Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (t/as Uncle Ben's of Australia)
[1997] FCA 292
•24 Apr 1997
LIMITED DISTRIBUTION
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 522 of 1995
)
GENERAL DIVISION )ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:LAKE CUMBELINE PTY LIMITED
First Appellant
IDOBOOK PTY LIMITED
Second Appellant
PETER HORROBIN
Third Appellant
RICHARD SANDS
Fourth Appellant
RAYMOND PRIDMORE
Fifth Appellant
AND:EFFEM FOODS PTY LIMITED trading as UNCLE BEN'S OF AUSTRALIA
Respondent
JUDGES MAKING ORDERS: BEAUMONT, EINFELD AND FOSTER JJ
DATE: 24 APRIL 1997
PLACE: SYDNEY
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1.Appeal allowed in part.
2.Order a new trial of the claims made in paras. 3(b), (c) and (d) of the further amended statement of claim that, in the respects there alleged,
the respondent engaged in conduct in trade or commerce that was misleading or deceptive, or likely to be so, contrary to the provisions of s.52 of the Trade Practices Act 1974.
3.Appeal otherwise dismissed.
4.Costs of the proceedings at first instance, and on appeal, reserved. Direct that the parties file and serve written submissions on the question of costs within 60 days.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
TABLE OF CONTENTS
THE PARTIES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ‑2‑
THE W CONTRACT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... ‑3‑
THE HEADS OF AGREEMENT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... ‑7‑
THE SHAREHOLDERS' AGREEMENT DATED 30 MARCH 1987........ ........ ........ ........ . ‑9‑
THE INITIAL PERFORMANCE OF THE W CONTRACT AND THE HEADS........ ..... ‑11‑
Table of TIA Sales........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . ‑12‑THE APPELLANTS’ PRE-INVESTMENT INVESTIGATIONS........ ........ ........ ........ ...... ‑13‑
THE FAILURE OF TIA IN APRIL 1989........ ........ ........ ........ ........ ........ ........ ........ ........ .... ‑15‑
THE RELEVANT CLAIMS PLEADED BY THE APPELLANTS........ ........ ........ ........ .... ‑16‑
(a)The representations alleged to have been made on 16 March 1987........ ........ ........ .... ‑16‑
(b)The representations alleged to have been made on 26 March 1987........ ........ ........ .... ‑18‑
THE CONCLUSIONS AT FIRST INSTANCE........ ........ ........ ........ ........ ........ ........ ........ ... ‑18‑
(a)Final conclusion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... ‑19‑
(b)Findings on credit........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ‑20‑
(c)Findings on alleged representations (ii)-(iv)........ ........ ........ ........ ........ ........ ........ ........ ‑20‑
(d)Findings on alleged representation (xii)........ ........ ........ ........ ........ ........ ........ ........ ...... ‑25‑
(e)Finding on alleged representation (xiii)........ ........ ........ ........ ........ ........ ........ ........ ....... ‑25‑
(f)Alleged representation (xiv)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ‑26‑
(g)Findings on the issue of reliance in respect of the representations alleged to have been made before 30 March 1987........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... ‑27‑
THE APPELLANTS’ GROUNDS OF APPEAL........ ........ ........ ........ ........ ........ ........ ........ . ‑30‑
THE APPELLANTS’ WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv) ‑31‑
THE APPELLANTS' ORAL ARGUMENT ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv) ‑38‑
THE APPELLANTS' WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (xii) and (xiii) ‑71‑
THE APPELLANTS' ORAL ARGUMENTS ON ALLEGED REPRESENTATIONS (xii) AND (xiii) ‑82‑
THE APPELLANTS' ORAL ARGUMENTS IN REPLY........ ........ ........ ........ ........ ........ ... ‑90‑
CONCLUSIONS ON THE APPEAL........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ‑108‑
(a)The claims said to arise out of alleged representations (ii), (iii) and (iv)........ ........ ... ‑108‑
(b)The claims said to arise out of alleged representations (xii)-(xiv)........ ........ ........ ..... ‑115‑
ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... ‑117‑
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 522 of 1995
)
GENERAL DIVISION )ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:LAKE CUMBELINE PTY LIMITED
First Appellant
IDOBOOK PTY LIMITED
Second Appellant
PETER HORROBIN
Third Appellant
RICHARD SANDS
Fourth Appellant
RAYMOND PRIDMORE
Fifth Appellant
AND:EFFEM FOODS PTY LIMITED trading as UNCLE BEN'S OF AUSTRALIA
Respondent
CORAM: BEAUMONT, EINFELD AND FOSTER JJ
DATE: 24 APRIL 1997
PLACE: SYDNEY
REASONS FOR JUDGMENT
THE COURT: This is an appeal from an order of a Judge of the Court dismissing claims made by the appellants, Lake Cumbeline Pty Limited ("Lake Cumbeline"), Idobook Pty Limited ("Idobook"), Peter Horrobin, Richard Sands and Raymond Pridmore, against the respondent, Effem Foods Pty Limited, trading as Uncle Ben's of Australia ("UBA"), for substantial damages and other relief.
THE PARTIES
Messrs Horrobin and Pridmore controlled Lake Cumbeline. Mr Horrobin, who had previously practiced as a solicitor, and had held senior positions in several large firms, and in merchant banking and finance operations, practised as a corporate consultant in Sydney. Mr Pridmore had had substantial experience in locating suitable business investments. Through Cerberus Investments Pty Limited, a company controlled by him, Mr Pridmore was engaged by Messrs Horrobin and Sands to find investment opportunities. Mr Sands, who controlled Idobrook, was an accountant and investor who was associated with Mr Horrobin’s consultancy practice and had a wide range of business interests.Mr Lees, the main witness for UBA, had joined UBA in 1970. He had held various positions at UBA including Senior Buyer and Senior Wet Raw Materials Buyer. In the latter position, Mr Lees reported directly to Mr Ian Armstrong, the Commercial Director of UBA.
UBA, a subsidiary of a substantial American corporation, and the largest pet food manufacturer in the southern hemisphere, was a customer of Trawl Industries of Australia Pty Limited ("TIA"), which was engaged in acquiring, processing and selling fish. TIA conducted its operations from leased facilities in Geelong. It purchased fish from different fishermen, processed the fish, froze them using a blast freezer, and stored them in a cold store. During the time of the investment in TIA by Lake Cumbeline in 1987, out of which these proceedings arose, TIA attempted to establish its own fishing fleet and was, with the ultimate aim of establishing itself as a fully integrated fish supplier, negotiating to purchase the Geelong premises.
In early 1987, which is the material time for present purposes, UBA was TIA’s main customer. The relationship between UBA and TIA at the time was reflected in two particular transactions which were central to the litigation, to which reference should now be made.
THE W CONTRACT
By contract No. W17299 ("the W Contract") dated 11 February 1987, UBA agreed to buy from TIA, at the prices there specified - all prices being "FOT" Geelong and in accordance with a nominated Standard Quality Specification ("SQS") - a total of 6,250 tonnes of fish as follows:H & G Salmon Approx. 500 tonnes
Blue Mackerel Approx. 200 tonnes
Jack Mackerel Approx. 2,000 tonnes
Australian Pilchards Approx. 3,000 tonnes
Sheba Mackerel Approx. 200 tonnes
Sheba Pilchards Approx. 350 tonnes.
Delivery was stated to be -
"As scheduled by UBA from P2 to P13, 1987."
[It appears that "P" meant a period of four weeks, so that "P2" referred to the second four week period in 1987, commencing on 29 January 1987.]
This was a substantial contract being in all for more than $4 million.
The W contract was to be performed in accordance with UBA's specifications, which were defined as the "technical descriptions" of the goods sold. UBA’s general specification, and specific specifications for particular fish, were in evidence.
SQS A62 which applied to headed and gutted salmon stated inter alia that the fish pieces "shall be frozen to -18oC or below within eight (8) hours of the commencement of freezing. Fish must remain at or below -18oC".
SQS A66, which applied to whole jack mackerel, stated inter alia that the fish pieces "shall be frozen to -10oC or below within eight (8) hours of the commencement of freezing and to -18oC or below within twenty-four (24) hours of commencement of freezing. Fish must remain at or below -18oC".
SQS A71, which applied to Australian pilchards, stated inter alia that the fish pieces "shall be frozen to -5oC or below within eight (8) hours of the commencement of freezing and -18oC within 24 hours. Fish must remain at or below -18oC".
SQS A71 further specified that there was to be "[l]ittle or no blood to be apparent on the body of the fish, or around the gills".
SQS A96, which applied to slimy mackerel, stated the freezing specifications in terms identical to those which applied to jack mackerel.
SQS A97, which applied to sheba pilchards, stated inter alia that the fish pieces "shall be frozen to -10oC or below within five (5) hours of the commencement of freezing. Fish must be frozen to -18oC or below within twenty-four (24) hours of the commencement of freezing. Fish must remain at or below -18oC".
UBA contracts were also subject to a general SQS A006, the relevant portions of which are as follows:
"C.GENERAL DESCRIPTION
1.The material shall be hard frozen in blocks except where otherwise specified, and maintained in a hygienic condition
...
D.FOREIGN MATERIALS
1.Any batch containing critical contaminants such as metal, glass, stones, bone, fish hooks, wood, etc or any material injurious to animal health is not permitted.
2.Any block containing major contaminants such as unspecified fish/animal tissue, hair, vegetable matter, string or paper etc. will be rejected and will make the batch liable to rejection.
3.Added water is not permitted.
E.STORAGE
Frozen material shall be stored and maintained at -18oC to -20oC or below at all times. First in first out practices shall be strictly adhered to at all points of storage.
...
G.IDENTIFICATION
Either the cartons or pallet covering and or accompanying documentation must be clearly and permanently marked to enable accurate identification of:
1.Contents - By raw material code and/or SQS title
2.Supplier
3.Packing date or batch code
4.Catch date
5.Processing date (if this is not the same as 3.)."
Payment was dealt with in the W contract as follows:
"PAYMENT
14 days from date of invoice, which is to be raised as product delivered to cold store. All values include 1 week's free storage. Thereafter storage will be charged at the rate of $A2.50/pallet per week."
The following notes were added to the W contract:
"NOTES
1.Each delivery should be accompanied by a consignment note which should refer to the Contract Number above.
2.Each invoice should refer to the Contract and Consignment Note Numbers.
3.A manifest of cold storage movements must be kept and be available for inspection by UBA personnel.
4.A weekly telex of product movements and reconciliation must be sent to W Bartel at UBA."
Finally, reference should be made to some of the general conditions stated "overleaf" on the W contract.
With respect to variations to be made to the contract, clause 2 stated (in part):
"The terms contained in this Contract form shall constitute the entire contract between the parties and shall not be altered or subject to variation, except by written agreement between both parties. All oral agreements between UBA and Seller or their respective agents or employees are hereby expressly negatived."
