Lam v Ausintel Investments Australia Pty Limited

[1990] HCATrans 63

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IN THE.HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl28 of 1989

B e t w e e n -

LAWRENCE KWOK FOU LAM

Applicant

and

AUSINTEL INVESTMENTS AUSTRALIA

PTY LIMITED, BILL ACCEPTANCE
CORPORATION LIMITED and AUSTRALIAN

GUARANTEE CORPORATION LIMITED

Respondents

Application for special

leave to appeal

BRENNAN J

DEANE J

HcHUGH J

Lam

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 APRIL 1990, AT 12.46 PM

Copyright in the High Court of Australia

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MR R.J. ELLICOTT, QC:  Your Honours, I appear with

MR P. NEIL for the applicant. (instructed by

James Lee)

MR M.H. TOBIAS, QC: If the Court pleases, I appear with

MR P.F. ESLER for the respondents.(instructed

by Clayton Utz)

BRENNAN J:	Mr Ellicott.
MR ELLICOTT:	Your Honours, could I hand up some bundles that

have reference to the Act and some cases?

Your Honours, this application raises an

important question of principle and that is when

is it, in the application of section 52 of the

TRADE PRACTICES ACT, there arises a duty to speak

or a duty not to remain silent in the course of

commercial negotiations? That matter to date, so

far as we understand, has not been considered by

this Court and it is a very significant matter,

obviously, if there is something beyond the

common law and equitable principles to be applied

in commercial relationships which come within the

ambit of section 52.

Under section 4(2) of the TRADE PRACTICE ACT

"conduct" is defined. It says:

In this Act -

(a) a reference -

to "refusing to do an act" includes a reference to

refraining, otherwise than inadvertently from doing

that act.

Now, in the circumstances of this case, although

it is a complex case, in one sense, I hope to

state the facts fairly simply, there was a failure,

an advertent failure or an advertent refraining from

disclosing certain extremely material matter and

the question which arises therefore is whether, in

applying section 52, it is enough to establish those
circumstances in the commercial relationship or

whether something additional is needed and if so,

whether that something additional is the existence

of some relationship or some factual situation which

at common law or in equity would give rise to a duty
to speak.

Now, there are decisions of the Full Court of the Federal Court, RHONE-POULENC is one of them,

and there is a more recent decision of KABWAND PTY LTD V

NATIONAL AUSTRALIA BANK - and Your Honours have

copies of those judgments - in which the question

of the right to remain silent or the duty to speak

were discussed.

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McHUGH J:	Mr Ellicott, do you not have a problem about reliance?
Is there not a finding of fact by the trial judge

at page 83 in relation - - -

BRENNAN J: Yes. Well, I appreciate there is a finding of

fact and I appreciate that in the court below

they thought that was a problem. This matter

.	overcomes that problem and I hope to demonstrate
that. Now, so much for revealing what we say
is a very significant point in relation to the matter that this Court, we would submit, ought to be interested in for the purposes of granting leave to appeal.

Another question which arises under the Act

relates to reliance and that is to say what

circumstances are needed in order for an applicant

to gain relief under section 52 and under the

damage provisions of the TRADE PRACTICES ACT.

Where a person is affected"by conduct" are the

relevant words in the section and therefore
concentration is on the word "by" and that
raises the question whether the principles, for

instance, in GOULD V VAGGELAS, should be applied

simpliciter to cases arising under the TRADE PRACTICES

ACT and there again the question of reliance or

inducement, whichever way one seeks to put it,

is a significant matter of principle. So, those

are two basic issues which we say arise in this

case and they arise independently of any question

of fact which is adverse to our client.

Now, they also arise, of course, we would submit, because of what we would say is a clear error on the

part of the Court of Appeal and I will come to that.

Your Honours, the short facts, if I can quickly refer

to them, and I do not think I will have to take

Your Honours very far because I can assume Your Honours have read the judgments. Your Honours will recall

there was a company called Ausintel Investments

and its directors, at the relevant time, were the

major shareholders, what I will call the "Ang"

interests, and Ausintel Investments owned all the

shares in the company called Ausintel Management

and Ausintel Management had a 21-year lease over
the site on which the Regent Hotel was built.

Moneys were borrowed, some $70 million, in order

to build the hotel but borrowed offshore and
the result was that the debt grew and that debt had
to be serviced by the shareholders of Ausintel

Investments.

Now, the shareholders in that company were,

in relevant proportions, 63 per cent owned by the

Ang interests and 18 per cent owned by my client,

Mr Lam.	Now, we need not trouble about the others;
clearly, he was in a minority.	The Ang interests
at all relevant times were the directors.	They had,

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Lam

that is the shareholders, in order to finance the

arrangement, to provide funds to Ausintel Management

and take up extra shares and the result was that the

Ang interests and Mr Lam and, indeed, others, had,

by taking up shares and by lending money to Ausintel

Investment, provided funds to Ausintel Management so it could service this very large debt.

In order to do that the Ang interests had a

mortgage arrangement with BAC, one of the respondents,

and that debt was running into trouble because all

that BAC had was some right over the shares or

interests of the Ang interests in Ausintel Investments.

Now, because they were running into trouble and

because they were facing a loss of some $30 million

they decided to try and get in the other interests

so that they would be able to offer something to

Mr Lam and the other shareholders in order to

induce them to give BAC priority over their interests

and thereby put themselves in a position where they had a prior claim but the inducement that they gave was that they, BAC, would arrange the refinancing of

the loan. That is the broad situation. But as at

the time that this transaction was set upon, the clear

situation was that if the hotel was worth something more

than a figure of, say, $101 million or $102 million,

our client would have received something out of the

situation. It may have gone to creditors but he, in

his own right, would have received it. If, on the

other hand, it was sold for less, then the result

would have been that the lender would have taken the

lot.

