Cummings v Lewis
[1993] FCA 190
•06 APRIL 1993
Re: JAMES BARTHOLOMEW CUMMINGS and NOEL SIDNEY LECKIE
And: DESMOND RUNDLE; JOHN BRADSHAW; PAUL ISHERWOOD and MICHAEL TERENCE LEWIS
No. N G488 of 1991, 392 and 406 of 1992
FED No. 190
Number of pages - 99
Appeal - Practice and Procedure - Contribution - Costs
(1993) 113 ALR 285
(1993) 41 FCR 559
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Neaves(1) and Cooper(2) JJ.
CATCHWORDS
Appeal - whether appellant precluded from relying upon representations (found by the trial judge) which were not pleaded or which diverged from those pleaded - whether trial conducted on pleadings - whether respondents may have conducted their cases differently if they had known nature of case made against them for the first time on appeal.
Practice and Procedure - pleadings - whether alleged representations as to future conduct - whether alleged representations promissory - statutory reversal of onus of proof - whether necessary for an applicant to plead representation clearly.
Contribution - scheme for the syndication of horses in a tax-attractive manner and marketing thereof to clients of accounting firms - whether appellants entitled to contribution from respondents for losses resulting from purchase of bloodstock - whether circumstances such that an order for contribution should be made.
Fair Trading Act 1987 (NSW), s. 41, s. 42.
(Trade Practices Act 1974 (Cth), s. 51A, s. 52)
Costs - appeal against order for costs depriving successful respondents of part of their costs - whether trial judge entitled to take into account conduct of respondents in failing to concede matters which ought to have been conceded - whether conduct of respondents unreasonable - whether circumstances in which Full Court entitled to interfere with exercise of discretion by trial judge.
Federal Court of Australia Act 1976, s. 43(2).
HEARING
SYDNEY, 14-17 September 1992
#DATE 6:4:1993
Counsel for the Appellant: Mr F.S. McAlary QC and Mr V.R.W.Gray
Solicitors for the Appellant: Malcolm Johns and Company
Counsel for the First, Second
and Third Respondents: Mr D.E. Horton QC and Mr J.T. Gleeson
Solicitors for the First,
Second and Third Respondents: Freehill, Hollingdale and Page
Counsel for the Fourth and
Fifth Respondents: Mr T.E.F. Hughes QC and Mr P.M. Jacobson
Solicitors for the Fourth
and Fifth Respondents: Norton Smith and Co.
ORDER
1. The Appeal is dismissed.
2. The Appellants pay the Respondents' costs of and incidental
to the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
SHEPPARD and NEAVES JJ. In this matter we have had the advantage of reading the judgment to be delivered by Cooper J. We agree with his conclusion that the three appeals should be dismissed and generally with his reasons.
The appeal by Mr. Cummings, with which we first deal, has been concerned with two causes of action, an action by Mr. Cummings for contribution and an action by him for misleading or deceptive conduct engaged in by the respondents brought pursuant to s.41 of the Fair Trading Act 1987 (NSW) rather than s.52 of the Trade Practices Act 1974 because the respondents who were sued were individuals and not corporations. A third cause of action for breach of contract was dismissed by the primary Judge (Wilcox J.). No appeal has been brought against his Honour's decision in that respect.
We agree that the contribution claim should fail for the following resons. Athough his Honour found no contract or partnership, he accepted, as was clearly the case, that the parties were in a business relationship. The way his Honour explained it, correctly in our opinion, was that the relationship between Mr. Cummings and Mr. Leckie on behalf of Coopers and Lybrand was not that of client and accountant; rather Mr. Leckie was acting in an entrepreneurial capacity. He would market certain tax avoidance schemes - "tax effective packages" is the way they were described in the evidence - to his partners, to clients of Coopers and Lybrand and to others. Likewise Mr. Lewis and Mr. Rundle acting on behalf of KPMG Peat Marwick Hungerfords ("Peats") would market interests in syndicates to their partners and to clients and others.
The syndicates were to be partnerships in which numbers of people would together own horses which were believed to have potential as race horses. These would be trained and, if appropriate, raced. In due course some might be sold. It was important, if the schemes were to be attractive to taxpayers wishing to minimise their income tax, particularly their provisional tax, that they be available before the end of the 1988/89 financial year. In order for them to be marketed, bloodstock had to be acquired to provide the syndicates with the principal assets necessary for their operation.
Both Mr. Cummings and Mr. Leckie were confident that the project would be successful. So were Mr. Lewis and Mr. Rundle. Peats had not been involved in the marketing of similar syndicates in 1988. Peats were Mr. Cummings' usual accountants. Mr. Lewis and Mr. Rundle were extremely anxious that Peats have an interest in the project. No-one thought of failure or loss. The confidence of all parties was substantially, if not entirely, due to the success which the 1988 exercise had enjoyed.
Mr. Cummings acquired several million dollars worth of bloodstock at sales which took place in the early months of 1989. The acquisitions were made on the basis that Mr. Cummings could postpone the payment of the purchase price until later in the year. All turned into disaster when the marketing of the shares in the syndicates failed. Mr. Cummings has been left with a large indebtedness for the horses he acquired. He seeks to recover either the whole of the amount in his action for misleading or deceptive conduct or a proportion of it in his action for contribution.
In relation to his claim for contribution we consider the following to be the essential facts (they were either common ground or found by the primary Judge):-
1. There was no contract or partnership between Mr. Cummings and any of the accountants or accounting firms.
2. There was a loose arrangement pursuant to which Mr. Cummings would acquire horses and the two firms of accountants would prepare the tax effective packages through which the horses would be marketed, and would market those packages.
3. At the time these arrangements were made none of the parties contemplated failure.
4. Mr. Cummings spent several million dollars in the acquisition of horses. He is liable to the vendors or auctioneers for the prices which he agreed to pay.
5. The parties were not in a fiduciary relationship. It was not submitted that they were.
6. In relation to this matter Mr. Cummings was not a client of either firm of accountants. No relevant accountant/client relationship existed.
7. The accountants prepared the tax effective packages. They attempted to market them but without success. They are out of pocket in the sense that the work thus done is their loss. There is no client who can be charged for it.
The question is whether, those being the essential facts, they give rise to a claim for contribution. A number of suggested analogies were referred to in argument. These have been dealt with in the judgment of Cooper J. They do not help Mr. Cummings' case because none is truly analogous to the circumstances of this case. An insurer who pays out a loss is entitled to recover contribution from another insurer who is liable for the same loss. A surety, who has paid out the principal debt, is entitled to contribution from another who is also surety for the same debt. Here Mr. Cummings assumed the liability for the purchase price of the bloodstock which he bought. No one else assumed responsibility for that liability. Allegations relied upon by him at the trial that the horses were purchased at the request of the two firms of accountants or that the accountants had agreed to indemnify him for the purchase price were rejected by the primary Judge. His conclusions in this respect are not the subject of any appeal.