With respect to delivery and time, it was provided by clause 6(a) that:
"(a)The Seller shall deliver the Goods in the manner prescribed at the time specified in the Contract or at the time or times nominated by UBA, as the case may be. Time shall be of the essence in so far as it relates to all obligations of the Seller.
..."
THE HEADS OF AGREEMENT
The second important transaction was evidenced in Heads of Agreement between TIA and UBA dated 26 March 1987 ("the Heads"). First, the Heads recited this:"WHEREAS
TIA has a modern fish processing plant designed to process product for and to the specification of UBA, and has contracted for the purchase of large quantities of fish for UBA requirements.
UBA is the operator of a large scale pet food plant at Wodonga, Victoria (hereinafter the plant) and is desirous of purchasing large quantities of suitable species of fish for the plant on a regular long term basis.
By these Heads of Agreement, the parties agree:-
iTIA will sell ... processed product to UBA.
iiTIA will provide coldstore facilities to UBA.
iiiUBA will buy and receive product from TIA, and store product with TIA on the terms and conditions set out below ..."
The framework of the Heads was described as follows:
"Both parties agree to establish an evergreen, continuing long term relationship for the supply of fish by TIA to UBA.
To this end, and in consideration of TIA installing a processing plant to specifically meet UBA requirements, the parties agree to structure their relationship on an ongoing basis, subject to the satisfactory performance by each of the parties of its obligations under this agreement.
And the parties agree to consult regularly to maintain and further their mutual aims as set out in this agreement."
The Heads then provided:
"EXCLUSIVELY
In consideration of TIA establishing a facility tailored to meet UBA requirements, UBA agree to source in the first instance its requirements for fish from TIA, except for product caught and processed on the west coast of Australia.
However, UBA reserves the right to purchase from any source such fish that TIA are not able to provide at a quantity, quality, price and time acceptable to UBA.
UBA further agree to assist and cooperate with TIA in their effort to source raw material fish from various fishermen and enterprises within Australia.
PRODUCTS
Fish, hard frozen, prepared and maintained in a hygienic condition, of the following species:-
A.Australian Salmon
B.Jack Mackerel
C.Australian Pilchards
D.Blue Mackerel
E.Sheba Mackerel
F.Sheba Pilchards
G.And/or any other agreed species."
The Heads went on to deal with the quality, prices and delivery as follows:
"QUALITY & PRICES
Commencing from February 1987, and for the continuing period of this agreement, the parties shall fix both a quantity and price for sale, delivery, and storage by TIA to UBA for each six month period, ensuing the expiration of each succeeding six month period.
For this purpose the parties agree to meet at least three months prior to the effective commencement of each six monthly period.
The quantity and price agreed between the parties each six months shall be formalized and embodied in a six month contract form issued by UBA, and executed by both parties, each of which shall become an effective addendum to these Heads of Agreement.
The standard conditions of contract embodied on the UBA form used for the above purpose shall be subordinated to these Heads of Agreement.
DELIVERY
UBA is to take delivery of the product, FIS at the Corio Quay Coolstore Complex occupied by TIA."
The following provision was made in the Heads with respect to technical advice and quality assurance:
"TECHNICAL ADVICE & QUALITY ASSURANCE
TIA agrees to maintain quality control procedures, to ensure that the product delivered to UBA shall accord with the UBA specification.
UBA agrees to provide technical service and assistance to TIA to enable the most effective procedures for quality control.
Further, the parties agree to maintain a continuing liaison with the objective of maintaining and where possible improving the handling and storage of the product from time of catch to delivery to UBA."
THE SHAREHOLDERS' AGREEMENT DATED 30 MARCH 1987
Also central to the litigation was the Shareholders' Agreement dated 30 March 1987, through which Lake Cumbeline made its investment. Under the agreement, negotiated with members of the Fasham family and the Wilson family (Messrs. Bruce Fasham, Jon and Gavin Wilson), who controlled Atasco Australia Pty Limited, and, in turn, TIA, Lake Cumbeline agreed to subscribe for 72,218 "B" class shares in TIA at $1.00 per share plus a premium of $23.010634 per share. It was provided (clause 4.4) that the subscription moneys would be payable on the completion date (that is, 30 March 1987) as to $734,000 and that the balance of $1,000,000 would be paid on or before 31 July 1987.
The Agreement was expressed to be subject to conditions precedent, including the following:
"PART 2 CONDITIONS PRECEDENT
2.1This agreement and the obligations of the parties hereunder are subject to the following conditions:
(a)evidence that the Company has the continued right (on terms and conditions acceptable to the Subscriber) to continue to use the cold store, land, buildings, fish processing facilities, plant and equipment presently occupied or used by or on behalf of the Company at Geelong, Victoria;
(b)the grant of a fishing licence in respect of the vessel currently owned by the Company;
..."
The other conditions precedent were of no present significance and contained no reference to the relationship between TIA and UBA. However, this relationship was mentioned in Part 4 of the Agreement, dealing with "Completion":
"PART 4 COMPLETION
4.1Prior to the Completion Date the Company shall make available, and the Proprietors shall procure that the Company shall make available, for inspection by the Subscriber and/or its agents or nominees all of the existing records of the Company and without limiting the generality of the foregoing in particular the following records documents and things in relation to the Company:
...
(j)The Books of Account;
(k)The Taxation Returns and Assessments for the preceding five (5) years;
(l)A budget for the Company for the period from 1st January, 1987 to 31 July, 1987 acceptable to the Subscriber;
(m)A copy of a contract acceptable to the Subscriber between the Company and Effem Foods Pty Ltd trading as Uncle Ben's of Australia for the supply of fish by the Company to Effem Foods Pty Ltd. [emphasis added]
(n)All other, records, documents and papers relating to its business and property in proper order and condition and fully entered up so as to disclose all information relating to its affairs and complying with all statutory requirements."
In Part 10 of the Agreement, several warranties were given, but none are presently material. Again, no reference was made to the relationship between TIA and UBA.
THE INITIAL PERFORMANCE OF THE W CONTRACT AND THE HEADSINITIAL PERFORMANCE OF THE W CONTRACT AND THE HEADS
In the period between March and June 1987, TIA made large deliveries of jack mackerel to UBA, sufficient to discharge its obligations in that regard, under the W contract. But deliveries of pilchards, although substantial, were less than contracted for and there were virtually no deliveries of salmon.
On 8 July 1987, contract W 17402 issued, replacing the W contract, providing for sales of 2,460 tonnes of fish to be delivered between July and December 1987. On 10 September 1987, UBA purported to cancel contract W17402, but continued to take supplies until June 1989.
In the period of more than two years from March 1987 to June 1989, as the table below indicates, TIA delivered 5,831 tonnes of fish to UBA, that is, over a period of more than two years, 419 tonnes less than the amount specified in the W contract to be delivered over an 11 month period.
Table of TIA Salesof TIA Sales [shown in kg]
"TRAWL INDUSTRIES OF AUSTRALIA - FISH SALES
| MONTH | UBA Sales Pilchards (kg) | UBA Sales Mackerel (kg) | UBA Sales Salmon (kg) | UBA Sales Other (kg) | UBA Sales Total | Non UBA Sales | Total Sales |
_____________________________________________________________________________________________________________________________________
| Mar-87 Apr-87 May-87 Jun-87 Jul-87 Aug-87 Sep-87 Oct-87 Nov-87 Dec-87 Jan-88 Feb-88 Mar-88 Apr-88 May-88 Jun-88 Jul-88 Aug-88 Sep-88 Oct-88 Nov-88 Dec-88 Jan-89 Feb-89 Mar-89 Apr-89 May-89 Jun-89 | 224,270 136,553 202,655 18,577 0 0 6,170 10,579 40,389 0 9,661 0 98,034 255,506 164,245 17,222 0 0 0 96,145 167,768 88,499 22,900 51,164 68,244 157,457 350,821 249,717 | 229,814 784,614 1,066,881 206,332 0 0 0 0 0 0 0 0 0 0 6,638 18,874 83,477 36,845 129,707 221,550 154,669 0 0 10,480 11,796 11,099 0 0 | 52,307 88,382 9,602 0 0 0 0 0 0 0 165 0 0 0 0 0 0 0 0 4,015 0 0 0 0 0 0 0 0 | 0 46,514 20,596 0 0 0 0 12,342 3,317 0 6,739 0 0 0 0 0 0 0 0 0 0 0 0 5,657 2,426 0 0 0 | 506,391 1,056,063 1,299,734 224,909 0 0 6,176 22,721 43,706 0 16,565 0 98,034 2,255,506 170,883 206,096 83,477 36,845 129,707 321,710 322,437 88,499 22,900 67,300 82,466 168,556 350,821 249,717 | 19,765 25,942 0 0 0 0 0 12,534 0 0 41,945 93,240 129,161 14,158 6,010 68 88,085 81,313 10,900 5,500 53,680 23,937 33,127 15,505 31,428 42,769 40,704 0 | 526156 1082005 1299734 224909 0 0 6176 35255 43706 0 58510 93240 227195 269664 176293 206164 171562 118158 140607 327210 376116 112436 56027 82802 113894 211325 281525 249717 |
_____________________________________________________________________________________________________________________________________
| TOTAL | 2,436,581 | 3,142,774 | 154,471 | 97,391 | 5,831,246 | 769,767 | 6600983 |
____________________________________________________________________________________________________________________________________"
THE APPELLANTS’ PRE-INVESTMENT INVESTIGATIONS
The learned primary Judge described the history of the appellants’ "pre-investment investigations". This is a critical aspect of the matter and a full reference should be made to it as follows (at 21-6):"The main investigations in relation to the investment on 30 March 1987 were made by Pridmore. In February 1987 he met with Fasham and J Wilson who discussed the Trawl operation with him. He subsequently had several conversations with J Wilson and Fasham during that month. During one of those conversations he was shown an unsigned copy of a contract for the purchase of the Geelong Cold Stores situated at Corio Quay North, Geelong. He was not given a copy of this contract. He also obtained a draft of the 26 March 1987 Heads of Agreement with UBA. In March 1987 he discussed the results of his investigation of Trawl with Horrobin and Sands, and decided to make further investigations. In March 1987, he got a copy of purchase order W17299 and a costing document.
Prior to 18 March 1987 he visited ANZ and saw a Mr Goldsworthy ("Goldsworthy"). He took steps to seek verification from Goldsworthy in relation to Trawl and the good standing of the Atasco directors. These inquiries were made under time constraints because of the need to obtain the relevant Minister's consent to purchase the Corio Quay facility; that is, the cold store at Geelong. He said there was less time than usual to chase up contingent liabilities and "things of that nature". Accordingly, the applicants took indemnities from the vendors to cover those contingencies. He said that the visit to ANZ was to assure the applicants that the vendors were in fact able to meet the indemnities. He discovered that Trawl had two overdrafts which totalled $1 million. His understanding at that time was that Trawl was in some financial difficulty. He relayed the results of his inquiries as to the financial position of Trawl with ANZ and the State Bank of Victoria to Horrobin and Sands. He regarded it as essential that the vendors should give indemnities and he relied on those indemnities.
