Johnson v Mackinnon

[2021] NSWCA 152

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Johnson v Mackinnon [2021] NSWCA 152

Hearing dates:

10, 11, 12 November 2020

Date of orders:

21 July 2021

Decision date:

21 July 2021

Before:

Macfarlan JA at [1];
Brereton JA at [3];
Simpson AJA at [300].

Decision:

Appeal dismissed with costs

Catchwords:

CONSUMER LAW – Misleading or deceptive conduct – Representations – Explicit false representations made in proposal document given to prospective investors in fraudulent betting syndicate scheme masterminded by notorious conman – Appellant a member of partnership promoting scheme – Whether appellant had knowledge of false representations – Whether appellant jointly and severally liable for misrepresentations made in ordinary course of business of partnership – Liability established

APPEALS – From findings of fact and credibility – Function of appellate court – Circumstantial case – Briginshaw standard – Inferences from primary facts – Whether open to be comfortably satisfied various factual findings, including inference that appellant knew of false proposal representations

PARTNERSHIPS AND JOINT VENTURES – Relationship of partners to persons dealing with them – Liabilities of partner – Partnership intended to be limited – Unlimited because limited partnership agreement never registered – Joint and several liability for misrepresentations made by other partner in ordinary course of business of partnership

CONSUMER LAW – Misleading or deceptive conduct – Silence or non-disclosure – Whether appellant represented that conman not involved in scheme – Whether appellant had knowledge of various prerequisite facts such as notoriety, involvement, and alias of conman, and of need to conceal such information – Appellant unable to demonstrate any of these findings as glaringly improbable – Appellant ought to have known of reasonable expectation that conman’s involvement would be disclosed – Appellant did not disclose and deliberately concealed conman’s involvement

CIVIL PROCEDURE – Pleadings – Amendment – Late application for amendment on second day of trial – Amendments added alleged liability of appellant for representation by silence and clarified alleged liability of appellant for explicit proposal representations – Whether appellant deprived of opportunity to make “no case” submission – Whether primary judge failed to consider dictates of justice – Not necessary to recite considerations seriatim – Appellant not deprived of fair and reasonable opportunity to meet case – Pleadings sufficiently clear and specific, and not unfairly open-ended

CIVIL PROCEDURE – Pleadings – Construction of pleadings – Subparagraphs of pleadings not in precise correspondence with each other – Whether prejudicial construction by primary judge in finding that pleadings nevertheless sufficiently clear

CONSUMER LAW – Misleading or deceptive conduct – Causation or reliance – Whether respondent’s decision to invest caused by proposal representations – Whether prospective investor would have been deterred by knowledge of involvement of notorious conman – Gullible investors not disentitled to protection

CONSUMER LAW – Misleading or deceptive conduct – Remedies – Quantification of damages – Whether primary judge failed to account for group members’ prior recoveries and respondent’s trading profits received from scheme – Award of damages below only for respondent’s unpaid loan to scheme – Prior recoveries and trading profits irrelevant

CIVIL PROCEDURE – Representative proceedings – Remedies – Award of damages to individual group member

CIVIL PROCEDURE – Court of Appeal – Notice of contention – Reliance on claim in deceit in addition to misleading and deceptive conduct – Deceit considered briefly in judgment below – Contention material and advances respondent’s case in circumstances where appellant claims apportionment for misleading and deceptive conduct but cannot do the same for claim in deceit – Notice of contention upheld and decisive of appeal – Unnecessary to consider further aspect of notice, namely conspiracy

TORTS – Miscellaneous Torts – Deceit – Relationship with misleading or deceptive conduct – Apportionment defence available for misleading and deceptive conduct but not for deceit

TORTS – Joint and several liability – Apportionment – Primary judge disallowed late attempt to raise apportionment defence – Disallowance denied a real prospect of significant reduction in liability – Strongly arguable error in disallowance – Unnecessary to consider further as respondent nevertheless able to rely on non-apportionable claim in deceit

Legislation Cited:

(CTH) Competition and Consumer Act 2010, Part VIA, ss 87CC, 87CD; Sch 2 – Australian Consumer Law, ss 2, 18, 236

(CTH) Trade Practices Act 1974, s 52

(NSW) Civil Liability Act 2002, Part 4, ss 34, 34A, 35, 35A

(NSW) Civil Procedure Act 2005, ss 58, 177(1)(e)

(NSW) Evidence Act 1995, s 140(2)

(NSW) Partnership Act 1892, ss 10(1), 50A(1), 60(1)

(NSW) Supreme Court Act 1970, s 75A

Cases Cited:

AonRisk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27

Australian Competition and Consumer Commission v Chaste Corporation PtyLtd (in liq) (2003) 127 FCR 418; [2003] FCA 180

Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (in liq) [2005] FCA 1212

Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (No 3) [2013] FCA 984

Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (No 6) (2013) 223 FCR 426; [2013] FCA 1112

Australian Competition and Consumer Commission vSensaSlim Australia Pty Ltd (in liq) (No 3) [2012] FCA 939

Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq)(No 5) (2014) 98 ACSR 347; [2014] FCA 340

Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484

Belhaven and Stenton Peerage (1875) 1 App Cas 278

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Burbery Mortgage Finance & Savings Ltd (in rec) v O’Neill (No 2) [1995] ANZ ConvR 387

Chamberlain v The Queen (No 2) (1984) 153 CLR 521; [1984] HCA 7

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Foster v Australian Competition and Consumer Commission (2006) 149 FCR 135; [2006] FCAFC 21 Foster vAustralian Competition and Consumer Commission [2012] FCA 953

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216; [1978] HCA 11

Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10

IBEB Pty Ltd v Duncan [2013] NSWCA 368

Kayteal Pty Ltd v Dignan (2011) 15 BPR ¶29,515; [2011] NSWSC 197

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28

Lloyd v Grace, Smith & Co [1912] AC 716

Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 3) [2018] NSWSC 86

Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 4) [2018] NSWSC 147

Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 5) (Supreme Court (NSW), Stevenson J, 22 February 2018, unrep)

Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 7) [2019] NSWSC 103

Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 8) [2019] NSWSC 1658

Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 9) (Supreme Court (NSW), Stevenson J, 13 December 2019, unrep)

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31

Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd (2011) 248 FLR 193; [2011] WASCA 76

Palmer v Dolman [2005] NSWCA 361

Permanent Custodians Ltd v King [2010] NSWSC 509

Polkinghorne v Holland (1934) 51 CLR 143; [1934] HCA 28

R v Foster [2009] 1 Qd R 53; [2008] QCA 90

Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37

Rose v Federal Commissioner of Taxation (1951) 84 CLR 118; [1951] HCA 68

S. Pearson & Son Ltd v Dublin Corporation [1907] AC 351

Sanderson Motors Pty Ltd v Lindsay Bennelong Developments Pty Ltd [2014] NSWSC 846

Sharma v Insurance Australia Ltd t/as NRMA Insurance [2017] NSWCA 307

Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125

Ucak v Avante DevelopmentsPty Ltd (in liq) [2007] NSWSC 367

Vertzayias v King [2011] NSWCA 215

Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1

Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65

Category:

Principal judgment

Parties:

Leigh Diane Johnson (Appellant)
Ian Henry Mackinnon as representative plaintiff of 152 plaintiff group members (Respondent)

Representation:

Counsel:
J Burnside QC, S Lipp, D McClelland (Appellant)
T J Dixon, H Pararajasingham (Respondent)

Solicitors:
Platinum Lawyers (Appellant)
Nelson McKinnon Lawyers (Respondent)

File Number(s):

2020/7219

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

[2018] NSWSC 86; [2019] NSWSC 103; [2019] NSWSC 1658; (Supreme Court (NSW), Stevenson J, 13 December 2019, unrep)

Date of Decision:

06 February 2018

Before:

Stevenson J

File Number(s):

2015/332497

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant was one of two partners in The Sports Trading Club Partnership (“STC”), which purported, through a proposal document issued to all prospective investors (“the Proposal”), to operate a betting syndicate using sophisticated methods to guarantee high returns on investment. Between early 2013 and late 2014, more than 400 members of the public advanced funds totalling $29.6 million to STC and its successor partnership, STC Sports Trading Club, of which the appellant was not a member, having resigned from STC on 21 January 2014. STC and its successor were in fact the vehicles of notorious conman Peter Foster, and essentially all of the investors’ funds were lost.

The respondent had advanced $200,000 to STC, and sued the appellant, together with eleven other defendants, as representative plaintiff for 153 STC investors. The appellant was the only active defendant in the proceedings below, and the primary judge held that she was liable to the respondent for the whole of the $200,000, by reason of having engaged in misleading and deceptive conduct within the meaning of Competition and Consumer Act 2010 (Cth), Schedule 2 – Australian Consumer Law (“ACL”), s 18, by representing that the contents of the Proposal were true, and by not disclosing Mr Foster’s involvement in STC (“the Representations”).

Before this Court, the appellant argued that the primary judge erred by:

1. finding that the respondent relied upon the Representations, and that the Representations were thus causative of his loss;

2. allowing the respondent to amend his pleadings on the second day of the trial, without regard to the dictates of justice, so as to add an alleged misrepresentation by silence that Mr Foster was not involved in STC, and to clarify that the appellant was one of the parties alleged to be liable for the purported misrepresentations within the Proposal;

3. adopting a prejudicial construction of the respondent’s pleadings by inferring allegations which were not clearly pleaded as to the falsity of representations;

4. finding that the appellant knew the representations in the Proposal to be false, and by finding that the appellant ‘made’ those representations;

5. finding that the appellant was liable for a misrepresentation, by silence or omission, that Mr Foster was not involved in STC, by reason of not disclosing such involvement;

6. disallowing the appellant’s late application to rely on a defence of apportionment; and

7. failing, when quantifying damages, to give credit for recoveries made for the benefit of group members and trading profits received by the respondent prior to judgment.

The respondent filed a Notice of Contention seeking to uphold the decision below on grounds other than those relied upon by the primary judge, namely deceit and conspiracy.

Held (per Brereton JA; Macfarlan JA and Simpson AJA agreeing), dismissing the appeal: [1], [289]-[299], [304].

