million against a budget of AUD$12.213 million. Total expenses were $4.436 million against a budget of $4.627 million. There was therefore a net loss before tax and interest of $102,000, against a budgeted profit of $319,000.
Around 16 October 2006, forward orders for January-April 2007 received by Vegas were up 7.8% from the orders received for the same period in 2006.
On 17 October 2006, Mr Clifford advised Messrs Hart and Backshall that C&C “wanted to be carried along on an IPO to cash in on the success of Vegas”.
Around this time, Mr Backshall was copying Mr Clifford into all emails regarding Rdot and C&C.
On 18 October 2006, Mr Backshall copied Mr Clifford into an email to Mr Clarke at C&C in which he proposed that the shareholders of Rdot provide further loan funds to Rdot. Mr Clifford settled the wording of the email. In late October 2006, Mr Clifford advised Vegas regarding correspondence with C&C.
During October the question of the invitation to Mr Clifford to invest in Vegas developed. In the period 24 October to 26 October it was finally settled. On 25 October 2006, Mr Backshall sent an email to Mr Clifford about the new share register, attaching a copy for his reference and noting that he was coming in at the same price as Mr Preisendorfer. He specified that the correct calculation was $2,553,894.60 for 7.2786%. The calculation was done at 76 cents – a reference to the Australian – US exchange rate. Mr Backshall noted that “we would prefer settlement to be Nov 30, 2006 for the reasons discussed last night” – although the reasons were not elaborated on in the email. Having refreshed his memory from reading that email, Mr Backshall recalled that he and Mr Hart had met with Mr Clifford at Vegas’ offices in later October, shook hands and welcomed him to Vegas as a shareholder. Mr Backshall believes this meeting took place on 24 October 2006. Having regard to the email of 25 October 2006, which was sent at 12.29pm, and Mr Clifford’s response by email on 26 October, I would infer that there was such a meeting on 24 October 2006 in the evening, when the matter of Mr Clifford’s investment was discussed in detail, and that Mr Backshall said to Mr Clifford that he could come in at the same price as Mr Preisendorfer and at the same percentage as Mr Sutton, Mr Rayney and Mr Whiteman, and that Mr Clifford mentioned his desire to do due diligence. Mr Backshall also stated Mr Clifford should contact Mr Rayney for any financial information he required for his due diligence.
On 26 October 2006, Mr Clifford provided Mr Backshall with a letter giving Vegas notice of his intention to take up the invitation to take equity in Vegas. That is a reference to the third paragraph of the email of 25 October 2006 in which Mr Backshall noted that Mr Clifford was “going to draft a letter showing your acceptance to come on board as a new shareholder subject to due diligence”. In the letter Mr Clifford acknowledged the invitation he had received and gave notice of his intention to take up the invitation:
subject to due diligence work on the last three years’ audited accounts with a focus on use to be made of the funds, revenues, expenditures and the history of dividend payments to shareholders,
and asked Mr Backshall to provide him with a copy of the audited accounts and the financial statements for the last three years to expedite the process. Mr Clifford also indicated that subject to taxation advice, the share purchase would either be in his name or the name of his trustee, Sheraz Pty Ltd.
Just how the invitation to take up this equity in the company came about is the subject of some contention. Mr Hart says that in early September 2006, Mr Clifford telephoned him and said that he wanted to have a conversation with him without Mr Backshall being present. They arranged to meet at a café in Cottesloe. They met and Mr Clifford advised Mr Hart that he believed he had ten good working years left in him. The logical path for him would be to become a judge, but that was not his choice. Nor was the option of him turning his focus to business in a large public company, as had previously been offered to him. He said, however, that he was interested in investing in and joining Vegas. Mr Hart says that he told Mr Clifford that he was open to the idea and thought it was a positive move for Vegas and that he would speak to Mr Backshall and the other shareholders regarding his potential investment.
Mr Clifford’s recollection is a little different. He says that in about mid August or early September 2006, in a conversation with Mr Hart in Perth, he said words to the effect, “As mentioned by you in California if your plans for the Rusty brand reach the stage of you inviting additional equity investors who can also make a contribution to some aspect of the business that is an investment I would look at”. Mr Clifford says that Mr Hart then said words to the effect, “I’ll keep that in mind as we go forward”. Mr Clifford then recalls that on or about 24 October 2006, Mr Hart said to him in a telephone conversation words to the effect that he would like to talk to him about becoming a shareholder in Vegas, as a result of which he responded with a suggestion that they should meet to discuss it. They did so soon after. At the meeting, Mr Clifford recalls that Mr Hart invited him to become a shareholder and in response he thanked him and asked, “Is the invitation from all shareholders?”. Mr Hart indicated that he was speaking for all shareholders and particularly said that Mr Backshall was “cool with the idea”. Mr Clifford recalls that Mr Hart said that he would like Mr Clifford to invest about $2.5 million in return for about 7.5% of Vegas or some other amount, “if you are comfortable with that”. Mr Hart also said that he saw him as becoming involved in the legal aspects of the business as well as in the commercial structure the business ought to take.
Mr Clifford also says that he responded to Mr Hart by saying that he would like to think about the proposal and asked who he should deal with “in doing due diligence”. He says Mr Hart responded by saying that he could deal with Mr Backshall who “looked after all the figures and all the details”. Mr Clifford recalls that Mr Hart said that Mr Backshall had all the information and details “from our people and from his extraordinary knowledge of the industry”. Mr Clifford said he responded by saying that he would “like to look at things like the financials, sales, past and present and use to be made of my investment monies”. He asked whether Mr Backshall could do all that.
