Manoun v Semrani

[2000] NSWSC 101

CITATION:

Manoun v Semrani & Anor [2000] NSWSC 101

CURRENT JURISDICTION:

Equity Division

FILE NUMBER(S):

SC 4564/96

HEARING DATE(S):

14 - 18 February 2000

JUDGMENT DATE:

2 March 2000

PARTIES :

Khalil Ibrahim Manoun
(Plaintiff)

v

Paul Joseph Semrani
(First Defendant)

William N Williams
(Second Defendant)

JUDGMENT OF:

Davies AJ

COUNSEL :	P - Mr R K Weaver D1- Mr D K Jordan D2- Mr D J Hammerschlag
SOLICITORS:	P - H K Husseini & Co D1- Markham Geikie Farrugia D2- Tress Cocks & Maddox
CATCHWORDS:	Misleading or Deceptive conduct - whether misrepresentation - whether failure to disclose material facts constituted misleading or deceptive conduct - whether duty to disclose - no point of principle.
LEGISLATION CITED:	Fair Trading Act, 1987 (NSW) ss 42, 61, 68 Trade Practices Act, 1974 (Cth) s 52
CASES CITED:	Esanda Finance Corporation v Peat Marwick Hungerfords (1997) 188 CLR 241 Ta Ho Ma v Allen [1999] NSWCA 202 Rhone-Poulenc Agrochime SA v UIM Chemical Services (1986) 12 FCR 477 Demagogue v Ramensky (1992) 39 FCR 31
DECISION:	Judgment for the plaintiff. See para 66.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

DAVIES AJ

THURSDAY 2 MARCH 2000


4564/96 - Khalil Ibrahim MANOUN v Paul Joseph SEMRANI & ANOR

JUDGMENT

1   HIS HONOUR: The plaintiff, Khalil Ibrahim Manoun, seeks damages for loss said to have been caused by misleading and deceptive conduct on the part of the first defendant, Paul Joseph Semrani, and also on the part of an accountant, William N Williams, the second defendant. The claim against Mr Williams also alleges that he was guilty of negligence, having breached his duty of care to his client, the plaintiff. 2   At the hearing, Mr R K Weaver of counsel appeared for Mr Manoun, Mr D K Jordan of counsel appeared for Mr Semrani and Mr D J Hammerschlag appeared for Mr Williams. 3   Relevant provisions of the Fair Trading Act 1987 (NSW) provide:

42 Misleading or deceptive conduct
(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.


61 Interpretation

A reference in this Part to a person involved in a contravention of a provision of this Act shall be read as a reference to a person who:

(a) has aided, abetted, counselled or procured the contravention,

…

(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention, …


68 Actions for damages
(1) A person who suffers loss or damage by conduct of another person that is in contravention of a provision of Part 3, 4, 5 (section 43 excepted), 5A or 5B may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention.

4   Circumstances in which a duty of care will arise were discussed in Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241 and Ta Ho Ma Pty Ltd v Allen [1999] NSWCA 202. It is not disputed that Mr Williams had a duty of care towards Mr Manoun but the content or ambit of that duty is in dispute. 5 Both Mr Manoun and Mr Semrani were poor witnesses. They displayed a lack of accurate recollection and a tendency to give evidence which they considered would improve their prospects in the case rather than evidence of facts which they could specifically remember. Mr Williams’ recollection of the conversations in which he was involved was also general in nature rather than specific. I have therefore tended to form my views of the facts from the general thrust of the evidence and the sequence of events rather than by reliance upon the evidence of a particular witness. 6 Mr Semrani had, in 1991, developed an interest in producing steel frames for houses and other buildings. In May 1991, a company, Quimbton Pty Ltd (“Quimbton”) which I assume was owned and controlled by Mr Semrani, entered into a partnership with the Nowra Local Aboriginal Land Council (“Land Council”) to carry on in partnership, under the name “Armourframe”, the business of steel frame manufacturing and house construction. This partnership carried on business for two years. In 1992, its sales amounted to only $15,000 while its capital works in progress amounted to $1,094,719. In 1993, its sales amounted to $309,700 while its capital works in progress were recorded as $1,357,916. It is not surprising that the partnership failed. An application for the appointment of a receiver was filed on 7 October 1993. On 17 February 1994, an order was made by this Court that the partnership be dissolved and that Mr Ron Dean-Willcocks be appointed receiver and manager thereof. The receiver was authorised by the order to sell any of the assets of the partnership other than those in dispute. 7 The plant and machinery in dispute was the plant and machinery which has subsequently featured prominently in these present proceedings. It was comprised of the machinery by which the steel frame members were formed. In an affidavit, sworn in the partnership proceedings on 19 October 1993, Mr Semrani claimed ownership of the subject machinery and deposed that, “To enable the partnership to perform this work I built the machinery using blueprints I had designed in 1991. … As at 15 May, 1991 about two thirds of the machinery had been built by me. The balance was completed by me using partnership funds with the help of one employee. … at no time did I ever assign my ownership rights to the partnership … I simply agreed to let the partnership use it for the purposes of the partnership”. However, in a later and more detailed affidavit, sworn 18 January 1994 and filed in the partnership proceedings, Mr Semrani said in paragraph 15 that “the necessary materials which had to be purchased both for the construction of the factory and the construction of the machinery (the means of production) were purchased out of partnership moneys”. Mr Semrani went on to list the matters which he personally contributed. They included the necessary designs and specifications but they did not include any plant or equipment. Further in that affidavit, in paragraph 24, Mr Semrani deposed:

“As soon as the factory was operational I then moved on to assembling the machinery in accordance with my own designs and plans. This took me a further three months to complete. The necessary materials were purchased out of partnership funds. The machinery was complete and operational by August 1992.”

In a subsequent affidavit, sworn on 31 January 1994, Mr Semrani deposed, inter alia:
“(vii) Although joint funds were used to acquire the raw materials the machines themselves were constructed and brought up to a finished and operational condition by myself without assistance from the Plaintiff;”

In conformity with the content of these last two affidavits, Mr Semrani said in the present proceedings that the accounts of that partnership showed that $173,000 was spent by the partnership on the machinery, that sum being provided by the Land Council. The affidavits of January 1994 show that, whilst he was working on the machinery, Mr Semrani was employed by the partnership as its General Manager at a salary of $500 per week.

