RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 4)
[2019] FCA 686
•17 May 2019
FEDERAL COURT OF AUSTRALIA
RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 4) [2019] FCA 686
File number: SAD 275 of 2016 Judge: WHITE J Date of judgment: 17 May 2019 Catchwords: CONSUMER LAW – claims of misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law (ACL) and s 1041H of the Corporations Act 2001 (Cth) – claim that misrepresentations made by the Respondents induced the Applicants to invest in multiple companies associated with the Respondents – the companies subsequently wound up – whether each alleged misrepresentation was made and whether it was misleading or deceptive – whether the Respondents’ misrepresentations were relied upon by the Applicants in making their investments – whether the reliance on the misrepresentations caused the loss of the investments – contraventions of s 18 of the ACL and s 1041H of the Corporations Act made out – Applicants entitled to recover damages. Legislation: Australian Consumer Law ss 4, 18, 236
Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB
Competition and Consumer Act 2010 (Cth) ss 131A, 763A, 763B, 766A, 766B, 766C, 1041H, 1041I
Trade Practices Act 1974 (Cth) s 82(1)
Misrepresentation Act 1972 (SA) s 7
Cases cited: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
Banditt v The Queen [2005] HCA 80; (2005) 224 CLR 262
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Chowder Bay Pty Ltd v Paganin [2018] FCAFC 25
Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594
Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
Magill v Magill [2006] HCA 51; (2006) 226 CLR 551
Mitchell v Valherie [2005] SASC 350; (2005) 93 SASR 76
Rosenberg v Percival [2001] HCA 18, (2001) 205 CLR 434
Stone v Chappel [2017] SASCFC 72; (2017) 128 SASR 165
Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514
Date of hearing: 13-16, 19 and 27 March 2018 Date of last submissions: 27 March 2018 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 466 Counsel for the Applicants: Mr I Thomas Solicitor for the Applicants: Andreyev Lawyers Counsel for the Second and Third Respondents: The Second and Third Respondents appeared in person Counsel for the remaining Respondents: The remaining Respondents did not appear ORDERS
SAD 275 of 2016 BETWEEN: RRG NOMINEES PTY LTD (ACN 066 051 903)
First Applicant
SCHNIK NOMINEES PTY LTD (ACN 155 094 456)
Second Applicant
FRANK SCHIRRIPA NOMINEES PTY LTD (ACN 008 032 835)
Third Applicant
AND: VISIBLE TEMPORARY FENCING AUSTRALIA PTY LTD (ACN 165 489 743)
First Respondent
MILORAD NESTOROVIC
Second Respondent
DRAGANA PINNERI (and others named in the Schedule)
Third Respondent
JUDGE:
WHITE J
DATE OF ORDER:
17 MAY 2019
THE COURT ORDERS THAT:
1.The matter is adjourned to 2.15 pm on Friday, 24 May 2019 for the hearing of submissions with respect to interest, costs and the appropriate form of orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
WHITE J:
Introduction
[1]
The parties
[11]
The investment in the State Companies
[21]
The pleaded representations
[42]
The first representation
[43]
The second representation
[45]
The third representation
[46]
The fourth representation
[47]
The sixth representation
[48]
The seventh representation
[49]
The eighth representation
[50]
The 10th representation
[51]
The 11th representation
[52]
The 12th representation
[53]
The 13th representation
[54]
The 14th representation
[55]
The 15th representation
[56]
The 16th representation
[57]
The 17th representation
[58]
General matters
[59]
The statutory provisions and principles
[62]
The witnesses
[80]
The factual setting
[99]
The involvement of Mr Schirripa
[125]
The February 2014 café meeting
[128]
Mr Schirripa meets Mr Nestorovic
[137]
The early March 2014 Paralowie meeting
[141]
Events subsequent to Mr Schirripa’s first investment
[142]
The representations - introductory matters
[156]
The 17th representation - the Manufacturing Representation
[158]
The relationship between Status and Linhai Hedda
[162]
Status was not the manufacturer
[182]
The significance of the Manufacturing Representation
[186]
The 16th representation - the Matching Representation
[193]
The making of the Matching Representation
[199]
Conclusion on the Matching Representation
[217]
The submission that the Matching Representation was not false or misleading
[224]
The first representation - price and income projections
[230]
The making of the first representation
[232]
The representation as to price was misleading or deceptive
[236]
The second representation - extensive market research
[239]
The making of the second representation
[242]
The second representation was misleading or deceptive
[248]
The third representation - Brisbane Airport
[250]
The making of the third representation
[252]
The third representation was misleading or deceptive
[268]
The fourth representation - Coober Pedy Council
[270]
The making of the fourth representation
[275]
The fourth representation was misleading or deceptive
[286]
The sixth representation - Rio Tinto
[289]
The making of the sixth representation
[292]
The sixth representation was not misleading or deceptive
[306]
The seventh representation - Transfield
[309]
The making of the seventh representation
[313]
The seventh representation was misleading or deceptive
[325]
The eighth representation - the Melbourne Grand Prix
[326]
The making of the eighth representation
[330]
The eighth representation was misleading or deceptive
[334]
The 10th representation - VicRoads
[336]
The making of the 10th representation
[338]
The 10th representation was misleading or deceptive
[342]
The 11th representation - the Alice Springs Airport Road
[344]
The making of the 11th representation
[348]
The 11th representation was misleading or deceptive
[358]
The 12th representation - agreement with Mr Lynch
[360]
The making of the 12th representation
[363]
The 12th representation was not misleading or deceptive
[367]
The 13th representation - Parliament House
[369]
The making of the 13th representation
[372]
The 13th representation was misleading or deceptive
[381]
The 14th representation - Liverpool Council
[383]
The making of the 14th representation
[385]
The 14th representation was misleading or deceptive
[390]
The 15th representation - Blacktown Council
[392]
In trade or commerce
[404]
The losses
[407]
Reliance and causation
[410]
The decision-makers
[416]
The Applicants’ conduct
[419]
The 17th representation - the Manufacturing Representation
[422]
The 16th representation - the Matching Representation
[425]
The first representation - price and income projections
[426]
The second representation - extensive market research
[427]
The third representation - Brisbane Airport
[432]
The fourth representation - Coober Pedy Council
[433]
The seventh representation - Transfield
[436]
The eighth representation - the Melbourne Grand Prix
[440]
The 10th representation - VicRoads
[441]
The 11th representation - the Alice Springs Airport Road
[442]
The 13th to 15th representations - Parliament House, Liverpool Council and Blacktown Council
[444]
Summary of findings of causation and reliance
[446]
An independent cause of loss?
[447]
The Misrepresentation Act claim
[450]
The claim in deceit
[456]
Conclusion
[463]
Introduction
Temporary fencing made up of connected panels is commonly used in Australia at construction sites, road works, work sites, temporary entertainment venues and the like. Frequently, the panels are hired from third party providers rather than purchased by their users.
In 2011 and 2012, the Second Respondent (Mr Nestorovic) saw the potential for a business hiring temporary fencing panels containing features making them highly visible in both daylight and in darkness. He referred to this form of fencing as “Visible Temporary Fencing” (VTF) and I will do likewise.
On 26 August 2013, Mr Nestorovic incorporated the First Respondent, Visible Temporary Fencing Australia Pty Ltd (VTF Aust), with the intention that it develop a business of hiring out VTF panels. The initial directors of VTF Aust were Mr Nestorovic and the Third Respondent (Ms Pinneri), who is his daughter. Neither Mr Nestorovic nor Ms Pinneri had had any previous experience in hiring out fencing panels.
Subsequently, separate companies were established in South Australia, Western Australian, Queensland, the Northern Territory, Tasmania, Victoria and New South Wales to undertake the hire of VTF panels. These were respectively the Fourth Respondent, Visible Temporary Fencing (SA) Pty Ltd (VTF (SA)), the Fifth Respondent, Visible Temporary Fencing (WA) Pty Ltd (VTF (WA)), the Sixth Respondent, Visible Temporary Fencing (Qld) Pty Ltd (VTF (Qld)), the Seventh Respondent, Visible Temporary Fencing (NT) Pty Ltd (VTF (NT)), the Eight Respondent, Visible Temporary Fencing (Tas) Pty Ltd (VTF (Tas)), the Ninth Respondent, Visible Temporary Fencing (Vic) Pty Ltd (VTF (Vic)) and the 10th Respondent, Visible Temporary Fencing (NSW) Pty Ltd (VTF (NSW)). The parties referred to these companies as “the State Companies” and, again, I will do likewise.
The First Applicant, RRG Nominees Pty Ltd (RRG), was incorporated on 30 September 2013 to be the trustee of the RRG Unit Trust. The RRG Unit Trust was to be the vehicle through which investments could be made in the VTF businesses. It was established by Mr Robert Falzon, Mr Robert Forrest and Mr Glen Stephens (collectively, the RRG Founders). Subsequently, RRG did make investments into at least three of the State Companies.
Through Mr Falzon, Mr Rocama (known as Rick) Schirripa (Mr Schirripa) was introduced to the VTF group of companies. Commencing on 14 April 2014, in the circumstances to be described shortly, companies with which Mr Schirripa is associated invested in RRG and later directly into the State Companies (other than VTF (Qld)). The investing companies are the Second Applicant, Schnik Nominees Pty Ltd (Schnik), and the Third Applicant, Frank Schirripa Nominees Pty Ltd (FSN).
In August 2014, Mr Schirripa or the companies with which he was associated bought out the interests of Messrs Falzon and Forrest in RRG and in the RRG Unit Trust. He did not buy out the interest of Mr Stephens.
The contemplated businesses of hiring the VTF panels failed. Each of the State Companies, as well as VTF Aust and the 11th Respondent, Status Shop Maintenance Pty Ltd (Status), entered into voluntary administration on 5 July 2017 and each is now being wound up. The proceedings against these Respondents have been stayed. The trial proceeded against Mr Nestorovic and Ms Pinneri only and I will hereafter refer to them as “the Respondents”.
This judgment concerns the Applicants’ claims that they were induced to invest in the State Companies by the misleading or deceptive conduct of the Respondents. The Applicants seek in the alternative damages pursuant to the Misrepresentation Act 1972 (SA) and for common law deceit. They rely on the same conduct for each of these causes of action.
For the reasons which follow, I am satisfied that the Applicants have made out most of the pleaded causes of action and that they are entitled to the relief which they seek.
The parties
Until 19 August 2014, the directors of RRG were its founders. On 19 August 2014, Mr Schirripa was appointed as director and it seems that Messrs Falzon and Forrest resigned as directors on or about the same date. Since then, Messrs Schirripa and Stephens have been the decision‑makers within RRG. Mr Schirripa was appointed a director of each of the State Companies (other than VTF (Vic) and VTF (Qld)) but resigned his directorships on 15 October 2015.
The Second Applicant (Schnik) is the trustee of the RJ Schirripa Family Trust. Mr Schirripa and his wife Jacqueline have been the directors of Schnik at all material times.
The Third Applicant (FSN) is the trustee of the Frank Schirripa Family Trust. Mr Frank Schirripa is Mr Schirripa’s father. He and his wife have been directors of FSN at all material times. FSN contributed funds to VTF (Tas) only.
