Mooney v NDL Biotechnologies Pty Ltd & Elson - [2010] SADC 26

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MOONEY v NDL BIOTECHNOLOGIES PTY LTD & ELSON
[2010] SADC 26
Judgment of Her Honour Judge McIntyre
11 March 2010
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - CHARACTER AND ATTRIBUTES OF CONDUCT - REPRESENTATIONS - AS TO FUTURE MATTERS
In late 2003 the plaintiff provided $57,000 to either the first or the second defendant to complete a mosquito control product and to launch that product on the market - the plaintiff says the amount was a loan that she made relying upon representations as to the likely success of the product and the short time frame for repayment. The defendants say that the payment was an investment in the product. The product is yet to be launched on the market and the intellectual property in the product has been sold by the first defendant to another company. The plaintiff has received no payment from the defendants.
Held:
1. The payment was a loan to the first defendant and the first defendant is in breach of contract in failing to repay the loan on the terms agreed and within the agreed time frame.
2. The first defendant is in breach of section 52 of the Trade Practices Act 1974 in that its conduct was misleading or deceptive or likely to mislead and deceive.
3. The second defendant was the sole director and controlling mind of the first defendant and was knowingly concerned in and party to the breach of section 52 contrary to section 75B of the TPA.
4. The plaintiff could not obtain damages both for breach of contract and under the TPA and accordingly elected to seek damages under the TPA.
Trade Practices Act 1974 s52, s53, s75B(1); Misrepresentation Act ; Fair Trading Act , referred to.
Lewarne v Momentum Productions Pty Ltd (2007) FCA 136; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; Yorke v Lucas (1984) 158 CLR 661; Wheeler Grace and Pierucci v Wright (1989) 11 ATPR 40-140; Henville & Anor v Walker & Anor (2001) 206 CLR 459, applied.

MOONEY v NDL BIOTECHNOLOGIES PTY LTD & ELSON
[2010] SADC 26
Introduction

Ms Mooney and Mr Elson were work colleagues who became friends. Mr Elson told Ms Mooney that he was developing a mosquito control product that would revolutionise the market and that would, to use his words, “make millions”. In late 2003 Mr Elson told Ms Mooney that he was very close to completing the product in order to bring it to the market but that he could not raise the additional finance to do this.
Ms Mooney says that relying on those statements she agreed to lend the sum of $57,000 for the short period required to launch the product. Mr Elson says that Ms Mooney invested the money in his company, NDL Technologies Pty Ltd, to obtain a royalty stream from sales of the product.
Despite Mr Elson’s optimism that the product would be launched in early 2004, the product remains in development and has yet to be released. Ms Mooney has not received any payment from Mr Elson or NDL. Ms Mooney seeks damages for breach of contract or, in the alternative, damages under the Trade Practices Act 1974, (“TPA”) the Misrepresentation Act 1972, the Fair Trading Act, 1987 (FTA) or for negligent misstatement.
The issues
The central issue is the basis upon which Ms Mooney paid the sum of $57,000 - was it an investment or a loan? Determination of this issue requires me to consider the following matters:
·The circumstances leading to Ms Mooney approaching the Commonwealth Bank including what representations were made to Ms Mooney.
·What discussions took place at the Commonwealth Bank?
·Was payment made to Mr Elson or NDL?
·How were Ms Mooney’s funds treated by Mr Elson and NDL?
·The significance of a deed between Ms Mooney and NDL
·Mr Elson’s conduct when approached for repayment.
·The circumstances surrounding the transfer of intellectual property from NDL to Vector Biotechnologies Pty Ltd.
Summary
For the reasons that follow I consider that Ms Mooney, relying on representations made by Mr Elson for and on behalf of NDL entered into an oral loan agreement with NDL in and around November 2003. I further consider that the terms of the agreement included that Ms Mooney loan NDL the sum of $57,000 and that NDL, through Mr Elson, agreed to repay that sum, together with the borrowing expenses and interest, within 3 to 6 months. NDL has failed to comply with the terms of that agreement and is accordingly in breach of contract.
I further find that representations made by Mr Elson in his capacity as sole director of NDL constituted conduct on the part of NDL that was in breach of section 53 of the TPA and that Mr Elson is liable for that conduct under the accessory provisions of the TPA.
Background
Ms Mooney first met Mr Elson as result of working with him and or his wife in about 1998. Their friendship developed over a period of time following their initial meeting.
In or about 2002 Mr Elson controlled a company called NDL Fragrances Pty Ltd, which was in the process of developing and marketing car fragrances. Ms Mooney assisted him in this endeavour by arranging for him to meet potential distributors and by conducting surveys at various businesses that might be expected to sell or use the car fragrances. She was paid for these activities on a casual basis as an employee of the fragrance company.
Mr Elson set up NDL Technologies Pty Ltd (“NDL”) on or about 22 March 2001. He is the sole director and shareholder of NDL. Ms Mooney had no involvement with this business until the events that are the subject of this action. NDL was set up to:
Explore and develop a mosquito control product for sale to government authorities both in and outside Australia focusing on developing new delivery systems from non-toxic pesticides based on bacillus thuringiensis israeliensis, commonly known as BTI, a common non-toxic bacteria found in nature and specific to killing mosquitoes and midges.[1]
[1] Amended Defence para 2.1
It is uncontentious that there was some sort of arrangement in November 2003 that resulted in Ms Mooney paying the sum of $57,000 to or on behalf of NDL. Ms Mooney says in her pleadings that it was a loan agreement with Mr Elson acting on behalf of NDL. She says that she agreed to loan $57,000 to NDL which loan was to be repaid within three months together with the borrowing costs associated with that loan.