In these circumstances we think that the relationship between Mr. Cummings and each of the two firms of accountants was a loose one under which each would make a contribution of a different kind to the enterprise. The advantage each expected from it was a different one. Mr. Cummings would bring in quality bloodstock and make them available. For their part, the accountants would prepare and market the tax effective packages which would consist of syndicates having as their principal asset numbers of horses, all believed to be thoroughbreds and all with successful racing potential. Mr. Cummings would gain sufficient money to enable him to pay for his acquisitions. He would have the benefit of stabling the horses, training them and operating them as race horses should they show adequate promise. The accountants would be reimbursed for the costs of preparing and marketing the packages, i.e. the interests in the syndicates, and would have the benefit of fees earned as investors' representatives and as accountants to the syndicates, and, probably, to a number of the individual members. No direct financial benefits other than those referred to could have been contemplated. However, there may have been other more intangible benefits. Mr. Cummings' already substantial reputation as a trainer would be likely to be maintained and indeed enhanced because of the large number of high quality horses he would train. For their part the accountants may have gained a reputation for the marketing of tax effective packages in this area and also gained additional accountancy work from existing or new clients, such work not being related directly to the syndicates.
Subject to what is to be said about the cause of action for misleading or deceptive conduct, we think that the transaction here was one entered into by the parties at arm's length. It was not governed by any contract. It was an informal arrangement entered into by two parties (really there were two arrangements, one between Mr. Cummings and Coopers and Lybrand and the other between him and Peats), each bringing to the relationship a different expertise and skill. These were to be combined for the benefit of each of the parties, not in the sense that each would share profits from a common enterprise or a common benefit such as a separate utilisation of a single product or service produced by the combined efforts of the two, but in the sense that each would, as a result of his interest in the project, take to his own business undertaking the advantages and benefits to which we have referred. On no basis does such an arrangement impose obligations on one party to contribute to the losses of the other.
Before we turn to the representation claims, two further matters need to be mentioned. An attempt was made to imply into the arrangement an obligation to contribute to losses. This cannot succeed because there is no contract into which such an obligation could be implied. Even if there were, Mr. Cummings would encounter the further problem of demonstrating that the term to be implied was necessary to give the contract business efficacy. In this respect, we would reject the submission made by counsel for Mr. Cummings that the judgment of Deane J. in Hawkins v. Clayton (1988) 164 CLR 539 at 571-2 discloses an intention to depart from the principles expounded in BP Refinery (Westernport) Pty. Limited v. Hastings Shire Council (1977) 52 ALJR 20 at 26, Secured Income Real Estate (Australia) Limited v. St. Martins Investments Pty. Limited (1979) 144 CLR 596 and Codelfa Construction Pty. Limited v. State Rail Authority of New South Wales (1982) 149 CLR 337 to all of which authorities Deane J. refers in his judgment.
The second matter concerns the way the claim for contribution was pleaded and the way it was advanced at the trial. Counsel for all respondents complained strongly that the case made on appeal was new. It had never before been pleaded or prosecuted in the way that it was on appeal. We record this submission but do not deal with it because of our conclusion that the claim for contribution must in any event fail.
As counsel for all respondents emphasised, the case made on appeal in relation to the claims based on misleading or deceptive conduct also suffered f4rom the problem that it was never pleaded nor presented at the trial in the way that it was presented to us. There is no question about this. Accordingly, if we were to take the view that the claim had substance, our only course would be to order a new trial; it would not be appropriate to substitute for the dismissal of the claim a judgment in Mr. Cummings' favour.
The representations now relied upon were all found by his Honour after he had conducted an extensive review of the evidence. He rejected the pleaded case that the two firms of accountants had made representations to the effect that the syndicates would all be sold, or be substantially sold, no later than 30 June 1989. But he said that he had no doubt that, on a number of occasions, Mr. Leckie had made statements to Mr. Cummings about the prospects for 1989 which encouraged Mr. Cummings to purchase yearlings at the four sales at which he acquired horses. His Honour also said that he had no difficulty in accepting that Mr. Leckie gave Mr. Cummings to understand that he, Mr. Leckie, believed that, with a dealer's licence and plenty of time, it would be possible to sell down units worth $10 million in 1989 His Honour thought that something of this kind had been said on 8 September 1988 and concluded that it was not unlikely that similar statements were made subsequently. Furthermore, there was no suggestion that Mr. Leckie ever retracted his optimism or warned Mr. Cummings of over spending.
Later his Honour said:-
"Consequently, although I accept that Mr. Leckie made statements such as: 'We'll have no trouble selling down $10 million'; 'It will be easier this year when you get your licence'; 'We will have no problem selling the syndicate'; and so on, I see no reason to believe that, when he made such statements, Mr. Leckie lacked genuine intentions and a genuine belief in the accuracy of his prediction, or that he was indifferent to those questions. I think that he genuinely believed his encouraging assertions. He turned out to be wrong, of course; grievously wrong, from Mr. Cummings' point of view. But that fact does not establish misleading conduct."
His Honour said that his conclusion in relation to Peats was similar. He said that the predictions attributed to Peats' representatives were less numerous. But he did not doubt that Mr. Cummings was encouraged in the purchase of horses by Peats, especially by Mr. Lewis. He said that, on any version of the evidence, it was clear that, until Peats' intervention, nobody contemplated a 1989 syndicate exceeding $10-12 million. Yet two weeks after a visit to Mr. Cummings by Mr. Lewis on 16 March 1989 Mr. Cummings spent $13 million at the Easter sale taking his total outlay to over $20 million. Wilcox J. said, "I think that it is an inescapable conclusion that Peats' intervention constituted a massive spending spur."
But his Honour then said:-
"However, having said all this, there is no evidence to suggest that Mr. Lewis, or anybody else in Peats, lacked an honest belief in the prospects of selling down the syndicate. Once again, Peats had nothing to gain from an unsuccessful syndicate. On the contrary, they would jeopardise their relationship with a long standing client whose business provided for them a steady and substantial stream of income."
In order to reach a conclusion on what should be done about this problem, it is necessary to make reference to s.41 of the Fair Trading Act. It is as follows:-
"41. (1) For the purposes of this Part (Part 5 in which s.42 also appears), where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person.
(3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead."
We put on one side for the moment the strong complaints made by counsel for the respondents concerning the difference between the case advanced on Mr. Cummings' behalf at the trial and the case advanced for him on appeal. That is a matter to which we shall return. For the moment, it is important to note that s.41 is of significance for two reasons. Subsection (1) provides that a representation with respect to any future matter shall be taken to be misleading if the person making it does not have reasonable grounds for doing so. The second matter to note is that the onus of establishing that a person had reasonable grounds for making a representation with respect to a future matter is on the person making it.
The representations which his Honour found established were representations with respect to future matters. They were the representors' opinions of what the likely outcome of the marketing of the syndicates would be. So s.41 was a relevant provision to be considered. It was relied upon in written submissions made on Mr. Cummings' behalf lodged with his Honour. But there is no reference to it anywhere in his judgment. His Honour said, in relation to Mr. Leckie's representations, that he saw no reason to believe that, when Mr. Leckie made the statements which his Honour found to have been made, he lacked "genuine intentions and a genuine belief in the accuracy of his prediction, or that he was indifferent to those questions." His Honour thought that Mr. Leckie genuinely believed his "encouraging assertions". Genuine or honest belief is not what s.41 of the Act refers to. It refers to the person making a representation not having reasonable grounds for making it. The distinction is perhaps a fine one, but the fact that a person may honestly believe in a particular state of affairs does not necessarily mean that he has reasonable grounds for his belief that the statement he makes is correct.