Each of the Respondents has been a director of VTF Aust since its incorporation on 26 March 2013. Mr Nestorovic has also been a director and secretary of each of the State Companies from the time of their incorporation. With the exception of VTF (Qld), whose shares it wholly owns, VTF Aust holds 55% of the shares in each of the State Companies.
The 11th Respondent (Status) was incorporated on 31 January 2006. The Respondents are its shareholders. The principal business of Status has been the importation of manufactured goods from China and their sale in Australia. The items it has imported have principally been equipment for use in restaurants and bakeries, and safety equipment such as cones, bollards, gloves and glasses, for use in the mining industry.
Mr Nestorovic has been the person who has travelled to China sourcing products and who, within Australia, has had the principal role in locating customers. Ms Pinneri has been principally involved in the administrative aspects of Status’ business. In some communications, Ms Pinneri described herself as the “Director/Marketing Manager” of Status and of Visible Temporary Fencing.
The Respondents have been the directors of Status at relevant times. On 6 April 2011, Status entered into joint venture and exclusivity agreements with Linhai Hedda Import & Export Co Ltd (Linhai Hedda). Linhai Hedda is a Chinese company through which Status obtained a variety of products which it imported into Australia. These included the VTF panels. There are issues in the trial concerning the relationship between Status and Linhai Hedda and the manufacture of the VTF panels in China to which it will be necessary to return.
Status maintained showrooms on Prospect Road, Prospect (a suburb of Adelaide). It has also operated from Mr Nestorovic’s home at Burton Road, Paralowie, another suburb of Adelaide.
At one stage, Mr Nestorovic and the initial directors of RRG had contemplated the appointment of distributing agents in the various States and Territories who would be responsible for the hire of the panels. Mr Schirripa had contemplated becoming such an agent for South Australia but did not pursue that course. In the events that happened, neither VTF Aust nor any of the State Companies ever appointed an agent.
The Respondents did not have legal representation at the trial. However, they had had legal representation in the proceedings until two months before the commencement of the trial, when their previous solicitors, Griffins Lawyers, had ceased to act for them. Griffins Lawyers had been acting for Mr Nestorovic and Ms Pinneri at the time the affidavits containing their evidence in chief and the tender books containing the documents which the parties wished to adduce into evidence were prepared. It is also appropriate to record that the evidence indicates that Griffins Lawyers had carried out legal work for Status or VTF Aust in 2013, 2014 and 2015. That work appears to have been extensive as the bank records of Status indicate that Status paid a total of $101,340.98 to Griffins Lawyers in the period between 21 October 2013 and 14 September 2015.
The investment in the State Companies
Although the amounts outlaid by the Applicants in respect of the VTF businesses are readily identifiable in the evidence, it is less easy to identify all the amounts paid in respect of each State Company and the character of those payments. In particular, it is not always apparent whether some amounts were outlaid as contributions of capital or as loans and, in some instances, it is not clear to which State Company amounts paid directly to Status were to be credited.
I commence with my findings as to the amounts outlaid by RRG.
Date Amount Entity making the payment Payee entity 11/10/2013 $25,000.00 RRG Status 15/10/2013 $10,000.00 RRG Status 18/10/2013 $20,000.00 RRG Status 28/10/2013 $20,000.00 RRG Status 30/10/2013 $10,000.00 RRG Status 31/10/2013 $20,000.00 RRG Status 01/11/2013 $6,600.00 RRG Status 04/11/2013 $1,150.00 RRG Status 11/11/2013 $10,000.00 RRG Status 11/11/2013 $25,000.00 RRG Status 20/11/2013 $20,000.00 RRG Status 29/11/2013 $20,000.00 RRG Status 20/12/2013 $3,000.00 RRG Status 22/01/2014 $20,000.00 RRG Status 15/04/2014 $103,200.00 RRG VTF (WA) 15/04/2014 $184,800.00 RRG VTF (NT) 15/04/2014 $123,200.00 RRG VTF (SA) 01/05/2014 $20,000.00 RRG VTF (WA) 01/07/2014 $14,100.00 RRG Status 21/08/2014 $184,800.00 RRG VTF (WA) 21/08/2014 $184,800.00 RRG VTF (NT) 29/08/2014 $200.00 RRG VTF (SA) 29/08/2014 $3,806.00 RRG VTF (SA) 29/08/2014 $13,475.00 RRG VTF (SA) 01/09/2014 $9,900.00 RGG VTF (SA) 12/12/2014 $23,900.80 RRG VTF (SA) 13/02/2015 $150,000.00 RRG VTF (SA) 26/02/2015 $244,240.00 RRG VTF (SA) 03/03/2015 $178,640.00 RRG VTF (NT) Total $1,649,811.80
The total amount paid by RRG to each of the entities listed in the previous table is as follows:
Entity Total Status $224,850.00 VTF (SA) $568,721.80 VTF (WA) $308,000.00 VTF (NT) $548,240.00 Total $1,649,811.80
In these proceedings, RRG seeks to recover the amount of $1,649,811.80.
In the period between 11 October 2013 and the commencement of investments by the Schirripas on 14 April 2014, the amounts invested by RRG totalled $210,750. The evidence did not disclose the precise source of those funds but it seems that they came from other investors in the RRG Unit Trust. Mr Dimech, a witness in the trial, was one of those investors.
From 1 April 2014, the funds outlaid by RRG ($1,431,302.80) were derived from contributions by Mr Schirripa personally ($445,460), from a Mr Murray ($130,000) and from Schnik ($855,842.80). Mr Schirripa, in some instances in conjunction with his wife Jacqueline, had caused Schnik to make its contributions to RRG.
Schnik also made payments directly to Status as follows:
Date Amount Entity making the payment Payee entity 23/06/2015 $458,458.00 Schnik VTF (Vic) 23/06/2015 $785,647.50 Schnik VTF (NSW) Total $1,244,105.50
In these proceedings, Schnik seeks to recover the amount of $1,244,105.50.
I am satisfied that it was Mr Schirripa who caused Schnik to make the contributions to VTF (Vic) and to VTF (NSW). Ms Jacqueline Schirripa was not involved in those decisions.
FSN made payments as follows:
Date Amount Entity making the payment Payee entity 26/08/2014 $253,275.00 FSN VTF (Tas) 26/08/2014 $4,500.00 FSN VTF (Tas) Total $257,775.00
I am satisfied that it was Mr Frank Schirripa who caused FSN to make these payments. I am also satisfied that the payment of $4,500 was for 45 shares at $100 per share. The evidence did not disclose why FSN paid the full amount of $253,275 and $4,500 when it and Schnik were sharing the investment into VTF (Tas), but I infer that it was pursuant to a private arrangement between Schnik and FSN. In the final submissions, FSN abandoned its claim to recover the payment of $4,500. In these proceedings, FSN seeks to recover the amount of $253,275.
The payments made by the Applicants can be summarised as follows:
RRG $1,649,811.80 Schnik $1,244,105.50 FSN $253,275.00 Total $3,147,192.30
The amounts paid by RRG include the amounts contributed by Schnik which were recorded earlier. The moneys paid to the State Companies were usually paid straight to Status. The evidence did not disclose who was responsible for effecting these transfers, but I infer that it was Ms Pinneri.
Shortly after RRG, Schnik and FSN made their respective initial investments into the State Companies, they entered into shareholder agreements (SHAs) with VTF Aust (which was the majority shareholder) and the State Company concerned.
The following table contains my findings regarding the SHAs and the acquisition of shares in the State Companies.
Company Name
Date of Incorporation
Approximate Date of Shareholders Agreement between RRG, Schnik, FSN, VTF Aust and the State Companies
Acquisition of shareholdings
RRG
Schnik
FSN
VTF (SA)
09/10/2013
00/10/2013
09/10/2013
VTF (WA)
06/11/2013
06/11/2013
06/11/2013
VTF (Qld)
20/12/2013
N/A
N/A
N/A
N/A
VTF (NT)
20/12/2013
20/12/2013
20/12/2013
VTF (Tas)
18/08/2014
18/08/2014
18/08/2014
18/08/2014
VTF (Vic)
30/12/2014
00/07/2015
06/10/2015
VTF (NSW)
11/03/2015
00/07/2015
06/10/2015
As is apparent, none of the Applicants advanced funds to VTF (Qld). Schnik contemplated doing so in early 2015 and made a “holding payment” of $145,000 for that purpose. However, those funds were later reimbursed.
Other than in the case of VTF (Tas), the shareholding acquired by the listed Applicant in each other case was 45%. In the case of VTF (Tas), Schnik acquired a 22% shareholding and FSN acquired a 23% shareholding.
I mentioned that it is not easy to identify the character of the contributions made by the Applicants. The documentary evidence did not include the financial statements or balance sheets for Status or for any of the State Companies which may have indicated the way in which the payments were treated by these recipients. The only financial reports in evidence were those of VTF Aust for the 2014, 2015 and 2016 financial years, and I will refer to them later.
Some indication of the character of the payments can be obtained from the SHAs as these contained acknowledgments of loans having been made to the State Company to which the SHA related and identified the entities which made the loans. I summarise those acknowledgements in relation to each entity as follows:
VTF Aust RRG Schnik FSN VTF (SA) $107,000.00 $107,000.00 VTF (WA) $107,000.00 $107,000.00 VTF (NT) $107,000.00 $107,000.00 VTF (Tas) $253,225.00 $126,637.50 $126,637.50 VTF (Vic) $458,458.00 $458,458.00 VTF (NSW) $785,647.50 $785,647.50 Total $1,818,330.50 $321,000.00 $1,370.743.00 $126,637.50
At least with respect to VTF Aust, the reliability of the recording of the loans must be doubtful. There is no evidence that it paid any amounts to the State Companies, let alone that it had the means with which to do so. Mr Nestorovic acknowledged that VTF Aust had not made the loan of $107,000 to VTF (SA) shown in the table. He said that it was Status which had paid for the VTF panels provided by VTF Aust to which the loan amounts had been applied. Subject to the qualification mentioned earlier in respect of VTF (Tas), the payments by RRG, Schnik and FSN are confirmed by the documentary evidence and I am satisfied that they were made. On balance, the majority of the funds advanced seem to have been characterised as loans, although it is apparent that, at least in some instances, some were characterised as payments for shares.
The actual amounts which the Applicants contributed were, in the main, determined by the number of VTF panels which each State Company was to acquire. Status had a unit price for each panel and the associated equipment. It was the number of panels multiplied by the unit price which (generally) fixed the amount of the contribution.
The pleaded representations
The Applicants pleaded 17 representations but did not pursue their claims with respect to the fifth and ninth representations.
The first representation
The Applicants plead that the first representation was made by Mr Nestorovic in about September 2013 to Messrs Falzon, Forrest and Stephens as follows:
(a)the VTF panels would be rented at a price of $15 per panel per week;
(b)distributing agents receiving 20% of net rental income would earn approximately $18,000 per month in April 2014, rising to $90,300 per month (over $1 million per annum) by August 2015;
(c)distributing agents in Western Australia receiving 10% of gross income from renting fences at $15 per panel per week would receive monthly income rising from $6,450 in February 2014 to $430,000 in November 2015; and
(d)distributing agents in New South Wales receiving 10% of gross income from renting fences at $15 per panel per week would receive monthly income rising from $6,450 in February 2014 to $430,000 in November 2015.
