Henderson v McSharer - [2015] FCA 396

FEDERAL COURT OF AUSTRALIA
Henderson v McSharer [2015] FCA 396

Citation: Henderson v McSharer [2015] FCA 396

Parties: SUSAN JANE HENDERSON AND KIM HENDERSON v WILLIAM BERNARD McSHARER, HAILEY MARIE McSHARER AND ASTRAEA GROUP PTY LTD

File number: WAD 176 of 2012

Judge: GILMOUR J

Date of judgment: 28 April 2015

Catchwords:
CONSUMER LAW – misleading or deceptive conduct – s 18 of the Competition and Consumer Act 2010 (Cth) Sch 2 – transfer and sale of livestock – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – whether incorrect representations misleading or deceptive in all the circumstances – misleading or deceptive conduct established – whether applicants relied upon representations – reliance established – loss and damage established.

CONSUMER LAW – unconscionable conduct – 21 of the Competition and Consumer Act 2010 (Cth) Sch 2 – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – bullying, intimidation and pressure towards the applicants to engineer sale of livestock – whether incorrect representations, intimidation and pressure unconscionable in all the circumstances – unconscionable conduct established – inducement – loss and damage established.

CONSUMER LAW – compensation orders – exercise of power under ss 237 and 243 of the Competition and Consumer Act 2010 (Cth) Sch 2 – compensation for loss of ownership and loss of income from livestock – agreements declared void ab initio – order requiring disclosure to applicants of location of sheep and wool – order requiring respondents to permit applicants to collect sheep and wool.

TORTS – tort of deceit – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – deceit established.

DAMAGES – tort of deceit – exemplary damages – first respondent’s conduct in an ongoing consultancy relationship – whether the first respondent’s conduct amounted to contumelious disregard of the applicants’ rights – exemplary damages awarded.

Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB, 12DA
Competition and Consumer Act 2010 (Cth) Sch 2, ss 2, 18, 21, 237, 243
Corporations Act ss 182, 1041F, 1041H, 1041I

Cases cited:
Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200

Backwell v AAA [1997] 1 VR 182

Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Croft v Evertop Investments Pty Ltd (No 2) [2011] FCA 749
Derry v Peek (1889) 14 App Cas 337
General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Gray v Motor Accident Commission (1998) 196 CLR 1
Henjo Investments Pty Limited v Collins-Marrickville Pty Limited (No 1) (1988) 39 FCR 546

Lamb v Cotogno (1987) 164 CLR 1

Magill…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2015] FCA 396
Decision Date: 28 April 2015

CaseChat Overview and Summary

The case of Henderson v McSharer involved the Hendersons, who were in dire financial straits, seeking relief against the McSharers for allegedly misleading conduct, unconscionable conduct, and deceit in relation to the sale of livestock. The matter was heard in the Federal Court of Australia. The primary legal issues the court had to address were whether the McSharers' representations regarding their business consultancy qualifications, their legal experience, and their bankruptcy status were misleading or deceptive, and whether these representations, combined with the pressure exerted on the Hendersons, amounted to unconscionable conduct under the Competition and Consumer Act 2010. Additionally, the court had to determine if the Hendersons had relied on these representations and suffered loss or damage as a result.

The court found that the McSharers had indeed made misleading and deceptive representations about their qualifications and experience, as well as their bankruptcy status. These misrepresentations, along with the bullying and pressure exerted on the Hendersons, constituted unconscionable conduct. The Hendersons had relied on these representations in engaging the McSharers' services, leading to the sale of their valuable flock of sheep to a company controlled by the McSharers. The Hendersons did not receive any proceeds from this sale. The court also found that the McSharers' conduct amounted to deceit, and awarded exemplary damages due to the contumelious disregard of the Hendersons' rights.

In terms of relief, the court voided the agreements between the parties, ordered the McSharers to disclose the location and number of sheep and wool bales in their possession, and mandated the return of these assets to the Hendersons. The McSharers were also ordered to pay compensation to the Hendersons for the misleading and unconscionable conduct, and the first McSharer was ordered to pay exemplary damages for deceit. The court granted the parties liberty to apply for further orders regarding interest on the compensation and costs.