In response to Mr Clifford’s account of their early discussion, Mr Hart says that some of the early introductory things mentioned by Mr Clifford may have passed between the two of them in the course of setting up a meeting, but he did not telephone Mr Clifford to tell him he would like to talk to him about becoming a shareholder. He agrees, however, that in early October he telephoned Mr Clifford and told him that the shareholders had approved his investment and that he could have a minor shareholding in Vegas equal to the shareholding then held by Mr Sutton, Mr Whiteman and Mr Rayney at a price in line with the recent valuation prepared for the transaction with Mr Preisendorfer. He said that Vegas would also like him to come on board as in-house legal counsel and help with any future IPO. He said that he should deal with Mr Backshall regarding the numbers. He does not, however, recall Mr Clifford or himself using the words set out at paras 25-28 of Mr Clifford’s witness statement dated 19 October 2009, the substance of which is set out above, concerning, amongst other things, the “use to be made of my investment monies”.
Mr Hart, when he gave evidence after Mr Clifford had given his, was not cross‑examined about the apparent differences between his and Mr Clifford’s account of the initial discussions that led to the invitation for Mr Clifford to take equity in Vegas. However, Mr Clifford was cross-examined about these events. In cross-examination, Mr Clifford (transcript 402) accepted that he had telephoned Mr Hart sometime in September and that they had a meeting at the café. He confirmed that he informed Mr Hart that if he was interested in an investor, then he, Mr Clifford, was too. Mr Clifford insisted, however, that there had been an earlier discussion in July or August when Mr Hart had asked him if he would be interested. He also suggested there had been an even earlier discussion with Messrs Hart and Backshall when they had made a similar inquiry of him. He said (transcript 403) that the first time this had been raised was before the closing of the Rusty deal on Rdot, possibly as early as late 2005.
As to the differences in the two accounts, I prefer the account given by Mr Hart. As I say, Mr Hart was not cross-examined about the differences. This of itself lends some support for an inference that Mr Clifford, having heard the evidence and having already been cross‑examined on this aspect of the case, did not seriously wish to dispute Mr Hart’s differing account. In my view, though, and more significantly, the context, following the settling of the Rdot acquisition and the IPO discussions, the content of the conversation with Mr Clifford recounted by Mr Hart, including Mr Clifford’s explanations of the business options open to him, and its general tenor, Mr Clifford’s letter of 29 September describing the ideal “individual investor”, and, significantly, the documentary record of 25 and 26 October, to which I have already referred, lead me to prefer Mr Hart’s account of the initial meeting. I consider that after some preliminary sounding out by Mr Clifford, Mr Hart ascertained there was support for Mr Clifford’s proposal and the men then met on 24 October to settle the details of the investment. In circumstances where Messrs Hart and Backshall held the controlling interest in Vegas, it seems to me much more likely that in September/October 2005, Mr Clifford would have been approaching Mr Hart to ascertain whether there might be a future for him with Vegas, rather than the other way around. I say this even though it is also clear Mr Hart held Mr Clifford in high regard and plainly was open to the suggestion, as was Mr Backshall and the other shareholders, that Mr Clifford be brought “on board”.
I should also say I have generally formed the view that in the circumstances of this proceeding I should approach with caution accounts of apparently significant events that tend to go against how the evidence of the subsisting ordinary relationship of the parties would tend to suggest they would have acted, especially in the absence of a context or documentary evidence suggesting the contrary. My latter observations in this regard are also intended to recognise the relevance of the observations of McLelland CJ in Equity in Watson v Foxman (1995) 49 NSWLR 315 at 318 – 319, to the effect that there can often be serious difficulties of proof for an applicant who relies upon alleged oral representations as the foundation of an action based on misleading and deceptive conduct, in the absence of some reliable contemporaneous record or other satisfactory corroboration. This is because the question of what was said may depend on relatively subtle nuances following from the use (or absence) of particular words, phrases or grammatical constructions. Ordinary human experience is that memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time. This is particularly likely when the conversation becomes the subject of dispute or litigation. It is often the case in such circumstances that perceptions or self interest in conscious attention to what should or could have been produces plausible details of a conversation which are, in truth, nothing more than a subconscious construction from a more vague memory or impression of what was in fact said or may have been generally discussed on prior unrelated occasions. Accordingly, the precise words alleged to have been said can be very important. For a witness to identify the substance of the words spoken can in many cases be dangerous: see Ingot Capital Investments Pty Ltd v Macquarie Equity Markets (No 6) [2007] NSWSC 124 at [353] – [355].
In this regard, I should also say I am not satisfied that, in his early discussion with Mr Hart, Mr Clifford ever said anything quite as particular as what he states in paras 26-28 of his witness statement concerning “due diligence” or that he would “like to look at things like the financials, sales, past and present and use to be made of my investment monies”. What I do not have any doubt about is that, following the clear expression by Mr Clifford of his interest in becoming an investor in early September 2006, Mr Hart took soundings from Mr Backshall and other shareholders and spoke again with Mr Clifford by telephone in early October and told him the things that he states at para 24 of his witness statement dated 2 December 2009. A meeting involving Mr Backshall then occurred on 24 October that made things more concrete as the subsequent correspondence indicates. Mr Clifford’s due diligence was expressly mentioned at the meeting of 24 October and confirmed in the correspondence of 25 and 26 October. Mr Backshall also indicated, as he did in the email of 25 October, that Mr Clifford could seek further financial information from the CFO, Mr Rayney.
While that was happening, around 25 October 2006, Vegas received a reservation of rights letter from lawyers acting for C&C, which was addressed to Mr Clifford.
On 26 October 2006, Mr Backshall also emailed Mr Clarke regarding the shareholder loans into Rdot, after taking Mr Clifford’s advice on the terms of that email. He copied Mr Clifford into the response. On 28 October 2006, he and Mr Clifford received an email from Mr Clarke. On 30 October 2006, Mr Backshall received further correspondence via Mr Clifford from C&C as well as advice regarding that correspondence.