The Applicants plead that this first representation was re‑conveyed by the RRG Founders to Mr Schirripa in or about February 2014.
The second representation
The Applicants allege that, in the period between September 2013 and March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that he had conducted extensive market research and that the panels would be in very high demand.
The third representation
The Applicants allege that, in the period between September 2013 and March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that he had a guaranteed contract in place with a union representative at the Brisbane Airport to supply a large quantity of fencing panels to the Airport, and all that was required to begin the job was the importation of fences from China.
The fourth representation
The Applicants allege that, in about February or March 2014, Mr Nestorovic made oral representations to the RRG Founders and to Mr Schirripa that:
(a)a contract would be obtained with the Coober Pedy Council for the use of 800 fencing panels at $17 per panel per week for six to 12 months for an upgrade to the drive‑in theatre and football oval;
(b)the price of $17 per panel per week was $7 less than the price offered by a competitor, Australian Temporary Fencing (ATF); and
(c)he had made the arrangements with a lady at the Council.
The sixth representation
The Applicants allege that, on or about 30 June 2014, Mr Nestorovic made oral representations to Mr Schirripa that:
(a)a contract would be obtained with Rio Tinto in Western Australia for the supply of 2,000 short fencing panels at $12 per week and 3,000 tall fencing panels at $14 per week for a period of 10 years; and
(b)he had made these arrangements through his contact with a person named Gavin, who was “in charge” at Rio Tinto.
The seventh representation
The Applicants allege that, in or about July 2014, Mr Nestorovic made oral representations to Mr Schirripa that a contract would be obtained with Transfield for between 3,000 and 5,500 fencing panels for the upgrade at the Royal Australian Airforce (RAAF) Base at Edinburgh in South Australia over five to seven years, beginning in December 2014, leading to further jobs at Bases in Darwin and in Perth.
The eighth representation
The Applicants allege that, Mr Nestorovic made oral representations in or about July 2014 to Mr Schirripa that there was strong interest from the organisers of the Melbourne Grand Prix for the supply of 6,000 tall fencing panels at $14 per week and 2,500 short fencing panels at $12 per week.
The 10th representation
The Applicants allege that, in or about January 2015, Mr Nestorovic made oral representations to Mr Schirripa that he had done a deal with VicRoads for the supply of fencing panels to highlight roadside trees involved in motor vehicle accidents.
The 11th representation
The Applicant allege that, in about late January 2015, Mr Nestorovic made oral representations to Mr Schirripa that a contract would be signed with the Alice Springs Council for the supply of fences for up to 10 km of a road leading off the Stuart Highway towards the Airport to stop rocks falling on the road, and that the signing of this contract was dependent only on the Council terminating an existing agreement with another supplier of temporary fencing.
The 12th representation
The Applicants allege that, in about February 2015, Mr Nestorovic made oral representations to Mr Schirripa that an agreement was in place with a Mr Russell Lynch to act as an agent for VTF in Alice Springs, and that Mr Lynch had good connections which would enable VTF to obtain contracts to provide fencing for the redevelopment of the local courthouse and police station.
The 13th representation
The Applicants allege that, in about April 2015, Mr Nestorovic made an oral representation to Mr Schirripa that a contract was in place to supply 1,000 fences at $7 per week to be used by the Australian Federal Police at Parliament House in Canberra and it would commence as soon fences could be supplied out of Sydney.
The 14th representation
The Applicants allege that, in about April 2015, Mr Nestorovic made oral representations to Mr Schirripa that:
(a)he had spoken with the Mayor of the Liverpool Council in New South Wales regarding a contract to supply fences for the redevelopment of the local mall; and
(b)that VTF would soon conclude the contract discussed.
The 15th representation
The Applicants allege that, in about July 2015, Mr Nestorovic made an oral representation to Mr Schirripa that he had spoken with the Mayor of the Blacktown Council in New South Wales regarding a contract for the supply of 24,000 fencing panels at $7 per week and that VTF would soon conclude the contract discussed.
The 16th representation
The Applicants allege that, between September 2013 and July 2015, Mr Nestorovic represented to RRG, Schnik and to Mr Schirripa that VTF Aust would match, or had matched, any funding provided to the State Companies by RRG, Schnik and FSN through the provision to the State Companies of fencing panels and ancillary equipment to a value equivalent to the amount of the investment of RRG, Schnik or FSN. The Applicants allege that this representation was made by Ms Pinneri as well as Mr Nestorovic and was made partly orally, partly in writing and partially through conduct.
The 17th representation
The Applicants allege that, between May 2013 and July 2015, Mr Nestorovic and Ms Pinneri made representations to Mr Schirripa that Status was the manufacturer of the fencing and ancillary equipment for the VTF business.
General matters
With the exception of the first, 16th and 17th representations, the Applicants allege that the representations were made orally. The 16th and 17th representations are alleged to have been made partly orally, partly in writing and partly by conduct.
The Applicants allege that the representations were made by Mr Nestorovic and Ms Pinneri, as the case may be, in their own right, on behalf of VTF Aust, and on behalf of Status.
The Applicants also allege that, insofar as the pleaded representations were representations of opinion, each carried with it an implied representation that the representor in fact held the opinion represented (the Representation of Honesty) and had reasonable grounds for the opinion (the Representation as to Reasonable Grounds).
The statutory provisions and principles
The Applicants plead four causes of action:
(a)damages pursuant to s 236 of the Australian Consumer Law (which comprises Sch 2 to the Competition and Consumer Act 2010 (Cth) (the CC Act)) in respect of contraventions of s 18 of the ACL;
(b)damages pursuant to s 1041I of the Corporations Act 2001 (Cth) in respect of contraventions of s 1041H of the Corporations Act;
(c)damages pursuant to s 7 of the Misrepresentation Act in respect of the misrepresentations; and
(d)damages in deceit.
The Applicants also sought other forms of relief, which will be identified later.
Section 18(1) of the ACL provides:
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Insofar as the pleaded representations are representations concerning future matters, the Applicants rely upon s 4 of the ACL. Section 4 provides (relevantly):
4 Misleading representations with respect to future matters
(1)If:
(a)a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
(b)the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a) a party to the proceeding; or
(b) any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
…
The effect of s 4 is that a representation with respect to a future matter is taken to be misleading if the maker of the representation does not have reasonable grounds for the representation. Further, it is the maker of the representation who has the onus of establishing the presence of reasonable grounds.
As the Applicants acknowledged, the application of the ACL, including ss 4 and 18, in relation to their claims is subject to the operation of s 131A of the CC Act. Before referring to s 131A, it is appropriate to note some aspects of the Applicants’ claim in respect of contraventions by the Respondents of s 1041H(1) of the Corporations Act. That section provides:
A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
The term “financial product” used in s 1041H is defined in s 763A. It includes the shares in a company: see s 763B. The Applicants allege that 10 of the 15 representations which they pursued at trial had been made in relation to shares. Their pleading as to the shares to which the representations related are as follows:
(a)the first, second, third, 16th and 17th representations were made in relation to shares in VTF (SA), VTF (NT) and VTF (WA);
(b)the ninth, 16th and 17th representations were made in respect of shares in VTF (Tas);
(c)the 13th, 14th, 15th, 16th and 17th representations were made in respect of shares in VTF (NSW); and
(d)the eighth, 10th, 16th and 17th representations were made in respect of shares in VTF (Vic).
The representations which were not claimed to have been made in relation to a financial product or a financial service are the fourth, sixth, seventh, 11th and 12th representations
The term “financial service” appearing in s 1041H is elaborated in Ch 7 Div 4 of the Corporations Act. By s 766A(1), a person provides a “financial service” if they:
(a) provide financial product advice (see section 766B); or
(b) deal in a financial product (see section 766C); or
…
Section 766B(1) identifies when a person provides “financial product advice”:
(1)For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a)is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b)could reasonably be regarded as being intended to have such an influence.
Section 766C of the Corporations Act identifies when a person “deals in a financial product”:
766C Meaning of dealing
(1)For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:
(a) applying for or acquiring a financial product;
(b) issuing a financial product;
(c)in relation to securities or managed investment interests—underwriting the securities or interests;
(d) varying a financial product;
(e) disposing of a financial product.
(2)Arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.
…
(3)A person is taken not to deal in a financial product if the person deals in the product on their own behalf (whether directly or through an agent or other representative), unless:
(a) the person is an issuer of financial products; and
(b) the dealing is in relation to one or more of those products.
(3A)For the purposes of subsection (3), a person (the agent) who deals in a product as an agent or representative of another person (the principal) is not taken to deal in the product on the agent’s own behalf, even if that dealing, when considered as a dealing by the principal, is a dealing by the principal on the principal’s own behalf.
…
By s 131A(1) of the CC Act, Pt 2‑1 of the ACL (which includes s 18) has no (presently relevant) application to the supply of “financial products” or of “financial services”. These terms are defined in Sch 2 by reference to ss 12BAA and 12BAB of the Australian Securities and Investments Commission Act 2001 (Cth). The Applicants accepted that these definitions are, for relevant purposes, identical to the corresponding definitions in the CC Act. This had the consequence, the Applicants accepted, that they could not rely on s 18 of the ACL with respect to those of the pleaded representations found to relate to the acquisitions of shares.
The Respondents did not, understandably, make any submissions concerning the effect of s 131A in this case. That being so, I will proceed on the basis conceded by the Applicants, that being the basis most favourable to the Respondents.
Whether it be s 18 or s 1041H which is applicable, the principles for assessing whether or not the impugned conduct was misleading or deceptive are, subject to the matter to be mentioned next, the same. It is sufficient for present purposes to refer to the following passage in the judgment of McHugh J in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592:
[109]The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.
(Citations omitted)
One difference between s 18(1) of the ACL and s 1041H of the Corporations Act is that the latter Act does not contain any equivalent of s 4(1) of the ACL concerning representations with respect to future matters.
Predictions or opinions which prove incorrect, are not, without more, misleading or deceptive: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88. An expression of opinion may, however, convey that the opinion expressed is held and that there is a reasonable basis for it: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [33].
Dishonesty or an intention to mislead or deceive are not elements of contraventions of either s 18(1) of the ACL or s 1041H of the Corporations Act. However, the Appplicants allege that some of the conduct of the Respondents was dishonest or that they were, at the least, reckless as to the truth of their statements. Dishonesty or recklessness as to the truth of a statement is of course an element of the tort of deceit.
Section 7(1) of the Misrepresentation Act, on which the Applicants rely for their third cause of action, provides (relevantly):
7 – Damages for misrepresentation
(1)Where a contracting party is induced to enter into a contract by a misrepresentation made –
(a) by another party to the contract; or
(b)by a person acting for, or on behalf of, another party to the contract; or
(c)by a person who receives any direct or indirect consideration or material advantage as a result of the formation of the contract,
and any person (whether or not he or she is the person by whom the misrepresentation was made) would, if the misrepresentation had been made fraudulently, be liable for damages in tort to the contracting party subjected to the misrepresentation in respect of loss suffered by him or her as a result of the formation of the contract, that person is, subject to subsection (2), so liable to that contracting party, in all respects as if the misrepresentation had been made fraudulently and were actionable in tort.
