Peter Luscombe Ward v Youfa Xiang

[2017] NSWCA 39

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	Peter Luscombe Ward v Youfa Xiang [2017] NSWCA 39
Hearing dates:	17/02/2017
Date of orders:	09 March 2017
Decision date:	09 March 2017
Before:	Gleeson JA; Leeming JA; McDougall J
Decision:	Appeal dismissed with costs.
Catchwords:	TRADE PRACTICES – misleading or deceptive conduct – appeal from decision of primary judge finding representations were made and relied upon – where appellant misrepresented operations of the business to potential investor – whether appellant engaged in misleading or deceptive conduct – where representations were made through a third party – whether the representations were relied upon by the plaintiff
Legislation Cited:	Australian Securities and Investment Commission Act 2001 (Cth) Trade Practices Act 1974 (Cth)
Cases Cited:	Gould v Vaggelas (1985) 157 CLR 215
Category:	Principal judgment
Parties:	Peter Luscombe Ward (Appellant) Youfa Xiang (Respondent)
Representation:	Counsel: M J Windsor SC (Appellant) M W Young SC (Respondent)    Solicitors: Capello Rowe Lawyers (Appellant) Dixon Holmes Lawyers (Respondent)
File Number(s):	2016/151241
Decision under appeal	Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2016] NSWDC 86 Date of Decision: 04/05/2016 Before: P Taylor SC DCJ File Number(s): 2013/304886

Judgment

1. GLEESON JA:    I agree with McDougall J.

2. LEEMING JA:   I agree with McDougall J.

3. McDOUGALL J:   On about 22 February 2010, the respondent (Mr Xiang) agreed with a company called Alternative Fuel Solutions Pty Ltd [1] (AFS) to subscribe for shares equivalent to 10% of the issued capital of AFS. The consideration payable, and paid, was $500,000. Mr Xiang said that AFS, through the human medium of the appellant (Mr Ward, who at all material times controlled AFS), made a number of representations that induced Mr Xiang to enter into the agreement, and that he relied on the truthfulness of those representations in deciding so to do. However, Mr Xiang said, the representations were false, and misleading or deceptive.

   1. So (and grammatically) described in the written agreement; its correct name, as disclosed by an ASIC search, is Alternate Fuel Solutions Pty Ltd.

4. Mr Xiang claimed that in the circumstances I have briefly described, AFS was guilty of misleading or deceptive conduct in breach of the statutory prohibitions set out in s 12DA of the Australian Securities and Investment Commission Act 2001 (Cth) or, if that Act were for some reason not applicable, s 52 of the Trade Practices Act 1974 (Cth). He sued Mr Ward for knowing involvement in that misleading or deceptive conduct. The damages claimed were $500,000 together with interest.

5. The primary judge found in favour of Mr Xiang, and directed entry of judgment accordingly with costs. Mr Ward appeals from that judgment. For the reasons that follow, the appeal should be dismissed with costs.

Background facts; the pleaded case

6. Mr Xiang is a citizen of the People’s Republic of China. In 2009, he was interested in obtaining permanent residency in this country. He approached a good friend Mr Kai Zhu (also known as Walton Zhu, or Walton Chu).

7. Mr Zhu had a friend, Mr Gary Knight. Mr Knight, who had met Mr Ward in late 2007 or early 2008, was a director of a company called Australian Rural Expo Pty Ltd (ARE). That company’s activities included finding Asian investors for business opportunities in rural and regional Australia. Mr Ward expressed an interest in ARE’s finding Asian investors for his business interests.

8. When Mr Zhu met Mr Knight, they discussed Mr Knight’s business. Mr Zhu said that he knew people from China who were looking to invest in Australia, and to become permanent residents. In due course, Mr Zhu and Mr Knight discussed the position of Mr Xiang.

9. Mr Xiang’s case is that Mr Ward, on behalf of AFS, made a number of representations to Mr Knight, to persuade Mr Knight to procure Asian investors in the business of AFS. Mr Xiang says that Mr Knight in turn discussed AFS with Mr Zhu, and passed on the representations that Mr Ward had made. Mr Zhu reported on those discussions to Mr Xiang (who did not speak English).