Orders

Orders of the court

1. Within 7 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at Francis Burt Chambers, Level 19, Allendale Square, 77 St George’s Terrace, Perth, Western Australia, an affidavit disclosing the following information:

(a) the number and composition of all sheep, including lambs in the possession, custody or control of each of them (together, the sheep);

(b) the precise location(s) of all of the sheep;

(c) the location of any bales of wool in their respective possession, custody or control obtained from the sheep (the wool bales);

(d) the identity of any person or company to whom or to which any of the sheep including lambs have been transferred but which remain within the control of Mr and/or Mrs McSharer and or Astraea.

2. Each of the respondents be restrained whether personally or by their agents or employees from further dealing in the sheep within their possession, custody or control including transferring, conveying, gifting, selling, leasing or encumbering those sheep or removing them from their location(s) at the date of judgment.

3. Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy, Skyprince Pty Ltd, the second respondent, and W.B. McSharer Superannuation Pty Ltd each be restrained from transferring any shares held by them legally or beneficially in the third respondent.

4. The respondents do all things necessary to deliver up the sheep and the wool bales for collection and removal by the applicants within 21 days of judgment or such further period as the Court may permit on application by the applicants.

5. Within 28 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at the above address, an affidavit disclosing the number of sheep, including lambs, which have been sold, at what price and to whom since the conclusion of the trial of this matter.

6. The respondents, jointly and severally, pay to the applicants compensation in the sum of $1,912,050 in respect of the first respondent’s contraventions of the Competition and Consumer Act 2010 (Cth) Sch 2, in which the second respondent and the third respondent were involved.

7. The compensation assessed will be reduced to the extent of the value of the sheep and wool bales, if any, delivered up by the respondents under order 4, with the value to be assessed by an expert valuer appointed by the Court.

8. Liberty granted to the applicants to apply to the Court for the appointment of an expert valuer for the purposes of order 7.

9. The award of compensation be stayed until further order to enable time for compliance with orders 1, 4, 7 and 8.

10. The first respondent pay the applicants $20,000 in exemplary damages in respect of the first respondent’s deceit.

11. Liberty granted to the parties to apply on the question of any interest that should be paid with respect to the compensation awarded under order 6, as well as on the question of costs.

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

Background

Background to the litigation

The Hendersons relied upon his (false) representations to engage his services and ultimately to transfer a valuable flock of sheep to a company practically controlled by him which were then sold. The Hendersons never received any of those proceeds. BACKGROUND The Hendersons conducted a successful sheep farming enterprise for many years. However, in the years 2006 to 2008 they became involved, through Bonthorpe Pty Ltd (Bonthorpe), the trustee of their family trust, in an off-farm business venture. The Hendersons are the directors of Bonthorpe and conducted their farming business on properties owned by Bonthorpe as partners under the name K & SJ Henderson Partnership. This venture, a land subdivision near Denmark, Western Australia, failed (the Denmark Subdivision). Failure of the venture left Bonthorpe, and the Hendersons as guarantors, indebted to the National Australia Bank (NAB) in an amount of some $16 million. By mid-2011, the Hendersons were experiencing financial difficulty. Their counsel, at trial, rightly described their situation as “desperate”. NAB had appointed partners of the firm McGrath Nicol as receivers and managers to Bonthorpe, and they had taken possession of the farm at York (the York farm) owned by Bonthorpe and operated by the Hendersons. I will generally refer to the receivers and managers as “the Receivers” generically even when, for example, correspondence is sent to only one of them or to any employee of the firm. The Hendersons subsequently entered into an agreement with the Receivers to lease the York farm from Bonthorpe. The Hendersons had been forced to sell various properties including their home in Perth and the home they had purchased for their disabled son. They still owed a substantial amount of money to NAB. NAB had obtained a default judgment against them, and had commenced bankruptcy proceedings by having a bankruptcy notice issued against them. Mr Trevor Brickhill, the Hendersons’ then lawyer, had been consulted to advise the Hendersons on their dealings with the NAB and subsequently was able to secure them employment in the pawpaw ointment business in which he was involved. They moved to Queensland to take up this employment. However, the relationship with Mr Brickhill deteriorated. The Hendersons had their employment terminated in September 2011. The Hendersons believed that the debt to NAB could be paid or reduced if they could realise value from certain rights held by Bonthorpe: the rights to a deposit of bauxitic gravel located on the York farm (the Gravel Project), and the rights to bring action against parties involved in the Denmark Subdivision (the Denmark Litigation Rights). However, by July 2011 the Hendersons had not succeeded in persuading the Receivers to transfer those rights. Against this background, in July 2011 a mutual business contact referred the Hendersons to Mr McSharer. The first communication between the parties occurred on 20 July 2011. In the period leading up to his first contact with the Hendersons, Mr McSharer had experienced his own share of financial and emotional distress.