He agreed that there was no consideration given to the possibility of Trawl raising its own funds since it was always assumed that it would not need its own funds and that the input from Cumbeline would have been sufficient to carry the venture through. His understanding before the investment was that if Trawl had its own vessels, factory, blast freezer and storage, it provided a unique asset in Australia.
He could not recall whether he saw a set of accounts for year ended 30 June 1986 before the investment. The probability is that he did not. He said that this situation would be unusual but it would also be "inconsequential in terms
of this investment". He said that he sat down with Trawl's accountant to examine the general ledger, the costing sheets and working papers.
He sought information as to the business ability, character and financial capacity of the Atasco directors.
Prior to the investment he obtained a letter from the Port of Geelong Authority ("PGA") confirming that the Minister had approved a new lease of the cold store premises to Trawl. On 26 March 1987 he obtained a letter from Fasham confirming conversations about work necessary to be done to meet the requirements of UBA. He was assured by Fasham that there were no outstanding works or further plant to be installed to meet any requirements of UBA. He wanted confirmation about the existence of a replacement agreement with UBA and got confirmation in the letter.
The shareholders' agreement required as a condition precedent that fishing licence endorsement should be provided for the south-east trawl region in respect of the "Allied Star". He said that this condition was waived before completion. He agreed that the applicants obtained a comprehensive set of warranties prior to investment as these were essential for this transaction in the applicants' view. He undertook his own financial investigation of the financial position of Trawl and was satisfied with that investigation. He obtained a copy of the executed Heads of Agreement of 26 March 1987 on or about that date. The applicants were content with these Heads of Agreement. His understanding was that the agreement imposed no obligation on either party to supply or accept fish in the absence of an agreement as to price, but said this was in the context of a cost plus method of negotiating price. [emphasis added]
The main input of Sands prior to the investment was to obtain information to prepare computer models and to make a projection as to the future operations of Trawl. The Heads of Agreement of 26 March 1987 and Contract W17299 were the only documentary evidence he saw prior to 30 March 1987, which supported his understanding of the "exclusive" arrangement with UBA. He was party to discussions with Atasco representatives on 9 March 1987. He was not party to the discussions with Lees on 18 March 1987 (which are referred to in more detail below), but was informed of them. He made some investigation of the accounting records. Sands prepared the budget which was attached to the shareholders' agreement. He agreed that the profit gross margins were attractive. He believed that the assumptions in the budget were realistic and capable of achievement. He prepared the budget in consultation with Horrobin and Pridmore and it reflected his own independent investigation of the business prospects of Trawl. [emphasis added]
Sands analysed Pridmore's material and discussed matters with Pridmore and prepared draft computer models. He also had discussions with Horrobin, but as far as the investigation was concerned, he didn't do anything else. He said that Pridmore had been employed to do the investigation. He said he had
received a balance sheet from Pridmore, but he made no investigation of the accounting records prior to 30 March 1987. He understood that Pridmore had looked at those records. J Wilson had produced some accounts for 28 February 1987.
Horrobin was aware that Trawl was in a very unhealthy situation for a trading company, without an injection of capital. His interest was principally in respect of one item, namely the gross profit made for the month of February 1987 on increased sales of fish. He formed the view that the profitability of the company was strongly increasing from what was previously, in his understanding, a start-up phase. He left the investigations basically to Sands and Pridmore and did not himself engage in that exercise. He did not examine any of the accounting records, but left this to Pridmore. He said that the applicants decided to invest after Sands had prepared a computer model which showed what the adjusted figures on performance of the contract looked like. He referred to various computer models having been prepared by Sands up to 30 March 1987. He considered that the timing of the investment became important after 9 March 1987 because he was told that the Victorian Minister for Transport was threatening to cancel the sale of the cold stores at Geelong to Trawl. As best he could recollect, this was about 12 March 1987. [emphasis added]
He agreed that the applicants were of the opinion that for $2 million they had bought into a company which had a "fantastic" future so far as profitability was concerned and that it had strong early cash flows and the potential for growth.
The only investigations that Horrobin personally made before 30 March 1987 was at the brief meeting with J Wilson and Fasham on 9 March 1987 and a visit to Geelong on 18 March 1987, when he looked at the plant and talked to some people, and also had discussions with the Atasco shareholders. The only direct inquiries made by Horrobin of UBA were those discussions which he had with Lees on 18 March 1987, which lasted in the order of 15-30 minutes. He was interested in the model projections prepared by Sands."
THE FAILURE OF TIA IN APRIL 1989
It was common ground that Lake Cumbeline lost the value of its investment in TIA; and that Idobook lent large sums of money to TIA and to Lake Cumbeline which were irrecoverable. TIA went into receivership in April 1989, and into liquidation in August 1990. The personal appellants have, by themselves or through companies controlled by them, lost large amounts of money and face substantial liabilities on guarantees given to banks in this connection.THE RELEVANT CLAIMS PLEADED BY THE APPELLANTS
Not all of the many claims made by the appellants at first instance were pursued on appeal. The claims still relied on were pleaded by the appellants as follows:
(a)The representations alleged to have been made on 16 March 1987(a) The representations alleged to have been made on 16 March 1987
By their further amended statement of claim, the appellants alleged (para.3) that, on or about 16 March 1987, UBA represented to Lake Cumbeline:
"...
(b)that it intended to honour its obligations under that contract [alleged representation (ii)];
(c)that the contract was a genuine one intended to be fulfilled by the parties to it [alleged representation (iii)]; and
(d)that [TIA] presently had and/or would have the ability and capacity to supply that 6250 tonnes of fish in accordance with the terms and conditions of the said contract [alleged representation (iv)]."
The appellants gave the following particulars of the alleged representations:
"The representations were in writing or alternatively partly in writing and partly to be inferred from conduct. In so far as the representations were in writing they are contained in or evidenced by UBA's contract dated 11 February 1987 No. W17299. In so far as the representations are to be inferred from conduct, the relevant conduct was that UBA knew that the then shareholders of [TIA] were going to show the contract to potential investors with the view to seeking to induce such persons to invest by way of capital or loan in [TIA] and further knew or ought to have known that those potential investors had little or no knowledge of [TIA], its ability or capacity to fulfil the contract or of the discussions and relationship between [TIA] and UBA."
In alleging (para.4) that the representations were false or likely to mislead, the following particulars were provided by the appellants:
"(a)UBA did not regard the contract as a legally binding one.
(b)UBA had no intention of honouring the contract if it did not suit its commercial purposes to do so.
(c)The document said to be the contract was never intended by UBA to embody or record a binding agreement between UBA and [TIA] but rather was intended by UBA to be used as a means to induce investment in [TIA] by third parties.
(d)UBA knew [TIA] did not have the capacity or ability to supply to it the specified quantity of product in accordance with the terms of the said contract or alternatively did not have reasonable grounds for believing that [TIA] had that capacity or ability."
The conduct thus alleged was also said to constitute fraud and negligence at common law.
Lake Cumbeline further alleged (para.6) that, acting on the faith of the representations pleaded, Lake Cumbeline invested substantial amounts of money in TIA and lent money to TIA; that Idobook lent monies to Lake Cumbeline to enable it to make the said investment and loans; that Messrs Horrobin, Sands and Pridmore guaranteed certain obligations of TIA with the ANZ Bank; and that TIA expended the funds which had been invested in and lent to it.
It was then said and, as has been noted, this was not disputed, that TIA had lost the value of the funds lent to it and that, having had receivers appointed in April 1989 and liquidators appointed in August 1990, TIA was unable to repay those funds.
The appellants further alleged (para.7) that, by reason of UBA's conduct, Lake Cumbeline lost the value of its investment and expenditure or, alternatively, the value of the investment was much less than at the time when it was made; Idobook was unable or likely to be unable
to recover in whole or in part the monies advanced to Lake Cumbeline; Lake Cumbeline was unable or likely to be unable to recover in whole or in part the monies advanced to TIA; Messrs Horrobin, Sands and Pridmore were likely to be required to pay out monies to the ANZ Bank pursuant to their guarantees; and Lake Cumbeline and Idobook lost the opportunity of investing these monies in activities that would have generated profit for them and lost the value of subsequent investments and expenditures.(b)The representations alleged to have been made on 26 March 1987(b) The representations alleged to have been made on 26 March 1987
It was further alleged by the appellants (para.20) that, on or about 26 March 1987, UBA represented to them in writing in the form of a contract between TIA and UBA dated 26 March 1987 (that, is the Heads) that it would:
"(a)establish with [TIA] an evergreen, continuing long-term relationship for the supply of fish by [TIA] to UBA [alleged representation (xii)];
(b)source in the first instance its requirements for fish from [TIA] except for Western Australia [alleged representation (xiii)];
(c)assist and co-operate with [TIA] in its effort to source raw material fish from various fishermen and enterprises within Australia [alleged representation (xiv)]."
These representations were said by Lake Cumbeline (para.21) to be false and misleading. Reliance and loss and damage, were also pleaded in similar terms. Common law counts were added as before.
THE CONCLUSIONS AT FIRST INSTANCE
As has been said, the appellants advanced many claims at first instance, and some are no longer pursued. In all, some 24 representations were pleaded in the further amended statement of claim; four said to have been made on 16 March 1987, seven on 18 March, three on 26 March, one each in April, June and August [or September] 1987, two in September 1987, one in the period October 1987 - January 1988, and two each in February and March 1988. His Honour found that, with one exception, none of the misrepresentations pleaded were proved. The trial judge did find that the representations alleged to have been made in August (or September) 1987 that UBA had never offered to buy fish from Mr Harry Mitchelson and had no intention of doing so, was made, but that the appellants did not rely on it. Neither finding is now challenged.Several of the representations alleged were said to have been made orally. Their making was disputed and the credit of the witnesses in this aspect of the proceedings was, of course, very important.
(a) Final conclusion(a) Final conclusion
The primary Judge said (at 122-3):"... my final conclusion is that having regard to the seven to eight year period that has elapsed between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time. [emphasis added]
Due to the detailed cross-examination of each of the major witnesses over many days, I had the opportunity to observe and appraise the reliability of their evidence."
(b)Findings on credit
His Honour made adverse findings on the credit of Messrs Horrobin, Pridmore and Sands. His Honour also found that Mr Lees was generally an unsatisfactory witness, saying (at 139):
"Again, as in the case of the three individual applicants, I do not accept Lees' uncorroborated oral evidence of conversations or representations made up to 7 years ago, unless otherwise admitted. I prefer to rely on the documentation and objective circumstances and behaviour as disclosed in the evidence." [emphasis added]
(c)Findings on alleged representations (ii)-(iv)
It will be recalled that representations (ii), (iii) and (iv), said to have been made on 16 March 1987 partly in writing and partly by conduct, were as follows:
•That UBA intended to honour its obligations under that contract (alleged representation (ii)).