As to causation and reliance:

1. It is logical and reasonable that a prospective investor would be influenced by the Proposal’s contents, and given Mr Foster’s reputation, knowledge of his involvement would be a powerful deterrent to investing. While the Proposal may have been “too good to be true”, gullible investors are not disentitled to protection against misleading and deceptive conduct; indeed, this is why the cause of action exists. There was no error in the primary judge’s conclusion that the respondent had established reliance and causation of loss: [63]-[73].

As to the amendment of the pleadings:

2. The primary judge did not fail to have regard to the dictates of justice, as contained in Civil Procedure Act 2005 (NSW), s 58. Those considerations are sufficiently notorious that they cannot be assumed to have been disregarded by the mere absence of express reference within the primary judge’s reasons. Ultimately, while the amendments were no minor matter, and while they prevented the appellant from making a “no case” submission, the appellant was not deprived of a fair and reasonable opportunity to meet the case against her. The appellant did not seek an adjournment below, and the appellant has not demonstrated before this Court that the amended pleadings had such an effect, nor that they were in any way insufficiently clear: [74]-[103].

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 29, referred to.

As to the construction of the pleadings:

3. Although some subparagraphs of the pleading of falsity did not correspond precisely with the representation said to be false, they were sufficient to make clear that that is what was alleged: [104]-[110].

As to the representations in the Proposal:

4. Per Simpson AJA; Macfarlan JA agreeing: Even applying Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, the overall circumstances of the appellant’s participation in the syndicate, the conversations with the Mackinnons, and the primary judge’s general rejection of the appellant’s evidence, demonstrate no error in the finding that the appellant was aware of the Proposal’s existence and the falsity of the representations within it, prior to the respondent’s investment: [3] (Macfarlan JA), [301]-[302] (Simpson AJA).

5. Per Brereton JA, contra: The burden facing an appellant who seeks to overturn findings of fact, especially those based on credibility, is heavy. However, in circumstances where the appellant adamantly denied knowledge of the Proposal representations and their falsity, and where there was no direct evidence to the contrary, that burden was met. The primary judge erred in finding that the appellant was aware that the Proposal contained false representations, prior to the respondent’s investment: [112]-[141].

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28; Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, applied.

6. Per Brereton JA; Macfarlan JA and Simpson AJA agreeing: In any event, first, knowledge that conduct is misleading and deceptive is not an element of ACL, s 18. Second, the appellant was sued as a partner, and partners are jointly and severally liable for misrepresentations made by other partners in the ordinary course of the partnership’s business. Additionally, partners are liable for the misleading and deceptive conduct of their agent(s) in the course of their employment. The Proposal was issued in the ordinary course of STC’s business, thus the appellant was legally responsible for the misrepresentations regardless of whether she knew of their content. The primary judge therefore correctly concluded that the appellant ‘made’ the misrepresentations: [1]-[2] (Macfarlan JA), [60], [142]-[149] (Brereton JA), [300] (Simpson AJA).

7. Per Macfarlan JA: There is some uncertainty as to whether liability as a partner in the way correctly explained above was within the ambit of the respondent’s pleadings. Ultimately, the conclusion that it was is open, and in any event, liability can also be established on another basis, namely the deceit claim: [2].

As to the representation by silence or omission:

8. There was no error in the primary judge’s factual findings that the appellant knew of Mr Foster’s notoriety, knew that he was involved in STC under an alias, suspected that investors’ funds were being misappropriated, actively concealed Mr Foster’s involvement, knew that her name, image, reputation, and standing were being deployed to add respectability to STC, and knew that Mr Foster’s involvement could not be revealed to the public as it would have destroyed that respectability and been highly detrimental to STC’s business: [150]-[236].

9. In such circumstances, the appellant knew, or at least ought to have known, that Mr Foster’s involvement would be material to investors, who would have reasonably expected it to be disclosed. The appellant therefore engaged in misleading and deceptive conduct by not doing so, and, although not required to establish liability, by deliberately concealing such involvement: [237]-[259].

Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd (2011) 248 FLR 193; [2011] WASCA 76, applied; Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37; Demagogue v Ramensky (1992) 39 FCR 31, considered.

As to the tort of deceit:

10. Per Simpson AJA; Macfarlan JA agreeing; Brereton JA contra: The claim in deceit, relied upon within the Notice of Contention, is made out in respect of the misrepresentations in the Proposal, as the primary judge did not err in finding that the appellant knew of the Proposal’s contents and their falsity: [3] (Macfarlan JA), [301]-[302] (Simpson AJA), [267] (Brereton JA).

11. Per Brereton JA; Macfarlan JA and Simpson AJA agreeing: The claim in deceit also succeeds in respect of the misrepresentation by silence. These conclusions do not advance the respondent’s case if the pleading of a defence of apportionment by the appellant were disallowed, as it was below, but it assumes significance if the appellant ought to have been permitted to agitate such a defence: [1] (Macfarlan JA), [260]-[269] (Brereton JA), [300] (Simpson AJA).

As to apportionment:

12. Although the defence of apportionment was not raised by the appellant until after the primary judge’s judgment on liability, the applicability of the defence could not seriously be disputed, and the primary judge’s decision to disallow reliance upon it denied the appellant a real prospect of substantially reducing her liability. Further, the likelihood of prejudice to the respondent was remote, hence there was strongly arguable error in the primary judge’s approach. However, while an apportionment defence is applicable to a misleading and deceptive conduct claim, Civil Liability Act 2002 (NSW), s 34A(1)(b) has the effect that wrongdoers who act fraudulently do not have the benefit of apportionment. Accordingly, the defence would not apply to the respondent’s claim in deceit. The result, therefore, of upholding the respondent’s Notice of Contention (in respect of the claim in deceit; it being unnecessary to consider conspiracy) is that the appellant’s liability would not be reduced by a defence of apportionment, if it were permitted to be raised: [276]-[288].

IBEB Pty Ltd v Duncan [2011] NSWCA 368; Kayteal Pty Ltd v Dignan (2011) 15 BPR ¶29,515; [2011] NSWSC 197, considered.

As to quantification:

13. The sum of $200,000 awarded to the respondent self-evidently represented the principal amount of his investment. Trading profits received from STC did not affect his right to full repayment of this principal, while recoveries made for the benefit of other group members are irrelevant. There was no error in quantification of damages: [270]-[275].

Judgment

1. MACFARLAN JA: Subject to the following qualifications, I agree with the judgment of Brereton JA.

2. First, whilst I agree with his Honour’s conclusions stated in [142]-[144], I have some concern as to whether they fall within the case put by the respondent against Ms Johnson. Ultimately, I have concluded that they do on the basis that they are within the ambit of the pleading against her (Further Amended Commercial List Statement at [3], [7], [7A], [20]-[21] and [23]) which was not, in any relevant respect, clearly narrowed by the course of conduct of the trial or appeal. I note that his Honour’s conclusions in those paragraphs are not in any event critical to his Honour’s ultimate conclusion that the appeal should be dismissed because his Honour finds that Ms Johnson’s liability was established on another basis as well.

3. Secondly, I agree with the observations made by Simpson AJA in [301]-[303] of her Honour’s judgment.

4. BRERETON JA: Between early 2013 and October 2014, more than 400 members of the public advanced funds totalling $29.6 million, initially to The Sports Trading Club Partnership (“the Partnership” or “STC”), in which the partners were the appellant Ms Leigh Johnson, a senior solicitor specialising in criminal law, and Ms Anne Patricia Larter, and following Ms Johnson’s resignation on 21 January 2014, to another partnership, called the STC Sports Trading Club (“the Second Partnership”), of which Ms Johnson was not a member. According to a document described as a proposal which was provided to all intending investors (“the Proposal”), STC was ostensibly a betting syndicate that used sophisticated methods to ensure high returns to investors (called “Associate Members”) without risk. In fact, STC was the vehicle for a fraudulent scheme of which the architect was one Peter Foster, described by the primary judge as a “notorious conman”, and essentially all the investors’ funds were lost. In proceedings in the Commercial List, the respondent Mr Ian Mackinnon, who had lent $200,000 to STC, sued, as representative plaintiff for 153 of the investors (“the Group Members”), twelve defendants, including STC (as first defendant), Ms Larter (second defendant), Ms Johnson (fifth defendant), Foster (twelfth defendant), and various other alleged partners and participants. Claims against some defendants were compromised or discontinued; Ms Larter entered a submitting appearance and was bankrupt; Foster did not participate in the hearing and, at the time of hearing, was also bankrupt and had criminal charges pending against him. Ms Johnson was the only active defendant. The primary judge held that she was liable for the whole of the loss suffered by Mr Mackinnon, by reason of having engaged in misleading and deceptive conduct^[1] by representing that the statements in the Proposal were true, and by not disclosing that Foster was involved in STC, and gave judgment against her for $200,000, interest and costs.

   1. Within the meaning of (CTH) Competition and Consumer Act 2010 (“CCA”), Sch 2 – Australian Consumer Law (“ACL”), s 18.

5. The appellant does not dispute that the representations in the Proposal (“the Proposal Representations”) were false, nor that Foster was involved in STC. In this appeal, the essential issues are:

1. whether Ms Johnson made the Proposal Representations;

2. whether Ms Johnson represented, by silence, that Foster was not involved in STC (“the Foster Representation”);

3. whether Mr Mackinnon relied on the Proposal Representations and the Foster Representation;

4. whether moneys received or recovered by Mr Mackinnon or for the benefit of Group Members ought to have been deducted from the damages awarded; and

5. whether the appellant ought to have been permitted to advance a defence of apportionment.

6. By a Notice of Contention, the respondent contends that the decision below should be upheld on grounds other than those relied upon by the primary judge, namely deceit and conspiracy. The Notice of Contention assumes significance because, if the appellant ought to have been permitted to rely on a defence of apportionment to reduce her liability for misleading and deceptive conduct, such a defence would not have reduced her liability for deceit.

BACKGROUND

7. The following summary draws heavily on the extensive and comprehensive account contained in the primary judge’s principal judgment. ^[2]

   2. Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones,

Foster

8. Details of Foster's “sad and lengthy history of dishonesty, deception and evasion”^[3] including “direct involvement in marketing schemes which have resulted in the misappropriation of assets” ^[4] and his criminal history are related in a number of reported cases. ^[5] One episode involved the sale of distributorships in respect of a purported weight loss pill called “TRIMit”; on 2 September 2005, Foster was found guilty of price fixing and misleading and deceptive conduct, in respect of which he was fined, and restrained from being involved in any business relating to weight loss or to the cosmetic or health industries for a period of five years. ^[6]

   3. Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (in liq) (2003) 127 FCR 418 at 429 [42] (Spender J); [2003] FCA 180 (“Chaste”).