In relation to Peats, his Honour said, as the quoted passage from his judgment shows, that there was no evidence to suggest that Mr. Lewis or anybody else in Peats lacked an honest belief in the prospects of selling down the syndicate. Again the same problem exists.
That problem is compounded when one takes into account subsec.(2) of s.41 which casts the onus of establishing that a person had reasonable grounds for making a representation with respect to a future matter on to the person making it. No evidence was given by Mr. Leckie or Mr. Lewis in relation to the matter at hand. Neither dealt with the question whether he had reasonable grounds for saying what his Honour has found each said. There is of course good reason for this. They denied that any such representations were made.
That raises a practical difficulty about the application of subsec.(2) of s.41 to some cases. There are many cases, whether under s.52 of the Trade Practices Act or s.42 of the Fair Trading Act, where the principal protagonists are not dishonest or fraudulent. Each gives evidence to the best of his or her ability of conversations which took place before a transaction was entered into or other steps were taken. One party alleges inducement by misleading or deceptive conduct. The other party denies it because he or she says that nothing of that kind was said. That evidence is given honestly and to the best of the witness's recollection. Yet so often a judge will find that party's evidence unreliable, but it will be rejected, not because it is dishonest but because it is mistaken. The question arises how, from a practical point of view, can a witness in that situation face up to what is to him or her a false position. Evidence needs to be given to show reasonable grounds for the making of a statement that the witness claims never to have made. That was the position both Mr. Leckie and Mr. Lewis would have been placed in if an attempt had been made to elicit evidence of reasonable grounds from them.
Evidence of reasonable grounds may be established by evidence other than that of the persons who are alleged to have made particular representations as to a future matter. Indeed, as in so many other areas, a court may find the overall probabilities to which the circumstances of a given case give rise, the background to it and the conduct of parties prior to conversations taking place as providing better guides to whether or not they had particular states of mind or whether particular factors existed which would establish evidence of something such as reasonable grounds. It was the overall circumstances of the case which enabled his Honour to say, in relation to both Mr. Leckie and Mr. Lewis, that each genuinely believed the encouraging assertions which his Honour found them to have made. If one changes the exercise to an inquiry, not into genuine or honest belief, but into whether there were reasonable grounds, it is again the overall circumstances of the case which will provide more reliable guidance than would oral evidence on the part of interested parties.
An important factor for present purposes is the common ground between the parties that the 1988 syndicate had been a great success. There is no question about this. There are signs in the evidence that the one disappointment which Mr. Cummings and Mr. Leckie had about 1988 was that they did not have a sufficient number of horses. They both thought that if more horses were bought, particularly if Mr. Cummings had the dealer's licence which he obtained, they would have no trouble marketing the interests in the 1989 syndicates.
The case having been conducted differently on the appeal and his Honour not having adverted to the provisions of s.41, this Court has to make up its mind what to do. Still omitting from account the submissions made by counsel for the respondents on the question whether Mr. Cummings ought to be allowed to make the new case at all, the question arises whether it is realistic to think that, if the case went back, reasonable grounds would not be established. The entirety of the circumstances point to the likelihood that Mr. Leckie and Mr. Lewis would use the experience of 1988 to demonstrate without any question that there were reasonable grounds for the making of the statements which his Honour found. His Honour concluded that honest belief would be established. It seems to us that we can safely draw the conclusion that the likelihood is that reasonable grounds would also be established so that a new trial would serve no purpose.
There is another difficulty. It is the way that his Honour has qualified his findings about the representations which he found. He introduced his discussion of this matter under the heading, "The representation claims" and in one of the early paragraphs said that, whether or not these precise statements (referring to the evidence) were made, "and it is unlikely that they were," he had no doubt that on a number of occasions Mr. Leckie made statements to Mr. Cummings about the prospects for 1989 which encouraged him to purchase yearlings at the sales. As we read his Honour's judgment, each of his findings in relation to representations is qualified by these opening words and, in relation to Peats, all he could say was that he did not doubt that Mr. Cummings was encouraged in the purchase of horses by Peats, especially by Mr. Lewis. If this matter were to go back for a new trial on the representation claims, it would have to go back generally. Moreover it would be likely that it would go back to a judge other than the trial judge.
Counsel for the respondents have emphasised that they were given no notice of the case which is now relied upon and did not contest the case on behalf of their clients with such a case in mind. Both counsel have emphasised to the Court the prejudice which their clients would suffer if the case now advanced were allowed to be made on the basis of representations in terms of those found by his Honour. If the case now made had been the one made at trial, they may have cross-examined quite differently, other witnesses may have been called or witnesses who were called may have been asked questions about this aspect of the matter. Naturally counsel could not identify precisely the extent of the prejudice which each claimed was involved. That is understandable. It is very difficult for counsel, having conducted a case on one basis, to say precisely how the case would have been conducted if it had been put in a different way. Courts do not accept as of course statements made by counsel as to possible prejudice to their clients in circumstances such as this. Courts, however, recognise that counsel are placed in a substantial difficulty when asked to specify a claim of prejudice with any precision. If prejudice is claimed, a court is likely to give effect to that claim unless the circumstances clearly point to there being in fact no prejudice. This case is not in that category. It follows that, if it were to go back, a different judge may not find representations of the kind found by his Honour at all or may find different representations. If any representations were found, the further question would arise whether there were reasonable grounds for making the statements so found.
This takes us back to the beginning of this discussion because the sticking point, at least in our opinion, is that the overall circumstances of the case point to the respondents, particularly Mr. Leckie and Mr. Lewis, having had reasonable grounds for the making of the statements.
In all the circumstances, when we put that matter together with the fact that what Mr. Cummings' advisers sought to do was to make a different case for him, we think the grounds of appeal concerning the representation claims should not be upheld.
The discussion into which we have entered has saved us the need to express a view in relation to the question whether s.41 of the Fair Trading Act (or s.51A of the Trade Practices Act) needs to be specifically pleaded or raised in order for it to be relied upon. In Western Australia v. Bond Corporation Holdings Limited (1991) ATPR Case No. 41-081 French J. said (at 52,279) that a party invoking s.51A should make it clear that it is doing so. In that way a respondent will know that, if the representation was made, it will have the burden of showing and must plead, that it had reasonable grounds for making it. His Honour said that the duty of an applicant to make it clear that s.51A was invoked was discharged if it pleaded that the respondent did not have reasonable grounds for making the representation and that it was thereby misleading or deceptive. We would wish to leave open, until the question more directly arises, the correctness of these views. Our provisional view is that s.51A of the Trade Practices Act and its counterparts such as s.41 of the Fair Trading Act, are evidentiary provisions, not directed at what a party must plead. The rules of the Court in relation to pleading require the pleading to contain, and only contain, a statement in a summary form of the material facts on which a party relies; see Order 11, r.2. The cause of action which is relied upon is a cause of action for breach of s.52 (or s.42). Sections such as s.51A are designed to facilitate proof. They affect the onus of proof but they are not part of the law which provides for the cause of action for which sections such as s.52 provide. We think there is a real question whether there is any requirement that there needs to be specific reference to the section in a pleading or the adoption of words which it uses. However, the matter does not in our opinion arise for consideration here and we express no concluded view about it.