Now, what had happened before these steps were

taken was that there was a valuation discussion

with Hilliers in which Hilliers had given some

advice and they said on a forced sale certain

consequences would follow. They valued the hotel

between a figure of something like $110 million and

$129 million and they said, "Well, on an ordinary

sale you could expect to get, we would say, around

about $119 million" which, of course, would have

given our client something substantial, something in

the order of $4 million. "On the other hand", they

said, "on a forced sale, you'd get something like

15 to 20 per cent less" which would have meant
some figure closer to $100 million, perhaps
$105 million, in which event our client would not
have received so much.

Now, what they, BAC, in effect, did was to offer this inducement. Now, that inducement is contained

in a letter which is at page 136 of the application

book and in the fourth paragraph they say:

Such an enforced sale of the Regent Hotel

would undoubtedly lead to the complete

loss of both equity and loans to Ausintel

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Investments, even after taking into account

the moneys which the two primary lenders

could recover from guarantors. Indeed, the

expert advice we have been given is that,

in the present investment climate in

Australia, an early sale by the owner, even

if it were not perceived to be a forced

sale, would yield no surplus for the

Ausintel Investments shareholders/lenders.

Undoubtedly, the preferred course would be

hotel with a view to enabling the business to be rehabilitated and to trade out of its present cash flow

for the lenders and shareholders of Ausintel the finances of the

difficulties.

And then at the foot of the page:

However, in order to avoid the inevitability of a loss of lenders to, and shareholders of Ausintel Investments if the present situation

is allowed to continue, AGC would be prepared

to take out one or both of the secured

lenders. This course::would avoid immediate

loss of your investment or loan and your
prospect of an eventual return on your
investment by leaving the hotel business

undisturbed.

Now, there are two main representations there

about the value: that is if there was a forced

sale, they would lose everything. Now, His Honour

Mr Justice Brownie held that that was erroneous,

that was false, because they would not undoubtedly

lose everything.	He felt that in certain circumstances
they could, indeed, get something.	So that there
was a finding that that was false.	A great deal of

the discussion before the Court of Appeal surrounded

the second sentence:

Indeed, the expert advice we have been given

is that, in the present investment climate

in Australia, an early sale by the owner -

not by "the mortgagee" but by "the owner" -

even if it were not perceived to be a

forced sale -

which is then emphasized, it is the sale by the

owner -

would yield no surplus for the Ausintel

Investments shareholders/lenders.

Now, we argued below that that meant what it said,

that is to say, that it meant that if there was a

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Lam

sale by the owner and was not a forced sale then

they would still get nothing but, of course,

Hilliers had said, "You could get, in our opinion,

$119 million". Now, there was no argument that

if that interpretation was correct, then it was

false.

Now, what happened after that? Now, very

quickly what happened was this: first of all,

on 17 June these representations were repeated

and at pages 142 and 143 of the application book

Your Honours will find reference to that. I will

not stop to read it, I assume Your Honours have

read from the middle of page 142 to about line 21

on page 143, but Your Honours will find there a

repetition of these representations. Line 19 on

page 143:

In his oral evidence Mr Hall said that

at that meeting he reassured Mr Lam that

the facts stated in AGC letter of 9 May 1986

remained true.

So, here we have a repetition of those representations.

Now, at this very time what was happening was

that the directors and AGC and BAC were arranging

for Colliers to have a mandate to sell the hotel
for $140 million, that is to find a buyer for them,

for the owner in effect, of the hotel for $140 million.

This is happening at this very time. Now, they say

then - Your Honours, at the foot of the page, 143,

will find a board minute and that indicates that

they were prepared to go along with that and at

page 144, at the same time they are saying to the

board:

"If the Lam and Sim debts -

Sim was the other minority shareholder -

against their shares/deposits remain

there is little prospect of having Deeds

of Postponement completed.

So, they are starting to get worried because by this

time the deeds of postponement that are referred to

in the letter of 9 May have not been completed.	And
then on 24 June BAC informed AGC that:

"Colliers International ..... have told

Ausintel and Westpac they believe a buyer

could be found for the Regent at $140M in

the near future.

Now, that is in that document that I have just referred

to. A sale of $140 million would have returned to

Mr Lam $8.2 million and that was acknowledged by the

Court of Appeal at page 144, line 15.

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Lam

A sale of $140M (as stated above) with no Postponement would -

have resulted in a loss to BAC of $9 million. And

that appears at page 144, line 20.

So, here we have some very substantial amounts

starting to emerge. And then we come to the very

interesting matter that Your Honours will have to

wait until 2.15 to hear.

AT 1.04 PM THE MATTER WAS ADJOURNED

UNTIL LATER THE SAME DAY

UPON RESUMING AT 2.17 PM:

MR ELLICOTT:  Could I take Your Honours to page 145 of the

application book to note, first of all, the findings

or the observations of the Court of Appeal:

As was noted earlier, Mr Lam was under

an urgent necessity to secure such refinancing.

It is also clear that AGC and BAC regarded it

as a matter of urgency that Mr Lam be

persuaded to sign the Deed of Postponement and Deed of Confirmation necessary to give effect to the subordination arrangement they

were proposing before he found out about the

instructions that had been given to Collier

International. In a file note dated 30 June

1986 Mr Jacob wrote:

"I amphasize the importance to the Group of

having shareholders debts in Ausintel

subordinated under the various Deeds -

et cetera -

Snodgrass is now fully aware that if a

price of approximately $136M could be

achieved ..... the Group will not have any loss."

In a file note dated 25 June 1986 Mr Gilmour

wrote:

"The minority are not aware of the agency
agreement with Colliers and if they were to

find out there would be less incentive for

them to subordinate ... "

In a file note of 2 July 1986 Mr Hall wrote:

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uTime is against BAC negotiating a

better position for the following reasons:

(1) The $US/Australian dollar exchange rate

is worsening .....

(2) It is only a matter of time before the

minority shareholders find out that the Regent

is on the market through Colliers at, say,

$135-$140M.

So, obviously, Your Honours, there was a deliberate

decision not to tell our client, the minority,

remembering that the Ang family were in the majority

and that it is to their advantage to have BAC

refinance because they are hopelessly in debt,

so that they are saying, and BAC are saying, in

effect, "We have got to close this deal before

they find out." In other words, and to put it

another way, obviously they are not going to tell them.

