Nash v Food and Beverage Australia Ltd
[2021] SASCA 59
•10 June 2021
SUPREME COURT OF SOUTH AUSTRALIA
(Court of Appeal: Civil)
NASH v FOOD AND BEVERAGE AUSTRALIA LTD
[2021] SASCA 59
Judgment of the Court of Appeal
(The Honourable Justice Lovell, the Honourable Justice Livesey and the Honourable Justice Bleby)
10 June 2021
CORPORATIONS - MANAGED INVESTMENTS
CORPORATIONS - MANAGED INVESTMENTS - TRUST DEED OR CONSTITUTION
CORPORATIONS - MANAGED INVESTMENTS - WINDING UP
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS
CORPORATIONS - FINANCIAL SERVICES AND MARKETS - MARKET MISCONDUCT AND OTHER PROHIBITED CONDUCT - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT
Appeal against two judgments of the Supreme Court which determined a claim and counterclaim arising out of a dispute in respect of a managed investment scheme.
The respondent, Food and Beverage Australia Ltd (‘FBA’), sued the second appellant, Philip Nash as trustee of the Nash Family Trust, for fees payable in respect of a managed investment scheme called ‘The Tasmanian Premium Cherries Project’ (‘Cherries Project’). Philip Nash as trustee of the Nash Family Trust was a participant in the Cherries Project, participants being described in the relevant documents as ‘Growers’.
The appellants counterclaimed against FBA, claiming that FBA had engaged in misleading and deceptive conduct in representing that Mr Nash would be able to obtain loans from an associated company, Total Beverage Australia Pty Ltd ('TBA'). The purpose of those loans, as claimed to have been represented, was to cover the first four years of the fees (‘Grower Fees’) that Mr Nash would need to pay to participate in the Cherries Project.
The trial judge, gave judgment in favour of FBA for the amount claimed in respect of invoices it had issued on account of the Cherries Project. He dismissed the Counterclaim, finding that FBA had not engaged in the claimed misleading and deceptive conduct.
The substantive issues arising on appeal are whether parts of the amounts found to be owed under the invoices were recoverable by FBA or by a different entity, whether the eventual winding up and deregistration of the Cherries Project disentitled FBA from obtaining judgment, and whether the trial judge erred in finding that FBA had not engaged in misleading and deceptive conduct as to the availability of finance from TBA and the provision of rain covers and bird netting on the orchards.
Held (by the Court), dismissing the appeal:
1. Growers had a substantive obligation under the operative documents to pay Grower Fees to FBA. Once the invoices were issued to Mr Nash in accordance with the terms of the Constitution, Mr Nash was liable in debt to FBA.
2. The trial judge was correct to conclude that the winding up and deregistration of the Cherries Project had no effect on FBA’s entitlement to judgment.
3. The trial judge did not err in his conclusions with respect to the claim that FBA had engaged in misleading and deceptive conduct.
Corporations Act 2001 (Cth) Chapter 5C; Australian Securities and Investments Commission Act 2001 (Cth), referred to.
Food and Beverage Australia Ltd v Nash [2020] SASC 92; Food and Beverage Australia Ltd v Nash (No 2) [2020] SASC 181, discussed.
Food and Beverage Australia Limited v P J Nash Pty Ltd [2019] SASC 208; McDonald v Dennys Lascelles (1933) 48 CLR 457; Fox v Percy (2003) 214 CLR 118; Lee v Lee (2019) 266 CLR 129, considered.
NASH v FOOD AND BEVERAGE AUSTRALIA LTD
[2021] SASCA 59
Court of Appeal – Civil: Lovell, Livesey and Bleby JJA
THE COURT: The respondent, Food and Beverage Australia Ltd (‘FBA’), sued the second appellant, Philip Nash as trustee of the Nash Family Trust, for fees payable in respect of a managed investment scheme called ‘The Tasmanian Premium Cherries Project’ (‘Cherries Project’). Philip Nash as trustee of the Nash Family Trust was a participant in the Cherries Project, participants being described in the relevant documents as ‘Growers’.
In the same action, FBA also sued the first appellant, Philip Nash, the second appellant and the third appellant, Sarah Nash, for fees payable in respect of another managed investment scheme called the ‘2007 Queensland Avocado & Fruit Project’ (‘Avocado Project’). This appeal only concerns the decision in relation to the Cherries Project, in respect of which orders were made against Mr Nash as trustee of the Nash Family Trust.
The appellants counterclaimed against FBA. Relevantly, they claimed that FBA had engaged in misleading or deceptive conduct in representing that Mr Nash would be able to obtain loans from an associated company, Total Beverage Australia Pty Ltd (‘TBA’). The purpose of those loans, as claimed to have been represented, was to cover the first four years of the fees (‘Grower Fees’) that Mr Nash would need to pay to participate in the Cherries Project. Mr Nash also complained, at least in the conduct of his case, that he had been misled by misrepresentations in the Product Disclosure Statement (‘PDS’) that rain covers and bird netting would be installed over the orchards the subject of the Cherries Project and that he relied on those representations in deciding to become a Grower.
The trial judge, Blue J, gave judgment in favour of FBA for the amount claimed in respect of invoices it had issued on account of the Cherries Project. He dismissed the Counterclaim, finding that FBA had not engaged in the claimed misleading or deceptive conduct.[1]
[1] Food and Beverage Australia Ltd v Nash [2020] SASC 92.
After delivery of the reasons for judgment, Mr Nash drew to the Court’s attention the fact that the Cherries Project had been wound up in mid-2018 and deregistered by ASIC in December 2018. He contended that this affected FBA’s entitlement to the amount awarded in the judgment. Justice Blue dealt with this issue in a second set of reasons.[2]
[2] Food and Beverage Australia Ltd v Nash (No 2) [2020] SASC 181.
The substantive issues arising on the Notice of Appeal are contained in the grounds numbered 9 to 12 inclusive. They are as follows:
·whether the licence fees and rental components of the invoices were recoverable by FBA or by a different entity, Aussie Cherries Ltd (‘ACL’) (Grounds 9 and 10);
·whether the winding up and deregistration of the Cherries Project disentitled FBA from obtaining judgment for the amounts reflecting the licence fee and rental components (Ground 11); and
·whether Blue J erred in finding that FBA had not engaged in misleading or deceptive conduct with respect to the availability of finance from TBA and with respect to the provision of rain covers and bird netting on the orchards (Ground 12).
Background
The factual matrix underlying the dispute is set out comprehensively in the decision of Food and Beverage Australia Limited v P J Nash Pty Ltd[3] and in the decision the subject of this appeal, Food and Beverage Australia Limited v Nash.[4] The following is a summary.
[3] [2019] SASC 208 (Doyle J).
[4] [2020] SASC 92 (Blue J).
The appellants
Mr Nash works as a fruit wholesaler in Melbourne. He is the sole director of P J Nash Pty Ltd (‘Nash Co’), which he incorporated in July 2005 as a vehicle to acquire the Westmores fruit wholesaling businesses, having worked for those businesses since about 1985. At some point, Mr Nash married the third appellant, Mrs Nash.
In August 2005, Mr Nash established a discretionary family trust, the Nash Family Trust.
The respondent
The respondent, FBA, is based in Adelaide. It operates managed investment schemes as a ‘responsible entity’ under Chapter 5C of the Corporations Act 2001 (Cth). It is a wholly owned subsidiary of The FABAL Group Pty Ltd (‘FBG’), which owns several other subsidiaries involved in, or providing services to, agricultural businesses and projects in Australia. Relevantly, FBG owns TBA, a small-scale lender to investors in agricultural projects conducted by FBG and its subsidiaries. It also owns FABAL Operations Pty Ltd (‘FABAL Operations’), which held a separate bank account for each managed investment scheme of which FBA was the responsible entity. We will refer to the group comprising FBG and its subsidiaries collectively as FABAL. Christopher Day was the chief executive officer of the FABAL companies. Christopher Dundon was the chief operations officer.