In the result we would dismiss Mr. Cummings' appeal with costs.
In relation to the appeals against his Honour's orders disposing of the costs of the trial, we agree with the reasons and conclusions of Cooper J. and have nothing to add.
JUDGE2
THE APPLICANT'S APPEAL ON LIABILITY
COOPER J. This is an appeal from a decision of a Judge of this Court (Wilcox J.) wherein his Honour held that the respondents had no liability to the appellant ("Cummings") under section 42 of the Fair Trading Act 1987 (NSW); nor to contribute to the losses sustained by the appellant in consequence of the failure of certain horse racing syndicates, namely Cups King Syndicates Nos. 1, 2 and 3. The appellant also seeks an order against the respondents for his costs of the trial which order would be in lieu of his Honour's supplementary judgment as to costs (delivered 29 May, 1992), whereunder the appellant was ordered to pay to the first, second and third respondents three-quarters of their taxed costs, and to the fourth and fifth respondents one-half of their taxed costs.
THE APPELLANT'S CASE UPON APPEAL
2. Upon appeal, the appellant did not challenge the findings of the trial judge. Relying on these findings, the appellant submitted:-
(i) That the appellant was entitled to damages for misleading and deceptive conduct under section 42, on the basis that the fourth respondent ("Leckie") and KPMG Peat Marwick Hungerfords ("Peats") made false predictions as to future events without establishing the existence of reasonable grounds for the making of the predictions or, alternatively, without qualifying the statement or disclosing the risk of non-fulfilment.
(ii) That the appellant was entitled to contribution:-
(a) on the basis that the appellant, Peats, and Coopers and Lybrand ("Coopers") were engaged in a contractual joint venture and that a term that losses would be shared equally between the joint venturers should be imputed into the contract as stating the presumed intention of the parties;
(b) on the basis that equity requires that all parties contribute rateably to a loss sustained by one arising in the course of a venture pursued for the benefit of all;
(c) pursuant to the doctrine of contribution.
It should be noted these arguments differed in significant respects from the basis on which the appellant's case was pleaded and conducted at trial. Counsel for the respondents submitted that, in these circumstances, the appellant ought to be precluded from arguing the appeal on these grounds. Whether this is so will be determined as each ground is considered below.
THE SECTION 42 CLAIM
The Pleadings and the Judgment
4. As pleaded, the representations founding the section 42 claim were essentially promissory. In the third amended statement of claim, the appellant alleged that the first and second respondents ("Lewis" and "Rundle") on behalf of Peats, and Leckie on behalf of Coopers, represented that Peats and Leckie, respectively, would devise a tax attractive structure for the syndicate; would prepare all the accounting and financial material required for the syndication prospectus; would arrange with financiers for 100% funding of prospective investors in the said syndicate; and, in Peats' case, would procure Peats' partners and clients to subscribe and pay for all shares in the syndicate by 30 June, 1989; and, in Leckie's case, would procure that all shares in the said syndicate would be subscribed and paid for on or before 30 June, 1989. (See the amended statement of claim, paras. 21 - 24; 39 - 40). In his judgment Wilcox J. summarises the representation case by saying that "in each case, the representation alleged by Mr. Cummings includes representations by Mr. Leckie and Mr. Rundle that the relevant accountancy firm would procure subscribers for all shares by 30 June 1989."
In relation to Peats, it is alleged that in reliance on the representations of Lewis and Rundle, the appellant contracted to purchase approximately $10 million top quality yearling bloodstock at the Sydney Easter Sales and caused the promotion of Cups King Syndicates Nos. 2 and 3. In relation to Coopers, it is alleged that in reliance on Leckie's representations, the appellant contracted to purchase approximately $10 million top quality yearling bloodstock at auctions commencing in January 1989 and caused the promotion of Cups King Syndicate No. 1.
The falsity alleged in each case was the failure to procure that all the syndicate shares were subscribed and paid for.
The representations that Peats would procure Peats' partners and clients to subscribe and pay for all shares in the syndicate by 30 June, 1989; and that Leckie would procure that all shares in the said syndicate would be subscribed and paid for on or before 30 June, 1989 were also pleaded as express contractual terms to found a claim by the appellant for breach of contract.
Wilcox J. rejected the contract claims against all respondents. He found that, as against Coopers, there was no evidence of any express promise by Leckie to procure subscriptions for all units in the syndicate by 30 June. His Honour dismissed the contract claim against Peats because he was persuaded to "accept Peats' version of their becoming involved in the syndicate" and because he rejected the appellant's account of Peats' initial involvement. His Honour thought that a clear picture emerged from the contemporaneous documents. His Honour noted in respect of certain evidence, that "the statements attributed to Mr. Hancock and Mr. Rundle fall well short of an undertaking by Peats to procure that all of the units were taken by 30 June" . There is no appeal from his Honour's rejection of the contract claims.
In rejecting those contract claims, his Honour necessarily rejected the promissory representations pleaded by the appellant because, as Peats' Counsel rightly submitted, there was complete identity of the pleaded warranty (ie. contract) and representation claims. Indeed, when dealing with the representation claims, his Honour did not refer to the pleaded representations at all. He based his consideration of the section 42 claim on other representations which he found were made by Leckie and Peats. In considering the representation claims, his Honour did not advert to the effect of section 41 of the Fair Trading Act (even though he was clearly cognisant of it: see trial transcript p 1944). Nor did he specifically address the issue whether the respondents had reasonable grounds for making the representations he found them to have made.
Relevantly, his Honour found (at pp 102, and 104-6 of the judgment) :-
In relation to Leckie "Whether or not these precise statements were made, and it is unlikely that they were, I have no doubt that, on a number of occasions, Mr Leckie made statements to Mr Cummings about the prospects for 1989 which encouraged him to purchase yearlings at the four sales. It is clear that, from the outset, Mr Leckie discussed marketing with Cummings. At the very first meeting, on 6 May 1988, he offered Coopers' network as a marketing aid. He spoke of 'tax-effective packages' and he emphasised the need for a dealer's licence. Mr Leckie admits that, on 8 September, he compared the 1988 result with the prospects for 1989. The comparison was to the disadvantage of 1988. Mr Leckie spoke of the 1988 syndicate having been 'rapidly put together and internally marketed', in contrast to 1989 when there would be more time and Mr Cummings would have the benefit of a dealer's licence. So it is unlikely that Mr Leckie ended with the limp statement: 'You would really be selling into an unknown market'. The logic of his comparison was that the prospects ought to be better in 1989 than in 1988, when units worth $4.8 million had been sold in two or three weeks. I have no difficulty in accepting that Mr Leckie gave Mr Cummings to understand that he (Mr Leckie) believed that, with a dealer's licence and plenty of time, it would be possible to sell down units worth $10 million in 1989. And, if something like this was said on 8 September, it is not unlikely that it was repeated subsequently; the precise occasions do not matter. Certainly, there is no suggestion that Mr Leckie ever retracted his optimism or warned Mr Cummings against over-spending. .....
