S F Cosentino Pty Ltd v PEAQ Farms Pt
[2018] VCC 1775
•13 November 2018
IN THE COUNTY COURT OF VICTORIA AT MELBOURNE
COMMERCIAL DIVISION
Revised Not Restricted
Suitable for Publication
Case No. CI-17-00614
S F COSENTINO PTY LTD Plaintiff
v
PEAQ FARMS PTY LTD & ORS Defendants
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REASONS FOR JUDGMENT
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Subject: Guarantee and Indemnity; Misleading or Deceptive Conduct Catchwords: Claim against guarantors; whether plaintiff engaged in misleading or
deceptive conduct; whether actions of plaintiff’s director attributable to plaintiff; whether guarantees should be declared void ab initio or not enforced
Legislation Cited: Australian Consumer Law, ss18, 236, 237, 243; Trade Practices Act
1974, s52; Competition and Consumer Act 2010 Part 2-2, s137B; Cases Cited: Niche Logistics Pty Ltd v Blue Star Global Logistics (Aust) Pty Ltd [2018]
VCC 491; Walton Stores (Interstate) Ltd v Maher (1998) 164 CLR 387; Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; Smolonogov v O’Brien (1982) 67 FLR 311; Gould v Vaggelas (1985) 157 CLR 215; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Henville v Walker (2001) 206 CLR 459; HW Thompson Building Pty Ltd v Allen Property Services Pty Ltd (1983) 48 ALR 667; Kenny & Good Pty Ltd v MGICA Ltd (1999) 199 CLR 413; Myers v Trans Pacific Pastoral Co Pty Ltd (1986) ATPR 40-673; Crisp v ANZ Bank [1994] ATPR 41-294
Judgment: (1) Within 14 days the parties must bring in short Minutes to give effect to these reasons.
(2) Costs reserved.
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APPEARANCES:Counsel Solicitors
For the Plaintiff Mr H. Kirimof SMR Legal
For the First Defendant No Appearance
For the Second & Third Defendants
In Person
HIS HONOUR:
1Mr S F Cosentino is the director and principal of the plaintiff company, S F Cosentino Pty Ltd, which I will refer to as “SFC”. He has been engaged in vegetable farming for some 52 years, having migrated to Australia from Italy at the age of 14. He is now aged 66. (Transcript (“T”) 72) This proceeding concerns a vegetable farm situated at 240 Hawkers Road, Yalca. The farm was owned by Mr Cosentino and his son, Mr Jim Cosentino, and let to SFC. (Plaintiff’s Court Book (“PCB”) 58-92)
2In 2011 or 2013, according to Mr Cosentino, an advertisement appeared in one of the local newspapers indicating that the vegetable wholesaler, Kagome, was seeking land in this area (around Shepparton) to lease for carrot growing. (T73)
3Mr Russell, the third defendant in this proceeding, told Mr Cosentino that he had been retained as a consultant by Kagome for the purposes of its search. Mr Russell attended the farm at Yalca and carried out soil tests. By arrangement with Mr Cosentino, he was accompanied by Kagome’s farm manager. (Ibid) Nothing came of the Kagome proposal, but Mr Russell remained in contact with Mr Cosentino and made a number of further visits. He told Mr Cosentino that he knew of a number of investors who might be interested in purchasing the farm. Mr Cosentino said that he was looking to retire and was quite receptive to any purchase proposals. (T74)
4A number of possible investors were identified and discussed. One was a Chinese builder carrying on business in a big way in Sydney, another was a rugby international. This rugby player failed to obtain the club contract he was seeking and had to drop out as a potential purchaser. Mr Cosentino remembers enquiries being made by an Aboriginal nation known as the “Rumbalara people”. (T75)
5Mr Russell, however, said that the enquiry was from the Yorta Yorta people through their Cooperative Land Council’s Chief Executive Officer, Mr Rob Walker. (T303, L12-21)
6Pursuit of these proposals entailed numerous visits to the farm by Mr Russell.
In the period 2012-2015 he was said to have visited two or three times every month. (T76, L14-17)
7With none of these proposals coming to fruition, Mr Cosentino said he somewhat jokingly said to Mr Russell, “Well, if you’re so impressed, why don’t you buy it yourself”, to which Mr Russell replied that he could not afford the purchase but said that he would lease the property. (T77, L8-11) Detailed negotiations then ensued.