(2) It is a defence to an action under subsection (1)—
(a)that the person by whom the representation was made had reasonable grounds to believe, and did believe, that the representation was true; or
(b)that the defendant was not the person by whom the representation was made and did not know, and could not reasonably be expected to have known, that the representation had been made, or that it was untrue.
…
(6)In assessing any damages under this section, a court must take into consideration any award of damages under any other provision of this section, or of damages or compensation under any other law, and in assessing damages or compensation in any proceedings under any other law relating to a contract, a court must take into consideration any award of damages under this section.
I will refer later in these reasons to relevant aspects of the tort of deceit.
The witnesses
The Applicants led evidence from seven witnesses.
The first was Mr Simon Miller, who is one of the joint and several liquidators of the State Companies, VTF Aust and of Status, concerning the prospect of the Applicants recovering their investments from the companies in liquidation. I regarded Mr Miller’s evidence as honest and reliable.
Mr Schirripa was the Applicants’ principal witness. He has some experience in business and management. Over a period of 22 years, he worked in the Schirripa family business, Adelaide Mushrooms. That business, which was very successful, was sold in 2013. Mr Schirripa’s position in Adelaide Mushrooms at that time was Sales Manager. This involved him in supervising staff and having day‑to‑day responsibility for a market store. In addition to his position in Adelaide Mushrooms, Mr Schirripa was President of the South Australian Chamber of Fruit and Vegetable Industries for 10 years. He was also a director of the Australian Chamber of Fruit and Vegetable Industries for an equivalent period.
It was apparent that Mr Schirripa believes that he had been deceived by Mr Nestorovic and Ms Pinneri and that the Respondents had used the monies he was induced to advance for their own personal expenditures. I thought that those beliefs coloured his evidence to an extent as it was evident that Mr Schirripa feels strongly about the wrong which he perceives to have been done to him. However, I considered that Mr Schirripa gave his evidence well and, while taking into account the matters just mentioned, regard his evidence as generally reliable.
I have reservations about the evidence of Mr Falzon. He had as much interest as did the Respondents in inducing persons to invest in the VTF business, and ultimately received a return of $80,000 for the sale of his interest in RRG without having invested any funds into it. I had the distinct impression that Mr Falzon sought in his evidence to minimise his own involvement in the establishment of the VTF businesses and to attribute matters giving rise to culpability to Mr Nestorovic. I consider that care is to be exercised before acting on his evidence.
Mr Mark Dimech invested in RRG before Mr Schirripa became involved. He was induced to do so by Mr Glen Stephens. I considered that Mr Dimech’s evidence was generally reliable although I thought that there was some tendency in his evidence to enlarge matters suggesting culpability by Mr Nestorovic.
I considered that the remaining witnesses called by the Applicants (Ms Jacqueline Schirripa, Mr Lynch and Mr Frank Schirripa) were honest and reliable and am willing to act on their evidence.
The Applicants had provided, in advance of the trial, an affidavit containing the proposed evidence in chief of Mr Stephens. However, they did not call him to give evidence. Counsel explained that Mr Stephens was overseas, and the Respondents did not dispute that that was so. In these circumstances, it would not be appropriate to draw any adverse reference by reason of the Applicants’ failure to lead evidence from Mr Stephens.
Mr Nestorovic and Ms Pinneri gave evidence themselves and did not lead any other oral evidence. I keep firmly in mind that they did not have legal representation in the trial and were participating in a process with which they were unfamiliar. I also take into account that English is not Mr Nestorovic’s first language. He speaks with a pronounced accent and there were some questions whose meaning he did not understand immediately. In her final submissions, Ms Pinneri submitted that it may have been appropriate for Mr Nestorovic to have given his evidence with the assistance of an interpreter. I record, however, that even when the Respondents had legal representation, there was no suggestion that an interpreter would be appropriate. Further, it was obvious, that for the most part, Mr Nestorovic grasped immediately the import of a question and often sought to answer questions even before they had been completed. I am satisfied that Mr Nestorovic’s comprehension was more than adequate for him to have given evidence in English.
I did not regard either Mr Nestorovic or Ms Pinneri as an impressive witness. I have maintained that assessment of reading and re‑reading the transcript.
Much of Mr Nestorovic’s evidence was marked by implausibility. There were occasions when I had the strong impression that he was fabricating matters as he thought convenient from time to time. There were numerous inconsistencies in his evidence. Some instances of the implausibilities or inconsistencies in Mr Nestorovic’s evidence are these:
(a)he claimed to have spent $1‑$2 million in research and development of the fencing panels but, remarkably, did not produce any records to support expenditure of that magnitude. The claim is in any event inherently implausible because, as counsel for the Applicants submitted, the VTF is not a sophisticated product, and there is no evidence that Status itself or the Respondents had had the resources to expend such a sum on “research and development”;
(b)he claimed that his factory in China had acquired an injection moulding machine with which to make plastic components for the fencing panels, whereas it became obvious from his description of the use of the machine that he did not know what an injection moulding machine is, or how it works. I had the firm impression that Mr Nestorovic was prompted to make the claim concerning the injection moulding machine by reason of a question asked in the cross‑examination of Ms Pinneri, who had given evidence before him;
(c)he claimed to have remembered precise dates of travel to China in 2009 and 2010 without reference to his passport;
(d)he claimed to have spent six to eight months a year in China in relation to the research and development of the fencing panels, when that was inconsistent with his presence in Australia, as indicated by business records received in the trial;
(e)it was very apparent that Mr Nestorovic would “talk up” the use of the fencing panels, even when his statements were not truthful. An example is his attempt in January 2015 to induce Mr Lynch to participate in the hiring out of panels in Alice Springs. Mr Nestorovic told Mr Lynch that he had a job at a Tennant Creek mine and for some road works on a section of the Old South Road outside Alice Springs. Neither claim was correct. Mr Lynch’s evidence and other evidence indicated that Mr Nestorovic generally had a tendency to equate a conversation with a person about possible use of the VTF panels with a commitment by the person’s entity to use the panels; and
(f)he claimed in the affidavit containing his evidence in chief that it was not until about September or October 2015 that he had realised that, when quoting for jobs, it was necessary to consider not just the cost of providing the VTF panels, but the extra cost of delivering and installing them and of removing them at the conclusion of the hire. Mr Nestorovic contradicted himself on this topic in his cross‑examination by asserting that he had told Mr Falzon and Mr Stephens in September 2015 that account had to be taken, in fixing the rental price of the cost of delivering, installing and retrieving the VTF panels. He claimed that he had given regular attention to these costs. When confronted with the inconsistency, Mr Nestorovic said that the statement in his affidavit was incorrect.
It is very apparent that Mr Nestorovic was enthused by his development of the VTF panels. He had invested a good deal of time and energy in developing the concept and how it could be realised. The Respondents were prone to describe this as “research and development” but I think that this overstates the position. Instead, Mr Nestorovic worked out how the concept could be converted into reality.
Mr Nestorovic also is a natural salesman. He has the innate ability to see opportunities to promote his product. He also knew how to interest others in investing, in particular, by promoting the potential returns. On my assessment, he was prepared to “talk up” the VTF concept and its potential even when that meant exaggerating beyond the bounds of truth, the actual circumstances.
I considered that Ms Pinneri gave her evidence in a capable manner. In addition, she conducted the Respondents’ defence in the trial. Again, I considered that she did so in a competent manner, taking into account her lack of familiarity with the trial process. I also considered that Ms Pinneri was quick to appreciate where the interests of the Respondents lay in the trial as it developed, and understood ways by which adverse points could be addressed. She had a strong inclination to defend the Respondents’ position from the witness box. Some of her evidence was argumentative in nature and there were occasions when I considered that she sought to avoid answering directly questions which she regarded as inconvenient.
In the first affidavit containing her evidence in chief made on 14 July 2017, Ms Pinneri deposed to Status being the manufacturer of the VTF panels. However, in cross‑examination she acknowledged that she had told the administrators appointed to Status, VTF Aust and the State Companies that there was a “separate” manufacturer of the panels. That must have been before 31 July 2017 because the administrators referred to the debt to the manufacturer in the report of 31 July 2017.
Ms Pinneri’s credibility was not enhanced by her action on the final day of trial in tendering for admission into evidence a bundle of invoices said to have been provided directly to Status from Ms Zheng in China. These documents were of doubtful authenticity and had not been discovered pursuant to the Court’s orders concerning discovery.
The effect is that I do not consider that the evidence of Mr Nestorovic or Ms Pinneri can be regarded as reliable on key issues and that I should be circumspect before accepting their evidence about disputed matters.
The Court also received a considerable volume of documents comprising business records.
In my findings of fact on disputed matters, I have relied generally on the evidence of Mr Schirripa, and indicate now that, with few exceptions, I have rejected the evidences of Mr Nestorovic and Ms Pinneri when it was in conflict with his.
The factual setting
Mr Nestorovic, who was born in the former Yugoslavia in 1948, came to Australia in 1972. Most of his work in Australia has been as a self‑employed businessman. The businesses which he has conducted have been diverse: truck driving, a vigneron, a service station proprietor, operator of chicken shops, import/export, small farming, cleaning and shop maintenance.
In 2006, Mr Nestorovic incorporated Status and commenced importing items from China for sale in Australia. As noted earlier, the principal items it has imported have been equipment for use in restaurants and bakeries and safety equipment for use in the mining industry. Mr Nestorovic would travel to China periodically with a view to sourcing products which could be imported.
In about 2008, as a result of an inquiry from one customer, Mr Nestorovic commenced investigating the potential for importing panels of temporary fencing from China. In particular, he spoke to Nancy Zheng and her father who operated Linhai Hedda. Over the ensuing months, Mr Nestorovic decided on improvements which could be made to the kinds of temporary fencing panels then available. Some of these were of a structural kind; others involved galvanising so as to inhibit rusting; and a third involved the addition of reflective tape covered by thin plastic so as to make the fencing panel highly visible at night.
The matters which I have recounted above are drawn from the evidence in chief of Mr Nestorovic. I am willing to accept that evidence as reliable.
I will refer later to two agreements, both dated 6 April 2011, made between Status and Linhai Hedda.
The VTF panels came in three sizes: 2100 mm (L) x 1800 mm (H) (sometimes referred to as “Tall” fences), 2100 mm (L) x 1800 mm (H), and 2100 mm (L) x 1200 mm (H) (sometimes referred to as “Short” fences).
The development of the VTF business proceeded slowly. In mid‑2011, Mr Nestorovic caused two full‑sized fencing panels to be included in a container of items which was delivered on his behalf to Perth. In August 2012, Status purchased 10 fencing panels from a company in Anping Hebei in Northern China. These panels were sent to Adelaide.