10. The statement of claim pleads some nine representations said to have been made by AFS to Mr Xiang through the mechanism that I have described. Four of those, described as the “First Representations”, were said to have been made orally by Mr Ward (on behalf of AFS) to Mr Knight in 2008. They were (and I use the language of the pleading):

1. that AFS already had $500,000 invested in it from an investor;

2. that AFS had developed and owned innovative fuel technology;

3. that AFS was in operation of a business; and

4. that AFS was currently using the money already invested in it to commercialise its fuel technology.

11. Thereafter, Mr Xiang (through Mr Zhu, and relying on what Mr Zhu had told him about AFS, as Mr Zhu had had it from Mr Knight) engaged ARE to search out investment opportunities. Mr Xiang required that the investments be both sound and such as would help him gain permanent residence in Australia. ARE, through Mr Knight, made further inquiries of AFS, through Mr Ward in early 2010. It is Mr Xiang’s case that, in the course of those inquiries (conducted by telephone), AFS through Mr Ward made the so called “Second Representations” to ARE through Mr Knight. Those representations were (again, in the language of the pleading):

1. that in addition to the $500,000 received from a previous investor AFS had attracted high level government support;

2. that AFS was continuing to commercialise innovative fuel technology that it owned;

3. that the business of AFS was operating well;

4. that an entity known as “Eagle Park Stud” with an annual turnover of more than $1,000,000 and employed [sic] more than 8 employees had acquired a controlling interest in AFS so that AFS could satisfy the requirements of the Department of Immigration and Citizenship to act as an employer sponsor for the plaintiff with respect to permanent residency in Australia; and

5. that if a further $500,000 was invested in AFS by the plaintiff then AFS would then be in a position to build, and would immediately proceed to build, a fuel technology plant.

12. Mr Xiang said that the substance of those representations was communicated to him by Mr Knight through Mr Zhu. He understood that if he invested $500,000 in AFS, so as to become the holder of 10% of its issued capital, AFS would sponsor him pursuant to an immigration program that was designed to attract skilled immigrants (and their investment capital) to regional Australia. As Mr Xiang understood the proposal, he would receive his money back after two years less a fee of $50,000 if his application for permanent residency were approved; if it were not, he would receive back the entire $500,000. He was prepared to invest on those terms.

13. Thereafter, Mr Xiang, Mr Knight and Mr Ward met at Mr Zhu’s office. One or other of Mr Knight or Mr Ward produced a form of agreement for Mr Xiang to sign. Mr Zhu translated and explained the document to Mr Xiang. Mr Xiang signed it, and so did Mr Ward, in his capacity as a director of AFS [2] . Mr Xiang paid $500,000 to AFS. It was deposited into AFS’ bank account. Over the next few months, the whole amount was paid out from AFS to MR Ward or to entities that he controlled, purportedly as a “loan”.

    2. Mr Ward said in his affidavit that he signed the agreement “reluctantly”: [55], Blue 175K. His conduct after the event of signature is entirely inconsistent with any suggestion of reluctance; Mr Ward seized the opportunity with avidity, by transferring the money out of an account controlled by AFS and, ultimately, appropriating it for his own use.

The reasons of the primary judge

14. The primary judge set out the background facts, and gave detailed consideration to the credibility of the principal witnesses (Mr Knight, Mr Ward, Mr Xiang and Mr Zhu). He concluded that in some significant respects, Mr Ward had been “less than honest”, and that although there were “concerns” about some aspects of Mr Knight’s evidence, in general he preferred it to that of Mr Ward. The primary judge found Mr Xiang and Mr Zhu to be witnesses of truth. His Honour’s findings as to credibility were not attacked in the appeal.

15. The primary judge then turned his attention to the representations. Using the numbering that I have given above, his Honour concluded that:

1. the first representation had not been proved, in the terms that were pleaded;

2. the second representation had been proved;

3. the third representation had been proved;

4. the fourth representation had not been proved;

5. the fifth representation had not been proved in the terms pleaded;

6. the sixth representation had not been proved in the terms pleaded;

7. the seventh representation had not been proved in the terms pleaded;

8. the eighth representation had been proved; and

9. the ninth representation had not been proved.