8   In about the middle of 1993, Mr Semrani removed the machinery to new premises which he rented. The receiver/manager did not disturb this arrangement but it came to be understood that Mr Semrani could not make any substantial use of the machinery until the dispute as to ownership had been resolved. 9   On 9 November 1993, Mr Semrani applied for a patent pertaining to the steel frame members and their method of manufacture. A patent was later granted on 16 October 1997. A divisional application was filed on 6 March 1997, was accepted on 1 December 1999 and is still pending. Whether the patent has any validity having regard to the manufacture and the sale of the steel members between 1991 and 1993, prior to the priority date, is not clear but that is not an issue in these proceedings. The Complete Specification discloses that the invention claimed is, inter alia, for “a closed structural frame member for use in construction of a building comprising a base portion and first and second side portions and first and second extension members each depending from one of said portions wherein said first extension members is folded around said second side extension thereby forming said closed structural member and whereby said folding forms a closed structural member”. The Complete Specification also claims the method of producing that result. The Complete Specification claims that the product avoids the necessity of joining such members to other structural elements by welding, screwing, bolting or riveting. 10   In about 1993, Mr Semrani established a new company, Steel Frame Connections Pty Ltd (“Steel Frame Connections”), to manufacture steel frames. He interested a Mr Glenn Matouk in the project and, in early 1994, they came to an agreement that Mr Matouk would be a partner in the business and that they would each own 50 per cent of the company. Mr Matouk was issued one of the two shares in Steel Frame Connections and he was appointed a director of the company. From 1993 to 1995, Mr Matouk paid Mr Semrani amounts of money which, according to his evidence, totalled $140,000 but which Mr Semrani said in his evidence totalled $10,000. I would accept Mr Matouk’s evidence on this point. There was, however, little or no activity in the business as the machinery could not be used and as further funds were required. The moneys which Mr Matouk contributed appeared to have been spent principally on the rent of the factory in which the machinery was situated and on costs incurred in relation to the application for a patent. 11   As Mr Matouk’s ability to provide finance was limited, Mr Semrani sought another investor. During 1994, Mr Semrani had correspondence with Inteq Limited (“Inteq”), an investment and advisory house. That arrangement came to nothing but I should mention that, in one of the letters to Inteq, Mr Semrani indicated that he would be prepared to sell the patent to an interested party for a consideration in the region of $5.5million. 12   At the request of the receiver/manager in early 1994, MGS Turners Valuations valued the plant and equipment of the Armourframe partnership. The valuer placed a value of $164,280 in a sale of the plant and equipment as a “going concern” and gave it a value of $58,365 on the basis of an auction sale. The disputed manufacturing plant and equipment was listed in section 3 of the valuation and was given a “going concern” value of $123,250 and an auction value of $40,300. 13   On 17 August 1995, at the request of Mr Semrani, Mr Williams arranged for the following letter to be sent by his firm W N Williams & Associates to the receiver/manager:

“We write on behalf of our clients, who have instructed us to make an offer to purchase the unencumbered plant & equipment of the above partnership as listed in the MSG Turners Auctioneers list as at 21/02/94. Our client offers the total auction value as listed in sections 1,2,3,4 and 5. The total value offered is $58365.00 .” (emphasis added)

Note that the letter did not describe the client. The solicitors for the receiver/manager contacted Mr Semrani’s solicitors but received no useful reply. The receiver/manager filed a Notice of Motion for seeking leave to sell the plant and equipment. The Notice of Motion was returnable on 12 February 1996 but did not proceed on that day, notwithstanding that, on 9 February 1996, Mr Semrani’s solicitors had written to say that they consented to the orders sought. On 27 February 1996, Mr Abdul-Karim, barrister for Mr Semrani, wrote to the solicitors for the receiver/manager saying that Mr Semrani was prepared to buy the plant and equipment described in section 3 for a lump sum of $25,000, or would pay a lump sum of $30,000 for all the partnership’s assets.

14   Subsequently, after some moneys had been contributed by the plaintiff, Mr Manoun, as I shall later mention, a cheque was drawn for $58,365, which was the amount referred to in the letter of 17 August 1995. Thereafter, agreement was reached that the section 3 plant and machinery would be purchased for $50,000. On 26 July 1996, Terms of Settlement were filed in which, by consent, the Court declared that the items of plant and equipment which had been listed in section 3 of the valuation were assets of the partnership between the Land Council and Quimbton and that the receiver/manager was empowered to sell those assets. In the Terms of Settlement, the Court noted, inter alia:

“1. The Third Defendant [the receiver/manager] hereby agrees to sell the assets in dispute to the First Defendant or its nominee being either the Second Defendant [Quimbton] or B.O.N.I.S Steel Constructions Pty Ltd for the sum of $50,000.00 ($1,500.00 already paid), the balance being payable within 14 days of the date hereof, time of the essence.”

15   A Deed of Agreement, which was executed at the same time, provided, inter alia:

“5. Under the Terms of Settlement the Court notes that the Receiver/Manager (Third Defendant) agrees to sell the assets in dispute to Quimbton Pty Limited or its nominee being either Paul Joseph Semrani or B.O.N.I.S Steel Constructions Pty Limited for the sum of $50,000.00 towards which a payment of $1,500.00 is already made.
6. Quimbton Pty Limited hereby nominate B.O.N.I.S Steel Constructions Pty Limited to be the purchaser of assets in dispute as listed in paragraph 1 of this agreement.
7. B.O.N.I.S Steel Constructions Pty Limited hereby agrees to pay the sum of $48,500.00 being the outstanding balance in full and final consideration for all the partnership assets in dispute as listed in paragraph 1 of this agreement.
8. The Receiver/Manager, Ron Dean-Willcocks (Third Defendant), acknowledges that upon payment of sum stated in paragraph 7 above by B.O.N.I.S Steel Constructions Pty Limited the disputed assets becomes the sole property of B.O.N.I.S Steel Constructions Pty Limited.”