   4. Chaste at 431 [57] (Spender J).

   5. Chaste at 429-431 [42]-[56] (Spender J); R v Foster [2009] 1 Qd R 53 at 54-55 [2]-[5] (McMurdo P; Mackenzie AJA and Chesterman J agreeing); [2008] QCA 90.

   6. Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (in liq) [2005] FCA 1212; affirmed in Foster v Australian Competition and Consumer Commission (2006) 149 FCR 135; [2006] FCAFC 21.

9. Immediately before the events which give rise to the present proceedings, in September and October 2012, there was a trial of proceedings brought in the Federal Court by the Australian Competition and Consumer Commission against SensaSlim Australia Pty Ltd, which marketed a diet nasal spray, and which was found to be in effect a front for Foster. ^[7] Yates J found, inter alia, that “it was essential that Mr Foster not be publicly associated with SensaSlim or its business. Mr Foster’s self-assessment was that his name was ‘mud’ and that he could not be seen to be connected to a weight loss product”; ^[8] that “the mask” of Mr Foster’s involvement was provided by others, each of whom was no more than a “front man” for Mr Foster’s alter egos, who “only had … roles calculated to create a façade of respectability for that business”; ^[9] and that “SensaSlim’s conduct was deliberate, covert and fraudulent to a high degree. It was clearly directed to obtaining money by deceit. Its objective was to conceal the activities of an avowed and notorious conman, Mr Foster.” ^[10]

   7. Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 5) (2014) 98 ACSR 347; [2014] FCA 340; Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484 (“SensaSlim No 7”).

   8. SensaSlim No 7 at [73] (Yates J).

   9. SensaSlim No 7 at [42], [72], [76]-[77], [79] (Yates J).

   10. SensaSlim No 7 at [79] (Yates J).

10. During the events which gave rise to the present proceedings, on 27 September 2013, Foster was held, by Logan J in the Federal Court, to be in breach of the orders of 2 September 2005, by reason of his involvement in SensaSlim,^[11] and on 24 October 2013, he was sentenced to three years’ imprisonment for contempt of court. ^[12] However, he remained “on the run” until he was arrested a year later in October 2014.

    11. Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (No 3) [2013] FCA 984 (“Chaste No 3”).

    12. Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (No 6) (2013) 223 FCR 426 at 439 [58] (Logan J); [2013] FCA 1112.

11. The extent to which Ms Johnson was aware of Foster’s history and record was an issue in the present proceedings.

Ms Johnson

12. Ms Johnson was admitted to practice as a solicitor in 1984, and has specialised in criminal law. According to her evidence, she met Foster in or around August 2012, while on a holiday to the Gold Coast, when her good friend Ms Larter introduced her to Foster's sister, who in turn invited Ms Johnson to her home, where she met Foster. What Ms Larter said to Ms Johnson about Foster is mentioned later.

13. According to Ms Johnson, during her visit to Foster's sister's home, Foster mentioned pending litigation in which he was then involved – the SensaSlim matter. On her return to Sydney, he telephoned her “and persuaded me to act for him to seek an adjournment”. As a result, on 29 August 2012, Ms Johnson appeared for Foster before Yates J to seek an adjournment of the hearing, which was set down to commence on 3 September 2012. The application was unsuccessful,^[13] and on 2 September 2012, Ms Johnson appeared before Perram J, on an application for leave to appeal from Yates J's decision. Leave was refused. ^[14] The proceedings, in which Ms Johnson played no further part, were ultimately resolved by the judgments of Yates J earlier mentioned.

    13. Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 3) [2012] FCA 939 (“SensaSlim No 3”).

    14. Foster v Australian Competition and Consumer Commission [2012] FCA 953.

14. According to Ms Johnson, after she had acted for him on the adjournment applications, Foster asked her to contact him again, and told her about “sports trading”. He proposed that she become a “limited partner” in a proposed new sports trading business, in which the other partner would be Ms Larter, and Ms Johnson agreed to do so. She was given to understand that Foster would not be involved in the management or operation of the proposed new business and would only be involved in setting up and operating the business's website and similar technological aspects, while one Richard Holmes, who was said to have been a professional sports trader for decades, would be doing the sports trading. Ms Johnson’s account of various assurances she says she was given by Foster is important and is more fully set out later.

15. On 30 December 2012, Ms Johnson and Ms Larter executed a “Limited Partnership Agreement”, which stated that:

1. Ms Larter and Ms Johnson wished to form a limited partnership for the purposes of the (NSW) Partnership Act 1892 (“Partnership Act”), to be known as “The Sports Trading Club Partnership”;

2. Ms Larter was to be the General Partner, and to have “unlimited liability for the obligations, debts and liabilities of the Partnership”; while

3. Ms Johnson was to be a Limited Partner, with her liability “limited ... to the amount of [her] invested capital”, and would not participate in the management of the Partnership, execute any document binding the Partnership, or act in any way purporting to have authority in the business of the Partnership.

16. Provision for the formation of a limited partnership is made by Partnership Act, s 50A(1), which provides:

Limited partnership or incorporated limited partnership is formed on registration

(1) A limited partnership is formed by and on registration of the partnership under [Pt 3 of the Act] as a limited partnership.

17. By s 60(1), “[t]he liability of a limited partner to contribute to the liabilities of the limited partnership is … not to exceed the amount shown in relation to the limited partner in the Register as the extent to which the limited partner is liable to contribute.”

18. While Ms Larter and Ms Johnson clearly intended their partnership to be a limited partnership, with Ms Johnson's liability to be as a “Limited Partner”, their “Limited Partnership Agreement” was never registered – apparently by oversight – and so their partnership was not a limited one, and Ms Johnson’s liability was not limited. The discovery of this, shortly before the commencement of the hearing, led to a late amendment to the pleadings, which is referred to below. ^[15]

    15. No 7 Judgment at [54] (Stevenson J).

19. Concurrently with the establishment of the partnership, Ms Johnson advanced $182,500 in cash to STC, which Ms Johnson described as her “seed money”. She was the only one of the promoters and partners to contribute any capital; Ms Larter and Foster contributed no funds. Ms Johnson said that she borrowed all of the $182,500 in cash from “friends”; that the arrangement was that she would be paid 100% interest on her advance; that the money would be repaid within a few months; and that there was a document recording the arrangement, but that she had been unable to locate it. The evidence did not expressly reveal with whom Ms Johnson made this arrangement, but it must have been Foster and Ms Larter. In an email sent by Ms Johnson to Foster and Ms Larter on 10 September 2013, she wrote: ^[16]

“The seed money loan was for $182,500 to be repaid by end of Feb 2013 by payment of $182,500 of principal plus $182,500 as interest.

Without the $182,500 loaned STC could not have got started. Neither of you was able to provide one cent of seed capital. Peter [Foster] had no objections to this loan at the time when he needed the money”

16. No 7 Judgment at [130] (Stevenson J).

20. Ms Johnson’s loan was unsecured. She said that she undertook no due diligence before becoming a partner or advancing funds to STC; that she did not ask Ms Larter how she had secured the rights STC was supposed to have, nor their value; and that she made no enquiries as to “who would be doing what” in the business. ^[17]

    17. No 7 Judgment at [129], [138] (Stevenson J).

21. Ms Johnson said she paid the $182,500 in four tranches: the first tranche of $88,000 in cash, to one Bill Duffy, who she said was “a friend of Mr Foster's”. In her 10 September 2013 email, referred to above,^[18] Ms Johnson said that $100,000 of the $182,500 seed capital was to be placed into STC's trading account, to be traded by Richard Holmes. However, in cross-examination she said that she deposited the remaining three tranches of $37,000, $25,000, and $32,500, in cash, into a bank account, and that she did not know who controlled that account. As there was no evidence of deposits of those amounts into the STC Westpac account in the joint names of Ms Johnson and Ms Larter, which was opened on 28 December 2012, the primary judge concluded that the account into which they were deposited must have been one associated with Ms Larter or Mr Foster. ^[19]

    18. At [19].

    19. No 7 Judgment at [132]-[137] (Stevenson J).

22. Ms Johnson withdrew $50,000, which she later claimed remained owing in respect of her initial loan, from the Westpac account in late December 2013. This fully repaid her $182,500 seed capital loan, with 100% interest. She resigned as a partner on 21 January 2014. When she resigned, Ms Johnson also froze the STC Westpac bank account, of which she was a signatory. Following her resignation, the Second Partnership, in which Ms Larter and others, but not Ms Johnson, were the partners, was formed. At least by the end of the trial, there was no suggestion that Ms Johnson had any liability as a partner in respect of the period after her resignation, and in this appeal it is the first partnership, of which Ms Johnson was a member, that is relevant. ^[20]

The STC Scheme

20. No 7 Judgment at [646]-[647], [659]-[661], [672]-[673] (Stevenson J).

The marketing campaign

23. In early 2013, STC placed advertisements in a number of major newspapers inviting potential investors to call “Mark Hughes”, which the primary judge found was an alias used by Foster as he understood that he could not be seen to be associated with STC. A “Sales Script”, which his Honour inferred was prepared by or at the direction of Foster, instructed those who answered the telephone calls to tell potential investors: ^[21]

    21. No 7 Judgment at [149] (Stevenson J).

1. “we are financial traders ... but we trade on a market that is absolutely totally transparent and substantially more profitable than the stock market, and that is the sports and prediction markets”;

2. “we are not gamblers”;

3. “we are traders with expert analysts from our team of scientists, statisticians, mathematicians and data analysts”;

4. “there is no risk and ... your contribution is fully guaranteed”;

5. “your investment can't go down because it is treated as a profit share loan which means that your investment is always returned to you in full”;

6. “you can't lose money you can only make money”;

7. “if you go to our website and you click on our newspaper cuttings ... there is a photo of our senior partner [i.e. Ms Johnson] with Julia Gillard (but don't hold that against her) when she [i.e. Ms Johnson] announced that she obtained the rights of $20 million”;

8. “there is a $10 million cash bond security. That money is simply locked up and can't be touched”; and

9. “it is an important point to understand that this is not a situation where you can lose money”.

