Rawley Pty Ltd v Bell (No 2)

Case [2007] FCA 583

FEDERAL COURT OF AUSTRALIA

Rawley Pty Ltd ACN 009 027 454 v Bell (No 2) [2007] FCA 583

MISLEADING OR DECEPTIVE CONDUCT – applicant investors in a failed start-up company – claim to have been induced to invest by conduct in contravention of ss 52 and 59 of the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (SA) and the Fair Trading Act 1987 (WA) – claims which involved investments in securities precluded by s 51AF of the Trade Practices Act 1974 (Cth) and s 995A of the Corporations Law

CORPORATIONS LAW – investors claim to have been induced to invest by conduct in contravention of s 995 of the Corporations Law – substantially the same claim as under the Trade Practices Act 1974 (Cth) – instances of misleading or deceptive conduct established – conduct did not induce the applicants to invest or was inconsequential

NEGLIGENCE – duty of care claimed to be owed by accountant – representations pleaded as breaching this duty were not relied upon by the applicants

FIDUCIARY LAW – fiduciary duty claimed to exist as between licensor and licensee or as promoters – alleged non-disclosure – no fiduciary relationship

INSURANCE – cross-claim made by insured against insurer – clause within the policy that if full payment of the premium was not made then there would be no cover – late payment – no insurance cover at the relevant time

Trade Practices Act 1974 (Cth) ss 51AE, 51AF, 52, 59(2), 75B and 82
Corporations Law ss 9, 92(2), 995, 995A, 1325
Fair Trading Act 1987 (SA)
Fair Trading Act 1987 (WA)
Australian Securities and Investment Commission Act 1989 (Cth), s 12BA(1)
Corporations Act 2001 (Cth) s 1041H
Insurance (Agents and Brokers) Act 1984 (Cth) ss 14 and 27
Insurance Contracts Act 1984 (Cth) Part VII
Trade Practices (Industry Codes Franchising) Regulations 1998 (Cth)

Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 11 ATPR 40-940 cited
Yorke v Lucas (1985) 158 CLR 661 cited
Secretary of State for Trade and Industry v Deverall [2001] Ch 340 cited
Australian Securities Commission v A S Nominees Ltd (1995) 133 ALR 1 cited
Hughes Aircraft Systems International v AirServices Australia (1977) 76 FCR 151 cited
Lam v Austintel Investments Australia Pty Ltd (1989) 97 FLR 458 applied
Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950 applied
Travel Compensation Fund v Tambree trading as R Tambree and Associates (2005) 224 CLR 627 cited
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 cited
Ricochet Pty Ltd v Equity Trustees Executors and Agency Co Ltd (1993) 41 FCR 229 applied
Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 applied
Pacific Brands Sports & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 cited
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 cited
Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 cited
United Dominion Corporation Ltd v Brian Pty…

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Details
AGLC
Rawley Pty Ltd ACN 009 027 454 v Bell (No 2) [2007] FCA 583
Case
[2007] FCA 583
Decision Date

CaseChat Overview and Summary

The case of Rawley Pty Ltd v Bell (No 2) involved parties Rawley Pty Ltd and Bell, with the dispute centering around alleged misrepresentations and breaches of fiduciary duty in connection with an investment in the Tiltform group. The court had to decide whether certain representations were made and if so, whether they were misleading or amounted to breaches of fiduciary duty. Additionally, the case involved the interpretation of an insurance policy to determine whether the respondent had coverage at the time of certain claims.

The court found that the alleged misrepresentations were not significant and that the meeting in question had limited evidentiary value. The court also concluded that there was no evidence of detailed discussions about the projections during the meeting, and thus, the meeting did not provide substantial reassurance regarding the investment. The court further determined that the insurance policy in question did not provide coverage due to non-payment, distinguishing between cessation of cover and cancellation of the policy. The policy explicitly stated that no cover would be provided if full payment was not made, and the court held that this provision was self-executing.

The court dismissed the application and the cross-claim against the first cross-respondent, awarding costs including reserved costs. This decision underscores the importance of clear contractual terms and the necessity for investors to conduct thorough due diligence before engaging in significant investments.

Orders

Orders of the court

(1) the application be dismissed;