Consequently, although I accept that Mr Leckie made statements such as: 'We'll have no trouble selling down $10 million'; 'It will be easier this year when you get your licence'; 'We will have no problem selling the syndicate'; and so on, I see no reason to believe... ....."
In relation to Peats "But, I do not doubt that Mr Cummings was encouraged in the purchase of horses by Peats, especially by Mr Lewis. On any version of the evidence, it is clear that, until Peats' intervention, nobody contemplated a 1989 syndicate exceeding $10-12 million. Yet, two weeks after Mr Lewis' 16 March visit, Mr Cummings spent some $13 million at the Easter sale; taking his total outlay on uncommitted horse interests to over $20 million. I think that it is an inescapable conclusion that Peats' intervention constituted a massive spending spur. I can understand Mr Anthony Cumming's angry comment to Mr Rundle on 10 July. .....
However, having said all this, there is no evidence to suggest that Mr Lewis, or anybody else in Peats, lacked an honest belief in the prospects of selling down the syndicate. Once again, Peats had nothing to gain from an unsuccessful syndicate. On the contrary, they would jeopardise their relationship with a long standing client whose business provided for them a steady and substantial stream of income. It is true that, only a few weeks later on 12 April, Mr Rundle apparently expressed some doubts to Mr Hinton. Perhaps, as Hinton's note has it, Mr Rundle agreed with Mr Hinton's doubts. But that does not mean that, on 16 March, Mr Rundle had a belief contrary to Mr Lewis' assertions on that day. It is not clear to what extent Mr Rundle knew of those assertions. He gave evidence that he did not know of Mr Leckie's visit until afterwards, and then only in general terms. In any event, a financial climate can quickly change. Pessimism on 12 April does not negate optimism four weeks earlier."
Perhaps not surprisingly, it is these findings and representations, rather than the pleaded representations, on which the appellant seeks to rely upon appeal.
The Appellant's Submission on Appeal:
12. Before considering the appellant's submissions upon appeal, the provisions of section 41 should be noted. Relevantly, that section provides:
"41(1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person."
It should also be noted that sections 41 and 42 of the Fair Trading Act are effectively the same as the provisions of, respectively, sections 51A and 52 of the Trade Practices Act 1974 (Commonwealth); the latter applying to corporations, the former to persons.
Upon appeal, referring to his Honour's findings set out above, Counsel for the appellant submitted that Wilcox J. had held that predictions were made by Leckie and Peats to the appellant. It was submitted that the predictions were as to future events and were false, and that, by virtue of section 41 of the Fair Trading Act, such predictions are deemed to be misleading and deceptive when made, unless the representor proves he had reasonable grounds for the making of the same. Importantly, according to the appellant's written submissions:
"At the trial, the case was fought by the
(respondents) on the basis that the predictions were not made. No attempt was made to establish the existence of reasonable grounds for the making of the predictions.
.....
As the (respondents) only denied the making of the prediction as to future events and did not seek to establish reasonable grounds for same they are deemed misleading and deceptive, and damages are recoverable for the loss suffered in consequence of acting thereon."
In the appellant's written submissions, it was submitted that the predictions could be construed as saying :-
"that a sufficient number of units, structured in a tax effective manner, in a syndicate owning a number of blood stock yearlings selected by J B Cummings at the annual yearling sales could be sold to the public before the end of the 1989 financial year to make viable the enterprise of purchasing and syndicating such yearlings" (underlining added).
In oral submissions, it was further submitted that the representations made could be construed as saying that :-
"the representors, Peats, Coopers, Leckie and Lewis would be able to sell a sufficient number of units in a syndicate which was constructed in a tax effective manner of yearlings selected by Cummings before 30 June to make the enterprise of embarking on such purchase in syndication a viable enterprise" (underlining added).
Counsel sought to rely on the statements of McHugh J.A. (as he then was) in Wright v. TNT Management Pty. Ltd. (1988) 15 NSWLR 679 at 690 that:-
"s. 51A must be taken to have abolished the distinction between a promise and a representation with respect to a future event. A promise to do something in the future is to be regarded as a representation that it will be performed. It will be deemed misleading, therefore, unless the corporation proves that it had reasonable grounds formaking the promise."
The appellant's Counsel also submitted that misleading and deceptive conduct within the meaning of section 42, could be founded on an alternative basis. Counsel relied on the statement of Lee J. in Wheeler Grace and Pierucci Pty. Ltd. v. Wright (1989) 11 ATPR 40-940 at 50,251, approved by French J. in Famel Pty. Ltd. v. Burswood Management Ltd. (1989) 11 ATPR 40-962, at 50-509:
"A positive unqualified prediction by a corporation may be misleading conduct in trade or commerce if relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment to be disclosed as a requirement of fair trading. The fact that the corporation believed or had reasonable grounds for belief that the prediction would be fulfilled, would not answer the question as to whether the conduct was misleading or deceptive conduct in trade or commerce. The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment and the event of non-fulfilment of a prediction or promise may be evidence that raises an influence that such a risk of non-performance existed or that qualification of the positive statement, prediction or promise was required."
Leckie, it was submitted, never warned the appellant against over spending and Peats provoked massive spending.
The Conduct of the Trial
20. It seems clear that the trial, prior to addresses, was conducted on the pleadings. At the commencement of trial, the appellant's Counsel applied for, and was granted leave to further amend the statement of claim. In the course of the appellant's opening, there was reference to the pleadings and the appellant abandoned several pleaded causes of action. Immediately before Peats' Counsel commenced cross-examination of the appellant, there was discussion about the pleadings and reference to the representation case, and both his Honour and the appellant's Counsel reiterated that the representations founding the claim were those specified in the statement of claim. There is nothing to suggest that evidence was elicited other than by reference to the pleadings.
In evidence, the appellant and his witnesses gave their versions of the relevant conversations; the respondents gave theirs. As is emphasised in the appellant's submissions, the trial was conducted by the respondents on the basis that they did not make the representations alleged. It seems equally clear that for the appellant, the trial was conducted on the basis that the obligation of establishing reasonable grounds rested on the respondents and the appellant's Counsel had no need to deal with that issue. At trial, Counsel for the appellant simply stood back and did not raise that issue in examination or cross-examination. It was not suggested to this court by the appellant's Counsel or otherwise that it was ever put to any of the respondents' witnesses either :-
(a) that the respondents had no reasonable grounds for making a
prediction/representation/promise that the relevant accountancy firm would be able to sell a sufficient number of syndicate units by 30 June, 1989 to make the syndication enterprise viable; or
(b) that there were circumstances showing the need for some
qualification to be attached to such prediction; or
(c) that there were circumstances showing the need to disclose
the possibility of non-fulfilment of such prediction.