24. Investors were directed to the STC Website, which had a link to a media release showing Ms Johnson with former Prime Minister the Hon Julia Gillard AC and stating that Ms Johnson was involved in a $20 million partnership deal. The photograph of Ms Johnson and Ms Gillard had in fact been taken in a context unrelated to STC, and contrary to the “sales script”, the photograph was not taken on an occasion where Ms Johnson made any announcement about obtaining any rights connected with STC. It is not suggested that Ms Johnson was personally involved in the provision or use of this photograph, although she at some stage became aware that it was being used. ^[22]

    22. No 7 Judgment at [150]-[153] (Stevenson J).

The Proposal

25. The key marketing document was the Proposal, which was available on application by entering one’s particulars on a form accessible via the STC Website, through a hyperlink labelled “click to download proposal”. ^[23] It seems that the Proposal was not directly accessible from the website, but was forwarded in response to an on-line application. Mr Kenneth Gamble, an investigator retained on behalf of the Group Members, gave evidence that: ^[24]

“In fact what actually happens is people would fill out the proposal application to receive a proposal and they would then be emailed the proposal, that's my recollection, so it was something that was emailed to them when they displayed an interest in the site.”

23. No 7 Judgment at [155]-[157] (Stevenson J).

24. Tcpt, 6 February 2018, p 124(5)-(8).

26. The Proposal was also mailed to investors after the initial telephone call. ^[25] Thus it seems that it was not directly downloadable from the website nor viewable on it.

    25. No 7 Judgment at [159] (Stevenson J).

27. On the front page of the Proposal, Ms Larter was described as the “General Partner” and Ms Johnson as the “Legal Partner”. The Proposal included a photograph of Ms Johnson and Ms Larter, and the following description of Ms Johnson: ^[26]

“Leigh Johnson has carved out a distinguished career over 30 years as a lawyer representing clients from all walks of life, including prominent politicians, actors, physicians, members of law enforcement agencies, large corporations and Aussie battlers.

Her passion for justice and the Aussie ethos of everyone being given a 'fair go' is legendary.

Her opinion has been much sought after with countless television appearances on programs such as A Current Affair, Today Tonight, Sunday, as well is [sic] being a regular member of the panel on the highly successful Beauty and the Beast.

She brings to the Partnership unlimited enthusiasm, a fierce intelligence and belief that everyone should share equally in the financial rewards.”

26. No 7 Judgment at [162]-[163] (Stevenson J).

28. Ms Johnson said that this was not an accurate summary of her career, and that she had never acted for “politicians”, “actors”, “physicians” or “large corporations”. ^[27] It was not found that she was personally involved in the provision of that resume.

    27. No 7 Judgment at [164] (Stevenson J).

29. The Proposal contained statements that: ^[28]

    28. No 7 Judgment at [165] (Stevenson J).

1. STC had “secured the exclusive rights and been appointed the Club Member for Australia” from the Sports Trading Club Ltd;

2. these “highly prized rights” allowed for $20 million to be “traded on sporting events and prediction markets in Australia and overseas”;

3. STC sought to raise ”$10 million by way of a loan so as to maximise profits and fully utilise the $20 million allocation”;

4. any loan made to STC would be “100% secured against the value of the Australia rights and by way of personal guarantee by” Ms Larter;

5. instead of paying interest on moneys advanced STC would share one half of the profits it made “as a Member” with “Associate Members”,

6. there were opportunities to make “successful trades” on sporting events by using “intelligence”;

7. the “intelligent trader” maximised profits and minimised losses “through the use of established financial risk management strategies such as stop loss, hedging and the equivalent of short selling”, and that “these are just a few of the skills that are second nature to our highly trained Account Managers”;

8. the “actual trade decisions are made by our Account Managers, under the supervision of our Senior Analyst and Chief Investment Officer”;

9. each “Account Manager has extensive experience in trading on sporting events, and a track record of discipline and intelligent decision making”;

10. the Account Managers “expertly analyse and trade the betting markets, taking the emotion out of the betting game and putting quantitative analysis in its place”;

11. the Account Managers “are a team of analysts with experience on sports and investment, and with professional qualifications in quantitative disciplines such as science, accounting and mathematics”;

12. the Account Managers support the Chief Investment Officer “through undertaking extensive statistical and trending analysis coupled with rigorous background research and market intelligence” to “seek attractive risk-reward profile[s]” and “allocate assets” “using sports specific algorithms that are used to identify value at all markets“;

13. the Account Managers “have the invaluable access to information received from our Scientific Research Director, Dr Allan Snyder, from the Sports Trading Club Insight Project at the University of Sydney, harnessing the extraordinary talents of Savants”;

14. STC “has also created the ‘Insight Project’, a world first with the study of savants and sports trading”;

15. STC “have embraced the extraordinary skills of savants to give ourselves a unique advantage. Certain savants unmask patterns that others can't see and are bewilderingly quick at performing calculations and recalling enormous amounts of data”;

16. those “savants are mysteriously gifted at setting odds and point spreads on games such as football and basketball with extraordinary accuracy“;

17. the “Sports Trading Club Ltd has the expertise and knowledge to trade on sporting events worldwide” and “they only appoint one Club Member in each country”; and

18. “the amount of money to be traded in each country is calculated in accordance with the specific size of the country” and other like matters and that “in Australia it was determined that that sum was $20 million and the Australian sole rights were obtained by Leigh Johnson and Anne Larter.”

30. The Proposal concluded: ^[29]

    29. No 7 Judgment at [166] (Stevenson J).

“In simple terms, we are not for sale.

Leigh Johnson and Anne Larter do not want to sell any equity in The Sports Trading Club Partnership. They believe the rights are just too valuable, and only going to increase in worth in the years ahead.

They are however prepared to share with you, and other lenders, 50% of the profits for a specified period of time.

If you were investing money in a managed investment scheme or the stock market, the value of your investment can potentially increase or decrease. In some cases your investment can be completely wiped out. That's why there are warnings on those type of investment schemes stating that your investment may go down as well as up.

However as a loan you are always legally entitled to the return in full of the principal of the loan. As it is a loan and not an investment the principal sum we borrowed must be repaid to you in full. The principal sum remains the unchanged.

This gives you security and peace of mind that you are not risking your principal. And you do get to share in the rewards, 50% of all profits made by the Member.

Reward without risk ... it may sound too good to be true. It isn't.

However where there is a plus there normally is a minus. In this this [sic] case, 'all good things must come to an end' and there is a time limit on the term of the loan and the period that you will be able to be an Associate Member.

The term of the loan is for either one year, two years or a maximum of three years, depending upon what suits your personal circumstances.

At the end of the term your loan will be repaid to you in full. But you will have had up to three good years of reaping the rewards ... without worrying about risking the principal.”

31. The Proposal included the Terms of Associate Membership (as investors who made loans to STC were called), and attached the form of Loan Agreement. ^[30]

    30. No 7 Judgment at [161], [167] (Stevenson J).

32. Whether Ms Johnson knew of the Proposal and its contents was an issue in the proceedings.

The fraud

33. Over 400 members of the public, including Mr Mackinnon, became “Associate Members”, depositing a total of $29.6 million into a Westpac account in the name of Ms Larter and Ms Johnson (“the STC Westpac account”), of which the 153 Group Members' deposits account for some $12.3 million. Each investor executed a loan agreement which recorded that “The Sports Trading Club Partnership” was a limited liability partnership, and that the money loaned was to be used for trading on financial markets and to be repaid in full, along with distribution of all profits made “as outlined in the Sports Trading Club Associate Member Proposal”. The principal amount was repayable at the end of a fixed term. The terms of the Associate Member Proposal (“Proposal”) and “Terms of Associate Membership” were to apply as if incorporated in the loan agreement. The STC Westpac account was opened on 4 January 2013. Mr Gamble, an investigator retained on behalf of the Group Members, has identified all of the Group Members' deposits in the STC Westpac account. ^[31]

    31. No 7 Judgment at [38]-[40], [42]-[43], [170], [174]-[175] (Stevenson J).

34. All of the money paid into the STC Westpac account has been paid away. Funds were withdrawn immediately after the deposits were made, often in round numbers; there were also “debit card withdrawals” in odd amounts for apparently private purposes. Mr Gamble's investigations revealed that almost $8.5 million of the funds paid into the STC Westpac account was transferred to an account with HSBC Bank in the name of the sixth defendant, Sports Trading Club Ltd. Funds were then transferred from that account into bank accounts in Hong Kong and Vanuatu in the name of offshore companies associated with Ms Arabella Foster and Mr Duffy (the person to whom Ms Johnson handed cash in December 2012). Thereafter, the funds were applied principally for the benefit of Mr Foster and his relatives and associates for purposes unrelated to those stated in the Proposal. Mr Gamble's investigations also revealed that a further amount of some $5 million was transferred from the STC Westpac account to accounts controlled by Mr Duffy, and was then used by Foster for personal expenditure and payments to his relatives and associates. Another almost $2 million was paid directly to Foster's associates and relatives. Almost $15 million of the money paid into the STC Westpac account has not been accounted for. ^[32]

    32. No 7 Judgment at [176]-[183] (Stevenson J).

35. There was no evidence that any of the money was spent for the purposes identified in the Proposal. In truth, as the primary judge found, STC had not acquired any rights from Sports Trading Club Ltd, or anyone else, to trade on sporting events or “prediction markets”; and STC did not conduct any trading or betting activity of the kind described in the Proposal, or at all. ^[33]

    33. No 7 Judgment at [187]-[188] (Stevenson J).

36. On 30 October 2014, shortly after Mr Foster's arrest, Ms Larter sent an email to all “STC Members” expressing confidence in the integrity of STC and offering a refund to investors who requested it; however, only five of the Group Members received a partial refund offered by Ms Larter, with the total amount refunded being $138,905. Otherwise no Group Member has been repaid the amount advanced to STC, although some recoveries have been made on behalf of Group Members: of the $12.3 million invested by Group Members, some $6.4 million has been recovered. ^[34]

    34. No 7 Judgment at [9], [171]-[173] (Stevenson J).

37. Although Ms Johnson was one of the two persons authorised to operate the STC Westpac account, the other being Ms Larter, there was no suggestion that Ms Johnson received any of the money deposited into it (other than the $50,000 that she withdrew in December 2013 as final repayment of her advance of $182,500 and interest), nor that she authorised any payment out of the account. The primary judge found that Ms Larter must have authorised the transfer of funds out of the Westpac account, at the direction of Foster. ^[35]

    35. No 7 Judgment at [192], [198] (Stevenson J).

38. Ms Johnson’s case at first instance was conducted on the basis that investors’ funds had been fraudulently misappropriated, by Mr Foster, with Ms Larter's assistance.