In January 2013, Mr Nestorovic caused a testing agency in Shanghai (Leading Testing International Co Ltd) to carry out testing of the VTF panels and he received favourable results. The testing related to the compliance of the panels with Australian Standards and with standards published by the International Standards Organisation and included their tensile strength, ability to withstand wind force impacts, climbing and the like.
Although Mr Nestorovic commenced using the name Visible Temporary Fencing Australia in late 2012 or early 2013, VTF Aust was not incorporated until 26 August 2013.
On 25 June 2013, an innovation patent for the VTF panels was issued to Ms Pinneri. She and her father were recorded as the inventors.
Mr Nestorovic caused 360 VTF panels to be delivered to Adelaide in July 2013. Another 140 panels were delivered to Adelaide in September 2013.
The momentum for the development of the VTF businesses increased following a chance meeting between Mr Falzon and Mr Nestorovic in May or June 2013. In that meeting, Mr Nestorovic told Mr Falzon of the nature of his business and of his proposed business with the VTF panels. Mr Falzon and Mr Nestorovic exchanged contact details. There was disagreement between the two of them as to the circumstances in which they next had contact. Mr Falzon said that two or three weeks after their chance meeting, Mr Nestorovic telephoned him and said that he had a business proposition to discuss. Within a few days of that telephone call, he met Mr Nestorovic at Status’ Prospect Road showrooms. Mr Nestorovic denied that he had called Mr Falzon, who he said had just appeared at the Prospect showrooms. Mr Nestorovic said that he showed Mr Falzon “what Status did” and some sample fencing panels. He said that Mr Falzon said there and then that he wished to go into business with him in relation to the fencing. Mr Nestorovic gave Mr Falzon a sample of the fencing to take away with him. I regard Mr Falzon’s account as more plausible and, as already indicated, have doubts about the reliability of much of Mr Nestorovic’s evidence. I consider that Mr Falzon’s account of their initial contact is more likely to be accurate.
On the basis of Mr Falzon’s evidence, I make the following findings concerning the meeting at the Prospect Road showrooms. Mr Nestorovic showed Mr Falzon the VTF panels and said:
·he had invented the product after extensive research;
·he owned a patent on the product;
·he wanted to hire the VTF panels rather than selling them because he wished to be in control of his invention;
·there was “a massive demand” for temporary fencing panels;
·because the VTF panels had high visibility and no one else in Australia had them, they could be rented for much more than standard fencing panels; and
·he had a manufacturing plant in China which could produce the panels.
Mr Nestorovic asked Mr Falzon whether he would like to go into business with him in relation to the hiring of the VTF panels throughout Australia. Mr Falzon responded by saying that he was not in a financial position to invest but could bring manpower. Mr Nestorovic told him that he would need to secure some investment of funds in order to help buy VTF panels if he wished to be involved. He said that he (Mr Nestorovic) would go 50/50 with any investment made by Mr Falzon in order to buy fencing. He also said that the money would be used to pay for the cost of manufacturing the fencing in China.
Following the meeting, Mr Falzon contacted Mr Stephens and Mr Forrest and told them about the business proposal. Both were interested in being involved. Messrs Falzon, Stephens and Nestorovic then had another meeting at the Prospect Road showrooms. Shortly afterwards, and probably towards the end of May 2013, Mr Forrest came to Adelaide from Perth. Messrs Falzon, Stephens and Forrest had a further meeting with Mr Nestorovic at his Paralowie property.
In late July 2013, Messrs Falzon, Stephens and Forrest agreed to raise money to invest in the VTF business. Their discussions with Mr Nestorovic and Ms Pinneri had, by that time, developed to the extent that there was agreement that there should be a separate VTF company in each State and Territory and that VTF Aust would own 55% of the shares in each company. The number of State Companies in which the RRG Founders would become involved would depend on the amount they were able to obtain for investment.
Some other events occurred in the same period. Mr Falzon made a “cold call” to another hire company, Australian Temporary Fencing (ATF) and ascertained that their prices were around $9 per panel per month. This was much less than Mr Nestorovic had suggested as the available hire rates.
Mr Falzon and Mr Stephens prepared some spreadsheets containing projections of the income which agents could derive from the hire of the VTF panels in Western Australia, New South Wales and “All States” as well as cash flow projections. Mr Falzon claimed that Mr Nestorovic had requested that they prepare those projections and had provided the inputs for them. However, on my assessment of Mr Falzon and Mr Nestorovic, I think that unlikely. The spreadsheets are much more likely to have been the initiative of Messrs Falzon and Stephens. They were the ones who were actively trying to interest potential agents, and the spreadsheets were prepared for that purpose.
Mr Falzon said that Mr Nestorovic had given him the pricing figures which he and Mr Stephens used in the spreadsheets. He said that he had discussed the figures with Mr Nestorovic “a number of times”. Mr Nestorovic denied having any input into the preparation of the spreadsheets. On my assessment of Mr Nestorovic, I doubt that he would be capable of preparing a spreadsheet by himself. But that does not mean that he did not provide some of the inputs used by others.
I have considered the evidence of Mr Falzon carefully given my reservations about the reliability of his evidence. On balance, I am willing to accept that Mr Nestorovic did contribute to the preparation of the spreadsheets. I think it unlikely that Mr Falzon would have guessed the cost of the VTF panels so as to derive the costs figures in the spreadsheets. Nor is it likely that he would simply have selected for himself the projected numbers of VTF panels which could be hired out. In his cross‑examination, Mr Nestorovic agreed that he had discussed rental pricing with Messrs Falzon and Stephens, including the prices Bianco Hire had suggested would be appropriate, the need to cover delivery, installation and pick‑up costs, and the variable locations to which the VTF panels may have to be delivered. It is pertinent that the rate of hire of $15 per panel per month is less than the hire rates which Mr Nestorovic was asserting at the time, but that may reflect some compromise. I also think it unlikely that Messrs Falzon and Mr Stephens would have prepared projections of an agent’s income without reference to Mr Nestorovic, who was to control these agreements.
Finally, I note that, on 7 October 2013, Mr Falzon sent an email to Mr Stephens, Mr Forrest and Ms Pinneri attaching what he described as “my first go at fence prices”. These were proposed prices to customers. It is consistent with Mr Falzon seeking the involvement of the Respondents in the pricing arrangements. For these reasons, I do not accept as truthful Mr Nestorovic’s denial of any involvement in the preparation of the spreadsheets. I think it likely, and so find, that each of Messrs Falzon, Stephens and Nestorovic collaborated in the preparation of the spreadsheets and the projections.
Mr Falzon also prepared a promotional brochure for the VTF panels for use in the VTF business.
Mr Falzon said, and I accept, that he had numerous conversations with Mr Nestorovic about the proposed VTF business. Some were of a general kind but in some Mr Nestorovic spoke of the hire contracts he had in prospect:
·a job at Coober Pedy in relation to the redevelopment of the football oval involving the hire of 250 panels at $23 per panel per week;
·a job at the Brisbane Airport to be obtained through a “union contact”, which could involve the hire of 10,000 panels at $18 per panel per week; and
·a job in Darwin involving a member of the Paspaley family which would require 1,000 panels.
Other jobs too were mentioned. Mr Nestorovic told Mr Falzon repeatedly “it’s all happening” and that the jobs were “ready to go”.
Mr Falzon said, and I accept, that it was the prospect of the job at Brisbane Airport, as described by Mr Nestorovic, which really attracted his interest. He believed what he had been told.
Messrs Falzon, Stephens and Forrest agreed to establish an investment vehicle by which shares in the State Companies could be acquired. On 30 September 2013, RRG was incorporated and the RRG Unit Trust Deed executed. The RRG Founders then solicited investments from friends and acquaintances.
By the first week of October 2013, the RRG Founders had raised $100,000. Over the next few months, they raised a further $120,000. This was the source of the monies advanced by RRG to Status in the period from 11 October 2013 to 22 January 2014 as shown in the table set out earlier in these reasons.
The involvement of Mr Schirripa
Later, in November 2013, Mr Falzon spoke to Mr Schirripa, with whom he was acquainted. Mr Falzon told Mr Schirripa about the VTF business and interested him in it.
In November 2013, Mr Schirripa had a meeting with Mr Falzon at the latter’s office at Edwardstown at which Mr Falzon outlined to Mr Schirripa the VTF product and business. Mr Falzon showed Mr Schirripa some of the VTF panels. I accept Mr Schirripa’s evidence that, at this meeting, Mr Falzon told him of the following matters:
(a)Mr Nestorovic:
· had spent around seven years developing the product;
· owned a patent on the product;
·had conducted extensive market research and had received positive feedback regarding the level of demand for the VTF panels;
·owned the manufacturer of the VTF panels, being Status;
(b)Status owned the factory in China at which the VTF panels were made;
(c)Mr Nestorovic’s daughter, Anna Pinneri, also worked in the business;
(d)that Mr Falzon, Mr Stephens and Mr Forrest were trying to raise money to invest in the VTF business;
(e)RRG, of which he was a director, was the vehicle being used for the investment;
(f)RRG was trying to raise $800,000 to buy a 45% share in the VTF businesses in South Australia, Western Australia, Queensland and the Northern Territory; and
(g)Mr Schirripa had the option of investing directly into the VTF business or of becoming an agent for VTF.
I am satisfied that Mr Schirripa must have expressed some interest in becoming involved in the VTF business at that meeting, but it does not seem that either he or Mr Falzon did anything at that time to pursue that interest.
The February 2014 café meeting
The next step in Mr Schirripa becoming involved occurred in February 2014 when he met Mr Falzon and Mr Stephens at a Hindmarsh café. At this meeting, Mr Falzon or Mr Stephens told Mr Schirripa that RRG had raised over $200,000 for investment into the VTF businesses; that that money had been used to purchase most of the 45% share in the South Australian and Western Australian companies; that RRG had insufficient monies to complete the investment in the Western Australian and Northern Territory companies; that if he invested, his funds would be used to purchase the remainder of the 45% share available in the Western Australian and Northern Territory companies; that Mr Nestorovic would own the majority 55% shareholding in each of the businesses into which RRG invested; that all the money invested by RRG was to be used to buy VTF panels to be hired out; that whatever number of VTF panels RRG’s investment bought, Mr Nestorovic and Ms Pinneri would make an equal contribution by providing the same number of fencing panels; and that the plan was to secure agents in other places who would assist in renting the VTF panels in consideration for receipt of a share of the profits.
Mr Schirripa said that he could not recall who of Mr Falzon and Mr Stephens made these statements but that each had confirmed the statements made by the other.
During the course of the meeting, Mr Falzon gave Mr Schirripa several documents entitled:
(a)Offer of Investment;
(b)Agents Cashflow per State estimated;
(c)Agents and VTF Forecast – Western Australia;
(d)Agents and VTF Forecast – New South Wales;
(e)Agents and VTF Forecast – All States; and
(f)Agents Cashflow All States.
Each of these documents had been prepared by Mr Falzon and Mr Stephens. Documents (b) to (f) were copies of the spreadsheets to which I referred earlier.