The Cherries Project
The Cherries Project was a managed investment scheme involving the acquisition, development and management of a 46.5-hectare cherry orchard in the Huon Valley region of Tasmania. Investors in the project were provided with a licence to grow cherries on parcels of land owned by ACL. They were required to enter into a Management Agreement by which they appointed FBA to manage their individual orchard allotments. The scheme was divided into 465 ‘Interests’, each representing 0.10 hectares of the orchard.
Mr Nash conceived the project in 2006, after prior experience investing in managed investment schemes. His idea was to purchase land in the Huon Valley from members of the Driessen family, who grew apples and cherries on the land. This fruit had been wholesaled by Westmores for some years.
Mr Nash approached his accountant and financial advisor, Peter Holt, with a view to Mr Holt’s company, Holt Norman & Co Pty Ltd (‘Holt Norman & Co’), participating in the project and promoting it to clients. Mr Holt expressed interest, and he and Mr Nash began approaching companies that could act as a responsible entity for the scheme. In September 2006, Mr Nash approached Mr Day and enquired as to whether FBA would be willing to act as the responsible entity. They had several discussions over the course of a year.
In October 2007, Mr Nash (on behalf of Nash Co), Mr Holt (on behalf of Holt Norman) and Mr Day (on behalf of FBA) entered into a Managed Investment Scheme Development Agreement, by which the parties agreed to work together towards developing, marketing and administering the Cherries Project.
The Driessen’s land was to be purchased by ACL, a company that Mr Holt and his business partner, William Norman, had established under a different name in 2000. Mr Nash became a director of ACL in September 2007. ACL settled on the purchase of the Driessens’ land in May 2008.
Clause 7 of the Managed Investment Scheme Development Agreement provided:
At a meeting between representatives of the parties to this Agreement held at the offices of FABAL on Friday the 30th August, 2007 it was agreed in principle, amongst other things, that the model pursuant to which the Project will be developed is one in the course of which the Land Owning Company and the Project will be developed jointly and investors will have the opportunity to invest in both entities.
The Land Owning Company will:
7.1 Acquire the land and infrastructure;
7.2Operate the business of providing infrastructure to the Project for a commercial rent;
7.3Manage the fruit intake and packing, ready for selling marketing and distribution for a fee per kilogram (estimate of $2.15/kg in year 1);
7.4Provide sufficient water for the Project either acquired from Driessen’s or acquired from Aussie Cherries, including any need to build additional storage;
7.5Provide up to 15 % of total planting from the existing orchard acquired on the land from Driessens;
7.6Allow the development of the Project in a ‘Spanish Bush’ style so that no trellis for cherry trees needs to be provided by Aussie cherries;
7.7Install rain/bird/weather covers at a cost of in the order of approximately A$100,000 by the first commercial crop for the Project; and
The Project will:
7.8Be developed at a total cost estimated to be in the order of A$245,000 per hectare by FABAL, including the appointment of the Driessen family as horticultural manager, over a five year period;
7.9 Include the installation of irrigation and the trees by the Project Grower.
(Emphasis in original)
On 23 January 2008, FBA executed the Constitution of the Cherries Project. The parties to the Constitution were FBA as the responsible entity, ACL as the Land Owning Company, and individual investors in the project, known as ‘Growers.’ Recital ‘b’ of the Constitution stated that investors would become Growers upon acquiring ‘Interests’ in the Cherries Project through a PDS, and would be bound by the terms of the Constitution. The Constitution contained, as Schedule 3, a placeholder for a Management Agreement between FBA and each Grower and, as Schedule 4, a placeholder for a Licence Agreement between FBA, ACL and each Grower.
On 24 January 2008, FBA applied to register the project as a managed investment scheme. On 7 February 2008, ASIC registered the Cherries Project as managed investment scheme ARSN 129 398 876. On 27 February 2008, the Australian Taxation Office issued Product Ruling 2008/18 entitled ‘Income Tax: Tasmanian Premium Cherries Project’, which provided that a Grower who entered into the scheme could claim certain tax deductions for fees and expenses incurred by participation in the project.
On 29 February 2008, FBA issued a PDS. The PDS summarised the project and offered 465 Interests or, upon oversubscription, up to 700 Interests in the scheme, each comprising 0.1 hectare. Growers would receive a share of the proceeds of the sales of cherries calculated in accordance with the Constitution. The project was expected to run for 16 years, with the first harvest expected in year 5 (2012), first commercial harvest in year 7 (2014), and first mature commercial harvest in year 9 (2016).
The minimum amount payable for an Interest was $26,504. The calculation of this sum was spread out across the categories of Management Services Fees, Irrigation, Licence Fees and Planting Fee, and Rent, over the period between June 2008 and June 2011 as set out in the following table:
Fee/cost 2008 2009 2010 2011 Total Initial Management Service Fees $6,964 $6,964 Ongoing Management Services Fees $2,707 $2,971 $2,780 $8,458 Irrigation, Licence Fees and Planting Fee $2,228 $1,356 $3,584 Rent $312 $2,019 $2,216 $2,951 $7,498 Total $9,504 $6,082 $5,187 $5,731 $26,504
Section 13 of the PDS invited applications via an Application Form, to be completed in accordance with the instructions contained in that section. It provided that, by signing the Application Form, the Grower gave FBA their Power of Attorney authorising FBA to sign the Management and Licence Agreements on their behalf and agreed that they would be responsible for Grower Fees. It also contained an acknowledgement and agreement that, upon signing the application, the applicant agreed to become a party to and be bound by the terms of the Constitution, the Management Agreement and the Licence Agreement, as if the applicant had signed those documents personally and not pursuant to the Power of Attorney.
On 19 May 2008, FBA received from Mr Nash as trustee of the Nash Family Trust an Application Form applying for 30 allotments in the Cherries Project. By 26 May 2008, FBA had received applications from 39 applicants to acquire a total of 406 allotments in the Cherries Project.
On 26 May 2008, Mr Day and Mr Dundon executed a series of documents that, at trial, FBA contended comprised Management Agreements between FBA and the Growers, and Licence Agreements between FBA, ACL and the Growers.
On 30 May 2008, Mr Nash and TBA entered into a loan agreement for Mr Nash to borrow $200,000, repayable at an interest rate of 11.8 per cent per annum over 10 years, by monthly repayments of $2,874.
On 2 June 2008, FBA issued a tax invoice to Mr Nash as trustee for the Nash Family Trust for Cherries Project fees for the year ending 30 June 2008 totalling $285,120.
Meanwhile, TBA procured funding from Bank SA in order to lend to investors in the Cherries Project. On 18 June 2008, Bank SA issued a letter to TBA, offering to increase the facility limit on TBA’s multi-option facility from $2.12 million to $2.7 million, effective until 31 December 2008. On 26 June 2008, TBA drew down a commercial bill with a face value of $2.18 million, pursuant to the facility. The discounted proceeds of $2,162,093 were credited to TBA’s account. On the same day, TBA paid $2,158,240 to FBA, purportedly on behalf of Growers in payment of the first year’s Grower Fees under the Cherries Project.
By this time, Mr Day and Mr Holt had agreed that Holt Norman & Co was entitled to fees of $865,000 from FBA as responsible entity of the Cherries Project. Further, Mr Day and Mr Nash had agreed that Nash Co was entitled to fees of $435,000 from FBA as responsible entity of the Cherries Project.