Mr Mackinnon

39. On 28 October 2013, after seeing an advertisement for STC in the Sydney Morning Herald and then speaking by phone to “Mark Hughes”, and receiving and reading the Proposal, Mr Mackinnon and his wife executed a loan agreement for $100,000, which was deposited into the STC Westpac account on 31 October 2013. On 4 November 2013, Mr Mackinnon executed a second loan agreement, and on 7 November 2013 he transferred a further $100,000 to the STC Westpac account. ^[36]

THE PROCEEDINGS AND JUDGMENTS BELOW

36. No 7 Judgment at [635]-[642] (Stevenson J).

The representations

40. In the Further Amended Commercial List Statement (“FACLS”), Mr Mackinnon complained about two categories of alleged misrepresentations.

41. The first category was referred to in [20] of the FACLS, which ultimately alleged that between about February 2013 and about October 2014, representations were made to Mr Mackinnon and/or the Group Members by Foster or persons employed or instructed by Foster (including Ms Johnson, though the specific reference to her was a late amendment), to the effect that: ^[37]

    37. No 7 Judgment at [91(1)] (Stevenson J).

1. STC was a legitimate sports betting business capable of generating significant profits on traded sports bets;

2. Mr Mackinnon and the Group Members could invest in the business by making loans of between $50,000 and $250,000 to STC in exchange for which STC would pay 50% of any profits earned on sports betting trades up to the amount loaned;

3. “Mark Hughes” was the National Sales Manager of STC;

4. Foster was not involved with STC. The late amendment to the FACLS adding this, the so-called “Foster Representation”, said to have been made “by silence or omission”, is impugned in the appeal;

5. the loans made by Mr Mackinnon and the Group Members would be guaranteed and repayable at the end of a nominated loan period; and

6. STC had assets of $10 million.

42. The second category, comprising the Proposal Representations, was referred to in [21] of the FACLS, which alleged that between about February 2013 and about October 2014 STC, Ms Larter, Ms Johnson, and Foster made representations to Mr Mackinnon and the Group Members, in the Proposal, to the effect that: ^[38]

    38. No 7 Judgment at [91(2)] (Stevenson J).

1. STC offered members an alternative to the stock or property markets and traditional investment channels;

2. the sports trading market was recession proof and offered unique tax free returns that could not be replicated in any mainstream investment product currently on offer;

3. STC was a sophisticated operation with trading desks in Sydney, Hong Kong, and London;

4. trade decisions were made by “Account Managers”, under the supervision of a “Senior Analyst” and “Chief Investment Officer”;

5. each Account Manager had extensive experience in trading on sporting events and a track record of discipline and intelligent decision making;

6. Account Managers expertly analysed and traded on the betting markets;

7. Account Managers were a team of analysts with experience in sports and investment, and with professional qualifications in quantitative disciplines such as science, accounting, and mathematics;

8. STC had created “the Insight Project, a world first with a study of savants in sports trading”;

9. the scientific director of STC was Prof Allan Snyder who, for some twenty years, had conducted ground breaking research on savants at both the Australian National University and the University of Sydney;

10. STC had the expertise and knowledge to trade on sporting events worldwide;

11. STC had obtained rights from Sports Trading Club Ltd (Hong Kong) to operate the STC business in Australia;

12. STC was registered in NSW and had offices and a trading desk in Sydney;

13. STC had borrowed $10 million to enable it to maximise the profits to be earned from sporting trades; and

14. investors were always legally entitled to a return in full of the principal of their loan.

43. It was alleged that all representations in both categories were false and/or misleading or fraudulent because: ^[39]

    39. No 7 Judgment at [91(3)] (Stevenson J).

1. “Mark Hughes” was really Foster, who was a fraudster who had been charged, convicted, or served sentences in respect of fraud related matters in Australia, the United Kingdom, the United States of America, and Vanuatu;

2. STC did not have trading offices but operated from a residence in Byron Bay;

3. Prof Snyder was not a scientific director of STC;

4. STC did not have a team of analysts or traders with professional qualifications in the disciplines alleged; and

5. STC was not a legitimate sports betting or trading business but a fraudulent scheme in which loans from Mr Mackinnon and Group Members were:

1. transferred to the benefit of entities controlled by Foster, his niece, and his associates; and

2. used as part of a Ponzi scheme under which Mr Mackinnon and the Group Members were being paid purported profits on fictitious sports betting trades.

44. Causes of actions were pleaded for breach of contract, misleading or deceptive conduct, deceit, conversion, and conspiracy. ^[40]

    40. No 7 Judgment at [92] (Stevenson J).

Judgment No 3 of 6 February 2018

45. The hearing commenced on 5 February 2018, and on 6 February 2018, after cross‐examination of Mr Mackinnon had commenced, an application was made for leave to further amend the Commercial List Statement (“CLS”), essentially to clarify that the plaintiffs’ case was that certain representations had been made by persons including Ms Johnson. In a judgment delivered on 6 February 2018,^[41] the primary judge granted leave to the plaintiff to file the FACLS, which had the effect of:

    41. Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 3) [2018] NSWSC 86 (“No 3 Judgment”).

1. reflecting that STC was not a limited partnership, as had originally been thought;

2. clarifying that references to the partnership as a defendant were to be understood as references to the parties (including Ms Johnson) alleged to be members of the partnership;

3. clarifying that the “persons employed or instructed” by Foster alleged to have made the representations in [20] of the CLS included Ms Johnson; and

4. adding to [21] of the CLS an alleged representation “by silence or omission, that Peter Clarence Foster … was not involved in Sports Trading Club” (the Foster Representation).

46. The grant of leave to amend by adding the Foster Representation is impugned in the present appeal.

Judgment No 4 of 12 February 2018

47. On 12 February 2018, the primary judge refused to recuse himself on the basis of alleged apprehended bias. ^[42]

    42. Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 4) [2018] NSWSC 147.

Judgment of 22 February 2018

48. On 22 February 2018, his Honour granted an adjournment of the hearing, while Ms Johnson was under cross-examination, on the basis of hardship to Ms Johnson if cross-examination were to continue, based on medical evidence as to mental health distress arising from the trial. ^[43]

    43. Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 5) (Supreme Court (NSW), Stevenson J, 22 February 2018, unrep).

Judgment No 7 of 19 February 2019

49. On 19 February 2019, the primary judge delivered the No 7 Judgment, in which his Honour concluded that Ms Johnson had engaged in misleading and deceptive conduct. His Honour found that Ms Johnson: knew that Foster’s involvement in the Sports Trading Club (STC) could not be publicly revealed; knew that Foster was using the alias “Mark Hughes”; knew of the “Proposal” and that it contained false statements; knew by mid-2013 that Foster was in control of STC; strongly suspected by September 2013 that investors’ funds were being misappropriated; and engaged in misleading or deceptive conduct by remaining silent despite these suspicions. ^[44]

    44. No 7 Judgment at [14] (Stevenson J).

50. His Honour relevantly found that:

1. by silence or omission, Ms Johnson represented to Associate Members of STC that Foster was not involved in STC; ^[45]

2. STC was a fraudulent scheme and, in substance, each of the Proposal Representations was false; ^[46] and

3. Ms Johnson knew of the Proposal, must have known that the Proposal was made available to potential investors, and, as a partner in STC, must be taken to have represented to investors that its contents were true. ^[47]

   45. No 7 Judgment at [791] (Stevenson J).

   46. No 7 Judgment at [803] (Stevenson J).

   47. No 7 Judgment at [819] (Stevenson J).

Judgment No 8 of 28 November 2019

51. Having heard further argument on issues not resolved by the No 7 Judgment, his Honour delivered a judgment on 28 November 2019 addressing questions of liability arising from the findings that Ms Johnson had engaged in misleading and deceptive conduct, including causation and apportionment. ^[48]

    48. Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 8) [2019] NSWSC 1658 (“No 8 Judgment”).

Misleading and deceptive conduct

52. His Honour summarised the findings in the No 7 Judgment that Ms Johnson had engaged in misleading and deceptive conduct by making misrepresentations on the instructions of Foster: ^[49]

    49. No 8 Judgment at [35]-[37] (Stevenson J).

1. on 14 March 2013 and 30 May 2013, to Mr de Klerk, that a person whose real name was “Mark Hughes” was the National Sales Manager of STC;

1. on 14 March 2013, to Mr de Klerk, that monies invested by Associate Members to STC were secured;

2. on 14 March 2013, to Mr de Klerk, that STC had assets of $10 million;

3. on 14 March 2013 and 30 May 2013, to Mr de Klerk, that Foster was not involved in STC;

4. from at least 30 September 2013, to all existing Associate Members of and all prospective investors in STC, that Foster was not involved in STC; and

5. from 14 March 2013, to all existing Associate Members of and all prospective investors in STC, that the statements made in the Proposal were true.

53. However, only the representation, by silence, that Foster was not involved in STC, and the representation that the statements made in the Proposal were true, were found to have been made or conveyed to, or relied on by, Mr Mackinnon, and only those representations ultimately resulted in Ms Johnson incurring liability to the Mr Mackinnon. Thus, although it was found that Ms Johnson had made the misrepresentations referred to in (1), (2), (3) and (4) above to Mr de Klerk, they can, for present purposes, be set to one side.