16   I now turn to events so far as they concern Mr Manoun. The principal allegations made against Mr Semrani are that he represented that he owned the subject machinery, that it had a value of $1million or more and that he was the inventor of the machinery which was patented. There are also other claims made which I shall later mention. Perhaps the most important part of the case against both Mr Semrani and Mr Williams is the fact that the ownership of the machinery was in dispute and the receiver/manager of the Armourframe partnership had it in mind to sell the machinery at its auction value of $50,000 or less and that these facts were not disclosed to Mr Manoun. 17   In March 1996, Mr Semrani was brought to Mr Manoun’s home by a Mr Mohammad, a mutual friend who has not given evidence in the case. Mr Manoun became interested in the venture as it was explained to him by Mr Semrani. Mr Manoun and Mr Semrani had subsequent conversations in which the matter of his investment was discussed. Mr Manoun was prepared to invest $200,000 if he was satisfied with the venture. Mr Matouk took part in some of the discussions. Messrs Manoun, Semrani, Matouk and Mohammad went down to the factory where the plant and equipment was shown to Mr Manoun. I accept the evidence of Mr Manoun and Mr Matouk that Mr Semrani did not distinguish the rollers or any other specific part of the machinery as being the machinery owned by him. Mr Semrani made the point more than once during these conversations that he owned the plant and equipment, that it was worth $1million or more, that the process was patented and that the patent rights were worth $5million or thereabouts. In his evidence, Mr Semrani did not dispute the substance of this evidence. There were discussions as to the interest which Mr Manoun would receive for an investment of $200,000. After the visit to the factory, Mr Semrani told Mr Matouk that he would offer 20 per cent to Mr Manoun and that he, Mr Semrani, and Mr Matouk would each retain 40 per cent of the company, Steel Frame Connections. 18   Thereafter, the discussions between Mr Semrani and Mr Manoun continued without Mr Matouk’s presence. Mr Matouk attempted to get information from Mr Semrani or Mr Manoun but he was not informed as to what was happening. At one time, he was informed he could commence work at Nowra. He understood this to mean he could recommence working in the company and collect the $500 per week which had originally been agreed upon between himself and Mr Semrani. He did work for five weeks but was paid very little. Mr Semrani informed him that he could not afford to pay any more. Later, he was advised by Mr Semrani that he should resign as a director of Steel Frame Connections and he did so. In about June or July 1996, Mr Matouk received from Mr Semrani $11,000 and was informed by Mr Semrani that that was all that he, Mr Semrani, had borrowed from him. 19   In addition to the information which he was given in the conversations with Mr Semrani, Mr Manoun also received from Mr Semrani a booklet, a copy of which is Exhibit K, which described the potential of the patented steel framing system of Steel Frame Connections. The booklet stated more than once that the process was patented, which at the time was untrue. The booklet expressed great potential for the system setting out projections of production growth, cashflow profit and loss and balance sheet figures. I need hardly say that the projections had no basis in business reality and were quite inconsistent with the results of the Armourframe partnership. A letter purporting to be from Inteq was attached. Paragraph 1.3 of this letter was expressed as follows:

“1.3 After seeing the machinery, we place a value of approximately $2.2million of the machinery and are of the opinion that the patents are valued at between $4-5million.”

20   I accept Mr Manoun’s evidence that he received this booklet from Mr Semrani. His evidence was confirmed by that of Mr Alan Balloot who, at about the same time, also had discussions with Mr Semrani about investing in the venture. Mr Balloot gave evidence that he was given that booklet by Mr Semrani, which he produced and which is Exhibit C. He also was told by Mr Semrani that Mr Semrani owned the machines and that the process was patented. Mr Semrani said to him that the machinery was worth $5million with the patent or $1.2million without the patent. He declined to invest. 21   I accept Mr Manoun’s evidence that Mr Semrani said that the process was patented and that Mr Semrani was the inventor. I also accept Mr Manoun’s evidence that Mr Semrani said that he owned the machinery. Words to that effect were used in one or more of the conversations which took place. However, Mr Manoun knew more about the matter than that. In a letter dated 5 February 1998 to his then solicitors, H K Husseini & Co, Mr Manoun said:

“8. During that meeting and in later conversations, Semrani claimed that he designed and built the machinery whilst in partnership with the Aboriginal Land Council of Nowra.

9. Semrani said the partnership called Armourframe was between his company Quimbton and the Aboriginal Land Council of Nowra (ALCN).

10. Semrani claimed that the partnership ended in dispute and a Receiver/manager was appointed by the court.

11. Semrani claimed that he went to court against the ALCN to retrieve his machinery.

12. Semrani claimed that he won the case against the ALCN and was awarded the machinery by the court.

13. Semrani claimed that he was ordered by the court to pay the ALCN the amount of $170,000.00 to compensate for their contribution in building the machinery.

14. Semrani claimed that he did pay the ALCN the whole amount, but he still owes the Receiver/Manager the amount of $60,000.00 in fees and he could not use the machinery officially before paying that money.”