The defendants say that the sum of $57,000 was in the nature of an investment in NDL and the product. In the defence it is stated that:
In consideration for monies being paid by Mooney to NDL for the further product development and marketing, NDL would enter into an agreement with Mooney for the payment of royalties from the sales of the product.[2]
[2] Amended Defence para 2.14
Ms Mooney obtained the sum of $57,000 by obtaining a loan from the Commonwealth Bank secured against her house. She paid the loan amount to various entities at the direction of Mr Elson. The procedure was that Mr Elson would contact Ms Mooney and advise her of the amount required. She would then contact the bank to instruct the bank to pay that amount into the account that Mr Elson had nominated. She said these amounts would be paid into “his account” or that he would supply her with other account details.[3] An example of this is contained in an email from Mr Elson to Ms Mooney dated 15 July 2004 requesting her to pay the sum of $8525.00 into an account stated to be for “Eureka Agrerseach”(sic).[4]
[3] Transcript p74
[4] Exhibit P4
On or about 7 February 2004 NDL and Ms Mooney entered into a Deed.[5] The document was signed by Mr Elson as sole director and company secretary of NDL and by Ms Mooney.
[5] Exhibit P13
In October 2006 Ms Mooney lost her employment when the company for which she was working closed down. She says that she then made a number of requests to Mr Elson for repayment of the $57,000 together with interest and fees. She further says that Mr Elson at no stage said that the money would not be repaid but nevertheless she did not receive any payment.
On 30 September 2007 Ms Mooney received an email with a draft proposal from a company called Ausfirst Innovation Pty. Ltd. (“Ausfirst”).[6] The draft proposal indicated, amongst other things, that NDL was to be restructured and a number of shares to be issued. Ms Mooney was offered 400,000 preference shares “in full satisfaction of any claim” against Mr Elson. There was no mention of a claim against NDL or an investment in NDL. Ms Mooney declined that proposal.
[6] Exhibit P12
Ausfirst and Ausfirst Securities Pty Ltd agreed to assist NDL in the development of the product, which, according to the amended defence, culminated in an arrangement entered into in or about February 2008 whereby NDL transferred its intellectual property in the product to Vector Biotechnologies Pty. Ltd.[7]
[7] Amended Defence para 2.21; Exhibit P24
Ms Mooney has not received any payment from Mr Elson or NDL.
The Evidence
There is limited documentation in this matter. Accordingly, an assessment of the evidence of Ms Mooney and Mr Elson is critical to a determination of the issues in dispute.
Ms Mooney gave evidence and called two witnesses. The first was Mr Ian Prendergast a solicitor who acted for her in 2007. Mr Prendergast gave evidence concerning two telephone conversations that he had with Mr Elson. Ms Mooney also called Mr Robin Goulter who was formerly employed by the Commonwealth Bank as a personal lender specialising in home loans. He gave evidence concerning two occasions upon which he met Ms Mooney and Mr Elson in relation to Ms Mooney borrowing the sum of $57,000 secured against her home.
Mr Elson gave evidence. There were no other witnesses for the defendants. I found Mr Elson to be an extremely unsatisfactory witness. His evidence was confusing, vague and variable. On many occasions he gave the impression he was making up his evidence as he went. This was particularly the case when he was presented with documents at odds with his prior evidence. He also appeared to have a very limited understanding of his obligations as a company director and of the distinction between his personal interests and those of NDL. I will comment in more detail upon aspects of his evidence in these reasons.
Ms Mooney on the other hand was a straightforward witness who gave a clear and confident version of the events that had transpired. Her evidence was supported in material particulars, to which I will refer later, by Mr Prendergast and Mr Goulter. The evidence of Mr Prendergast and Mr Goulter also favourably impressed me. Both were careful witnesses. Mr Prendergast was assisted in his recollection by contemporaneous notes. Mr Goulter did not have notes but he appeared to have an excellent recall of relevant matters. Where there is conflict between the evidence given by the witnesses I prefer that of Ms Mooney, Mr Prendergast and Mr Goulter to that of Mr Elson.
What circumstances lead to Ms Mooney approaching the Commonwealth Bank?
Ms Mooney says that Mr Elson made a number of representations to her about the product. She said he quite often talked about the product saying there were only four other people in the marketplace with that particular product and that his was the best. He told her that the product would “make millions” and that it would revolutionise the industry. He told her that there were many people interested and that “the Asian market was going to be huge”. She said there were perhaps half a dozen conversations about this topic over a period of time from October 2003 to November 2003.[8]
[8] Transcript p67
Mr Elson also told her that the product was close to completion but that he required an amount of about $57,000 to complete the product and get it to market. She asked why he could not raise this money. He told her that he had mortgaged his house and exhausted all avenues of money and at that point in time was not keen in getting any outside investors.[9] He said he needed the sum of $57,000 for a short period of time, three months, to finish his product and get it onto the market.
[9] Transcript p60
This evidence is largely uncontentious. Mr Elson agreed that he had made the representations as to the likely success of the product described by Ms Mooney. In particular that there were four players in the market, that the product would revolutionise the market, that it would be successful in Australia and internationally.[10] He also agreed that he told Ms Mooney that the product was superior to other products in the world, that there was nothing like it in the market and he said he told her about the various entities involved in finalising the product.[11] In fact, it is clear from his evidence that Mr Elson continues to maintain these representations as to the likely success of the product are correct.
