Gate Gourmet Australia Pty Ltd (In Liq) v Gate Gourmet Holding AG - [2004] NSWSC 149

No judgment structure available for this case.

CITATION: Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 v Gate Gourmet Holding AG, Company Number CH-020.3.003.945-1 & Ors [2004] NSWSC 149

HEARING DATE(S): 04/03/04, 05/03/04, 08/03/04, 09/03/04, 10/03/04

JUDGMENT DATE:
31 March 2004

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Letter held to create binding contract. Short minutes of order to be brought in

CATCHWORDS: Contract - Letters of comfort/support - Whether creating legal obligations - Whether intent to contract - Australian trading arm of foreign owned group of companies operating under aegis of letters of comfort/support - Letter of support signed by ultimate overseas parent company - Letter confirming (1) that it would provide the financial support that may be necessary to enable its wholly owned Australian holding company and its controlled entities to meet financial commitments as and when they fall due and providing (2) that the letter would not be withdrawn before the Australian holding company and its controlled entities have sufficient means to meet their obligations without the support of the parent entity - Reliance upon letter of support for purpose of (1) directors' declaration recording that financial statements are prepared on a going concern basis on the assumption that parent entity will continue to provide the necessary financial support to enable the company to pay its debts as and when they become due and payable and (2) Australian trading company being committed to continue to trade at all - Whether intent to contract - Whether letter contained promissory undertaking - Construction of letter - Identification of promisee - Objectivity - Alternative claim that benefit of promise held by Australian holding company on trust for Australian trading company - Trade Practices Act - Misleading and deceptive conduct - Evidence - Admissibility of extrinsic evidence/surrounding circumstances - Admissibility of evidence on intent to contract issue - Admissibility of evidence on construction issue

LEGISLATION CITED: Corporations Act 2001 (Cth)
Corporations Law
Trade Practices Act 1974 (Cth)

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PARTIES :
Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 (Plaintiff)
Gate Gourmet Holding AG, Company Number CH-020.3.003.945-1 (First Defendant)
Gate Gourmet (Holdings) Pty Limited ACN 004 122 892 (Second Defendant)
Odd Gunnar Engebretsen (Third Defendant)
Lars Fredrik Larsen (Fourth Defendant)
Henning Boysen (Fifth Defendant)
Lucas Grolimund (Sixth Defendant)
Gate Gourmet Switzerland GMBH (Seventh Defendant)

FILE NUMBER(S): SC 50180/01

COUNSEL: Mr B Coles QC, Ms E Collins (Plaintiff)
Mr M Pembroke QC, Mr N Perram (Second, Fifth, Sixth and Seventh Defendants)
Mr J Stevenson SC, Mr L Menzies (Third and Fourth Defendants)

SOLICITORS: Clayton Utz (Plaintiff)
Mallesons Stephen Jaques (Second, Fifth, Sixth and Seventh Defendants)
Gadens (Third and Fourth Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Wednesday 31 March 2004

50180/01 GATE GOURMET AUSTRALIA PTY LIMITED (IN LIQUIDATION) ACN 089 347 562 v GATE GOURMET HOLDING AG, COMPANY NUMBER CH-020.3.003.945-1 & ORS

JUDGMENT

1 These proceedings concern whether any, and if so which, contractual obligations arose in circumstances in which the Australian trading arm of a foreign owned group of companies is said to have operated under the aegis of what are commonly known as "letters of comfort" or "letters of support", which have been frequently employed in international commerce for many years. The proceedings were conducted on the basis that the phrases “letter of comfort” and “letter of support” are descriptive, rather than substantive and, accordingly, are interchangeable. This judgment proceeds on that basis.

2 The proceedings raise questions both as to intent to enter into legal relations and as to the proper construction of the instant letter.

3 An order was made pursuant to Part 31, rule 2 of the Supreme Court Rules that the quantification of the plaintiff’s damages, if any, be determined separately and after all other issues in the proceedings. The hearing with which this judgment is concerned proceeded accordingly.

4 The plaintiff, which became the Australian trading company of the Gate Gourmet group [“the group”], was not capitalised by any injection of equity or subscription for shares, the amount of the share subscription being purely nominal. The sole basis upon which the Australian trading company was permitted to operate was wholly dependent upon borrowings organised within the group, including external borrowings, always underpinned by arrangements made higher up the chain of group ownership.

5 The group was at material times the world's second-largest airline catering company. The whole of the enterprise leading to the incorporation of the Australian trading company was for the purpose of the acquisition, by the group, of Ansett catering services, through a suite of agreements. In early 1999, the group purchased a number of companies operating in the Australian catering market within the Cathay Pacific Catering services group. In September 1999, the group won a tender to provide Ansett with in-flight catering services.

6 Ansett went into liquidation relatively early in the life of the Australian companies which had been incorporated in late 1999. As Ansett’s pending demise became apparent, and under pressure from Westpac Banking Corporation Limited [“Westpac”], which had granted a major banking facility, the Australian director of the local companies pressed the ultimate overseas holding company to confirm that the relevant letter of support then in place would be honoured. This confirmation not forthcoming, the local companies themselves went into voluntary liquidation on the day after Ansett had gone into liquidation.

The parties

7 The plaintiff, Gate Gourmet Australia Pty Limited (in liquidation) [the “Australian trading company” or “GGA”] is a wholly owned subsidiary of the second defendant, Gate Gourmet (Holdings) Pty Limited [the “Australian holding company” or “GG Holdings”]. The Australian holding company, in turn, is a wholly owned subsidiary of the first defendant, Gate Gourmet Holding AG. Gate Gourmet Holding AG was a holding company for the group. The Australian holding company had previously been named Cathay Pacific Catering (Holdings) Pty Ltd but changed its name on 26 March 1999, and in November 1999 acquired the Australian trading company, not otherwise changing its principal activities. [Exhibit PX 1/443]

8 Messrs Engebretsen and Larsen, the third and fourth defendants, respectively, were at all material times directors of both the Australian trading company and the Australian holding company. Both resided in Bangkok. Towards the end of the hearing the proceedings against Messrs Engebretsen and Larsen were settled.

9 Messrs Boysen and Grolimund, the fifth and sixth defendants, respectively, are executives of Gate Gourmet Holding AG. Both resided in Switzerland.

10 There is a dispute between the parties as to the position of the first defendant, Gate Gourmet Holding AG:

· Gate Gourmet Switzerland GmbH asserts that under Swiss law it is the complete successor in title to both the rights and the liabilities of Gate Gourmet Holding AG pursuant to a merger agreement between Gate Gourmet Holding AG and Griffin Endeavour Switzerland GmbH, dated 20 December 2002 and that, as a matter of Swiss law, Gate Gourmet Holding AG no longer exists;

· the Australian trading company contends that as a matter of Swiss law, Gate Gourmet Holding AG does exist.

11 The parties have reached an arrangement documented as follows:

12 In those circumstances, the convenient course is to refer to both Gate Gourmet Holding AG and Gate Gourmet Switzerland GmbH as "the Swiss parent" or as “GGAG”. The hearing was conducted accordingly.

13 A convenient chart of the inter-relationship between the different companies in the group [provided by -the document at Exhibit PX 1/190] is as follows:

GG Australia Group Structure

The letter of support

14 The pleadings raise, inter alia, the proper construction of the subject letter of support sent by the Swiss parent, addressed to the directors of the Australian holding company, dated 16 February 2001, which was signed by Messrs Boysen and Grolimund [the “Letter”].

15 The Australian trading company’s primary claim is that, upon its proper construction, the Letter amounted to an offer by the Swiss parent to the Australian trading company, or alternatively an offer by the Swiss parent to the Australian holding company as agent for its controlled entities, which offer achieved contractual effect when it was accepted by the Australian trading company.

16 The Australian trading company also pleads several alternatives, namely that:

· the Letter constitutes a contract between the Swiss parent and the Australian holding company, the promises within which are held on trust by the Australian holding company for the benefit of the Australian trading company; [the pleaded claims of a contract between the Swiss parent and Messrs Engebretsen and/or Larsen, were not pressed in final submissions]

· the Australian holding company unreasonably neglected and/or refused to enforce those promises for the benefit of the Australian trading company; [even before the settlement, the pleaded claims of breaches of duty in this regard by Messrs Engebretsen and Larsen were not pressed in final submissions]

· the Letter was misleading or deceptive or likely to mislead and deceive in contravention of section 52 of the Trade Practices Act 1974 (Cth) [“TPA”];

· by reason of the conduct of the Swiss parent, Messrs Boysen and Grolimund aided, abetted, counselled or procured the contravention by the Swiss parent of section 52 of the TPA and/or were knowingly concerned in, or party to, the contravention of section 52 of the TPA and/or are liable to a claim in damages pursuant to section 82 of the TPA;

· the Swiss parent is estopped from departing from the express terms of the Letter.

Dramatis personae

17 A short summary of several of the persons who came to be involved in material events is as follows:

· Mr Engebretsen was the President of the Asia-Pacific division of the group. He was a director of the Australian trading company, the Australian holding company and the other Australian group subsidiaries, being Gate Gourmet Services Pty Limited, Gate Gourmet Services (NSW) Pty Limited and Gate Gourmet Property Pty Limited. Both Mr Engebretsen and Mr Larsen, in the ordinary course of their employment with the Swiss parent, looked after, effectively, globally, the Asia and Pacific aspects of the Swiss parent business.

· Mr Grolimund was the former Executive Vice-President and Chief Financial Officer of the Swiss parent. He was a signatory to the Letter.

· Mr Larsen was the Vice-President of Finance for the Asia-Pacific division of the group, based in Bangkok, Thailand. He was a director of the Australian trading company, the Australian holding company and the other Australian group subsidiaries referred to above.

· Mr McIntyre was the Managing Director of the Australian trading company and former Australian director of all of the Australian group subsidiaries referred to above, based in Australia.

· Mr Nielsen was the Vice-President of Finance of the Swiss parent. He was the former Vice-President of Finance of Gate Gourmet International AG. He was responsible for the supervision of the plaintiff's financial performance on behalf of the Swiss parent and was based in Zurich, Switzerland.

· Mr Steininger was the Director of Finance and IT of the Australian trading company (although not a director of that company), on secondment from Zurich. He was the former Executive Vice-President and Chief Financial Officer of the Swiss parent and was Mr Grolimund's predecessor. He was a signatory to the first letter of support.

· Mr Boysen was a former Chief Executive Officer of GG AG and is the present Chief Executive Officer of the Swiss parent. A signatory to the Letter, he was based in Zurich, Switzerland.