•That the contract was a genuine contract intended to be fulfilled by the parties to it (alleged representation (iii)).
•That TIA presently had and/or would have the ability and capacity to supply 6,250 tonnes of fish in accordance with the terms and conditions of the contract (alleged representation (iv)).
The primary Judge found (at 156) that the individual appellants were "clearly aware" of the W contract before they entered into the Shareholders' Agreement. His Honour turned next to UBA's position.
The primary Judge accepted (at 156), on this point, the evidence of Mr Lees that, in contrast with Mr Lees’ view of the Heads, Mr Lees regarded the W contracts as binding. His Honour found that Mr Lees regarded the W contract as a genuine binding contract.His Honour said (at 156):
"The commitment on the part of UBA to take up to 6,250 tonnes of fish was honoured by UBA. In the three months after February 1987, UBA accepted and paid for all the fish which [TIA] was able to supply.
During the months of March, April and May 1987, [TIA] supplied and UBA accepted under W17299, fish to a total value of $1.836 million.
The above evidence, in my view, supports the conclusion that UBA regarded this contract as genuine and binding. There was never any suggestion from UBA that it was not prepared to take any of the fish contracted for under W17299 and which [TIA] was able to supply at the prices and on the terms set out in that contract. Indeed, W17299 provides for the sale of approximately 2000 tonnes of jack mackerel over an 11 month period. In fact UBA accepted 2,287.641 tonnes of jack mackerel over a 3 month period."
After referring to the absence of any complaint by TIA that UBA was not honouring its commitments under the W contract, the Judge said (at 157-8):
"The complaint made by [TIA] was rather that UBA was not taking its fish out fast enough from the cold store at Geelong to enable [TIA] to fulfil its contract and not that UBA was not prepared to take the fish.
In the months up to the end of May 1987, UBA had accepted about 45% of the total order scheduled in that contract to be taken by UBA over the 11 month period from January to the end of December 1987 which represents periods P2-P13 as provided for in W17299. [TIA] was unable to supply because it was not getting deliveries of pilchards from the suppliers and the fish were not being taken out of the cold store quickly enough, because the store could not cope with the rate at which the fish were being processed.
In other words, the inability stemmed not from the capacity or inability of the plant to process the fish, but rather from the failure of supply together with the failure of UBA to take out the fish promptly after processing."
His Honour rejected (at 158) the suggestion that the W contract was a sham, brought into existence simply to attract potential investors, finding rather (at 159) that it was a "binding, legally enforceable contractual commitment on the part of UBA".
Later in his reasons, the Judge said (at 169-170):
"Historically, [TIA] had supplied only in the order of 10% of the quantities contracted for up to February 1987. Therefore, it is said for the applicants that UBA (Lees) could have no genuine belief in [TIA's] ability to meet W17299. It is said that W17299 involved substantial increases in tonnages and prices inserted to make [TIA] a more attractive proposition to a potential investor. However, by the time W17299 had been given to [TIA] on 26 February 1987, it is clear that Lees knew that [TIA] was negotiating to obtain the Corio Quay complex with the result that [TIA] would have greater control. Also, Lees had been informed by [TIA] that an 18 fishermen delegation had undertaken to supply 2,500 tonnes of pilchards. The purchase of Corio Quay would eliminate the nine day fortnight limitation. The pilchard arrangement with the fishermen indicated that [TIA] had already made arrangements for the supply of over 80% of the pilchards needed to meet W17299 and this fact was known to UBA."
His Honour went on to say (at 170-2):
"Both sides throughout treated the `W' contracts as binding commitments which they sought to perform. UBA took delivery and paid for all fish supplied by [TIA], which met specification, and [TIA] endeavoured, in turn, although ineffectively to a large extent, to meet its commitments under the contract.
In view of this conduct the contract W17299 was clearly not treated or regarded as false or as `a sham' by UBA and this supports the view that it was not different to what it appeared on its face to be, namely, a contract to take fish intended to be binding on the parties.
The true position is that not only was W17299 a binding enforceable contract which imposed clearly defined rights and obligations on the parties, but it appeared to be such on its face and was treated throughout as such a contract by both parties to it.
There is in my view no substance in the argument that W17299 either by itself or coupled with any silence or conduct on the part of UBA amounted to a representation to the effect alleged.
However, even contrary to my view, if there was such representation it was true in that UBA intended to be bound by it and to honour its commitment, and there was therefore no misrepresentation or misleading or deceptive conduct in relation to this contract by UBA."
In rejecting the appellants' claim in respect of alleged misrepresentation (iv) his Honour gave these reasons (at 160-1):
"(a)The representation is not said to come from anything stated to any of the applicants by UBA. It must be derived from the contract itself and silence on the part of UBA in the context of the circumstances in which it was signed and issued. Contract W17299 was made with [TIA], not the applicants.
(b)The contract speaks for itself and has its own operation and legal effect. The only representation by UBA in issuing the order made is that the contract exists in the form in which it has been executed and issued with the legal effect it has on its face.
(c)The act of issuing the document, even if the beliefs and knowledge suggested were held, is not a representation in itself.
(d)The belief or understanding of UBA that investors would or might rely on the contract does not of itself make the contract a representation.
(e)It was not realistic or reasonable to expect UBA to express any belief it had as to the inability of [TIA] to perform before 18 March 1987 or after that date and before 30 March 1987. Such an expression of opinion could have involved UBA in litigation with [TIA] if the investment did not proceed.
(f)The surrounding circumstances, prior history and context, did not give rise to a duty in UBA to make known its doubts to the applicants. ..."
His Honour went on (at 162-3) to add these reasons in this connection:
"(g)It has not been demonstrated that it is likely UBA was convinced that [TIA] did not in fact have the ability and capacity to supply and process the 6,250 tonnes or would not do so. The weight of the evidence is to the contrary.
(h)It would generally be unreasonable, except possibly in cases of fraud or sham transactions, which do not represent the present situation, that a buyer of goods signing a contract to buy is taken to thereby represent to third parties such as potential investors or lenders, that the supplier has the capacity and ability to supply, with the consequence that it could be sued for misrepresentation by the third party if the seller fails.
(i)Entry into a supply contract for raw materials with a manufacturer may be presented to investors or lenders to assist in the raising of finance. This does not give rise to a duty in the manufacturer-buyer for example, to investigate, for the benefit of the potential investors, the resources and capacity of the supplier or give rise to a duty in the buyer to contact, discuss with and enlighten the investor as to its doubts, if any, about the supplier. It would not be reasonable to expect it to investigate the resources and capacity of the supplier for the benefit of other parties. Furthermore, it is not possible to limit the point at which the category of potential investor or lender cuts out. For example, in the present case the immediate investor was Cumbeline. Additional liabilities were incurred by Horrobin, Sands and their companies. ANZ was responsible for funding. One must ask whether the duty alleged extends to all the investors or lenders and how far that liability extended? These are matters which tell against the suggestion that such a duty exists.
(j)This is particularly so in an industry such as the fishing industry where supply depends on the ability to catch fish. ..."
The Judge concluded (at 164-5) that the W contract should not be read as representing that fish would in fact be caught or be supplied to UBA by TIA: the supply of fish to TIA was in the hands of the fisherman who sold it, and this supply was dependent on inevitable seasonal and other fluctuations in catch. Moreover, his Honour found that, even if a representation could have been spelt out of the contract to the effect that TIA's plant would be able to process fish in the contractual tonnages, UBA had reasonable grounds for making such a representation.
(d)Findings on alleged representation (xii)
It will be recalled that alleged representation (xii) was that UBA would establish with TIA an evergreen, continuing long-term relationship for the supply of fish by TIA to UBA and that these words were used in the Heads under the sub-heading "Framework of Agreement". Finding that there was no misrepresentation, the primary Judge said (at 208):
"In my view, this clause is in the nature of a general recital to an agreement which records that the parties envisage a continuing relationship for the supply of fish and this ongoing relationship was to be subject to the performance by the parties of their contractual obligations as to specifications, quality, delivery, pick-up, storage and payment. It clearly does indicate at that time both parties contemplated a business relationship extending over an indefinite long term period.
In my view, the clause does amount to a representation, albeit in the limited sense referred to above in my view, but I do not consider that it was false or that UBA as at 26 March 1987 did not intend to have a continuing long term relationship with [TIA] for the supply of fish and in fact it did continue in a supply arrangement with [TIA] until 1989."
(e)Finding on alleged representation (xiii)(e) Finding on alleged representation (xiii)
It will be recalled that alleged representation (xiii) was that UBA would source in the first instance its requirements of fish from TIA, except in the case of Western Australia, and that words to this effect were used in the Heads, save that there was there added a proviso whereby UBA reserved the right to purchase from any source such fish that TIA were not able to provide "at the quantity, quality, price and time acceptable to UBA".
His Honour said (at 215):
"There is no representation to be gathered from the Heads of Agreement that UBA would accept any particular terms, nor is there any mechanism, formula or standard by which to predict or fix any particular price, quality, quantity or timing as resulting from the negotiations."
His Honour went on to hold (at 216) that the relevant provision in the Heads gave only "a right to negotiate which in the face of disagreement by UBA would prove to be barren".
Accordingly, the Judge held that there was no misrepresentation made in the Heads or otherwise. His Honour added (at 217):
"In fact UBA took all the fish contracted for which [TIA] was able to supply. Supplies from other sources were over and above those which [TIA] could supply and in some instances UBA took more fish than it was required to under its contract. For example, in the case of mackerel in the first 3 months of contract W17299 it took substantially more than it was contractually bound to."
(f)Alleged representation (xiv)(f) Alleged representation (xiv)
It will further be recalled that in the provision in the Heads dealing with "Exclusivity", it was provided that UBA agreed "to assist and co-operate with TIA in its effort to source raw material fish from various fishermen and enterprises within Australia".
His Honour referred to Mr Lees' evidence that he did not regard this provision as creating a legally binding obligation and went on to say (at 218):
"In my view the clause in question was a representation of a general willingness to give assistance and co-operation in sourcing fish. It is understandable that a fish buyer such as Lees should see a general provision of this kind as being unenforceable. I accept that Lees was willing to assist and co-operate with [TIA] in the event that this assistance was asked for and to give assistance and co-operation where the need for such assistance and co-operation became obvious.
I am not satisfied that there was any misrepresentation established in relation to this matter. I do not think that it can be implied into this general assurance that UBA would not seek to get supplies of fish from fishermen and enterprises other than [TIA]. It was not shown that by UBA approaching other fishermen [TIA] had suffered any reduction in its supply to UBA."