[10] Transcript p192
[11] Transcript p154
The defendants did not give or call any evidence to establish that there were reasonable grounds for the representations concerning the likely success of the product. Nor were any documents tendered to support that proposition. If a number of experts and consultants such as Eureka and Professor Michael Brown held the opinions asserted by Mr Elson as to the likely success of the product it is surprising that they were not called to give evidence. No explanation was proffered to explain this omission nor were any documents in the nature of reports or correspondence from those experts or consultants discovered, produced or tendered. Likewise, if there were documents in existence that established matters such as the stage of development of the product at the time the representations were made, the dates, locations and results of trials and details of the investors that were said to be interested in the product and the nature of any proposed investment it is extraordinary that they were not discovered or produced. This is particularly the case in the light of requests for discovery made to the defendants’ then solicitors.[12] Again, no explanation was advanced to explain this startling lack of documentation.
[12] Exhibit P28
Accordingly, the only evidence on the topic of the likely success of the product is Mr Elson’s oral evidence which I reject. The failure to call witnesses or to provide any documents whatsoever leads me to the conclusion that there were no reasonable grounds for Mr Elson’s representations to Ms Mooney concerning the likely success of the product.
Mr Elson said that he told Ms Mooney that the time frame for getting the product to the stage where it could be marketed as three to six months.[13] In the amended defence the time frame issue is dealt with as follows:
2.5In or about mid 2003, in consultation with Eureka, NDL and Elson estimated that on the, basis that further funds were provided, the product would be finally developed for sale likely within three months.
2.6The three month time frame was recommended by experts engaged by NDL and in particular Eureka and Professor Michael Brown.
[13] Transcript p190
Mr Elson did not explain the discrepancy between his evidence and the defence.[14] He did however give a great deal of rather confusing evidence to explain why the product development was not completed within the expected time frame or indeed to date. In summary it appears that he says it was due to factors outside his control such as disappointing test results and that the company simply ran out of money.[15] Again, no evidence was provided to support these assertions by Mr Elson.
[14] Transcript pp 197-8
[15] Transcript p156
Ms Mooney said that Mr Elson and his family had been good to her in the past including assisting her with cars. She thought that she could assist him by loaning the money he needed to complete the product. Ms Mooney did not have that sort of money but she had a new job with a good income and sufficient equity in her house to borrow that sum. She did not think there would be any risk to her in view of the things Mr Elson had said to her about the likely success of the product and the short, on her evidence three-month, time frame.
Mr Elson’s evidence on this topic was similar with one substantial variation. Mr Elson said that on 23^rd or 24^th October 2003 he received a telephone call from Ms Mooney asking about the progress of the product. He said his response was:
….basically, to get it to the registered stage where it is now, we would need somewhere between $50,000 and $60,000 to get it registered.[16]
[16] Transcript p153
He said that Ms Mooney indicated to him that she wished to invest that sum of money into the company. He said he was surprised because he knew she did not have that sort of money. He says that Ms Mooney told him she had that amount of equity in her house and that she was looking for a long-term investment for her daughters.[17]
[17] Transcript p153
What discussions took place at the Commonwealth Bank?
Mr Elson and Ms Mooney both attended at Ms Mooney’s bank, the Commonwealth Bank at Modbury, in November 2003. There were two meetings at the bank with a lending manager, Mr Goulter.
At the first meeting with the bank it is largely uncontentious that Mr Elson explained the product to Mr Goulter saying again that it was a very lucrative product, that there were only four other players in the Industry and that it would make millions in the Asian market. Ms Mooney says that Mr Elson indicated that as he only required the money for three months, it would be preferable to do it as a draw down.[18] Mr Elson agreed that he made this suggestion but says that the time frame was three to six months.[19] This evidence is contrary to the amended defence but it is true to say Mr Elson’s evidence on the topic of time frame has some support from Mr Goulter.
[18] Transcript p62
[19] Transcript p198
Mr Goulter gave evidence that although he recalled some discussion about the product he was not particularly concerned with those details. Rather he was concerned with whether Ms Mooney’s application met bank-lending criteria and issues such as her ability to repay the loan and the security she was offering. He understood from the discussion that the money was only required short term and would be repaid to Ms Mooney within a short period, as the product was “well down the track”.[20] His recollection was that the time frame mentioned was approximately six months or within six months.[21]
[20] Transcript pp127-8
[21] Transcript p128 and 133
Mr Goulter also gave evidence about their discussions concerning the type of loan best suited to Ms Mooney’s purposes. He was asked:
“QFrom your experience working at the bank, what type of loans do customers usually take out on a variable rate.
AThe main reason customers take the variable rate is if they want to make increased repayments or repay their loan ahead of time as opposed to a fixed rate with fixed options.
QIs the fixed rate more suited to a different type of arrangement.
AA fixed rate loan would be used more for a long-term purpose and where people are seeking the security of knowing what their repayments are going to be over a longer period of time.[22]
[22] Transcript p130
Ms Mooney opted to take an economiser loan that Mr Goulter described as a no frills, variable rate loan that would enable her to repay the loan when it suited her. This ties in with the evidence that the general expectation was that she would repay the loan within a short period of time whether that be three or six months.

Mr Elson’s evidence concerning the meetings with Mr Goulter does not vary significantly from that of Ms Mooney. The key difference related to his assertion that he said the money was to be paid by way of an investment in NDL. Ms Mooney was adamant that he did not use the word investment.
Mr Goulter’s evidence supports Ms Mooney. His evidence is most persuasive because he is an independent witness having first met Ms Mooney when she attended the branch with Mr Elson for the first appointment. He was asked the following questions:
"Q“What was the purpose of that appointment
AThe purpose of that was Ms Mooney was looking to borrow some money which was going to be given to Mr Elson for a development of a product that he was investing in.
QWas anything said to you about who Mr Elson was by Ms Mooney.
AHe was introduced as Mr Elson as a friend.
QThen what did Ms Mooney say to you about why she required the loan.