18 The following dramatis [provided by the plaintiffs’ solicitor] identifies some other of the material persons and corporations referred to in the evidence:

Name	Role and description
Ansett Airlines	Former owner of 7 units acquired by the Plaintiff and the Plaintiff's largest customer.
Baker & McKenzie	Solicitors to the Gate Gourmet group in Australia. Former solicitors to the First, Second, Fifth and Sixth Defendants
Cuthell, Victor	Manager at PWC assigned to the Gate Gourmet audit in Australia
Fouse, Jackie	Senior executive officer of Swiss Air group.
Fuchs, Robert	Finance director of the Nuance group in Australia
Gate Gourmet (Holdings) Pty Limited ("GGH")	Second Defendant. Non trading holding company of GGA, Gate Gourmet Services, Gate Gourmet Services (NSW) and Gate Gourmet Property. Wholly owned subsidiary of Gate Gourmet Holding AG.
Gate Gourmet International AG	Member of the Gate Gourmet group and subsidiary of GG AG.
Gate Gourmet Property Pty Limited	Australian subsidiary of GGH formerly part of the Cathay Pacific catering group. Owner of land and buildings utilised by Gate Gourmet Services which did not otherwise trade.
Gate Gourmet Services (NSW) Pty Limited	Australian subsidiary of GGH formerly part of the Cathay Pacific catering group. Employment company for non-kitchen and head office staff.
Gate Gourmet Services Pty Limited	Australian subsidiary of GGH, formerly part of the Cathay Pacific catering group. Corporate vehicle for the purchase of Cathay Pacific's catering units in Darwin and Sydney.
Goggi, Joseph Carmel Mario	Company secretary of GGA and of all of the Australian Gate Gourmet group subsidiaries
Hastie, Barry	Audit partner at PWC and signing partner for the Gate Gourmet audit in Australia
Kershaw, Scott	Partner at KPMG retained briefly to assist in the proposed restructure of GGA and to liaise with Westpac
KPMG	Engaged briefly to assist in the proposed restructure of GGA and as replacement auditors for PWC
McFadden, Chris	General manager finance of the Nuance group in Australia.
Nuance Group	Sister group to Gate Gourmet and provider of airport retail services.
PricewaterhouseCoopers	Worldwide auditors to the Gate Gourmet group
Roos, Dominik	Former Treasurer of Gate Gourmet International AG and predecessor to Henrik Nielsen. Based in Zurich, Switzerland.
Shearman, Don	Senior manager at Westpac in charge of the Gate Gourmet and Nuance accounts.
Sherman, Steven	Former voluntary administrator and present liquidator of the Plaintiff.
Westpac Banking Corporation	Australian bankers to the Gate Gourmet group and the Nuance group.
Witter, Frank	Senior executive officer of Swiss Air group
Yuen, Gloria	Accountant at PWC assigned to Gate Gourmet audit in Australia

Financial year

19 It is convenient to note that the financial year for the relevant companies was from 1 January to 31 December.

The facts

20 Most of the primary facts were, in the main, not in issue [cf the plaintiff's amended chronology of main events] and were clearly made out or confirmed by the documentary material which went into evidence. Where particular matters were in issue this is dealt with below.

21 To the extent that the chronology deals with banking accommodation/funding arrangements it is convenient to include some detail – utilising a deal of the relevant evidence for the purpose.

1998

22 During 1998 the group had acquired the in-flight catering units of Cathay Pacific [Exhibit P5, paragraph 5]. Those parts of the group’s Australian catering business which formerly had been Cathay Pacific’s were operated by an entity called Gate Gourmet Services Pty Ltd.

February - March 1999

23 The group purchases the Cathay Pacific Catering Services Group.

2 September 1999

24 GGA is incorporated and registered for the purpose of acquiring Ansett's catering business. It was the corporate vehicle used by the group to purchase seven catering units from Ansett, GG Holdings being the holding company which, relevantly, did not trade at any material time.

25 GGA is a wholly owned subsidiary of GG Holdings. The original directors of GGA are Mr Engebretsen, Mr Larsen and Mr Stent-Torriani. [McIntyre, tab 3]

3 September 1999

26 First meeting of the directors of GGA resolves that the constitution of GGA be received and recorded by the company and that Mr Engebretsen, Mr Larsen and Mr Stent-Torriani be appointed directors of GGA. The meeting also resolves that Mr Goggi be appointed company secretary of GGA. [PX1 p2]

September 1999

27 The group wins a tender to provide Ansett with in-flight catering services. GGA purchases seven catering units from Ansett. [Goggi, paragraph 6]

14 September 1999

Base Year Contract

28 The Ansett Catering Services Agreement is executed (also known as the "Base Year Contract"). [McIntyre, paragraph 10 and tab 4]

29 Mr McIntyre has deposed, without challenge, that:

"(a) the contract commenced on 15 November 1999 for a duration of 8 years, subject to an extension of 2 years by GGA under certain circumstances;

(b) throughout the duration of the contract, GGA was to be the sole provider of catering services to Ansett;

(c) pricing for GGA's catering services was to be determined by reference to a formula defined in detail which was based on both an activity based costing method and certain other prescribed costings;

(d) throughout the year, GGA would invoice Ansett on a monthly basis with costs based on the historical cost of catering services during the previous year 1998 to 1999;

base year expenditure

30 Further, Mr McIntyre, in cross-examination, said that:

· it took him and his team the best part of a year to start to come to grips with the Base Year Contract and understand how it worked (transcript, page 106, line 25);

· there were a number of costs under the Base Year Contract that were not budgeted for initially which caused the need for further funding as working capital (transcript, page 112, line 23).

25 October 1999

31 Mr McIntyre is appointed Managing Director of the group in Australia and the sole Australian director of all of the group companies in Australia. Mr Engebretsen and Mr Larsen are the other two directors of each company and Mr Goggi is company secretary. [Goggi, paragraph 10; McIntyre, paragraphs 7 - 8]

November 1999

32 On 15 November 1999, the plaintiff commences operations running the Ansett catering business.

33 Following that time the business of the group in Australia was conducted as follows:

· the domestic in-flight catering business was conducted by the plaintiff [Exhibit P5, paragraph 5, Exhibit PX1/190];

· the international in-flight catering business was provided using the kitchens which had formerly belonged to Cathay Pacific but were now operated by Gate Gourmet Services Pty Ltd [Exhibit P5, paragraph 8(a), Exhibit PX1/190];

· the land and buildings used for the international in-flight catering business was owned by Gate Gourmet Property Pty Ltd [Exhibit P5, paragraph 8(b), Exhibit PX1/190]; and

· the non-kitchen staff and head office staff in Australia were employed by Gate Gourmet Services Pty Ltd [Exhibit P5, paragraph 8(c), Exhibit PX1/190].

34 The directors' questionnaire submitted by Messrs McIntyre, Engebretsen and Larsen (PX 2074, 2097 and 2108) records the following facilities being used by GGA initially:

Date	Draw down from banking facility	Source	Westpac cumulative total	Standard Chartered cumulative total	Combined cumulative total
1 December 1999	$5 million	Westpac	$5 million	$5 million
7 January 2000	$25.311 million	Standard Chartered	$25.311 million	$30.311 million
1 June 2000	$2 million	Westpac	$7 million	$32.311 million
1 September 2000	$2.689 million	Standard Chartered	$28 million	$35 million
1 September 2000	$2 million	Standard Chartered	$30 million	$37 million
15 December 2000	$30 million	Westpac to repay Standard Chartered	$37 million	$0 million	$37 million

· $31,823,786 to related third parties;

· $14 million by way of bank loan, secured by a guarantee provided by a related entity;

· a further $15 million by way of an unsecured non-current liability to a related entity (PX1 456).

Subordinated loan

35 A subordinated parent company loan agreement is executed on 15 November 1999 by the Swiss parent (as lender) and GGA (as borrower) up to a maximum of $35 million. [McIntyre, tab 6]

36 The short position is that:

· the Australian trading company commenced as a $2 company that had just acquired the business of Ansett's catering units at a gross cost of $35,883,277 (PX1, page 453);

· the purchase monies were financed by bank borrowings, repaid by the Swiss parent, who then held a subordinated loan from the Australian trading company in the amount of $35 million [PX1 193);

· the subordinated loan was valid from 15 November 1999 until further notice and could not be cancelled by the Swiss parent "as long as it owns at least 51% of the Borrower's shares";

· this subordinated loan was renewed from time to time (for example, PX1 1163);

· the proof of debt submitted by the Swiss parent suggests that $25 million was drawn down;

· in addition, the directors' questionnaire provided by Messrs McIntyre, Engebretsen and Larsen to Ferrier Hodgson records the following debits and credits (PX 2074, 2097 and 2108):

Date	Draw down from the subordinated loan	Repayment to subordinated loan	Cumulative total
15 November 1999	$25.311 million	$25.311 million
15 November 1999	$5 million	$30.311 million
7 January 2000	$25.311 million - drawn down from Standard Chartered loan facility	$5 million
21 August 2001	$20 million	$25 million
TOTAL	$25 million

19 November 1999

37 A cash flow forecast was provided to Westpac on 19 November 1999 (PX1 194) by Mr Goggi. In doing so he commented that " Mr Dominik Roos, whom we will be meeting on the afternoon of Wednesday 23 November 1999 predicts that it could take up to 3 months before the Gate Gourmet Group's local funding requirements are finalised". In the meantime, GGA had a cash facility with Westpac, in the amount of $20 million, which had been supplemented by a further facility with Standard Chartered Bank, in the amount of $30 million, by 11 January 2000 (PX1 197).

January 2000

Standard Chartered Bank loan facility

38 GGA establishes a loan facility with Standard Chartered Bank in the amount of $30 million. [Goggi, paragraph 13(a) and tab 4; McIntyre, paragraph 11(c)].

Budget figures

39 Also in January 2000, Mr McIntyre, Mr Steininger and Mr Goggi began working on the "first version of an operational budget per unit" (PX1 195). It is clear from the budget figures set out by Mr Steininger that the figures inserted were rough, round numbered estimates rather than precise amounts, based on GGA's operational experience. Mr Goggi confirmed in cross-examination that, at the time the first budget was drawn up and the initial financial arrangements arranged, they were preliminary estimates and that he:

March 2000

Westpac facility

40 A facility was established with Westpac in the amount of $20 million as working capital for GGA and Gate Gourmet Services Pty Ltd. [Goggi, paragraph 13 and tabs 4 and 6; McIntyre, paragraph 11(c) and tab 7]

41 The minutes of a meeting in March 2000, attended by, amongst others, Mr McIntyre, Mr Smedegaard, Mr Engebretsen and Mr Larsen corroborate the "guestimate" nature of GGA's 2001 budget [PX1 203]. The minutes record Mr Steininger giving a financial presentation and both Mr Smedegaard and Mr Engebretsen emphasising the need for financial systems to be put in place to provide accurate reports in relation to GGA's performance and that head office would be approving and finalising the budgets produced by Mr McIntyre on a per unit basis.