8The basis of the discussions was a proposed lease or, in the circumstances, a sub-lease for a period of 10 years with an option to renew for a further 10 year period. (Ibid, L18-21)
9A rental proposed by Mr Cosentino was “$220,000 per year, plus all outgoings, plus all GST”. (T78, L3-4)
10On the subject of a bond or security deposit, Mr Russell said that he could not afford to “put all this money into the trust account”. He suggested a “personal guarantee”. (Ibid, L7-13)
11Implicitly, what Mr Russell was contemplating and proposing was that the lease be taken in the name of a company under the control of him and any partner with a personal guarantee of the obligations from him.
12According to Mr Cosentino:
“he was putting the lease under a company and also buying equipment under a different company and the crop under a company. First we started out as being personal, then they come up with a company.” (Ibid, L23-27)
13There were to be two companies involved, one owning the equipment, the other company taking the lease and purchasing the current crop in the ground. (T78, L28 – T79, L2)
14At one of the discussions relative to this proposal, Mr Russell introduced Mr Glendining, the second defendant. (T79, L3-5)
15With Mr Cosentino’s approval, Mr Russell, and perhaps Mr Glendining, made enquiries of the “network” of persons to whom SFC sold its produce, including Barden Produce, operators in the Sydney market and also in the Melbourne wholesale fruit and vegetable market, by arrangement with Mr Cosentino’s son. (T79, L6-29)
16Mr Cosentino said that the total area of the farm was 513 acres. (T80, L12-13) On Mr Cosentino’s account, when he “handed over the property”, which was on 31 May 2016, “there was 100 acres under permanent sprinklers” (Ibid, L3-4), though, as we will see, the total area under cultivation seems to have been somewhat less than this.
17Mr Cosentino said that he told Mr Russell, “there was a 510 meg licensed bore that was on the shady salty and it needed to be shandied out with channel water, which the channel water was just there”. (T81, L9-12) He described accommodation for 10 workers. (Ibid, L15-23) The seasonal workforce was provided by a contractor. (T82, L1-4)
18As to equipment, Mr Cosentino said he was willing to sell whatever equipment was needed to operate the farm. There was a meeting to identify what equipment was required. According to Mr Cosentino, this was:
“about three weeks - yeah, three weeks before they took over because by this time they had gone to the finance company to see whether they would get money and so on and so forth” (Ibid, 25-29)
19Those attending the meeting were Mr Russell, his son, Mr Alex Russell, Mr Glendining, Mr Rob Hosking and Mr Cosentino. (Ibid, L30-31) Mr Hosking had
been engaged as an agent to find a buyer for the farm, advertising it inter alia
online.
20Whilst these discussions had been taking place, the farm had been offered for sale via an online advertisement placed by Mr Bob Hosking of Ray White, Rochester. (Defendants’ Court Book (“DCB”) 1-2). The price sought was $2.75 million. The property was said to be “10 minutes’ drive north of Nathalia”. Mr Hosking, as will appear, is an important figure in this narrative. Mr Hosking did not, however, represent SFC or Mr Cosentino on the lease transaction. (T378, L18) Mr Hosking was a well-known rural identity, having been Victorian Farmer of the Year some years previously. He was already well-known to Mr Russell. When he attended the meeting to inspect and identify equipment, he did so, according to his evidence, “just as a personal favour to both of them [viz Mr Cosentino and Mr Russell] as an independent source”. He had a typist or word processing operator in his office type up the list which had been prepared, and emailed the typescript to the parties. (T374, L17-24 – Exhibit 3) Amongst the items appearing on this document was number 25 “John Deere, 5820 front wheel assist with creeper transmission, 3,275 hours”. (T375, L28-31)
21Mr Cosentino’s recollection of the date of this meeting is clearly incorrect. Had it been as he recollected it, about three weeks prior to handover, it would have occurred in early May 2016. The typescript on Exhibit 3, the list of equipment prepared as a result of the meeting and typed at Mr Hosking’s office, is 5 February 2016. This list includes, in the case of tractors, numbers of hours of operation as recorded on an “hour meter”, which serves a similar function to the odometer in an ordinary motor vehicle, except that it records the number of hours of operation rather than the number of kilometres travelled. (T376, L26 – T377, L2)
22The task of reading the meters in the course of the meeting was undertaken variously by Mr Cosentino, Mr Russell and, according to Mr Hosking, Mr Glendining “might have done some”. (T377, L3-7)
23Mr Cosentino said that it was Mr Russell who entered the tractors and other vehicles to read the odometer/hour meter. (T136, L119-20) Mr Russell, cross- examining, put to Mr Cosentino “it was actually you that jumped up in the tractor and called the hours out for Rob to write them down”. (Ibid, L8-10) Mr Russell later conceded that this was incorrect. (T377, L11-13)
24Another matter which required discussion was the valuation of the crops in the ground at the time of “takeover” or, as it was sometimes described “WIP”, that is “work in progress”.