Now, that is at the end of June.

Your Honours, there are in those facts a number

of matters that we relied on below and which are

significant in any appeal. Obviously that second

sentence in the letter of 9 May, we would say, is

clearly intended to mean what it says. The

Court of Appeal in this judgment appealled from,

in dealing with that matter, determined that not

on the meaning of what was said, not on observations

made in evidence at the time about what it meant

but on the question whether the meaning was put to

the witnesses on the other side. Now, of course,

we would submit that if that second sentence is

unambiguous, as we submit it is, then obviously on

any basis there was a duty to speak up if

they were going to go off and put the hotel out to

tender for a price of $140 million. There was

obviously a duty to speak up because the effect of

that second sentence was to say that if the mmer

had an early sale then you would get nothing. This

was going to give my client $8 million. So, from

that point of view, clearly enough there was a duty

to speak up. If the Court of Appeal, contrary to our strong

submission, is right in its interpretation of the

second sentence then, again, we would submit, because

the sentence at least says "an early sale by the

owner will still leave you in a hopeless positionu,

what we have here is an early sale by the owner on

any view and therefore, again, we say there was a duty

to speak up.

Now, another aspect of the case is contained in

that letter and it related to the bait that was held

out that the financier would continue to conduct the
hotel, in other words, they were saying, uWhat we

intend to do is to continue its operation so it can

trade out of difficulties".	They are the words that
are used. What happens?	Immediately they get these

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people signed up - indeed, before that - they set

out upon a course of selling the hotel and, indeed,

that is all that happened. In due course this hotel

was sold.	Of course, it had to be continued in the
meantime.	The net result was that our client got

nothing; in fact, he got less than nothing because
he was sued for certain debts that were taken over.

But the critical thing is that the second sentence

is a representation which we say is clear. If it
is ambiguous and the Court of Appeal is right in its

interpretation, nevertheless there is still a duty

to speak up. There was another representation

which we submit was clear. It was a representation

of intention and because section 51A of the

TRADE PRACTICES ACT came into force on 1 June 1986,

the onus wa$ on those who made the representation to

prove that that was a correct statement or a bona fide

statement of their intention.

McHUGH J: That they had reasonable grounds for making it.

MR ELLICOTT:  Yes, that they had reasonable grounds for stating

it and there was no attempt to do that and the

evidence indicates quite the contrary.

Now, the aspect of this that has been held against our client right through in the Court of Appeal

and below was what the judge thought about reliance

and that is dealt with at page 146 of the application

T9 book. Mr Justice Brownie says at the bottom:

"I am not at all satisfied that Lam relied

upon these statements, or any of them.

Viewing the sequence of events between May

and July I conclude (as I have already

stated) that Lam had decided for himself

by May that AGC/BAC would come to the view

that they would have to take out so many of

Lam's debts as were secured against his

Ausintel Investments shares or deposits,

lest those creditors take steps to endanger

the rescue operation; that he saw and

understood the terms of the Deed of

Confirmation in June; and that on 10 July he took and expressed to Davey the view that he had to execute the documents

presented for execution in order to have a
chance of saving something of his

investment with Ausintel Investments. Further,

and critically on this point, it seems to me

that Lam appreciated all too well that

Ausintel Investments was on the verge of
collapse, and that the only possibility
for him to save anything from his investments
with that company was if AGC were to take

out West LB, and that the precise

arithmetical arguments now urged upon me

were of no significance to Lam at the time.

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Lam

From Lam's point of view, either the AGC/BAC

rescue operation went ahead, giving him some

chance of recovering something, or he would

inevitably lose the whole of his investment."

Now, that is the passage that is held against us.

Now, Your Honours, if our client believed that

this was in a state of imminent collapse, he believed

that obviously against the background of the letter

of 9 May and his belief was apparently that this

body was on the verge of collapse. But the activity

during June, the decision to give Colliers the

go-ahead to find a buyer for $140 million, that,

of course, ran in the teeth of a view that things

were on the verge of collapse so far as my client
was concerned and had he known that, obviously, he

would have relied on it. If he was any sensible

reasonable person he -would have relied on it. If he

was told, "Look, you can get $140 million out of

this", he would not have signed that deed of

postponement or the deed of confirmation. It just

beggars the imagination why he would have done it.

BRENNAN J: Well, it is all right to say that, Mr Ellicott,

but the finding of the court below is that that is

not so, is it not?

MR ELLICOTT: Well, Your Honour, the finding of the court

below, if we are talking about Mr Justice Brownie,

he never faced up to this issue. In his

judgment, and you can search it from beginning to
end of the whole 120 pages, you will not find a

reference in any depth, if at all, to the material

that appears on page 145 or an analysis of it

but this is where, we say, the infamy was. This is

where it was brought to a head. How can you say

to somebody at one stage, "If there's a sale by an

owner, you'll get nothing" and you are saying it

with the majority interest in the company and you

are saying it to the minority interest and then the

very next moment you are asking somebody to go and

find a buyer for $140 million and you are serious

about it, how can one say, in those circumstances,

that that person had no obligation to speak up -

that is the first thing - and, secondly, once you

find that there is an obligation to speak up, then

that must overturn any reliance that is then in the

mind of the person. It does not make sense, in

other words, to talk about a duty to speak up.

McHUGH J:  Yes, but the judgment seems to reflect the way

the case was argued, does it not, and really what

Mr Justice Brownie was saying was that Lam was an

experienced banker and he was relying on his own
analysis of the situation, not on the letter of

9 May?

MR ELLICOTT:  Your Honour can accept all that for the purpose

of this argument and you can accept that my client

was not believed but a person who is not believed

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Lam

is not a person who is not entitled to justice

if otherwise is entitled to relief and it is

all right to say that he was a man of intelligence,
et cetera, and a banker and he had some degree from

Ireland. That is all very well to say that and so conclude that he must be an intelligent man but the

fact is that that intelligent man believed and was

obviously comforted in his belief that this

organization was about to collapse and the very

people who were in charge of it, the majority

shareholders and directors, were in league with the

financier who was the only person who got a benefit

out of this - was in league with the financer to

find a buyer for $140 million which would have given

our client $8 million and in circumstances where
they are saying, "Don't tell our client because he

won't sign that document." It is difficult to

imagine circumstances in which people could be

guilty of more unconscionable conduct than that,

we would submit, in those circumstances.