(2) the cross-claim against the First Cross Respondent be dismissed with costs including reserved costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FINN J
Notwithstanding the applicants’ pleading that misrepresentations were made as to an investment in the Tiltform group being a secure investment (Sladojevic) and as to the commercial viability of claims made by the Tiltform group as to the proposed investment in Tiltform WA (Sladojevic and Bell), neither of these loomed large in the evidence or in the applicants’ submissions. They were not put explicitly and unequivocally to either respondent. Rather the applicants now contend that this meeting had “limited significance”, this being that it showed that Parker was carrying out a “due diligence process” and that Sladojevic and Bell engaged with him in that process. This last is relied upon in aid of the applicants’ distinct claim that Sladojevic and Bell conducted themselves as promoters. Findings and Conclusions on the 2 June meeting I am not satisfied that the alleged misrepresentations were made. And I do not understand the applicants to be now relying upon them to establish their claims. As to the evidentiary use which they now seek to make of the meeting itself, I agree with their submission that the meeting has limited significance. The evidence given in relation to it is far from satisfactory. I do not consider that Bell has any independent recollection of what transpired at this meeting: cf my comments upon him as a witness. I equally do not consider Murabito’s evidence to be reliable. I am satisfied that Parker’s primary reason for attending the meeting was as he suggested, i.e. to have confirmed the reasonableness of his projections. Given the very limited information to which he had access when he prepared them, it was understandable that he would seek such confirmation and from Sladojevic and his accountant. While I am satisfied that he discussed those projections with Bell – and to this extent reject both Bell’s and Sladojevic’s evidence – I am not satisfied that he did so in real detail. I consider that Parker’s evidence to the contrary is unreliable and was probably a reconstruction elicited by the form of the cross-examination on that very matter. I equally am satisfied that he derived some reassurance about the investment from the meeting, but that Sladojevic’s explanations of the technology, its applications and prospects contributed significantly to this. I do not consider that the absence of reference to the projections in Parker’s notes is significant in this particular instance.2. PERTH: 23-26 JUNE 2000 Having returned to Perth after the 2 June meeting, Parker had discussions with the directors of Icon Group and with other business associates who, collectively, were potential investors in Tiltform WA. By 12 June 2000 the funds required to acquire the 72 per cent interest had been raised. The participants were to be Rawley Pty Ltd ($100,000), Icon Group directors ($175,000), Airport Consulting Pty Ltd ($75,000) and Connoisseur Holding ($225,000). These I will refer to as the WA investors. On the same day Murabito wrote separately to the directors of Tiltform WA and to Barone accepting their respective offers to sell shares to these investors. The agreement with Barone (which also involved discharging a debt of $70,000 owed to him by Ilic and an agreement by Ilic in turn to repay that amount to the investors) would result in his original $225,000 funding arrangement being paid out. It was envisaged by the Investors that a unit trust (“the Tiltform Unit Trust”) would provide the vehicle for their investment. Arrangements were then made to meet with Tiltform WA’s solicitors to formalise the share transaction. A meeting to that end was held on 22 June 2000.

Ratio Decidendi

Legal Principle Established

Established by: FINN J

On 17 July 2001, Partridge telephoned Milford and told him Bell’s policy had been cancelled for non-payment. Partridge further indicated he need not respond to Milford’s request to extend the cover made in his 18 June facsimile. On 19 July 2001 CGU returned Bell’s claim documents to Milford given that the policy had been cancelled. On 25 July 2001 Milford advised Bell of this.Consideration Bell’s case, as I understand it, is that CGU was “estopped” from denying insurance cover until either he was notified that his policy might be cancelled, or he was afforded the opportunity to obtain alternate cover. His submission, in other words, appears to be founded on those provisions in Part VII of the Insurance Contracts Act 1984 (Cth) dealing with cancellation of a policy. It is the case that CGU’s contemporary correspondence with OAMPS referred to “cancellation” of the policy for non-payment of premium. Its defence, likewise, pleaded cancellation as one of its grounds of defence. That ground, though, has not been pursued. The ground of defence presently under consideration is concerned, not with cancellation of the policy for non-payment, but with the cover to be provided by the policy not being operative by reason of non-payment at the times the Rawley and Chehade claims were notified to Bell in late June. This distinction is reflected clearly in the language of the Policy itself. I have already referred to cll 2.1 and 2.5 of the Policy which link the provision of the cover to full payment of the policy, cl 2.5 providing that if full payment of the gross premium is not made, “there is no cover”. By way of contrast, cl 11.1(a)(v) of the Policy acknowledges the insurer’s right to cancel the policy under s 60 of the Insurance Contracts Act where (inter alia) the insured “failed to pay the premium for this policy”. This distinction between what I will call “cessation of cover” on the one hand and cancellation of the policy on the other is recognised explicitly in the Act in the manner in which it regulates instalment contracts of general insurance: see s 39 and s 62; and see generally Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 194 FLR 419; Sutton, Insurance Law in Australia, 7.42 (3rd ed 1999). It is a question of construction of the policy, admittedly under the shadow of the Insurance Contracts Act, as to whether in the circumstances Mr Bell had the cover provided by the CGU at the time of notification of the claims, i.e. 27/28 June 2001. Apart from recognising the difference between cessation of cover and cancellation, the Act does not apply to or regulate directly provisions such as cl 2.5. On its face that sub-clause is a self-executing one. Once the contingency on which it is premised occurs, the cover ceases. The cover may later be revived by the making of payment in full, assuming an election to cancel for non-payment had not by then been made. Unless and until that occurred, there would be no cover notwithstanding that the Policy itself may remain on foot. Far from throwing any doubt on this construction the policy itself supports it.