25It was necessary, as part of any arrangement for interests associated with Mr Russell taking over as lessee or lessees of the farm, to value the crop which would be growing and under cultivation at the time that the takeover occurred.
26Mr Jim Cosentino, Mr Sam Cosentino’s son, described how this valuation process was undertaken. He said that he was responsible for marketing the farm’s produce. (T173, L8-20) The exercise was initially undertaken on 4 March 2016. (T174, L14-17) He said that he calculated the value of the crop in the ground by reference to what was the then current market price for the various vegetables under cultivation. The most recent prices available to him at that time were those for 3 March – the previous Friday. (Ibid, L20-25)
27Mr Cosentino observed that at takeover a new operator of the farm would be able to harvest and sell certain items almost immediately. Others would require as long as 12 weeks to harvest. (T175, L19-30) Accordingly, of the crop portion which was ready or nearly ready for harvest, 50 per cent of market price should be payable. The rest should be charged at 25 per cent of the market price. (T176, L2-12) The document embodying these calculations created on 4 March is to be found at DCB 25.
28As it turned out, no “takeover” of the farm took place around that time. It was necessary to undertake that task anew in May. (Ibid, L25-27) In May, Mr
Cosentino Junior said that a survey of the crop in the ground was undertaken by:
“Myself, my father, Kim [Russell] and John [Glendining] all went down in my ute, my Hilux ute, drove around the farm. We went bay by bay. Both John and Kim had a note bad and pen. John was in the front with me, Kim was in the back with dad. John had a green pen, I know that for sure because I remember it being green, because I thought it was weird writing in green pen …” (T176, L29 to T177, L5)
29The issue was revisited on the day the crop contract was signed. Since the previous assessment, some crops had been sown and some had been harvested. According to Mr Cosentino, “the end result was that basically the figure had come down because there was less stuff there that was fully grown and there was more stuff that wasn’t fully grown …” (T177, L30 to T178, L2)
30This led to the price in the crop contract being set at $560,000, having been amended from $640,000. (T178, L13-14, PCB 164)
The contracts
31As a result of these investigations and negotiations, documents were executed to give effect to the transactions which had been under negotiation. There was a sub-lease of the farm with SFC as sub-lessor and PEAQ Farms Pty Ltd (the first defendant) (“PEAQ”) as sub-lessee. The term of the lease was 10 years with a grant of two options to renew for further 10 year terms. The rental was shown at “$220,000 per annum exclusive of GST payable per calendar month in advance”. (PCB 93-130)
32The sub-lease included a guarantee and indemnity of PEAQ’s obligations to SFC by Messrs Russell and Glendining. (clause 11, PCB 118-120)
33Next, there was a contract of sale of plant and equipment (PCB 131-154) also dated 31 May. The equipment being sold was identified in a document styled “Cosentino Equipment Schedule – May 2016” consisting of some 40 items. (PCB 147) Presumably, this was derived from the February list which is Exhibit 3, though it is not identical with it. Item 29 on the scheduled equipment list was
amended in manuscript so as to strike item 29 “Cameron Hussy 12 row seed seller $3,000”.
34Mr Russell and his wife guaranteed the obligations under this agreement. The purchaser was PEAQ Management Pty Ltd (“PEAQ Management”), which is not a party to this proceeding. There was a crop sale contract also dated 31 May 2016. (CB 155-168)
Post-settlement
35Performance following the defendants’ taking possession of the farm operation on 1 June 2016 proved disappointing. Total sales for the period 1 June to 31 October stood at $677,790.13. (Exhibit K)
36According to the analysis done by Messrs Russell and Glendining, based on the price of the crop under the crop sale agreement, it should have realised
$1,331,920. (DCB 26-27, T406, L26 to T407, L8)
37Mr Russell handed a letter to Mr Cosentino dated 20 November 2016. The letter addressed to “Dear Sam” stated:
“This letter is to give notice in writing that we are now in a position to take over fully the management of the farm and marketing operations. We are very aware that the amount of days you committed to it is running out and therefore would like to put management and systems in place to allow the ongoing management of the operation.
