Pramoko v Grande Enterprises Ltd - [2015] WASCA 157

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: PRAMOKO -v- GRANDE ENTERPRISES LTD [2015] WASCA 157

CORAM: MARTIN CJ
NEWNES JA
BEECH J

HEARD: 4 MAY 2015

DELIVERED : 12 AUGUST 2015

FILE NO/S: CACV 113 of 2014

BETWEEN: TJANDRA ADI PRAMOKO
Appellant
AND
GRANDE ENTERPRISES LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :LE MIERE J
Citation  :GRANDE ENTERPRISES LTD -v- PRAMOKO [2014] WASC 294
File No  :CIV 3371 of 2011

Catchwords:

Trade practices and related matters - Misleading or deceptive conduct - Representation as to future matters - Whether appellant had reasonable grounds for making representation - Belief in probable success of project not reasonable grounds when representation conditional on failure of project - Only information existing at the time of the representation and actually relied on can establish reasonable grounds

Legislation:

Corporations Act 2001 (Cth)
Fair Trading Act 1987 (WA), s 9
Supreme Court Act 1935 (WA)

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

Appellant: Mr C Slater
Respondent: Dr J Schoombee

Solicitors:

Appellant: P A Martino
Respondent: Bennett + Co

Case(s) referred to in judgment(s):

City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94
Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158
Grande Enterprises Ltd v Pramoko [2014] WASC 294
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Kuhl v Zurich Financial Services Ltd [2011] HCA 11; (2011) 243 CLR 361
McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 121; (2008) 165 FCR 230
Willett v Thomas [2012] NSWCA 97
MARTIN CJ:

Summary

Mr Tjandra Adi Pramoko (Mr Pramoko) appeals from a decision of a judge of the Supreme Court in which he was found to have engaged in misleading and deceptive conduct and was ordered to pay damages of $2.25 million to Grande Enterprises Ltd (Grande) together with interest on that sum and Grande's costs of the action. The conduct which was found to be misleading and deceptive was a representation to be implied from a provision in a contract with Grande which Mr Pramoko executed in his capacity as a director of Southern Cross International Investments Ltd (Southern Cross). The relevant provision was an undertaking by Southern Cross to buy back a parcel of 30 million shares in Zen Resources Ltd (Zen) which Southern Cross sold to Grande, at the price at which they were sold, in the event that Zen had not been taken over by a company listed on the Australian Securities Exchange or had not itself listed on any major stock exchange within two years of the sale of the shares to Grande. Zen was not taken over by a listed company, nor did Zen itself list on any stock exchange, within two years of the sale of the shares to Grande. Southern Cross failed to perform its obligation to buy back the shares from Grande at the price at which they had been sold when called upon to do so by Grande.
The trial judge held that by executing the contract which contained the provision to which I have referred, Mr Pramoko implicitly represented to Grande that Southern Cross intended and had the capacity to perform the promise to buy back the shares if called upon to do so. The trial judge also held that the representation was a representation as to a future matter which, by virtue of s 9 of the Fair Trading Act 1987 (WA) would be taken to be misleading unless Mr Pramoko had reasonable grounds for making the representation, and that Mr Pramoko bore the onus of proving that he had reasonable grounds for making the representation. Mr Pramoko does not challenge either of those conclusions in this appeal. Rather, the only ground of appeal challenges the trial judge's conclusion that Mr Pramoko had failed to establish that he had reasonable grounds for making the representation at the time it was made. For the reasons which follow, that ground, and the appeal, should be dismissed.