AShe required the loan to give to Mr Elson.
QWas anything said about what Mr Elson required the money for.
AYes, it was to do with a development of a product but I’m not 100% sure of what the product was or entailed.[23]
[23] Transcript pp126-7
Mr Goulter also said that he had no recollection of Mr Elson’s company being mentioned.[24]
[24] Transcript p 134
Mr Goulter’s evidence that the money was to be given to Mr Elson was put to Mr Elson. His response was as follows:[25]
[25] Transcript p198-9
ANo I don’t agree with that at all. I don’t agree it was a gift, in plain words. Whether it was a loan, gift – it was money being paid to the company. Call it a ‘gift’, it wasn’t a gift of the company, it was an investment into the company whereby royalty shares were issued and it states clearly in the agreement: ‘for the investment of $57,000 you will receive a royalty, a signed royalty agreement’.
QBut you didn’t use the word ‘investment’ before Mr Goulter, did you.
AOf course I did. Of course I did. I never used the term ‘a loan’. I never – only Ms Mooney used that.
QYou didn’t use the word ‘investment’ before Mr Goulter.
AOf course I did.
QYou didn’t suggest to Ms Mooney that it was an investment.
AOf course I did.
QWhat do you understand by the term ‘investment’ to mean.
ATo buy into.
QSo your evidence is that Ms Mooney wants to buy into a company.
ABuy into the mosquito product and receive a royalty for her investment.
QAt the same time, you were telling her that she would get the purchase moneys back within three to six months.
AThat’s correct, as a favour.
I prefer the evidence of Ms Mooney, supported by Mr Goulter, that Mr Elson did not use the word “investment” in the two conversations at the bank. I consider that the time frame mentioned was somewhat less clear-cut than Ms Mooney contends. Whilst it seems plain from the defence and Mr Elson’s evidence, that the time frame of three months was mentioned it also appears from Mr Goulter’s evidence that it is likely a time frame of up to 6 months was mentioned. I find that the relevant time frame was three to six months.
Was payment made to Mr Elson or NDL?
Following the discussions with Mr Goulter, Ms Mooney said that she then made application for a draw down loan in her name secured against her house in the sum of $57,000. Ms Mooney was notified of the approval of her loan by letter from the bank 28 November 2003.[26] The loan account was account number 57542058. She trusted Mr Elson implicitly.[27] I find that she would not have made these arrangements had she not relied upon Mr Elson’s representations as to the short time frame until repayment and the likely success of the product giving her the sense that her money was secure.
[26] Exhibit P3; transcript p71
[27] Transcript p66
Ms Mooney says that she and Mr Elson reached an oral agreement following the discussions at the bank that she would lend the sum of $57,000 for three months to enable the completion of the product to a stage where it could be marketed. Mr Elson also agreed to pay all establishment fees and interest up to the point of returning Ms Mooney’s money to her.[28] The defendants deny that a loan agreement was reached. They maintain the sum of $57,000 was an investment in NDL.
[28] Transcript p66
In her statement of claim, Ms Mooney contends that she entered into a loan agreement with NDL. In her evidence Ms Mooney was less clear about who the borrower was. I asked her some questions concerning this issue.[29]
[29] Transcript p110
QI just want to ask you a couple of questions, just so I am clear I understand your evidence, about the loan and the way that it was paid out. Now, you had a drawdown facility.
AYes, that’s correct.
QAnd you took payments out of that from time to time totalling the $58,000.
A$57,000 your Honour. I took money as Paul required the money. He would ring me and give me an amount. I would then call the bank and advise them to pass the money on to Paul, whatever bank or wherever he directed that money to go.
QSo it wasn’t always paid to the same bank account.
ANo. No.
QDo you know what bank accounts it was paid to or what entities. Was it to Mr Elson himself, to the company NDL.
AI have no idea where this money was going; I’m sorry.
QYou just paid it to whatever bank account details Mr –
AElson provided me, yes.
QWhen you reached what you say was your verbal agreement to loan this money, who did you understand you were loaning it to.
ATo Paul Elson and NDL Biotechnologies. I believed they were one in the same.
Mr Elson says that Ms Mooney made the payments to or on behalf of NDL.[30]
[30] Transcript p100
Ms Mooney’s confusion about the identity of the borrower is understandable. She was not in a position to gain a clear understanding of Mr Elson’s business arrangements or of NDL’s corporate structure. She received no material from NDL prior to the agreement. She did not even pay the money direct to NDL; rather she paid it at the direction of Mr Elson. Without wishing to be critical of Ms Mooney it is plain that she did not have a sophisticated approach to her financial affairs nor did she have any prior business experience. Her view that she was lending the money to Mr Elson or NDL, as they were in effect the same, is a reflection of this. She relied on Mr Elson in circumstances where it would have been prudent to obtain some independent advice. She did nothing to protect her own interests or to clarify and document issues such as the terms and conditions of the transaction she was entering into. It appears however from her evidence that she was aware of the existence of NDL, the fact that it was Mr Elson’s company and that it was involved in the product. Mr Elson was the sole director and company secretary of NDL. He had the authority to bind the company. It appears that the amounts requested from Ms Mooney were paid to the benefit of NDL. One example is the payment to Eureka AgResearch, referred to above, which did apparently undertake work for NDL in connection with the product. That being the case I consider, on balance, that Ms Mooney provided the money to NDL rather than to Mr Elson personally.
How were Ms Mooney’s funds treated by NDL?