This means that you will no longer be required on the farm from Wednesday, 23rd of November 2016. We would like to take this opportunity to thank you for the days you have worked for us as a consultant manager. And would like to reserve the opportunity to engage you in further consulting and management time on a mutually agreed basis.” (DCB 38)
38Mr Russell said that he had prepared himself a set of speaking notes which appear at DCB 41. The items that are ticked as having been discussed with Mr Cosentino when he was handed the letter are of a general nature. There are a series of financial commentaries on the performance of the farm, but it appears that these items were not covered in discussion. One “talking point” headed in
manuscript which, according to the document was discussed, stated “we have to lift sales and production”.
39According to Mr Russell, the defendants then engaged a Mr Ivan Bunton to manage the farm. He had previously managed the property for Mr Cosentino but they had had a falling out, the precise nature of which was unknown to Mr Russell. (T280, L17 – T281, L2)
40Under the new regime, the utilisation of the farm was increased. Mr Russell said, “the aim was to go from 40-45 per cent up to 75-80 per cent of crop in the ground at any one time. The balance being land that was in preparatory to being sown (sic)”. (T281, L8-11)
41With these increased efforts and the guidance of Mr Bunton, the farm achieved a turnover of $80,000 a week which, as will be seen, was at the high end of the defendants’ aspirations for the operation. (T281, L22-23) Ultimately, however, the venture failed and the first defendant is in liquidation.
42Asked why the venture came to this unhappy end, Mr Russell said “It’s no fault of anybody except the market, and those sorts of things”. (T287, L23-24) He further commented, “one of the weaknesses of the business was the labour situation, and it’s nobody’s fault. The whole industry is struck by the same problem”. (T288, L15-17)
43The Filipino workforce on which the farm depended was only 40 per cent visa compliant. (T289, L8-10) This was not acceptable to the supermarket chains to whom the farm sought to sell – “Coles and Woolies”. (T290, L9-10)
44On 31 May, the defendants were short of money to meet the obligations which, in accordance with the various agreements, they were required to meet on that day. According to Mr Sam Cosentino, Messrs Russell and Glendining had a cheque for $140,000 which they wished to have credited against their liabilities under the crop contract. They wished to defer making part of the payments
under the equipment sale agreement, part of which had been met by finance raised by Go Getta Finance.
45Mr Cosentino took the position that the amounts payable under the equipment agreement must be paid on that day. As a result, some $160,000, being the cheque for $140,000 and a further amount of $20,000, was paid to clear the liability under the equipment agreement, and some $140,000 that should have been payable under the crop agreement remained unpaid.
46The total price payable under this agreement was $560,000 (PCB 164) payable by monthly instalments. A quarter of this amount is $140,000. At the end of June, with the first instalment which was said to be payable on the date of the commencement of the sub-lease unpaid, the second instalment of $140,000 was paid only as to $70,000.
47The defendants were pressed, and proposed making payments of $5,000 a week, to which Mr Cosentino reluctantly agreed. (T102-3) According to Mr Cosentino, “They done, I think, four or five payments of $5,000 and then they stopped at that …” (T104, L1-2) Then there was a proposal for the payment of
$1,000 a week, which Mr Cosentino rejected. Mr Russell then handed Mr Cosentino the letter of dismissal referred to earlier. (T104) Rental, on the other hand, was paid right up to the end, but the November 2017 instalment was missed.
48The plaintiff commenced this proceeding on 16 February 2017. According to paragraph 20 of the agreed chronology between the parties, on 29 November 2017, PEAQ passed resolutions for it to be wound up in insolvency and a liquidator was appointed. On 4 December 2017, SFC, as sub-lessor, terminated the sub-lease.
49Mr Cosentino said that upon his company’s re-entry, “There was $60,000 – something worth of damages they done and that’s what costed in insurance”. (T106, L11-13) He said the cool room needed to be rebuilt. It exhibited impact
damage, as if a forklift had been crashed into the wall. Material had also been left to rot in there. He said there were some items, such as pumps and motor irrigation which could not be located. (Ibid, L21-24)
50In addition, there had been a big fire which destroyed grapes and damaged fences. (T107) All of these matters required a total of six months to rectify. (T108, L1-5)
This proceeding
51By its Second Amended Statement of Claim, which I will refer to as the “Statement of Claim”, SFC sought payment against Messrs Glendining and Russell of the amounts said to be outstanding under the crop sale agreement pursuant to their guarantee and indemnity thereof, together with amounts said to be owing by them as guarantors of the obligations of PEAQ under the sub- lease as to arrears of rent and damages for loss of bargain. Denials of the enforceablity of the guarantee of the crop contract had been made but are not now being pursued. Accordingly, elaborate pleadings based on claims for rectification, negligent misstatement, etc in the Statement of Claim have not been pursued.