Mr Backshall says that some time in late October, he asked Mr Clifford whether he was interested in buying half a percent of the company from Mr Mark Sutton (whose nickname was “Mogga”). Mr Clifford said he was definitely interested and asked why. Mr Backshall indicated that Mogga wanted to reduce his personal debt. Mr Clifford asked what the deal was and Mr Backshall said the purchase would be at the same value as he was paying to come into Vegas. He then left it to Mr Clifford and Mr Sutton to deal with that part of the transaction. Mr Clifford agrees in substance with this evidence but locates this discussion in another meeting he had with Mr Backshall in November at which he says other material things were discussed.
Mr Sutton’s recollection, which is not contradicted by Mr Clifford, is that the two of them met in late October or early November to discuss the details of the sale of these shares that Mr Sutton held through C Breeze Pty Ltd and that they agreed a price. Mr Sutton says that at that point he was keen to settle in mid November as he wished to use the funds from the sale to ease his financial situation in relation to the purchase of a holiday home. I will return to the evidence concerning this discussion as Mr Sutton also says that he mentioned to Mr Clifford that he had put money back into Vegas’ loan funds and was not sure when he was going to get that money back. I should also mention in passing that the evidence of Mr Sutton, which I generally accept and discuss in more detail later, tends to place the meeting with Mr Clifford in late October or early November, sufficiently in advance of a possible mid November settlement of the share transfer.
On 30 October 2006, Mr Rayney and Mr Backshall completed a draft profit and loss (P&L) for the purpose of discussions with Deloittes on funding options to hypothetically allow Vegas to acquire from C&C both the shares it held in Rdot that Vegas did not already own and the global master licence. Part of the proposed plan was that following the hypothetical acquisition, Vegas would on-sell the US sub-licence and the US operating business acquired from C&C to a new licensee. Mr Backshall says he did not prepare the draft P&L for the purpose of providing Mr Clifford with any forecasts regarding Vegas’ sales or profitability. In fact, he says at no time did Mr Clifford ever request that he provide him with any forecasts regarding Vegas’ sales or profitability.
In the draft P&L, Mr Backshall says he assumed a hypothetical acquisition of the Rdot shares and the global master licence in 2007 and that additional sub-licences would be granted in China, India, and the Arab States in 2009/10. He knows that the document was completed on 30 October 2006 from the information on his computer and I accept this is so. The draft P&L was eventually sent to Deloittes on 17 November 2006. Mr Backshall explained in evidence the information he used to prepare the draft P&L and why he considered its forecasts to be based on reasonable grounds.

The issue here is whether such a common intention constructive trust can be made out on the evidence. The applicant initially stated in his letter to Vegas on 26 October 2006, that he was deciding if the shares would be held by him personally or by “my trustee”, Sheraz. Given the evidence in this case shows that Sheraz, at material times, acted as trustee for the Terranora Family Trust (a discretionary trust of which the applicant was a beneficiary) the statement does not unequivocally support a bare trust and may be considered ambiguous.
The respondents contend there is no evidence of any intention by Sheraz to hold the shares on trust for the applicant. Specifically, they say:
·There is no written declaration of trust.
·There is no resolution of the directors of Sheraz to hold the shares on trust.
·There are no books or records of Sheraz that evidence any such intention when such records should exist if Sheraz genuinely held such an intention, having regard to s 286 of the Corporations Act.
The respondents contend the applicant only belatedly before trial relied on a bare trust and that previously he had relied on, at least up until receiving the letter from the solicitors for the second and third respondents, dated 16 February 2010, his position as a beneficiary of the Terranora Family Trust to establish his beneficial trust in the shares.
The respondents further contend that the applicant effectively (and correctly) conceded under cross‑examination that he had no beneficial interest in the shares if they were held by Sheraz as the trustee of the Terranora Family Trust, a discretionary trust (see transcript, 566). Yet, against that background, the applicant’s reference to and reliance upon the Terranora Family Trust in evidence in chief was not explained in re‑examination.
In that regard, in [2] of the witness statement of Mr Clifford dated 19 October 2009, the applicant stated that “Sheraz Pty Ltd was appointed trustee of my family trust on 3 July 1985”. He then explained how Sheraz also acts as his agent in paying practice bills. The respondents contend that if Sheraz as trustee of the Terranora Family Trust is totally irrelevant to the beneficial interest issue now under consideration, why was the family trust mentioned at all in the applicant’s examination in chief.
The respondents also contend that there is an inference to be drawn that, in respect of the Family Court proceedings, the applicant represented to the Family Court and Vegas that he held both the legal and the beneficial interest in the shares. In this regard, the failure of the applicant to discover his financial statements that he swore in the Family Court is relevant to drawing that inference. Further, the applicant appears to have represented to his bank for the purpose of his application for finance that he does not own beneficially any shares. Finally, the payment of any interest on the applicant’s borrowings to fund the purchase of the shares has been made from a bank account styled “Sheraz Pty Ltd as Trustee for the Terranora Family Trust”. (The respondents submit those same factors also effectively remove the possibility of any presumed resulting trust in favour of the applicant – even though none is pleaded or asserted by him.)
As to the respondents’ contention that s 286 of the Corporations Act has not been met, the applicant says first that this is not a pleaded issue. I do not consider this is a pleading issue. The respondents are entitled to cross‑examine the applicant on his evidence when on the pleadings he has been put to proof of ownership. The second argument put by the applicant is that there is no evidence at all that Sheraz is not in compliance with s 286. In my view this has more substance.
Section 286(1) of the Corporations Act provides:
(1)A company, registered scheme or disclosing entity must keep written financial records that:
(a)correctly record and explain its transactions and financial position and performance; and
(b)would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
Section 9 of the Corporations Act relevantly defines “financial records” as:
financial records includes:
(a)invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and
(b)documents of prime entry; and
(c)working papers and other documents needed to explain:
(i)the methods by which financial statements are made up; and
(ii)adjustments to be made in preparing financial statements.