9 March 2000

42 A meeting held on 9 March 2000, again attended by Mr Smedegaard, records head office as noting (PX1 216):

· Huge challenge to build and shape future

· Good team in place

· Have the passion needed to perform

· get the house in order

· reach budget 2000

· surprise the Australian airline catering market

· be a benchmark of division Asia”

April 2000

43 Mr Steininger, on secondment from the Swiss parent, commences his role with GGA, as Finance and IT Director, and other Australian companies within the group. [Steininger, paragraph 2]

April - May 2000

44 Mr Goggi telephones Mr Hastie of PriceWaterhouseCoopers [“PWC”], and asks if PWC will require a letter of comfort to be provided by the parent company. Mr Hastie replies yes and states that he will arrange for a draft letter to be sent to him. [Goggi, paragraph 15]

45 Mr Goggi telephones the group treasurer of Gate Gourmet International AG, Mr Roos, and informs him that the auditors have requested that a letter of comfort be provided to the group in Australia in order to sign off on the accounts. [Goggi, paragraph 16]

25 May 2000

46 Mr Steininger forwards an e-mail from PWC Manager, Mr Cuthell, to Mr Goggi, which notes that "Serge/Joe to provide Letter of Support from Gate Gourmet International AG confirming ongoing financial support (Gloria Yuen to provide format)." [Goggi, paragraph 17 and tab 8] [PX 1/221]

31 May 2000 – first letter of support

47 Mr Boysen (Chief Executive Officer of the Swiss parent) and Mr Smedegaard (Chief Financial Officer of the Swiss parent) provide the first letter of support which was in the following terms:

“TO WHOM IT MAY CONCERN

LETTER OF SUPPORT

This is to confirm that the parent entity, Gate Gourmet International AG, will provide the financial support that may be necessary to enable Gate Gourmet (Holdings) Pty Limited and its controlled entities to meet its financial commitments as and when they fall due. This guarantee will not be withdrawn before Gate Gourmet (Holdings) Pty Limited and its controlled entities have sufficient means to meet their obligations without the support of the parent entity.

Opfikon, 31.05.2000

Gate Gourmet International AG

(signed)
Henning Boysen
President and CEO (signed)
Niels Smedegaard
Exec. Vice President and CFO”

Late May/early June 2000

48 Mr McIntyre signs the directors' declaration to the statutory accounts of GG Holdings and Gate Gourmet Services Pty Ltd, confirming that in his opinion there were reasonable grounds to believe that GG Holdings as a consolidated entity and Gate Gourmet Services Pty Ltd would be able to pay its debts as and when they became due and payable. A note to the statutory accounts records (at page 6) that they have been prepared on a going concern basis on the assumption that the parent entity will continue to provide the necessary financial support to enable the company to pay its debts as and when they become due and payable, and not to call for repayment of the amounts owing to it until, and then only to the extent to which, sufficient funds are available.

49 Mr McIntyre gave evidence that, as Gate Gourmet Services Pty Ltd and GG Holdings had recorded losses as at 31 December 1999, without the first letter of support provided by Gate Gourmet International AG, the declaration that the group could meet its debts as and when they fell due would have been false. [McIntyre, paragraph 15 and tab 9]

50 A 2 to 3 day seminar took place in Australia in June 2000 to work on GGA's budgetary requirements (PX 219, 224). In preparation for this seminar, GGA was provided with a large amount of budgetary material from Mr Larsen [PX 225 - 431]. I accept that this appears to demonstrate the tight monitoring that Zurich maintained in relation to its subsidiaries’ cash flow requirements. In cross-examination, Mr Larsen agreed that that finance manual provided as part of this material was an important document which he took seriously [transcript page 175, lines 37 - 47; transcript page 176, lines 5 - 7].

Financing policy

51 Under the heading " financing" the finance manual circulated by Mr Larsen (PX 236) records:

" Financing in case of cash shortage (investments, operating loses, working capital for expansion).

52 Mr Larsen further agreed, in cross-examination, that this statement was borne out in practice, specifically, that in his experience of the group, the Swiss parent would make sure that its subsidiaries had funds [transcript page 178, line 4]. Mr Engebretsen also conceded this point.

53 The GGA budget and business plan workshop was attended by Mr Roos, the Swiss parent’s treasurer. [PX 434]

4 July 2000

54 Mr Goggi signs the financial statements and reports for GG Holdings to be lodged with ASIC. [McIntyre, tab 9]

55 The financial statements for GG Holdings and Gate Gourmet Services Pty Ltd were lodged with ASIC in July 2000. In light of the date of the commencement of the plaintiff’s operations, there was no requirement for it to lodge a separate financial statement at that time.

56 The directors’ report for GG Holdings noted that the net loss of the consolidated entity for the financial year, after income tax, was $2.161m, and that the company had a deficiency of assets over liabilities of $14.129m. Note 1 to the accounts recorded that the consolidated financial statements incorporated the assets and liabilities of all entities controlled by GG Holdings as at 31 December 1999 and the results of all controlled entities for the year then ended. It also noted that the financial statements have been prepared on a going concern basis on the assumption that the parent entity (GG Holdings) will continue to provide the necessary financial support to enable the company to pay its debts as and when they become due and payable, and not to call for repayment of the amounts owing to it until, and then only to the extent to which, sufficient funds are available. [Goggi, tab 7, page 6]

57 The Managing Director of the plaintiff and of GG Holdings, Mr McIntyre, certified that the accounts had been prepared in accordance with the Corporations Law and that there were reasonable grounds to believe that the company would be able to pay its debts as and when they become due and payable. [Goggi, tab 7, page 21]

August 2000

58 By 14 August 2000, GGA's 2001 budget was ready for circulation to Mr Engebretsen and Mr Larsen [PX 490], together with financial forecasts for 2000. The latter showed that in August 2000, GGA expected to make a total earnings before tax loss of $17.293 million [PX 495], being a loss of some $8.88 million greater than the budgeted loss of $8.405 million anticipated.

59 GGA, in its revenue forecast, expected to receive $80.091 million of its anticipated revenue of $103.076 million from Ansett in 2000 and $77.933 million of its anticipated revenue of $109.846 million from Ansett for 2001 [PX 496, 497].

22 August 2000

60 GGA board meeting where Mr Engebretsen directs that, as a result of the Australian companies' financial performance, all expenditure over $5,000 needs to be approved by him, that there is to be a freeze on the employment of all full time staff and that there are to be no new engagements of full time consultants. [PX p500-502]

September - November 2000

5 September 2000

61 Mr Engebretsen requests the regional divisions of the group in the Asia-Pacific region to study their financial performance and to come up with suggestions on how to reduce costs for the rest of the year 2000. [PX 561]

Budget for 2001 and business plans for 2001 - 2003

62 GGA prepares a budget for 2001 and business plans for the years 2001-2003, inclusive. A copy is provided to GG Holdings, and was presented to the Swiss parent at a conference in Zurich in September 2000.

63 Mr McIntyre gave evidence that it was Mr Larsen's practice to fly to Australia to commence the preparation of the budget. Mr McIntyre and Mr Steininger would then draw up a budget that would be approved by Mr Engebretsen and Mr Larsen before being presented to the Swiss parent in Zurich.

64 Mr Larsen [paragraphs 7 and 8] and Mr Engebretsen [paragraphs 8 and 9] gave evidence that they had little involvement in the day to day running of GGA and no involvement in the preparation of the statutory accounts.

Draw-downs as at 1 November 2000

65 As at 1 November 2000, the Australian group had drawn down $49 million on its existing banking facilities of $50 million with Westpac [a consolidation of the previous Westpac and Standard Chartered Bank facilities following a transfer of Standard Chartered Bank’s corporate business to Westpac - PX 693]. Mr Goggi sent Mr Rohrer an e-mail on that date commenting:

After discussions with Serge Steininger

66 Further e-mails were exchanged between Westpac and GGA on 20 November 2000 which clarified [PX 705A] that Gate Gourmet/SAir Relation was requesting, on behalf of its subsidiaries:

· a loan facility for the group of $70 million with an overdraft of $10 million, of which $60 million would be used by GGA and $20 million by Gate Gourmet Services Pty Ltd ;

· a loan facility of $10 million for the Nuance group with an overdraft of $3 million.

67 Accordingly, the net effect of the Westpac facility was to provide only additional 'new' cash of $10 million for the 2001 year for GGA, since $50 million had already been drawn down [PX 692, e-mail 3 November 2001 from Mr Goggi].

68 The table below sets out the additional draw-downs made on that facility during the course of 2000-2001, according to the directors' questionnaires (PX 2074, 2097 and 2108):

Date	Amount	Total
15 December 2000	$3 million	$3 million
15 January 2001	$2 million	$5 million
28 February 2001	$1 million	$6 million
30 March 2001	$3 million	$9 million
30 April 2001	$2 million	$11 million
8 May 2001	$3 million	$14 million
3 September 2001	$2 million	$16 million

GGA’s 2001 budget

69 In September 2000, Mr McIntyre presented GGA's 2001 budget to head office in Zurich [PX 507], having first obtained approval from Mr Engebretsen and Mr Larsen [P6, paragraph 8]. The very first page of the budget (PX 507) records:

"Gate Gourmet Australia came into being through the acquisition of Cathay Pacific and Ansett Kitchens in Australia. Both businesses were in poor shape in terms of being capital starved for many years, poor human resources in terms of skill and the Ansett kitchens were notable for their hostile industrial environments.

from those in the country, and to attempt to make sense of the key financial assumptions made during the acquisition. The resolution of the Ansett base year pricing (late 2000) is necessary in order to reach any firm conclusions regarding financial performance and forecasting

70 The management summary noted that the performance for 2000 was nearly 100% worse than budget and that GGA would still be making a loss into 2003 [PX 507]. In addition, I accept as correct the plaintiff’s submissions that:

· the comments in the introductory section were a further red flag to Zurich that the Base Year Contract had been agreed against a set of financial assumptions that were proving hard, if not impossible, to reconcile with the reality of the business being faced by those on the ground;

· one of the difficulties was the lack of investment and capital in the business they had acquired [a position being exacerbated by Mr Engebretsen's freeze of only 2 weeks earlier on capital investments over $5000];

· Ansett was undergoing turbulent changes and that "the resolution of the base year contract is potentially threatened unless Air New Zealand understand and stick to AN's obligations" (PX1 514).

71 These and other issues were repeatedly emphasised throughout the 2001 budget [see, for example: "Main Focus for 2001" at PX 508; "the First 11 months" at PX 511; "Head office costs" at PX 512; the " loss reconciliation" provided at PX 519; " Business Risk and Opportunity Management" at PX 531]. In addition, at PX 533, GGA attempted to analyse the impact of some of these difficulties on the 2001 forecast, including a provision for a $10 million loss if Ansett did not honour the Base Year Contract.

72 On 8 September 2000, Mr Roos sent an e-mail to Mr Larsen and Mr Engebretsen which stated [PX 563]:

Turnaround Australia: One key question is why it is so hard to return to a profitable operation. Do we have a problem with the Ansett pricing formula, is it more an efficiency problem (incl. new overhead) or did our assumptions during the due diligence completely fail?"