52The claim against PEAQ itself have been stayed as a result of that company’s liquidation.
53The position of the active defendants, Messrs Glendining and Russell, has been somewhat complex. The matter was listed for trial on 23 May this year. Mr Russell and Mr Glendining had been professionally represented, but by then represented themselves. They sought an adjournment of the trial to enable them to abandon their existing Defences and file new Defences and a Counterclaim. Over the plaintiff’s opposition, these orders were made by Judicial Registrar Tran on 21 May 2018.
54As a preliminary matter, Judicial Registrar Tran’s Order recited:
“4. The defences which the existing Defendants seek to raise are not entirely clear in the affidavit material. However, it appears from what has been said in Court today that those Defences are broadly as follows:
a.an allegation that there was a verbal agreement by the Plaintiff or a Mr Constantino (sic) to perform farm management services by way of consultancy, with such competence and skill as would be necessary to obtain cash flow of between $55,000.00 - $70,000.00 per week;
b.allegations of misleading or deceptive conduct in relation to the following representations said to have been made prior to the entry into the agreements upon which the Plaintiffs are suing:
i. a representation that cash flow would be $55,000.00 - $70,000.00 per week;
ii. a representation that bore water of 500 mega litres per year of a quality suitable for irrigation would be available;
iii. a representation that the land to the eastern side of the block could be utilised with only the installation of sprinklers; and
iv. that one or more tractors sold had only been used for approximately 3,000 hours, when in fact they had been used for approximately 13,000 hours;
c.that the land, the subject of the lease, was contaminated and that this caused loss of crop, rectification expenses, and difficulties obtaining investors.”
55Despite the difficulties which self-represented litigants encounter in complex commercial litigation, it might have been expected that the learned judicial registrar’s orders would have enabled these defendants to get their cases back on track. Regrettably, this did not prove to be the case.
56When the matter came on before me for trial on 1 October, following the plaintiff’s opening statement by Mr Kirimof, I invited the defendants, if they wished to do so, to make short opening statements to define the issues for the purposes of the trial.
57Mr Russell then raised a number of issues substantially along the lines referred to by Judicial Registrar Tran in her Order of 21 May. He said, however, that whilst further Defences had been filed since May, the most recently filed Defence did not adequately raise these matters which he and Mr Glendining wished to rely upon. Further, there had been an issue as to whether matters which these defendants sought to press, either as matters of defence or
counterclaim were properly available to them, or rather were vested in the first defendant now in liquidation.
58According to Mr Russell’s explanation, he and Mr Glendining had sought to make arrangements with the liquidator of PEAQ to purchase and take assignments of claims which that company had against SFC, but that SFC had outbid them. The liquidator’s decision to assign PEAQ’s right to SFC rather than to Messrs Russell and Glendining had been the subject of an application before Digby J in the Supreme Court on 28 September, that is the Friday before the trial commencement on Monday, 1 October. His Honour had, it seemed, declined to intervene.
59The result was then that the plaintiff was pressing to proceed with its case at the second appointed trial date and the second and third defendants were resisting this based upon the very same issues which had secured the adjournment of the previous trial some months before but did not appear to have been effectively dealt with in the meantime. The second and third defendants’ then Defences did not raise the matters upon which they sought to rely.
60I reluctantly adjourned the trial to Thursday, 4 October with a direction that the defendants file and serve a document on 2 October setting out the matters upon which they relied giving the plaintiff the opportunity to prepare itself to deal with these things upon the adjourned date. A copy of the document filed by the defendants is attached to these Reasons for Judgment.
Defence
61The plaintiff’s claim for debt and damages allegedly owing by Messrs Russell and Glendining as guarantors of the obligations of PEAQ is relatively straightforward though not devoid of conceptual issues. It is convenient, therefore, to turn first to the Defences which have now been relied upon by these defendants.
62The reference at the end to “R” “D” and “M” appears to be to allegations of misrepresentation, misleading or deceptive conduct and mistake.