The decision at first instance

Because of the confined scope of the appeal, it is only necessary to refer to those aspects of the decision of the trial judge which are relevant to the issues raised by the appeal. The facts which follow are all taken from the findings made by the trial judge.[1]
[1] Grande Enterprises Ltd v Pramoko [2014] WASC 294.
Mr Pramoko's father, Mr Tanto Pramoko, is an influential businessman in Indonesia. The Pramoko family has business interests in Asia and Australia. Mr Pramoko's brothers, Mr Hengky Pramoko and Mr Hendro Pramoko, are engaged in the management of the family's business interests under the direction of their father.
Mr Tommy Lee Boon Jun is the sole director of Grande. He went to school with Mr Hengky Pramoko and Mr Pramoko in Singapore in the early 1980s. After leaving school he worked as a stockbroker for approximately 20 years, before pursuing business interests in Singapore and Australia.
Since 2002, Mr Pramoko has been buying and developing mining tenements in Western Australia. In 2007, after discussions with his father, it was agreed that the tenements would be placed into a company which would be listed on the Australian Securities Exchange with the assistance of Mr William Soong, a Malaysian merchant banker, and Mr Gary Loong, a Malaysian stockbroker.
Mr Soong caused Zen to be incorporated in the British Virgin Islands in order that it might be used as the corporate vehicle for the project. It acquired three wholly owned subsidiary companies - Zen Minerals Pty Ltd, Zen Mining Pty Ltd and Zen Resources International Ltd. Zen Minerals and Zen Mining were incorporated in Australia and each acquired some of the tenements which Mr Pramoko had acquired through other corporate entities.
Mr Soong and Mr Loong each held shares in Zen through companies which they controlled. The interest of the Pramoko family in Zen was held through Southern Cross. The initial directors of Southern Cross were Mr Hengky Pramoko and Mr Hendro Pramoko. In January 2008, Mr Pramoko became a shareholder and director of Southern Cross.
In early 2008 Mr Pramoko was engaged, with others, in soliciting investors to acquire shares or otherwise invest in Zen. In about April or May 2008, Mr Jun had dinner with Mr Hengky Pramoko and Mr Soong in Kuala Lumpur. Mr Hengky Pramoko asked Mr Jun if he would be interested in taking an investment in Zen. He told Mr Jun that Mr Pramoko and Mr Tanto Pramoko were managing Zen and that if he was interested in investing, he should speak to either of them about it. Mr Jun contacted Mr Tanto Pramoko. He told Mr Jun that the details of any investment in Zen should be discussed with Tjandra but that as the Pramoko family was the major shareholder in Zen, he would ensure that Mr Jun's interests would be looked after if he invested in Zen.
Mr Jun contacted Mr Pramoko. Negotiations for an investment in Zen by Mr Jun, through Grande, followed. Both Mr Jun and Mr Pramoko were aware that negotiations for the acquisition of the shares in Zen by Peak Resources Ltd, a listed company, were taking place simultaneously.
On 5 September 2008, Mr Hengky Pramoko drove Mr Jun to Mr Pramoko's house. At the house, Mr Pramoko and Mr Jun signed the documents which embodied an agreement by Southern Cross to sell 30 million shares in Zen to Mr Jun or his nominee for a price of $2.25 million. Clause 5 of the contractual documents was in the following terms:
The purpose for the offer of sale is for the successful injection of the Company into an existing publicly traded company listed on the Australian Securities Exchange ('Takeover') OR listing the Company's shares on any major stock exchange ('Listing'). In the event the Takeover or Listing is not successful within 24 months ('Due Date') from the date hereof for any reason whatsoever, Southern Cross International Investments Limited shall undertake to buy back the sale shares with the same Total Sale Price (i.e. AUD2,250,000), within 1 month from the date of the written receipt of rejection by the relevant authorities. Any extension of the Due Date shall only be effective if made by the parties in writing.
Zen was not listed on a stock exchange, nor taken over by a company listed on the Australian Securities Exchange within the time specified in cl 5 (or at all). On 22 September 2010, Mr Jun caused a letter to be sent to Mr Pramoko requesting that Southern Cross buy back the shares in Zen pursuant to the provision to that effect in the agreement. Extensive communications on the subject of the buy-back provision took place between the two men in the months which followed. Southern Cross did not buy back the shares and on 19 August 2011 solicitors acting for Grande wrote to Southern Cross demanding that it perform its undertaking to buy back the shares. However, Southern Cross still did not buy back the shares, and on 14 December 2011 Grande commenced proceedings against Mr Pramoko claiming damages for misleading and deceptive conduct.
As I have indicated, the trial judge found that that claim was made out on the basis that Mr Pramoko had impliedly represented that Southern Cross had the intention and the capacity to buy back the shares if the listing or takeover did not occur within two years of the agreement, by executing the agreement which contained cl 5. He further held that those representations were representations as to future matters, which would, by virtue of s 9 of the Fair Trading Act 1987 (WA), be taken to be misleading unless Mr Pramoko had reasonable grounds for making the representations at the time they were made, the onus of proving which rested on him. The trial judge held that Mr Pramoko had not discharged that onus. He also held that Grande had relied upon the implied representation at the time of entering into the agreement to acquire the shares in Zen. The trial judge accepted the expert evidence adduced by Grande to the effect that the shares in Zen had no or only nominal value, from which it followed that Grande had suffered loss equal to the price which it paid for the shares ($2.25 million) as a result of acting in reliance upon Mr Pramoko's misleading and deceptive conduct. He awarded Grande damages in that amount, together with interest at the rate applicable under the Supreme Court Act 1935 (WA) as from the date upon which Grande commenced the proceedings against Mr Pramoko.
The only aspect of the trial judge's process of reasoning and conclusion which is challenged by this appeal is his finding that Mr Pramoko had failed to establish that he had reasonable grounds for making the representation at the time it was made. For that reason it is appropriate to focus upon that aspect of the reasons given by the trial judge.