Now, a judge who finds, in those circumstances,

that he relied on the fact that it was going to

collapse has failed, in our submission, to address

a real and substantial issue which raises an important

question of principle for this Court to consider.

That is the apex of the case so far as we are

concerned. And if one starts to analyse the question,

"What is the effect of duty to speak? If there is a
duty to speak on reliance, what is the effect of a

duty to speak?" Surely, the effect of a duty to

speak is that it will - you will have to then ask

the question, "This man now relies on his own

judgment, confirmed by this letter, that this company

is on the verge of collapse." That is the first step

in the equation.

McHUGH J:  Mr Ellicott, you bring in the Colliers' matter

but not only does the Court of Appeal find the

representation which you relied on not exist

but your conduct of the case was to the contrary

and the Colliers' matter was only of significance

if you found the representation in the terms that

you wanted the court to find.

MR ELLICOTT:  Your Honour, that was not in the context of the

Collier information, with great respect. This is

where I am failing to get something across to

Your Honour and it is my fault.

McHUGH J: It is probably mine.

MR ELLICOTT:  Even though it be the fact that the Court of

Appeal, or it be the law that the Court of Appeal is right, there is still, we say, under the

TRADE PRACTICES ACT, a duty to speak, that is to say,

that if you are in the course of commercial negotiations

and a very significant fact arises, and if there are

perhaps, as in this case, other circumstances, those

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Lam

other circumstances may lead to a traditional category of duty to speak, a la common law and equity, or alternatively we want to submit, and

we say this Court has never considered it, that

beyond those categories of the common law and

equity, the TRADE PRACTICES ACT intended that

people have a duty in the course of their

negotiations to speak up on material matters.

McHUGH J: Well, perhaps I do not understand what you have

been putting but are you saying that independently

of the letter of 9 May there was a duty to speak

up?

MR ELLICOTT:	Independently of the letter of 9 May, if we be wrong on that, there was still a duty which the
TRADE PRACTICES ACT comprehends and - - -
McHUGH J:	Not because of the letter of 9 May but quite

independently of it?

MR ELLICOTT: Well, you cannot say independently of it

completely because - - -

McHUGH J:	But that is the problem, is it not?
MR ELLICOTT:	No, but the letter of 9 May is the offer so you

cannot look at the facts without looking at the

offer. But independently of a finding in our

favour that it meant what we said it meant and

assuming that it means what the Court of Appeal said

it meant and the judge below, we say, really did not

say what it meant but the court says he did say it,

irrespective of that, if we be wrong on that, having

regard to the fact that these parties were in

negotiation and that was stated in that letter

that an early sale by an owner - not by a mortgagee

but by an owner would lead to the same unfortunate

result and they have obviously a view in June that

it will not lead to that unfortunate result, they

have a duty to speak. That is what we are saying.

And that arises even though - - -

McHUGH J: But it would only lead. to that unfo~tunate result if

it is a mortgagee sale?

MR ELLICOTT:  No. Well, that is the point. You see,

Your Honour,-that letter -

McHUGH J:  Because that is the way the letter has been

interpreted and the way -

MR ELLICOTT: That is the way it is interpreted.

McHUGH J: But also the way counsel, your predecessor, conducted

the case in the court below.

MR ELLICOTT:  With respect, that is a matter of debate, but I

am arguing now on the basis that that is correct.

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But there is one thing that this Court cannot do

and that is look beyond the language. We have

to look at the language and whatever the Court of

Appeal said, it said, in the present climate

"an early sale by the owner, even if it were not

perceived to be a forced sale, would yield no

surplus". Now that is a pretty serious statement

when - if one can interpret that to mean if

there is an early forced - - -

McHUGH J:  Where is that in Mr Justice Gleeson's judgment?

What page is that?

MR ELLICOTT:  That is at page 136, you will find the letter.

McHUGH J: It is in the letter.

MR ELLICOTT:  You can describe this in many ways. You can

say it is equitable fraud; you can say it is a

fraud on a minority but this Court has looked at

those matters many times but it has never

looked at the application to the TRADE PRACTICES

ACT in this area. It is that second sentence

which we say bears a plain meaning but with a

circuitous method of reasoning, we would submit

with great respect, the Court of Appeal is able
to say, "It doesn't mean that, it really meant
the same thing as the first sentence" and the way

in which it is done is by saying the case was conducted below on a certain basis and it was

never put to the witness and that is how they came

to the conclusion that it was dealt with below on

that basis, because it was never put to a witness.

But who would - - -

McHUGH J:  What do you say about what Mr Justice Gleeson

says at page 155, lines 5 to 12:

Mr Lam vas an experienced -

et cetera?

MR ELLICOTT:  Your Honour, we say that, first of all, there

is a clear error in the judgment, but let us say

we are wrong on that. Let us say that His Honour

is right in saying what he says there. Nevertheless,

there was, even if - in other words, if the new facts

did not render forth the representations that had

been made to him in the sense that it was a

representation at a mortgagee sale would not lead,

it did not enable, first of all, the court to come

to the conclusion that it could ignore the words

which said, even a"sale by the owner" because those

words are so clear, "an early sale by the owner". You

cannot ignore those words and therefore, we say,

it is abundantly clear that even if the second sentence

was intended to mean, honestly, that it was talking about

a forced sale, nevertheless, in the factual situation

that occurred, in June 1986 there was, indeed, a

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decision to sell and which represented a view that

they could probably get a figure of $140 million and,

indeed, they got $145 million. And the result of that

was that our client was deprive:l.of his interest in the

company or his creditors were, whichever way you like

to look at it. It was unfortunate for anybody. It

is not like the last case where only $389 was

involved.