FBA paid $865,000 into TBA’s bank account on 27 June 2008. The trial judge accepted Mr Day’s evidence that this payment was pursuant to an agreement with Mr Holt. This was to the effect that FBA would pay that amount notionally to Holt Norman & Co in discharge of FBA’s indebtedness for the fees in that amount. Holt Norman & Co would then lend the money back to TBA for the purpose of financing the first tranche of Grower payments that were due under the Cherries Project.
On the same day, FBA also paid $435,000 into TBA’s bank account. Mr Day’s evidence was that this payment was made pursuant to an agreement with Mr Nash that FBA would pay this amount notionally to Nash Co in discharge of FBA’s indebtedness for the fees in that amount. Nash Co would then lend the money back to TBA for the purpose of financing the first tranche of Grower payments due under the Cherries Project. Mr Nash denied in evidence that he had agreed to this transaction. The trial judge found that it was not necessary to make a finding about whether this agreement had been entered into.
Further on the same day, TBA paid $1,397,920 to FBA. That payment was purportedly made on behalf of Growers in payment of the first tranche of Grower Fees under the Cherries Project. Mr Nash contested that characterisation, as the principal source of the funds was the payments of $865,000 and $435,000. The trial judge accepted, however, that this was the correct characterisation of the payments.
On 11 August 2008, FBA issued a tax invoice to Mr Nash as trustee for the Nash Family Trust for the Grower Fees for the year ending 30 June 2009. This invoice totalled $182,460. On 7 November 2008, FBA sent Mr Nash a letter saying that he had failed to pay the invoice, which had been due on 31 August 2008, and had failed to remedy the default within 28 days. The letter contained an attachment that showed the amount due under the invoice plus a late payment charge of $3,787. It further included a balance of $85,120 in respect of the invoice that had been issued for fees for the year ending 30 June 2008, referred to above.
On 21 April 2009, FBA sent Mr Nash a letter saying that he owed $182,460 in respect of the invoice for the year ending 30 June 2009. In the same month, Mr Nash and TBA entered into a ‘2nd Tranche Terms Loan Agreement’ for Mr Nash to borrow $182,460. This was repayable, interest free, over 12 months by monthly repayments of $3,041. The first of those monthly payments was due in May 2009, but no payments were made until September 2009, when Mr Nash paid an instalment of $5,205. In December 2009, a total of $84,067 was credited against the loan, being monies owed by ACL to the Nashes and some other monies.
On 15 June 2009, FBA issued a distribution statement for the year ending 30 June 2009 to the Nash Family Trust, showing gross harvest proceeds of $39,699 together with other incomes and expenses. This resulted in a net amount payable to the Nash Family Trust of $33,198.
On 3 July 2009, FBA issued a tax invoice to Mr Nash as trustee for the Nash Family Trust for fees for the year ending 30 June 2010, totalling $155,610.
On 4 June 2010, FBA issued a distribution statement for the year ending 30 June 2010 to the Nash Family Trust showing gross harvest proceeds of $59,738, together with other income and expenses, resulting in a net amount payable to the Nash Family Trust of $44,517.
On 31 July 2010, FBA issued a tax invoice to Mr Nash as trustee for the Nash Family Trust for fees for the year ending 30 June 2011, totalling $171,930.
On 16 November 2010, FBA sent a letter to Mr Nash demanding payment of the invoices for fees for the years ending 30 June 2010 and 30 June 2011, totalling $327,540 and giving notice of intention to terminate if payment was not made by 23 November 2010. On 26 November 2010, FBA sent a letter to Mr Nash terminating his Interests in the Cherries Project.
FBA’s claim in respect of the Cherries Project was for the sum of $155,610 the subject of the invoice dated 3 July 2009, and the sum of $65,345. This latter sum represented the $171,930 the subject of the invoice dated 31 July 2010, less credits for harvest proceeds of $106,585.20.
Justice Blue gave judgment in favour of FBA in the total sum of $220,954.80. The issues at trial extended to whether FBA and Mr Nash had entered into a Management Agreement and whether FBA, ACL and Mr Nash had entered into a Licence Agreement for the payment of the fees the subject of the invoices. On appeal, as identified above, the broad question of FBA’s entitlement to recover the amounts invoiced was narrowed: the issues focused upon whether FBA was able to recover the licence and rental fee components of the invoices.
Whether the licence fee and rental components of the invoices were recoverable by FBA or by ACL
The documentary framework
The contractual relationship by which this question must be determined is established by the following documents:
·the Constitution of the Tasmanian Premium Cherries Project;
·the Licence Agreement between FBA, ACL and Mr Nash; and
·the PDS.
The starting point for analysis of the obligation to pay the licence fee and rental components of the invoices is the operative parts of the Licence Agreement. By clauses 3.1 and 4.1 of that agreement, ACL granted to Mr Nash licences to use and occupy the land, draw water for the purpose of the business and use plant and equipment owned by ACL for the purposes of the business. Clauses 3.2 and 4.2 then recorded Mr Nash’s agreement to pay the licence fees and rental components to ACL:
3.2 In consideration of the grant by the Land Owning Company of the licence pursuant to this clause the Grower agrees to pay to the Land Owning Company the Land and Water Licence Fee in the amounts and in the manner set out in Item 1 of Schedule 2 to this Agreement.
4.2 In consideration of the grant by the Land Owning Company of the licence pursuant to this clause, the Grower agrees to pay to the Land Owning Company the Plant and Equipment Rental in the amounts and in the manner set out in Schedule 2 to this Agreement.
Schedule 2 contained a table setting out the payment of each kind to be made in each year of the Cherries Project. Beneath the table there appeared the following paragraph:
Pursuant to Clause 34 of the Constitution and Clause 5.1 of this Agreement all and any amounts payable to the Land Owning Company pursuant to this Agreement are expected to be paid out of the Proceeds Fund before any distributions to Growers are made. Growers will be liable for the above fees to the Land Owning Company if the proceeds from the sale of cherries are insufficient to pay the Total Rent as above and all and any other amounts payable to the Land Owning Company pursuant to this Agreement.
This paragraph contemplated that the fees payable to ACL under the Licence Agreement were to be collected by FBA as the Responsible Entity. Consistently with this, clause 5.1 of the Licence Agreement provided:
5.1 As is evidenced by its execution of this Agreement the Grower authorises the Responsible Entity to deduct any amounts payable to the Land Owning Company pursuant to this Agreement from income due to be distributed to the Grower by the Responsible Entity pursuant to the Constitution and the Management Agreement, such deduction to be made by the Responsible Entity at the Land Owning Company’s absolute and unfettered discretion.
On the face of the Licence Agreement, Mr Nash was obliged to pay the licence fees and rental components to ACL. At the very least, however, the Licence Agreement contemplated that this would occur via the mechanism of Mr Nash, as Grower, paying those sums to FBA as Responsible Entity.
Further, and as contemplated by the final paragraph in Schedule 2 to the Licence Agreement, clause 34 of the Constitution provided, in part:
34. Distribution from the Proceeds Funds
34.1 A Grower is entitled to that percentage of the money in the Proceeds Fund which reflects that portion which the Allotment bears to the total number of Grower Allotments for the Production Period less:
34.1.1all fees payable pursuant to the Management Agreement;
34.1.2all fees payable pursuant to the Licence Agreement;
34.1.3any other amounts which the Responsible Entity reasonably considers will be required to meet anticipated Horticulture Costs, subject at all times to clause 27.1.3 of this Constitution; and
34.1.4any other amounts payable by the Grower pursuant to this Constitution or any other liabilities that attach to the Grower’s Interest.
34.2 The Growers authorise the Responsible Entity to deduct the amounts listed in clause 34.1 of this Constitution and pay those amounts to the persons entitled to them. The Responsible Entity may pay those amounts as soon as is practicable after receiving monies into the Proceeds Fund.