(g)Findings on the issue of reliance in respect of the representations alleged to have been made before 30 March 1987
As has been mentioned, the primary Judge further held that, even if any of these representations had been made, the appellants did not rely on them in deciding to invest in TIA. His Honour said (at 247-8):
"The individual applicants were astute, experienced and sophisticated investors with a broad and long history in banking, investment, law and commerce. It is, of course, true that they had no experience in, or knowledge of, the fishing industry. However, in my opinion it is inherently improbable that businessmen with such extensive experience would rely on oral statements made at a chance meeting in a 15-30 minute discussion before committing $2 million to purchase shares in a company such as [TIA].
It is highly significant that no specific record of any kind was made at any time, by any of the applicants, in relation to any of the oral representations. Nor was there any attempt to confirm or record in writing, prior to, on or after 30 March 1987, any of the understandings, arrangements, and commitments allegedly made on behalf of UBA which the applicants say they understood to be derived from the Heads of Agreement or the `W' contracts or any other written material allegedly relied on. There is no correspondence, diary note, memorandum or written record of the representations, nor of any of the assurances said to have been given orally. In particular there is no confirmatory letter or note written to UBA." [emphasis added]
The Judge also (at 249) saw significance in the representations, undertakings, warranties and conditions precedent which were set out in the Shareholders' Agreement signed on 30 March 1987. Letters confirming the assurances made by Mr Fasham were sought and obtained by Mr Horrobin on 26 March 1987. So too were letters confirming the consent of the ANZ Bank to the proposed allotment of shares to Lake Cumbeline and assurances were obtained from the Bank that TIA was not included in cross guarantees of other companies in the Atasco Group. Yet, the primary Judge said (at 253), no attempt was made to include any reference to the oral assurances allegedly given by UBA in the Shareholders' Agreement, or
to make the Agreement conditional on such assurances, or to otherwise confirm in writing any such assurances.The appellants were, his Honour found (at 250), persuaded to acquire the TIA interest because it was seen as an "extremely attractive, if not irresistible investment". In this connection, his Honour referred to evidence that Mr Sands had instructed Lake Cumbeline's solicitors to prepare a comprehensive agreement in relation to the proposed purchase on 16 March 1987, that is, prior to the meeting with Mr Lees on 18 March. Preparation of that kind indicated, the Judge said, "a substantial attraction to the venture" at that time.
Reference was also made by his Honour (at 251) to a spreadsheet prepared by Mr Sands, and forwarded to First National Limited on 2 April 1987, three days after the Shareholders Agreement had been signed. His Honour noted (at 253) that this spreadsheet indicated a profit of about $3.24 million in the period to December 1987 alone, based on a supply capacity of almost 15,000 tonnes of fish by January 1988.
The Judge also found (at 253) that the appellants' belief in the Tasmanian government's intention to close the existing jack mackerel grounds to all but existing licence holders was another operative and persuasive inducement to the investment. The purchase of vessels entitled to fish in the enclosed mackerel grounds would increase the capital value of the boats, whose licences were transferable.
The primary Judge made a specific finding (at 254) that, prior to April 1987, the appellants regarded the investment in TIA as a "venture capital" proposal, a short term, high profit investment. His Honour referred to a facsimile memorandum written by Mr Horrobin in January 1988 in which Lake Cumbeline’s role was described as a "venture capital financier". While acknowledging that this memorandum was written 8 months after the initial investment, his Honour found (at 255) that, nonetheless it was an accurate reflection of the approach taken by the appellants to their investment.
The primary Judge, finding (at 255-6) that a major factor in inducing the appellants' investment in TIA was their assessment of the location and size of the TIA processing plant at Geelong, said:
"The importance of the perceived unique position of the location of [TIA's] processing plant and the consequent strategic marketing advantages which this conferred were a most important feature in attracting the investment. In a situation where the [appellants] considered that [TIA] had a strong competitive advantage over other suppliers, it was not nearly as essential for them to rely on assurances from UBA, because the fact was, to their thinking, that they were able to rely on the great economic and commercial strategic advantage which the location and size of the plant provided. This in my view was a major inducing factor."
His Honour added (at 256) that Mr Horrobin’s failure to consider the great shortfall in supply in the contract in the previous two years indicated "a certain degree of selective blindness".
Finally, his Honour found (at 257-8) support for his conclusions in the evidence of Mr Lonergan, an expert accountant and investment consultant, called by the respondents. In Mr Lonergan’s opinion, TIA was, on its face, worth considerably less than the $2 million paid by Cumbeline. He referred to TIA's history of losses, and to its budgeted loss of
$821,000 for the year ended 30 June 1987. In his view, statements of such losses would have put a purchaser on inquiry. The Judge said (at 258-9):"The significant fact is that the matters raised by Mr Lonergan were not examined nor appreciated by the [appellants] prior to investment, and this is consistent with a strong conviction in their minds that this investment was so good that they could not wait to get a substantial interest in [TIA]."
THE APPELLANTS’ GROUNDS OF APPEALAPPELLANTS’ GROUNDS OF APPEAL
The appellants challenge the conclusion of the primary Judge that they had failed to establish, by reference to alleged representations (ii), (iii), (iv), (xii) and (xiii), that UBA had engaged in misleading or deceptive conduct. The appellants then challenge his Honour's conclusions that if, contrary to his finding, they could demonstrate misleading conduct by UBA, the appellants did not rely on any of those representations in deciding to make their investment.Senior Counsel for the appellants contended that the primary Judge's usual advantage in seeing and hearing the witnesses (see Abalos v Australian Postal Commission (1990) 171 CLR 167 per McHugh J at 179; Devries v Australian National Railways Commission (1992) 117 CLR 472) was immaterial here because of the primary Judge's technique of relying on the objective surrounding circumstances and the contemporary documents. Counsel submitted that it was open to the appellants to adopt the same method and to refer to the oral evidence only where a fact was common ground, or where the oral evidence contained an admission by a witness called by UBA.
Counsel submitted that his Honour's process of reasoning was "invalidated" by virtue of "inconsistent" factual findings, findings "unsupported" by or "inconsistent" with the evidence, by taking, in effect, judicial notice of "supposed" commercial "practice" without the evidence needed to establish such matters, and logical errors. The appellants claimed that they "base[d]" their submissions "substantially on identifiable discrepancies" between the contemporaneous documents stated to be relied upon by the primary Judge and the findings of his Honour. Counsel invited the Court, in effect, to make its own factual findings which, they said, justified a finding in Lake Cumbeline's favour on the issue of liability, or, at the least, warranted the grant of a new trial.
These submissions were fully developed in written and oral submissions and it will be convenient to go first to the appellants’ written submissions on the question whether the primary Judge erred in not making a finding that alleged representations (ii), (iii) and (iv) were made out.
THE APPELLANTS’ WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)APPELLANTS’ WRITTEN SUBMISSIONS ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)
The appellants submit that the primary Judge should not have found that UBA intended to be bound by the W contract. They further submit that his Honour erred in concluding (at 171) that the W contract was a "binding enforceable contract which imposed clearly defined rights and obligations on the parties" and that it was treated as such by the parties to it.
The appellants rely upon the following evidence:
•When Mr Lees issued the W contract he and Gordon McBurnie (also a Senior Wet Raw Materials Buyer for UBA) were, according to their own evidence, aware of the limitations on the capacity of TIA to process and store the amount and quality of fish described in the W contract.
•When Mr Lees issued the W contract he was aware of TIA’s "consistent and significant under-performance of [its] existing contractual obligations [to UBA]".
•Prices and quantities in the W contract were "significantly above" those in W17264, dated 14 January 1987, and were contrary to UBA’s general policy of achieving "significant savings" in raw materials.
•When Lees issued the W contract UBA had entered, or was about to enter, into supply arrangements which, if performed, would have exceeded UBA’s projected requirements.
•Mr Lees, contrary to his usual practice, did not satisfy himself as to the capacity of TIA to perform the W contract.
•If the fulfilment of the W contract with TIA was not to produce significant oversupply to UBA, the company's practice of over-commitment depended upon substantial under-performance by their other suppliers. At the relevant time, there was no evidence of such under-performance.
•The appellants rely on the evidence of Mr McBurnie that neither he nor Mr Lees ever believed that TIA would be able to fulfil the requirements of the UBA contracts: at
a discussion between Mr McBurnie and Mr Horrobin, in the presence of Mr Sands, on 21 September 1988 Mr McBurnie said:
"The reason why [TIA's] factory clogged up in 1987 was because neither Bob Lees nor I believed that [TIA] would be able to supply us with the tonnages of fish we had contracted with you for and we had not made any alternative arrangements for cold storage."
The Judge found that, if the W contract was a sham, Mr Lees had engaged in a "dangerous and extraordinary `tactic' ... if the contract resulted in overcommitment [by UBA] or [TIA] was not able to supply". However, the appellants submit that since 100% of UBA's 1987 requirements were ordered from other parties, the only danger to Mr Lees was if TIA did supply in accordance with the W contract. In light of TIA's capacity at the time, the appellants contend that the only logical conclusion, consistent with Mr McBurnie's evidence, is that Mr Lees did not anticipate TIA to be able to fulfil its commitments.
The appellants submit that because the evidence establishes that Messrs Lees and McBurnie were aware of the limitations on the capacity of TIA when the W contract was issued, the primary Judge erred in holding that the W contract did not constitute a sham entered into to entice investors to invest in TIA. To support this contention Counsel refer to the evidence of Mr Lees as follows:
"Q:It was a sham as far as you were concerned - this Heads of Agreement?
A: The Heads of Agreement?
Q:Yes, a document you did not intend in any shape or form to be binding on [UBA]?
A: That's correct.
Q:Did you ever tell any representative of [TIA] or Lake Cumbeline that you regarded that document as a sham?
A: No, I don't believe I did."
The appellants further submit that Mr Lees issued the Heads to induce investment in TIA. They rely on the following evidence of Mr Lees in cross-examination to support this conclusion:
"Q:The reason they [i.e. TIA] wanted [a document which was a little stronger than the one they had currently had] was because they wanted to attract prospective investors?
A:That would be correct.
Q:So you understood that the agreement was being entered into so that [TIA] would be in a position to induce people to put money into the business?
A: That would be reasonable, yes."
Later, with reference to increases in tonnages Mr Lees gave this evidence:
"Q:And would it be correct to say that you agreed to those increases in the knowledge that those tonnages were going to be relied upon by [TIA] in inducing proposed investors to put money into the business?
A:That is not correct.
Q:Well, you certainly acknowledged that the agreement of 26 March was entered into with a view to enabling [TIA] to induce investors to contract?
A: That is correct.
Q:And you were aware, weren't you, when the agreement was made to increase the tonnages, of [TIA's] desire to bring in either financiers or investors?
A: It was about that time, yes.
Q:You had been told on 19 January that they were proposing to buy and extend, and that they needed to raise money for that purpose?
A: Yes."
Mr Lees' evidence was that, in his view, the W contract was regarded by the parties as issued pursuant to the Heads.