The document entitled “Offer of Investment” comprised one and a half pages. It provided (relevantly):
OFFER OF INVESTMENT
Preamble
An offer of investment is presented to prospective investors for a new start up business in the construction industry.
The offer is not an investment scheme or registered managed investment and is presented based on the assumptions and forecast of the business owner’s knowledge and experience.
Visible Temporary Fencing Investments
The Business
RRG Unit Trust is a Unit Trust being formed by Robert Falzon, Glen Stephens and Robert Forrest as trustees. Each trustee is a unit holder and holds 25% unit holdings each of the newly formed Unit Trust. The trust will hold 45% share holding in 7 newly formed companies to be called Visual Fencing SA, Visual Fencing WA, Visual Fencing Vic, Visual Fencing NSW, Visual Fencing QLD, Visual Fencing NT and Visual Fencing ACT. The Trust is allotting another 20 units to investors in minimum 1 unit lots at $40,000 per unit in order to raise $800,000.00 for the purchase of 4000 visible fencing panels as part of its 45% share holding in each newly formed company for the whole of the Australian Market. The offer and price for unit[s] may change at anytime.
The other 55% of each newly formed company is owned by the inventor of the Visible Temporary Fencing product. They will also put in 4000 fences giving the shared investment 8000 fences.
It is our intention over the next 3 years to get to 250,000 rented annually fence panels Australia wide and hoping to get to a figure of around 500,000 panels in the following years. Please note attached is profit and loss figures based on 1000 panels starting in Perth and growing through self funding to 50,000 panels. We have deducted 10% for agents to act for us to run the business if we feel it’s a faster option. These figures are assumptions only as this is a new release product and we have no previous figures to compare to. There are over 5 million temporary fences in Australia and only Visual Fencing has the rights to Visible Temporary Fencing patent and product. The figures supplied in the attached cashflow projections are for the 100% share of the business. We being RRG Unit Trust will have 45% of the proceeds.
The periods to which each spreadsheet related varied but most were for the period February 2014 to November 2015 and projected handsome income in each of the months in those periods. The figures in the spreadsheets were based on an expected income of $15 per panel per month. Mr Schirripa said, and I accept, that Mr Falzon told him that he and Mr Stephens had prepared the spreadsheets using information on pricing provided by Mr Nestorovic.
Mr Schirripa also said, and I accept, that he was impressed by the information in the spreadsheets. He thought that, even if the VTF panels could be hired out for only half the predicted price of $15 per panel per month and the business generated only half of the predicted volumes, the hiring would still generate “a decent return”.
At the conclusion of meeting, Mr Schirripa told Mr Falzon that he was interested in investing in VTF but that he wished to know more about RRG and the unit prices. Shortly afterwards, Mr Falzon sent the following letter to Mr Schirripa:
Hi Rick
RRG was originally Founded by Glen [Stephens], Robbie [Forrest] and myself.
We agreed to set up on the basis that we give Michael an extra 5% of the business therefore the split was 55/45 for VTF. This way RRG had 45% share. We were asked to put in $800,000 over a period of time into the business to get all States signed up.
It was also agreed that we would help Anna [Pinneri] and Michael [Nestorovic] in running the business and setting up all the States and Robbie would look after Perth and Darwin and Glen was happy to go and look after Queensland and NSW while I looked after South Australia and Victoria. Obviously now with the setting up of agencies our workload in the other states will be far easier moving forward.
Michael had another party who wanted to buy into the business but not work it. However Michael chose us as he did not have the time to run the business and that we agreed not to bleed the company of funds while it was getting started.
The three of us were not going to draw any wages and would only get dividen[d]s from the company when other shareholders received theirs. It is our hope to pay out dividen[d]s as we receive them with 50% going back to all investors and 50% to be used to give all investors back their initial investments.
We decided to find investors in the company to help us raise the $800,000.
Our plan was to sell 10 shares at $20,000 each for the first stage. We would then sell another 10 shares at $40,000 each and finally another 4 shares at $50,000 each. This would then leave us with approx 75% of the company between the 3 of us.
We sold the initial 10 shares and raised $200,000 last year and since we have been in discussion with yourself re the next stage. We have also put in approx $25,000 of our own money for Legal Fees and other start up costs.
I cant tell you due to confidentiality how much each person put in but I can tell you that my daughter put in $20,000 for one share last October. No one has paid under $20,000 for a share.
Regards
Robert
Mr Schirripa said, and I accept, that he ascertained from this document that none of Messrs Falzon, Stephens or Forrest had put any of their own money into RRG.
Mr Schirripa meets Mr Nestorovic
Mr Falzon then arranged for Mr Schirripa to meet Mr Nestorovic. This meeting, which was also attended by Mr Falzon and Mr Stephens, occurred at a café. Mr Schirripa said that the discussion of the meeting was “broad and general” but that, during the course of the meeting, Mr Nestorovic made statements to the following effect:
(a)he had been developing the VTF product for several years;
(b)he had researched the demand for the product extensively;
(c)he had received extremely positive market feedback regarding the level of demand for the fencing, and his research demonstrated significant interest in Australia for the product;
(d)he had several national leads and contacts which would help him launch the business successfully;
(e)he contemplated the business in each State being conducted by a separate company with agents secured to hire out the fencing in each State;
(f)his Company, Status, manufactured the fences in China; and
(g)he would provide the contacts and that Messrs Falzon, Stephens and Schirripa would do more of the “leg work” for the manual setting up of the fences in South Australia.
In addition, the spreadsheets were discussed at the meeting. Mr Schirripa said, and I accept, that during the course of the discussion, Mr Nestorovic said that his research indicated that rentals of $15 per panel per week could be achieved, and that he knew that was so because “I have been working on this for long time now”.
Mr Schirripa met Mr Nestorovic for a second time at a café meeting in which Mr Falzon and Mr Stephens also participated. Mr Schirripa said, and I accept, that he could not recall whether some matters had been said at the first or the second of the café meetings, but that Mr Nestorovic had said:
(a)he had made arrangements with a female member of the Coober Pedy Council for it to hire 800 VTF panels at $17 per panel per week for between six and 12 months for the upgrade to the Town’s drive‑in theatre and football oval. He also said that the Coober Pedy Council had a place for storage of the panels and that he, Mr Stephens, Mr Falzon and Mr Schirripa would travel to Coober Pedy to erect the fencing;
(b)he had a contact with a union representative in Brisbane through which VTF would be contracted to supply panels for a development at the Brisbane Airport. This was to be a large job for which many panels would be required; and
(c)that he had been to Darwin to research the potential for the use of the fencing panels there and had had a lot of interest.
At about this time, Mr Schirripa assisted Mr Nestorovic and Mr Falzon to erect some VTF panels for display purposes on the corner of Port Road and South Road. The purpose was to promote VTF panels for use in the major Torrens to Torrens development of South Road. I reject Mr Nestorovic’s claim that he met Mr Schirripa for the first time on this occasion and that Mr Schirripa had told him then that he was “involved with” RRG.
The early March 2014 Paralowie meeting
In early March 2014, Mr Schirripa attended a meeting at Mr Nestorovic’s Paralowie property. Mr Falzon and Mr Stephens were also present. In this meeting, Mr Schirripa met Ms Pinneri for the first time. Mr Schirripa said that by this time he had learnt that the Respondents held their investment through a holding company, VTF Aust. He also said that at this stage he was “seriously interested” in joining the VTF business and was looking at the option of becoming VTF’s selling agent in South Australia. Ms Pinneri provided him with a document entitled “Visible Temporary Fencing South Australia Agency Agreement” which set out the basic terms of the proposed agency agreement. Amongst other things, this agreement contemplated the agent paying an “upfront fee” of $300,000 plus GST, the agent securing hiring contracts, and the agreement being for a term of five years with an option of a further five years.
Events subsequent to Mr Schirripa’s first investment
Mr Schirripa then discussed the agency proposal with his accountant, Mr Letcher, in the firm of Letcher Moroney Chartered Accountants. Following that discussion, he sent an email to Ms Pinneri raising a number of queries about the proposed arrangement. One question which Mr Schirripa asked was:
In relation to supply is the factory in China owned or contracted out by Status?
Ms Pinneri responded by email on 17 March 2014. In response to the query concerning the ownership of the factory in China, Ms Pinneri said:
[T]he company in relation to Status is owned and run by Status which has nothing to do with VTF, Status is the supplier of the fence to VTF there will be a contract between the 2 parties for supply.
At about the same time, Mr Schirripa telephoned another temporary fencing hire company, ATF, and enquired as to their hiring costs. However, he did not obtain a clear answer because ATF made it plain that any quotation which it was prepared to give would depend upon details of the proposed hire including, the number of panels, the period, the location and circumstances in which the panels would be used.
Following discussions with his wife, Mr Schirripa decided not to become an agent because he would not have any control over the VTF panels. At the same time, he told Mr Falzon that he was still interested in making a direct investment into RRG.
During the remainder of March 2014 and in early April 2014 before Mr Schirripa made a decision to invest, he had numerous discussions by telephone with Ms Pinneri in which she asked him to indicate whether he was “in or out”. In the course of those conversations, Ms Pinneri made a number of statements to Mr Schirripa which I am satisfied included the following:
(a)the price of each VTF panel was $224 plus GST;
(b)the VTF panels made by Status were of high quality and that was the reason for the cost;
(c)if Mr Schirripa invested in the business to buy VTF panels, they (the Respondents) would match his investment by putting in the same value of stock and so provide the same number of VTF panels for the business;
(d)the Respondents would make their contribution through VTF Aust; and
(e)Mr Nestorovic did not want the VTF business to be held up because Mr Schirripa did not invest, as they had VTF panels ready to come from China.
The third of these statements is particularly pertinent to my findings concerning the 16th representation.
Mr Nestorovic denied telling Mr Schirripa:
·that a contract would conclude soon;
·that he had actually met the Council’s procurement officer;
·details of any possible job; and
·that he would show people the fencing panels when they were being unloaded, as that would be unsuitable.
Mr Nestorovic said that he had said, apparently to the Mayor of Blacktown, that people would be able to view the fences once VTF had set up an office in Sydney.
Mr Nestorovic went on to say that he had suggested to Mr Schirripa that he (Mr Schirripa) send an email to the Mayor of Blacktown. He said that he had been told by the Mayor of Blacktown subsequently that Mr Schirripa had not done so.
Again, I accept Mr Schirripa’s account. It is consistent with my findings about Mr Nestorovic’s general manner of operation. The effect of what Mr Nestorovic conveyed was that a potentially significant contract with the Blacktown City Council was imminent. Mr Nestorovic’s discussions with the Mayor of the Blacktown Council did not provide a reasonable basis upon which to make those representations. Mr Nestorovic’s statement had concerned a future matter but was made without such a reasonable basis and was, accordingly, misleading or deceptive.
Summary of findings concerning misrepresentations
In summary, I have found that the Applicants have established that each of the first (in part), second to fourth, seventh to eighth, 10th, 11th and 13th to 17th representations was made and that each was misleading or deceptive. I have rejected the Applicants’ claims with respect to the first (in part), sixth and 12th representations. As noted earlier, the Applicants did not pursue their claims with respect to pleaded fifth and ninth representations.