Were there reasonable grounds for the representation? - the trial judge's reasons

The trial judge commenced the portion of his reasons dealing with the issue of whether Mr Pramoko had reasonable grounds for the representation which he made by observing that the issue had to be addressed by reference to the circumstances in which the obligation to buy back the shares would arise - namely, the circumstance in which Zen had not been taken over by a company listed on the Australian Securities Exchange and was not itself listed on a major stock exchange within two years of Grande's purchase of the shares. For reasons which will appear, this observation is of great significance to the assessment of this appeal. Put shortly, it is of the utmost significance to the assessment of whether Mr Pramoko had reasonable grounds for representing that Southern Cross had the intention and capacity to buy back the shares that the obligation to buy back those shares would only arise in the event that Zen had failed to attract a takeover from a company listed on the Australian Securities Exchange, or sufficient investor support to itself list on a major exchange within two years. The question was whether there were reasonable grounds for the representation that Southern Cross intended to perform and would have the capacity to perform its obligation to pay $2.25 million to buy back the shares in those circumstances - namely, the circumstance in which no investor had been attracted to take over the company and no listing had been achieved.
In that context the trial judge referred to the evidence given by Mr Pramoko to the effect that at the time he signed the agreement, he intended that if the clause was ever called upon, Southern Cross would honour its obligations. The trial judge noted that Mr Pramoko gave evidence in terms that 'he saw no reason why his father or Hengky would prevent such a buy back'.[2]
[2] Reasons [62].
I digress to observe that evidence to this effect falls manifestly and conspicuously short of Mr Pramoko ever having received a representation or undertaking from his father or brother to the effect that in the circumstance in which Zen had failed to attract investors, they would, themselves, contribute the funds necessary to enable Southern Cross to fulfil its obligations.
The trial judge noted that there was a paucity of evidence with respect to the financial capacity of Southern Cross to perform the obligation to buy back the shares. No financial statements of Southern Cross were produced in evidence. Nor was any written evidence of the assets and liabilities, profit and loss or cash‑flow of Southern Cross produced to the court. The only bank statement of Southern Cross produced in evidence is a single page document which shows that on 30 August 2008, Southern Cross had a credit balance of $US43,450, and on 30 September, a credit balance of $US2,731,968, which included the $AUD2.25 million paid by Grande. In that context the trial judge noted that there was no evidence, and that Mr Pramoko did not claim that Southern Cross or its directors or controllers intended to maintain those funds in its account in case the company had to buy back Grande's shares in Zen. The trial judge further noted that there was no evidence of any strategy or plan by the directors or controllers of Southern Cross as to how the money would be repaid if required.
The trial judge noted that in closing submissions counsel for Mr Pramoko submitted that the reasonable grounds for his representation with respect to the capacity of Southern Cross to buy back the shares were Mr Pramoko's experience of dealings with his family, the circumstances of Southern Cross and the value of the mining tenements held by Zen.[3]
[3] Reasons [66].
The trial judge observed that the obligation to establish reasonable grounds for making the representation did not necessarily require Mr Pramoko to establish that there were reasonable grounds to believe that Southern Cross would be able to provide the $2.25 million required to repurchase the shares from its own resources. So, if there was evidence which established that there were reasonable grounds for believing that a third party with sufficient financial capacity was willing to advance to Southern Cross the amount required to fulfil its obligations, Mr Pramoko's burden of proof might be discharged. The trial judge took the view that Mr Pramoko might discharge his burden of proof in this way without necessarily establishing that a third party was legally obliged to advance the funds required by Southern Cross if the willingness and capacity of such a party could be demonstrated as a matter of commercial reality.