Evidence

Evidence Before The Court

Mrs McSharer’s evidence sought to corroborate much of her husband’s dishonest evidence. In the main, I do not accept her evidence as reliable.The Hendersons’ evidence The Hendersons, by contrast, were credible witnesses. They gave evidence carefully. Their evidence was not shaken in cross-examination. Mrs Henderson kept contemporaneous notes of most of her conversations with Mr McSharer, and placed these notes in evidence. She also produced relevant telephone call records, to the extent that they were available to her. The Hendersons’ version of what occurred is entirely consistent with contemporaneous documents, including documents adduced by the respondents, other than some of the latter category, which I have concluded were fraudulent. The McSharers, by contrast, produced only very few documents said to be contemporaneous notes and no telephone records. I found Mr McSharer’s explanation about not keeping records of his business consultations – that he now considered this to be very bad practice and that this matter had been “brought home to [him] with spades” only in the last few weeks preceding trial – to be disingenuous. For these reasons and for the reasons set out below, to the extent that the McSharers’ evidence is inconsistent with the evidence given by the Hendersons, I have preferred the evidence of the Hendersons. It will be convenient to approach the facts using the “phases” of the relationship identified by counsel for the Hendersons.Phase 1: The initial communications The Hendersons were referred to Mr McSharer in July 2011. By email to the Hendersons on 15 July 2011, Mr Michael Taylforth, a town planner and principal of Land Insights, offered to introduce them to another client who ran a quarrying business and was “buying up other sites…in the wheatbelt”. Around 18 July 2011, Mr Taylforth contacted Mr McSharer in relation to the Hendersons. Mr Taylforth emailed Mr Henderson to say that while the operator he had in mind was not in a position to assist at present, Mr Taylforth had spoken to “their business advisor” who mentioned that he would be interested in assisting the Hendersons with “any issues pertaining to approvals, finding JV partners or operators to buy the site”. The Hendersons were provided with the telephone number of Mr McSharer. 20 July 2011Mr McSharer’s evidence It seems to be agreed that on 20 July 2011, Mr Henderson had a telephone conversation with Mr McSharer. Mr McSharer explained that what he said to Mr Henderson during this conversation included that:(a)the Hendersons may seek to engage the services of Fides Consulting to assist them;(b)he was speaking to Mr Henderson on behalf of Fides Consulting and if Fides Consulting did work for Mr Henderson it would be Mr McSharer who did the work;(c)Fides Consulting provides strategic business services in assisting clients with “a host of commercial matters”; and(d)if a client has any issues with which they require assistance, he (Mr McSharer) looks at the issues and advises the client if Fides Consulting can assist, otherwise he tells them to seek other advice.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