The Judge found that Mr Lees' intention to contract for quantities in excess of UBA's requirements at the time did not advance the appellants' case, because planning such requirements involved a "difficult commercial judgment". This, the appellants argue, does not distinguish what may have been a motivation for UBA acting in a particular way, with on the one hand, the effect UBA's conduct had on the beliefs of the appellants and their reliance based on those beliefs, and, on the other the question whether UBA intended the W contract to be binding. In any event, they argue that his Honour's finding is irrelevant to a determination of any misleading conduct by UBA.
The appellants submit that his Honour was not justified in finding that, as at March 1987, Messrs Lees and McBurnie were not concerned with the basic capacity of TIA to comply with the W contract, although it was found that they had concerns about the rate of supply and processing. In fact, their argument runs, the concerns expressed by Mr McBurnie go to the essence of the UBA specifications.
The evidence was that UBA contracts incorporated specifications which required fish to be processed to a standard at least as high as for human consumption; and essential to this was the rate at which fish was frozen, which in turn was dependent upon the capacity of the blast freezer . His Honour acknowledged (at 32) that UBA had been aware since 29 August 1985 that the "performance of both the blast freezer and the main cold store were unacceptable to
UBA". The capacity to freeze fish in accordance with UBA specifications thus is, the appellants say, a matter going to the capacity of TIA to perform the W contract.It follows, the argument goes, that the finding was not open that it had not been demonstrated that it is likely that UBA was convinced that TIA did not have the ability and capacity to perform the W contract. His Honour, as has been noted, said that "the weight of the evidence is to the contrary". However, the appellants submit that evidence demonstrates conclusively that the plant did not have the capacity to fulfil the W contract.
His Honour referred to the Wildridge and Sinclair Refrigeration Engineers' Report, which stated that a survey of existing facilities based on a freezing time of 15 hours would enable TIA to freeze 50 tonnes per day. But, the appellants say, the Report clearly demonstrates that, as at June 1987, the facility was not capable of blast freezing 50 tonnes of fish per day to UBA's quality specifications. It would only become so capable upon installing additional equipment and carrying out works on the blast freezer, at an estimated cost of $475,000. The appellants submit that a failure to appreciate this lack of capacity in relation to performing the W contract is "fundamental" in the reasoning rejecting their claims. "The capacity [they say] of [TIA] to perform to UBA specifications goes to the heart of each of the alleged misrepresentations on 16 March 1987, 18 March 1987 and 26 March 1987 and such an error invalidates his Honour's findings in respect of each representation which involves the capacity of [TIA]".
During the course of the appeal, Counsel for the appellants handed up further written submissions relating to Mr Lees' motives which relate to the alleged representations (ii), (iii) and, perhaps, (iv).
In these further submissions, it was said that UBA's policy was to increase the number of fish suppliers by December 1987, and that UBA was concerned about long supply lines from places like Thailand, and the weakness of the Australian dollar. Hence, in his dealings with TIA, Mr Lees sought to develop local supply as an alternative. Counsel also refers to a number of benefits that TIA could pass on to UBA, for example, its location to the Tasmanian jack mackerel fishery and its possession of a substantial cold store. However, during the period January to March 1987, TIA was in danger of collapsing which would result in UBA losing the $50,000 owed to it by TIA; UBA losing its investment in time and money in TIA since 1985; and more importantly, UBA losing those opportunities mentioned above.
Mr Lees saw the benefits to UBA if a new investor could be induced to invest in TIA - TIA would be able to acquire and upgrade certain facilities and consequently meet the specifications of UBA. The evidence shows that Mr Lees issued the W contract pursuant to the request of Mr Fasham and Mr Wilson under the Heads to induce an investor "and that he had no intention of implementing them unless it suited him to do so irrespective of whether they were legally binding or not".
THE APPELLANTS' ORAL ARGUMENT ON ALLEGED REPRESENTATIONS (ii), (iii) AND (iv)
As a preliminary matter, it should be noted that Senior Counsel for the appellants indicated that representation (i) was no longer pressed on the appeal.
It will be recalled that representations (ii), (iii) and (iv) are said to be either wholly or partly based on the W contract and/or the Heads. One issue that is thrown up by these two documents is the importance of TIA supplying fish in certain ways and in accordance with certain specifications. So, Counsel submit, the question to be addressed is whether TIA had the ability and the capacity to supply fish in that manner, and the question of capacity had four aspects. First, the capacity to meet specifications; secondly, the capacity for certain volumes to pass through the blast freezer; thirdly, the capacity actually to catch fish; and finally, the capacity to store the fish.
According to the appellants' argument, the notion of ability and capacity can be analysed from a number of points of view. First, did TIA have the capacity and ability to supply any fish at all in accordance with the terms and conditions of the W contract? Secondly, assuming that it had the capacity to supply defective fish in considerable quantities, was it capable of supplying as many as 6,250 tonnes of them required by the contract within that year?
It is submitted that his Honour did not, in fact, make a specific finding about TIA's capacity to supply in accordance with the specifications.
Counsel relied upon the language of the W contract, especially the words: "As scheduled by UBA from P2 to P13 1987", which, Counsel says:
"... is a piece of evidence pointing towards the contract being for almost a year because in the world of UBA, P is a reference to a four week period so that what it is saying is delivery as scheduled from the second period in 1987 to the thirteenth period, that is, basically from early January for the rest of the year."
It appears that this phrase probably formed the basis of his Honour's finding that the W contract was an 11 month contract. The appellants accept that, if the W contract stood alone, this would be a reasonable construction; but the appellants contend that the W contract needed to be read in conjunction with the Heads. Specifically, it will be remembered that in the Heads, under the heading "Quality and Prices", this provided:
"Commencing from February 1987, and for the continuing period of this agreement, the parties shall fix both a quantity and price for sale, delivery, and storage by TIA to UBA for each six month period, ensuing the expiration of each succeeding six month period.
For this purpose the parties agree to meet at least three months prior to the effective commencement of each six monthly period.
The quantity and price agreed between the parties each six months shall be formalized and embodied in a six month contract form issued by UBA, and executed by both parties, each of which shall become an effective addendum to these Heads of Agreement.
The standard conditions of contract embodied on the UBA form used for the above purpose shall be subordinated to these Heads of Agreement."
The appellants submit that as the Heads contemplates a re-negotiation every six months it has an amending effect upon the W contract and consequently, his Honour erred, as a matter of
construction, in concluding that the W contract was an eleven month contract rather than a six month contract.These considerations are relevant, it is said, to the question of whether the Heads have any legal significance.
With reference to the general and particular specifications, Counsel submits that there is evidence that the specification for salmon, contained in the Standard Quality Specification No. A 62 was not complied with and could not have been complied with at the Geelong plant at the relevant time. This specification stated:
"Fish need to be brought to <7oC within one (1) hour of catch ....-18oC or below within eight (8) hours of commencement of freezing. Fish must remain at or below -18oC."
Thus, the substantive standards are expressed to very precise temperatures and times and should be seen, it is said, as strict conditions of the contract. Counsel rely on cl 2 of the contract which reads:
"The terms contained in this Contract form shall constitute the entire contract between the parties and shall not be altered or subject to variation, except by written agreement between both parties. All oral agreements between UBA and Seller or their respective agents or employees are hereby expressly negatived.
The Seller shall be deemed to have accepted this Contract and these Conditions of Contract upon the Seller returning the attached copy of Contract or upon acknowledgment of this Contract by the Seller or upon delivery of the whole or any part of the Goods, whichever shall first occur ..."
Counsel argues that this clause tells the reader that the terms of the contract are strict and not to be varied orally. Reference is also made to cl 3 of the W contract, entitled "Quality & Description", which reads:
"The Goods shall comply with the Specifications and the Seller is deemed to know the purposes for which the Goods are to be used and is deemed to be aware that UBA is relying on the Seller's judgement that the Goods are reasonably fit for that purpose. The Seller acknowledges that he is aware of and will comply with such Specifications."
It is submitted that when read in conjunction with cl 2, cl 3 establishes a mandatory duty to comply with the specifications. On the front page of the W contract following the heading "Specifications" are the words:
"Fully in accordance with UBA specifications as listed above."
There was evidence that the word "fully" was never used in other UBA contracts in that context.
With respect to the degree of compliance required by UBA, Counsel refers to his Honour's note (at 35) that, on 5 December 1985, Mr Terry wrote to Mr G Wilson, who was managing the TIA operation, regarding the proposed use of the "Marine Countess" and the need to get UBA specifications quite clear, and to have them satisfied by TIA. Counsel submits that the evidence showed that UBA "have not merely contracted strictly but looked in practice for strict compliance".
The appellants accept that Mr McBurnie's evidence about the need for strict compliance is more lax than that of Mr Armstrong,UBA's commercial director in 1987. Mr Armstrong said that there was no significant relaxing in any respect of those specifications for any particular supplier. He agreed that if freezing tests indicated that a particular supplier's freezing capacity could not bring the fish to the relevant specification within the relevant time, then that would be regarded as a matter of serious concern.
Mr McBurnie, on the other hand, said, in relation to the specification for whole jack mackerel, that this is what the R and D Division wanted out of a supplier rather than "the absolute minimum that UBA were prepared to accept ...". Then he was asked:
"Q:Are you suggesting that UBA were prepared to accept a lower standard than the specified and standard quality specifications?
A:That's correct."
But it appears that, later in his testimony, the views of Mr McBurnie had become, it is said, "really indistinguishable from Mr Armstrong in demanding either strict compliance or virtual strict compliance". Mr McBurnie's evidence was that, in a general sense, the "statement about if one did freezer trials, one of the reasons would be to make an assessment about somebody's ability to process the product at or close to the spec is generally correct".
Counsel submits that there is a "mass of evidence" that TIA quite often contravened the UBA specifications.
Then Counsel refers to freezing trials in August 1985 which were to trial the operation of the blast freezer, which was used to reduce temperatures, and the operation of the cold store,
which was used for keeping frozen fish. UBA chemists were present to monitor the process. TIA wrote to the Port Geelong Authority shortly afterwards to express their "grave disquiet at the failure of the trials". Problems with the blast freezer included the faulty temperature gauge; the failure of the second stage of the freezing cycle to operate; and the necessity for repair work. In October, further trials later took place in the presence of Mr Perkin.By 30 October 1985, it was apparent that the capacity of the plant, on the strength of these serious and repeated trials in the presence of UBA people, was not sufficient to ensure compliance with the temperature specifications without infringing other specifications; and the plant did not actually process anything until April 1986.