The trial judge enunciated five reasons for his conclusion that the evidence did not establish that Mr Pramoko had reasonable grounds to believe that his father and/or brother would provide Southern Cross with the funds necessary to fulfil its obligation to buy back the shares in the circumstance in which Zen had not been listed or taken over within two years of the sale of the shares to Grande.
First, in the view of the trial judge it was not inherently likely that anybody would advance $2.25 million unsecured to Southern Cross to enable it to purchase shares in an unlisted company the only assets of which were unproven reserves and which had failed to achieve its purpose of being listed or taken over by a listed company within two years, when they were under no legal obligation to advance such funds.[4]
[4] Reasons [69].
Second, Mr Pramoko's father and brother had embarked on the project using a corporate vehicle which did not expose them to personal liability, and there was no evidence that they had undertaken any personal liability in relation to the project.[5]
[5] Reasons [70].
Third, to the knowledge of Mr Pramoko's father and brother, Mr Pramoko had caused Southern Cross to undertake to buy back the shares as protection against the risk of the investment failing, rather than providing any personal guarantees or assurances to Grande.[6]
[6] Reasons [70].
Fourth, Mr Pramoko did not in fact take any steps to cause Southern Cross to buy back the shares in Zen from Grande. The trial judge accepted that non‑fulfilment of the promise to buy back the shares did not of itself establish that Southern Cross did not intend or was unable to perform its obligation, or that there were not reasonable grounds for Mr Pramoko to represent that it had that intention and capacity. However, in the view of the trial judge the failure of Mr Pramoko to cause Southern Cross to perform its obligation is evidence from which it might be inferred that there were no reasonable grounds for him to represent that it had the intention and capacity of performing. The trial judge considered that the strength of that inference might depend upon the interval of time between the representation and the non-fulfilment of the promise and in particular whether there was any evidence of change of circumstances during that interval. In this context, the trial judge noted that the only evidence of changes in circumstances between the time in which Mr Pramoko made the representation and the non-fulfilment of the promise given by Southern Cross was the fact that the proposed takeover by Peak Resources did not proceed and efforts to secure Zen's listing had failed. The trial judge did not consider those changes in circumstances to be relevant to the assessment of whether or not Mr Pramoko had reasonable grounds at the time he made the representation because those were the very contingencies upon which the promise was conditioned.[7]
[7] Reasons [71].
Fifth, neither Mr Pramoko's father nor his brother gave evidence. In accordance with the principles enunciated in Jones v Dunkel,[8] the trial judge considered that Mr Pramoko's failure to call his father and brother to give evidence supported an inference that their evidence would not assist his case. In that context, the trial judge noted that neither of Mr Pramoko's father or brother resided in Australia, but did not consider that fact to preclude the inference being drawn. He noted that when asked in cross‑examination why Mr Pramoko did not call his father to give evidence, Mr Pramoko twice answered, 'Because I haven't.'[9] When asked in cross‑examination why he did not call his brother as a witness, Mr Pramoko first replied that he did not call his brother because the plaintiff had not asked him to call his brother, and then later said it was because Mr Jun had never formally in writing asked his father or his brother for the return of his money. The trial judge did not consider those explanations for the failure to call Mr Pramoko's father and brother to give evidence to be adequate.
[8] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; see also Kuhl v Zurich Financial Services Ltd [2011] HCA 11; (2011) 243 CLR 361 [63].
[9] Reasons [72].
In the absence of any evidence to the effect that Southern Cross had the financial capacity to buy back the shares from Grande from within its own resources, or the capacity to raise the funds required from any source other than members of the Pramoko family, and having concluded, for these reasons, that Mr Pramoko did not have reasonable grounds to believe that his father or brother would provide the funds required, the trial judge concluded that Mr Pramoko's representation was misleading and deceptive.