54. His Honour found that the statements in the Proposal were intended, and were likely, to induce investment in STC, and that the Proposal Representations did in fact induce Mr Mackinnon to invest in STC. ^[50] As to the Foster Representation, His Honour found that there were many points at which Ms Johnson could have disclosed Foster’s involvement, and that it was “more likely than not” that if Ms Johnson had taken such steps, Foster’s involvement would have become publicly known and thus known to Mr Mackinnon before he made his investment. ^[51]

    50. No 8 Judgment at [85] (Stevenson J).

    51. No 8 Judgment at [177] (Stevenson J).

Deceit

55. His Honour found that deceit was established against Ms Johnson to the extent that it was held that she had made the Foster Representation knowing it to be false, but being of the view that it did not further Mr Mackinnon’s case in respect of the relief to which he was entitled, it was not considered further. ^[52]

    52. No 8 Judgment at [40]-[42] (Stevenson J).

Apportionment

56. His Honour refused to permit Ms Johnson to propound a defence of apportionment, for the reasons that the issue had been raised for the first time on 20 September 2019, ^[53] and had not been pleaded. ^[54]

    53. No 8 Judgment at [179] (Stevenson J).

    54. No 8 Judgment at [182] (Stevenson J).

Judgment No 9 of 13 December 2019

57. On 13 December 2019, short minutes having been brought in, his Honour gave judgment for Mr Mackinnon against Ms Johnson and Foster for $200,000, with interest of $71,188.36, and costs. ^[55]

    55. Mackinnon as plaintiff representative of 153 plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 9) (Supreme Court (NSW), Stevenson J, 13 December 2019, unrep) (“No 9 Judgment”).

THE APPEAL

58. The grounds of appeal are contained in paragraphs 5 to 31 of the Notice of Appeal. Some of the grounds of appeal were not addressed at all in written or oral submissions, and are not further considered. Those which were relied on were summarised in Ms Johnson’s written submissions as follows:

“a. His Honour erred in the exercise of his discretion not to allow the Appellant to either amend her Commercial List Response or to make submissions on the issue of apportionment and by failing to take proper account of matters such as the significant prejudice and injustice to the Appellant in that the Respondent’s successful claim is statutorily apportionable; the Respondent’s failure to clarify his claim until late in proceedings and where his only success was on the pleading added on Day 2 of the hearing (over 2 years after the case started) related to a small part of his claim that is clearly apportionable; and the balance of prejudice to the parties and the Court: Grounds 9 and 30.

b. His Honour erred in the exercise of his discretion in allowing the amendment of the FACLS and interpreting the FACLS in manner that was unfair and prejudicial to the Appellant such that the claim was able to proceed, instead of being struck out: Grounds 5 ‐ 8.

c. His Honour erred in finding that the Appellant contravened the Australian Consumer Law (ACL) and was liable to the Respondent by reason of failing to say publicly that Peter Foster was “involved” in the Partnership: Grounds 12, 15, 16, 18, 20 – 28.

d. His Honour erred in not accounting for the prior recoveries made by the Respondent and other group claimants in giving judgment in the amount of $200,000 in favour of the Respondent: Ground 29.”

59. As has been noted, not all the contravening conduct found by his Honour resulted in Ms Johnson incurring liability, because not all of it was causative of Mr Mackinnon’s decision to invest. As Ms Johnson can be liable only for such conduct as caused loss, it is convenient to address first the grounds of appeal that relate to causation, as that course will enable attention to be focussed on such conduct as was causative of loss.

60. Although his Honour found that Ms Johnson knew of the falsity of at least some of the representations for which she was responsible, this finding was not necessary to establish contravening conduct for the purposes of ACL, s 18: it is well-established that knowledge that conduct is misleading or deceptive is not an element of a contravention of the statutory prohibition on such conduct contained in s 18. ^[56] Although it is an element of accessorial liability as a “person involved” in a contravention, under ACL, s 236, ^[57] Ms Johnson was not sued as an accessory, but as a principal.

    56. Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228 (Stephen J; Barwick CJ and Jacobs J agreeing), 234 (Murphy J); [1978] HCA 11.

    57. See the definition of “involved” in ACL, s 2(1), and Yorke v Lucas (1985) 158 CLR 661 at 667-671 (Mason ACJ, Wilson, Deane and Dawson JJ), 677 (Brennan J); [1985] HCA 65.

61. However, knowledge of the falsity of the representation is an essential element of the tort of deceit. While his Honour found that deceit was established to the extent that it was found that Ms Johnson knew of the falsity of at least some of the representations for which she was responsible, liability for deceit was not further considered, as it was “accepted that such a finding does not take Mr Mackinnon's case, so far as it concerns the relief to which he is entitled, any further.” ^[58] In circumstances where his Honour had disallowed any defence of apportionment, that was so. However, if his Honour erred in disallowing that defence, liability for deceit might be of considerable significance, as the statutory defence of apportionment is not available where the tortfeasor caused the relevant loss fraudulently. ^[59]

    58. No 8 Judgment at [40]-[42] (Stevenson J).

    59. (NSW) Civil Liability Act 2002 (“CLA”), s 34(1)(a), only applies to the “failure to take reasonable care”.

62. It is therefore convenient to consider first the appeal grounds relating to causation, and then those relating to amendment, before turning to those which impugn his Honour’s findings of fact in relation to the contravening conduct, including the extent to which Ms Johnson knew that the relevant conduct was misleading or deceptive, then to the Notice of Contention by which Mr Mackinnon seeks to uphold the primary judge’s conclusion on the alternative basis of deceit, and finally to the grounds which impugn his Honour’s quantification of damages, and the disallowance of a defence of apportionment.

Causation (Grounds 16, 27, and 28)

63. These grounds, which challenged his Honour’s conclusion that Ms Johnson’s contravening conduct caused Mr Mackinnon’s loss, were as follows:

“16. His Honour erred by finding as a fact that Mr Mackinnon relied upon a representation by silence by the appellant with respect to Mr Foster's involvement in STC in the absence of evidence of that fact (J8[105] – [110]).

…

27. His Honour erred by finding as fact that Mr Mackinnon invested in STC because of the statements in the Proposal and thus 'because of the appellant's 'representations' by silence that the Proposal was true (J8[62J- [87]).

28. His Honour erred by finding as a fact that Mr Mackinnon suffered loss because of the appellant's representation by silence that Mr Foster was not involved in STC (J8[148][178]).”

64. In respect of the Proposal Representations, his Honour was satisfied that the matters stated in the Proposal were in fact matters which caused Mr Mackinnon to make his investment, and were “of such a nature as would be likely to provide such inducement”,^[60] and thus that Mr Mackinnon invested in STC “because of” the statements in the Proposal and Ms Johnson's misleading or deceptive representation that the statements in the Proposal were true, with the consequence that Mr Mackinnon was entitled to recover his loss from Ms Johnson. ^[61]

    60. Referring to Gould v Vaggelas (1985) 157 CLR 215 at 238 (Wilson J); [1985] HCA 68.

    61. No 8 Judgment at [85]-[87] (Stevenson J).

65. As to the Foster Representation, his Honour found that if Ms Johnson had disclosed Foster’s involvement to Mr Murray, a journalist who approached her with questions about Foster’s involvement in October 2013, then STC would have collapsed almost immediately, just as it ultimately did a year later following Foster’s arrest and the attendant publicity; and that had Ms Johnson taken any steps from March 2013 onwards to cause Mr Foster's involvement in STC to be disclosed, one way or the other such involvement would have become publicly known and thus likely known to Mr Mackinnon before he made his investment, so that he would not have invested and incurred loss, again with the consequence that Mr Mackinnon was entitled to recover his loss from Ms Johnson. ^[62]

    62. No 8 Judgment at [176]-[178] (Stevenson J).

66. The appellant submitted that it was not shown that ‘but for’ the representations, Mr Mackinnon would not have entered the loan agreements, and that if there was reliance, it was not reasonable reliance. It was also submitted that the primary judge’s conclusion that the matters stated in the Proposal were material in the sense required by the ACL was incorrect.

67. Causation in the present context involves two elements: the first is whether the contravening conduct caused or materially contributed to the plaintiff being under a misapprehension, and the second is whether the plaintiff incurred loss because of that misapprehension. Usual causation principles, including the ‘but for’ test of factual causation, apply. ^[63]

    63. Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd (2011) 248 FLR 193 at 209 [67] (McLure P); [2011] WASCA 76 (“Owston Nominees”), citing Campomar Socieded, Limitada v Nike International Ltd (2002) 202 CLR 45; [2000] HCA 12.

68. In his affidavit, Mr Mackinnon deposed:

“On the basis of the information in the Proposal and my telephone calls with Tom Nolen [sic] from STC ... I decided to loan monies to STC.”

69. Mr Mackinnon also deposed:

“On 30 October 2014, I heard news reports that Peter Foster was involved in STC. If I had known this, I would not have loaned any monies to STC.”

70. His Honour noted, and rejected, a submission that this evidence should be read as meaning that Mr Mackinnon would not have invested in STC had he known that Foster was involved in STC in the manner described in the ‘news reports’ to which he referred: that is to say, that the phrase “if I had known this” referred not to the mere fact of Foster's involvement in STC, but to his involvement in the manner in which it was described in the news reports. His Honour considered that the natural reading of Mr Mackinnon's evidence was that had he known that Foster “was involved in STC” – in any way – he would not have invested.

71. Neither of Mr Mackinnon’s statements of reliance, set out above, ^[64] was challenged in cross-examination. Moreover, it is logical and reasonable that a prospective investor would be influenced by the contents of the Proposal, and that knowledge of the involvement of Foster, given his reputation, would be a powerful deterrent to any investor. Indeed, it was for that very reason that, as discussed later, his involvement could not be and was not disclosed and he used an alias. His Honour was in those circumstances entitled, if not bound, to accept Mr Mackinnon’s evidence of reliance.

    64. At [68]-[69].

72. His Honour did not overlook that what was represented in the Proposal was “too good to be true”, and acknowledged that Mr Mackinnon may have been somewhat gullible, but that is not inconsistent with materiality or reliance. The gullible are not disentitled to protection against misleading and deceptive conduct; indeed, it is for the protection of those who believe and trust what they hear and see that the cause of action exists. After all, the statements in the Proposal were designed and intended to have the very result that their readers would be attracted to advance money to STC.

73. No error is apparent in his Honour’s conclusion that Mr Mackinnon’s decision to invest was a result of the Proposal Representations, and of the Foster Representation. These grounds of appeal fail.

Amendment and pleadings (Grounds 5, 6, 7, and 8)

Amendment (Grounds 5 and 6)

74. Paragraphs 5 and 6 of the grounds of appeal concern the amendment, on the second day of the trial, of [20] of Mr Mackinnon’s Amended Commercial List Statement (“ACLS”), and are as follows:

“5. His Honour erred by failing to accord the appellant procedural fairness and/or natural justice by allowing the amendment of paragraph 20 of the respondent's further amended commercial list statement on the second day of hearing (J3[22] – [26], J7[742] – [748]).