It is not possible to ascertain how NDL treated the funds supplied by Ms Mooney. Ms Mooney was not provided with any documents in the form of receipts or invoices. The defendants did not provide copies of company accounts despite requests for discovery of these documents by Ms Mooney’s solicitors.[31] Mr Elson gave evidence that company accounts were prepared and that Ms Mooney’s payment was incorporated in the accounts as “royalty holder funds”. He further asserted that, when Ms Mooney paid invoices direct to third parties rather than through NDL, the company’s accountant made a note of it.[32]
[31] Exhibit P28
[32] Transcript p236
If accounts exist then the defendants’ discovery is defective. Not one document has been discovered or produced by the defendants showing the manner in which Ms Mooney’s funds have been dealt with. The only reason advanced by Mr Elson for this lack of discovery was his assertion that he was in dispute with the accountant. This may explain the failure to call the accountant to give evidence but it does not explain the failure to make proper discovery. The defendants were represented by solicitors up to and including the listing of this matter for trial. The failure to discover and produce this information leads to an inference that it would not have assisted the defendants’ case. Further, I do not accept Mr Elson’s evidence on this topic. The casual manner in which Ms Mooney’s funds were dealt with, the informal requests for payment to third parties and the general lack of documentation suggests a high degree of disorganisation. There was no obvious paper trail of those payments kept by the defendants that would enable NDL’s accountant to record those amounts. I consider it more likely that the accounts either do not exist or do not show Ms Mooney’s payment as royalty holder funds.
There is no evidence produced in court to show that Ms Mooney was in any way recorded as an investor in the company records. Further, it does not appear as if Mr Elson or NDL have at any stage treated Ms Mooney as an investor. The defendants have not produced any documents, such as a formal prospectus, written updates or information concerning the progress of the product development, to suggest that this was the case with the exception of the “royalty deed”.
What is the significance of the Deed?
At the heart of the defendants’ case is the assertion that the amount of $57,000 was paid to NDL in consideration of Ms Mooney obtaining an agreement for the payment of royalties from sales of the product.[33] Ms Mooney did not receive shares in NDL. Mr Elson said they signed “a contract” following Ms Mooney obtaining the bank loan.[34] He identified the “contract” as the deed apparently signed on 7 February 2004.[35] This is the document that is said to be the royalty agreement.
[33] Amended defence para 2.15
[34] Transcript p154
[35] Exhibit P13
Ms Mooney says that following the loan approval from the bank Mr Elson attended at her house with a document for her to sign. He said that it was a royalty agreement. Ms Mooney says that she did not understand what a royalty agreement was but that if it entitled her to some additional payment over and above the repayment of the loan then she considered it a bonus.[36] She did not receive a copy of the signed document.[37] The document was only provided when it was called for in Court. The document is dated 7 February 2004, more than two months after Ms Mooney received the funds from the bank and commenced to disburse them at Mr Elson’s direction.
[36] Transcript p69
[37] Transcript p76-77
Mr Elson gave evidence that the royalty document entitled Ms Mooney to significant financial benefits. He said that when Ms Mooney first rang him telling him that she had lost her job and was in financial difficulties the following conversation took place:[38]
….I said “You can sell your contract”. I said “It’s like shares. That’s what you’ve got. You’ve got royalties, but yours is different to Des Kessner’s. Des Kessner’s doesn’t give a percentage of what is received”. His contract was different. I gave her a minimum of $2 per bag commission as a royalty. I said “You can sell that”. I said “I’ve raised a lot of money through business and partnerships to raise the money to get these off the ground”. I said “I’ll bring in Michael Brown, give whatever marketing information necessary”, so she said “Right ok, I’ll see what I can do”. I think two days later she came back and said “I can’t find anyone to buy”. I said “have you tried advertising your contract?” She said “No, I haven’t”. I said “Okay”. So she tried to sell it and she was unsuccessful.
[38] Transcript p157
This conversation was not put to Ms Mooney so she did not comment upon it. She did not refer to any discussion on this topic in her evidence in chief. I do not accept that it took place. Ms Mooney did not have a copy of the deed so it is difficult to see how she could have gone about attempting to sell it in the manner described by Mr Elson.
Even if the conversation had occurred as he contends, there is a more fundamental difficulty with selling the entitlement supposedly conferred by the deed. The document simply does not say what Mr Elson contended it does. The document does not mention a payment of $57,000 by Ms Mooney to the company. In fact there appears to be no consideration for the agreement whatsoever. Clause 8 of the deed provides that the term of the deed is two years from the date it was executed being 7 February 2004. Accordingly at the time Mr Elson says he told Ms Mooney she could sell the royalty agreement there was, in effect, nothing to sell. Further clause 11 provides that Ms Mooney must not assign or sublicense her rights or obligations under the deed.
When these issues were put to Mr Elson he did not agree that the term of the agreement was two years commencing February 2004 saying:[39]
No, that was incorrect. It was common knowledge that if we were to be bought out, each shareholder – because they only had royalties, it was what their royalties were going to be worth, so you had two years of salaries or whatever was the greater. So if someone put in $100,000 and we sold out within two years, they would get $200,000.
[39] Transcript p203
This response is incomprehensible and bears no relation to the content of the deed. The circumstances of other people are not to the point. The deed is plainly time limited and ceased to have any practical value by February 2006. This is inconsistent with Mr Elson’s assertion that Ms Mooney could have sold the agreement when she lost her employment in October 2006 and further is inconsistent with what he described as Ms Mooney’s desire for a “long term investment”.
In relation to the provision that states that Ms Mooney could not assign or sell her rights Mr Elson responded:[40]
[40] Transcript p205
"AI think it would be common knowledge we have all agreed readily, if Ms Mooney could have sold her royalty agreement, I would not have stood in the way of that clause.
QDo you agree, on the basis of what is actually written in the document, there was nothing left to sell at that time because the agreement had expired.