16. I should expand a little on that summary. As to the first representation, the primary judge thought it more likely than not that Mr Ward did make a reference to another investor, but did not find that Mr Ward had said that this investor had already invested $500,000.

17. As to the third representation, the primary judge characterised it as being a representation that there was “a genuine business”. One of the criticisms made of his Honour’s reasons is that in so finding, his Honour went beyond the terms of the pleaded representation.

18. As to the fifth representation, his Honour was satisfied that Mr Ward had represented that AFS had government support, but was not satisfied that he had characterised it as “high level” support.

19. As to the sixth representation, his Honour was satisfied that Mr Ward had represented that AFS owned innovative fuel technology, but was not satisfied that he had represented that AFS was continuing to commercialise that technology.

20. As to the seventh representation, the primary judge found that Mr Ward had represented that AFS had been operating for a little over a year (at the time the representation was made, in early 2010). He was not satisfied that there was a representation that it was “operating well”.

21. His Honour summarised his conclusions, as to the making of the pleaded representations, as follows [3] :

Thus, in general terms, I accept that Mr Ward made representations about a genuine business that was operating well and that Eagle Park was a substantial business with more than a million dollars in turnover and eight employees which could fulfil the sponsorship requirements if more than AFS was needed. I also accept that Mr Ward represented that AFS had developed and owned innovative fuel technology.

3. Judgment [65], Red 38J-M.

22. His Honour then turned his attention to the question, whether such representations as had been made were misleading. He concluded that the second and third representations were, but that the eighth was not. As to the second representation, his Honour noted that Mr Ward had accepted that AFS did not own any fuel technology [4] .

    4. Judgment [68], Red 38X-39B.

23. As to the third representation, his Honour reasoned as follows [5] :

As to the truth of these representations, I am not satisfied in early 2010 that AFS was a genuine business. It expended no funds nor received any revenue in 2010. Mr Madden initially a crucial figure in AFS, had ceased being paid by late 2009. Mr Madden, initially a crucial figure in AFS, had ceased being paid by late 2009. Although he remained having some involvement in early 2010, there was no evidence of anything of substance done by him.

5. Judgment [66], Red 38P-T.

24. Having found that two of the three representations that proved to have been made were misleading, his Honour turned his attention to the question of Mr Ward’s knowing involvement. He concluded, in substance, that since Mr Ward was in full control of the business at the relevant time then, leaving aside his admission as to the second representation, he must have known that the two representations were false.

25. The primary judge then turned to the question of causation. He referred to Mr Xiang’s evidence, to the effect that he would not have entered into the share agreement “if the promises about the ability to sponsor me for permanent residence [sic] were not made to me by Mr Ward” [6] .

    6. Judgment [73], Red 40C-G, [16] of Mr Xiang’s affidavit.

26. His Honour gave consideration to what he regarded as “the usual order of things”[7] , and relied on that for a conclusion that Mr Xiang would not have entered into the agreement unless he were assured that AFS could sponsor him for permanent residency, and could repay the investment (at least) as to $450,000). His Honour said [8] :

These matters [what his Honour had called “the usual order of things”] suggest that Mr Xiang acted on the belief that AFS could properly sponsor his permanent residency application and would repay his investment. Both of these matters necessarily involved a belief in AFS being a genuine business otherwise the guaranteed buyback was worthless and the sponsorship requirements could not be satisfied. I find that Mr Xiang did believe that AFS was a genuine operating business able to provide sponsorship, that this belief was central to his decision in invest the amount of $500,000 and that the belief was caused by Mr Ward’s representations.

7. Judgment [74].

8. Judgment [75], Red 40S-41C.

27. Although the passage just quoted refers to “Mr Ward’s representations”, it appears in context to be a reference to the third representation, although (as indeed his Honour recognised) the other representations could also feed into, so as to help in the formation of, Mr Xiang’s belief. As to the second representation, the primary judge was not prepared to find that Mr Xiang “was motivated by this representation in his decision to provide the investment, other than that comments about the nature of the business would tend to support, in his mind, his belief that the business was genuine” [9] .