In the appellant's final address at trial the section 42 claim was dealt with by the appellant's Counsel, in writing, in Section D at page 12 of the Outline of Applicant's Submissions and orally (as recorded at pages 1944 to 1948 of the transcript of proceedings at trial). Essentially, the appellant's submissions in relation to sections 41 and 42 were limited to those appearing in the written Outline. At pages 12 - 15 of the Outline, there appeared extracts from the evidence of the appellant dealing with conversations beteween the appellant and Leckie, Lewis, Rundle and Hancock. The extracts appeared under and as part of the submission: "THE CONDUCT THAT IS MISLEADING OR DECEPTIVE IS THE REPRESENTATIONS MADE BY LECKIE, RUNDLE AND LEWIS AT:". Against each quotation of the evidence was cited a page reference in the transcript. The evidence cited against Leckie was :-
"...we'd do it bigger and better next year...the market's right and we'd have no trouble..." "...10 million will be alright". (Leckie said) "We'll do another one for $12 million ... (I said) "let's do it for $10 million" (He said) "...when you get your licence we'll be able to sell it easier next year because you'll be able to advertise to the broader public".
"...you've got the ability to pick the eyes out of the sale to acquire the horses to win the Group One races. I as an accountant have the ability to package them in a tax effective manner to sell them down to the clients and partners in Coopers and Lybrand...the next syndicate we do, we should have no problem filling it because it makes it much easier for me when your licence comes through". "...with the proper prospectus and starting early next year,...you should have - wouldn't have any trouble doing another syndicate..." "...there was a lot of people with 50,000 to invest..." "There's so many more people that can afford $50,000 to buy units in the syndicate and it would make it much easier and I'm comfortable I could be able to sell it at that - price of those units". "...at 50,000 I would be very comfortable at that figure for the units because it makes it a lot easier and I'll be comfortable to sell it down at that price".
"...we should buy again at the Magic Million Sale for 10 million or 12 million". "...racing's booming, the prize money's on the up and up and in this climate it would be very easy to sell a syndicate down of 10 to 12 million...We should start at the Magic Million..." "...racing is booming, the prize money is still on the rise and I'm very confident I could sell a syndicate down of 10 or 12 million". "...we'd start at the Magic Million because the value might be better there..." "...we'll start the next syndicate by purchasing to the Magic Million...the demand at the moment is very strong and we should have no problem in seeling it down".
(I said) "We should spend between $1 million and $2 million..."
(Noel said) "it seems all right..." "...you have to buy that type to win the Group One races...I said to him that we spent about three million, or something in the vicinity of three million, and I said we've got seven million to spend and he said, we'll get that in New Zealand..."
"...you couldn't go wrong buying that for the syndicate, it's one of the top lookers in the sale".
The evidence cited against Lewis was :-
"...you guys have some news for me down there...yes, you been speaking to Grant Hancock and I said yes, he told me that you wanted to buy some yearlings for the sale - from the sale to package for the clients,...yes...I'm very pleased they decided to do this because I think that Des is quite confident about it...how much did Coopers and Lybrand ask you to buy for their syndicate,...10 million...that's exactly the amount we decided upon in the boardroom". "...I think he was impressed with the number of Group One winners that the stable was having..." "...the market's pretty good at the moment and with your successes it should be very easy for us to market".
"...buy quality rather than quantity..."
The evidence cited against Rundle was :-
"...I just want to confirm that we want you to buy the horses so that we could package them in this tax effective way so we'll be able to sell it down at the end of the financial year...your performance is very good and I'm quite relaxed about you buying the yearlings for us". "...there's a very strong market for a good product like this and I think the time's right, we could sell it down comfortably..."
The evidence cited against Hancock was :-
"...we have almost spent the 10 million and I said he should be comfortable with that and he said, yes I am".
This was the first time that it was indicated that these particular statements were relied on by the appellant in any way. At paragraph 2.4 of submission (2) of the Outline, the appellant submitted:-
"By S51A of TPA and S41 of FTA, if a statement is made as to the future, it will be deemed to be misleading or deceptive unless made on reasonable grounds. The onus of proof in establishing reasonable grounds lies on the representor and no evidence to discharge the onus was given by any of the respondents who confined their case to a denial of the representations".
It must be noted that the appellant's submissions in relation to the representation claims were, considering the complexity of the case and the evidence, very brief and quite skeletal. The submissions advanced on behalf of the appellant in relation to sections 41 and 42 did not:-
(a) refer to the pleadings or the pleaded representations at all;
(b) refer to the predictions advanced on appeal (quoted above);
(c) make it clear whether the representations relied upon in submissions as constituting misleading and deceptive conduct were in support of, in substitution for, or in addition to, those pleaded;
(d) refer to Wright v. TNT Management Pty. Ltd. or McHugh J.A.'s view of s. 51A as enunciated therein;
(e) refer to Wheeler Grace v. Wright or any of the elements founding the alternate case based on the principle enunciated by Lee J therein; in particular, there was no reference to the relevant circumstances showing need for qualification to the alleged statements or for the possibility of its non-fulfilment to be disclosed; or to the respondents failure to qualify the statement or disclose the risk of non-fulfilment.
Counsel for the respondents treated the extracts of Cummings' evidence referred to in Section D of the appellant's written submissions as evidence proffered by the appellant in support of the appellant's pleaded representations. They did not treat each of them, or any combination of them, as constituting a separate and distinct representation, in itself founding a cause of action by virtue of sections 41 and 42. It seems clear that they did not think it was necessary to do so.
Counsel for Leckie and Coopers virtually commenced his oral submissions on the representation case by referring to the statement of claim, paragraphs 39 to 43, stating that "it is the last representation (being the pleaded representation that Leckie would procure that all shares in the said syndicate would be subscribed and paid for on or before 30 June, 1989) that assumes significance in the context of this case as it has been run" and "the breach or the failure to make good the representation more accurately, is pleaded in paragraph 42. It is that Leckie did not on or before 30 June 1989 or at all procure that all shares in the said syndicate were subscribed and paid for."
Counsel for Leckie and Coopers then went on to deal with the statements extracted from the appellant's evidence referred to in section D of the appellant's Outline. He did so by comparing the alleged statements with the pleaded representation. He frequently referred back to the pleaded representation; and on several occasions, submitted that the alleged statement could not be tortured or elevated on analysis into the pleaded representation that full subscription would be procured by 30 June, 1989. It is clear that Counsel for Leckie and Coopers addressed on the basis that the representations referred to in Section D of the appellant's Outline were to be treated as the evidence in support of the pleaded representations. He did not treat each of them, or all of them combined, as founding a new and distinct section 42 claim.
At trial, Counsel for Peats handed up written submissions entitled "PEATS' RESPONSE TO OUTLINE OF APPLICANTS' SUBMISSIONS". The written submission deals with the Fair Trading Act case (at pages 18 - 22) as follows :-
"28. The submissions against Peats under the Fair Trading Act 1987 (N.S.W.) ... in Section D on pages 12 and 14-16 of the 'Outline...', do not match the case as most recently pleaded.
The pleaded case (in paras. 20 and 21 of the latest pleading) is that Messrs. Lewis and Rundle made representations to the effect that:- ...