Clause 34.1 was amended on 29 February 2008 by a Supplemental Deed, to read:
34. Distribution from the Proceeds Funds
34.1 A Grower is entitled to that percentage of the money in the Proceeds Fund which reflects that portion which the Allotment bears to the total number of Grower Allotments for the Production Period less:
34.1.1all outstanding fees payable pursuant to the Management Agreement;
34.1.2all outstanding fees payable pursuant to the Licence Agreement;
The Proceeds Fund was established by clause 33 of the Constitution, for the purpose of holding all income attributable to Grower Allotments.
Clause 34 of the Constitution was concerned with the distribution of proceeds, rather than the collection of fees. The observation to be made at this point is that the entitlement of a Grower to be paid harvest proceeds was subject, pursuant to both the Licence Agreement and the Constitution, to prior deduction of all outstanding fees payable pursuant to the Licence Agreement. The assumption here made, in both instruments, was that those fees will have been paid in the first instance to the Responsible Entity.
It is then necessary to explore the provisions of the Constitution that provided for the payment of fees pursuant to the Licence Agreement.
In the first instance, both the Licence Agreement (to which ACL was also a party) and the Constitution explained their concurrent operation. Clause 15 of the Licence Agreement provided:
This Agreement is subject in all regards to the Constitution and any conflict between this Agreement and the Constitution will be determined as if this Agreement was silent to the extent required to resolve the conflict only.
Clause 21.1 of the Constitution provided:
The Licence Agreement and the Management Agreement entered into between the Responsible Entity and each individual Grower must be read as being subject in all regards to the Terms of this Constitution.
Clause 2 of the Constitution provided that the Constitution was binding on all Growers and the Responsible Entity.
Clause 4.1 provided for the Responsible Entity to open a bank account ‘in which to deposit Application Fees received from Applicants’. It described this as the ‘Application Fund’. ‘Application Fees’ were defined as ‘The Application Fees pursuant to clause 3.1.1 of this Constitution’. That clause in turn directed attention to ‘the Application Processing Fee set out in Schedule 2’.
This creates a curiosity. First, ‘Application Processing Fee’ had its own definition in Schedule 1, being:
Money paid into the Application Fund to process an Applicant’s Application for a minimum of 1 Interest and that is made in accordance with the Product Disclosure Statement offering Interests in the Tasmanian Premium Cherries Project.
Secondly, Schedule 2 was concerned with ‘Total Grower Fees’, rather than ‘Application Fees’.
Clause 4.2 then provided:
4.2 Payment of Total Grower Fees
All monies received in respect of Total Grower Fees for Interests in the Tassie Cherries Project must be paid in favour of the Responsible Entity or any other agent appointed by the Responsible Entity for that purpose.
‘Grower Fees’ was a term defined in Schedule 1 as ‘the Grower Fees as set out in Schedule 2 of this Constitution’. Schedule 2 then provided:
Schedule 2 – Total Grower Fees
Each Grower must pay Total Grower Fees of at least $26,504 (inclusive of GST) for each Interest in the Tassie Cherries Project.
The table set out below shows a break down of the Total Grower Fees comprising of both Management and License Fees.
Applications accepted and payment of Grower Fees commences on or before 15 June 2008.
GROWER FEES
(Inclusive of GST)
JUNE 2008 GROWER
Management Agreement
$
Licence Agreement
$
Total Grower Fees
$
15 June 2008
9,192
312
9,504
31 August 2008
4,063
2,019
6,082
31 July 2009
2,971
2,216
5,187
31 July 2010
2,780
2951
5,731
Total Grower Fees
19,006
7,498
26,504
Schedule 1 also defined an ‘Interest’:
An Interest in the Tasmanian Premium Cherries Project that a Grower acquires once a Grower’s Application is accepted by the Responsible Entity. An Interest includes a Grower’s rights and liabilities pursuant to the Constitution, the Management Agreement and the Licence Agreement. Each Interest is attached to one Allotment. An Interest also includes the Grower’s Business and the net proceeds which are a result of the same.
A ‘Grower’ was defined as follows:
A person who has acquired an Interest in the Tasmanian Premium Cherries Project and was accepted into the Tasmanian Premium Cherries Project on or before 15 June 2008, together with any person named as a Grower in the Grower’s Register in Schedule 1 of the Management Agreement.
Clauses 4.5 and 4.6 then provided:
4.5 Transfer of Grower Fees
The Responsible Entity may transfer money from the Application Fund in respect of an Application for an Interest in the Tassie Cherries Project by an Applicant when the following things have occurred:
4.5.1 the Responsible Entity has issued an Interest to the Applicant;
4.5.2 the Management Agreement and Licence Agreement have been executed by the Responsible Entity and by or on behalf of the Applicant;
4.5.3 the Responsible Entity is ready and willing to fulfil its obligations pursuant to this Constitution;
4.5.4 all other things required to be done pursuant to this Constitution to facilitate the issuing of an Interest to an Applicant have been done;
4.5.5 there are no other outstanding and unrectified material breaches of this Constitution in respect of that Application for an Interest;
4.5.6 any minimum subscription represented in a PDS has been reached;
4.5.7 all other things required by a PDS have been done.
4.6The Responsible Entity will not under any circumstances waive the payment of any fees payable pursuant to this Constitution, the Management Agreement or the Licence Agreement.
There was some slippage in deployment of the terms ‘Application Fees’, ‘Application Processing Fees’ and ‘Grower Fees’. The Constitution appears, in a roundabout way, to have treated Grower Fees synonymously with Application Fees. For present purposes, when reading the whole of clause 4, the relevant definitions in Schedule 1 and the whole of Schedule 2 to the Constitution, it appears that if Grower Fees were required to be paid anywhere specifically, they were to be paid into the Application Fund.
Then, when all of the criteria in clause 4.5 were met, the Responsible Entity could ‘transfer’ the Grower Fees including, presumably, those components to which ACL was entitled by way of licence fees and the rental component.
These constitutional mechanics did not require Grower Fees to be paid into the Proceeds Fund. Schedule 2 to the Licence Agreement does appear to have contemplated those fees being paid to ACL out of the Proceeds Fund. However, reading that Schedule together with clause 34 of the Constitution and the provisions set out above does not warrant the conclusion that Grower Fees were required to be paid into the Proceeds Fund. Rather, clause 34 provided for Growers to receive a percentage distribution of money in the Proceeds Fund, with the safeguard in clause 34.2 that any outstanding fees were to be withheld from any such distribution. Schedule 2 of the Licence Agreement should be read, consistently with this provision, as allowing a deduction from a Grower’s entitlement to proceeds in the Proceeds Fund in the event that they had not otherwise paid the required fees.
The resulting rights and obligations
Mr Nash as trustee of the Nash Family Trust was accepted into the Tasmanian Premium Cherries Project on 31 May 2008.
It follows that, on the acceptance of his application for 30 Interests in the Cherries Project, Mr Nash acquired the rights and liabilities of a Grower pursuant to the Constitution and the Licence Agreement. Those Grower Fees were required by the Constitution to be paid ‘in favour of’ the Responsible Entity. They included the licence fees and rental components to which ACL had an entitlement under the Licence Agreement.
Critically, the Grower Fees that were required to be paid in consideration for acquisition of an Interest were the Total Grower Fees as defined across Schedules 1 and 2. These comprised the first four years of Grower Fees. The claim against Mr Nash did not extend past Grower Fees for years 3 and 4.