Next, Counsel refers to the "salmon incident". In September 1986, a telex from Mr Peter Terry of UBA was addressed to the attention of Mr Gavin Wilson (cc: M Bird and L Giles). It said:
9.Prior to 13 April 1987, only part of the approximately 1500 tonne cold storage capacity at the PGA complex was available to be utilised by [TIA] for cold storage of frozen fish for [UBA]. This limitation was caused by any one or more of three varying constraints. These were, firstly, the competing demands for cold storage space of other frozen food customers of Port of Geelong Authority (such as frozen potato chips stored by McCains); secondly, the problem that fish smell can contaminate some other foodstuffs even when frozen, making it sometimes necessary to set aside separate storage space for fish in one or other of the separate cold storage rooms situated on each of the three floors of the Geelong cold store building; and thirdly, the PGA would only allow its blast freezers and coldstores to open during normal working hours, on a nine day fortnight basis, and would not allow any overtime to be worked by PGA employees. This rendered impossible a continuous 24 hours per day, 7 days per week processing and blast freezing operation of the sort required for large volume industrial fish processing by [TIA] for [UBA]."
The appellants submit that it is necessary to distinguish between what happens in the blast freezer and the transmission to the cold stores; and that it would be wrong to give the impression, as the respondent's argument might suggest, that there was "just a sort of cold store in operation like a large refrigerator". In truth, the appellants say, there were a number of stages. As his Honour found, it was the blast freezer which controlled the capacity of the plant. Paragraph 8 of Mr Horrobin's statement was corroborated by Mr Lees' evidence that the operational capacity of the cold storage sections was 1500 tonnes. With that background, it is not true to say that Atasco or TIA owned and operated a "cold store" at any time before 13 April; the appellants contend, it is true to say that the blast freezer controlled the rate of through-put.
Counsel for the respondent had contended that the evidence as to the freezing trials at the end of 1985 was inconclusive. The appellants submit that this evidence indicated that the trials were wholly conclusive of an incapacity to meet specifications. There is nothing, the appellants contend, to suggest that that incapacity ever changed.
In relation to the visit of Mr McBurnie to TIA premises at Geelong on 16 February, the primary Judge said: "This seems to be a similar problem to that noted earlier in September 1985". Mr McBurnie gave evidence that it was a different problem. His Honour does not seem to accept Mr McBurnie's explanation, perhaps for several reasons. One was that Mr McBurnie was rather uncertain as to what problem he was talking about eight years earlier when he noted: "Still minus .5 to plus .7 six hours after placing in freezer, this could be a problem". The second was that Mr McBurnie said he was not an expert on these topics. A third explanation may simply have been that, since eight years had passed, Mr McBurnie's
recollection in late 1994 of what he meant, by a note in February 1987, is obviously not a secure foundation on which to base any particular conclusion.The evidence that the second Wildridge and Sinclair report said that the capacity of the freezer was 50 tonnes but only if $475,000 was spent on it has been mentioned. Counsel for the appellants stressed the following note contained in that document:
"Note: It is not possible to fully freeze fish in tubs in a blast freezer in five hours."
Counsel for the respondent sought to interpret the Report to be saying "You cannot fully freeze fish the way you are doing it, you have them in tubs and that is not on".
Counsel for the appellants submits that the evidence establishes that there is no other way to freeze fish except in tubs if they are to be "hard frozen in blocks", and all of the specifications called for them to be hard frozen in blocks; UBA were perfectly happy with the use of tubs; the problem was not the use of the tubs, it was the inability of the blast freezer to freeze what was in the tubs; so that, what Wildridge and Sinclair were saying was that the specification for pilchards could not be complied with because the fish could not be frozen in tubs in that time. The effect of the Wildridge & Sinclair Report, the appellants say, is that it was impossible for TIA to comply with the pilchards specification, which was nearly half of what it was contractually obliged to supply under the W contract.
Counsel for the respondent had relied upon the Gordon Brothers Report which said:
"Gordon Brothers have indicated that the plant room is more than adequate to service our blast and chiller units."
Counsel for the appellants refer to Mr Horrobin's evidence of the layout of the facility described as the processing room, blast freezing room and two refrigerator storerooms; all those things were powered by a plant room. According to the appellants, what Gordon Brothers were saying was that the plant room was adequate; what Wildridge and Sinclair were saying was that the blast freezing room was not adequate.
(3) It will be recalled that the third topic relates to reliance. The respondent's submission was that, even if there were representations, and even if they were misrepresentations, they were not relied upon, because the appellants had an ambition to expand TIA's business.
The appellants argue that, assuming they were to transform the business into "something new and strange" (and there was evidence that they were hoping to do just that) this does not automatically nullify or wipe out any inducing cause to lay out the money for the original thing that was going to be used as the basis of the expansion.
(4) The final topic addressed the question of whether an inconsistent case has been put on appeal from that which was put below, because, it was suggested, matters were not put to witnesses, specifically to Mr Lees, and furthermore whether it is impermissible for the appellants to seek to use such findings as the primary Judge did make in their favour in order to support a conclusion of liability. In one or two instances, where the primary Judge found that a representation had been made, it was narrower, or a little different, from the corresponding one which had been pleaded.
The respondent has contended that in those circumstances, it was not possible for an appellant to seek to mount any argument before an appellate Court in reliance on the findings of the trial Judge.
The appellants, however, say that there are numerous instances where appellants have to work with what they have before the Full Court; there is no bar to seeking to support a case on liability by deploying some findings and putting other arguments to extend them.
As to the respondent's proposition that matters were not put to Mr Lees, the appellants contend that Mr Lees was cross-examined on all of the important issues in which he gave positive evidence. Even if he were not so cross-examined, the principle of Browne v Dunn (1893) 6 R 67 cannot apply in this case where there were pleadings which were particularised.
Counsel for the appellants made it clear that they did not seek to conduct the appeal in a manner different from the way it was pleaded. The fourth representation is not pleaded to be fraudulent, as can be seen from the allegation of common law deceit in the statement of claim that relates to that representation as follows:
"4A.Further, or in the alternative, at the time of making the representations pleaded in sub-paragraphs 3(a), (b) and (c) above, UBA knew those representations to be false, or in the alternative, made the said representations not caring whether they were true or false."
Thus, it is said, the appellants disavowed fraud for representation (iv). However, in para. 4(d) they stated:
"UBA knew [TIA] did not have the capacity or ability to supply to it the specified quantity of product in accordance with the terms of the said contract or alternatively did not have reasonable grounds for believing that [TIA] had that capacity or ability."
To charge that there were no reasonable grounds for beliefs is not, the appellants say, to charge fraud; to charge knowledge that TIA did not have the capacity is getting perhaps close to fraud, but that is the structure of the pleadings.
Counsel for the respondent had suggested that the case below was for "full-blooded" sham and fraud but that the appellants had now retreated from this on appeal.
Counsel for the appellants submit that where two people purport to enter into a transaction and propound a form which does not correspond to the substance or reality, or essence of what has been done, then there is a shared element of deception. Paragraph 4 of the statement of claim sets out the four representations. Paragraph 4(a) says that "UBA did not regard the contract as a legally binding one". It does not allege that TIA did not regard the contract as legally binding. Paragraph 4(d) says that "UBA knew"; it does not state that TIA knew. It may be that TIA did in fact share that knowledge, but that may not necessarily be the case.
The appellants accept that, obviously, there are considerable difficulties in persuading an appellate court to find fraud where a primary Judge has declined to do so. However, the appellants say, there are two factors which distinguish this case. The first is the special features of his Honour's approach; and, secondly there is the question of an important fact not being found. His Honour's stated approach was to rely essentially only upon the objective circumstances, the documents and general probabilities of the case. However, it is submitted that his Honour did not actually apply that approach because, on occasions, he seems to have weighed in the balance all the evidence, including Mr Lees' evidence, and apparently concluded that Mr Lees was to be positively believed. In contrast, his Honour did say very hard things about Mr Lees and he did find him guilty of deceit. There is, it is submitted, a kind of internal contradiction between his Honour's two approaches, and that conflict, or difference in method, must cast substantial doubt on the validity of some of his Honour's conclusions. The key fact which para. 3 of the statement of claim propounds for consideration is the mental state of Mr Lees in relation to the use to which the W contract would, or might, be put. As has been said, no finding was made on this issue. It was an allegation laid out for examination at the trial but the primary Judge did not make a finding, either that Mr Lees knew those things, or that he did not know those things. The appellants say that, therefore, the most important finding that had to be made one way or the other in the case, so far as the first four representations were concerned, was not made.
CONCLUSIONS ON THE APPEAL
It will be convenient to consider first the claims said to arise out of alleged representations (ii), (iii) and (iv).(a)The claims said to arise out of alleged representations (ii), (iii) (iv)
As has been seen, although the case sought to be made by the appellants in this area was literally framed in terms of a representation, so far as s.52 is concerned, the inquiry is necessarily a wider one; that is, whether in all the circumstances the respondent’s conduct was misleading or deceptive, or likely to be so (see, e.g. Parkdale Custom Built Furniture
Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191). By their particulars of para.3 of the statement of claim, the appellants pleaded a case which was wide enough, in our view, to include a claim that by virtue of writing and conduct, circumstances were created by the respondent, or were allowed to be created by it, which amounted to conduct that could be characterised as misleading conduct. It will be borne in mind that under the modern system of pleading, "the question is whether it would be open to the [appellants] upon the pleadings to prove facts at the trial which would constitute a cause of action" (see The Mutual Life & Citizens’ Assurance Company Limited v Evatt (1968) 122 CLR 556, at 631).Although it will be convenient for us to continue to refer to the appellants’ case in terms of alleged representations, we intend that such references be understood in the wider sense that we have mentioned, that is, as a reference to conduct of the kind particularised which, when viewed in the totality of the circumstances, may be seen to mislead, or be likely to do so.
As has been noted, the learned primary Judge had to deal with several alleged misrepresentations, or instances of misleading conduct. Of the 24 misrepresentations pleaded and pressed at the trial, 15 relied solely on conversations alleged to have taken place between Messrs Lees, Horrobin and Pridmore. Mr Lees denied each of the conversations. In this connection, that is, the alleged oral misrepresentations, none of which were pressed on the appeal, it was one thing for the Court to reject this aspect of the appellants’ claim once the Court was unable to be satisfied of the credibility of some of the oral testimony of the appellants’ witnesses. But, with all respect to the primary Judge, it was another thing to reject a claim which was said to be based, not on any conversation, but upon written material, the existence of which was not disputed. That is to say, there was no dispute that
the W contract, the Heads and the Shareholders’ Agreement existed, whatever oral discussions may, or may not, have occurred at the time.In particular, it was not, and could not be, disputed that by cl.4.1(m) of the Shareholders’ Agreement, it was provided:
"4.1Prior to the Completion Date, [TIA] shall make available, and the Proprietors shall procure that the Company shall make available for inspection by [the appellants]...
(m)A copy of a contract acceptable to the [appellants] between [TIA] and [UBA] for the supply of fish by [TIA] to [UBA]."
It was not, and could not be, disputed that such a provision was of a kind that investors in the position of the appellants would ordinarily require in making a commercial judgment to invest. Given TIA’s difficult financial position at the time, it was only reasonable to expect that the investors, and, equally important the financiers funding the investors, would require, as a condition of their investment, that they be provided with some tangible, concrete evidence that UBA was committed to providing TIA with a cash flow which was sufficient to justify the substantial investment the appellants proposed to make. This would accord with common sense and ordinary business practice.