Your Honours, there is quite a lot involved in

this one but that is no longer a test. But, Your Honours,

on that passage, we are saying that the TRADE PRACTICES

ACT in section 4(2) catches up an advertent decision

to refrain from doing something, that is, to refrain

from speaking up. If you refrain from speaking up

and the re 9~lt is that if you had spoken up somebody

who may have been acting on a particular basis even

in his own judgment, if the ordinary conclusion

from that is that that person would have relied on

that speaking up - if I can use that expression -

then you can conclude that the transaction was one

which should be set aside because that reliance was

no true reliance at all.

Now, that question must always arise when there

is a duty to speak up. If there is a duty to speak
up, the court always has to ask the question,

"What's the consequence? What if he had spoken up,

what would have happened?" Now, we say if he had

spoken up - if they had spoken up, Mr Lam, obviously,

if he was the sensible man as described in this
judgment, he would have said, "I'm not going to sign

those documents. I'm going to wait until I see what

Colliers come up with."

MeHUGH J:  But where does the duty to speak from arise in this

case?

MR ELLICOTT: It arises out of the TRADE PRACTICES ACT.

McHUGH J: That records the result of a duty, does it not?

It does not impose the du~y - - -?

MR ELLICOTT:  Well, Your Honour, that is the very point. You see,

what the Full Court has done before in RHONE-POULENC

and in the other case that is referred to, KABWAND,-

has said that, in effect, it depends on common law

and equitable principles. Now, what was said in

RHONE-POULENC by Mr Justice Jackson, for instance,

who was in the minority, was that it could not be

circumscribed by common law and equitable principles.

There are numbers of cases which have said that about

the TRADE PRACTICES ACT. We are seeking to submit

here the same thing, that you cannot circumscribe

the duty to speak.

Now, the Court of Appeal was in error because

it thought it was bound to follow RHONE-POULENC

and we say it was not bound, and if it was not bound

to follow RHONE-POULENC and it looked at the other

SlTl0/6/PLC	14	6/4/90
Lam

circumstances, it may well have discovered that

there was a duty to speak in these circumstances

or, if one is to be more accurate in terms of the

submission I am making, because I might be

confusing Your Honour by using the phrase, "duty

to speak", or to put it another way, that the

TRADE PRACTICES ACT requires a standard of

conduct and that standard of conduct is not to

refrain advertently from doing an act which can

injure another person.

BRENNAN J: That is not quite the way you put it, is it?

The way you must be putting it is that the TRADE

PRACTICES ACT imposes an obligation not to refrain

from speaking otherwise than inadvertently if to

refrain from speaking is misleading or deceptive or

likely to mislead. or deceive.

MR ELLICOTT:	Yes, Your Honour, yes. Well, what could be more misleading or more deceptive, we submit, than to
refrain from speaking when a person obviously believes -
this is the assumption, this is the basis of the
reliance finding - that all is hopeless, that he is
going to get nothing and that his only hope is to
enter into these deeds? Now, what could be more misleading than not to tell that man that, "Hope is
not lost, you could get $8 million'', because that is the result of it.
McHUGH J:	But that may be so if you had induced him into

that frame of mind but that is not this case.

MR ELLICOTT:  What does one need to induce a man into that

frame of mind than to tell him that an early sale

by an owner would yield a nil return?

McHUGH J: But this is where the finding of reliance is

against you because there is a specific finding

that he did.not rely on that letter.

MR ELLICOTT:	Your Honour, with great respect, if Your Honour goes to the letter and goes to the judgment below -
and I do not have time to do that, but if Your Honour
went to the judgment below, Your Honour would find that nowhere in the judgment is there any discussion
about this matter.  Nowhere doe~ the trial judge
talk about the second sentence in any rational
way and I do not mean that as a criticism, all I mean
is he just does not talk about it.  He does not
consider the meaning of the phrase in the sentence.
What does it mean if it does not mean what it says? And what it says is, "An early sale by an.=:: owner
will lead to nothing" and it is used in contradistinction
to saying, "If there's a forced sale, you'll get nothing". Words must mean what words mean as in
LIVERSIDGE V ANDERSON.

SlTl0/7/PLC	15	6/4/90
Lam

BRENNAN J:  Does your argument stand, if the sentence

at page 156, lines 20 to 22, is accepted or

do you challenge that sentence, that is:

The essence of the finding is that

Mr Lam was acting on the basis of his

own appreciation of his financial

position rather than on the faith of

what AGC or BAC were putting to him.

MR ELLICOTT:	Your Honour, what we say is that Mr Lam, in the circumstances, was acting on a view that - and this
is the evidence - he had no alternative but to sign these deeds so that the rearrangement could
go ahead.

BRENNAN J:  I have not made the point clear. The question

I am really seeking to discover is whether, if

that be the fact, the question of law you seek

to agitate still arises -

MR ELLICOTT: Well, we would submit it does, yes, Your Honour.

BRENNAN J: - - - or whether you say that that fact is wrongly

found?

MR ELLICOTT:  We would say in an appeal that it was wrongly

was an obligation under the TRADE PRACTICES ACT

found but we say - and we would want to argue that

on an appeal but I realize I cannot argue that now.

to speak up because the conduct that had occurred,
whether they knew it or not - that is to say,

whether they knew that Mr Lam relied on it or not,

the conduct which had occurred was conduct which

was overt, which could lead a person to believe

that an early sale by an owner would lead to

nothing and therefore they had an obligation

arising out of their statements to speak up and

that is - what the TRADE PRACTICES ACT - - -

BRENNAN J: But it is not a question of saying - you said

before that you might be misleading yourself by

saying "a duty to speak" when the real question is

whether or not the omission to speak can be

characterized as falling within section 52. Is

that right?

MR ELLICOTT: It is, Your Honour, but I was really saying

that if I talk about duty, we would talk about

common law and equitable duties and I am really

away from that.

BRENNAN J:	Then if we are talking about - - -
MR ELLICOTT:	If there is any duty, it is a statutory duty,

Your Honour.