(4) Peats would procure Peats partners and clients to subscribe and pay for all shares in the syndicate by 30th June 1989. Peats' liability under section 42 of the Fair Trading Act is then alleged to arise simply because Peats did not procure Peats' partners and clients to subscribe and pay for all shares in the syndicates called Cups King Syndicates Numbers 2 and 3 - paras. 26 and 27 of the latest pleading. That case ... must involve reliance on section 41 of the Fair Trading Act.
29. The representation upon which Peats have been sued by Mr. Cummings therefore must be shown in the evidence to have been made in terms which amount to 'a representation with respect to any future matter (including the doing of ... any act)'. In connexion with representation (4) referred to in 28 above as the representation alleged in paragraphs 20 and 21 of the latest pleading, these terms must emerge from the evidence to the effect that there would be full subscription by 30th June, that the subscription would be from Peats' partners and clients, and that Peats would procure that subscription. The evidence cited on pages 14 and 15 in Section D of the 'Outline...' does not make does not make good any of these necessary parts of the alleged representation, let alone the other representations alleged (albeit without any plea of misleading or deceptive character) in the latest pleading. The passages at T 120 allegedly spoken by Mr. Lewis are at their highest to the effect that Mr. Rundle was 'quite confident about it'. The passage at T 121 allegedly spoken by Mr. lewis would describe the market as 'pretty good at the moment' such that 'it should be very easy for (Peats) to market'. The passage alleged against Mr. Lewis from T 127 says nothing about marketing at all. The passage allegedly spoken by Mr Rundle from T 121 refers to 'selling down at the end of the financial year' only as a reason for the alleged purchase on commission (itself abandoned as a case by Mr. Cummings), and refers to Mr. Rundle being 'quite relaxed' about such a purchase, together with his reference to a 'very strong market ...' the time being 'right', so that Peats 'could sell it down comfortably'. Each of these statements, being the only ones relied on by Mr. Cummings to support the alleged representation, achieves at its highest the status of an expression of present optimism (not unqualified in terms), rather than the status of a prediction that complete success would be achieved. Accordingly, the case against Peats based on this representation should fail at the outset. The passage allegedly spoken by Mr. Hancock at T 126 says nothing about the prediction of success which is sued upon, is nowhere referred to in the pleading, and by definition postdates rather than precedes the Sydney Easter Sales said to have been attended by Mr Cummings in reliance on the relevant representation."
The appellant's submissions in reply at trial were partly oral and partly written. Two things should be noted about the written submissions. First, they are premised upon identity between the "contractual terms and/or representations". Secondly, in support of the submission that there was no lack of definition or precision in the contractual terms and representations, it was submitted (at page 3 paragraph 1) that :-
"The contract evolved from a developing situation in which negotiations proceeded from core concepts to a firming-up as the date of implementation grew closer. The contractual terms are not to be found in any particular words or conversation. The final contractual terms and representations are to be distilled from the development of the agreement running through the conversations.
The situation is analogous to a contract made by the exchange of a number of letters, none of which contains the whole agreement and none of which contains any term in full." (Underlining added)
Thereunder, at paragraph 3 on page 4, there are five paragraphs numbered (i) to (v) setting out the essential elements of five exchanges between Cummings and Leckie, from which "the final ... representations are to be distilled". In (iii) it was submitted that "again Leckie reaffirmed 'he was confident about being able to sell it', meaning that he would be able to sell by 30th June all the units, or, at least sufficient to allow the syndication to proceed".
Peats, by their Counsel, responded with written submissions in "PEAT'S OBJECTIONS TO THE APPLICANT'S WRITTEN SUBMISSIONS IN REPLY". Peats objected "to the reply on the grounds that rather more than 90% of it is not in reply at all. Furthermore, some of the reply purportedly made against Coopers bears upon the case against Peats". Specifically, Peats objected to paragraph 1 at page 3 of the Reply because this was contrary to the particulars pleaded and to the pleading. It is also contrary to the opening, to the whole trend of the evidence and to the closing address by Counsel for Cummings. Sub-paragraph (i) of paragraph 4 (sic) - it seems clear that it should be sub-paragraph 3(i) - is objected to because :-
The first, second and third respondents and the fourth and fifth respondents by separate notices of appeal seek orders that the order of Wilcox J. as to costs be wholly set aside and that in lieu thereof it be ordered that the applicant to the principal proceedings pay the whole of the respondents' costs of and in connection with the principal proceedings, including the costs of each appellant's motion for costs.
The grounds of appeal are common to both appeals. They are :_
1. His Honour erred in failing to order that the respondent pay
the whole of the appellants' costs of the proceedings, including the costs of the motion for costs.
2. His Honour erred in finding that statements to the effect of
those claimed by Cummings were made by or on behalf of the appellants.
3. His Honour erred in finding that statements to the effect of
those claimed by Cummings directly affected the extent of his purchases of yearlings.
4. His Honour was in error in depriving the appellants of part
of the costs of the proceedings upon the basis that the appellants should have conceded that they made the statements claimed by Cummings.
It was submitted on behalf of the respondents that the statements respectively found by his Honour to have been made by them did not establish the case pleaded against them under section 42 of the Fair Trading Act. For the reasons set out in my judgment on the applicant's appeal, I agree with this submission. However, his Honour, in my view, was not moved to make the order for costs which he did because he was of the view that the respondents would otherwise have failed on the section 42 claim but for his finding as to the bona fides of their belief at the time the statements were made.
Although his Honour regarded the conduct of the respondents as incitement of the applicant to purchase horses, and, as such, a relevant circumstance on the question of costs, he said that he did not give the matter any significant weight. His Honour said in his reasons:-
"If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the defendant, few successful defendants would recover their costs. I do not say that the conduct of the defendant giving rise to the underlying dispute is irrelevant to the proper decision on costs; but I think that it ought rarely be given much weight. (I distinguish a situation where, the underlying dispute having arisen, the successful defendant has unreasonably provoked the litigation. Different considerations might apply to that type of case: see the reference by Mason C.J. in Latoudis to conduct of the defendant 'after the events constituting the commission of the alleged offence'.) Accordingly, although I do not disregard the respondents' incitement of Mr. Cummings to purchase horses, I do not think that I should give that conduct significant weight. If that conduct was the only relevant matter, I would not be disposed to depart from the usual practice of ordering that the unsuccessful applicant pay the whole of the successful respondents' costs".
As I read his Honour's judgment, it was the conduct of the respondents on the trial in contesting, as a matter of fact, whether the statements were made, which was decisive to his ultimate decision on costs. The effect of the statements as found by his Honour on the applicant's conduct or motivation in buying horses, or, his Honour's view as to the exposure of the respondents to a claim under section 42 of the Fair Trading Act but for the finding of bona fide belief were not material considerations to his Honour's decision.
The question whether factually certain statements were made was in issue in the trial as part of a chain of proof relied upon by the applicant to make out his claim both in contract and under section 42 of the Fair Trading Act. It is true that all of the statements alleged by the applicant against the respondents were not accepted by his Honour. His Honour found that it was unlikely that the precise statements alleged were made and his rejection of the contract claim clearly indicates that he did not accept all of the statements alleged against the respondents were in fact made in the terms alleged. Nevertheless, his Honour found that certain statements were in fact made by the respondents and it is these statements which he describes in his supplementary reasons as "optimistic statements".