    9. Judgment [76], Red 41E-H.

28. Finally (of present relevance) on the question of causation, the primary judge concluded [10] that Mr Ward’s representations to Mr Knight about AFS being able to provide sponsorship, and thus being of necessity “a genuine operating business, of substance”, were passed on by Mr Knight to Mr Xiang and relied upon by Mr Xiang.

    10. Judgment [77], Red 41I-P.

29. The question of quantum was straightforward and, since this aspect of his Honour’s reasoning is not challenged, nothing need be said about it.

Grounds of appeal

30. Mr Ward’s notice of appeal specified some ten grounds. Only five were pressed: grounds 5, 6 and 8 to 10. They are as follows:

5.   His Honour erred in finding that the Appellant represented about a genuine business.

6.   His Honour erred in finding that in early 2010 AFS was not a genuine business.    

8.   His Honour erred in finding that the Appellant was aware that representations about AFS technology and conducting a genuine business were known to him to be misleading.

9.   His Honour erred in finding that the Appellant caused the Respondent to invest $500,000.

10.   His Honour erred in finding that a representation made by the Appellant that AFS was a genuine operating business of substance was substantially conveyed to the Respondent and relied upon by him.

Grounds 5 and 6

31. Mr Windsor of Senior Counsel, who appeared for Mr Ward on the hearing of the appeal (but had not appeared for Mr Ward below), dealt with grounds 5 and 6 together. I shall do the same.

The parties’ submissions

32. As to ground 5, Mr Windsor noted that the findings of the primary judge, in relation to the making of the third representation, were couched in terms of a representation that the company was one which carried on “a genuine business that was operating well”[11] . Mr Windsor submitted that there was no pleaded representation that AFS was “a genuine business”, and that it had not been put to Mr Ward that he had made such a representation. Further, Mr Windsor submitted, the evidence did not show that Mr Ward had made a representation to the effect found by the primary judge. He submitted that the only references to there being “a genuine business” were contained in what Mr Knight had said.

    11. See his Honour’s reasons at [65], referred to at [21] above.

33. Mr Young of Senior Counsel, who appeared for Mr Xiang (and who had appeared for him at trial), submitted that the pleaded representation, that “AFS was in operation of a business”, necessarily meant, having regard to the context, that it was a real business and not a sham business; that it was a business properly so called. Thus, Mr Young submitted, the finding of the primary judge did no more than reflect the concept of “business” as it would have been understood at the time and as used in the pleading. Mr Young submitted that any representation, that there was a business operated by AFS, necessarily represented that it was real or genuine.

34. As to ground 6, Mr Windsor referred to evidence that, he submitted, showed that AFS was a real or genuine business in January and February 2010. Mr Young submitted, to the contrary, that the evidence relied on was not capable of proving the proposition that the business was genuine. Further, Mr Young submitted, there was ample evidence, including from Mr Ward himself, to show that AFS had no business at all.

Decision

35. Mr Knight gave evidence of a number of conversations with Mr Ward in 2008 and 2010. In 2008, Mr Knight said, he and Mr Ward discussed what was necessary to ensure that AFS “actually qualifies as a sponsor” under the “Regional Skilled Migration Scheme” [12] . In the course of this conversation, Mr Knight said, Mr Ward asked what was required for AFS to qualify as a sponsor. Mr Knight said he replied that “the most important thing is that the company has to carry on a genuine business; it has to have staff already employed in the regional and rural areas; and the company has to justify why it needs to hire a foreign national…” [13] . Mr Knight said that Mr Ward said that he could “make sure that my company satisfies all that” and asked Mr Knight to “go ahead and find me the Asian investors and my company will provide the sponsorship” [14] .

    12. Affidavit [4], Blue 4L-5I.

    13. Affidavit [4], Blue 4U-Y.

    14. Affidavit [4], Blue 5E-G.

36. According to Mr Knight, the requirement for a “genuine business” was emphasised further, in a conversation with a ministerial adviser [15] and in a later conversation, still in 2008, between Messrs Knight and Ward [16] .