73 As the plaintiff contends, the presentation given by Mr McIntyre on 15 September 2000 in Zurich [PX 564] pulled no punches in responding to these enquiries [see, for example, PX 565, 566, 568, 570, 573, 592, 595]. [A copy of that presentation contains additional pages identifying $13.055 million of costs not included in the 2000 budget that GGA's management had identified as missing from the Base Year Contract [PX 609, 610, 618, 638, 682].

In principle approval of budget

74 The budget was approved, in principle, on 9 November 2000 [PX 701]. The plaintiff contends, and I accept, that in the light of the warnings of large losses, emanating from the budget presentation given to Zurich on 15 September 2000, above and beyond those budgeted for, which included:

· a possible loss of $10 million arising from the Base Year Contract [PX 533] ;

· the fact that the acquisition assumption in relation to Ansett was ill-founded and that there was approximately $13.055 million in costs that had not been accounted for [PX 609];

· there was a desperate need for tangible and intangible investment into GGA's infrastructure and management [PX 567, 631]; and

· Ansett, GGA's main customer, was in a considerable state of flux [PX 514],

75 The plaintiff contends, and I accept, that coupled with this realisation, Zurich must have understood that there was a real and palpable risk that significant funds, in addition to the Westpac facility, would be required from Zurich during the course of 2001 and that GGA would be relying fully on financial support from its parent to meet its debts as and when they fell due. The known inaccuracies inherent in GGA's budget made the need for parental support a greater reality and make the perception of the need for a legally binding commitment for such support from GGA's directors more credible.

27 November 2000

76 At a GGA board meeting, Mr Engebretsen confirms that the freeze on capital expenditure, consultants and permanent staff is to continue. [PX1 p708-709]

4 December 2000

77 The Swiss parent informs Westpac that they are not in a position to obtain an S Air Relations guarantee, although sometimes a letter of comfort is issued by the Swiss parent. Due to the relatively weak balance sheet of the group in Australia, the Swiss parent is willing to grant a guarantee instead of a letter of comfort, as requested. [McIntyre, paragraph 17 and PX1 p716-721]

8 December 2000 - $70 million bill acceptance and discount facility

78 A bill acceptance and discount facility in an amount of $70 million is offered by Westpac to GGA and Gate Gourmet Services Pty Ltd, which is accepted on 13 December 2000 and replaces both of the previous facilities offered by Standard Chartered Bank and Westpac. The facility is to be secured by guarantees and cross-guarantees. Cross-guarantees were to be provided by each of the plaintiff, GG Holdings, Gate Gourmet Services Pty Ltd and Gate Gourmet Property Pty Limited, and a guarantee was to be provided by the Swiss parent. [Goggi, paragraph 20 and tabs 10-13; McIntyre, paragraph 16 and tabs 10-14] [Exhibit P1, paragraph 20 and PX p706-707, 724-746, 747-764, 768-769; Exhibit P5, paragraph 16 and PX p706-707, 724-746, 747-764, 768-769, 711-714]

79 The terms and conditions of the facility, and the guarantee and indemnity, were accepted on behalf of the Australian companies by Mr McIntyre and Mr Goggi. Mr Steininger witnessed that acceptance. [McIntyre, tab 11]

13 December 2000

80 The Swiss parent provides a guarantee to Westpac which guarantees the obligation of GG Holdings and each of its wholly owned subsidiaries to a limit of $70 million. [McIntyre, paragraph 18 and tab 16; Goggi, paragraph 20 and tab 13] [Exhibit P5, paragraph 18 and PX p767-769; Exhibit P1, paragraph 20 and PX p768 - 769]

81 It is clear from the evidence that the negotiations with Westpac were handled on the Swiss parent’s behalf by the Vice-President Finance of Gate Gourmet International AG, Mr Nielsen. The guarantee was signed on behalf of the Swiss parent by the fifth defendant, Mr Boysen and the Executive Vice-President, Mr Dankelman.

7 February 2001 – sample letter of support

82 Ms Gloria Yuen (PWC) e-mails a sample letter of support from GG International AG, noting that the format of the letter is the same as the letter PWC obtained last year. Ms Yuen requests that the letter be signed and returned to PWC. [Goggi, paragraphs 22 - 3 and tabs 14 - 15] [Exhibit P1, paragraphs 22 - 23 and PX p806 and 807]

8 February 2001

83 Mr Goggi forwards Ms Yuen’s e-mail of 7 February 2001 to Mr Nielsen, and copies his e-mail to Mr Larsen. [Goggi, paragraph 24 and tabs 14 – 15; Larsen, paragraph 10] [Exhibit P1, paragraph 24 and PX p806 and 807; Exhibit D3, paragraph 10]

14 February 2001

84 Mr Nielsen e-mails Mr Goggi informing him that they wish to address the second letter of support to PWC, and requests Mr Goggi’s response. He attaches an amended version of the second letter of support and asks Mr Goggi to confirm that the address he has inserted for PWC is correct. In addition, Mr Nielsen deletes the word " guarantee" from the body of the letter and replaces it with the words " letter of support". [Goggi, paragraph 25 and tab 16 (e-mail); Goggi in reply, paragraph 17] [Exhibit P1, paragraph 25 and PX p822; Exhibit P2, paragraph 17]

85 Mr Goggi replies to Mr Nielsen informing him that the letter should be addressed to the directors of GG Holdings. Mr Goggi attaches a further draft of the letter, in which the addressee has been changed from PWC to the directors of GG Holdings. Mr Goggi says that he did not notice the other changes that Mr Nielsen had made to the text of the letter. [Goggi, paragraph 26 and tabs 16 & 17; Goggi in reply, paragraph 17] [Exhibit P1, paragraph 26 and PX1 p824 and 824a; Exhibit P2, paragraph 17]

15 February 2001

86 Mr Nielsen sends a further e-mail to Mr Goggi asking: "Why not PWC? I assume they are the one requesting the Support Letter in order for them to sign off on the Australian trading company financial statements as of 31 December 2000. I think this is the normal way to do it. Please get back to me". [Goggi, paragraph 27 and tab 18] [Exhibit P1, paragraph 27 and PX1 p830 - 831]

16 February 2001

87 Mr Goggi sends an e-mail to Mr Nielsen (copied to Mr Larsen) saying:

" NO !!!

The guarantee needs to be provided to the Directors of the company so that they can carry on the business within Australian statutory legislation.

88 Mr Nielsen responds: “Fine, I will get the Letter signed”. [Goggi, tab 19]

89 Mr Goggi gave evidence, which is accepted as reliable, that if it had been suggested to him that the Swiss parent did not intend to provide financial assistance to GGA or that the officers of the Swiss parent considered that they were under no obligation to honour the terms of the Letter, he would have been extremely alarmed by this suggestion as GGA would have been trading whilst insolvent. Also, he did not view the provision of the Letter as merely a procedural exercise to permit PWC to sign-off on GGA’s statutory accounts. [Exhibit P1]

90 Mr McIntyre gave evidence, which is accepted as reliable, that he was never told by any of the officers of the Swiss parent that they did not consider themselves bound by the Letter. His evidence was that, if he had been aware that the Swiss parent did not intent to honour the Letter, he would have called a board meeting of GGA to discuss the matter with Mr Engebretsen and Mr Larsen and would have placed the company in to voluntary administration. [Exhibit P6 paragraphs 17 and 16]

Second letter of support

91 The Letter is signed by Mr Boysen and Mr Grolimund. It reads:

“ GATE GOURMET (letterhead)

The Directors Gate Gourmet Holdings Pty Limited	Gate Gourmet Holdings AG QVF
263-273 King Street Mascot NSW 2020	Flughofstrasse 54 CH-8058 Zurich Airport
Australia	Phone: + 41 1 812 42 20 Fax: + 41 1 812 91 23
[email protected]

16 February 2001

Letter of Support

This is to confirm that the parent entity, Gate Gourmet Holding AG, will provide the financial support that may be necessary to enable Gate Gourmet Holdings Pty Ltd and its controlled entities to meet its financial commitments as and when they fall due.

This Letter of Support will not be withdrawn before Gate Gourmet Holdings Pty Ltd and its controlled entities have sufficient means to meet their obligations without the support of the parent entity.

Gate Gourmet Holding AG

[signed]	[signed]
Henning Boysen	Lucas Grolimund
President & CEO	Executive Vice President & CFO

19 February 2001

92 Mr Nielsen informs Mr Goggi that the Letter has been signed and sent by mail. On 20 February 2001, Mr Goggi requests that it be sent by fax “so PWC can sign off”. [Goggi, paragraph 31 and tab 19] [Exhibit P1, paragraph 31 and PX p835 - 836]

93 Following a request from Mr Larsen on 19 February 2001 [PX 834], GGA began in 2001 to provide "flash" financial reports to Zurich and Bangkok. In addition, Mr Goggi gave evidence that he provided monthly profit and loss accounts and monthly balance sheets to Mr Larsen, Mr Engebretsen and Zurich [P2, paragraph 4].

21 - 23 February 2001 – McIntyre tells Boysen of his concern about Ansett’s survival

94 Mr McIntyre attends the annual conference of the International Flight Catering Association in Barcelona. Mr McIntyre tells Mr Boysen that he is concerned about Ansett’s survival, and that the Swiss parent should seek to sell GGA or seek to merge the business with Qantas Flight Catering Limited. Mr Boysen agrees and indicates that he will travel to Australia to talk to Qantas. [McIntyre, paragraphs 25 and 26]

22 February 2001

95 Mr Nielsen faxes Mr Goggi a copy of the Letter. [Goggi, paragraph 31 and tab 20]

23 February 2001

96 Mr Goggi sends the Letter to PWC. [Goggi, paragraph 32 and tab 20]

27 February 2001

97 A GGA board meeting is held in Bangkok and attended by Mr McIntyre, Mr Engebretsen and Mr Larsen. The minutes record a resolution that Mr McIntyre sign the financial statements and the directors' declaration. [PX1 p839 - 840]

21 March 2001

98 Mr Goggi sends an e-mail to Mr Engebretsen, Mr Larsen and Mr McIntyre stating that the statutory accounts are nearly ready for signing. [Goggi, paragraph 33 and tabs 21-2]

End of first quarter – dramatic weakening of Ansett in domestic market

99 By the end of the first quarter, Mr McIntyre was pointing up the fact that GGA was struggling to meet its budget, due in part to a dramatic weakening of Ansett in the domestic market (PX1 889).

April 2001 - September 2001

100 In the period between April 2001 and September 2001 the plaintiff continued to trade. The evidence establishes that the plaintiff’s main source of income continued to be the Base Year Contract, but that the plaintiff continued to trade at a loss.