Justice Blue concluded that the scheme of the documents was such as to create ‘a debt due by Mr Nash to FBA encompassing both the management fees and the licence fees and in turn a debt due by FBA to Aussie Cherries for the licence fees component’.[5] He then described the actions of the parties as being consistent with such a scheme:[6]
The parties in fact acted on this basis. FBA issued tax invoice 1 to Mr Nash on 2 June 2008 for year 1 Grower Fees which included licence fees and rental totalling $9,360 payable pursuant to the Nash licence agreement. In turn, Aussie Cherries issued a tax invoice to FABAL Operations Pty Ltd for licence fees and rental in respect of Mr Nash totalling $9,360. Although evidence was not given explicitly to this effect, I infer that the invoices were rendered to FABAL Operations because of FABAL Operations’ practice referred to at [7] above.
FBA issued tax invoice 2 to Mr Nash on 11 August 2008 for the year 2 Grower Fees which included licence fees and rental totalling $60,570 payable pursuant to the Nash licence agreement. In turn, Aussie Cherries issued a tax invoice to FABAL Operations Pty Ltd on 31 August 2008 for licence fees and rental in respect of Mr Nash totalling $60,570.
FBA issued tax invoice 3 to Mr Nash on 3 July 2009 for year 3 Grower Fees which included licence fees and rental totalling $66,480 payable pursuant to the Nash licence agreement. In turn, Aussie Cherries issued a tax invoice to FABAL Operations Pty Ltd on 31 July 2009 for licence fees and rental in respect of Mr Nash totalling $66,480.
FBA issued tax invoice 4 to Mr Nash on 31 July 2010 for year 4 Grower Fees which included licence fees and rental totalling $88,530 payable pursuant to the Nash licence agreement. In turn, Aussie Cherries issued a tax invoice to FABAL Operations Pty Ltd on 31 August 2010 for licence fees and rental in respect of Mr Nash totalling $88,530.
It was in the interests of growers such as Mr Nash to register for goods and services tax and claim the GST component charged in respect of fees incurred in connection with the Cherries Project. Mr Nash did not, prior to the purported termination by FBA of his interests in November 2010, complain that FBA had wrongly issued tax invoices to him for licence fees and rent payable under the Nash licence agreement or that Aussie Cherries should issue a tax invoice to him for those fees and rentals. Mr Nash was also a director of Aussie Cherries. Objectively it was the common intention of FBA and Mr Nash that the rendering by FBA of a tax invoice to Mr Nash gave rise to a debt by Mr Nash to FBA and entitled Mr Nash to an input tax credit.
[5] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [228].
[6] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [229]-[233].
This conclusion as to the construction of the documents establishing the scheme necessarily warrants the further conclusion, as the trial judge found, that once the Interests had been acquired, the issuing of the tax invoices for annual Grower Fees created a debt on the part of Mr Nash to FBA. Consistently with this, FBA sued Mr Nash in debt, not for damages for breach of contract.[7]
[7] Consolidated Fourth Statement of Claim at [31], Part 4 Orders Sought [1].
On the hearing of the appeal, FBA placed some reliance on clause 4.5 of the PDS. This provided, in part, that the Grower Fees for an Interest were ‘payable to the Responsible Entity for its services in managing the Orchard’. The PDS expressly included Land & Water Licence Fees and Plant and Equipment Rental as part of the Grower Fees.
This reflected the terms of the Constitution. Clause 4.6 of the PDS, however, then provided:
Rent
The Land & water licence fees are payable by Growers to the Land Owning Company. This is a set fee in consideration for the Land Owning Company granting a licence to Growers to use the Orchard and the Land and supply water to the Tassie Cherries Project.
Plant and equipment rental is a set fee payable by Growers to the Land Owning Company on account of the rent of plant and equipment from the Land Owning Company pursuant to the Licence Agreement.
A PDS provides the information on which a Product Ruling by the Australian Taxation Office is based, and with which the scheme must comply in order to obtain the taxation benefits conferred by the Product Ruling. It does not govern the relationship between the parties to the scheme. It will likely be descriptive of that relationship, as was the PDS in this case. There is arguably an inconsistency between the parts of clauses 4.5 and 4.6 as set out above. However, that is not to the point. It is necessary in the first instance to look at the Constitution and the Licence Agreement. The Constitution is the foundational document.
Mr Nash pointed further to clause 20.1 of the Constitution, which provided:
The Responsible Entity must at all times act in accordance with any valid and current Management Agreement and Licence Agreement.
His submission was to the effect that the provision in clause 4.2 of the Constitution that monies were to be paid ‘in favour of the Responsible Entity’ could not alter the legal title of ACL to the licence fees and rental components. FBA merely had authority, as a matter of convenience, to collect those monies on behalf of ACL. It followed, in the submission of Mr Nash, that absent having proved that it had paid to ACL the relevant fees, FBA could not establish what were in truth, damages for breach of contract.
This submission fails. On Mr Nash acquiring the Interests, under the Constitution he acquired the liabilities of a Grower in the form of a debt due to FBA that encompassed the relevant fees.[8] The Constitution further provided for a debt due by FBA to ACL for the licence fees component. That scheme was also at least contemplated by, if not given full expression in, clause 5.1 of the Licence Agreement.
[8] McDonald v Dennys Lascelles (1933) 48 CLR 457 at 476-477 (Dixon J).
On 25 June 2014, ACL (of which Mr Nash was a director) purported to revoke the authority of FBA to collect those monies on its behalf. Justice Blue found that this did not impact the position in respect of the two invoices issued in 2009 and 2010.
That conclusion is manifestly correct. Regardless of what might have occurred from 2014 onwards, the debts on the part of Mr Nash to FBA, represented by those invoices, had already accrued under the terms of the Constitution and the Licence Agreement. Mr Nash’s submission that the revocation of authority prevented FBA from recovering the sum represented by the outstanding fees is again dependent on the incorrect characterisation of the legal obligations established by the Constitution and the Licence Agreements.
In any event, the obligations under the Constitution and the Licence Agreement were of a tripartite nature: the Growers were also party to the Licence Agreements that were subject to the terms of the Constitution. FBA made the point that in the event that the proper characterisation of the arrangements was that FBA was ACL’s agent, termination of the agency would be required to be communicated to any third party with whom the agent deals on the principal’s behalf. Absent evidence that the revocation had been communicated to the Growers, the purported termination could not have been effective.[9]
[9] See G. E. Dal Pont, Law of Agency (4th ed) LexisNexis, Australia, 2020 at [25.38].
The point is well made, but it does not matter. The substantive obligation under the operative documents was to pay the Grower Fees to FBA. Once the invoices were issued to Mr Nash in accordance with the terms of the Constitution, Mr Nash was liable in debt to FBA. Grounds 9 and 10 fail.
Whether the winding up and deregistration of the Cherries Project disentitled FBA from obtaining judgment for the amounts reflecting the licence fee and rental components
After Blue J had delivered his reasons for judgment,[10] Mr Nash drew to the Court’s attention the fact that the Cherries Project had been wound up in mid‑2018 and deregistered by ASIC in December 2018. The issue that he then agitated was whether the entitlement of FBA to payment by the Nash Family Trust of the Grower Fees in the amount of $220,954.80, the subject of the judgment, comprised ‘Scheme Property’ within the meaning of the Constitution. He argued that if it did, FBA could not recover those fees because it was no longer the Responsible Entity of the Cherries Project.
[10] Food and Beverage Australia Ltd v Nash [2020] SASC 92.
Schedule 1 of the Constitution defined ‘Scheme Property’ as follows:
Any funds, investments, assets, contributions of money or monies worth to the Tasmanian Premium Cherries Project including money that forms part of Scheme Property under the provisions of the Commonwealth Corporations Act 2001 or the Commonwealth ASIC Act 2001 and monies held in the Proceeds Fund. Scheme Property also includes any other property including money raised or borrowed by the Responsible Entity for the purposes of the Tasmanian Premium Cherries Project and property acquired directly or indirectly or with the proceeds of contributions of money that forms part of Scheme Property or rights contributed by Growers, but excluding any assets or other property vested directly in the Growers, including:
·the picked cherries pending their sale;
·proceeds generated by Allotments, including the sale of cherries pending its distribution; and
·proceeds of insurance to which all Growers are entitled and which are deposited in the Proceeds Fund,
but not including:
·Grower Interests; or
·any sale proceeds generated by a Grower on his or her own behalf.