It must be noted that the definition of financial records provided in the Corporations Act is an inclusive one and does not limit the scope of the expression. The s 9 definition may possibly bear upon settlement accounts relating to a land purchase under (a), but it is difficult to see how (b) or (c) are relevant to this case. Overall, I am not completely satisfied that s 286 applies in this case. I am not sure that the settlement accounts bearing on the purchase of the shares are the type of financial records recording and explaining the company’s transactions to which s 286 refers.
The applicant thirdly submits that there is no evidence at all that Sheraz is not in compliance with s 286. The point may equally be made that there is no evidence to show that it is, if it applies.
The fourth submission made by the applicant is that Sheraz is a small proprietary company (see s 45A(2) of the Corporations Act) not falling within the exceptions set out in s 293 and s 294 of the Corporations Act and thereby is not a corporation required to file annual financial reports or directors reports. Thus, it is submitted there is nothing in the s 286 point as cross-examined without notice or at all. I accept this is relevant, at least in light of the s 9(b) and (c) definitions of “financial records”.
The overall point about the s 286 argument is not that a breach of the obligation by a company in circumstances such as those raised in this proceeding would automatically deprive Sheraz, or the applicant, of the ability to explain the true nature of a transaction; rather, the point is that the failure of the applicant to produce any written documentation concerning the transaction (especially if there is a statutory obligation to keep such a record), places some doubt on whether or not the characterisation of the applicant’s pleaded beneficial ownership now contended for by the applicant is of recent invention since the “ownership” point was targeted by the second and third respondents’ solicitors in correspondence prior to trial.
The applicant, as I have noted, initially on 26 October 2006, advised Vegas that he would either acquire the shares in his name or in the name of “my trustee, Sheraz”. That statement concerning Sheraz, does not, of course, make it clear whether if Sheraz were to be registered as the legal owner of the Vegas shares it would hold them as trustee for Mr Clifford or as trustee for the family trust. There is of course, nothing to prevent Sheraz from acting as a trustee in different capacities. The question is in what capacity did it hold the shares in trust here. In circumstances where the evidence shows that Sheraz has in fact acted as the trustee of the family trust and that the only current bank account that it operates is as trustee for the Terranora Family Trust, the answer to the question is not clear cut. In such circumstances, one cannot simply say that the reference in the letter of 26 October to “my trustee” necessarily meant “my bare trustee”.
The amended statement of claim pleads that the applicant was at all material times the beneficial owner of 641,389 shares issued in Vegas. In the applicant’s answers to particulars, filed on 18 December 2009, he pleaded in substance that:
(1) Sheraz Pty Ltd is the trustee of a “trust” the beneficiary of which is the applicant;
(2) After 7 January 2009, the beneficial interest in 224,486 shares was transferred to his former spouse.
By letter dated 16 February 2010, the solicitors for the second and third respondents wrote to the solicitor of the applicant pointing all this out and advising that the inference they drew from the witness statements of the applicant filed in the proceedings was that the trust referred to in the particulars was the Terranora Family Trust. They asked for confirmation that this assumption was correct. By letter, dated 26 February 2010, the solicitor for the applicant, by way of clarification, simply confirmed that [1] of the amended statement of claim accurately pleaded that the applicant was at all material times the beneficial owner of the shares. The solicitors for the second and third respondents then wrote to the applicant’s solicitor again pointing out that the reply did not address the queries made and further pointing out (correctly) that the applicant cannot derive a beneficial interest in property in his capacity as a beneficiary of a discretionary trust. By letter dated 5 March 2010, the applicant’s lawyer advised that the trust was a “bare trust”. That advice then led to the solicitors for the second and third respondents complaining that this advice was not properly particularised. The applicant was requested to state whether the trust was wholly or partly in writing, wholly or partly oral or partly to be implied. By letter dated 17 March 2010, the applicant’s solicitor advised that:
The trust arises upon the purchase of the relevant shares by the applicant, where the shares were registered in the name of Sheraz Pty Ltd by the first respondent.
While I entertain some doubt about the matter, I am satisfied on the balance of probabilities that at the time the Vegas shares were registered in the name of Sheraz on 19 December 2006, Sheraz held the shares beneficially for Mr Clifford on a bare common intention constructive trust. The reasons why ultimately, with some misgivings, I have come to this conclusion on the balance of probabilities, are:
(1)There is nothing on the face of the letter from Mr Clifford to Vegas dated 26 October 2006, to suggest that Sheraz, if it held the shares, would be holding them as the trustee of the family trust. The statement was simply made that if Sheraz were to hold the shares it would do so as “my trustee”.
(2)The context, revealed by the applicant’s letter dated 26 October 2006, was that it was either he, or his trustee, Sheraz, who would hold the shares. It was simply a matter of accounting advice. The primary indication that Mr Clifford was buying the shares is an important one. It is confirmed by the facts that right up until this point, the invitation to become an investor or “partner” in Vegas was made to Mr Clifford, not some other entity. While it no doubt was expected that tax and commercially effective arrangements ought to be made concerning the shareholding (as was the case with most if not all other directors and persons with management functions within the company) the offer was to Mr Clifford. Given that Mr Clifford controlled Sheraz (as he did), Sheraz understood this too.
(3)In the Family Court proceedings, Mr Clifford, as husband, was personally ordered to effect a transfer of shares to his former spouse. While this may be considered a little equivocal, there was no doubt that Mr Clifford was understood to be the person who controlled Sheraz in relation to the shares. This is at least consistent with Mr Clifford having represented in those proceedings he was the beneficial owner of the shares. That Mr Clifford was invited by senior counsel for the second and third respondents during cross‑examination to produce his Family Court documents that might shed some light on this issue and did not do so, is, in all the circumstances, not a factor that causes me not to draw an unfavourable inference that such documents might not have helped the applicant’s case.