2 April 2001 - signing of GGA’s accounts

101 Mr McIntyre signs GGA's statutory accounts for the financial year ended 31 December 2000. Mr McIntyre states that he relied upon the Letter in doing so. GGA's financial reports record that the net loss for the 16-month period from 2 September 1999 to 31 December 2000 was $16.53 million (page 1). The balance sheet records total assets of $70.076 million and total liabilities of $86.606 million. Note 1 to the accounts records that "the financial statements have been prepared on a going concern basis on the assumption that the related entities will continue to provide the necessary financial support to enable the company to pay its debts as and when they become due and payable, and not to call for repayment of the amounts owing to it until, and then only to the extent to which, sufficient funds are available" (page 7). The directors declare that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable (p 16). [Goggi, paragraph 34 and tab 23; McIntyre, paragraphs 21 - 22 and tab 19]

Directors’ declaration signed

102 Mr McIntyre signs the directors’ declaration to the consolidated accounts of GG Holdings, which records that the financial statements have been prepared on a going concern basis on the assumption that the parent entity will continue to provide the necessary financial support to enable the company to pay its debts as and when they become due and payable, and not to call for repayment of the amounts owing to it until, and then only to the extent to which, sufficient funds are available. [McIntyre, paragraph 24 and tab 20]

April 2001

103 Meeting between Qantas representatives (including the Chief Executive Officer, Mr Dixon), Mr Boysen and Mr McIntyre in which the creation of a joint-venture between Gate Gourmet and Qantas is discussed. [McIntyre, paragraphs 27 - 28]

104 By 17 April 2001, Ansett's position had deteriorated to the extent that Mr McIntyre thought it necessary to seek formal advice from Baker & McKenzie in relation to GGA's position should Ansett either be restructured, sold in whole or in part or cease operations [PX1 957].

105 On 27 April 2001, Mr Larsen sent a memorandum to Mr Steininger, copied to Mr McIntyre and Mr Engebretsen [PX1 1031] commenting on the poor operating results which commented:

1 May 2001 – Westpac facility nearly fully drawn

106 GGA's continuing losses impacted on its Westpac facility and by 1 May 2001, the $70 million facility was nearly fully drawn. On that date, Mr Goggi sent an e-mail to Mr Nielsen, copied to Mr Larsen and Mr Steininger [PX1 1088], commenting that the facility was drawn to $64 million and that it was clear "that the AUD70M Bills Facility will not be adequate”.

107 Mr Nielsen responded to Mr Goggi in relation to the Westpac facility, enquiring how much additional funding was required and for what purpose. [Goggi, paragraph 35 and tabs 24 - 5] [PX 1087]

108 Mr Goggi answered this request on 2 May 2001 [PX1 1115] as follows:

"Additional requirements are:

AUD 2.0M Ansett Guarantee due 1 July 2001 (Actual)
AUD 2.5 M Completion of the Perth unit refurbishment (Estimate)
AUD 3.5M Settlement of 1999/2000 Management Fees to Zurich(Actual)
AUD 3.0M Settlement of 2001 Management Fees to Zurich (Estimate)
AUD 2.0M Purchase of 4 Hilift Trucks (Estimate)
AUD 7.0M Working capital (Estimate including Ansett's Base Year retrospective payments)
AUD 20.0M TOTAL

Please note that this additional requirement estimated at 20.0M depends largely on Ansett making their payments on time"

109 On 1 May 2001, Mr Steininger sent a memorandum to Mr Larsen, copied to Mr McIntyre and Mr Engebretsen, responding to his queries about GGA's performance for March 2001 [PX 1095]. The memorandum commented:

110 Mr Goggi e-mails Mr Nielsen stating that the reason why he sent advance notice of the current financial position of the Australian group was that it is his responsibility/obligation to ensure that they remain liquid. Mr Goggi notes that additional funding of $20 million is required, although that figure depends largely on Ansett making their payments on time. [Goggi, paragraph 36 and tab 26] Those e-mails were copied to Mr Grolimund, Mr Larsen and Mr Steininger.

12 May 2001 - Nielsen reviews annual reports

111 Mr Nielsen reviews the annual reports for the Australian companies for the year ended 31 December 2000 and sends an e-mail to Mr Steininger and Mr Grolimund seeking answers to various questions. [PX1 p1144 - 1145]

14 May 2001

112 Mr Steininger forwards Mr Goggi an e-mail from Mr Nielsen which notes that certain companies within the Australian group had negative equity in 1999 and in 2000, and asks if they are legally allowed to continue having a negative equity. [Goggi, paragraph 37 and tab 27]

Nielsen is reminded of letter of support

113 Mr Goggi responds by e-mail to Mr Steininger and Mr Nielsen noting that:

Gate Gourmet Holdings Pty Limited

May 2001 – Westpac’s nervousness

114 Mr McIntyre states that Westpac begins to get nervous about its exposure to the SwissAir group (the ultimate parent of the group) where it was a lender as part of a syndicated US$500,000,000 multi-currency revolving facility. [McIntyre, paragraph 31 and tabs 24 - 5]

115 In late May, SwissAir's internal auditors visited Australia. Following that visit, Mr Larsen prepared a memorandum to Mr Grolimund, copied to Mr Engebretsen, Mr McIntyre and Mr Steininger commenting on their report [PX1 1190]. At PX1 1192, Mr Larsen commented that there had been " a lot of turmoil in the Australian airline market the last 12 months and can expect more the next 6-12 months also".

14 June 2001

116 Westpac writes to the Chief Financial Officer of the SwissAir group, Mr Schroderet, noting that GGA’s operations are under-capitalised and that Westpac is not prepared to fund the ongoing operating losses of GGA and thus will not extend GGA's facilities beyond the 15 December 2001 maturity date. Westpac requires a $50 million capital injection, the granting of a fixed and floating charge, for the Australian entities to agree not to remit funds to any SwissAir group company without Westpac’s prior written consent and the continuation of the existing guarantee from the Swiss parent. [McIntyre, paragraph 32 and tab 2]

22 - 23 June 2001

117 Mr Larsen travels to Australia to begin the process of preparing GGA's budget for 2002 - 2003. [McIntyre in reply, paragraph 8]

2 July 2001

118 Meeting between Mr Shearman, Mr Parker and Mr Morgan of Westpac and Mr McIntyre and Mr Steininger. Mr McIntyre subsequently e-mails Mr Boysen, Mr Grolimund, Mr Nielsen, Mr Engebretsen and Mr Larsen informing them that Westpac are satisfied that GGA is in technical breach of the facility, and that the situation needs urgent action. [McIntyre, paragraph 34 and tab 27]

4/5 July 2001

119 Mr McIntyre retains Mr Kershaw [KPMG] to assist in the proposed capital injection into GGA required by Westpac and to assist in negotiations. [McIntyre in reply, paragraphs 22 and 23, tabs 27 and 28]

5 July 2001

120 Mr McIntyre e-mails Baker & McKenzie seeking advice about the appointment of an administrator. Mr McIntyre states that the purpose of his e-mail was to seek an understanding of the legal ramifications if the Swiss parent chose not to support GGA, either by reducing the facility or not standing by the Letter and his obligations as the sole Australian director. [McIntyre, paragraph 37 and tab 30]

6 July 2001

121 Mr McIntyre e-mails Mr Boysen, Mr Grolimund, Mr Engebretsen and Mr Larsen updating them on the position with Westpac and attaching the advice he has received from Baker & McKenzie setting out directors’ responsibilities. [McIntyre, paragraph 38 and tab 31]

19 July 2001

122 On 19 July 2001, Mr McIntyre prepared a discussion document for GGA [PX1 1235]. Under “main findings” he commented:

"We are achieving results that are close to what can be expected, but this will not cover the "structural" costs of the Ansett contract. The GG Australia Group has structural costs arising from the Ansett deal of approximately $15.8 million of total Ansett revenue. This can only be saved through efficiencies to get the Ansett business to break-even…

123 Mr McIntyre e-mailed this document to Mr Larsen, Mr Engebretsen, Mr Boysen, Mr Grolimund and Mr Nielsen.

31 July 2001 – Ansett sent invoice of $15.534 million

124 GGA sends an invoice to Ansett in the amount of $15.534 million, which comprised a billing shortfall under the Base Year Contract of $12.477 million and an estimated claim for accounts receivable of $3.057 million.

13 August 2001 – Ansett offer of $8 million rejected

125 Mr McIntyre writes to Ansett rejecting an offer of $8 million that Ansett had made towards GGA’s outstanding invoices. [McIntyre, paragraph 30 and tab 21]

17 August 2001 - variation proposed by Westpac to the $70m facility, which required a reduction in the commitment from $70m to $35m by 22 August 2001

126 Mr McIntyre and Mr Goggi sign an amended facility agreement with Westpac, which includes an acknowledgement that GGA is solvent. Mr McIntyre gave evidence, which is accepted as reliable, that in signing this acknowledgement he had in mind that the Swiss parent had agreed to pay a substantial sum to reduce the facility and that the Letter was in place [paragraph 40]. Mr Goggi gave evidence, which is accepted as reliable, that he would not have signed the declaration of solvency had he known that the Swiss parent did not intend to continue to provide financial support. [McIntyre, paragraph 40 and tab 33; Goggi in reply, paragraph 16]

August 2001

127 Mr McIntyre gives a power point presentation in Perth at a meeting attended by Mr Engebretsen and Mr Larsen, which includes an adjusted forecast loss for GGA for 2001 of $16.505 million, a $9.5 million variance from GGA's budget. Mr McIntyre set out a budgeted loss of $14.551 million for GGA for 2002 [PX 1413] and emphasised yet again that the Base Year Contract was extremely difficult to make profitable due to $15 million in unaccounted for costs [PX 1411] [McIntyre in reply, paragraph 14 and tab 22]

22 August 2001

128 On 22 August 2001, a further $15 million was provided by the Swiss parent to GGA [PX8]. It is unclear whether this amount was provided by additional draw-down on the subordinated loan. The Swiss parent has only submitted a proof of debt for $25 million in respect of the subordinated loan.

31 August 2001 – plaintiff’s financial position - $19.559 million deficiency

129 The financial position of the plaintiff as at 31 August 2001 is summarised in a table [PX 5/844 - 5], which records that the plaintiff’s deficiency of assets over liabilities was $19.559 million, up from $19.036 million as at February 2001; its debtors were $24.171 million, up from $12.704 million in February 2001; and its liability for employee entitlements was $7.858 million, up from $7.276 million in February 2001.