The ground of appeal

The ground of appeal asserts (relevantly) that:
The Learned Judge erred in law, or partly in law and partly in fact, in finding … that there were no reasonable grounds for the implied representation by the appellant that Southern Cross International Ltd ('SCI') 'had the intention and capacity to buy back the shares [that SCI was selling to the respondent] if the listing or takeover did not occur' … because the Learned Judge failed to consider either alone or cumulatively the following significant evidence which contradicted that view and provided relevant reasonable grounds for that representation:
(a)the information memorandum … drafted by a Malaysian merchant banker Mr William Soong … which related not only to the shares being sold by SCI and bought by the respondent but also implied value for the remaining shares that SCI retained particularly as the respondent (himself a business man and former stockbroker) knew of and spoke to Mr Soong;
(b)the experience of the appellant with his family company … which provided the view that it was controlled by the appellant's family who were honest and complied with obligations and particularly as that experience was confirmed by the experience of the respondent;
(c)the work and advice from third parties with apparent expertise … particularly as the respondent's expert agreed the work was relevant to the question of value.
Two observations may be made immediately about the ground of appeal. First, the assertion that the trial judge failed to consider evidence relating to the value of the tenements held by Zen, and Mr Pramoko's experience of dealing with his family is not correct. At [66] of his reasons, the trial judge specifically referred to the submission from Mr Pramoko's counsel to the effect that the reasonable grounds for the representation lay in his experience of his dealings with his family and in the value of the tenements of Zen. The reasonableness of Mr Pramoko assuming that either his brother or his father would provide to Southern Cross the funds required to fulfil the buy‑back undertaking was specifically considered by the trial judge, and rejected for the five reasons I have summarised above. The assertion that Zen's tenements had value, from which it might perhaps be inferred that Southern Cross had the capacity to raise the funds necessary to complete the buy‑back undertaking was also considered by the trial judge in that portion of his reasons in which he evaluated the expert evidence given by Mr Myers, a chartered accountant with experience in corporate valuations.
Second, the reliance placed in each of pars (a) and (b) of the ground upon Mr Jun's knowledge of Mr Soong, and Mr Jun's knowledge of Mr Pramoko's family is misconceived. The question which had to be addressed by the trial judge, and which is raised by this ground of appeal, is whether Mr Pramoko had established that he had reasonable grounds for representing that Southern Cross had the intention and capacity to fulfil its undertaking to buy back the shares in the event that it was not taken over by a company listed on the Australian Securities Exchange or had not itself listed on a major stock exchange within two years of the sale of the shares to Grande. Mr Jun's knowledge and experience are irrelevant to that question.
So, viewed as a matter of substance, the ground of appeal comes down to the proposition that the trial judge should have held that Mr Pramoko had reasonable grounds for making the representation to which I have referred because:
(a)he had reasonable grounds to believe that members of his family would provide Southern Cross with the funds necessary to fulfil its undertaking to buy back the shares, and/or
(b)there were reasonable grounds for believing that the tenements held by Zen were of such value as to enable Southern Cross to raise the funds necessary to fulfil its obligation to buy back the shares, such value being demonstrated in the information memorandum prepared by Mr Soong and the reports provided by others relating to the tenements held by Zen.