22   Mr Manoun gave similar oral evidence in these proceedings. Mr Manoun went on to say that the $60,000, which was stated by Mr Semrani to be the cost of obtaining a release of the machinery, seemed to be a small sum in relation to the total value of the machinery, which Mr Semrani had said was worth $1million or more. Mr Manoun gave evidence that he understood that, although Mr Semrani owned the machinery, the Armourframe partnership had contributed some funds to its development and that $60,000 was needed to obtain its release. I accept that evidence for it accords with the probabilities of the case. It is not in dispute that Mr Semrani informed Mr Manoun that $60,000 was needed for the release of the machinery. Mr Semrani agreed in his evidence that, in his discussions with Mr Manoun, he always used the word “release”. 23   It is not in dispute that Mr Semrani said to Mr Manoun that the machinery was worth $1million or more. That figure was the basis of the agreement which they entered into. The figure accords moreover with the Inteq letter of 2 August 1994 attached to Exhibit K. I consider it probable that Mr Semrani was responsible for the insertion of paragraph 1.3 in that letter. At one stage in these proceedings, Mr Manoun joined Inteq as a defendant. That claim was discontinued. In Mr Semrani’s evidence, in which he denied that Exhibit K and the Inteq letter had been given to Mr Manoun, Mr Semrani conceded that Inteq had not placed a value on the machinery and that Inteq was not a valuer. I consider it probable that Mr Semrani was responsible for the letter in the form in which it came into the hands of Mr Manoun and also of Mr Balloot. 24   I need not discuss in detail what was said in relation to potential business. Mr Semrani denied the precise conversations attributed to him by Mr Manoun but conceded that he, Mr Semrani, said, “I have more than 100 prospective customers who are very interested in the product”, “I have letters of intent for contracts. One of those letters is from a Mr Mouawad for partitioning a seven storey building” and, “When the automation is completed and we are ready for production all I need is a couple of weeks on the road to review the contacts with the people interested in the product. Within a couple of months of that we should make enough money to recover your investment”. Moreover, I accept Mr Manoun’s evidence that he received from Mr Semrani a facsimile of a letter from Mr Mouawad to Steel Frame Connections accepting a quotation to supply and install steel wall studs for partitioning the abovementioned building. Mr Manoun read that letter and was justified in reading the letter as concluding a contract, rather than as a letter of intent. The substance of the message conveyed by these communications was that Steel Frame Connections had a business ready and waiting to commence. 25   In the course of the discussions, Mr Semrani advised Mr Manoun that he had formed the company B.O.N.I.S Steel Structures Pty Limited (“BONIS”) and that, for Mr Manoun’s protection, the machinery should be owned by that company rather than by Steel Frame Connections which may have old claims still outstanding. Mr Semrani said that Steel Frame Connections should continue to operate the business. Mr Manoun agreed to Mr Semrani’s suggestion. The relationship between BONIS and Steel Frame Connections was not then or thereafter further clarified. Mr Manoun was apparently unaware that Mr Matouk held 50 per cent of the shares in Steel Frame Connections. BONIS was presumably the company which was referred to in the Deed of Agreement with the receiver/manager as “B.O.N.I.S Steel Constructions Pty Limited”. The company was also referred to in minutes, later prepared by Mr Williams, as “B.O.N.I.S Pty Limited”. 26   After Mr Semrani and Mr Manoun had come to a general understanding, an appointment was made for Mr Semrani and Mr Manoun to speak with Mr Williams. The conference took place on or about 11 April 1996. Mr Williams had played a part in the formation of BONIS and Mr Semrani intended that he would be the accountant for the company. Mr Williams had prepared many of Mr Semrani’s tax returns in past years and he had given Mr Semrani advice about the Armourframe partnership, both before the partnership was commenced and when it struck financial problems. Mr Semrani informed Mr Manoun that Mr Williams knew the position of the machinery and that Mr Manoun could ask him about it. 27   In the conference, Mr Manoun outlined the general arrangement that had been reached. Mr Manoun gave evidence in these proceedings that he informed Mr Williams that Mr Semrani had said that the machinery was worth more than $1million but was willing to sell it to the new venture for $1million and that he owned the machinery. Mr Semrani likewise gave evidence that Mr Williams was told that he, Mr Semrani, owned the machinery. Mr Williams gave evidence that he did not recall the ownership of the machinery having been mentioned but he did not deny that the statement may have been made. Mr Manoun, in his evidence, said that when he informed Mr Williams that Mr Semrani said that he owned the machinery, Mr Williams said “Okay” or “Yes”. I do not make a positive finding that such an answer was given, but Mr Williams at least received the statement without raising any query or contradiction. 28   Mr Williams gave evidence that, shortly after he had written the letter of 17 August 1995 to the receiver/manager offering on behalf of a client to purchase the plant and equipment for $58,365, he was informed by Mr Semrani that the Judge in the Equity Division of this Court had said that the machines could only be sold to Mr Semrani at the value listed in the receiver/manager’s report. Mr Williams gave evidence that:

“20. I understood from the conversation referred to above that the first defendant [Mr Semrani] owned certain rights in the machinery but that some money had to be paid to the liquidator before it would be released to the first defendant [Mr Semrani] .”

I do not accept this evidence. The word “release” was not used in that conversation shortly after 17 August 1995 and, in any event, Mr Williams had arranged for the letter of 17 August 1995 to be sent to the receiver/manager offering $58,365 to purchase the machinery and had made that offer on behalf of a client.

29   In his oral evidence, Mr Williams said that, during his conference with Mr Semrani and Mr Manoun, he was not aware that the machinery spoken of was the machinery in respect of which the receiver/manager had obtained a valuation. I reject the substance of this evidence. Mr Williams may not have had any precise knowledge of the machinery which was being spoken of but he was aware in general terms of Mr Semrani’s affairs and of the activities of the Armourframe partnership. Mr Williams was made aware that the venture with Mr Manoun was to undertake the activity of steel frame manufacturing. Although Mr Williams had not done the accounting for the Armourframe partnership and perhaps no accounting had been carried out for Steel Frame Connections, he knew sufficient of Mr Semrani’s affairs to consider it probable that the machinery which was being spoken of in the conference was the machinery which his firm had offered to purchase for $58,365. In the conference, Mr Williams was informed that a sum of about $60,000 had to be paid for the release of the machinery. In the absence of any information as to what was to constitute release of the machinery, it must have been apparent to Mr Williams that the machinery was to be acquired from the receiver/manager of the Armourframe partnership. The letter of 17 August 1995 referred to the “total auction value” of the “unencumbered plant & equipment of the above partnership”. The letter seems to me to be perfectly clear. I do not consider that the reference to sections 1, 2, 3, 4 and 5 of the valuation diminishes the effect of the letter. 30   In the course of the conference, Mr Williams was also informed that the machinery was patented and that Mr Semrani was the owner of the patent. Both Mr Manoun and Mr Semrani gave evidence to that effect. Although Mr Williams said that he could not remember the patent being mentioned, he recorded a representation to that effect in the handwritten notes to which I shall shortly refer. Mr Williams advised that the business should be operated by a company and it was agreed that BONIS would be appropriate. Mr Williams was asked to be the accountant for the new enterprise. Mr Williams agreed. 31   Mr Semrani and Mr Manoun then asked Mr Williams to write out an agreement for them. He was reluctant to do so but, when pressed, he agreed to do so. Mr Semrani and Mr Manoun again met with Mr Williams on 17 April 1996. The handwritten agreement which Mr Williams had prepared was discussed. The document had earlier been distributed, at least to Mr Semrani. The handwritten document reads as follows:

“EXPRESSION OF AGREEMENT BETWEEN PAUL JOSEPH SEMRANI & KHALIL IBRAHIM MANOUN DATED 17th April 1996 WHEREIN BOTH PARTIES INTEND TO BE DIRECTORS OF BONIS PTY LTD, A COMPANY IN WHICH THEY WILL EACH HOLD SHARES. K.I. MANOUN WILL PURCHASE 20,000 SHARES AT $1 & P.J. SEMRANI WILL PURCHASE 80,000 SHARES AT $1. BONIS PTY LTD WILL PAY TO P.J. SEMRANI THE SUM OF $1,000,000 FOR THE PURCHASE OF EXISTING MACHINERY FOR PRODUCTION OF STEEL FRAMES FOR HOUSING CONSTRUCTION.
BOTH PARTIES HAVE AGREED THAT THE BALANCE OF PURCHASE PRICE WILL BE LOANED BY THEM TO THE COMPANY IN THE FOLLOWING MANNER:
K.I. MANOUN $180,000 CASH
P.J. SEMRANI $920,000 IN KIND BY PROVISION OF MACHINERY
LOAN FUNDS ARE NOT IMMEDIATELY REPAYABLE & INCUR NO INTEREST. IT HAS BEEN AGREED THAT P.J. SEMRANI WILL REDUCE HIS LOAN ACCOUNT BY $200,000 IN INSTALMENTS ONLY WHEN COMPANY HAS WORKING CAPITAL IN EXCESS OF $50,000 & AFTER ALLOWING FOR ANY AMOUNTS PAID BY THE COMPANY TO AUTOMATE MACHINERY, RELEASE MACHINERY & OTHER LOAN REDUCTIONS.
P.J. SEMRANI HAS REPRESENTED THAT HE HOLDS THE PATENT ON THE SUBJECT MACHINERY & HAS AGREED THAT BONIS PTY LTD WILL EXCLUSIVELY ARRANGE SALES OF PRODUCTION MACHINERY & WILL HAVE ALL RIGHTS TO PRODUCTION INTERNATIONALLY INCLUDING WITHIN AUSTRALIA.
THE PARTIES HAVE AGREED THAT DECISIONS OF BONIS PTY LTD ARE NOT BINDING UNLESS UNANIMOUS REGARDLESS OF SHARE VOTING NUMBERS - WHERE AGREEMENT CANNOT BE REACHED THEY AGREE TO APPOINT AN INDEPENDENT ARBITRATOR. THE PARTIES HAVE AGREED THAT BONIS PTY LTD WILL CONDUCT ALL BANK ACCOUNTS ON THE BASIS THAT TRANSACTIONS WILL REQUIRE BOTH THEIR SIGNATURES TO BE VALID.”