6. The appellant was taken by surprise at trial by the allowance of the amendment to paragraph 20 of the respondent's further amended commercial list statement on the second day of hearing (J3[22] – [26], J7[742] – [748]).”

75. When the trial commenced, the extant pleading was the ACLS which named as the first defendant “The partnership of Anne Patricia Larter, Alan Jones, Miraleste Pty Limited trading as USG Partner and Leigh Johnson, trading as ‘STC Sports Trading Club’”. After identifying the plaintiff and the capacity in which he sued (at [1]-[2]), it continued:

“The Defendants

STC Sports Trading Club (Australia)

3. At all material times, the first defendant, a partnership of Anne Patricia Larter, Alan Jones, Miraleste Pty Ltd (trading as USG Partner) and, until 21 January 2014, Leigh Johnson, trading as “STC Sports Trading Club” (ABN 92 914 683 823):

a. was, and is a limited partnership as defined by the Partnership Act 1892 (NSW) and liable to be sued in its own name and style; and

b. held itself out as having a licence from the sixth defendant, Sports Trading Club Limited (Hong Kong) to run a sports betting business in Australia referred to as the “Sports Trading Club”.

4. At all material times, the second defendant, Anne Patricia Larter was, and is, a partner in the first defendant.

5. The third defendant, Alan Jones was, and is, a partner in the first defendant.

6. The fourth defendant, Miraleste Pty Ltd, trading as USG Partner (ABN 74 603 231 376) was, and is:

a. a corporation registered in accordance with the Corporations Act 2001 (Cth); and

b. a partner in the first defendant.

7. Until 21 January 2014, the fifth defendant, Leigh Johnson, was a partner in the first defendant.”

76. The pleading then identified the various other defendants (at [8]-[16]), and then the Group Members and common questions for the purposes of the representative proceedings (at [17]-[19]). Then, the representations sued on were pleaded, as follows:

“Representations

20. Between about February 2013 and about October 2014 the following representations were made to the plaintiff and or the group members by the twelfth defendant or persons employed or instructed by the twelfth defendant:

a. The Sports Trading Club was a legitimate sports betting business capable of generating significant profits on traded sports bets;

b. The plaintiff and the group members could invest in the business by making loans of between A$50,000 and A$250,000 to the Sports Trading Club in exchange for which the Sports Trading Club would pay 500/0 of any profits earned on sports betting trades up to the amount loaned;

c. Mark Hughes was the National Sales Manager of the Sports Trading Club;

d. Tom Nolan was the National Sales Assistant of the Sports Trading Club;

e. The loans by the plaintiff and the members would be guaranteed and repayable at the end of a nominated loan period;

f. The first defendant had assets of A$10m;

g. The Sports Trading Club had seven traders in its registered Sydney head office and had trading offices in London and Hong Kong;

h. The traders working for the Sports Trading Club are the best paid in the business. Their junior trader is on $250,000 a year and their senior traders are on $450,000 a year;

i. The Sports Trading Club was audited by KPMG; and

j. If members wished to invest in the Sports Trading Club they needed to act quickly as the offer was about to close.

Particulars

Further particulars of the representations will be provided following service of evidence in the proceedings.

21. Between about February 2013 and about October 2014 the first to the fifth defendants and the twelfth defendant made the following further representations to the plaintiff and group members in a document entitled “Sports Trading Club Associate Member Proposal”:

a. The Sports Trading Club included the first and the sixth defendants.

b. The Sports Trading Club offered Members an alternative to the stock and property markets and typically traditional investment channels.

c. The sports trading market is literally recession proof and offers unique tax free returns that cannot be replicated in any of the mainstream investment products currently being offered.

d. The Sports Trading Club was a sophisticated operation with a trading desk in Sydney, Hong Kong and London.

e. Trade decisions are made by Account Managers, under the supervision of a Senior Analyst and Chief Investment Officer.

f. Each Account Manager has extensive experience in trading on sporting events, and a track record of discipline and intelligent decision making.

g. The Account Managers expertly analyse and trade the betting markets.

h. The Account Managers are a team of analysts with experience in sports and investment, and with professional qualifications in quantitative disciplines such as science, accounting and mathematics.

i. The Sports Trading Club had created The Insight Project, a world first with the study of savants and sports trading.

j. The scientific director of the Sports Trading Club is Dr. Allan Snyder who, for some 20 years, has conducted ground breaking research on savants at both the Australian National University and the University of Sydney.

k. Sports Trading Club Limited has the expertise and knowledge to trade on sporting events worldwide.

I. The first defendant had obtained rights from the sixth defendant, Sports Trading Club Limited (Hong Kong), to operate the Sports Trading Club business in Australia.

m. The first defendant was registered in New South Wales and had offices and a trading desk in Sydney.

n. The first defendant had borrowed A$10m to be able to maximise the profits to be earned from sporting trades.

o. The plaintiff and group members are always legally entitled to the return in full of the principal of the loan.

p. A draft copy of a Loan and Profit Sharing Agreement stated that:

i. The loans would be applied by the first defendant for trading on financial markets including but not limited to sports and prediction markets through The Sports Trading Club Limited at its sole discretion: Clause 2; and

ii. The agreement could be terminated by mutual consent upon such terms as the parties may agree, allowing for the early repayment of the principal amount: Clause 5.

Particulars

272. In those circumstances, no error is apparent in assessing Mr Mackinnon’s damages at $200,000. Ground 29 therefore fails.

Apportionment (Grounds 9 and 30)

276. Grounds 9 and 30 concern the primary judge’s refusal to permit Ms Johnson to advance, belatedly, a defence of apportionment. They are as follows:

“9. His Honour erred by failing to accord the appellant procedural fairness and/or natural justice by refusing to allow the appellant's application to amend her defence to plead that Mr Mackinnon's claim was apportionable for the purposes of s. 34(1) of the Civil Liability Act 2002 (NSW) (J8[179] – [182]).

…

30. His Honour erred in failing to apply ss. 34 and 35 of the Civil Liability Act 2002 (NSW) to the facts in that there were multiple concurrent wrongdoers disclosed on the facts and any judgment against the appellant must reflect the proportion or loss for which the appellant was responsible (J8[179] – [182]).”

277. The issue of apportionment was first raised on behalf of Ms Johnson after delivery of the No 7 Judgment, and was addressed by the primary judge in the No 8 Judgment, as follows: ^[226]

     226. No 8 Judgment at [179]-[182] (Stevenson J).

“Apportionment

[179] On 20 September 2019, Mr Argy submitted, for the first time, that Mr Mackinnon's claim was an “apportionable claim” for the purposes of s 34(1) of the Civil Liability Act 2002 (NSW) and that accordingly, by reason of s 35(1)(b) of that Act I am not empowered to give judgment against Ms Johnson for more than an amount:

“ ... reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of [Ms Johnson's] responsibility for the damage or loss”.

[180] Ms Johnson did not plead that Mr Mackinnon's claim was an apportionable claim. Mr Argy made no such submission amongst the extensive submissions he made prior to my judgment of 18 February 2019. The question of apportionment was mentioned in passing in two paragraphs in Ms Johnson's 152 page submission of 22 July 2019. As I have said, Mr Argy first mentioned the matter on 20 September 2019.

[181] Notwithstanding the language of s 35(1)(b) of the Civil Liability Act, there are numerous authorities in this and other courts to the effect if that a party wishes to invoke the relevant provisions of the Civil Liability Act or its analogues, the matter must be pleaded: Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 at [41] (Hammerschlag J); Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 82 NSWLR 762; [2008] NSWSC 187 at [32] (Barrett J); Permanent Custodians Ltd v King [2010] NSWSC 509 at [31] (Schmidt J); Miletich v Murchie (2012) 297 ALR 566; [2012] FCA 1013 at [116] (Gray J); Polon v Dorian [2014] NSWSC 571 at [812] (Hall J); Wieland v Texxcon Pty Ltd; Porz v Texxcon Pty Ltd; Nominexx Pty Ltd v Wieland (2014) 313 ALR 724; [2014] VSCA 199 at [97] (Nettle, Hansen and Beach JJA); and In the matter of Kupang Resources Ltd (subject to Deed of Company Arrangement) [2018] NSWSC 1872 at [41] (Rees J).

[182] The matter not having been pleaded or even mentioned prior to 20 September, I am not prepared to entertain it.”

278. Before this Court, Ms Johnson submitted that she did not realise until the No 7 Judgment of 19 February 2019 that findings were being made against her personally, as distinct from in her capacity as a partner, and thereupon raised the issue at the first opportunity, in oral submissions on 20 September 2019 and then in written submissions on 27 September 2019. She submitted that the claim was clearly an “apportionable claim” which engaged (NSW) Civil Liability Act 2002 (“CLA”), s 35, and that on apportionment Foster ought to bear “a very high percentage” of the loss.

279. A claim for damages under ACL, s 236, for misleading and deceptive conduct in contravention of ACL, s 18, is an apportionable claim under CLA, Part 4, by reason of CLA, s 34(1)(b), which expressly so provides, and by reason of CCA, Part VIA, in which s 87CD provides as follows:

87CD Proportionate liability for apportionable claims

(1) In any proceedings involving an apportionable claim:

(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss; and

(b) the court may give judgment against the defendant for not more than that amount.

(2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim:

(a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part; and

(b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3) In apportioning responsibility between defendants in the proceedings:

(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law; and

(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.

(4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.

(5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.

280. At least for all present purposes, the provisions are not materially different. Both CLA, s 35(1), and CCA, s 87CD(1), are expressed in mandatory terms, in stipulating that “the liability of a defendant … is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss” (emphasis added); and that “the court may give judgment against the defendant for not more than that amount” (emphasis added). However it is well established, by the authorities to which the primary judge referred, that it must be pleaded. ^[227] In this respect, it is analogous to a Limitation Act defence. The appellant’s contention that his Honour was bound to apply it regardless of it not being pleaded is not correct.

     227. Ucak v Avante Developments Pty Ltd (in liq) [2007] NSWSC 367 at [34]-[36] (Hammerschlag J); Permanent Custodians Ltd v King [2010] NSWSC 509 at [15]-[30] (Schmidt J; appeal dismissed: Vertzayias v King [2011] NSWCA 215); Sanderson Motors Pty Ltd v Lindsay Bennelong Developments Pty Ltd [2014] NSWSC 846 at [31]-[42] (Ball J).