January to August 2001 – monthly profit and loss reports – losses against budget

130 The monthly profit and loss reports, which were provided to Bangkok and to Zurich, reveal the following losses by GGA against budget in the period January to August 2001:

Month	Actual Loss (EBT) '000	Budgeted Loss (EBT) '000	Variance	PX1 ref	Cumulative loss '000
January 2001	($1.428)	($1.327)	($101)	770	($1.428)
February 2001	($1.647)	($1.111)	($536)	892	($3.075)
March 2001	($382)	($997)	$615	854	($3.457)
April 2001	($1.889)	($819)	($1.070)	927	($5.346)
May 2001	($1.411)	($868)	($543)	1034	($6.757)
June 2001	$4.463	($444)	$4.019	1175	($2.294)
July 2001	($1.196)	($402)	($794)	1206	($3.490)
August 2001	($2.171)	($457)	($1.714)	1368	($5.661)

Figures not indicative of cash flow

131 As the plaintiff points out, in cross-examination, Mr Goggi explained that the figures set out above included "a substantial provision which was started in January 2001 to allow for the anticipated additional sales to Ansett for the base year pricing and that is why the results look so good. It was no indication of cash flow” [transcript, page 75, line 15] [emphasis added]. Hence, the losses being experienced by GGA, pending receipt of payment by Ansett, were much worse that those contained in those profit and loss statements, a state of affairs that was known both to GGA and Zurich by reason of the commentaries provided with the statements [transcript, page 75, line 13].

11 September 2001

132 There is no need to chronicle the 9/11 events which did, however, close down a large part of the group’s operation in Europe and North America for about a week [transcript 161]. Ansett’s demise cannot be sheeted home to those events.

12 September 2001 – Ansett placed into voluntary administration

133 Ansett is placed into voluntary administration. Mr McIntyre seeks advice from Baker & McKenzie in relation to GGA’s legal position should Ansett go into receivership or liquidation. Ms Cox of Baker & McKenzie sends Mr McIntyre two e-mails, the first of which says:

"The directors of Gate Gourmet Australia Pty Limited ("GGA") seek confirmation that:

1. Gate Gourmet Holding will continue to provide sufficient financial support to GGA to ensure that it will be in a position to pay its debts as and when they fall due; and

134 Mr McIntyre telephones one of Ansett’s administrators and is informed that no guarantee of payment can be given.

135 Mr McIntyre then telephones Mr Boysen. Mr McIntyre’s evidence on the conversation is accepted as reliable. He updates Mr Boysen on the Ansett situation, and then informs him that he does not think there is any chance of getting any money under the Base Year Contract, which means GGA is in real trouble. Mr McIntyre informs Mr Boysen that he is not prepared to let GGA trade on unless Westpac is paid off and Mr Boysen confirms that he is prepared to stand by the Letter and support GGA financially going forward until it can support itself. Mr Boysen tells Mr McIntyre that they can pay off Westpac but the Swiss parent does not have the money for anything else. Mr McIntyre tells Mr Boysen that he has no choice but to call a board meeting and to recommend that a voluntary administrator is appointed to GGA. [McIntyre, paragraph 48]

136 Mr McIntyre subsequently telephoned Mr Engebretsen and informed him that he would be calling a board meeting on the next day.

13 September 2001

137 Mr Engebretsen gave evidence that he spoke to Mr Boysen by telephone when he asked whether the necessary funding was available to allow GGA to continue to trade. Mr Engebretsen says that Mr Boysen said that the Swiss parent did not have the requisite funds and that he (Mr Engebretsen) should do whatever he thought was right. [Exhibit D2, paragraph 13]

138 A meeting took place in Mr McIntyre’s office between Mr McIntyre, Mr Goggi, Mr Michael Smyth, (Baker & McKenzie), Mr Steininger and possibly also Mr Bishop (GGA’s general commercial manager). Mr McIntyre informs the meeting that Mr Boysen has told him that the Swiss parent will pay out Westpac but there is no money for anyone else. Mr McIntyre notes that he is attempting to contact the Ansett administrator, but that if he does not hear from them by midday he will call a board meeting with Mr Engebretsen and Mr Larsen to see what they are going to do. [Goggi, paragraphs 41-2; McIntyre, paragraph 50]

139 Telephone conference between Mr McIntyre and Mr Goggi in Sydney and Mr Engebretsen and Mr Larsen in Bangkok. Mr Goggi states that Mr McIntyre informed the meeting that Mr Boysen had told him that the Swiss parent would pay Westpac but no one else, and that they had no choice but to place GGA into voluntary administration. Mr McIntyre gave evidence by statement that he told the meeting that Mr Boysen had said that the Swiss parent would not stand by the Letter. Mr Engebretsen and Mr Larsen agree to place GGA into voluntary administration and Mr Sherman of Ferrier Hodgson is appointed administrator. [Goggi, paragraphs 43 - 4 and tab 29; McIntyre, paragraph 50]

140 Mr Engebretsen denies that Mr McIntyre referred to or mentioned the existence of a letter of support during the telephone calls on 13 September 2001, contrary to paragraph 50 of Mr McIntyre’s statement. Mr Engebretsen claims that at that time he was unaware of the existence of any letter of support. [Mr Engebretsen claims he only became aware of the existence of the Letter when he received the Ferrier Hodgson questionnaire from Mr McIntyre, which he eventually signed on 5 October 2001]. Mr Larsen also denies that Mr McIntyre referred to the existence of any letter of support during the telephone calls on 13 September 2001. [Engebretsen, paragraphs 16 & 18; Larsen, paragraph 15]

141 Mr McIntyre had said in his statement in reply that he is sure that he mentioned the Letter either during this meeting or during his earlier telephone call with Mr Engebretsen. [McIntyre in reply, paragraph 18].

142 Mr McIntyre had said in his statement in reply that shortly after GGA was placed into voluntary administration, he asked Mr Goggi to provide a copy of the Letter to Mr Engebretsen and Mr Larsen [McIntyre in reply, paragraph 20] and that his reason for doing so was that he realised the relevance of the Letter to any questions Mr Sherman might have about why GGA had been allowed to trade [paragraph 21].

143 Mr Goggi recalls Mr McIntyre asking him to provide Mr Engebretsen and Mr Larsen with a copy [Goggi in reply, paragraphs 6 and 9] either by fax, or in person, when Mr Engebretsen and Mr Larsen travelled to Australia shortly after GGA was placed into voluntary administration.

144 Specific findings in relation to this meeting and to the earlier conversation[s] between Mr McIntyre and Mr Engebretsen are given below.

20 September 2001

145 Westpac lodges a proof of debt in the amount of $35.135 million, but notes that the Swiss parent has remitted an amount of $35 million which is being held in a suspense account pending clarification of the terms on which the payment has been made. Proof of debt withdrawn by Westpac on 13 November 2001. [Sherman, paragraph 9 and tabs 11-12]

146 The Swiss parent lodges a proof of debt with the administrator of GGA in a total amount of $58 million. Gate Gourmet IP AG lodges a proof of debt in the total amount of $3.719 million. Gate Gourmet Services Pty Limited lodges a proof of debt in the total amount of $334,592.87. [Sherman, paragraph 16 and tab 17 - 19]

5 October 2001

147 Mr Engebretsen and Mr Larsen complete and sign a Ferrier Hodgson directors' questionnaire. Both state that the questionnaire had already been completed (in part) on receipt by them. Mr Engebretsen says that this is the first time he became aware of the existence of the Letter. Mr Larsen says this is the first time he became aware of a signed letter of support. [Sherman, tab 2; Engebretsen, paragraphs 17 and 18; Larsen, paragraphs 18 - 19]

7 November 2001

148 Clayton Utz write to Baker & McKenzie requesting formal confirmation that the Swiss parent will honour its obligations pursuant to the Letter. [Sherman, paragraph 6 and tab 8]

13 November 2001

149 Baker & McKenzie reply to Clayton Utz and deny that any binding obligations arise out of the Letter. [Sherman, paragraph 7 and tab 9]

15 November 2001

150 GGA is placed into liquidation with Mr Sherman as the liquidator. [Sherman, paragraph 8 and tab 10 ]

19 November 2001

151 Report as to affairs lodged with ASIC. [Sherman, paragraph 11 and tab 13]

10 December 2001

152 Mr Sherman writes to Mr Engebretsen and Mr Larsen requesting that they take steps to enforce the Letter. In accordance with advice received from Baker & McKenzie, Mr Engebretsen and Mr Larsen do not respond. [Engebretsen, paragraph 19; Larsen, paragraph 20 and annexure B]

14 December 2001

153 These proceedings commenced.

Plaintiff’s financial position on liquidation

154 The financial position of the plaintiff on liquidation is dealt with in the liquidator’s statement in these proceedings. Its debts amount to approximately $97 million, of which general unsecured creditors amount to $75 million, including employee statutory entitlements of $23 million [Sherman, paras 12 and 13]. In the Report as to Affairs filed with ASIC in November 2001, Mr Sherman disclosed that there were some hundreds of employees with an unsatisfied entitlement to severance benefits [Sherman, tab 13] and also that approximately $30 million of the plaintiff’s assets, namely, its debtors, related to companies associated with Ansett, which was at that time in administration. Although the plaintiff has lodged a proof of debt in the administration of Ansett, it is unlikely that any dividend will be paid to it.

Evidentiary conflicts

155 It is convenient to next give findings where necessary insofar as particular evidentiary conflicts require resolution.

156 One may commence with the evidence given by Mr McIntyre. The Court accepts that he carried out his best endeavours to accurately recall what he now believes then occurred. In some instances his evidence was departed from during cross-examination or seems to be reflective of improbabilities. But that is not for a moment to suggest that his evidence was unreliable in relation to other matters. It is necessary in dealing with his evidence to look closely at the contemporaneous documentation, where relevant, and to compare his evidence to the evidence given by those who may have contradicted it. It is also necessary to take into account the whole of his cross-examination and any concessions or uncertainties which it revealed.

157 I accept as reliable the entirety of the evidence given by Mr McIntyre in each of his statements:

· where dealing with his reliance upon the Letter in signing the directors’ declaration, which to his mind, operated as a fully enforceable inter-company guarantee;

· that if he had been aware that the Swiss parent did not intend to honour that guarantee, he would not have signed the declaration under any circumstances;

· that he would not have signed the declaration had the Letter not been provided at all;

· that had he been aware that the Swiss parent did not intend to honour the Letter he would have considered that the Australian trading company was “trading insolvent” and would have called a board meeting to discuss the position with Mr Engebretsen and Mr Larsen and taken steps to appoint a voluntary administrator and would not have permitted the Australian trading company to continue to trade and incur liabilities.

158 These evidentiary findings take into account Mr McIntyre's evidence, under cross-examination, as to his state of mind as at July 2001. This evidence was that he made the assumption that the Letter was in place, it being so obvious that “it went without saying”: these being the reasons why, albeit perhaps being ‘commercially naïve’, he did not put to the persons with whom he was dealing in Zurich, that the Swiss parent was contractually obliged to assist the Australian trading company.

159 These findings are corroborated by Mr McIntyre’s evidence that in signing the solvency acknowledgment [part of the 17 August 2001 amended Westpac facility agreement], he had in mind that the Letter was in place.