32   It is to be noted that the agreement provided that Mr Manoun was to have 20,000 shares and Mr Semrani to have 80,000 shares in BONIS and that BONIS was to pay $1million to Mr Semrani for the purchase of the subject machinery. Note the reference to “EXISTING MACHINERY”. Out of the price paid for the machinery, Mr Semrani was to lend $920,000 to BONIS. Mr Manoun was to lend $180,000 to the company. The loans were not to be immediately repayable. Reference was made to moneys payable, inter alia, for automating machinery and for releasing machinery. Note the reference to the representation that Mr Semrani held the patent on the machinery. BONIS was to have an exclusive licence to produce the patented steel frames in Australia and internationally, and to arrange sales of the patented machinery. It was noted that decisions were to be unanimous, subject to the decision of an independent arbitrator where agreement could not be reached, and that cheques were to be signed by both Mr Semrani and Mr Manoun. 33   During and after the conference, Mr Manoun was in some confusion as to whether the arrangement involved the payment of $100,000 for the shares on top of the $1million for the purchase of machinery. No final agreement was reached at that meeting. It was understood that the document would be taken to Mr Shockair, who was Mr Manoun’s accountant, and to a solicitor for advice. 34   Also available at the conference on 17 April was a typed copy of the handwritten agreement. One sentence of the typed version was expressed in terms different from the handwritten version. Mr Semrani, Mr Manoun and Mr Williams have all denied responsibility for the typed version and it seems to have no particular significance. 35   Later on 17 April, Mr Manoun and Mr Semrani attended on Mr K Shockair of Shockair Accounting & Taxation. Mr Shockair, who was Mr Manoun’s accountant, drew up a letter addressed to Mr Swanson of Ledlin Partners, solicitors. That letter expressed the substance of the matters set out in the handwritten agreement, although it reduced the value of the contributed machinery to $900,000, apparently with a view to overcoming a perceived problem with the subscription moneys and the purchase price. The letter noted that Mr Semrani was to contribute machinery fully patented and valued at $900,000. It was also noted that Mr Semrani and Mr Manoun would receive a net wage of $500 per week each. That letter, dated 17 April 1996, was signed by Mr Manoun and Mr Semrani, presumably in Mr Shockair’s presence, on 19 April 1996. 36   A formal agreement setting out the arrangement between Mr Semrani and Mr Manoun was drawn up by Ledlin Partners and was forwarded to Mr Semrani on 21 June 1996. The agreement provided that Mr Semrani would contribute machinery at an agreed value of $900,000 and it contained a reference to the release of machinery and the cost of automating machinery. 37   Mr Williams drew up minutes of company meetings for 13 June 1996 and 28 June 1996. I need not discuss the details of the minutes which provided for different classes of the shares and also for the holding of Mr Semrani’s shares by a trust company, Alaten Pty Limited. One of the minutes expressed the shareholders’ approval to the action of the directors in entering into agreement with Alaten Pty Limited to acquire the existing machinery owned by it which was to be satisfied in part by the issue of additional shares and in part by the crediting of $920,000 to a loan account. Thus the minutes put the purchase price of the machinery at $1million. The minutes were signed by Mr Williams, Mr Semrani and Mr Manoun. 38   From 19 April 1996 onwards, Mr Manoun contributed sums to the venture. Two cheques on 19 April 1996 totalled $100,000. Subsequent cheques were for smaller amounts. Mr Manoun has given evidence which I accept, although it was disputed by Mr Semrani, that his payments totalled $251,750. Although Mr Semrani disputed the total, he was not able to show that Mr Manoun’s evidence, which was supported by the available evidence, should not be accepted. More than $200,000 was invested as Mr Manoun purchased from Mr Semrani an additional 10 per cent of the shareholding for the sum of $100,000. The minutes of 28 June 1996 record the transfer from Alaten Pty Limited to Mr Manoun of 10,000 shares. There is a counterclaim by Mr Semrani for the amount of $48,250 being the balance between the total paid of $251,750 and the total of $300,000 agreed to be paid. 39   The manufacturing was carried out by Steel Frame Connections notwithstanding that no agreement was entered into between Steel Frame Connections and BONIS. Contracts were entered into the name of Steel Frame Connections and orders were placed in its name. Mr Manoun was appointed a director of Steel Frame Connections. The funds of Steel Frame Connections and BONIS were intermingled and Mr Williams was unable to disentangle their financial affairs. Little manufacturing could be done until the machinery had been automated. This took longer and cost more than had been anticipated. In July 1996, Steel Frame Connections entered into a contract to supply 16 prefabricated cabins to the Shoalhaven City Council. Work continued thereafter but the funds diminished. 40   The arrangement between Mr Semrani and Mr Manoun had been that Mr Semrani would attend to the manufacture and Mr Manoun would attend to the administration. Mr and Mrs Semrani have blamed Mr Manoun for the collapse of the company and Mr Manoun has blamed Mr Semrani. Mr Manoun became concerned that the quote for the Shoalhaven City Council contract was too low with the result that the company was losing money on the contract. Mr Manoun was also concerned that the contract with the Shoalhaven City Council involved Steel Frame Connections in the building of structures. Mr Manoun took the view that the task of the enterprise was to manufacture steel frame members in accordance with the patent. Mr and Mrs Semrani blamed Mr Manoun for not keeping a proper eye on materials and for not seeing to the ordering process. Mrs Semrani came to work in the organisation and attended to all the tasks involved in negotiating for and ordering the necessary material required for the prefabricated cabins. I should observe, however, that unlike Mr and Mrs Semrani, Mr Manoun had no background in the building industry and had no interest in it and I am sure that he had never anticipated that he was expected to undertake the tasks that Mrs Semrani thought he should do. It is clear that Mr Semrani and Mr Manoun did not cooperate well together and that Mr Manoun reached the stage where he feared that Mr Semrani would enter into further obligations which the company could not meet. 41   By the beginning of October 1996, Mr Manoun wished to end the relationship with Mr Semrani. A letter from Mr Semrani of 3 October 1996 refers to recent conversations and to the fact that “we have reached an irreconcilable rift in our partnership” and, “It appears that we are unable to work together in harmony”. The letter proposed, inter alia, that:

“The Company employs an office manager/floor manager who will be given the responsibility to keep a proper accounting of all business matters. Deal with all creditors. Attend to all customer enquiries. Determine all the needs of the business. To be completely competent in the operation of the computer and fully conversant with the building industry requirements. To be able to estimate quantities and quoting. He will also be required to supervise the activities of employees. It will also be a requirement of the office manager to fully report to both partners, every Friday afternoon, all of the activities of the business during the week.”

The letter did not, however, blame Mr Manoun for his administration but said, “I full (sic) recognise your contribution to the partnership which enabled the business to begin operations, for which I thank you most sincerely.”

42   I should say at this point that I think that the business was bound to fail. In my opinion, neither Mr Semrani nor Mr Manoun had the capacity to develop and manage the new business. Neither appears to have done anything in a businesslike way and neither appears to have understood, soon enough, what was necessary to establish a business of this type. The venture was hopelessly undercapitalised. Capital was required for establishment costs, including advertising. Mr Semrani had no capital and Mr Manoun had run out of funds at a little over $250,000, which was not sufficient. Having read the material in respect of the Armourframe partnership and having read the evidence of this case, I have concluded that Mr Semrani did not have the capacity to manage the business which he wished to establish and that Mr Manoun also did not have that capacity. The paragraph in the letter of 3 October 1996 set out above expresses precisely the type of manager who was required, at least if Steel Frame Connections was to engage in projects such as the project undertaken for the Shoalhaven City Council. Mr Manoun was not fitted for those tasks and Mr Semrani concentrated on the production side of the business. Unfortunately, the letter of 3 October 1996 was not only too late but the business by then did not have the funds to engage the sort of skill that was required. Mr Semrani was more to blame in this respect than Mr Manoun for Mr Manoun had not represented himself to be fit to cope with all the tasks which Mr Semrani described. Mr Manoun had been invited into the venture, not for his managerial skills, but for his money. 43   On 8 October 1996, there was a conference at which Mr Manoun was offered $300,000 for his share. However, no precise terms were agreed on. On 23 October 1996, Mr Manoun’s solicitors wrote to Mr Semrani to say that he was not authorised to use the facilities of the company for his own purposes and that he was not authorised to enter into any significant contract without the written consent of Mr Manoun. That letter was replied to by the solicitors for Mr Semrani. No firm proposal was made. On 24 October 1996, Mr Manoun wrote to the steel supplier to say that Steel Frame Connections was unable to meet its financial obligations. He suggested that the supplier should collect the unused steel left on the premises which was close in value to the debt due to the supplier. On 27 October 1996, BONIS and Steel Frame Connections ceased trading. 44   Early in November 1996, Mr Williams examined the financial affairs of Steel Frame Connections and BONIS. He was unable to disentangle their affairs. A profit and loss statement for the period 1 January 1996 to 27 October 1996 showed a loss of $73,990.65. The report was forwarded to Mr Semrani and to Mr Manoun and both were advised that the two companies were insolvent and that action was required to protect the companies’ assets as well as the rights of the creditors. Those matters were repeated in letters from Mr Williams of 11 November 1996 and 13 November 1996. On 22 November 1996, Mr David Cawthorne was appointed provisional liquidator of both companies. 45   On 13 November 1996, a cheque for $42,234.08 in favour of Manoun Marketing Group Pty Ltd was debited in the bank account of Steel Frame Connections. This reduced a credit balance of $57,207.91 to a closing balance of $14,973.83. The cheque was signed by Mr Manoun and by Mr Semrani and was dated 18 October 1996. Mr Semrani gave evidence that, when he signed the cheque, it was expressed to be for the sum of $2,234.08. The cheque appears to have been altered by Mr Manoun. The word “forty” is cramped in before the word “Two”. Not only does the word “forty” appear to have insufficient space but the capital letter appears on the word “Two”. Moreover, the number “4” appears to be more cramped and upright than the other numbers which are written. The sum of $2,234.08 also appears on the butt of another cheque which was never cashed or presented. That sum was due to Mr Manoun for moneys which he had advanced. Accordingly, there was good reason for Mr Semrani to have signed the cheque on or about 18 October 1996. There was no adequate justification for Mr Manoun to have removed the additional $40,000 at that time, when the company appeared to be insolvent. But no doubt the worry which Mr Manoun had about his own financial position at that time provides the explanation as to why he altered the cheque. 46 It was alleged on behalf of Mr Semrani that the failure of the companies was due to the withdrawal of that sum of $42,234.08 on 13 November 1996. I reject that contention. The companies had ceased trading on 27 October 1996 and Mr Williams had investigated their affairs and reported that they were insolvent. This occurred early in November 1996. By the time Mr Manoun banked the altered cheque, the companies were headed for liquidation. 47 In s 42 of the Fair Trading Act, as in s 52 of the Trade Practices Act 1974 (Cth), the words “misleading and deceptive” are ordinary words of the English language and should be given their meaning in ordinary parlance. Whether conduct is misleading or deceptive is a question of fact to be considered having regard to the context in which it occurs. Principles of law with respect to innocent or fraudulent misrepresentation or otherwise do not determine the issue under the statutory provision, although they may provide a guide as to what is right or wrong in business behaviour. As Bowen CJ said in Rhone-Poulenc Agrochime SA & Anor v UIM Chemical Services Pty Ltd & Anor (1986) 12 FCR 477 at 489:

“As in the case of other sections of the Trade Practices Act 1974 the court may gain assistance from consideration of cases at common law and in equity dealing with related types of situations. However, the court is not confined by such cases because it is concerned with the interpretation and application of the words of the particular statute.”