SlTl0/8/PLC	16
Lam

BRENNAN J: If we are talking about whether the conduct is

misleading or deceptive or likely to mislead or

deceive, is there within that phrase or those

phrases an element of reliance? In other words,

if one says to another - - -

MR ELLICOTT: 

No, Your Honour.

BRENNAN J: 

- - - "I want to tell you something" and the

other says, "I do not wish to hear", is it within
section 52 if you maintain silence?

MR ELLICOTT: 

I cannot say, in those circumstances, that

there is an obligation to say something but where

you have said something, irrespective of what

reliance another party is making of the events

and circumstances, if you have said something

which could lead a person to believe that a certain

consequence will flow and that consequence is

of great significance to that person and you are

endeavouring to get that person to act to his

detriment by signing a series of documents,

whether or not reliance is on the actual statement

that you have made which turns out to be false,

you, under the TRADE PRACTICES ACT, irrespective

of what the common law or the equitable jurisdiction
would say, have an obligation under the statute to

not refrain advertently from saying what the truth

is. Now, that, we say, applies here and that is

why we submit that this case is one that this Court

ought to consider as one for leave to appeal

and it raises an extremely important matter.	Time
and time again people are asking - they are

not asking this Court yet, but this is part of it,-

they are asking, "What is the duty of people in

negotiations? Do we now, under the TRADE PRACTICES

ACT have an obligation to say something?" Most people would probably advise them and say, "Oh well,

it looks as if the old common law and equitable

duties apply and if they don't apply", you know,

"caveat emptor", et cetera.	But the TRADE PRACTICES
ACT, obviously, brings in a new regime,and we

submit that it is for this Court now to look at

that matter. And in the process, it would also

have to look at the question of inducement or

reliance because reliance only comes in under the

TRADE PRACTICES ACT when you claim damages. You can come to the court, as a person, and

say that a person has been guilty of misleading or

deceptive conduct and establish a case under

section 52 but you may get no damages. In other

words, reliance is not part of the concept in

section 52. Reliance only comes up when you say

that you have been affected by the conduct and the

question would be, "What does 'by' mean?" Is it,
again, causation or does it really bring in any

question of reliance? Does it matter? Is it

SlTl0/9/PLC	17	6/4/90
Lam

sufficient to say, "If that person had spoken up,

whatever I believed, then I would not have entered

into those transactions, therefore, I am entitled

to relief."

BRENNAN J: Is there any evidence of that in this case?

MR ELLICOTT:  Your Honour, the only evidence, I must say, and

this is intended to be a serious answer, is

common sense, Your Honour, that is to say, that if a

person who had been told or who believed, relying on

his own inquiries that he would get nothing on an

early sale - if that person was told, "Oh, you could

get $8 million", that person would immediately change

his mind. Indeed, the evidence here is really in the

mouth of the other people because - that is why

they did not tell him. They deliberately decided not

to tell him because they knew, if they told him,

the deal would be off because they believed - they

had no doubt about his business acumen - that if he was told, they would not get those deeds signed and they would only get a figure of $9 million instead of

a shortfall of - they were going to get a shortfall

of $9 million instead of a very substantial loss.

So, Your Honours, it is for those reasons,

we do submit, that this is a matter for leave to

appeal.

BRENNAN J:	Mr Tobias.
MR TOBIAS:	Your Honours, the critical issue in the present

case is whether or not, notwithstanding the

factual findings of Mr Justice Brownie as detailed

in the Court of Appeal, any question of law of public

importance arises.

The question of law expounded by Mr Ellicott

relates to section 52 of the TRADE PRACTICES ACT

and that is relating to when it is misleading or

deceptive conduct to remain silent in relation to

what might otherwise be a material fact in commercial

negotiations.

It is clear from the way the Court of Appeal

dealt with the matter and the reason why the material

set forth at pages 143 and 145 in the Chief Justice's

judgment did not appear in Mr Justice Brownie's
judgment was because the manner in which the case

was conducted before Mr Justice Brownie did not

involve the submission that was made to the Court

of Appeal and is now being made to this Court.	The
case went off based upon any number of claims -

13 groups of claims - and within one of those groups,

24 alleged representations, as appears at page 64

and pages 34 and 35 of the judgment, that this

issue which is now sought to be agitated was never

dealt with by Mr Justice Brownie nor was it dealt

with in the manner in which the trial was conducted.

SlTl0/10/PLC	18	6/4/90
Lam

Your Honours will see from page 23 of the application papers that Mr Lam asserted a number

of groups of claims as appears at line 8 which

numbered some 13. Claim (2) involved a number

of series of representations of which as appears

at page 64 involved 24 separate alleged

representations. Nowhere in the groups of claims

identified by His Honour, at pages 23 through to 27,

nor at page 64 was it asserted before His Honour

that there was misleading conduct constituted not

by the representations contained in correspondence

but a misleading conduct constituted by the

failure to disclose that the owners, not the

financiers, but to the knowledge of the financiers,

had given a mandate to Colliers to find a buyer for

$140 million because whether or not at that time

they would find a buyer for $140 million may well

be another matter, and there was material to

indicate - and which is not referred to in the

judgment - that, in fact, Colliers were doing

nothing more than just flying a kite in order to

attempt to obtain a sole agency, but be that as it

may, that is the manner in which the matter was

conducted below.

BRENNAN J: And there is nothing in the pleadings to give

rise -

MR TOBIAS:  Yes, there was in the pleadings. Mixed up in

what was otherwise a very substantial pleading and

commented upon by His Honour at the bottom of

page 64 where he talks about a:

multitude of claims -

being -

either a tribute to the industry

of the pleader or pleaders, or manifest

evidence of the adoption of a "scatter gun"

TlO approach -

there was a claim based on the failure to disclose

the Colliers mandate but it played no part in the

proceedings and at no time during Mr Lam's evidence

was it put to him by his counsel that had he been

aware of Colliers' mandate, he would not have

entered into the subject transactions.