In trade or commerce
In his final submissions, counsel for the Applicants drew attention, quite properly, to a possible issue of whether the representations had been made “in trade or commerce”. This question can arise only in relation to those of the representations to which I have found s 18(1) of the ACL to apply.
In my view, there is no difficulty in finding that the pleaded representations were made in trade or commerce in the sense discussed in Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 at 601‑5. As the Applicants noted, Status was in the business of buying and selling products. Each of the representations had a relationship with an actual or contemplated sale by Status of VTF panels and ancillary equipment to the State Companies. Each was also made, directly or indirectly, in relation to the investment by the Applicants of funds which would be used for the purchase of VTF panels and ancillary equipment.
In short, I am satisfied that this element of the s 18(1) cause of action is established.
The losses
The affidavit of Mr Miller, one of the joint and several liquidators of the State Companies, VTF Aust and Status, indicates that the prospects of the Applicants recovering a dividend from the liquidation of those companies is, with one exception, remote. Mr Miller deposed to the steps taken to sell the stock of the various companies. I accept that evidence and conclude that reasonable and diligent steps have been taken. To date, the liquidators have not been able to achieve sales of all the stock. Mr Miller expressed the opinion that, based on the net proceeds received to date and the fees incurred by the liquidators, the only State Company likely to pay a dividend is VTF (SA). He noted that in February 2018, the liquidators held funds of $50,532 for VTF (SA) with the potential of receiving further funds from the sale of the remaining 84 (1.2 m) VTF panels. The amounts held in respect of the other Companies are small and it seems improbable that, even in the event of their remaining stock being sold, an amount will be realised by way of distribution of dividends.
The Applicants submitted that the Court should proceed on the basis that the only prospect of recovery is from VTF (SA) and that, for purposes of the assessment of damages, it should be assumed that an amount of $50,000 may be obtained. The Respondents did not make any submission to the contrary. Although this manner of assessment is not exact, I accept that, in the particular circumstances of this case, it is appropriate.
Accordingly, I will proceed on the basis that the Applicants’ investments in each of the State Companies has been wholly lost, other than in the case of VTF (SA), in which case it has been wholly lost save for the sum of $50,000.
Reliance and causation
Section 1041I(1) of the Corporations Act provides that a person who suffers loss or damage “by” conduct of another person that was engaged (relevantly) in contravention of s 1041H may recover the amount of the loss or damage by action against the contravenor.
Section 236(1) of the ACL provides that a person who suffers loss or damage “because of” the conduct of another in contravention of a provision in Ch 2 or 3 (which includes s 18) may recover the amount of the loss or damage by action against the contravenor.
The High Court discussed s 82(1) of the Trade Practices Act 1974 (Cth), the counterpart of s 1041I, in Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525:
The statutory cause of action arises when the plaintiff suffers loss or damage “by” contravening conduct of another person. “By” is a curious word to use. One might have expected “by means of”, “by reason of”, “in consequence of” or “as a result of”. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s.82(1) should be understood as taking up the common law practical or common‑sense concept of causation recently discussed by this Court in March v. Stramare (E. & M.H.) Pty. Ltd., except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so.
(Footnotes omitted)
Section 236(1) of the ACL uses the term “because of” and not the term “by”. It was not suggested in this case that that difference in terminology involves any practical difference. In each case, the Court must be satisfied that there is a causal connection between the contravening conduct, on the one hand, and the loss and damage alleged, on the other: Campbell v Backoffice Investments at [102].
It is not necessary that the misleading or deceptive conduct be the sole, or even the primary cause of the loss: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [110]‑[111] (McHugh J), [163] (Hayne J). Nevertheless, common sense and practical experience may indicate that there is an insufficient connection between the contravening conduct and the loss as, for example, when a respondent’s conduct merely sets the scene, or provides the opportunity for the loss to be incurred, rather than being a cause of that loss in a meaningful sense: Stone v Chappel [2017] SASCFC 72; (2017) 128 SASR 165 at [354].
In some circumstances, it is helpful to consider the causal connection in two stages: first, whether the applicant relied on the misleading or deceptive conduct, and secondly, the sufficiency of the connection between the loss or damage claimed and the applicant’s reliance on the misleading conduct: Stone v Chappel at [353].
The decision-makers
Mr Falzon did not himself invest funds in RRG. He did, however, encourage at least one family member (his daughter) and his friends to do so. Mr Stephens encouraged his neighbour, Mr Dimech, to invest. Mr Dimech, who contributed $60,000, relied on what he had been told by Mr Stephens and by Mr Nestorovic.
With the exception of the investments of FSN and the contribution of funds to VTF (Vic) and VTF (NSW), Mr Schirripa and his wife Jacqueline made the decisions for investment by members of the Schirripa family. However, it is apparent that Mrs Schirripa relied on what she had been told by her husband who conveyed to her matters about the prospects of the VTF business represented to him by Mr Nestorovic. Likewise, Mr Frank Schirripa relied on what he had been told by his son in making the investment decision for FSN. Their decisions were not made independently of the Respondents’ misrepresentations. Their reliance may have been indirect, but was nevertheless real and is sufficient to establish the necessary causal link: Chowder Bay Pty Ltd v Paganin [2018] FCAFC 25 at [61].
It is apparent that each of the representations had a continuing and cumulative effect. This makes it unnecessary to identify particular contributions of funds caused by each individual misrepresentation which I have found established.
The Applicants’ conduct
The Respondents emphasised that the persons behind the Applicants had had experience in business, that they were well aware that the VTF business was a “start‑up” business; that they had known there were risks; and that they had had the means of conducting their own research or a form of “due diligence”.
I accept that those matters are so. But that does not have the consequence, as the Respondents appeared to submit, that their misleading or deceptive conduct should not be regarded as a relevant cause of the losses. Even experienced business people may be misled by misrepresentations. That is particularly so in relation to a “start‑up” business in respect of which it is the representor who claims to have knowledge of the market and the demand for the product, and the representee does not. As counsel for the Applicants noted, there is no requirement that an applicant’s reliance upon a respondent’s misleading or deceptive conduct be reasonable. In Henville v Walker, Gleeson CJ said at [13]:
It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action … unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.
There may be cases in which an applicant is so negligent in protecting its own interests that the causal link between the misrepresentation and the damage will be severed: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138. However, the present case cannot reasonably be regarded as involving a circumstance of that kind. This submission of the Respondents is rejected.
The 17th representation - the Manufacturing Representation
In the present case, I have already accepted, in relation to the 17th representation (the Manufacturing Representation), Mr Schirripa’s evidence that he did rely on the Respondents’ representation to him that Status was the manufacturer of the VTF panels. The truth of that representation was a material matter to Mr Schirripa’s decision‑making, for the reasons which he gave. Its materiality is also underlined by the acknowledgement by each of the Respondents that they had wanted the Applicants to believe that Status was the manufacturer.
I am satisfied that Mr Schirripa, and through him, his wife, Schnik and FSN, did rely upon the truth of the representation that Status was the manufacturer and that that had a direct bearing on their respective decisions to invest. In the case of Schnik, Mr Schirripa and his wife were the relevant decision‑makers but, as indicated, Jacqueline Schirripa relied on what she had been told by her husband. In the case of FSN, Mr Frank Schirripa relied on what he had been told by his son. That reliance establishes the necessary causal relationship between the misleading or deceptive conduct of the Respondents and the loss of Schnik and FSN.
The Applicants do not allege that the Manufacturing Representation had been made to Messrs Falzon, Stephens or Dimech, and there is in any event no basis in the evidence upon which the Court could find that the Manufacturing Representation had played any part in the decision of RRG to invest monies in the VTF business before the Schirripa family became involved.
The 16th representation - the Matching Representation
The Matching Representation was relied on by RRG before the Schirripas became involved. It was also relied on by Mr Schirripa and, through him, by his wife and father. It was a material cause of all the investments. There is no difficulty in making that finding, as it is plain that Messrs Schirripa, Falzon and Dimech were induced to invest by their belief, that the Respondents, through VTF Aust, were making an equal contribution. They were not, but instead were causing Status to charge a sufficiently large amount to the Applicants that their contributions paid for all the VTF panels acquired by the State Companies.
The first representation - price and income projections
In relation to the first representation, I have found only that Mr Nestorovic’s representation that the panels could be rented for $15 per panel per week was misleading or deceptive. Plainly, that was a material representation. It is also plain that Mr Schirripa did not rely on the literal truth of the representation, as he considered what the position would be if the panels were rented for only half that sum and achieved only half the projected income. He thought that even on that basis, investment in the panels would produce “a decent return”. Accordingly, the representation that the panels could be rented at the rate of $15 per panel per week had some continuing effect and I find was a cause of the loss suffered by RRG after the first investment by the Schirripas, and of all the losses of Schnik and FSN. However, the first representation was not a cause of the loss of the initial investment by RRG ($210,750) because, on my findings, the preparation of the spreadsheets was the result of the collaboration of Messrs Falzon, Stephens and Nestorovic.
The second representation - extensive market research
Mr Schirripa did not refer explicitly to the representation concerning extensive market research in explaining his decision in March and early April 2014 to invest in the VTF business. He said:
I believed what I had been told about the product, the Brisbane Airport job and the Coober Pedy job, and trusted Michael [Nestorovic]’s judgment that the panels could be rented for $15 per week (or something close to it). I also believed that Michael and Anna [Pinneri] were financially committed to the business and would match any outside investment with an equivalent contribution in kind. If I had not believed those things, I would not have made any investment in the VTF business, through Schnik, RRG or otherwise.
Mr Falzon said:
We believed what we had been told by Michael about the prices that could be achieved and the jobs that were coming up. This is why I decided to become involved and try and get people to invest in VTF.
It is also evident that Mr Dimech relied upon what he had been told by Mr Nestorovic about the Brisbane job and the “extensive market research” he claimed to have undertaken.
I accept the evidence of these witnesses.
In these circumstances, I am satisfied that Mr Nestorovic’s claims about the extensive market research he had undertaken were a cause of the investments of all the Applicants, including those of RRG made before the Schirripas became involved.
The third representation - Brisbane Airport
The position with respect to this representation is even more straightforward. It is plain that it was the projected returns from the Brisbane Airport job which attracted the attention of Messrs Schirripa, Falzon and Dimech. The Applicants have established both stages of the reliance and causation enquiry.
The fourth representation - Coober Pedy Council
Mr Schirripa identified the representation concerning the Coober Pedy Council job as a particular matter on which he had relied in making the decision to invest. I accept that evidence.
However, I am not prepared to find that Mr Nestorovic’s representations concerning the Coober Pedy job were a cause of the initial investment by RRG of $210,750. Mr Falzon said only that Mr Nestorovic had told him about that job and had said that he was “in discussions” with the Coober Pedy Council about it. Mr Dimech did not mention representations concerning the Coober Pedy job at all.
Accordingly, I find that the Applicants have established the relevant causal link between the fourth representation and the loss of the investments made commencing with the first involvement of the Schirripas but not with respect to the earlier investments.