In dealing with the issue of silence, his Honour went on to say at p 490:
“Under the general law it is important to consider whether there is a legal obligation to divulge. …
The notion of relationships giving rise to an obligation to make disclosure is one which may well prove useful in determining some of the cases which may arise under s 52 of the Trade Practices Act1974 . However, the court will not be restricted to cases where such a relationship has already been held to exist at common law or in equity. The court is likely to be faced with situations under s 52 between particular parties, where it will feel bound to hold that such an obligation to disclose arises from the circumstances.”

More recently, in Demagogue Pty Ltd v Ramensky & Anor (1992) 39 FCR 31, Black CJ said at p 32:
“Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of ‘mere silence’ or of a duty of disclosure can divert attention from that primary question. Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.”

48   I have cited these passages for I have come to the conclusion that, in the present case, Mr Semrani did engage in misleading and deceptive conduct which was constituted both by the positive statements he made and by his failure to disclose that he proposed to purchase the machinery of which he spoke for less than $60,000. Although much of what Mr Semrani said can be regarded as “mere puffing”, Mr Semrani represented as a matter of substance that he owned two assets of great value. One was the machinery and the other was the patent. Those representations, plus the representations as to potential business, induced Mr Manoun to invest funds in what he thought was a venture having value in it. Mr Manoun probably overstated the position when he said in evidence that, “I didn’t buy prospects. I bought physical value.” Nevertheless, I am satisfied that Mr Manoun understood that Mr Semrani was bringing assets of substantial value into the venture and that Mr Semrani induced that belief. 49   I am satisfied that, had Mr Manoun understood that the machinery was on offer to Mr Semrani for less than $60,000 and that no patent had issued, he would not have been prepared to invest. Mr Manoun risked not only his own moneys but also moneys of his family. He did so because he understood the venture to be backed by valuable machinery and patent rights. 50   It is not really in dispute that Mr Semrani did represent that the machinery was worth $1milllion or more. This was the basis upon which the transaction was structured. I accept, moreover, Mr Manoun’s evidence that he was given a copy of the false Inteq letter in which Inteq appeared to place a value of approximately $2.2million on the machinery and $4-5million on the patent. The machinery was not worth anything like $1million. I regard the valuation obtained by the receiver/manager as placing a realistic value upon the machinery as a “going concern” and at an auction. The fact that a sale took place at that value is confirmatory of that. The fact that the records of Armourframe showed $173,000 spent on the machinery is also confirmatory that the machinery had a relatively modest value, nothing like $1million. 51   There is in evidence a valuation from Anthony R O’Dea, a valuation consultant. The valuation is dated 24 November 1996 and it was provided to Mr Semrani for use in promoting the business. The valuation placed a “going concern” value on the business of Steel Frame Connections of $1,626,115, of which $1,318,000 was attributed to the machinery on an in use basis. The foundations for the valuation in so far as they are explained do not appear to have any substance. The foundation of the valuation of the machinery was not explained. I would not give the valuation any weight. 52   It is also not in dispute that Mr Semrani represented that he owned the machinery and that Mr Manoun believed that to be the case. That representation was false. At all times during his negotiations with Mr Manoun, Mr Semrani had it in mind to purchase the machinery from the receiver/manager at or about the valuation which the receiver/manager had received. I have already pointed out that, although in the partnership proceedings in the Equity Division of this Court Mr Semrani claimed that he owned the machinery, the two affidavits which were filed in January 1994 both made the point that the materials for the machinery were acquired by the partnership and that the machinery was built by him and by employees of the partnership under his supervision whilst he was employed in the partnership’s business. On the basis of those affidavits, one would conclude that the Armourframe partnership owned the machinery. In these present proceedings, Mr Semrani in his evidence appeared to confuse questions of patent rights with the issue of ownership. In his affidavit, Mr Semrani deposed, “Since I was the owner of the Patent (pending) I considered the machinery mine.” His oral evidence seemed to put the same point and, in these proceedings, he attempted to distinguish between those parts of the machinery which reflected his invention, the dies and the rollers, from other parts of the machinery which could have general use. On the whole of the evidence, it seems to me that Mr Semrani was never the owner of the machinery. In any event, throughout his negotiations with Mr Manoun, Mr Semrani had it in mind that the machinery would be purchased from the receiver/manager at or about the valuation which the receiver/manager had received. I am satisfied that, had Mr Manoun known of this fact, he would not have dealt with Mr Semrani on the basis which he did, indeed, he would not have invested in the venture. 53   I should also mention that the machinery was in due course purchased by BONIS from the receiver/manager. The funds of BONIS were paid to the receiver/manager. The Deed of Agreement, which I have mentioned above, provided for BONIS to be the purchaser. Mr Semrani never became the owner. 54   If one looks at the terms of the handwritten agreement, one notes that there was an apparent conflict between the concept that BONIS would purchase the machinery from Mr Semrani and the provision that BONIS would pay for the release of the machinery. This discrepancy was not raised or discussed in the conference. Mr Williams said that he understood at the time that Mr Semrani would draw funds from BONIS on his loan account and with those funds would himself acquire the machinery. If Mr Williams had considered that that would happen, it would have been appropriate for him to raise that matter for discussion. Such a transaction would seem, on the face of it, to be inconsistent with the provision that the loan account was to come into existence only when the machinery was sold by Mr Semrani to BONIS. 55   The significance of the representation that Mr Semrani owned the patent is that it gave an element of substance to the enterprise in which Mr Manoun was asked to invest. The representation was not insignificant, because Mr Semrani alleged that the patent was valued at about $5million. The Inteq letter also contained the representation that the patent had a valuation of $4-5million. When Mr Manoun was asked to invest, and when he did invest, the enterprise did not have that substance behind it. There was no patent, merely an application for a patent. 56   The representations which Mr Semrani made with respect to potential customers were not significant matters in themselves, but the overall picture that Mr Semrani presented was that of a business which was in a position to make substantial profits within a short time of an investment by Mr Manoun of his $200,000. That picture was untrue as a matter of substance. There was no existing business ready to start and a great deal more capital and expertise was required than could be provided by Mr Semrani and Mr Manoun. 57   I am satisfied that Mr Manoun acted on the faith of Mr Semrani’s representations and would not have invested had he been aware of the true position. I am therefore satisfied that his loss is attributable to, was caused by, Mr Semrani’s misleading and deceptive conduct. 