Justice Blue observed that the first part of the definition of ‘Scheme Property’ included a reference to contributions of money to the Cherries Project. He observed, however, that this reference was required to be construed in context:[11]
The context includes that an individual grower pays grower fees to FBA in consideration of services rendered to the individual grower pursuant to the management and licence agreements. Grower fees are not contributed to the Cherries Project as such. Clause 7.1 of the Constitution required FBA to hold all Scheme Property on trust for growers for the entire term of the Cherries Project: this cannot apply to grower fees because they are payable to FBA in their own right. If grower fees formed part of Scheme Property, FBA wold be precluded from receiving them in its own right and would be required to provide the services pursuant to the management agreement without being paid for them. Accordingly, construed in context, the reference in the first section of the first part of the definition of Scheme Property to “contributions of money … to the … Project” does not encompass grower fees. Consequentially, the reference to “assets [of] … the … Project” does not encompass the right of FBA to recover unpaid grower fees from an individual grower.
[11] Food and Beverage Australia Ltd v Nash (No 2) [2020] SASC 181 at [36].
He then concluded that Grower Fees did not comprise Scheme Property under the provisions of the Corporations Act 2001 or the ASIC Act 2001. The appellant did not challenge this conclusion.
Justice Blue then found that Grower Fees did not meet the next limb of the definition of Scheme Property, being monies held in the Proceeds Fund, as Grower Fees were not payable into that Fund. That is consistent with this Court’s analysis, above.
It is not necessary to traverse the balance of Blue J’s analysis of the definition of Scheme Property and his findings that Grower Fees did not meet any limb of the definition. The appellant’s argument that FBA was unable to sue for Grower Fees after the winding up and deregistration of the Cherries Project depended on the narrow proposition that the only entitlement to licence fees lay with ACL. In this regard, the only entitlement of FBA with respect to the licence fees was as agent for ACL. That entitlement could not survive the winding up and deregistration.
This argument does not overcome Blue J’s conclusion, which we have upheld, that the entitlement of FBA to payment of Grower Fees was not as an agent, but an entitlement of FBA in its own right. Justice Blue was correct to conclude that the winding up and deregistration of the Cherries Project had no effect on FBA’s entitlement to judgment.[12] Ground 11 fails.
Whether the trial judge erred in finding that FBA had not engaged in misleading or deceptive conduct with respect to the availability of finance from TBA and with respect to the provision of rain covers and bird netting on the orchards
[12] Food and Beverage Australia Ltd v Nash (No 2) [2020] SASC 181 at [54].
The availability of finance from TBA
Mr Nash had pleaded, in the Second Statement of Counterclaim, that FBA had represented to him, by the terms of the PDS, that Growers could obtain 1, 2 or 5 year loans from TBA to cover the licence fees and management fees.[13] He further pleaded that FBA had, through Mr Day, represented orally to him that TBA would lend to him the entire amount of the fees for the first four years (collectively, the TBA finance representations).[14]
[13] Second Statement of Counterclaim at [14].
[14] Second Statement of Counterclaim at [17].
Mr Nash’s case was that:
·TBA had not borrowed sufficient funds from Bank SA to fund the Cherries Project in the manner represented;
·FBA did not take adequate steps to ensure that TBA obtained funds to advance to Growers in accordance with the representations;
·FBA knew or ought to have known that TBA did not have the capacity to raise sufficient finance to fund the Cherries project adequately;
·Mr Nash only purchased Interests in reliance on the representations that TBA would fund the first four tranches of Grower Fees, and expected that the returns from the Cherries Project would provide an income stream to repay the loans with TBA.
Mr Nash’s case was, in essence, that funding was provided for only part of the first tranche and the second tranche, and then only for a 1-year, interest-free loan. No funding was provided for the third and fourth tranches. The TBA finance representations by FBA were false or misleading, as TBA never had sufficient funds to lend to him the required amounts.
The PDS contained a number of passages addressing the provision of finance by TBA. Justice Blue set these out at length.[15] The PDS contained repeated reference to the option to apply for a Terms Loan Agreement with repayment options of 1, 2 or 5 years. In this context, it also said:[16]
Growers can invest using either their own financial resources or by borrowing from a financial institution of their choosing. Prior to doing so, Growers should obtain professional advice in respect of the taxation consequences this may have for them.
[15] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [305]-[312].
[16] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [308].
In a similar vein, but with a different emphasis, the PDS further said:[17]
Each Investor may elect to fund the cost of the Grower Fees themselves, choose a Terms Loan Payment Option from FABAL or borrow from an independent lending institution.
[17] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [310].
While this passage might on one view be reasonably interpreted as offering an option for borrowing from FBA’s associated lender without qualification, it cannot be read out of context. A Terms Loan Agreement was still something for which the Investor had to apply. Thus, the PDS stated on page 10, in terms that were essentially repeated on page 21:
Investors wishing to acquire interests in the Tassie Cherries Project pursuant to a Terms Loan Agreement have a period of 1, 2 or 5 years in which to pay for their Interest in the Tassie Cherries Project – depending on the Terms Loan Payment Option selected.
Investors wishing to apply for a Terms Loan Payment Option should contact the Responsible Entity on 1300 322 251 to obtain a paper copy of the Terms Loan Agreement Information Brochure which contains the Direct Debit Agreement so that repayments may be debited directly from the Applicant’s nominated financial institution account or credit card.
…
To enter into a Terms Loan Agreement an Applicant must execute the Terms Loan Agreement and Direct Debit Agreement along with the Application Form attached to this PDS.
The Responsible Entity will monitor the level of Applications received pursuant to each Terms Loan Payment Option and is not obliged to accept any Application to acquire an Interest or Interests in the Tassie Cherries Project pursuant to a Terms Loan Agreement.
[TBA], a related entity of the Responsible Entity, will provide finance to Investors pursuant to any Terms Loan Agreement. The Terms Loan Agreement is a full recourse loan to the Applicant. [TBA] will obtain security for the terms loan facility by taking an enforceable charge over the Grower’s Interest(s) in the Tassie Cherries Project. If the Grower is a corporate entity (including in its capacity as trustee of a trust), the Directors of this entity will be required to guarantee the terms loan facility.
Justice Blue, having recited the material parts of the PDS and attached application form, reasoned:[18]
If a prospective investor read these references to finance in the Cherries PDS, it is likely that they would have believed from the references to direct debits, guarantees by directors and so on, and from their general knowledge, that finance from TBA may be subject to an assessment by TBA of their means of repayment. It is likely that they would also have believed from reading page 10 that FABAL reserved the right to decline to grant finance depending on the level of applications for finance received.
[18] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [313].
We would not disturb this conclusion about the content of the representations contained in the PDS. As Blue J observed, however, the inquiry did not end there:[19]
However, the question is not whether a theoretical prospective investor who read the Cherries PDS and had no other source of knowledge would or may have been misled. The question is whether FBA engaged in misleading conduct vis a vis Mr Nash in all of their communications and dealings leading up to his application to become a grower and whether Mr Nash amongst other things read and relied on any of the above passages contained in the Cherries PDS.
[19] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [313].
Justice Blue found, first, that Mr Nash had neither read nor relied upon the statements in the PDS. Mr Nash’s evidence, as the judge observed, was to the effect that he could not say that he had read it from cover to cover, but he ‘had a look at it’. He considered he was already aware of the matters it covered from his involvement in the Cherries Project.[20]
[20] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [314]-[316].