    15. Affidavit [5], Blue 6F.

    16. Affidavit [7], Blue 6O-7P.

37. As I have said, Mr Zhu thereafter introduced Mr Xiang to Mr Knight, and they began to discuss the possibility of Mr Xiang’s investing in a business that Mr Knight could source for him.

38. Mr Knight said that he told Mr Ward, in a conversation with Mr Ward in early 2010, that “you know that you need to show that you have a genuine operating business” and that Mr Ward said that this (and other requirements) would be “no problem” [17] .

    17. Affidavit [11], Blue 10H-W.

39. The primary judge referred to the substance of this evidence. He noted, correctly, that Mr Ward had accepted in cross-examination that Mr Knight could have said to him the things to which Mr Knight deposed. As I have said already, the primary judge preferred Mr Knight’s evidence to Mr Ward’s. It was open to him to do so.

40. In my view, it is obvious that the representation found by his Honour – that AFS had “a genuine business” – was made out. The requirement that the business be genuine was stressed to Mr Ward repeatedly, both in 2008 and again in 2010. Mr Knight explained that this was so if AFS were to be acceptable as a sponsor for Mr Xiang under the Regional Skilled Migration Scheme. Mr Ward did not demur, or suggest that the business of AFS was anything other than genuine. On the contrary, he said, repeatedly, that AFS could meet the Department’s requirements.

35. That leaves the pleading point. In my view, there is nothing to it. There are two reasons why this is so.

36. First, and as Mr Young submitted, in the context in which the discussions about operation of a business occurred, a representation that AFS operated a business necessarily encompassed that it was a real, or genuine, business and not a sham or fictitious business. Thus, in that context at least, it is my view that the representation found by his Honour to have been made fell within the parameters of the pleaded case.

37. Second, the evidence on which his Honour relied was in substance that of Mr Knight. Mr Knight’s affidavit was read without objection (indeed, the primary judge double-checked to make sure that this was so) [18] . It is obvious that the evidence in question was that on which Mr Xiang relied to prove at least the making of the third representation. Once that evidence was admitted without objection, and once it was accepted by the primary judge as credible, it was open to the primary judge to find, when dealing with the third representation, that the terms of the actual representation made were, as he said, that AFS operated “a genuine business”.

    18. Black 5 L-S.

38. In essence, Mr Windsor’s submission is, or involves the proposition, that the evidence adduced to support the making of the third representation went beyond the particulars. If that were so, objection should have been taken to it. In the absence of any objection, it was open to the primary judge, once he accepted it, to rely on it to prove what it said.

39. I turn to the sixth ground. To understand what follows, it is necessary to know that before Mr Ward became the sole director of AFS in May 2009, its directors had been a Mr Michael Allen and a Mr Michael Madden. Mr Allen resigned as a director on 24 May 2009, and became a Local Court Magistrate. It is not suggested that he played any further part in the conduct of the business of AFS thereafter.

40. Mr Madden, too, resigned in May 2009. However, according to Mr Ward (in evidence on which Mr Windsor relied in submissions), Mr Madden continued to have some involvement in the business up until at least June 2010.

41. Such evidence as there is concerning Mr Madden shows that he was some sort of consultant to AFS, which paid him (it would appear, through the interposition of a corporate entity) a monthly retainer. The general ledger of AFS [19] shows that the last such payment for Mr Madden’s services was made on 11 November 2009. That is not consistent with his having had any substantial involvement thereafter. Nor, standing alone, does it provide any support for the proposition that after November 2009, AFS operated any business at all, let alone one that could be described as “genuine”.

    19. Blue 235.

42. I accept, as Mr Windsor submitted, that it was not until 29 June 2010 that Mr Madden finally stated, unequivocally, that he and AFS had parted company. But it does not follow, from that unequivocal statement, that he had been doing anything between November 2009 and then that was consistent with the conduct of a genuine business by AFS.

43. Mr Windsor pointed to an email that Mr Madden sent to Messrs Knight and Ward on 3 February 2010 [20] . That email attached something called “Projected Profit & Loss Statements” which were apparently some sort of “renewed figures”.