ANo I don’t agree with that.
QDo you agree, on the face of what is written in the document –
AOn the face of what is written in it, it was important in a court of law, but it was between two friends and one was in financial bother.
QWhat you are saying, if a court of law had to rule on the document, it would find –
AThis was a friend in need that needed her money back because of her employment situation, so I’m here to say to you I wouldn’t have objected to clause 11, I would be happy to waiver that.
QAlso, clause 8 says there is nothing left to sell anyway.
AOf course there is.
I asked the Mr Elson some questions concerning the investment.[41]
[41] Transcript p277
HER HONOUR:   What did Ms Mooney get in return for her investment?
MR ELSON:       The royalty agreement.
HER HONOUR:   That’s the document that’s been produced.
MR ELSON:       Mr Kessner has the same.
HER HONOUR:   That royalty agreement you have agreed doesn’t mention –
MR ELSON:       It doesn’t mention a figure.
HER HONOUR:   And it’s time limited for two years from the date of its signature.
MR ELSON:       Yes, I have made notes here. My friend here said that the contract   was for two years. And I’ll read to you the remarks I made: that Ms                 Mooney tried to sell her contract as suggested; let’s try and I’ll get all                    the information necessary to help you to bring in an investor.
HER HONOUR: You told us that but you agree the document, on the face of it,   suggests that at the time you suggested she sold it, it had expired and,   further, even if it hadn’t expired, the document itself said she couldn’t   sell it.
MR ELSON:       I put down here that there’s no – she said she couldn’t sell the   agreement, okay, and I’ve just written down here NDL legally would   have that amended for her. We would have that amended, that   contract was, because it was cut and pasted, it’s the same royalty   agreement for the NDL fragrance people. If we sell out in the first   two years, they get their payment for two years. It runs over a two-  year payment. The first part wasn’t written in there.
HER HONOUR:   So it was a mistake.
MR. ELSON:      It was a mistake and NDL would not have, under any circumstances,   said ‘Ms Mooney, you can’t sell that because the contract says it’s two   years and now it’s over’. It was a mistake. That was a mistake.
I do not consider that the deed represents confirmation of Ms Mooney investing in NDL as the defendants assert in their defence. The plain wording of the deed is contrary to what Mr Elson says should be “common knowledge”. Taken at face value the royalty agreement is not in consideration of a payment by Ms Mooney of the sum of $57,000. There is no mention of that payment in the deed. By the time the document was signed the sum had been substantially paid to or on behalf of NDL. There is no mention of Ms Mooney making any investment in NDL or the product.
Why did Mr Elson continue to say he would repay Ms Mooney?
Ms Mooney says that at no stage until these proceedings were issued did Mr Elson say to her that the amount she had provided was an investment. Rather she says that he continued to tell her that the amount would be repaid. The discussions revolved around the fact that he was obtaining money from various sources such as a federal government grant and then from Ausfirst who were to invest in the product.
Mr Elson’s evidence on the issue of repayment is somewhat confused. He agreed that Ms Mooney relied upon him telling her the money would be paid back in three to six months when she made the decision to provide it.[42] He did not explain why he said that this would occur if the money were, as he contends, a long-term investment. He said that he told her at the time of entering the oral agreement that the money would be paid to her within three to six months:
…….on the understanding that if the product was licensed and registered , we would then bring in a joint venture partner and that’s how Ms Mooney would be paid out.[43]
[42] Transcript p199
[43] Transcript p200
He said on a number of occasions throughout his evidence that he wanted to repay Ms Mooney “as a favour”. At other times he appeared to be suggesting that the reason he wished to repay the money was that Ms Mooney was in financial difficulties as a result of losing her job.
Mr Elson agreed in cross examination that he did not raise the issue of the money being an investment at any stage following Ms Mooney’s request for repayment until the proceedings were issued saying that Ms Mooney knew it was an investment. In effect that it was so obvious it went without saying. This is most unconvincing. He was shown the emails from Ms Mooney providing her banking details and requesting repayment together with his response, which he agreed, did not suggest that the money was an investment.[44] It is challenging to see why Mr Elson would not have raised the fact that this was supposedly an investment when Ms Mooney was pressing him for payment. It was put to him that the first time he contended that this was an investment was in the defence to these proceedings and that the reason for this was that the payment was in fact a loan. He denied that this was the case saying:
No. It was never a loan, it was never mentioned to be a loan, it was always an investment. It was always an investment. It was an investment that I wanted to pay back to that lady once that product had reached registration stage, then I could bring in the joint venture partner, and then, out of my share, I would then pay her out her $57,000. I made that very very clear from the outset and I said it a dozen times. I’m not retracting that. Its not that I don’t want to pay her out, its nothing to do with it. It’s not because I wouldn’t pay her out because its an investment. That’s not what I said. I said ‘I’d like to pay you out, I’m going to pay you out, as soon as that product gets licensed’.[45]
[44] Exhibits P7, P8 and P9; Transcript pp206-208
[45] Transcript p208

Ms Mooney’s evidence that Mr Elson always said he would repay her is supported by Mr Prendergast’s evidence. Mr Prendergast was employed by Ms Mooney’s solicitors from 2006 to 2007 and had conduct of this matter under his principal’s supervision. He gave evidence of two telephone conversations that he had with Mr Elson during 2007 following a letter of demand being sent on Ms Mooney’s behalf.
In the first conversation, which took place on 16 July 2007, he says that Mr Elson told him that NDL was close to securing a $23 million contract and that once the contract had been secured the money that was owing to Ms Mooney would be paid.