Secondly, Blue J observed that Mr Nash was not asked if he had read any of the relevant passages in the PDS, and did not give evidence that he had. He held that Mr Nash had failed to discharge his onus in this regard,[21] and that even if statements in the PDS were misleading, Mr Nash failed on the issue of causation.[22]
[21] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [317].
[22] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [357].
Justice Blue then referred to Mr Nash’s evidence to the effect that his belief about the availability of finance was based on his previous experience in relation to other managed investment schemes. Otherwise, Mr Nash tended to attribute his knowledge to a general expectation or to ‘vague’ oral statements by Mr Day.[23] Justice Blue traversed Mr Nash’s evidence of these conversations, in which Mr Nash attributed to Mr Day statements to the effect that TBA was the lending arm of the group and would become the lender of the project. His evidence was not that Mr Day had told him that TBA would provide finance for the entire Grower Fees over the four-year period. Rather, the conversations were suggestive of ‘uncertainty and evolution over time’.[24]
[23] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [319].
[24] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [324].
Justice Blue found that Mr Nash was vague in his evidence about the content of Mr Day’s statements.[25] That is a fair characterisation of the evidence. Further, he made the general finding that Mr Nash’s answers to questions in cross‑examination were often evasive and that he had the impression that Mr Nash gave answers ‘by reference to his perception of what would advance his case’.[26]
[25] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [326].
[26] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [143].
Justice Blue found Mr Day to be an honest witness overall, and that with one exception (not here material), his evidence was reliable.[27] Mr Day’s evidence, as his Honour summarised, was to the effect that TBA had very limited financing capacity. This included evidence to the effect that FBA did not provide funding in the manner of other managed investment schemes with which Mr Nash had experience, that FBA only had very small finance facilities of around $2 million and that they had a small facility with TBA, which was a top‑up facility. He said Mr Holt had told him that this should not be a major problem, as Holt Norman had a number of groups not aligned to the big providers.[28]
[27] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [131].
[28] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [328]-[329].
Mr Day also said that in a telephone call in February 2008, in which Mr Nash took part, Mr Holt had discussed other financing possibilities and that he was going to seek financing from the Commonwealth Bank, among others, for his clients. In a telephone call in April 2008, Mr Holt had said that the Commonwealth Bank was not going to provide finance and they would be approaching Bank SA. Mr Day agreed to introduce Mr Holt to the Bank SA managed investment schemes lender. He made that introduction. Mr Holt subsequently told him, not in the presence of Mr Nash, that Bank SA was seeking more information.[29]
[29] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [330]-[332].
Mr Nash signed a Bank SA Investor Loan application as trustee of the Nash Family Trust on 7 May 2008, for the recorded purpose of purchasing 30 Interests in the Cherries Project. He also applied for the Interests in May 2008, FBA receiving the application form on 19 May 2008.[30]
[30] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [333]-[334].
Mr Nash gave evidence, which Blue J described as vague, to the effect that the application for finance to Bank SA was all organised by FBA. However, Blue J accepted Mr Day’s evidence that FBA was not involved with Mr Holt’s dealings with Bank SA on this issue, other than making the initial introduction.[31]
[31] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [335].
Mr Day gave evidence that the application to Bank SA was not successful. Justice Blue summarised Mr Day’s account of what happened next, with which events Mr Nash was integrally associated:[32]
Mr Day gave evidence that, when Mr Holt told him that finance was not going to be obtained from BankSA, Mr Holt said that he and Mr Nash were going to have to pay for the Driessen land and they had to get the project away with Mr Holt’s clients. Mr Holt said that he intended to approach a company called Green Seeds and seek finance for the first three tranches. Mr Holt later said that he was confident that he could obtain finance from Green Seeds but not in time to fund the Grower Fees for year 1.
Mr Day gave evidence that Mr Nash telephoned him and said that he had been speaking to Mr Holt. There was reference to finance from Green Seeds. Mr Day said to Mr Nash that, if FABAL could go to BankSA and get enough money for the Grower Fees for year 1, that would get the project started and then they could wait for Green Seeds to refinance. Mr Day said that he could only lend up to $200,000 to Mr Nash if he used TBA.
[32] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [337]-[338].
Justice Blue then noted the signing by Mr Nash of the ‘1st Tranche Only Terms Loan Agreement’ between TBA and himself. It was clear enough that there was a direct conflict between the evidence of Mr Day and Mr Nash, notwithstanding that his Honour found Mr Nash’s evidence about his conversations with Mr Day to be vague.
Having regard to Mr Nash’s onus of proof, Blue J concluded that he was not satisfied that Mr Day had represented to Mr Nash, or engaged in conduct that led Mr Nash to believe, that TBA would provide finance for the first four years’ Grower Fees or, indeed, would provide finance beyond that for the first invoice, limited to $200,000. He found, on the balance of probabilities, that Mr Day did not represent to Mr Nash that TBA would provide finance beyond that sum.[33]
[33] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [341]-[342].
In reaching this conclusion, he relied on his general adverse credit finding in respect of Mr Nash and Mr Nash’s tendency to be evasive and argumentative in his answers. Mr Nash had also referred to finance being sought from Bank SA and Green Seeds. His Honour considered he had no reason to disbelieve Mr Day’s evidence on this topic. Further, Mr Nash was unable to explain satisfactorily why he had signed the application to Bank SA, if he had been assured of four years’ funding by TBA. Mr Nash had accepted that he knew in early June 2008 that TBA could not provide all of the funding, but he did not seek to withdraw from the Project. Finally, the limit of $200,000 that Mr Day said TBA would lend was consistent with the terms of the loan agreement.[34]
[34] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [343]-[348].
Justice Blue also had regard to the subsequent conduct of FBA, in particular the various demands for payment set out above. These were consistent with Mr Day’s evidence of what he had represented.[35]
[35] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [350]-[355].
The complaint on appeal squarely invokes the obligation placed on this Court, as an intermediate Court of Appeal, articulated in Fox v Percy:[36]
In some, quite rare, cases, although the facts fall short of being “incontrovertible”, an appellate conclusion may be reached that the decision at trial is “glaringly improbable” or “contrary to compelling inferences” in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must “not shrink from giving effect to” its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.
(Footnotes omitted)
[36] Fox v Percy (2003) 214 CLR 118 at [29] (Gleeson CJ, Gummow and Kirby JJ).
The High Court recently affirmed this obligation on appellate courts:[37]
A court of appeal is bound to conduct a “real review” of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the trial judge has erred in fact or law. Appellate restraint with respect to interference with a trial judge’s findings unless they are “glaringly improbable” or “contrary to compelling inferences” is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. Thereafter, “in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge”.
(Footnotes omitted)
[37] Lee v Lee (2019) 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ).
The trial judge’s findings with respect to whether FBA had made the pleaded representations, and whether Mr Nash had relied on those representations, turned on a combination of his assessment of the credibility of each of Mr Day and Mr Nash, and the objective surrounding circumstances. Those circumstances included the content of the PDS and the objectively proved conduct of both Mr Nash and FBA in relation to the funding of Mr Nash’s Interests in the project.
Mr Nash’s challenge to the findings of fact require this Court to undertake a ‘real review’ of the evidence. The factual findings as to the competing cases about what Mr Day represented to Mr Nash about financing from TBA depended in part on Blue J’s assessment of the credibility of those witnesses at trial. That aspect invites restraint. There was also, however, a considerable matrix of surrounding evidence that did not depend on those credibility assessments: as Blue J observed, it was necessary to examine all of the dealings and communications.