(4)When pressed by the solicitors for the second and third respondents about the nature of the trust, eventually it was clarified as a “bare trust”. While this suggests that it took Mr Clifford and his solicitor a little time to understand precisely what sort of trust was being pressed in the circumstances of this case, it must be remarked that at no time in the course of the pleadings and particulars was it squarely put that the beneficial interest arose by virtue of the applicant being the beneficiary of a discretionary family trust of which Sheraz was the trustee. The reference in [2] of Mr Clifford’s witness statement dated 19 October 2009, does not support the inference that this was his argument. The fact that Mr Clifford, through his solicitor, eventually firmly asserted a bare trust, following the second and third respondents’ solicitors identifying a problem with claiming beneficial interests through a discretionary trust, is relevant, but in the end in light of the primary facts I have identified, is not sufficiently compelling for me to be not satisfied on the balance of probabilities that Sheraz held the shares on a bare trust for Mr Clifford. He did not approbate and reprobate.
(5)Similarly, while the absence of any documentation held by Sheraz produced by the applicant to corroborate the bare trust and to negative the holding through the family trust by Sheraz indicates a ground for not being satisfied about the applicant’s claim of beneficial ownership, again, in the end, having regard to the way the transaction was developed and completed, and the fact that the applicant plainly considered at all times his actions were the actions of Sheraz and the actions of Sheraz were his actions, and as inadequate as his conduct or the conduct of Sheraz might be said to be by not keeping some records of this transaction, in the end the absence of records does not dissuade me from finding on the balance of probabilities that Sheraz held the shares for Mr Clifford on a bare trust.
(6)I consider the fact that the payment of interest on the applicant’s borrowings to fund the purchase of the shares had been made from a bank account styled “Sheraz Pty Ltd as Trustee for the Terranora Family Trust”, is equivocal. The evidence does not suggest Sheraz had the need for any other account. As Mr Clifford in [2] of his written statement explains, he also used it.
In the result, (although finely balanced) I am satisfied by the preponderance of the evidence, and the absence of sufficiently persuasive evidence to negative the inference that it must have been Mr Clifford’s and Sheraz’s (inferred) intention that Sheraz should hold the shares on a bare trust for the applicant. Mr Clifford and Sheraz have acted throughout as though this were so. It would be unconscientious for Sheraz to assert otherwise now. In fact, Sheraz has not done so. I therefore find that, at all material times, the applicant was the beneficial owner of the Sheraz shares.
Loss and damage issue: As noted above, the primary claim of the applicant is for a refund of the price paid for the shares on 19 December 2006, as well as other costs and interest incurred. At [40] of the amended statement of claim, the applicant particularises his loss or damage in these terms:
40.1The cost and expense the applicant has incurred to 17 February 2009, is $2,713,871.47.
40.2The minority shareholdings in Vegas are unsaleable.
As to the particular that “minority shareholdings in Vegas are unsaleable” the applicant contends that the only sale of shares in Vegas, other than the sale of the C Breeze Pty Ltd shares (of Mr Sutton), which should not be considered relevant here, occurred in 1999, or earlier. The most recent transaction was the allocation of 11,205,437 shares to the entity that now has a controlling interest in Vegas (New Force Holdings Pty Ltd) for $10,000,000 which included a premium for control.
The applicant says that Mr Hart’s attempts to sell the applicant’s Vegas shares in September 2008 were unsuccessful and pre‑dated the New Force Holdings Pty Ltd transaction in March 2009. The applicant says this is consistent with minority holdings in closely held companies not being saleable. He contends the value of the Vegas shares to the applicant is nil.
The applicant also points to the opinion that Mr Harvey Pickup provided for the purposes of the Family Court proceedings involving Mr Clifford and his former spouse (exhibit 206). There, Mr Pickup stated that in the circumstances set out in his report, “We are not able to provide a current valuation of the 7.2876% holding in any way which would be meaningful”. The applicant says the opinion of Mr Pickup is consistent with the Vegas shares having no value to the applicant.
The applicant also says that it was clearly established in his cross‑examination by counsel for the second and third respondents that he attributed no value to the Vegas shares in 2007 in a sworn financial statement filed in the Family Court (exhibit 209) and similarly in December 2009 in a personal statement of financial position provided to the ANZ (exhibit 216).
It was in these circumstances that the applicant contends that in choosing the correct remedy the Court can accept a value of the Vegas shares of nil for the purpose of assessing any damages suffered by the applicant. Accordingly, the Court should accept that the usual or preferred approach to assessing damages (by reference to the difference between the price paid and the value as at the date of purchase) is not the only approach.
The applicant submits that on the evidence before the Court, a valuation at $0.89 (the buy‑in price) will not properly compensate him as the premium for control is not able to be identified. It is open to accept a value of nil and to grant relief under s 1325 Corporations Act or s 77 FTA, by requiring a re-transfer of the shares to avoid any issue of uncertainty, as Edmonds J did in Donald Financial Enterprises.
The respondents contend that the applicant is constrained by its pleaded case and that he has not discharged his onus to establish loss and damage in the nature of his liability in respect of the borrowings, for at least the following reasons:
·First, the allegation takes no account of the position, on his own case, that he received the beneficial interest in the newly issued shares in Vegas in return for payment to Vegas of the monies he had borrowed. If he did receive the beneficial interest then the value of the shares at the date of the acquisition needs to be brought to account to demonstrate whether or not the applicant has in fact suffered any loss or damage as a result of the respondent’s conduct.
·Whether or not the applicant received the beneficial interest in shares, a substantial portion of the interest costs was incurred not by reason of any conduct of the respondents, but because of the applicant’s decision to roll over the loan at its expiration on 19 December 2008 (exhibits 213 and 214 and transcript 594 – 596).