The second conversation took place on 13 August 2007 when Mr Prendergast rang Mr Elson to follow up on the first conversation. He asked when they could expect to receive a response and said that Ms Mooney had been informed at the time she provided the money that it would be paid back within three months. Mr Elson responded, “everybody was told that”.[46]
[46] Transcript p116
I accept Mr Prendergast’s evidence that Mr Elson did not mention that the sum was an investment when he was pursuing repayment on Ms Mooney’s behalf. It seems extraordinary that Mr Elson, when approached for repayment of a loan by a solicitor on behalf of Ms Mooney, did not mention that there was no obligation to repay the amount claimed because it was an investment even if he wished to repay it as “a favour”.
I consider that the reason Mr Elson did not dispute the obligation to repay Ms Mooney at any stage prior to the filing of the defence was that he was aware that the amount in question was a loan to NDL and not an investment.
Transfer of intellectual property from NDL to Vector Biotechnologies Pty Ltd
The final basis upon which it can be plainly demonstrated that Ms Mooney was not treated as an investor relates to the transfer of the intellectual property held by NDL to Vector Biotechnologies in February 2008. That was apparently the sole asset of NDL and the asset in which Ms Mooney was asserted to have invested. A proposal was put to Ms Mooney by AusFirst in September 2007. She was offered 400,000 preference shares in a restructured company. This was not stated to be in return for her investment in NDL. Rather it was stated to be “in full satisfaction of any claim against Paul Elson”. The nature of that claim was not spelt out in the document.
Notwithstanding Ms Mooney’s rejection of the draft proposal, NDL proceeded to transfer its intellectual property in the product to Vector. I accept her evidence, which was not contradicted by Mr Elson, that she did not have any involvement in the negotiations leading to the agreement for that transfer other than her rejection of the “draft proposal”.
The transaction was apparently recorded in a document entitled “Supported Venture Agreement”. The defendants did not provide a signed copy of that document or discovery of related documents despite requests from Ms Mooney’s solicitors.[47] Mr Elson provided an unsigned copy of that document in court.[48] The document produced appears to be a draft document requiring insertion of information such as the date of commencement. Further, the document is internally inconsistent. What is apparent is that Ms Mooney was not a party to that agreement albeit the draft proposal that she rejected is annexed as Schedule 5. Schedule 5 is inconsistent with schedule 3, which sets out the proposed capital structure of Vector. I note that the proposed capital structure includes that Mr Elson hold 4,805,000 shares in Vector. Clause 20 of the agreement states:
It is acknowledged that the dispute between Paul Elson and Deb Mooney is to be resolved by him at his expense and shall not affect the company.
[47] Exhibit P27
[48] Exhibit P24
“The company” is defined in the draft agreement as Vector. Again the nature of the dispute between Mr Elson and Ms Mooney is not spelt out.
The unsigned agreement provides that NDL receive the sum of $1 for the product. Vector, with assistance from Ausfirst and Ausfirst Securities, now seeks to bring the product to market in Australia and in Asia. Material from Vector suggests that NDL was simply a research and development company that has now transferred the product to Vector in order to commercialise the product.[49]
[49] Exhibit P25
In evidence it transpired that, notwithstanding the indication in the supported venture agreement, Mr Elson did not become a shareholder in Vector Biotechnologies. His wife, Cassandra Irene Elson, appears to have taken up the shares that were to have been held by Mr Elson. She is stated to hold 4,850,000 shares in Vector. Mr Elson does not hold any management position in Vector Biotechnologies. He is a consultant. He has no interest in, and no formal position with, that company.[50]
[50] Transcript p237
Was the $57,000 a loan or an investment?
I do not accept the defendants’ case that the sum of $57,000 was an investment in return for a royalty agreement or indeed that it constituted any form of investment.
I find that Ms Mooney entered into an oral agreement with Mr Elson on behalf of NDL in or about November 2003. The terms of that oral agreement were that Ms Mooney loaned NDL the sum of $57,000 to assist with the development of the product. NDL, through Mr Elson, agreed to repay the sum of $57,000 to Ms Mooney within three to six months of the agreement and further agreed to reimburse her for the borrowing expenses and interest incurred.
NDL has failed to pay Ms Mooney as agreed and is accordingly in breach of contract.
The royalty agreement is a separate agreement and has no bearing upon the loan agreement. It has in any event expired and is of no present value.
Alternative Claims
Ms Mooney’s statement of claim set out alternative claims under the Trade Practices Act, the Misrepresentation Act and the Fair Trading Act. These matters were poorly pleaded in my view. The order in which Ms Mooney was pressing these alternatives was not made plain. During the course of submissions I attempted to clarify this issue. As matters subsequently transpired it appears that her counsel and I were at cross purposes and the issue was not clarified by this exchange. I was approaching the matter on the basis that the claims were inconsistent and her counsel was approaching the matter on the basis that the alternative claims were not inconsistent but rather were “further or in the alternative” claims.
I delivered reasons for judgment for Ms Mooney against NDL on the basis of breach of contract. I did not consider Ms Mooney’s alternative claims. Subsequently, and before judgement was entered, Ms Mooney’s representatives indicated that she wished to pursue the alternative claims as they were further or in the alternative to the breach of contract claim. She maintained that the claims were not inconsistent, that there was no necessity to elect to obtain damages either from NDL or Elson and further that she had made no such election. In the event that an election was necessary however she elected to seek damages against Elson personally.
In making the submission that the claims were not inconsistent, Ms Mooney relied upon the decision of Lewarne v Momentum Productions Pty Ltd.[51] Lewarne’s case is an unusual fact situation and involved findings that the director had made representations on his own behalf as well as on behalf of the company. I do not make such a finding in this case. I have found that Mr Elson made the relevant representations on behalf of NDL.