It is the statements his Honour has found were made (as opposed to the statements which his Honour did not accept were made, or, found were not made) which, in his Honour's view, ought not to have been denied and the denial persisted in by the respondents at the trial. It is clear that his Honour considered the cross-examination of Cummings and his witnesses ought not to have been on the basis that these statements were not in fact made when the respondents, as a matter of their own knowledge, knew that they had made the statements. Likewise, his Honour was of the view that the respondents in their own evidence ought not to have persisted in denying that these statements were, in fact, made. It is in this sense that his Honour says that the statements ought to have been conceded. His Honour's reference to the decision of Hughes v. Western Australian Cricket Association (1986) 8 ATPR 40-748 at 48,136 makes clear that he was not considering the matter in the limited sense of an issue arising on the pleadings, but rather in the broader sense of an issue arising because of disputed questions of fact. Therefore it does not assist the respondents' argument to contend that the statements were not pleaded against them and thus could not be admitted.
His Honour exercised his discretion as to the quantum of costs in light of the conduct he found unreasonable in the following way:-
"In considering the significance of this matter, it is necessary to bear in mind that the course taken by the respondents not only had the effect of adding to the costs which they seek to recover from the applicant but also of putting the applicant to additional expense in relation to his own costs. If, as a matter of principle, the respondents should bear the burden of the applicant's unnecessary costs, as well as be deprived of their own costs in respect of the time expended on this issue, it is necessary to do more than select a proportion of the respondents' costs equivalent to the proportion of the hearing spent on that issue. That approach would deprive the respondents of their costs of the relevant issue but make no reparation to the applicant. In this case, computation of a precise figure is impossible; the evidence concerning this issue is too intermingled with evidence on other matters. It is possible only to make a broad estimate. But my judgment is that the hearing time could have been reduced by about one-third if the respondents had admitted the applicant's allegations of optimistic statements. In translating that estimate into orders, it is necessary to distinguish between the two sets of respondents. The evidence concerning statements by Mr. Leckie, on behalf of Coopers, occupied much more time than that relating to statements on behalf of Peats. Cooper's contribution to the additional hearing time was probably twice that of Peats.
Applying the principles set out above, and making a broad judgment as to what is reasonable in the whole of the circumstances, it seems to me fair to order that the applicant pay to the first, second and third respondents - that is, Peats - three quarters of their taxed costs in connection with the proceeding and to order him to pay to the fourth and fifth respondents - Coopers - one half of their taxed costs. The taxed costs should include the costs of this motion, thereby giving to each of the respondents the proportion of their costs of the motion which corresponds to their degree of success upon it".
The nature of the discretion vested in a trial judge as to the award of costs and the principles which guide the exercise of the discretion are set out by Toohey J. in Hughes v. Western Australian Cricket Association at 48,136 :-
"Subsection 43(2) of the Federal Court of Australia Act 1976 vests the award of costs 'in the discretion of the Court or Judge'. The Federal Court Rules do not purport to qualify that discretion. The only rule to which reference is necessary is O.62 r.15 whereby, when costs are reserved, those costs follow the event 'unless the Court or a Judge otherwise orders'. The discretion must of course be exercised judicially. There are decisions, both of Australian and English courts, that throw light on the way in which the discretion is to be exercised. I shall not refer to those decisions in any detail; I shall simply set out in a summary way what I understand to be their effect.
1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v. Godfrey (1920) 2 KB 47.
2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v. Farquhar (1893) 1 QB 564.
3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v. Lombardi (1975) 13 SASR 4 at p 12".
This statement of principle was approved by the Full Court in Queensland Wire Industries Pty. Ltd. v. Broken Hill Proprietary Co. Ltd. (1987) 17 FCR 211 at 222.
It is within the discretion of a trial judge to award only a proportion of a successful party's costs if the conduct of that party in the trial was such as to unreasonably prolong the proceedings (Latoudis v. Casey (1990) 170 CLR 534 at 544, 565; In Re Elgindata Ltd. (No.2) (1992) 1 WLR 1207 at 1214, 1217).
Wilcox J. was of the view that to persist in a denial that the statements as found were made was unreasonable and was conduct which unreasonably prolonged the proceedings. It is no answer to say that a party is entitled to test the evidence to show that nothing was said which might amount to the representations as pleaded. A party always has that right in litigation. However, the question which is relevant to the issue as to costs is whether or not the exercise of that right, or the manner in which it was exercised, was reasonable in all the circumstances; and, whether the exercise of the right had the effect of unreasonably prolonging the proceedings. It was this issue which Wilcox J. found against the respondents and upon which he based his decision.
The principles which regulate the circumstances in which an appellate court may review the exercise of a judicial discretion are set out in House v. The King (1936) 55 CLR 499 at 504-505, where Dixon, Evatt and McTiernan JJ. said :-
"The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred".
These principles apply to an appeal against an order for costs (Queensland Wire Industries Pty. Ltd. v. Broken Hill Proprietary Co. Ltd. at 222).
The error made in the exercise of a discretion must be one that vitiates the original decision (Minister for Aboriginal Affairs v. Peko-Wallsend (1986) 162 CLR 24 at 48). Where there is no identifiable error of fact or positive law, the appellant court must be persuaded that the order stands outside the limits of a sound discretionary judgment before the appellate court will intervene (Norbis v. Norbis (1985) 161 CLR 513 at 520).
In the cases referred to in the reasons of Wilcox J. and in his application of them there is no demonstrable error of law or application of a wrong principle of law. There was in my view sufficient evidence to enable his Honour to find that certain statements which he described as "optimistic statements" were in fact made by the respondents. The conclusion of his Honour that but for the bona fide belief of the respondents in the statements made by them the applicant would have established a cause of action under section 42 of the Fair Trading Act, although erroneous, was not a conclusion which operated upon his Honour's mind in determining to make a proportionate award of costs. Likewise, his Honour's conclusion that the optimistic statements incited the applicant to buy horses, whether or not it is a correct conclusion, was not in the end a circumstance which was material to his decision on costs. The circumstance which was decisive to his Honour's decision was the unreasonable prolongation of the trial caused by a failure by the respondents to concede that certain statements, as found by his Honour, were in fact made. There is no identifiable error of fact or law in the reasoning of his Honour which vitiates his decision.
As was said by the Full Court in Queensland Wire Industries v. Broken Hill Proprietary Co. Ltd. (at 222) as to the position enjoyed by the trial judge :-
"He had had the conduct of the trial and thus had a grasp of the issues as they emerged and an appreciation of the manner in which they were handled by the parties that put him in a special position".
Looking at the orders made, considering his Honour's reasons as a whole and having regard to his special position, I am not persuaded that the orders appealed from stand outside the limits of a sound discretionary judgment on costs.
In the circumstances this Court has no power to intervene and itself exercise the discretion as to an appropriate order for costs.
I would dismiss each of the appeals on costs and order that the respondents pay Cummings' costs of and incidental to the appeals on costs.
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