271 In Henville, Gleeson CJ said [at [14]]:

Poseidon Ltd &

Sellars v Adelaide Petroleum NL

272 Gaudron J cited the “common-sense” approach articulated by the High Court in March v E & MH StramarePty Ltd (1991) 171 CLR 506, holding [at [61]]:

273 McHugh J said [at [106]]:

Bonnington Castings Ltd v Wardlaw

Toteff v Antonas

Wardley Australia Ltd v State of Western Australia

Marks v GIO Australia Holdings Ltd

Cox & Coxon Ltd v Leipst

Fair Trading Act

274 Hayne J put the matter as follows [at [162]]:

Marks v GIO Australia Holdings Ltd

275 In order to establish an entitlement to damages flowing from a breach of s52, a plaintiff need only show that the contravening conduct was one of the causes of its loss, not that it was the sole, or principal cause: Henville, at [109] per McHugh J and [163] per Hayne J, Gummow J agreeing; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41, at [57] per Gaudron, Gummow and Hayne JJ.

Section 51A

276 Section 51A(2) of the TPA provides that a corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making a representation as to a future matter. Section 51A(1) provides that where the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

277 Section 51A is of course an evidentiary, rather than a substantive, provision: Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 206 per Heerey J.

278 Clearly, section 51A does not prove that a representation as to a future matter was relied upon by the other contracting party [cf Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670 at [166] per Mason P]. Nor does it address whether, at the time of the representation as to the future matter, it was reasonable for the maker of the representation to have made it. The onus of proof having shifted, the representor must show objectively that it had reasonable grounds for making the representation: Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 240, per Ormiston J, referred to with approval by Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 506. Clearly also, the plaintiff has an onus of showing demonstrable loss which flowed from any reliance by the plaintiff upon the defendants section 51A deemed misleading conduct: Concrete Constructions at [160] per Mason P.

279 The section has recently been examined by the New South Wales Court of Appeal in Digi-Tech (Australia) Ltd v Brand; Digi-Tech (Australia) Ltd v Kelliher; Kalifair Pty Ltd v Digi-Tech (Australia) Ltd; McLean Tecnic Pty Ltd v Digi-Tech (Australia) Ltd [2004] NSWCA 58, where the Court cited with approval the following passage from the dissenting judgment of McHugh JA in Wright v TNT Management Pty Limited (1989) 15 NSWLR 679 at 688ff [at [29]]:

His Honour described the effect of s 51A in the following terms (at 690):

280 The following propositions are supported by Cummings v Lewis (1993) 41 FCR 559 at 565-566 per Sheppard and Neaves JJ [applied by Mason P in City of Botany Bay Council v Jazabas Pty Ltd [2002] ANZ ConvR 300 at 308] :

· the section is concerned with whether there were reasonable grounds for a belief;

· the section does not deal with genuine or honest belief:

· 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;

· 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. Hence, 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 as 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".

281 The law is clear that a representation may be a representation with respect to a future matter even if it is also, impliedly, a representation as to the existing state of mind of the maker: Ting v Blanche (1993) 118 ALR 543 at 553 per Hill J, cited in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 514-515 per Heerey J.

282 The applicability of section 51A is to be ascertained by a proper characterisation of the representation made in each case. In determining the proper characterisation of the representation, the material in question requires to be construed and understood in the light of the background facts and the context in which they arise: Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 at 242 per Gummow J.

Continuing representations and the circumstances in which they may be regarded as having lapsed or become spent

283 The proposition summarised by Romer LJ in With v O’Flanagan [1936] Ch 575 at 583 is plainly correct:

284 In short a representation may, depending always upon the precise circumstances in which it was made and upon later circumstances, have a continuing effect during the period of time following the date upon which the representation was made. The relevant period of time dealt with in the authorities is, for obvious reasons, invariably the period between the point in time when the representation was made and the point in time when it is acted upon by the representee, often by concluding a contract. Hence the springing up of the suggested duty upon the representor not to leave the representee under an error when the representation requires to be corrected, failing which correction, the representee continues ignorant of the intervening change of circumstances, and goes on by relying upon the representation as having continuing effect.

285 In Smith v Kay (1859) 7 HL Cas 750, Lord Cranworth said [at 769]:

The case as pleaded

286 The case as pleaded alleges as follows:

The alleged representation

287 The Letter is said to have been a representation made by the Swiss parent, in Australia, in the course of trade and commerce, that:

· the Swiss parent would provide the financial support that might be necessary to enable the Australian holding company and its controlled entities to meet their financial commitments as and when they fell due [said to be an express representation];

· the Swiss parent would not withdraw its financial support before the Australian holding company and its controlled entities had sufficient means to meet their obligations without the support of the Swiss parent [said to be an express representation];

· the Swiss parent had a present intention of honouring the express terms of the Letter in the future, and had the capacity to do so [said to be an implied representation];

· the Swiss parent believed that there were reasonable grounds for making the express statements referred to above, and that there was no reason to qualify those statements in any way [said to be an implied representation].

Inducement

288 PWC, as auditors of the plaintiff, are said to have given an unqualified audit for the year ended 31 December 2000.

289 The directors of the plaintiff are said to have provided a directors' declaration and opinion pursuant to section 295(4) of the Corporations Law that the financial statements and notes of the plaintiff , inter alia:

· complied with the accounting standards;

· gave a true and fair view of the company's financial position as at 31 December 2000;

· were in accordance with the Corporations Law and that there were reasonable grounds to believe that the company would be able to pay its debts as and when they became due and payable.

290 The plaintiff is said to have continued to trade and incur debts in circumstances where the company's financial position was such that, absent the Letter, the company would have ceased trading.

Letter misleading and deceptive

291 The Letter is said to have been misleading or deceptive or likely to mislead and deceive in contravention of section 52 of the TPA in that the Swiss parent had no intention:

· of providing the financial support that might be necessary to enable the plaintiff to meet its financial commitments as and when they fell due;

· of maintaining its financial support until the plaintiff had sufficient means to meet its obligations without the support of the Swiss parent; or alternatively

· the Swiss parent is said not to have given any consideration to whether it would honour the express terms of the Letter in the future, to whether there were reasonable grounds for making the express statements set out therein, and/or to whether the Letter should be qualified in any way.

Future matters

292 Further, insofar as the Letter relates to future matters, the claim made is that at the time it was written the Swiss parent had no reasonable grounds for making the representations contained therein.

Dealing with the issue

293 The case is pressed:

· first, on the basis of the express representations contained within the Letter, namely, that the Swiss parent would provide the financial support that may be necessary to enable the Australian holding company and its controlled entities to meet their financial commitments as and when they fell due, and would not withdraw its financial support before the Australian holding company and its controlled entities had sufficient means to meet their obligations without the support of the Swiss parent;

· second, on the basis of two implied representations, namely, that the Swiss parent had a present intention of honouring the express terms of the Letter in the future, and had the capacity to do so, and that the Swiss parent believed that there were reasonable grounds for making the express representations contained in the Letter and that there was no reason to qualify those statements in any way.

Findings – the representations

294 It seems to me beyond doubt that the Letter contains the pleaded [express as well as implied] representations set out above. The terms of the Letter are clear and unequivocal. It provides that the Swiss parent will provide the financial support that may be necessary to enable the Australian holding company and its controlled entities to meet their financial commitments as and when they fall due, and that the Letter will not be withdrawn before the Australian holding company and its controlled entities have sufficient means to meet their obligations without the support of the Swiss parent. Those statements are unqualified. Nor can any qualification be discerned by reference to the circumstances surrounding the making of the representations: see the chain of e-mails between Mr Nielsen and Mr Goggi at TB 2/822-3, 835-6.

295 The representations contained in the Letter are properly characterised as representations “with respect to a future matter”, namely, the provision in the future of financial support, and the maintenance of that position until the Australian holding company and its controlled entities could in essence ‘stand on their own feet’. The terms of section 51A provide that a representation with respect to any future matter includes the doing of, or the refusing to do, any act: section 51A(1).

Does the evidence establish that the Swiss parent had reasonable grounds for making the representations as to the future matters?

296 As already observed in Cummings, it is clear that a court faced with a lack of evidence of the persons alleged to have made particular representations as to a future matter may nonetheless find that 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, provide better guides as to whether or not those persons had particular states of mind [or whether particular factors existed which would establish evidence of something such as reasonable grounds].

297 The Court does not here have the benefit of any oral evidence given on behalf of the Swiss parent.

298 It is true that the Swiss parent has tendered materials proving that it did provide considerable support for the Australian trading company. The submission is that it has thereby established that it had reasonable grounds for making the representations.

299 In my view the submission should be rejected. The point in time at which this inquiry is focused concerns the state of affairs at the time when the representations were made. The Court is in the dark as to what circumstances, if any, gave reasonable grounds for the making of the implied representations. That void is not here capable of being filled by inference. At the least, the e-mail exchange between Mr Goggi and Mr Nielsen in February 2001, the apparently broad terms of the Letter, and the unequivocal departure, without notice, from the terms of the Letter on 13 September 2001, required an explanation from the relevant officers of the Swiss parent. That explanation should have addressed, at a minimum, the state of affairs at the time the Swiss parent made the representations, and the reasons why it decided in September 2001 to depart from their express terms.

300 Outside altogether of any need to invoke the rule in Jones v Dunkel (1959) 101 CLR 298, the matter simply stands by operation of section 51A of the TPA, whereby the Swiss parent is deemed not to have reasonable grounds for making the representations, and the representations are taken to be misleading. The failure of the Swiss parent to call any evidence as to the matters the Swiss parent actually relied upon in making the representations in the Letter has the result that they have not discharged the onus of proof in section 51A(2).

301 During final address, Mr Pembroke submitted that the Letter represented a genuine statement of commercial intent at the time it was made, the central purport of his oral submissions being the proposition that the evidence established that there were reasonable grounds for making the statement. [transcript 267, 270]

302 The short position is that the evidence simply does not go this distance. It was not that unequivocal. Mr Engebretsen’s evidence was that “the Australian companies would normally get money from Switzerland” [transcript 160.40] [emphasis added]. Mr Larsen’s evidence was that “it was normal practice that the Swiss company would make sure that the [subsidiary] had funds” [transcript 178.1] [emphasis added]. This evidence does not unequivocally establish that which had to be established. No doubt there are cases where a cushion of evidence comes forward from which the court is able, on the balance of probabilities, to infer that there were reasonable grounds for a particular belief being held, where representations as to a future matter have been made. This is not one of those cases. The raw requirement posed by the section has not been fulfilled.

303 The Australian trading company seeks to also rely upon the rule in Jones v Dunkel, the submission being that the failure by the defendants to adduce evidence from the signatories to the Letter, Messrs Boysen and Grolimund, and the person who conducted the negotiations with the plaintiff over its terms, Mr Nielsen, gives rise to an inference that their evidence would not have helped the defendants’ case.

304 It is important to recall the principles laid down in Jones v Dunkel. The following extracts clarify the position in this regard:

· "The unexplained failure by a party to give evidence, to call witnesses, or tender documents may - not must - in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered." [JD Heydon, Cross on Evidence, 6th ed, Butterworths, Sydney, 2000 at [1215]]

· "This instance of a Jones v Dunkel inference…, also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." [Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing]

· "[T]he rule [in Jones v Dunkel] only applies where a party is "required to explain or contradict" something. What a party is required to explain or contradict depends on the issues as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts "requiring an answer".