·In any event, the applicant obtained benefits from his borrowings that he has not attempted to take account of or quantify, namely:
(1)He has obtained the benefit of claiming the interest costs of the borrowings as a tax deduction for the purposes of his personal income tax liability in the financial years 2007-2009 inclusive (transcript 559, 594 and 596).
(2)He has had the benefit of using some of the shares to facilitate a property settlement with his former spouse (exhibit 211).
As to the contention that if the applicant did receive the beneficial interest then the value of the shares at the date of acquisition needs to be brought into account to demonstrate whether or not the applicant has suffered any loss or damage as a result of the respondent’s conduct, is (perhaps self evidently) of primary importance if the Court decides that this is a case where only damages are appropriate and there is no entitlement to a refund. This, in turn, is tied to the question of whether or not the shares may be considered unsaleable, an issue to which I will turn shortly.

As to the contention that a substantial portion of interests costs was incurred not by reason of the conduct of the respondents but because of the applicant’s decision to roll over the loan at its expiration on 19 December 2008, it seems to me that it cannot reasonably be argued that that decision somehow broke a chain of causation. The second and third respondents do not clearly indicate what it was that the applicant should have done at that point, instead of rolling over the loan. In my view a chain of events by that stage was in place such that the rollover decision was part of the chain of events to which, if there was liability, the respondents would be liable: cf Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408.
As to the contention that the applicant has not brought to account for the purpose of assessing loss the benefits he may have received in claiming interest costs as a tax deduction in the financial years 2007 – 2009, I am not satisfied that the true loss suffered by the applicant would be revealed by taking that into account. The fact is that the deductions (if any) may have reduced the applicant’s liability for income tax, but it did not have the effect of reducing the interest costs that he actually paid out.
As to the contention that the applicant has not taken any account of the benefit he has gained from using some of the shares to facilitate a property settlement with his former spouse, again I do not see that as a quantifiable gain to be set off against the actual loss suffered. Under the Family Court order, the applicant was obliged to transfer shares he held (presumptively beneficially) to his former spouse. He presumably was obliged to make that transfer on the basis that the shares had value, a value of course that he had paid for when he took out the loan, the interest of which he then became liable to pay.
The more particular question is whether the applicant has suffered loss or damage on the basis that the shares the applicant now beneficially owns are “unsaleable”. As to whether or not the minority shareholding in Vegas is generally speaking “unsaleable”, the respondents contend that there is no evidence before the Court that they are. They point to the evidence that the applicant offered the shares for sale at a price in the vicinity of $3.7 million, well in excess of the total cost to the applicant of the purchase price of the shares and borrowing costs (exhibit 209, transcript 605-607 and 638). The respondents say that, having regard to that evidence, the applicant’s evidence in chief was incomplete and misleading. The respondents also say that the applicant’s claim, that without prejudice privilege existed in respect of the evidence of the second and third respondents relevant to the topic, was disingenuous and lacked any proper foundation and so the Court is entitled to conclude that the applicant made his claim improperly in an attempt to conceal from the Court relevant evidence that he knew amply disproved his baseless allegation that the shares were “unsaleable”. The respondents also say that the applicant’s own position in April 2008 was that the shares were unsaleable, but only because of the C&C litigation, which was then shortly after settled and not because of any conduct of the respondents. The respondents contend that the reality is that having offered his shares for sale for about $3.7 million the applicant can be taken to have admitted that the shares were not worthless. The respondent also submit that it is “paradoxical” that the applicant seized upon the sale to him of Mr Sutton’s small parcel of shares.
For my part, I am satisfied on the balance of probabilities that the minority shareholding beneficially held by Mr Clifford is “unsaleable”.
While, as the respondents submit, Mr Clifford himself proposed that his shares be sold for about $3.7 million in 2008, and Mr Hart agreed to consider the proposal, this was well in excess of the total cost to the applicant of the purchase price of the shares and borrowing costs. It was something in the nature of an ambit claim by which the applicant hoped that, by one means or another, he would be “taken out” of Vegas. The proposal itself was quite disingenuous as it was tied to a proposal that, if the sale of Mr Clifford’s (and Mr Rayney’s) shares could be arranged, Mr Clifford would be able to see his way free to assist Vegas in the forthcoming steps in the C&C proceedings. As opportunistic as this conduct may be considered to be, to characterise the applicant’s conduct neutrally, I do not consider it is good evidence of a real market for sales of Vegas’ shares.
The position of a minority shareholder in a private company (where shares cannot be sold on an exchange to the public) is no doubt difficult but not necessarily to be equated with the shares having no value. However, if there is no market for the shares, the value may only be determined on a winding up of the company by referring to the assets that back the shares. At particular times, Mr Clifford plainly considered the shares had value. He continued to do so in May 2007. And he obviously thought they were of value in 2008 (albeit it at a high price) when he proposed to Mr Hart that he find a buyer for them. Mr Clifford’s evidence and submission, however, is that the shares are now of no value to him. In my view, while the value of the shares has not been established (as the respondents contend), I accept there are or would be real difficulties in trying to sell them. Despite occasional movements, particularly following restructuring – including the 2009 restructuring – I consider in practical commercial terms the shares are unsaleable in the applicant’s hands. The expert report of Harvey Pickup, used in the Family Court proceeding and tendered without qualification in this proceeding, tends to support this conclusion in that the expert had difficulty placing a value on the shares.
Finally, I should note that to the extent the respondent’s press a plea that the applicant contributed to his own losses, if I had found the respondents were liable to the applicant I would not have been satisfied the applicant did or failed to do anything in particular had a bearing on his entitlement to damages.