(a) Farm equipment (Particular 11)
63SFC has brought no claim with respect to the sale of equipment agreement. It will be recalled that upon its insistence on 31 May/1 June 2016, the entire amount payable by PEAQ Management under this agreement was in fact paid, largely, though not entirely, as a result of funds raised from a finance company, Go Getta Finance. Accordingly, whilst Mr and Mrs Russell (but not Mr Glendining) guaranteed the obligations under the equipment sale agreement, those obligations have been performed. Messrs Russell and Glendining, however, said that they had given guarantees of the obligations of PEAQ Management to Go Getta Finance under the financing arrangements.
64The contention, as I understood it, was that as a result of misleading or deceptive conduct, misrepresentations, etc, they had suffered loss and damage by reason of their having undertaken these guarantee liabilities to Go Getta.
65Despite a number of requests from me, Messrs Russell and Glendining never put the Go Getta Finance documents into evidence. (See, for instance, T376, L5-10) Initially, as I understood Mr Russell, Go Getta Finance provided lease finance. However, since the equipment sale agreement with SFC as seller transferred title to PEAQ Management, it would seem more likely that Go Getta Finance provided finance by way of a chattel mortgage granted by PEAQ Management. (T261, L28 – T262, L4, T422, L4-8) It may be that the transaction was by way of sale and lease back. I suggested that the text of the chattel mortgage should, if my supposition were correct, be available via an ASIC search of PEAQ Management, (ibid) but that matter does not appear to have been followed up.
66There is no suggestion that this documentation was, for some reason, unavailable. Despite my query, Messrs Russell and Glendining simply failed to produce it. There is a further question as to what Messrs Russell and
Glendining and their company, PEAQ Management, would have done had they been aware of the issues with the tractors and their true hours of operation. What would these defendants have done? Mr Russell’s answer was, “With some negotiation we would still have gone with the deal, I think”. (T348, L23- 24)
67What, then, were the issues with the tractors?
68Mr Russell put it to Mr Cosentino in cross-examination that upon the equipment inspection, which it seems took place, despite Mr Cosentino’s contrary belief, in February 2016, one of the tractors on the list was in Finley (New South Wales) getting serviced. (T153) As to the tractors, Mr Russell explained that the misleading or deceptive conduct relative to them was that the hours recorded on the odometers or mile meters was relatively low but these readings were “second time round” so that a reading of 5,000 hours was in fact 15,000 hours. (T266, L27 – T267, L3)
69He said that the tractor with the vehicle identification number L05820G471467, a John Deere tractor with creeper gear, was the equipment item not present for inspection on 5 February. It was, he said, as he had put to Mr Cosentino in cross-examination, 150 kilometres away in Finley, being repaired by John Deere dealers, Hutcheon and Pearce. He said that he was misled and deceived with respect to this tractor:
“Because it was sold for exactly the same price as the other tractor that was – that was – so I – so I assumed that they were the same tractors, that they were the – of the same value and we’d paid, accordingly, the same cash price for them.” (T269, L4-9)
70According to Mr Russell, following takeover by PEAQ Management “that tractor ended up – the transmission blew up on it. We, then, took it up to the same place where it had been repaired before” [viz Finley]. He said he was told that the tractor was not worth repairing. It had a residual value of $17,000. The other tractor continued to be used and was the subject of an offer for sale of
$5,000 from Mr Joe Vizzari [who is the principal of the company, now the new owner or lessee of the farm]. (T269-70)
71Nevertheless, Mr Russell agreed with respect to both tractors that, on a sale of secondhand equipment following liquidation, these sorts of disappointing results might flow even if there had been no misleading or deceptive conduct. (T271, L18-21)
72I have already noted how Mr Russell was required to step back from the position he took in cross-examining Mr Cosentino that he (Mr Cosentino) read off the odometer or mile meter reading. He also eventually had to step back from the suggestion that the tractor, the identity number for which is quoted above, was absent from the farm on 5 February. He and Mr Glendining put the service tax invoice from Hutcheon and Pearce into evidence (Exhibit 6) relative to the service on that tractor in early 2016. The inspection apparently took place on the farm on 5 February but the tax invoice is dated 29 February. Again, the invoice shows work having been done at “WAAIA workshop”, a location close to the farm - not many kilometres to the north in Finley. It was the other John Deere tractor which was not onsite on 5 February, Mr Russell said in final submissions.
73There was no expert evidence called from a dealer in agricultural equipment as to the effect on value of the odometer/hour meter issues raised by Mr Russell. Since he admitted that these issues would not have led him, Mr Glendining, and their companies not to have done the deal, it cannot be that these matters could form a proper basis for a determination that they be relieved of their obligations as guarantors of the crop sale agreement and the sub-lease. It might be that if some distinct monetary damage could be proven, an entitlement to damages in that amount could be relied upon as an equitable set-off against any liability which he and Mr Glendining might have had for the amounts claimed by SFC in this proceeding. As it is, however, there is no evidence which could satisfactorily establish the quantum of any such loss.