[51] (2007) FCA 136
Damages for breach of contract can only be between the contracting parties. My finding is that the parties to the contract were NDL and Ms Mooney. Accordingly Ms Mooney cannot obtain damages for breach of contract against Mr Elson. This does not however preclude her from pressing alternative claims against Mr Elson personally under the other causes of action pleaded assuming she made that election. She cannot have damages for breach of contract against NDL and damages against Mr Elson personally under the alternative causes of action that she has pleaded under the TPA, the Misrepresentation Act and the FTA.
Mr Elson submitted that Ms Mooney had made an election to enforce the loan agreement and therefore had no right to pursue the alternative claims under the TPA, the Misrepresentation Act and/or the FTA.Having carefully considered the pleadings, evidence and the transcript of submissions by her counsel I do not consider that Ms Mooney did make such an election and accordingly she is entitled to pursue her alternative claims against Mr Elson personally. It further appears plain from the evidence and argument led before me that Mr Elson well understood that Ms Mooney was seeking to claim damages against him personally albeit he may not have understood the precise basis upon which she did so. In those circumstances I considered it appropriate to recall my reasons for decision on the contract issue and to invite further argument on the alternative claims.
To succeed under the TPA Ms Mooney must establish first that NDL engaged in conduct or made statements or representations which contravened section 52 and resulted in loss and damage. Second she must establish that Mr Elson took positive steps in the carrying out of the misleading and deceptive conduct or the making of false and misleading statements by NDL and did so with knowledge of the essential facts said to constitute the contraventions of the TPA by NDL.[52]
[52] Yorke v Lucas (1984) 158 CLR 661
In Butcher v. Lachlan Elder Realty Pty. Ltd.[53] in a different factual setting, Gleeson CJ, Hayne and Heydon JJ discussed the basis for assessing whether there was a liability in cases in which monetary relief was claimed by a plaintiff who alleged that a particular representation was made and said:[54]
The plaintiff must establish a causal link between the impugned conduct and the loss that is claimed. That depends on analysing the conduct of the defendant in relation to the plaintiff alone. So here, it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchases, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known. Indeed, counsel for the purchasers conceded that the mere fact that a person had engaged in the conduct of supplying a document containing misleading information did not mean that that person had engaged in misleading conduct: it was crucial to examine the role of the person in question.
[53] (2004) 218 CLR 592
[54] At pp 604-5
I have found that Ms Mooney relied upon Mr Elson’s representations in entering into the loan agreement with NDL as follows:
·That the sum of $57,000 would be repaid to Ms Mooney within three to six months of the agreement together with reimbursement of borrowing expenses and interest incurred; and
·That the product would be successful.
Mr Elson made those representations as the sole director and company secretary of NDL. I have found that there was no reasonable basis established for either of the representations relied upon by Ms Mooney. I do not consider that she would have entered into the loan agreement if she had been told the true state of affairs namely that the product was some years from being developed and that NDL had no means of repaying the loan within three to six months or at all.
Mr Elson’s conduct must also be viewed in the light of his knowledge of Ms Mooney and her financial circumstances. He knew that she was by no means a wealthy woman. He must have known that she was not experienced in matters of business. He conceded that she relied upon what he told her. He accompanied her to the bank when she borrowed the funds to supply to NDL. It is common ground that he recommended that she borrow the funds on a variable rate loan. As Mr Goulter indicated this is a loan that suits people seeking to make early repayment rather than a fixed rate loan which is more suited to a long term purpose. Mr Elson then took no steps to document the arrangements between Ms Mooney and NDL. He did provide her with the royalty agreement which, as I have found, was completely worthless and did not mention the funds provided by Ms Mooney. Further Ms Mooney’s funds were not paid into the company in a way that would have documented her payments to the company and confirmed that they constituted a loan.
When Ms Mooney sought repayment of the loan Mr Elson kept promising to pay her. During that period NDL transferred its only asset, the intellectual property in the product, to another company for the sum of $1. A company in which, despite the apparent intention at the outset, Mr Elson has no direct financial interest. It is hard to escape the conclusion that Mr Elson did this with the aim, at least in part, of defeating any claim by Ms Mooney against either NDL or him. Mr Elson further did not at any stage say that the funds were an investment until these proceedings were issued thus requiring Mrs Mooney to go to the extent of a trial in order to establish that this was not the case.
I find that Mr Elson’s representations and subsequent conduct constituted conduct on the part of NDL in breach of section 52 of TPA as it was conduct that was misleading and deceptive or likely to mislead and deceive. I further find that Mr Elson, as the sole director and controlling mind of NDL, was knowingly concerned in or party to the contravention of section 52 of the TPA contrary to section 75B(1) and therefore has a personal liability.
Conclusion and assessment of damages
Ms Mooney has elected not to pursue her claim against NDL for breach of contract in favour of remedies under her alternative claims. I find that Mr Elson and NDL are liable jointly and severally under the TPA.[55]
[55] Wheeler Grace and Pierucci v Wright (1989) 11 ATPR 40-140
Ms Mooney is entitled to be put in the position she would have been had the contravention not occurred.[56] I have found that she would not have borrowed the money and provided it to NDL had the misrepresentations not been made. Accordingly her loss is the amount of the loan, the loan establishment fees and interest.
[56] Henville & Anor v Walker & Anor (2001) 206 CLR 459
The defendants accepted the schedules prepared by Ms Mooney in relation to the amount of the loan and interest. It is my view that this was a proper concession to make. I find that Ms Mooney’s entitlement is $81,672.15 inclusive of bank interest and fees up to and including 10 January 2010. I will hear the parties on the question of interest and fees to the date of the judgment. I will further hear the parties as to costs.