Mr Pramoko's family

That part of the ground of appeal which relies upon the proposition that Mr Pramoko had reasonable grounds for assuming that members of his family would provide Southern Cross with the funds necessary to fulfil the buy‑back obligation can be shortly dismissed by the observation that the reasons given by the trial judge for rejecting that proposition cannot be faulted.
As the trial judge noted, Mr Pramoko did not give any evidence to the effect that his father or his brother had ever told him that they would provide Southern Cross with the funds necessary to fulfil the buy‑back undertaking. The highest Mr Pramoko's evidence on this topic ever got was an assertion that he 'saw no reason' why his father or brother whom he regarded as honourable and successful business men would prevent the buy‑back occurring. Assuming that there were reasonable grounds for that belief (and no grounds are established by Mr Pramoko's evidence), such a belief falls manifestly short of providing reasonable grounds for believing that either Mr Pramoko's brother or father would inject $2.25 million into a limited liability company which had failed to attract a major investor in its subsidiary, Zen, and had failed to list that subsidiary on a major stock exchange. Moreover, there was no evidence that Mr Pramoko's brother or father had ever paid substantial (or any) funds to assist a company with which they were associated to pay one of its debts.
Although the trial judge found that Mr Tanto Pramoko told Mr Jun that if he invested in Zen his interests would be looked after, Mr Pramoko was not present during that conversation, and there is no evidence that he was aware of, or relied upon his father's statement to Mr Jun. Further and in any event, as the trial judge pointed out, after that statement was made, the transaction was structured so that the buy‑back undertaking was given by Southern Cross rather than by any member of the Pramoko family, and no guarantee of performance of that obligation by Southern Cross was ever proffered or given by any member of the Pramoko family (the trial judge having rejected Grande's assertion that Mr Pramoko gave such an assurance).
In the written submissions presented on behalf of Mr Pramoko, a number of criticisms of the process of reasoning adopted by the trial judge on this topic are advanced.
First, it is asserted that the trial judge erred by addressing the question of whether there were reasonable grounds for a representation to the effect that Southern Cross had the capacity to perform the buy‑back obligation in the context of Southern Cross having failed to achieve its objective of securing a listed company to take over Zen or to publicly list Zen on the basis that such a context was hypothetical. It is asserted that the trial judge should have placed greater emphasis upon the circumstances of Southern Cross at the time the representation was made by Mr Pramoko.
With respect, this proposition is plainly wrong. The only circumstance in which the obligation of Southern Cross to buy back the shares arose was the circumstance in which it had failed to either secure a major investor to take over Zen, or to publicly list Zen. The question to be addressed was whether Mr Pramoko had reasonable grounds for representing that in those circumstances, Southern Cross would have the capacity to pay $2.25 million to repurchase the shares sold to Grande. The trial judge was correct to address the issue in this way.
Put in rather more direct terms, it is a clear inference from the agreement itself and, in particular, the buy‑back provision, that all parties anticipated that their return on the investment made in Zen would be achieved by the sale of the shares which they held in Zen at a price greater than had been paid for those shares. That objective was to be achieved either by securing a listed company which would acquire all the shares in Zen, perhaps for the issue of shares in that listed company which could then be sold at a profit, or alternatively, by listing Zen itself, so that the shares could then be traded on market at a profit. The terms of the buy‑back undertaking support the inference that it was the expectation of all parties that this objective would be achieved within two years of the sale of the shares in Zen to Grande. So, the obligation of Southern Cross to buy back the shares in Zen which it had sold to Grande only arose if the promoters of Zen had failed to achieve their objective of either securing a listed company to take over Zen, or publicly listing Zen. The question which had to be addressed therefore was whether Mr Pramoko had reasonable grounds for believing that Southern Cross would have the capacity to raise the $2.25 million necessary to fulfil the buy‑back undertaking in the event that the commercial objectives of the project had failed. All the submissions advanced in support of this appeal fail to give appropriate weight to this fundamental consideration.
It was submitted that the fact that Mr Hengky Pramoko was present at the meeting at which Mr Pramoko signed the agreement which included the buy‑back provision somehow provided reasonable grounds for Mr Pramoko's representation. The reasoning which underpins this proposition is not readily apparent. There is no evidence that Mr Hengky Pramoko ever said or did anything which would suggest that he would assume the obligation of providing Southern Cross with the funds which it would need in order to fulfil the buy‑back undertaking. His physical presence at the time the document was signed by Mr Pramoko obviously falls well short of providing any reasonable grounds for any assumption by Mr Pramoko that his brother had undertaken such an obligation.
Reference is also made to Mr Tanto Pramoko's assurance to Mr Jun that if he invested in Zen 'his interests would be looked after'. However, as I have noted, this statement was not made in Mr Pramoko's presence, and there was no evidence that he was ever aware that his father had given such an assurance. Further and in any event, after the assurance was given, the transaction was structured in such a way that the only undertaking to protect Mr Jun's interests was given by Southern Cross, and not by any member of the Pramoko family.
Next it is submitted that the inference drawn by the trial judge from the fact that Southern Cross did not perform its obligation to buy back the shares is 'at best' a very weak inference. Again, the reasoning underpinning this proposition is not readily apparent. As the trial judge observed, the fact that Southern Cross was unable to perform when called upon supports an inference that there were not reasonable grounds for a representation to the effect that it would have the capacity to perform when called upon. As the trial judge correctly observed, the strength of that inference depends upon the lapse of time between the making of the representation and the failure to perform, and whether there is any evidence of any change in circumstances of Southern Cross between the making of the representation and the failure to perform. As the trial judge noted, the only evidence of change in the circumstances of Southern Cross between the making of the representation and the failure to perform is the evidence of its failure to secure a listed investor to take over Zen, or to publicly list Zen. However, as those are the very circumstances in which the buy‑back obligation would arise, they do not weaken the inference properly drawn from the failure of Southern Cross to perform that obligation.
In support of the proposition that the inference properly drawn from the failure of Southern Cross to perform its obligation is very weak, it is submitted, paradoxically, that Mr Pramoko did not control the board of Southern Cross, had passed on all requests to perform to the board of Southern Cross, and had by July 2011 (almost a year after performance was due) resigned as a director of Southern Cross. I describe these submissions as paradoxical because, with respect, to the extent that they are relevant at all, they diminish rather than strengthen the case for the existence of reasonable grounds for the representations made by Mr Pramoko.
Last on this topic, it is submitted on behalf of Mr Pramoko that the fact that his father and brother do not reside in Australia and the nature of the allegations made against the Pramoko family (being allegations of misleading and deceptive conduct) provide an adequate explanation for Mr Pramoko's failure to adduce evidence from them. However, the nature of the allegations provides all the more reason why one would have expected members of the family to take the time and trouble required to rebut those allegations, if their evidence was likely to have that effect. Further, in a circumstance in which Mr Pramoko promoted his reliance and dependence upon his father and brother as the grounds for the representation which he made, his unexplained failure to call either to give evidence clearly supported an inference that their evidence would not have assisted his case.