74The issues relative to the tractors do not avail the defendants. Viewed as a potential misrepresentation, the same matters relied upon as misleading or deceptive conduct would fail to establish a defence for the same reasons upon the evidence they were not so fundamental as to justify a rescission of the contract ab initio. Again, since they were not shown to be fundamental to, or whether these transactions were undertaken or not, they would not be of sufficient importance to justify the grant of any relief under the doctrines of mistake. There was no suggestion that Mr Cosentino was himself labouring under any mistake as to these matters, nor was it suggested to him that he was aware of any mistake under which Mr Russell and Mr Glendining were labouring.
75In his closing submissions, Mr Russell sought to introduce certain figures, the precise purport of which was not clear to me. I pressed him to disclose the source of those figures and he said they had been provided to him over the telephone by Go Getta Finance, which itself was now in liquidation. The figures, it seemed, were being deployed in support of an argument that he and Mr Glendining were worse off to an ascertainable monetary degree by reason of these and other issues relative to the equipment. These calculations were not supported by any expert evidence as to values. They were not even put forward as part of the evidence. Rather, there was an attempt being made surreptitiously in submissions to make good deficiencies in the evidence which had already closed. I had repeatedly explained to the defendants that this proceeding would be determined upon the evidence which consisted of what was said on oath or subject to affirmation from the witness box and in the documents which were put into evidence. I told them that what was said from the Bar table was not evidence. In those circumstances, I put these figures, raised for the first time in final submissions, to one side.
(b) The bore (Particular 10)
76As previously noted, the farm had been advertised as having a “spear point bore with 510Ml licence …” (DCB 2) Again, it was not disputed that Mr
Cosentino had informed the defendants that the bore water was somewhat salty and needed to be “shandied”. (T139, L27-31) This meant in practice 20 per cent of channel water against 80 per cent of bore water. (T354, L10-11) Eighty per cent versus 20 per cent seems a reasonable “shandy” percentage. I was confused as to precisely what the defendants’ grievance relative to the bore was. (T415-6)
77Mr Russell sought to put into evidence a document which he described as “the water document”. It was objected to by Mr Kirimof on the basis that it was in the nature of a submission rather than evidence. I upheld the objection. The document stated that some $20,000 worth of channel water was purchased from Goulburn Murray Water once Mr Cosentino’s services were dispensed with in November 2016.
78Whilst standing alone, the online advertisement quoted above might be thought to be misleading or deceptive, the warning which was admittedly given by Mr Cosentino apparently before the deals were done that it was necessary to “shandy” the water, removes the misleading or deceptive element. To put it another way, the defendants did not enter into this transaction in the belief that the bore would, on its own, furnish adequate water, even if this had incorrectly been stated in earlier promotional material. The issues relative to the bore provide no defence to the plaintiff’s claim.
(c) Crop valuation (Particulars 13 & 15)
79The defendants’ case relative to the crop valuation, as I understand it, is that the crop in the ground sold under the crop sale agreement was overpriced. On Mr Russell’s calculation, the valuation done by Mr Cosentino Junior should have led to a crop in the ground which, following harvesting, could have been sold for $1,331,920. (DCB 27) In fact, what was realised was $677,790.13. (Exhibit K)
80The basis upon which the valuation was done was explained in evidence by Mr Cosentino Junior. Inexplicably, the document which was put into evidence
(DCB 25) was not the operative valuation but an earlier one undertaken in March. However, I did not understand the plaintiff to suggest that Mr Russell’s extrapolation from the final valuation (DCB 27), was incorrect. The defendants’ case as to these matters seems to be two-fold. First, that the crop was simply overpriced. Mr Russell suggested that the proper calculation should have been based on 25 per cent of the ultimate market value for the entirety of the crop rather than a mixture of 25 per cent and 50 per cent, as adopted by Mr Cosentino Junior. (T274, L29 – T275, L8) The second suggestion seemed to be that the failure to attain sale proceeds of $1.3 million was because of dereliction on the part of Mr Cosentino who was engaged as a consultant/manager in the relevant period.
81Once again, the contention on the part of the defendants is that this transaction has been affected by misrepresentation, misleading or deceptive conduct, estoppel and mistake.