Of course, as Your Honours will appreciate

defence, as it were, his major claim was that he was	from reading the trial judge's judgment, his major
not aware of the nature of the documents he was
entering into on 10 July, a non est factum issue.
He certainly was aware be was being asked to subordinate
his debt but not to the extent to which he, in fact,
did, an issue that was found against him upon the

SlTll/1/PLC	19	6/4/90
Lam

basis that he was not believed. Your Honours, that

is the way the matter was conducted.

So far as the second sentence of the letter of

9 May is concerned, at page 136, it is true that the

Chief Justice referred to cross-examination by counsel for

Mr Lam of the authors of that letter not for the

purposes, we would submit with respect, of

interpreting or gaining assistance to interpret

that particular sentence but in order to illustrate

the manner in which the applicant conducted its
case before the learned trial judge, that is,
in a manner which did not seek at the end of the day

to differentiate between the first and second sentences,

and it was on that basis that the Court of Appeal

held that the meaning that Mr Ellicott sought to

give to the second sentence before the Court of Appeal

should not be adopted. In any event, of course,

they took the view that the sentence was ambiguous

in its context.

Of itself, of course, the interpretation of that

sentence and the manner in which it is to be dealt

with gives rise to no more than a question of fact
and of itself does not give rise to any question of

public importance concerning the TRADE PRACTICES ACT.

But at the end of the day, even if one accepts that

this Court should look at the question of whether or

not or in what circumstances silence can give rise to

a duty to disclose so that it constitutes misleading

conduct, it cannot assist the applicant in the

present case for the very reason that even if that

failure to disclose did constitute misleading conduct,

in order for the applicant to obtain relief,

either damages under section 82 or the setting aside

of the transactions under section 87, he must establish

that he, at the very least, was influenced in entering

into those transactions by the -

misleading conduct in question, in this case, the

failure to disclose. And that would require evidence

and ultimate cross-examination as to whether or not

would be impossible in the light of the finding of	he was, in fact, influenced by that, a finding that	the trial judge to which Mr Justice Brennan referred at page 156, lines 20 to 22, repeated in the
Chief Justice's judgment, also, at page 155 between
lines 17 and 21.

The finding of the trial judge and as stated by

the Chief Justice was that:

It concerns the issue of reliance. The

fact is that, as negotiations progressed,

the question whether Mr Lam would or would

not sign the subordination agreements was

influenced, not by assertions that were

being made to him about likely sale prices

SlTll/2/PLC	20	6/4/90
Lam

or possible purchasers of the hotel,

but rather by his own financial

commitments and the relief in that regard

which he hoped to obtain.

Now, Your Honours, there are some factual matters

that have not been explained to the Court.

DEANE J: Except does that really direct it towards the

relevant question? I mean, is not the question

whether if he had known he would have been influenced,

and how, rather than whether his not knowing

influenced him?

MR TOBIAS:  Yes. One would have to ask the question, "If

otherwise there was a duty to disclose?" and that

of itself cannot be divorced from the letter of

9 May.

DEANE J:	But you say that the trial judge's finding was framed in the way it was because this issue was
never raised before him?

MR TOBIAS: That is so.

DEANE J: Yes, I see.

MR TOBIAS:  Your Honour, it would not be possible for this

Court on appeal, if otherwise it considered that there was a relevant duty to disclose, other than

to send it back to the trial judge for further evidence on the issue and, Your Honour, in our

respectful submission, that would not be an appropriate

course in a case such as this. In all probability,

it would give rise to the very same result, bearing

in mind Mr Justice Brownie's views as to the

veracity of Mr Lam.

DEANE J:	Was there an issue in the Court of Appeal about
whether failure to disclose in appropriate
circumstances could constitute misleading conduct
for the purpose of the TRADE PRACTICES ACT?

MR TOBIAS:  Yes. That was the very point that was agitated

but the point that the Chief Justice made was that

"maybe so" but that had to be looked at in the light

of two factors. Thefi.rst was the meaning to be

given to the second sentence, and that of itself

depended, secondly, upon the manner in which the

trial was conducted. And, secondly, in any event,

on the issue of reliance, this issue, that is the

failure to disclose, and had he disclosed the

Colliers' mandate, whether that would have

influenced him in the particular circumstances,

was never agitated before the trial judge because

it was never raised. So, there was no evidence.

My learned friend quite frankly answered

Mr Justice Brennan by saying there was no evidence

SlTll/3/PLC	21	6/4/90
Lam

to suggest - by which it could even be inferred

that Mr Lam would have not signed the documents had

he known of the Colliers' mandate. What he says is,

"Well, it's just a matter of common sense". But that

is a difficult proposition to make good in view of

the finding at page 155, lines 16 and following. It

is very clear from a reading of Mr Justice Brownie's

judgment that he took the view, and accepted as a

consequence of Mr Lam's cross-examination, that he
did not believe that Lam relied at all upon the

contents of the letter of 9 May.

McHUGH J: The issue here is different, is it not? It is

not whether he relied on the letter?

MR TOBIAS:	No, it is different.
McHUGH J:	The question is whether, if the Colliers' matter

had been disclosed to him, he would have signed

the deeds.

MR TOBIAS:  But, Your Honour, I accept that but because of the

way the case was conducted before Mr Justice Brownie,

this issue just did not arise, and it would not

be - - -

McHUGH J: If it was raised in the Court of Appeal, it is too

late now, is it not, to be taking this point?

The Court of Appeal has entertained this point.

MR TOBIAS:  The Court of Appeal has entertained it and rejected

it upon the basis that, in our submission, in the

light of the reliance findings, there is just no

basis upon which it could be held as to what

he would have done had he known of the true facts

assuming, of course, that it was misleading conduct

in the first place.

Now, this Court, if it was faced with the issue,

could not determine that issue in the light of the

manner in which the case was conducted below in

terms of the factual findings.	To do so
would prevent my client from seeking to further
cross-examine Mr Lam on this issue.	The point the

Court of Appeal made was that a finding of the

trial judge as to what Mr Lam was influenced by

when he signed the documents on 10 July, not having

anything to do with the letter of 9 May but relating

to his own financial commitments and the problems

that there were then in relation to it, was such
that that was the only thing and would have been,

in our submission, the only thing in his mind.