Zen's tenements

The other substantive aspect of the ground of appeal is the proposition that the evidence with respect to the value of Zen's tenements was such as to provide Mr Pramoko with reasonable grounds for his representation that Southern Cross would have the capacity to perform the buy‑back obligation when called upon. Before turning to the specific assertions made in support of this aspect of the ground of appeal, three general observations are appropriate.
First, in order to perform the buy‑back undertaking, Southern Cross had to procure $2.25 million in cash. The value of the tenements held by its subsidiary, Zen, was only of relevance to its capacity to perform the buy-back undertaking if they supported the conclusion that there were reasonable grounds for believing that Southern Cross would be able to raise funds because of its shareholding in its subsidiary, Zen.
Second, the only circumstance in which Southern Cross would be called upon to perform the obligation to buy back the shares in Zen was the circumstance in which the strategy for deriving a profit from the investment in Zen had failed - namely, the circumstance in which the tenements in Zen had not proven to be sufficiently attractive to induce a takeover from a company listed on the Australian Securities Exchange, nor had they proven sufficiently attractive to enable Zen to list on a major stock exchange. Given those assumed circumstances, it is necessary to scrutinise very closely any proposition to the effect that the value of the tenements held by Zen provided Mr Pramoko with reasonable grounds for believing that Southern Cross would be able to perform its obligation to buy back the shares in Zen when the commercial strategy by which Southern Cross was to derive profit from its investment in Zen had failed.
Third, at a number of points in the submissions advanced in support of this aspect of the ground of appeal, reference is made to the fact that Zen was being advised and assisted by Mr Soong and Mr Loong, and also was in receipt of legal advice. Those assertions are not significant to the issue which had to be addressed by the trial judge. This aspect of the ground of appeal depends implicitly upon the assertion that the value of Zen's tenements would enable Southern Cross to raise $2.25 million in cash by reason of its shareholding in Zen. That proposition depends critically upon it being established that Mr Pramoko had reasonable grounds for believing that by reason of the value of Zen's tenements, Southern Cross would be able to raise the $2.25 million required either by selling its shares in Zen or obtaining loan funds against the security of those shares. The fact that it was receiving advice from a stockbroker, a merchant banker and lawyers does not provide any significant assistance in answering the question of whether Mr Pramoko had reasonable grounds for believing that Southern Cross would be able to raise the funds required.

The information memorandum

In support of this aspect of the ground of appeal, reliance is placed upon the information memorandum prepared by Mr Soong in January 2008. The memorandum was prepared for the purpose of soliciting seed investment in Zen. It is very brief, and contains only four pages of text and a map. It falls manifestly short of the requirements of a prospectus under the Corporations Act 2001 (Cth). It refers to tenements held by subsidiaries of Zen. In relation to a tenement described as the 'blue quarry', it is asserted that 'a detailed geologist drilling report [was] done on the tenement a few years ago and the results show that there is a reserve of approximately 450,000 tonnes of Ta (tantalite) 205 and 400,000 tonnes of rubidium'. That is the only detail provided with respect to the reserves said to be on the tenement. Plainly, those reserves are not reported in terms which comply with the JORC Code.[10]
[10] Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, developed and published by the Joint Ore Reserves Committee.
The information memorandum also refers to tenements (some of which were pending applications for tenements) in an area adjacent to Port Hedland. The memorandum contains an estimate of iron reserves based on a magnetic scan done by another company. Those estimates also fall manifestly short of compliance with the JORC Code.
Reference is also made in the information memorandum to a tenement described as 'yellow quarry'. Although the details of the tenement are provided, no information is provided with respect to the mineralisation of the tenement.
The information memorandum concludes by proposing that the company will conduct a JORC report on the blue quarry and on two of the Port Hedland tenements.
The information memorandum contains no assessment of the economic viability of mining operations on any of the tenements held by Zen. No doubt that is because the generality of the information available with respect to the mineralisation on those tenements would render any such assessment meaningless. There was no evidence to the effect that the information memorandum provided any reasonable grounds for believing that Southern Cross would be able to raise $2.25 million against its shareholding in Zen in a circumstance in which its commercial strategy for deriving profit from its investment in Zen had failed. No inference to that effect is available from the terms of the document itself.
In support of this aspect of the ground of appeal, reference is also made to the negotiations with Peak Resources for its takeover of Zen. However, those negotiations were incapable of providing Mr Pramoko with reasonable grounds for the representation which he made because the obligation of Southern Cross to perform its undertaking to buy back the shares would only arise if those negotiations failed, as they did.
In support of this aspect of the ground of appeal, reliance is also placed upon what is said to have been negotiations for an agreement for the sale of minerals produced from Zen's tenements to interests in China. However, it must first be observed that the evidence fell well short of establishing any concluded or enforceable agreements. But in any event, those agreements would only be relevant if it was demonstrated that the minerals situated on Zen's tenements were economic, in the sense that they could be mined and exported profitably. However, there was no evidence to that effect.
Finally on this aspect of the ground of appeal, reliance was placed upon a series of geological reports relating to tenements held by Zen. However, the fundamental obstacle faced by this aspect of the argument is that all the reports were prepared well after Mr Pramoko made the representation which was found to be misleading and deceptive. The information contained in those reports was therefore incapable of providing reasonable grounds of for the representation which he made.