The refund order: This conclusion affects the extent to which, if Mr Clifford had established liability in this case, the relief should include, in effect, an order that he be refunded the price he paid for the shares (or the portion that he continues to hold beneficially) upon presentation of a transfer or transfers to a transferee or transferees nominated by the respondents.
The parties accept, as is the case, that the Court has a very wide discretion under s 77 of the FTA and s 1325 of the Corporations Act to give such relief. The parties also accept that the common approach to the assessment of damages under provisions like s 79 of the FTA or s 1041I(1) of the Corporations Act is to assess the difference between the purchase price paid for an asset and its “real value”, usually at the date of acquisition: see HTW Valuers Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at [34] ‑ [45]; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653 at [169] – [191]. Thus, the respondents contend that if the applicant is entitled to claim in respect of loss and damage suffered then he should receive an award of damages – and nothing more – and he has failed to establish his loss in relation to the share value.
However, the respondents recognise that if shares are in fact “unsaleable” so that a present “real value” is not easily determined, then a remedy may be fashioned under s 77 FTA and s 1325 Corporations Act in order to appropriately “compensate” a person for the loss or damage suffered. They recognise that in Donald Financial Enterprises the Court found expressly, at [190], that a transaction should be set aside because an assessment of loss or damage was exceedingly difficult, if not impossible.
The respondents repeat their submissions, in effect, that here the applicant has not attempted to demonstrate that there is any difficulty in this case in assessing loss or damage based on the retention of the shares and, more generally, has not attempted to demonstrate why the refund orders, proposed is preferable, alternatively, the only available remedy.
So far as a refund order by way of compensation is concerned the second and third respondents also submit that if they are not to receive the benefit of any of the shares transferred pursuant to the proposed orders (and they say it is difficult to see how they could) it is neither fair nor just to require them to contribute to what is in effect a refund of the purchase price: see Port Kennedy Golf Country Club Pty Ltd v Port Kennedy Resorts Pty Ltd [1999] WASC 253 at [36].
These respondents also argue that nothing they did could be considered to have reduced the value of the shares that were purchased in December 2006 by the applicant.
The respondents submit that the delay of the applicant in pressing his case for a refund, for which he offers no explanation, should also be taken into account. They say that the reality is that the applicant has been motivated to institute these proceedings because of a falling out over matters unrelated to the applicant’s claim, namely, whether and on what terms the first respondent should sub‑licence a third party to exploit the intellectual property of the “Rusty” brand in the United States.
Finally, the respondents say the applicant has taken advantage of the share acquisition, in that he took up a position as in‑house counsel and has received remuneration. He also used some of the shares to facilitate a property settlement with his former spouse, and this was at a time when this litigation was (apparently) in his contemplation (transcript, 587). Further, he has derived tax benefits from the costs of his borrowings in respect of the years 2008 and 2009, at a time when the litigation was in contemplation.
If I had found that the respondents were liable to the applicant by reason of their misleading or deceptive conduct in contravention of the Corporations Act or FTA, I would have exercised the remedial powers of the Court under s 1041I of the Corporations Act, or s 79 of the FTA in favour of the applicant. My reasons are these. First, as I have found, I consider that it can properly be said, on the balance of probabilities, that the shares beneficially held by Mr Clifford are, in a practical commercial sense, “unsaleable”.
I also consider that, if there had been a finding of misleading and deceptive conduct upon which the applicant had materially relied, this finding would have fundamentally undermined a contention that it was not that conduct which ultimately motivated Mr Clifford to sue for compensation. In other words, if the alleged contravening conduct had been proved, it would be no defence to a refund order, and largely irrelevant to say, that a commercial dispute between the applicant and the directors was the cause of the dispute and the ultimate action.
As to the point that a refund order made against all three respondents would not take account of the fact that the second and third respondents did not receive the purchase price, my view is that in circumstances where Vegas did receive the purchase price, and the second and third respondents were accessories to the contravention – or in the case of the proceeding under the FTA, have a primary liability in respect of the contravention – it is nonetheless appropriate that they bear a liability to respond to the refund order. The order would be so framed as to enable the respondents to indicate who ultimately should receive a transfer of particular shares tendered. In ensuring that the applicant receive just compensation in these circumstances, it would be inappropriate to relieve the second and third respondents of any liability in relation to the refund order, even if they did not personally receive the purchase price or any portion of it in the first instance. At one level, of course, they did receive some benefit from it by virtue of their shareholding in Vegas at material times when Vegas received and applied the purchase funds from the applicant and the improvement of Vegas’ financial bottom line from this receipt of funds.
As to the point that the applicant has not brought these proceedings in a timely manner, while it is true his disenchantment can be dated from mid 2007, his settlement proposals were formulated in late 2008 and these proceedings were commenced soon after, in early 2009 – more than two years after the investment. If the contravening conduct had been made out then I do not consider on balance the delay can be said to have led to any particular prejudice.
Nor would I have considered that the applicant had gained any relevant advantages that would suggest a refund order would be inappropriate. The suggestion that the share acquisition enabled him to take up the position of in‑house counsel is, in my view, of no consequence. There was in effect a requirement for the applicant to take up the in‑house counsel position. He was paid for doing productive legal work in that period. He would have been paid, in all probability, much more if he had remained as an independent barrister for performing that work, if he had not taken up the investment opportunity. Nor do I consider that the use of some of the shares to facilitate a property settlement with his former spouse is relevant. Orders made in the Family Court of Western Australia worked on the apparent assets of the applicant. It cannot be said he obtained any relevant advantage as a result of the transfer of shares made to this former spouse under the Family Court order. Similarly I do not consider that any tax benefits he may have derived from the costs of his borrowings in 2008 and 2009 make a refund order inappropriate. The actual investment and costs paid out on the loan are real, regardless of any tax advantage he might have received.