Cross on Evidence

Schellenberg v Tunnel Holdings Pty Ltd

305 The proper inference is that the failure of Messrs Boysen, Grolimund and Nielsen to give evidence on these matters suggests that the evidence they would have given would not have helped the Swiss parent defendants’ case; they were “facts which required an answer”: Jones v Dunkel; Schellenberg, supra.

306 The holding is that the Swiss parent has not established that it had reasonable grounds for making the representations as to the future matters.

Inducement

307 The finding is that the representations were, in the circumstances, a real inducement to the Australian trading company continuing to trade. The plaintiff has established on the balance of probabilities that, in reliance upon the Letter, the unqualified audit for the year ended 31 December 2000 came forward, the plaintiff’s directors provided the relevant directors’ declaration and opinion and the Australian trading company continued to trade and incur debts in circumstances where its financial position was such that, absent the Letter, the company would have ceased trading.

308 Mr McIntyre’s evidence was that the existence of the Letter was crucial to the plaintiff’s ability to be able to pay its debts as and when they fell due [paragraph 22, Exhibit P5]. Further, if he had been aware that the Swiss parent did not intend to honour the Letter, he would have considered that the plaintiff was trading insolvent and would have called a board meeting and taken steps to appoint a voluntary administrator [paragraph 16, Exhibit P6].

309 The case which is established is that, in the absence of the provision of the Letter, trading would not have been permitted. The Court's finding is that without that document the company would have gone into administration.

310 The Court is entitled to proceed upon the bases that:

· if a representation is of such a nature as to be likely to induce a representee to act upon it, the inference may be drawn, if the representee does act, that the representee has acted in reliance on the representations;

· recovery under section 52 is founded by the plaintiff’s actual reliance upon the misleading or deceptive conduct of the defendants, although that conduct was not the only factor in the plaintiff’s decision.

311 Clearly enough, the very text of the Letter makes it plain that the entities to which it expressly referred, namely, the Australian holding company and its controlled entities, could reasonably be anticipated to rely on it: see Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12 at [103 -105]; Spencer, Bower, Turner and Handley, Actionable Misrepresentation, Fourth Edition, Chapter 9.

312 There is no substance in the proposition put by the defendants that there could only be reliance or causation if the plaintiff continued to trade after exhausting its existing facilities, relying upon the general assurance of support in the Letter. This misconceives the true issue. This case concerns the making of a representation shown to have been misleading or deceptive which induced the Australian trading company to act by continuing to trade. The subject representation materially contributed to the loss and damage sustained by the Australian trading company.

313 In relation to this cause of action, the plaintiff has also established a prima facie case of loss and damage.

The cases against Mr Boysen and Mr Grolimund

314 The plaintiff also further claims that, if the Court finds that the Swiss parent contravened section 52 of the TPA, then by reason of that conduct Messrs Boysen and Grolimund:

· aided, abetted, counselled or procured that contravention;

· were knowingly concerned in, or party to, that contravention; and

· are therefore liable to a claim in damages pursuant to section 82 of the TPA.

315 In order to establish ancillary liability under section 82, it is essential, inter alia, to determine the subjective intent of the defendant (at least insofar as conduct identified in section 75B(1)(a) and (c) is concerned): Yorke v Lucas (1985) 158 CLR 661 at 669, per Mason ACJ, Wilson, Deane and Dawson JJ. Such liability cannot be established by proof of objective surrounding facts alone.

316 The plaintiff failed to lead evidence concerning the subjective state of mind and degree of involvement of Messrs Boysen and Grolimund in the production of the Letter. Accordingly, this aspect of the plaintiff’s claim fails.

Estoppel

317 In the light of the above holdings it is unnecessary for the Court to examine the further alternative claim put by the plaintiff by way of the estoppel cause of action.

Reserved rulings

318 Evidence was taken in Victoria by myself sitting as an examiner. On that occasion, before Mr McIntyre entered the witness box, I indicated the rulings which would be appropriate in terms of objections to his statements. Orders of this Court are made in precisely the same terms.

319 An objection was taken to the admission into evidence of page 503 of the materials originally marked MFI PX. That page is rejected on the grounds of relevance.

Short minutes of order

320 The parties are given leave to make submissions in relation to any matter which the Court may not yet have dealt with. Short minutes of order are required to be brought in. Costs will be dealt with at the same time.

I certify that paragraphs 1 - 320
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 31 March 2004
___________________
Susan Piggott
Associate
31 March 2004

Last Modified: 04/05/2004

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Citations

Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWSC 149

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CITATION:	Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 v Gate Gourmet Holding AG, Company Number CH-020.3.003.945-1 & Ors [2004] NSWSC 149
HEARING DATE(S):	04/03/04, 05/03/04, 08/03/04, 09/03/04, 10/03/04
JUDGMENT DATE:	31 March 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Letter held to create binding contract. Short minutes of order to be brought in
CATCHWORDS:	Contract - Letters of comfort/support - Whether creating legal obligations - Whether intent to contract - Australian trading arm of foreign owned group of companies operating under aegis of letters of comfort/support - Letter of support signed by ultimate overseas parent company - Letter confirming (1) that it would provide the financial support that may be necessary to enable its wholly owned Australian holding company and its controlled entities to meet financial commitments as and when they fall due and providing (2) that the letter would not be withdrawn before the Australian holding company and its controlled entities have sufficient means to meet their obligations without the support of the parent entity - Reliance upon letter of support for purpose of (1) directors' declaration recording that financial statements are prepared on a going concern basis on the assumption that parent entity will continue to provide the necessary financial support to enable the company to pay its debts as and when they become due and payable and (2) Australian trading company being committed to continue to trade at all - Whether intent to contract - Whether letter contained promissory undertaking - Construction of letter - Identification of promisee - Objectivity - Alternative claim that benefit of promise held by Australian holding company on trust for Australian trading company - Trade Practices Act - Misleading and deceptive conduct - Evidence - Admissibility of extrinsic evidence/surrounding circumstances - Admissibility of evidence on intent to contract issue - Admissibility of evidence on construction issue
LEGISLATION CITED:	Corporations Act 2001 (Cth) Corporations Law Trade Practices Act 1974 (Cth)
CASES CITED:	Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Anaconda Nickel Holdings Pty Ltd, Re [2003] WASC 19 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd, (unreported, 8 February 1999, NSWSC) Australian European Finance Corporation Limited v Sheahan (1993) 60 SASR 187 Australian Mutual Provident Society v Overseas Telecommunications Commission (Australia) [1972] 2 NSWLR 807 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 Bonnington Castings Ltd v Wardlaw [1956] AC 613 Bowler v Hilda Pty Ltd (1998) 80 FCR 191 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Brown v Jam Factory Pty Ltd (1981) ATPR 40-213 B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Burns Philp Hardware Pty Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12 Carter v Hyde (1923) 33 CLR 115 Charrington and Co Ltd v Wooder [1914] AC 71 City of Botany Bay Council v Jazabas Pty Ltd [2002] ANZ ConvR 300 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510 Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670 Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 R v The Credit Tribunal; Ex parte General Motors Acceptance Corp, Australia (1977) 137 CLR 545 Cummings v Lewis (1993) 41 FCR 559 Digi-Tech (Australia) Ltd v Brand; Digi-Tech (Australia) Ltd v Kelliher; Kalifair Pty Ltd v Digi-Tech (Australia) Ltd; McLean Tecnic Pty Ltd v Digi-Tech (Australia) Ltd [2004] NSWCA 58 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Dunn v Shapowloff (1978) 2 NSWLR 235 Edwards v Skyways Ltd [1964] 1 WLR 349 Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 Gissing v Gissing [1971] AC 886 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691 Henville v Walker [2001] HCA 52 Hide & Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Hodgson & Hodgson v Morella Pastoral Co Pty Ltd (1975) 13 SASR 51 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41 Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 Jasam (AMC) Pty Ltd v The Australis Marketing Corporation (Int) Pty Ltd (unreported, 23 February 1995, Supreme Court of Victoria) Jones v Dunkel (1959) 101 CLR 298 Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 WLR 379 Lewis v Great Western Railway Company (1877) 3 QBD 195 Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd (unreported, 28 October 1994, NSWCA) Macdonald v Longbottom (1859) 1 El & El 977; 120 ER 1177 Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Max Cooper & Sons Pty Ltd v Sydney City Council (1980) 54 ALJR 234 Optus Vision Pty Ltd v Australian Rugby Football Pty Ltd [2004] NSWCA 61 Partenreederei M/S Karen Oltmann v Scarsdale Shipping Co Ltd (The Karen Oltmann) [1976] 2 Lloyd's Rep 708 Poseidon Ltd & Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Prenn v Simmonds [1971] 1 WLR 1381 Raguz v Sullivan (2000) 50 NSWLR 236 Rankin v Scott Fell & Co (1904) 2 CLR 164 Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 R W Cameron and Co v L Slutzkin Pty Ltd (1923) 32 CLR 81 Ryan (Receiver & Manager of Homfray Carpets Australia Pty Ltd) v Textile Clothing & Footwear Union Australia [1996] 2 VR 235 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Shore v Wilson (1839) 9 Cl & Fin 355 Smith v Kay (1859) 7 HL Cas 750 Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Taylor v Johnson (1983) 151 CLR 422 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 Thiess Contractors Pty Ltd v Montgomery Watson Australia Pty Ltd (unreported, 15 March 1996, NSWSC) Ting v Blanche (1993) 118 ALR 543 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2003) 56 NSWLR 662 Toteff v Antonas (1952) 87 CLR 647 Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1987) 8 NSWLR 270; affirmed (1988) 165 CLR 107 Wardley Australia Ltd v State of Western Australia [Rothwells Loan case] (1992) 175 CLR 514 Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 With v O'Flanagan [1936] Ch 575 Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 Yorke v Lucas (1985) 158 CLR 661
PARTIES :	Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 (Plaintiff) Gate Gourmet Holding AG, Company Number CH-020.3.003.945-1 (First Defendant) Gate Gourmet (Holdings) Pty Limited ACN 004 122 892 (Second Defendant) Odd Gunnar Engebretsen (Third Defendant) Lars Fredrik Larsen (Fourth Defendant) Henning Boysen (Fifth Defendant) Lucas Grolimund (Sixth Defendant) Gate Gourmet Switzerland GMBH (Seventh Defendant)
FILE NUMBER(S):	SC 50180/01
COUNSEL:	Mr B Coles QC, Ms E Collins (Plaintiff) Mr M Pembroke QC, Mr N Perram (Second, Fifth, Sixth and Seventh Defendants) Mr J Stevenson SC, Mr L Menzies (Third and Fourth Defendants)
SOLICITORS:	Clayton Utz (Plaintiff) Mallesons Stephen Jaques (Second, Fifth, Sixth and Seventh Defendants) Gadens (Third and Fourth Defendants)