    20. Blue 210-211.

44. The attachment to that email refers to projected revenue and expenses, based on sales of projected quantities of product, for “YEAR 1”, “YEAR 2” and “YEAR 3”. There is no indication of what the years in question were. There is no indication of the basis upon which, Mr Madden thought, AFS might sell product in anything like the quantities projected for those years. There is no evidence of the basis upon which Mr Madden calculated the revenue that would be derived from those projected sales, nor the expenses that would be incurred in gaining them. In short, there is nothing to suggest that the projected profit and loss statements are anything more than arithmetical exercises based on unspecified and unsubstantiated projections of sales. Certainly, Mr Madden was not called to give evidence of the business operations that were expected to generate sales of the orders of magnitude projected in that document.

45. Further, the proposition that AFS was conducting any business (let alone, business of a scale that could be described as “genuine”) was undermined by admissions made by Mr Ward himself in the course of cross-examination. At one point, he volunteered that AFS was a “non-active company basically” [21] . He said that once he had taken it over (which, I repeat, appears to have been in May 2009, according to the ASIC records) “it wasn’t a trading company as such” and he agreed that “it ceased to trade as soon as [he] took it over” [22] .

    21. Black 139S.

    22. Black 140D-K.

46. Mr Ward admitted that by early January 2010, AFS had no employees [23] . He agreed that, “basically”, AFS had “divested itself of some fuel technology” before he took it over [24] .

    23. Black 183S-U; see also 156M; 182Q-S.

    24. Black 184I – K.

47. There was no evidence that AFS ever had any business activity other than the development and commercialisation of some form of “alternative fuel technology” that appears to have involved converting “woody weeds” into block fuel suitable for furnaces. Thus, the divestment of that technology left AFS without any other business to conduct.

48. The primary judge referred to this evidence. He relied upon it in support of his conclusion that the representation, as to AFS operating a genuine business, was false and misleading. In my view, the evidence amply justified that conclusion.

49. I add that the fact that AFS had no operating capital, and appeared to have had no need for Mr Xiang’s $500,000, is also consistent with that conclusion.

Ground 8

56. This ground received scant attention in Mr Windsor’s written outline. He did not address it orally. In my view, the proposition embodied in ground 8 is untenable.

57. Mr Ward had been involved in the business of AFS since before 2008 (when the first relevant representations were made to Mr Knight). He became the sole director of AFS in May 2009 and from that date at least, if not from an earlier time, controlled its operations. How can it possibly be suggested that he was not aware that AFS was not conducting, and had not conducted, a genuine business? Not only is the proposition absurd in its own right, it is also flatly inconsistent with concessions made by Mr Ward in the course of cross-examination, some of which I have referred to at [51], [52] above.

Grounds 9 and 10

58. Mr Windsor dealt with these grounds together in his submissions, and again I shall do likewise.

The parties’ submissions

59. Mr Windsor noted that the only evidence as to causation given by Mr Xiang was that he would not have entered into the share agreement “if the promises about the ability to sponsor me for permanent resident [sic] were not made to me by Mr Ward”[25] .

    25. See at [25] above.

60. Mr Windsor submitted that no such “promise” had been made by Mr Ward; that the share agreement was silent on the topic of any such promise (and on the topic of sponsorship more generally); and, more broadly, that the reason given by Mr Xiang for entering into the share agreement had nothing to do with the only relevant representation that was proved: that relating to a “genuine business”.

61. Further, Mr Windsor submitted, any representations conveyed to Mr Xiang in 2008 could have had nothing to do with the decision that he made in February 2010; and by the time the later representations were made (in early February 2010), Mr Xiang was committed to the purchase; he had made up his mind to invest, so as to assist him in gaining permanent residence in this country.

62. Mr Windsor submitted that Mr Xiang had relied on Mr Zhu’s advice, and that this “speaks loudly against any representation by [Mr Ward] as being causative of inducing [Mr Xiang]”.

63. Mr Windsor submitted, further, that Mr Xiang’s expressed concern was the success of his application for permanent residence. That, Mr Windsor submitted, lay with the Department. He submitted that neither AFS nor Mr Ward was in a position to guarantee a successful outcome. (That may be conceded, so far as it goes.)