The appellant’s first complaint to this end was that Blue J’s reasoning was too formulaic on the question of how closely Mr Nash had read the written representations, when he had ‘intimate knowledge’ of the contents of the PDS in any event. This was said to be on the basis of his involvement in the managed investment scheme from the beginning. The submission was that his Honour should have placed greater weight on Mr Nash’s knowledge of the representations contained in the written documents through his discussions in the establishment of the scheme.
There are difficulties with this submission. First, it relies on an interpretation of the statements in the PDS that is contrary to the finding of Blue J. We would not depart from his Honour’s characterisation of those statements to the effect that they leave scope for TBA to not accept applications for funding. Secondly, reliance on Mr Nash’s admissions as to his not having read the PDS was not ‘formulaic’. That reliance occurred in the context of his consideration of all communications with Mr Day that were the subject of evidence and which were, in material respects, contested. Justice Blue resolved important aspects of that contest in favour of Mr Day’s evidence.
Mr Nash also relied on the terms of the Australian Taxation Office Product Ruling, which in effect provided that the interest on loans with TBA were deductible in the income year in which they were incurred. Further, neither the PDS not the Product Ruling stipulated a limit on the amount that could be borrowed from TBA.
As observed above, however, the PDS contemplated that Investors might finance their Interests through other means. In any event, we would not depart from Blue J’s finding that, on a reasonable reading of the PDS, FBA had reserved the right to decline to grant finance depending on the level of applications for finance received. The matters raised by the appellant do not give cause to depart from the finding that FBA had not represented, and Mr Nash did not rely on any representation to the effect, that TBA would finance the first four tranches.
Ultimately, Mr Nash submits in this regard:[38]
The learned Justice ought to have placed greater importance on the fact that the representations were confirmed in writing, making it likely that as between the persons involved in putting the project together that the contents of that writing were discussed numerous times as Mr Nash said.
[38] Written Submissions of Appellant at [42].
Again, this attack on the probabilities of what passed between Mr Day and Mr Nash relies on elevating the statements in the PDS to representations that Blue J found were not made, namely that TBA would fund all Growers in respect of all four tranches. We would not interfere with that finding.
Mr Nash added to this submission the unlikelihood of Mr Day’s account being correct in circumstances where he, Mr Nash, could not have participated without funding. He gave evidence that he would not have entered into the project without funding.[39] However, even if the underlying proposition were to be accepted, it would not assist. Mr Nash’s actions at the time were consistent with looking for alternative sources of funding as well. The proposition that Mr Nash required funding to proceed makes Mr Day’s evidence no less probable. It does not provide a sound basis for departing from the findings of the trial judge, which were based in important respects on his assessment of the witnesses and the surrounding, objective conduct of the parties.
[39] Trial Transcript 443.26-28.
The provision of rain covers and bird netting on the orchards
The PDS contained a number of statements that rain covers and bird netting would be provided for the entire orchard, and that these would operate to protect the maturing cherries, improving yield and return. Mr Nash had pleaded that the failure to ensure that TBA had the funds represented in the PDS and in the oral representations had the consequence that FBA did not have the funds to meet its obligations, including to install rain covers and bird netting. The pleaded consequence was one of loss arising from the TBA finance representations, in that FBA did not cause any or any adequate bird netting or rain covers to be installed, resulting in lower yield and lower income to the Project.
At some point, the issue of bird netting and rain covers became treated as a separate issue to that of the TBA finance representations. That did not involve abandoning the link between the TBA finance representations and the failure to provide rain covers and bird netting. It does appear, however, that the parties also treated the questions of whether FBA represented to Mr Nash that these items would be provided, whether Mr Nash relied on such representations and whether FBA had a reasonable basis for making the representations, as founding an independent claim of misleading or deceptive conduct.
Insofar as the failure to provide bird netting and rain covers was pleaded as a loss consequent on Mr Nash’s reliance on the TBA finance representations, the conclusion that Blue J did not err in finding against Mr Nash on the issues of whether those representations were made and reliance/causation means that this loss claim fails at the outset.
Insofar as the claim in respect of bird netting and rain covers raised an independent claim of misleading or deceptive conduct, Blue J found that Mr Nash had not read any of the statements contained in the PDS relating to bird netting and rain covers. This finding was based in the first instance on Mr Nash’s evidence to the effect that he had only glanced through the PDS, as he believed he already knew what it contained.[40] Justice Blue had already addressed that evidence. Secondly, again, he was not asked in chief if he had read the passages.[41] Thirdly, when asked in cross-examination, the answers he gave, which Blue J set out, were evasive and only went as far as to say that he ‘would have’ read them.[42] Justice Blue expressed his satisfaction that he had not. That conclusion was open and justified.
[40] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [370].
[41] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [371].
[42] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [372]-[374].
His Honour further found in any event that under the scheme, it was not the responsibility of FBA to install bird netting and rain covers. Rather, it was the responsibility of ACL, of which Mr Nash was a director. This was provided for by Clause 7 of the Development Agreement between Nash Co, Holt Norman and FBA. The Licence Agreement contemplated that ACL would own all the infrastructure on the land, as had the prospectus for the issue of shares in ACL, which had been issued on 11 April 2008. None of the documentation suggested that the Growers would own or meet the costs of rain covers or bird netting.[43] As Blue J noted, Mr Nash ultimately accepted in cross-examination that the rain covers and bird netting would be installed by ACL.[44]
[43] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [378]-[381].
[44] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [382].
In any event, the statements in the PDS were to the effect that bird netting and rain covers would be installed by first harvest. That was expressed elsewhere in the document as being in 2012, with the first commercial harvest being in 2014.[45] FBA terminated Mr Nash’s Interest in the Cherries project in 2010. In those circumstances, it is not apparent what loss Mr Nash could have established.
[45] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [387].
Justice Blue concluded:[46]
To the extent, therefore, that the Cherries PDS represented that rain covers and bird netting would be installed by 2012 or 2014, the representation must have been that it was the intention of Aussie Cherries [ACL] to install them. Even if, contrary to my finding above, Mr Nash had read the relevant passages from the Cherries PDS, he (along with Mr Holt and Mr Norman) was in a very different position to an ordinary grower. He was a director and major shareholder of Aussie Cherries. He knew more than FBA about the intention of Aussie Cherries and its willingness and ability to install rain covers and bird netting in the future. Even if he had read the statements in the Cherries PDS, they were incapable of misleading him.
[46] Food and Beverage Australia Ltd v Nash [2020] SASC 92 at [388].
On any view of the complaints about bird netting and rain covers, then, Mr Nash fails.
On appeal, Mr Nash emphasised the link between the TBA finance representations and the failure to install rain covers and bird netting. This was on the basis that if the project had been financed as represented, and had consequently received all of the fees due from the Growers, rent would have been paid to ACL and the bird netting and rain covers could have then been purchased. He argued that, in any event, the focus on whose responsibility it was to provide this infrastructure missed the point. FBA had made the representation in the PDS and Mr Nash’s case was a ‘no transaction’ case. He was entitled to expect they would be installed. The failure of Growers to pay the fees, which was consequent on the lack of finance, contrary to the TBA finance representations, meant that there was a shortfall in the funds available to pay for them.
It is a necessary integer of this argument to maintain that Blue J erred in his findings on reliance and causation. There is no basis for overturning the finding that Mr Nash did not read the representations in the PDS and that, even if he had done so, he would not have been misled. Further, we would not overturn his Honour’s finding that the representations in the PDS were that rain covers and bird netting would be provided in time for first harvest, that is, 2012. Then, to the extent that the argument requires channelling the case that the TBA finance representations were misleading, for the reasons explained above, it necessarily fails.
Justice Blue did not err in his conclusions with respect to the claim that FBA had engaged in misleading or deceptive conduct as to the availability of finance from TBA and the provision of rain covers and bird netting on the orchards. We dismiss Ground 12.
Conclusion
The appeal is dismissed.
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