Your Honour should bear this in mind - - -

McHUGH J: Yes, but has reliance got anything to do with the

section 52 point itself as opposed to the damage

point? The argument against you - - -

SlTll/4/PLC	22	6/4/90
Lam

MR TOBIAS:  No, no, only to relief and causation.

McHUGH J: Yes. The argument that is put against you is that

having set this letter of 9 May out, then there was

a duty on you to draw Mr Lam's attention to the

significant fact which altered or potentially

altered the entire financial situation.

MR TOBIAS: Well, it did not alter it. It was merely placing

the property with Colliers. It did not alter it

in terms of getting the money, of course, because

it may have occurred.

McHUGH J: Except Colliers were saying he could get $140 million.

MR TOBIAS: Well, they were saying it.

McHUGH J:  They introduceda new dimension of fact into the - - -

MR TOBIAS: Well, they may have, Your Honour, but that would

depend upon looking at other factual material and other documents that are not set forth in the Chief Justice's judgment and arguing that as
a question of fact.which we would have to do before

this Court, but that is not a problem. But even

if one exhumesthat as a matter of fact this

Court decided that the relationship was such that

there was a requirement to disclose, that is, that

a failure to disclose would be misleading or

deceptive and, of itself, the failure to disclose
is not misleading or deceptive, it depends on

the context in which the failure occurs and that

is recognized by Mr Justice Bowen in RHONE-POULENC's

case. He makes it clear at the bottom of page 154,

the top of page 155, that the circumstances in

which silence will amount to misleading conduct

is in no way limited to a common law equitable

duty to disclose. It depends on the facts of the

particular case.

So, there is no new law to be made on that, in

our respectful submission. The only point in this case is a factual point as to whether the	circumstances were such that there was such a duty
to disclose. The difficulty about that, Your Honours,
is that only gets the applicant half-way if it is
otherwise found in his favour. There still has to
be some evidence from which this Court can infer
as then a court finding fact&.because there are no findings directly on that point in the trial judge's judgment because of the reasons I have
indicated, as to whether or not this Court can then
draw the inference in circumstances where the point
has never been raised relevantly before the trial
judge that Mr Lam would not have entered into these
documents, notwithstanding other pressures that
were upon him in relation to his own financial
position and in circumstances where it was common
ground that Ausintel was about to collapse financially

SlTll/5/PLC	23	6/4/90
Lam

because it could not meet its liabilities and which

had nothing to do with any question of a sale at

all, with great respect, but whether or not there

was evidence upon which this Court could infer

that had he been aware he would not have entered into

the document, and that is where the problem arises.

This Court, in our submission, would then be

required to return it to the trial judge for further

evidence and further findings on that issue. In

our respectful submission, the point Mr Ellicott

seeks to make as a question of law is covered by

POULENC's case. The real question is whether it is

covered by the facts of this case bearing in mind

the manner in which the case was conducted. We

respectfully submit, Your Honours, that no question

.	'	of public importance under the TRADE PRACTICES ACT
applies. The law as set out in POULENC and
repeated by the Full Court in KABWAND is clear. It leaves it clearly open on a particular factual
case for findings of a requirement to disclose,
failure which would otherwise constitute misleading
conduct. But what that Full Court did in KABWAND
was indicate that even so, for a plaintiff or an applicant
to obtain relief under sections 82 or 87, it was still necessary to prove the relevant causative link as
appears at page 50,378 of that judgment, and that
is where the applicant founders in the present case.

True, as Your Honour Mr Justice McHugh put, the

correct question of causation was not put because it

was never argued and no evidence was directed to it

at the appropriate time. So, it becomes a factual

issue only, in our respectful submission, and one in

respect of which this Court would not grant special

leave. If the Court pleases.

BRENNAN J:	Mr Ellicott.
MR ELLICOTT:	Your Honours, could I just inform Your Honours

of this, that in the amended claim - it was a

cross claim, under particulars of the misleading
conduct, the following two paragraphs appear:

Later, without in any way changing, correcting or amending the representations contained in the letter, AGC/BAC took active steps to place

the Regent Hotel on the market at a sale price

between $130M and $140M, such steps being

taken prior to 10 July.

And:

Further, prior to such date, AGC/BAC decided that in order to induce minority shareholders of Ausintel to sign a deed of its postponement

they would not inform them and, in particular,

SlTll/6/PLC	24	6/4/90
Lam

Lam, that the hotel had been so placed

on the market for sale, say that they

did so inform the Angs and Khoo -

of course, they are the majority shareholders -

to that effect.

So, those facts were ventilated before the trial

judge. I dorot want to repeat what I have already

said. So far as the point of law is concerned, Your Honours, my friend has not faced up to the

fact that what we are relying on is the definition

of "conduct" in section 4(2)(c) and its application

directly to the words "misleading conduct" in

section 52, and a question arises as to what does

constitute refraining from doing something ad:vertently

in various circumstances and whether that does

require, in effect, any reliance or whether it

can operate in circumstances quite independent

of reliance. That is the question of law and

independent of the word "duty" because in

RHONE-POULENC and in the other case, although

as my friend points out, they were disinclined to

limit it to those common law and equitable duties,

when you look at the principles in RHONE-POULENC

they are very familiar to the common lawyer and

the equity lawyer and, indeed, the cases cited by the Chief Justice Sir Nigel Bowen are cases which are taken out of those areas. That is all I

wanted to add, Your Honours.

BRENNAN J: Having regard to the issues as they would seem to have been fought on the actual hearing and in the absence of an express finding as to the

consequence of the respondents' omission to inform
the applicant of the Collier mandate, the case is

not a suitable one for considering the circumstances

in which section 52 of the TRADE PRACTICES ACT

imposes an obligation to speak when material facts

emerge from the course of a negotiation.

For those reasons, the application for

special leave is refused.

MR TOBIAS:	I seek an order for costs, Your Honour.
BRENNAN J:	The order is made with costs.

AT 3.14 PM THE MATTER WAS ADJOURNED SINE DIE

SlTll/7/PLC	25	6/4/90
Lam