I would, for these reasons, award an amount of $20,000 in exemplary damages to the Hendersons.DECLARATIONS I will make declarations that:(1) The Letter of Engagement dated 22 July 2011 is void ab initio.(2) The Stock Purchase Agreement dated 24 August 2011 is void ab initio.(3) The 16 February Agreement dated 16 February 2012 is void ab initio.ORDERS I will make the following orders:(1)Within 7 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at Francis Burt Chambers, Level 19, Allendale Square, 77 St George’s Terrace, Perth, Western Australia, an affidavit disclosing the following information: (a)the number and composition of all sheep, including lambs in the possession, custody or control of each of them (together, the sheep);(b)the precise location(s) of all of the sheep; (c)the location of any bales of wool in their respective possession, custody or control obtained from the sheep (the wool bales); (d)the identity of any person or company to whom or to which any of the sheep including lambs have been transferred but which remain within the control of Mr and/or Mrs McSharer and or Astraea.(2)Each of the respondents be restrained whether personally or by their agents or employees from further dealing in the sheep within their possession, custody or control including transferring, conveying, gifting, selling, leasing or encumbering those sheep or removing them from their location(s) at the date of judgment.(3)Fides Consulting Pty Ltd t/a W.B. McSharer Strategic Business Consultancy, Skyprince Pty Ltd, the second respondent, and W.B. McSharer Superannuation Pty Ltd each be restrained from transferring any shares held by them legally or beneficially in the third respondent.(4)The respondents do all things necessary to deliver up the sheep and the wool bales for collection and removal by the applicants within 21 days of judgment or such further period as the Court may permit on application by the applicants. (5)Within 28 days of judgment, each of the respondents file with the Court and serve upon the applicants’ barrister, Mr Leigh Warnick at the above address, an affidavit disclosing the number of sheep, including lambs, which have been sold, at what price and to whom since the conclusion of the trial of this matter.(6)The respondents, jointly and severally, pay to the applicants compensation in the sum of $1,912,050 in respect of the first respondent’s contraventions of the Competition and Consumer Act 2010 (Cth) Sch 2, in which the second respondent and the third respondent were involved.(7)The compensation assessed will be reduced to the extent of the value of the sheep and wool bales, if any, delivered up by the respondents under order 4, with the value to be assessed by an expert valuer appointed by the Court.(8)Liberty granted to the applicants to apply to the Court for the appointment of an expert valuer for the purposes of order 7.(9)The award of compensation be stayed until further order to enable time for compliance with orders 1, 4, 7 and 8.(10)The first respondent pay the applicants $20,000 in exemplary damages in respect of the first respondent’s deceit.(11)Liberty granted to the parties to apply on the question of any interest that should be paid with respect to the compensation awarded under order 6, as well as on the question of costs.

Citation:	Henderson v McSharer [2015] FCA 396
Parties:	SUSAN JANE HENDERSON AND KIM HENDERSON v WILLIAM BERNARD McSHARER, HAILEY MARIE McSHARER AND ASTRAEA GROUP PTY LTD
File number:	WAD 176 of 2012
Judge:	GILMOUR J
Date of judgment:	28 April 2015
Catchwords:	CONSUMER LAW – misleading or deceptive conduct – s 18 of the Competition and Consumer Act 2010 (Cth) Sch 2 – transfer and sale of livestock – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – whether incorrect representations misleading or deceptive in all the circumstances – misleading or deceptive conduct established – whether applicants relied upon representations – reliance established – loss and damage established. CONSUMER LAW – unconscionable conduct – 21 of the Competition and Consumer Act 2010 (Cth) Sch 2 – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – bullying, intimidation and pressure towards the applicants to engineer sale of livestock – whether incorrect representations, intimidation and pressure unconscionable in all the circumstances – unconscionable conduct established – inducement – loss and damage established. CONSUMER LAW – compensation orders – exercise of power under ss 237 and 243 of the Competition and Consumer Act 2010 (Cth) Sch 2 – compensation for loss of ownership and loss of income from livestock – agreements declared void ab initio – order requiring disclosure to applicants of location of sheep and wool – order requiring respondents to permit applicants to collect sheep and wool. TORTS – tort of deceit – representations as to business consultancy and legal qualifications and experience – representations as to bankruptcy status – deceit established. DAMAGES – tort of deceit – exemplary damages – first respondent’s conduct in an ongoing consultancy relationship – whether the first respondent’s conduct amounted to contumelious disregard of the applicants’ rights – exemplary damages awarded.
Legislation:	Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB, 12DA Competition and Consumer Act 2010 (Cth) Sch 2, ss 2, 18, 21, 237, 243 Corporations Act ss 182, 1041F, 1041H, 1041I
Cases cited:	Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200 Backwell v AAA [1997] 1 VR 182 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Croft v Evertop Investments Pty Ltd (No 2) [2011] FCA 749 Derry v Peek (1889) 14 App Cas 337 General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Gray v Motor Accident Commission (1998) 196 CLR 1 Henjo Investments Pty Limited v Collins-Marrickville Pty Limited (No 1) (1988) 39 FCR 546 Lamb v Cotogno (1987) 164 CLR 1 Magill…