58   I have come to a similar view with respect to Mr Williams’ conduct. Mr Williams did not set out to deceive Mr Manoun but he was aware of a vital fact which he did not mention. That fact was that steel frame making machinery which had been used by the Armourframe partnership was being offered for sale by the receiver/manager of the partnership for $58,365. Mr Williams himself had caused a letter to be sent to the receiver/manager offering that sum. The conduct was misleading and deceptive because the ownership and the value of the machinery was an important matter and the statement that Mr Semrani represented that he owned the machinery and that it was worth $1million or more was put to Mr Williams in such a way that Mr Manoun would have expected him to query the statement if he knew it to be untrue. Mr Manoun had been informed that Mr Williams had had an involvement with the machinery. Although Mr Manoun did not expressly ask Mr Williams whether Mr Semrani’s statement was true, he stated the facts so as to make it clear what was the basis upon which he was proceeding and so as to give Mr Williams an opportunity to respond if the facts were wrong. He expressed the representation as to ownership of the patent in the same way. Mr Williams may have answered “Okay” or “Yes”, as Mr Manoun alleged, or he may simply have remained silent. But he was aware that he had offered the “total auction value” of “the unencumbered plant & equipment of the … partnership” and that that value was only $58,365. By remaining silent, he joined Mr Semrani in deceiving Mr Manoun. His deception continued when he had produced the handwritten agreement which referred to “THE PURCHASE OF EXISTING MACHINERY” and “RELEASE MACHINERY” and which proceeded on the basis that the machinery was owned by Mr Semrani. The deception continued further when Mr Williams drafted and had signed the minutes of a shareholders meeting of BONIS of 13 June 1996 which provided, inter alia, that, “The shareholders unanimously agreed to the action of the directors of the company in entering into an agreement with ALATEN Pty Limited (acting in their capacity as trustee of the FUTURE TRUST) to acquire the existing machinery owned by the FUTURE TRUST”. On that date, no machinery was owned by Alaten Pty Limited or Mr Semrani and negotiations with the receiver/manager had not been finalised. 59   I am also of the view that Mr Williams had a duty of care to Mr Manoun and that he breached that duty. By advising the two men as to aspects of their proposal and by agreeing to act as accountant for the enterprise, Mr Williams put himself in the position where he acted for both. He so acted in a professional capacity. When he knew of a fact which was inconsistent with what he was told and inconsistent with the agreement between Mr Semrani and Mr Manoun, he had a duty to raise the point, if he was to continue to act. He did not fulfil the duty of care which he owed to Mr Manoun. 60   It has been submitted on behalf of Mr Williams that his advice was limited to recommending a corporate structure rather than a partnership and that his preparation of the handwritten agreement involved no input from him, merely the putting into good English of the matters which had been agreed in principle between Mr Semrani and Mr Manoun. However, I think that places too limited an ambit on Mr Williams’ role. In the first place, he had had, and was understood to have had, an involvement with Mr Semrani’s affairs and with the machinery. Secondly, probably before the document had been prepared and in any event before Mr Semrani and Mr Manoun went elsewhere, he had agreed to be the accountant for the venture. Mr Manoun expressed the representation as to ownership of the machinery and of the patent in such a way as should have evoked a response from Mr Williams if he knew facts to the contrary. Note the recording in the document of Mr Semrani’s representation that he owned the patent. A similar representation with respect to the machinery is not expressed in the handwritten document but it is plainly implied and I accept the evidence of both Mr Semrani and Mr Manoun that it was made. By doing nothing, Mr Williams conveyed that these representations were not inconsistent with his knowledge. 61   In these circumstances, I am of the view that there should be judgment against both Mr Semrani and Mr Williams. 62   It was submitted that Mr Manoun was not entitled to damages for he got what he had paid for. It was pointed out that BONIS acquired the machinery and that a patent was ultimately issued. It was submitted that the venture did not fail because of misleading and deceptive conduct but because of mismanagement. I reject this submission. The enterprise did not have the character which had been represented. It was not backed by valuable assets and it was not in a position to make substantial profits within a few months. In my view, Mr Manoun’s money was lost the minute he invested it. He suffered loss because he trusted Mr Semrani and Mr Williams and made the investment. 63   Mr Manoun paid the sum of $251,750. That sum must be reduced by the amount of $42,234 received back by way of the altered cheque dated 18 October 1996. The balance is $209,516. Of this sum, only about $120,000 came from Mr Manoun’s own funds. $20,000 came from funds by his children belonging to or provided by his children and the remainder from funds belonging to his wife. The submission was made that Mr Manoun could sue only for the moneys to which he had presently been entitled. I reject that submission. The moneys were invested by Mr Manoun in his own name. The means he took to obtain finance is not relevant. Having used the money for investments in his own name, he is entitled to recover and has an obligation to repay to those from whom he obtained the finance. 64   It was submitted that Mr Manoun continues to hold valuable shares in BONIS and that no evidence had been adduced as to their value. The substance of the submission was put in Mr Semrani’s affidavit of 15 December 1999 when he said, “I say that at the time of our agreements the plaintiff received a 30% interest in two companies, which together owned the business, the machinery and the exclusive licence to exploit the Patent.” However, Mr Manoun received no interest in Steel Frame Connections and both Steel Frame Connections and BONIS are in the course of liquidation. Although Mr Semrani considers that the machinery and the patent rights have great value, I am not satisfied that the machinery has other than its auction value or that the licence has any significance for the purposes of the liquidation. The exclusive licence would not appear to be a saleable asset. The evidence as it stands is that the companies ceased trading on 27 October 1996 and that shortly thereafter Mr Williams examined the finances of the companies and concluded that they were insolvent and that steps should be taken to protect the interest of the creditors. It appears to me from the material before the Court that the shares in the company had no value at that time. Mr Williams recorded the trade creditors at $163,869. This was apart from the loan account of Mr Manoun and Alaten Pty Ltd. No evidence has been adduced to show that the position has changed. 65 Mr Semrani has cross-claimed for the sum of $48,250, the difference between the $300,000 agreed to be invested by Mr Manoun for his shares in BONIS and the amount actually paid. However, that claim must be set off against Mr Manoun’s claim under s 42 of the Fair Trading Act. No purpose would be served by increasing the sum awarded to Mr Manoun by $48,250 and allowing a cross-claim for that sum. The appropriate orders are judgment in favour of Mr Manoun for the sum I have mentioned and dismissal of the Cross-Claim. 66   There will be judgment for the plaintiff in the amount of $209,516 with $80,663 for interest calculated in accordance with the rates set out in Schedule J to the Supreme Court Rules. The total is $290,179. The defendants are to pay the plaintiff’s costs of the proceedings.

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Last Modified: 09/25/2000