The factors militating in favour of a refund order are, on the other hand, strong. The applicant holds a minority interest in a company which is in a practical commercial sense unsaleable. If the Court had found, as a matter of fact, that Mr Clifford had been misled or deceived at the time he made his investment, and that he had materially relied on the conduct complained of, then the position would have been that he had lost the practical benefit of his $2.5 million investment, the interest on which he has been paying out ever since. In that regard, not to order a refund of his shares would be unfair. The value of the holding is unclear. In such circumstances a damages claim in respect of the difference between the price paid and the true price of acquisition, would be unrealistic. To attempt to award damages for the applicant’s loss would not see the applicant properly compensated.
I would therefore have been prepared to make an order in substance in the terms primarily proposed by the applicant, but on condition that the transferors of the shares to be tendered to the respondents include the 224,486 shares currently held by the applicant’s former spouse. Given that the purpose of the compensation order would be to compensate the applicant in respect of the whole of the initial share acquisition he made, of which those shares constitute part, they would necessarily need to be part of the refund.
However, for the reasons set out above, I have found the applicant has failed to make out his case of misleading or deceptive conduct and so these findings concerning relief are not in fact relevant to the outcome of the proceeding. I have dealt with them for the sake of completeness.
ORDERS
The applicant’s case should be dismissed with costs. I will hear from the parties as to the terms of the final orders to be made.

I certify that the preceding four hundred and fifty-six (456) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.
Associate:
Dated: 24 August 2010

Citation:		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 28 of 2009
Judge:		BARKER J
Date of judgment:		24 August 2010
Catchwords:		TRADE PRACTICES - misleading or deceptive conduct – applicant alleged respondents made misleading or deceptive representations to induce share purchase in first respondent – whether representations were in relation to the supply or possible supply of financial services – whether Part V of the Trade Practices Act 1974 (Cth) applies – Part V held not to apply CORPORATIONS – misleading or deceptive conduct – whether alleged representations were in fact made – whether in any event applicant relied on alleged representations – whether respondents failed to disclose material facts – whether respondents had reasonable grounds for non-disclosure – Corporations Act 2001 (Cth), s 1041H, s 1041I
Legislation:		Corporations Act 2001 (Cth) s286, s 763A, s 764A, s 761A, s 1041H, s 1041I, s 1325, Fair Trading Act 1987 (WA) s 10, s 77, s 79 Trade Practices Act 1974 (Cth) s 51A, s 51AF, s 52, s 82, s 87 Cross on Evidence (8^thAustralian Edition, 2010) JD Heydon
Cases cited:		Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 Austin v Keele (1987) 72 ALR 579 Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 71 ACSR 1 Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199; Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211; Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 179 FCR 46 Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408 Clifford v Vegas Enterprises Pty Ltd (No 4) [2010] FCA 326 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Donald Financial Enterprises Pty Ltd v APIR Systems Ltd [2008] FCA 1112 Draper v Official Trustee in Bankruptcy [2006] FCAFC 157; (2006) 156 FCR 53 Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Grant v Edwards [1986] Ch 638 Green v Green (1989) 17 NSWLR 343 Green v Green [2003] UKPC 39; (2002-03) 5 ITELR 888 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 HTW Valuers (Central Qld) Pty Ltd v Astonland PtyLtd [2004] HCA 54; (2004) 217 CLR 640 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653 Pain v Pain [2006] QSC 335 Payne v Parker (1976) 1 NSWLR 191 Port Kennedy Golf Country Club Pty Ltd v Port Kennedy Resorts Pty Ltd [1999] WASC 253 Re Glory Rise Limited [2008] HKCFA 48 Stowe v Stowe (1995) 15 WAR 363 Sui Mei Huen v Official Receiver [2008] FCAFC 117; (2008) 248 ALR 1 Tooheys Ltd v Commissioner of Stamp Duties (1961) 105 CLR 602 Townsend v Roussety & Co (WA) Pty Ltd (2007) 33 WAR 321 Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 Watson v Foxman (1995) 49 NSWLR 315 Western Australia v Watson [1990] WAR 248 Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
Dates of hearing:	22 - 26 March 2010, 29 March 2010, 31 March 2010, 1 April 2010 and 16 April 2010
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	456
Counsel for the Applicant:	Mr AP Rumsley
Solicitor for the Applicant:	Alan Rumsley
Counsel for the First Respondent:	Mr DN Galbally QC and Mr BD Luscombe
Solicitor for the First Respondent:	Cochrane Lishman Carson Luscombe
Counsel for the Second and Third Respondents:	Ms PE Cahill SC and Mr AD Bereyne
Solicitor for the Second and Third Respondents:	Jackson McDonald

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 28 of 2009

AND:	VEGAS ENTERPRISES PTY LTD (ACN 009 078 148) First Respondent RODNEY DESMOND HART Second Respondent GEOFFREY BRIAN BACKSHALL Third Respondent
JUDGE:	BARKER J
DATE OF ORDER:	24 AUGUST 2010
WHERE MADE:	PERTH

OVERVIEW........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[1]
A BRIEF HISTORY OF THE PARTIES’ INVOLVEMENT IN VEGAS........ ........ ..	[10]
THE APPLICANT’S PLEADED CASE........ ........ ........ ........ ........ ........ ........ ........ ........	[22]
WHETHER PART V OF TPA APPLIES........ ........ ........ ........ ........ ........ ........ ........ ......	[50]
DEALINGS BETWEEN THE PARTIES........ ........ ........ ........ ........ ........ ........ ........ .....	[56]
THE SALES REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[195]
THE BANK DEBT REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ .	[244]
THE PRODUCT REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ .....	[265]
NON-DISCLOSURE OF MATERIAL FACTS........ ........ ........ ........ ........ ........ ........ ...	[284]
ENTITLEMENT TO RELIEF........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[378]
ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[456]