The seventh representation - Transfield
Mr Schirripa deposed to having met with Mr Stephens as Directors of RRG on 13 February 2015. At that meeting, they resolved to contribute a further $572,880 for the purpose of purchasing additional VTF panels for VTF (SA) and VTF (NT). Mr Murray, one of the RRG unit holders, contributed $150,000 of this sum and Mr Schirripa the balance. Mr Schirripa said that, in making his decision, he had accepted the truth of what Mr Nestorovic had told him about the Coober Pedy and Alice Springs jobs and had thought that, on the basis of what he had been told by Mr Nestorovic, that VTF “was going to sign major contracts with Rio Tinto, Transfield and VicRoads”. Of these jobs he said that he thought that the main ones at that time were those with Rio Tinto and at the RAAF Base. Mr Schirripa also explained his investment decisions in mid‑2015 by saying:
… I also knew that Michael had spent plenty of time on the ground in Victoria. In any event, I was comfortable that with the Rio Tinto and RAAF jobs in South Australia, and with business looking good in the Northern Territory, I was happy to invest in New South Wales and Victoria. I felt I had some security from the jobs in the other States.
I accept that evidence.
I also accept that what Mr Schirripa was told about Transfield may have served to reinforce the generally positive view about the prospects of the VTF business which Mr Nestorovic’s statements had created.
Accordingly, I accept that the Applicants have established the necessary reliance and causal link between the representations concerning the Transfield job at the RAAF Base and their losses.
The eighth representation - the Melbourne Grand Prix
Mr Schirripa did not claim that the representations concerning the Melbourne Grand Prix had operated in his mind so as to cause him to decide on further investments. On the contrary, he deposed that he had been aware, at the time of the decision to invest in VTF (Vic), that VTF had not obtained the Grand Prix job.
The 10th representation - VicRoads
In my assessment, the representation concerning the VicRoads contract was a minor matter. I am not satisfied that it played a material part in Mr Schirripa’s decisions concerning investment. The necessary causal relationship is not established.
The 11th representation - the Alice Springs Airport Road
Mr Schirripa said, and I accept, that at his meeting with the Respondents in early February 2015 after Mr Nestorovic’s return from his trip to Alice Springs, they had agreed that a significant amount of fencing would be required for the Airport road job. He said “based on the Highway Job, the Coober Pedy Job, and other leads, we agreed that RRG and VTF Aust would put in more capital to buy additional fencing for these regional areas, including Coober Pedy, Alice Springs, Ceduna, Port Lincoln and Millicent”. Mr Schirripa made a contemporaneous note of this discussion which records the particular numbers of tall and short panels which would be required for each area. After that meeting, on 6 February 2015, Ms Pinneri issued invoices from Status to VTF (SA) for $394,240 and to VTF (NT) for $178,640. The total was $572,880. As already noted, Mr Schirripa then called a meeting of the RRG directors at which he and Mr Stephens agreed that RRG would contribute that sum. Mr Murray, one of RRG’s unit holders, contributed $150,000 towards that sum and Mr Schirripa or the companies associated with him, contributed the balance.
I accept that evidence. There is accordingly no difficulty in finding that the necessary causal relationship is established with respect to the 11th representation.
The 13th to 15th representations - Parliament House, Liverpool Council and Blacktown Council
There is no difficulty in finding the causal relationship established in relation to these representations. I am satisfied that they were an operative cause of Mr Schirripa’s decision to invest in VTF (Vic) and VTF (NSW). Mr Schirripa said, and I accept, that he had made the decision to invest in VTF (NSW) on the basis of what Mr Nestorovic had told him about the Parliament House job, the Liverpool Council job and the Blacktown Council job. He had believed that VTF needed VTF panels in New South Wales to meet the demand created by these jobs.
In relation to Victoria, Mr Schirripa acknowledged that he was not aware of any actual job other than the VicRoads job but had known that Mr Nestorovic had spent “plenty of time on the ground” in Victoria and was comfortable with the direction which the business appeared to be travelling.
Summary of findings of causation and reliance
The effect is that I am satisfied that one or more of the representations which I have found to have been made and to be misleading or deceptive was a cause of each of the investments by the Applicants making up the whole of the loss alleged. Subject to the matter to be addressed next, the Applicants are entitled to judgment for that amount.
An independent cause of loss?
The Respondents submitted that it was Mr Schirripa himself who was responsible for the failure of the VTF business. Mr Schirripa had resigned his directorship of each of the State Companies in October 2015 and ceased at that time any active participation in the VTF business. The Respondents submitted that, in this circumstance, the burden of attempting to conduct a business had fallen onto them, and they had not been able to cope. These were the circumstances which had led them to resolve on the appointment of administrators to the State Companies in July 2017. The submissions seemed to be that this was an independent form of loss.
I do not accept that submission. By October 2015, Mr Schirripa had come to realise that he had been induced to make substantial investments in the VTF business by the misleading or deceptive conduct of the Respondents. He wished to cease his association with them. In my view, that decision cannot be described as unreasonable.
Further, and in any event, the Respondents led no evidence, other than their own, establishing the causes of the failure of the VTF Companies. Nor did they lead evidence to the effect that, had Mr Schirripa continued his involvement, any contracts of significance or substance are likely to have been obtained, let alone contracts of sufficient size and substance as may have avoided the need for the appointment of administrators. This ground of defence fails.
The Misrepresentation Act claim
Sections 7(1) and (2) of the Misrepresentation Act 1972 (SA) provides as follows:
(1)Where a contracting party is induced to enter into a contract by a misrepresentation made—
(a) by another party to the contract; or
(b)by a person acting for, or on behalf of, another party to the contract; or
(c)by a person who receives any direct or indirect consideration or material advantage as a result of the formation of the contract,
and any person (whether or not he or she is the person by whom the misrepresentation was made) would, if the misrepresentation had been made fraudulently, be liable for damages in tort to the contracting party subjected to the misrepresentation in respect of loss suffered by him or her as a result of the formation of the contract, that person is, subject to subsection (2), so liable to that contracting party, in all respects as if the misrepresentation had been made fraudulently and were actionable in tort.
(2) It is a defence to an action under subsection (1)—
(a)that the person by whom the representation was made had reasonable grounds to believe, and did believe, that the representation was true; or
(b)that the defendant was not the person by whom the representation was made and did not know, and could not reasonably be expected to have known, that the representation had been made, or that it was untrue.
The effect of s 7(1) is that, when a misrepresentation induces a party to enter into a contract, the representor is liable for damages in tort as if the representation had been made fraudulently.
To constitute a representation, the statement must be a representation of fact. The essence of a misrepresentation is that it led the representee into error. This is to be tested objectively – by enquiring whether a reasonable person in the position of the representee would have been led into error by the statement: Mitchell v Valherie [2005] SASC 350; (2005) 93 SASR 76 at [71] and see the references cited therein.
The Applicants claim that each of the pleaded representations was a misrepresentation to which s 7(1) applies. The Respondents did not make any separate submissions concerning the application of the Misrepresentation Act.
I consider it appropriate to proceed on the basis that each of the representations which I have found to be misleading or deceptive constituted a misrepresentation of a factual matter. In so far as the representations related to opinion, they were representations of the fact that Mr Nestorovic held the opinions and, further, that he had a reasonable basis for those opinions.
Accordingly, had it been necessary, I would have found that the Applicants were entitled to the same damages under the Misrepresentation Act.
The claim in deceit
For the claim in deceit, the Applicants relied only on the fourth, sixth, seventh and 16th representations. As I have found that the Applicants have not established the sixth representation, it need not be considered in the present context. Accordingly, the Applicants’ claim of deceit turned on the representations concerning the Coober Pedy Council job, the Transfield job and the Matching Representation.
The tort of deceit is established when an applicant proves five matters:
(i)the respondent made a false representation;
(ii)the respondent made the representation with the knowledge that it was false or was reckless or careless as to whether the representation was false or not;
(iii)the respondent made the representation with the intention that it be relied upon by the applicant;
(iv)the applicant acted in reliance on the false representation; and
(v)the applicant suffered damage which was caused by reliance on the false representation.
See Magill v Magill [2006] HCA 51; (2006) 226 CLR 551 at [114].
In respect of the second of these elements, Gummow, Hayne and Heydon JJ noted in Banditt v The Queen [2005] HCA 80; (2005) 224 CLR 262 at [2] that fraud is proved when it is shown “that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”. The plurality went on to note that the third of these cases is an instance of the second, at [2].
The Applicants carry the onus of establishing each of the above matters. In relation to the third element, Wilson J noted in Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 at 236 that, if a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract, there arises a fair inference of fact that the person was induced to do so by the representation.
The Applicants rely upon the same matters in relation to the fourth, seventh and 16th representations as they relied upon in their case of misleading or deceptive conduct.
On the basis of the findings made earlier, I am satisfied that the Applicants have established the tort of deceit with respect to those representations. Plainly, the Respondents did intend the Applicants to rely upon the representations and to contribute further funds. As previously noted, the Respondents were to a significant extent reliant upon the contributions of the Applicants for the operations of Status generally.
In summary, had it been necessary to do so, I would have found that the Applicants are entitled to judgment with respect to the tort of deceit in respect of the fourth, seventh and 16th representations. Given my earlier findings, it is not necessary to identify separately the losses resulting from these deceits.
Conclusion
For the reasons givens above, I am satisfied that the Respondents contravened s 1041H of the CC Act by making the first (in part), second, third, eighth, 10th and 13th to 17th representations.
I am also satisfied that the Respondents breached s 18 of the ACL by making the fourth, seventh and 11th representations.
The Applicants are entitled to recover damages as follows:
(a)RRG: $1,599,811.80 (being the total of its investment less the sum of $50,000 which may be recovered from the liquidation of VTF (SA));
(b)Schnik: $1,244,105.50; and
(c)FSN: $253,275 (as FSN did not pursue the claim for $4,500).
It was not suggested that any distinction should be made between the Respondents with respect to the liability of these amounts.
I will hear from the parties as to the form of the declarations and other orders, and with respect to interest and costs.
I certify that the preceding four hundred and sixty-six (466) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate:
Dated: 17 May 2019
SCHEDULE OF PARTIES
SAD 275 of 2016 Respondents
Fourth Respondent:
VISIBLE TEMPORARY FENCING (SA) PTY LTD (ACN 166 193 264)
Fifth Respondent:
VISIBLE TEMPORARY FENCING (WA) PTY LTD (ACN 166 633 647)
Sixth Respondent:
VISIBLE TEMPORARY FENCING (QLD) PTY LTD (ACN 167 335 239)
Seventh Respondent:
VISIBLE TEMPORARY FENCING (NT) PTY LTD (ACN 167 335 220)
Eighth Respondent:
VISIBLE TEMPORARY FENCING (TAS) PTY LTD (ACN 601 303 431)
Ninth Respondent:
VISIBLE TEMPORARY FENCING (VIC) PTY LTD (ACN 603 517 684)
Tenth Respondent:
VISIBLE TEMPORARY FENCING (NSW) PTY LTD (ACN 604 689 296)
Eleventh Respondent:
STATUS SHOP MAINTENANCE PTY LTD (ACN 118 110 928)
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