His Honour saw nothing unusual or extraordinary about a provision such as cl.4.1(m). In dealing with the issue of reliance, the Judge said (at 249):
"Another significant consideration is that in the shareholders’ agreement with itself which Atasco signed on 30 March 1987, there is express reference made in clause 10.6 to the representations, warranties and undertakings made to Cumbeline being set out in the agreement, and that Cumbeline had entered into the agreement on the basis of, and in reliance on, those representations,
warranties and undertakings. That clause makes it quite clear that Cumbeline entered into the shareholders’ agreement on the basis of the representations, warranties, and undertakings which had been carefully drawn and spelt out in the document. Furthermore, clause 2.1 of that agreement sets out a series of conditions precedent, including provision of evidence that Trawl has certain rights, licences, consents, waivers and other assurances.
Clause 4, as is usual in such agreement, provides that prior to the completion date a large number of documents, records and papers shall be supplied and that certain actions will be taken by the parties. There was no attempt to include a reference to any assurances by UBA or to make the agreement conditional on such assurances." [emphasis added].
We agree, as has been said, that a provision such as cl.4 is usually to be found in circumstances of the present kind.
As we followed his Honour’s process of reasoning, the key, central or decisive section is the passage at 122-3 which we have already set out. Having said (at 122) that "[c]redit in this matter assumes a significant role because almost all of the representations alleged are specifically and categorically denied", as has been noted, his Honour then proceeded to comment adversely on the credibility of aspects of the evidence of the appellants and of Mr Lees. The central passage, found at 122-3, was, it will be remembered, as follows:
"I should add that my final conclusion is that having regard to the seven to eight year period that has elapsed between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time." [emphasis added].
There are, in our view, difficulties with this reasoning, when it is sought to be applied to the written material in question, namely, the W contract, the Heads and the Shareholder’s Agreement, the existence of which is not disputed and the tenor of which accords with usual commercial practice. We acknowledge that such reasoning may have been appropriate in rejecting the appellants’ case so far as it was based on the alleged oral misrepresentations; but, with all respect, we cannot see how this process of reasoning could justify rejection of the claims made in para.3 of the statement of claim when it is recalled that those claims were grounded on written material the existence of which is not disputed. To this extent, in our view, his Honour misdirected himself.
What then are the consequences of this misdirection?
It is well established that from the point of view of an appellate court, the distinction between written, undisputed, material on the one hand, and oral testimony on the other, is critical (see, e.g., Zuvela v Cosmarnan Concrete Pty Ltd (1996) 71 ALJR 29 at 31).
It is true that, in other respects also, his Honour was not satisfied that the appellants had made good a cause of action on the claims made in para.3 of the statement of claim. It is also true that a misdirection in one respect on an issue does not necessarily mean that there should be a new trial on that issue. As Lord Steyn said in Smith New Court Securities Ltd v Citibank NA [1996] 3 WLR 1051 at 1070:
"It follows that the Court of Appeal was entitled to conclude that in respect of the first representation the trial judge misdirected himself. That meant that the Court of Appeal was at large to disregard the judge’s findings of fact, even though based on credibility. I understood counsel for Citibank at one stage to suggest that this vitiates all the judge’s findings of fact and the whole
case on fraud collapses. That is quite unrealistic. The impact of a misdirection is not governed by fixed rules. The appropriate course is dictated by considerations of common sense and fairness as well as close attention to the nature of the misdirection and the circumstances of the particular case. Here the Court of Appeal was fully entitled to take the view that the misdirection only vitiated the judge’s findings on the first representation. In all other respects the Court of Appeal was entitled to act on the judge’s findings so far as they were unaffected by the misdirection." [emphasis added].
But, so far as concerns the claims made in para.3(b), (c) and (d) of the statement of claim it is, in our view, difficult to see how it can be said that "the final conclusion" of his Honour at 122-3 can, as it were, be severed from the residue of his Honour’s reasoning, especially on the issue of reliance, and then that other reasoning applied. Not only was the "final conclusion" central, as has been said, to his Honour’s approach in this area, but the other reasoning largely proceeded on the basis, that even if the oral representations alleged had been made, the appellants did not rely on them and instead relied on first, the statements made in the Shareholder’s Agreement, and then their own judgments that in the future, TIA would become profitable. This raises the difficulty already mentioned, that is, that once it is accepted, as his Honour did, that the statements made in the Shareholder’s Agreement were relied upon it must follow, on this approach, that his Honour was accepting that the appellants relied upon the performance by TIA of the obligations imposed by the provisions of cl.4.1(m); that is to say, that TIA would produce for inspection "a copy of a contract acceptable to the [appellants] between [TIA] and [UBA] for the supply of fish by [TIA] to [UBA]".
In these circumstances, it is not open to the Court to sever, as it were, the "final conclusion" of his Honour from the other parts of his Honour’s reasoning which led him to dismiss the
claims made in para.3(b), (c) and (d) of the statement of claim. This means that we cannot accept his Honour's central reasoning.It then follows, in our view, that, to this extent the appeal should be allowed and there should be a new trial of those claims so far as they allege causes of action said to arise under s.52 of the Trade Practices Act.
It is true that other causes of action were pleaded in this connection, in particular, fraud and negligence. However, as has been seen, the case presented on appeal on behalf of the appellants has concentrated on the causes of action said to arise under s.52. In terms of the ingredients necessary to establish the other causes of action, and in terms of the measure of damages for those causes of action, there are obvious practical circumstances which would support the approach taken by the appellants in this regard. That is to say, it may reasonably be expected that the other causes of action would be more difficult to establish and, if established, it would seem that no greater measure of damages could be claimed than under any cause of action which might be made good under s.52.
As has been seen in the appellants’ written submissions, an attempt was made, initially at least, to present an argument that if the appeal were to be allowed and the orders at first instance set aside, this Court should itself form a view favourable to the appellants, at least on the issue of liability. In the written submissions, and orally, the appellants also made an alternative submission, as we have noted, that a new trial be ordered on these issues.
In our view, there is no alternative to a new trial in this connection. Given the nature of the material, it is not open to us to make a finding on the issue of liability one way or the other. Several points should be mentioned here. In the first place, regard should be had to the dimensions of the material before us. There are 17 volumes of appeal books, which included thousands of pages of the transcript of the oral evidence. There is a vast amount of documentary material recording events over a considerable period of time. The character of nearly all of the evidence, as has been indicated in the summary we have made of the appellants’ submissions, is both complicated and controversial. This character is also reflected in his Honour’s 272 page reasons for judgment. Secondly, in such a complex matrix of events and multi-party dealings, it is hardly possible to isolate a few aspects only and to draw from these a conclusion. As has been said, s.52 requires a consideration of all the relevant circumstances. Nor, as we see it, is it possible, even after forming an adverse view of the credit of all of the witnesses, to reconstruct what happened from the documents alone. If there were discussions, they may explain aspects of the documentation. It would be an impossible task for us to consider whether, on all the material, including any relevant oral discussions, there had been a contravention of s.52. In our opinion, it is in the interests of justice that a new trial be ordered on these issues.
(b)The claims said to arise out of alleged representations (xii)-(xiv)
As has been seen, his Honour held that, at least to a limited extent, the Heads could be viewed as making a representation that a continuing long term relationship was contemplated, but that there was no misrepresentation.
In our view, the appellants have failed to make out any case for interfering with his Honour’s conclusions on this point. The finding of the making of the representation made by the learned primary Judge was clearly open. Further, in our opinion, his Honour was justified in concluding that there have been no misrepresentations here. Cases such as Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd (1968) 88 WN(NSW) 375 illustrate the distinction made by his Honour (at 208) in the passage which we have set out above. That is to say, a clear distinction exists, in commerce, and in point of legal analysis, between a contract which establishes a term relationship between a seller and a purchaser on the one hand, and specific contracts for the sale of goods between those parties on the other. The former kind of contract operates so as to establish a relationship between the parties (often but not necessarily, to deal exclusively with one of them) by which it is contemplated that specific transactions will be negotiated between them in the future. While the former type of contract may impose relevant obligations (for instance to deal with one of them exclusively or to use best endeavours to negotiate on certain matters), ordinarily this kind of agreement will not, in its own terms, constitute an enforceable agreement for the sale of particular goods. That kind of transaction will ordinarily be dealt with by the second kind of contract. In other words, whilst the former type of agreement operates so as to establish a framework, or an umbrella, pursuant to which it is contemplated that sales of individual goods will be negotiated, no such sale then occurs. The sale transaction arises under a subsequently negotiated contract in which all relevant terms and detail are agreed.
The distinction we make is, in truth, reflected here in the Heads of Agreement on the one hand, and the W contract on the other. It is clear, we think, that the Heads had no more
operation than to establish the relationship between TIA and UBA, whereas the W contract constituted the sale of goods.It follows that we agree with his Honour’s conclusions in this respect.
ORDERS
We make the following orders:1.Appeal allowed in part.
2.Order a new trial of the claims made in paras. 3(b), (c) and (d) of the further amended statement of claim that, in the respects there alleged, the respondent engaged in conduct in trade or commerce that was misleading or deceptive, or likely to be so, contrary to the provisions of s.52 of the Trade Practices Act 1974.
3.Appeal otherwise dismissed.
4.Costs of the proceedings at first instance, and on appeal, reserved. Direct that the parties file and serve written submissions on the question of costs within 60 days.
We would only add that we hope that, given the scope and dimensions of the litigation to this point, there may now be some prospect of a mediated outcome that is mutually satisfactory to both sides. It has always been the policy of the common law to encourage and promote the compromise of claims about which there is room for reasonable argument, without
litigating to the finish. The present case is surely of this kind, and it calls for an appropriate solution, perhaps by mediation, rather than by litigation to the very end. The history of the matter shows that after months of trial time in this Court, and in the Supreme Court of New South Wales, and after 5 days of oral argument before us (against the background of lengthy written submissions), the parties and their advisers must by now be fully aware of the strengths and weaknesses of their respective cases. We take the liberty of suggesting that, in their own interests, given especially the professional costs likely to be incurred, the parties now consider turning their minds to a resolution of the residue of dispute without the need for a further court hearing.I certify that this and the preceding one hundred and seventeen (117) pages are a true copy of the reasons for judgment herein of the Court.
Associate:
Date: 24 APRIL 1997
A P P E A R A N C E S
COUNSEL FOR THE APPELLANTS: MR J.D. HEYDON QC
withMS P. WINES
INSTRUCTED BY: BLAKE DAWSON WALDRON
COUNSEL FOR THE RESPONDENT: MR J.N. WEST QC
withMR R.M. SMITH
INSTRUCTED BY: DEACONS GRAHAM & JAMES
DATES OF HEARING: 19, 20, 21, 22, 23 FEBRUARY 1996
DATE OF JUDGMENT: 24 APRIL 1997
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