281. Although a defendant invoking CLA, s 35, must provide information of “the circumstances that may make the other person a concurrent wrongdoer in relation to the claim”,^[228] and the appellant had not done so, it cannot seriously be disputed that the ACL claim against Ms Johnson was an apportionable claim,^[229] and that at least Foster and Ms Larter were, for that purpose, concurrent wrongdoers. The relevant considerations in apportioning responsibility were described in Kayteal Pty Ltd v Dignan,^[230] as follows:

“In determining the relative responsibility of concurrent wrongdoers for a loss, it is necessary to compare the blameworthiness and causative potency of the conduct of each of them [Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187, [50]-[53]]. Relevant factors include, but are not limited to, which of the wrongdoers was more actively engaged in the activity causing loss, and which was more able effectively to prevent the loss [Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463, [93]-[97]]. Although allowance should be made for the circumstance that the responsibility of one wrongdoer may be relatively increased if it was engaged by the plaintiff specifically for the purpose of guarding against the potential wrongdoing of another (such as a fraudster), there must nonetheless still be a reduction in the liability of the first, as the fraudster is on any view a concurrent wrongdoer, and the fraudster's responsibility may well exceed that of the solicitor. Thus in Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60, Hoeben J apportioned liability 90% to the fraudster and 10% to the solicitor. An almost identical result was reached by Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 25,259. And in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, [571]-[600], Young CJ in Eq (as his Honour then was) apportioned responsibility 72.5% to the principal fraudster (Caradonna), 15% to a solicitor who had falsely witnessed a signature (Flammia), and 12.5% to the negligent solicitors - even though a purpose of engaging solicitors was to guard against the conduct of the fraudster]. As Young CJ in Eq said (at [593]-[595]), it would be wrong simply to say that those cases almost compel subsequent courts to reach the same apportionment in similar cases; but they do provide much needed guidance.”

228. CLA, 35A(1)(b).

229. Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 at 623-624 [9], 627 [18] (French CJ, Hayne and Kiefel JJ); [2013] HCA 10.

230. (2011) 15 BPR ¶29,515 at ¶29,528-¶29,529 [71] (Brereton J); [2011] NSWSC 197.

282. It is difficult to see how, upon apportionment, Ms Johnson’s responsibility would not have been a minority share, albeit a still significant one, perhaps in the order of 30% (Foster as the architect and promoter bearing 50% and Larter 20%, Ms Johnson’s responsibility being arguably somewhat greater than Ms Larter’s on account of the significance of her professional standing to the marketing of STC). Disallowing reliance upon a defence of apportionment denied Ms Johnson a real prospect of much reducing her liability.

283. Although the application was belated, it must be seen in the context that the plaintiff’s case had been amended on the second day of the trial, when it became apparent that Ms Johnson’s liability as a partner was not limited. The possibility that the case might have been conducted differently had apportionment been in play, as the respondent argued, in that additional questions might have been asked in cross-examination about the degree of Ms Johnson’s involvement relative to the other protagonists, which would have been relevant to a submission on apportionment, appears remote, and its likely impact on any apportionment marginal. Although his Honour noted that the issue was not pleaded, and was raised after the evidentiary cases had closed, ^[231] his Honour did not refer, at least expressly, to what ought to have been the dominant consideration, namely the balance of prejudice between granting and refusing leave to amend to plead a defence of apportionment. In my judgment, it is at least strongly arguable that there was error in refusing leave to rely on a defence of apportionment, in circumstances where Ms Johnson’s liability depended only upon the ACL claim.

     231. No 8 Judgment at [179]-[182] (Stevenson J).

284. However, the decision on the Notice of Contention to uphold Ms Johnson’s liability on the concurrent basis of deceit renders further consideration of this issue unnecessary. It is only necessary to consider apportionment if Ms Johnson’s liability depends on an “apportionable claim”. While contravention of the statutory prohibition on misleading and deceptive conduct is such a claim, deceit is not. CLA, s 34A, provides as follows:

34A Certain concurrent wrongdoers not to have benefit of apportionment

(1) Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer) in proceedings involving an apportionable claim if —

(a) the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim, or

(b) the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim, or

(c) the civil liability of the concurrent wrongdoer was otherwise of a kind excluded from the operation of this Part by section 3B.

(2) The liability of an excluded concurrent wrongdoer is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3) The liability of any other concurrent wrongdoer who is not an excluded concurrent wrongdoer is to be determined in accordance with the provisions of this Part.

285. CCA, s 87CC, is to similar effect.

286. A person who causes loss by deceit does so fraudulently within s 34A(1)(b). In IBEB Pty Ltd v Duncan, it was held that apportionment was excluded by s 34A(1)(a) on the basis that the defendant intended to cause the loss the subject of the claim, where he had been “deliberately deceitful in the representation that he had arranged to be conveyed”. ^[232] That conclusion could equally have been supported by s 34A(1)(b), on the basis that the defendant in that case had fraudulently caused the economic loss.

     232. [2011] NSWCA 368 at [62]-[65] (Macfarlan JA; Young JA and Meagher JA agreeing).

287. It is inherent in upholding Ms Johnson’s liability on the basis of deceit that she caused the relevant loss fraudulently, and it follows that her liability would not be reduced by a defence of apportionment, if it were permitted to be raised.

288. For that reason, although I might have taken a different view in respect of leave to amend to raise apportionment as a defence, his Honour’s approach did not affect the correctness of the ultimate judgment. On that basis, grounds 9 and 30 fail.

CONCLUSION

289. My conclusions may be summarised as follows.

290. No error is apparent in the primary judge’s conclusion that Mr Mackinnon’s decision to invest was a result of the Proposal Representations and of the Foster Representation. Grounds 16, 27, and 28 fail.

291. The primary judge did not err in permitting the amendment, on the second day of the trial, to [20] of Mr Mackinnon’s ACLS, to specifically refer to Ms Johnson as one of those who made the representations complained of, and to plead the Foster Representation (being a representation by silence that Foster was not involved in STC). Grounds 5 and 6 fail.

292. His Honour did not err in concluding that the effect of [23] of the FACLS was to plead that each of the representations alleged in [20] and [21] were false. Grounds 7 and 8 fail.

293. Applying the Briginshaw standard, it was not open to conclude, as his Honour did, that Ms Johnson knew the contents of the Proposal. I would therefore uphold ground 12, but that does not affect the ultimate judgment, because his Honour was right to conclude that, as one of the partners in STC, Ms Johnson made the Proposal Representations to investors and potential investors to whom the Proposal was provided, including Mr Mackinnon. Ground 26 therefore fails. The result is that though I would not accept that she knew that the contents of Proposal were false, Ms Johnson is liable for the Proposal Representations.

294. His Honour did not err in holding that Ms Johnson: knew that Foster’s involvement could not be publicly revealed; knew that Foster was using the alias “Mark Hughes”; knew that Foster was in control of STC; strongly suspected that investors’ funds were being misappropriated; actively represented to the recipients of the 5 April 2013 Pike & Verekers letter that Foster was not involved in STC; and knew of Foster’s criminal record, notoriety, and modus operandi. Grounds 10, 11, 13, 14, 15, and 17 therefore fail.

295. Objectively judged, in the context that investment in STC was represented to be risk free and reputable, the involvement of Foster was material to a decision to invest in STC; there was a reasonable expectation on the part of members of the public invited to invest in STC that the fact that Foster was involved would be disclosed; and the promotion of STC, via the Proposal or otherwise, without disclosing Foster’s involvement, was conduct which was misleading and deceptive. That suffices to render Ms Johnson, as a partner in STC, liable for the contravening conduct, regardless of her knowledge. However, insofar as Ms Johnson’s actual knowledge of contextual matters is relevant, even if she did not know the form and contents of the Proposal, she knew that there would have to be marketing material of some sort; she knew that her name and image were being used in connection with marketing; she knew that Foster’s involvement was material to investors and could not be disclosed; and she at least ought to have known that investors and potential investors would expect it to be disclosed. Moreover, even if it were necessary to show that she deliberately did not disclose Foster’s involvement, that requirement would be satisfied. Indeed, she took positive steps to conceal it, in connection with the instructions given to Pike & Verekers for the 5 April 2013 letter. His Honour therefore rightly concluded that Ms Johnson engaged in misleading and deceptive conduct, essentially by not disclosing to the public (or that section of the public constituted by potential investors), and actively concealing, the involvement of Mr Foster in STC. Grounds 19 to 25 fail.

296. The Notice of Contention should be upheld, at least insofar as concerns the claim in deceit, in respect of the Foster representation. As that suffices to found liability to Mr Mackinnon on a non-apportionable claim, it is not necessary further to consider the Notice of Contention.

297. His Honour did not err in assessing Mr Mackinnon’s damages at $200,000. Ground 29 fails.

298. It is inherent in upholding Ms Johnson’s liability on the basis of deceit that she caused the relevant loss intentionally or fraudulently, and it follows that her liability would not be reduced by a defence of apportionment, if it were permitted to be raised. For that reason, although I might have taken a different view in respect of leave to rely on a defence of apportionment to the statutory misleading and deceptive conduct claims, His Honour’s approach did not affect the correctness of the ultimate judgment. On that basis, grounds 9 and 30 fail.

299. The appeal should be dismissed, with costs.

300. SIMPSON AJA: I have had the advantage of reading in draft the judgment of Brereton JA with which, subject to one matter, I agree.

301. Brereton JA would uphold ground 12 of the appeal, by which the appellant complains of a factual finding that she was aware that the Proposal contained false statements. I am unpersuaded that that finding was not one that was open to the primary judge (even applying the Briginshaw (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34) standard, effectively enacted in statutory form in s 140(2) of the Evidence Act 1995 (NSW)).

302. The overall circumstances of the appellant’s participation in the syndicate, the evidence of conversations with Mr and Mrs Mackinnon, and the primary judge’s general rejection of the appellant’s contrary evidence all, in my opinion, point to the conclusion drawn by the primary judge that the appellant was aware of the Proposal and the falsity of some, at least, of its contents. I would not uphold Ground 12.

303. Since this ground is not determinative of the appeal it is not productive to say more.

304. I agree with the orders proposed by Brereton JA.

**********

Endnotes

Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 7) [2019] NSWSC 103 (“No 7 Judgment”).

Amendments

21 July 2021 - Correct typographical error in Headnote

Decision last updated: 21 July 2021