In an attempt to surmount that obstacle, counsel for Mr Pramoko cited City of Botany Bay Council v Jazabas Pty Ltd[11] in support of the proposition that information which did not exist that the time the relevant representation was made could be relied upon as providing reasonable grounds for that representation.[12] In fact, that decision stands for precisely the opposite proposition. In that case, Mason P observed:[13]
[11] City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94.
[12] Appeal ts 17 ‑ 18.
[13] [83] ‑ [85].
In determining whether a person had reasonable grounds for expressing an opinion or making a prediction as to a future matter, it is necessary to judge the matter as at the date of the representation (see Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd(1997) 37 IPR 599, Sykes v Reserve Bank of Australia(1998) 88 FCR 511 at 513). This does not preclude examining evidence of later events which may throw light upon the overall probabilities (cf Cummings at 565). The overall probabilities and circumstances may offer the most reliable guidance (ibid at 566). However, it remains vital to guard against hindsight illusion.
In Sykes Seary J summarised the law as follows (at 513):
If there was a representation as to a future matter, s51A requires the representor to show:
• some facts or circumstances
• existing at the time of the representation
• on which the representor in fact relied
• which are objectively reasonable and
• which support the representation made.
The third proposition stated by his Honour is, I think, implicit in the provisions. Were it otherwise, the sections would throw the inquiry into the full realm of the law of negligence, calling for consideration of what the representor ought to have taken into account, an inquiry that would track back into investigating the scope of any duty of care. Rather, the sections effectively require the representor to identify the facts or circumstances (if any) actually relied upon before turning it over to the trier of fact to decide whether they were objectively reasonable and whether they support the representation made. This approach to s51A(2) was recently adopted and applied by Katz J in Blacker (at [86]ff).
There is ample authority for the propositions that whether a person had reasonable grounds for making a representation as to a future matter must be assessed as at the date of the representation,[14] and that the person who made the representation must show facts or circumstances which existed at the date of the representation and on which they in fact relied[15] to support any assertion that there were reasonable grounds for making the representation.
[14] Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 [190]; McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 121; (2008) 165 FCR 230 [198].
[15] Willett v Thomas [2012] NSWCA 97 [158]; Doppstadt [193].
But in any event, even if the geological reports prepared after Mr Pramoko's representation could somehow be relied upon for the purpose of ascertaining whether he had reasonable grounds for making the representation, they fall manifestly short of establishing such grounds. The only mineralisation resource identified in any of the reports is 116,000 tonnes of tantalite which is said to be on one of the tenements. However, that mineralisation was only reported at the level of 'inferred resource' in terms of the JORC Code. Apart from that one tenement, the reports are concerned with exploration targets, prospectivity and potential. There is no assertion in any of the reports to the effect that the mineralisation which may or may not be found on any of the tenements could be developed economically. Nothing in any of the reports provides even the remotest support for the proposition that Southern Cross would have been able to raise $2.25 million against its investment in Zen on the basis of the value inherent in Zen's tenements.
There was no evidence to the effect that the tenements held by Zen had any value. The only valuation evidence given at trial was given by Mr Myers, an accountant. His evidence was to the effect that any valuation of Zen's tenements required the expertise of an independent geologist. Mr Pramoko did not lead evidence of that kind, nor can any inference of value be drawn from the materials upon which reliance has been placed in support of this aspect of his ground of appeal.
My conclusion on this aspect of Mr Pramoko's ground of appeal is reinforced by the observation I have made a number of times to the effect that Mr Pramoko carried the onus of proving that he had reasonable grounds for a representation to the effect that Southern Cross would have the capacity to buy back the shares which it sold to Grande in a circumstance in which its commercial strategy for realising a profit on its investment in Zen had failed. In order to discharge that onus, it was necessary for Mr Pramoko to adduce evidence which established that he

had reasonable grounds for believing that Southern Cross would have the financial capacity to perform its undertaking either from its own resources, or with resources provided by others. The evidence suggested that the only significant asset of Southern Cross was its shareholding in Zen. In the given circumstance that the commercial strategy to realise a profit on that shareholding had failed, in order to discharge the burden of establishing reasonable grounds it was necessary to lead evidence to establish that the inherent value of the shares in Zen held by Southern Cross would enable the necessary funds to be realised. No evidence of that character was led. Further, the trial judge was correct to conclude that Mr Pramoko did not have reasonable grounds for a belief that his father or brother would provide Southern Cross with the funds required to perform its obligation, for the reasons which he gave.

Conclusion

For these reasons the appeal should be dismissed.
NEWNES JA: I agree with Martin CJ.
BEECH J: I agree with the Chief Justice.