64. Mr Young submitted that it was self-evident, in the proved circumstances, that Mr Xiang would not have paid the money except on the basis that AFS was an appropriate sponsor for Mr Xiang’s application for permanent residence. That, he submitted, was understood by everyone to be the reason why it was necessary that AFS should operate a genuine business. Thus, Mr Young submitted, it followed necessarily and as a matter of common sense from Mr Xiang’s evidence on causation that he would not have invested in AFS but for the representation that it was operating a genuine business, and thus was appropriate to act as his sponsor.

65. Mr Young submitted that it was irrelevant that there had been no representation direct (or through an interpreter) by Mr Ward to Mr Xiang. It was sufficient that, as the evidence showed, the representations had been conveyed from Mr Ward through Messrs Knight and Young to Mr Xiang.

66. In reply, Mr Windsor submitted that what he described as “speculation”, both by the primary judge and by Mr Young, as to Mr Xiang’s reasoning processes was impermissible. Mr Windsor submitted that the question should be decided on the basis of the very limited evidence that Mr Xiang had given.

Decision

67. It is established beyond question, in this area of the law and many others, that questions of causation involve, essentially, the application of common sense analysis. In looking at the evidence, the court is not only entitled but required to consider the ordinary and reasonable consequences of the facts that are proved. Mr Xiang’s concerns, which were well known to and understood by Mr Ward, were:

1. to obtain permanent residency if possible; and

2. to get back $450,000 of his $500,000 investment after two years.

68. Mr Ward must have understood that the first of those wishes had no prospect of success unless AFS were a suitable sponsor, and that AFS could only be a suitable sponsor if, among other things, it operated a genuine business. He had been so advised repeatedly by Mr Knight. And he had been so advised, also, by the Ministerial adviser to whom I have referred at [36] above. According to Mr Knight (whose evidence on this point the primary judge clearly accepted), Mr Ward said, more than once, that AFS was capable of meeting the “genuine business” requirement.

69. It follows, inevitably, that the representations that Mr Ward made, particularly those in early 2010 when Mr Xiang had come upon the scene, were calculated to induce Mr Xiang to enter into the agreement that, ultimately, was signed. It follows, equally, that the court is entitled to infer that the representations did have that effect. The primary judge referred to Gould v Vaggelas [26] in support of this proposition. He was correct to do so; and there is a wealth of other authority to the same effect.

    26. (1985) 157 CLR 215 at 236 (Wilson J).

70. The proposition may be tested by supposing that Mr Xiang had been told, before signing the agreement, that in fact AFS (as was the case) did not operate a genuine business, and was thus unlikely to be accepted as a suitable sponsor for his application for permanent residency. Could it be suggested that, with this knowledge, he would have proceeded, signed the share agreement and paid his money? The proposition is self-evidently absurd.

71. Nor is it correct to say that representations made in early February 2010 were irrelevant, because Mr Xiang had by then made up his mind. It could be correct to say, and I am prepared to assume, that by then he had made up his mind to invest in a suitable business, with a view to obtaining permanent residency. It does not follow that he had made up his mind, irrevocably, to invest in AFS. And as I have suggested, had Mr Xiang been told the truth about AFS, it is inconceivable that he would have proceeded to commit himself to the share agreement and pay $500,000.

72. There is no merit in the proposition that causation is negatived because Mr Ward made no representation direct to Mr Xiang. The simple reality is that Mr Ward looked to Mr Knight, or his company ARE, to procure Asian investors, and made the representations to Mr Knight to which I have referred. There is no doubt that Mr Ward made those representations to Mr Knight so that the latter could use them to attempt to procure Asian investors in AFS. On the findings of the trial judge, the representations that Mr Knight made to Mr Xiang (through Mr Zhu), both in 2008 and 2010, reflected what Mr Ward had represented to Mr Knight. That is sufficient to prove a causal link between the representations made by Mr Ward and the inducement of Mr Xiang.

Proposed orders

73. I propose that the appeal be dismissed with costs.

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Endnotes

Decision last updated: 09 March 2017