82As to the issue of price, Mr Russell agreed that, in his view in hindsight, a 25 per cent figure would have been “juster”. It was not suggested, as far as I could make out, that the mode of calculation was misrepresented in some way by Mr Cosentino Junior. The document (DCB 27) sets out clearly the basis of the calculation. I infer that the operative document prepared in May did likewise. It is not obvious what the misleading or deceptive conduct might be or what the basis for a mistake or an estoppel might be. There seems to have been no misrepresentation. If an item is sold for an excessive price in the absence of misrepresentation or misleading or deceptive conduct, the ancient maxim “caveat emptor” would seem to apply. There was no evidence, as far as I can see, that any market price selected for the purpose of the calculation was incorrect.
83As to alleged derelictions by Mr Cosentino, no particular matters were identified.
Mr Glendining said that, to his observation at this time, large quantities of product were ploughed back in again and not harvested. (T395, L4-8) This
scenario was not put to Mr Cosentino in cross-examination. More pertinently, however, there was no explanation as to how it was that this “ploughing back in” scenario was indicative of defaults on Mr Cosentino’s part. There may be a range of explanations for this. It might be that the product in question had been damaged by some sort of weather phenomenon – an act of God rendering it unsaleable. Again, there might have been a collapse in price for a particular product which meant that it was not worth the expense of harvesting. None of these matters were explored so as to establish a connection between the “ploughing in” and a default by Mr Cosentino. (See also T409)
84Mr Glendining told me that he saw an instance in which Mr Cosentino was about to plough in a crop of cauliflower, rendering it effectively worthless, when he, Mr Glendining, intervened and found a buyer. (T410) This scenario might be regarded as establishing a default on Mr Cosentino’s part of his obligation to act with reasonable care as a consultant or manager. However, Mr Glendining’s intervention avoided any loss or damage being suffered.
85There is a further complication as to allegations relative to Mr Cosentino’s stewardship in the period of June to November 2016. It is not clearly established that the alleged default could be brought home to SFC. All of the discussions in the course of the evidence appeared to indicate that Mr Cosentino was separately engaged as a consultant/manager as an individual and not as a corporate organ of SFC. I asked Mr Russell about that in the course of final submissions. He referred to invoices which had been rendered by SFC for the provision of Mr Cosentino’s services. By this time, the evidence had concluded. No invoices were produced and none were put into evidence.
86For all of these reasons, in my view, the failure to achieve a satisfactory price for the in ground crop does not furnish the defendants any defence in this proceeding.
87Even if it appeared that the poor performance of the first crop, the subject matter of the crop sale of agreement at market, was as a result of defaults by Mr Cosentino, on the face of it, whether Mr Cosentino was regarded as the contract breaker or SFC was, the right to damages would have been vested in PEAQ and not Messrs Russell and Glendining. It is only if, in the circumstances, Mr Cosentino or the plaintiff could be regarded as having engaged in misleading or deceptive conduct that these defendants would have any defensive claim to offset against any liability which they might otherwise have. The only conduct alleged against Mr Cosentino which might be thought to be misleading or deceptive was an assurance which he was said to have given that “I will never let you down”. According to Mr Russell, Mr Cosentino assured him “I will not let you down, I will not let you down”. (T252, L20-21)
88Merely to prove that matters have not worked out in the future, as were represented in the past, does not in itself establish misleading or deceptive conduct. There are particular complications involved in applying the cause of action for misleading or deceptive conduct to future events, as distinct from past events. I examined these issues at some length in my decision in Niche Logistics Pty Ltd v Blue Star Global Logistics (Aust) Pty Ltd [2018] VCC 491 [107]-[126]. Unsurprisingly, these defendants did not canvass any of those complications. Leaving those matters to one side, what is most obviously lacking is distinct proof that the disappointing market outcome could be attributed to Mr Cosentino’s “letting down” the defendants. It was not suggested that he had warranted or represented anything as to the future of market prices for produce in the period June to November 2016.
89Mr Russell also referred to the doctrine of promissory estoppel in connection with the assurance “I will never let you down”. The judgment of Brennan J (as he then was) in Walton Stores (Interstate) Ltd v Maher (1998) 164 CLR 387, 428-9, is regarded as the classic statement on this subject in modern Australian
jurisprudence. The first requirement to the operation of the doctrine, as stated by his Honour in that passage, is that ─
“…the plaintiff [that is, the person asserting the promissory estoppel ─ in the present case, the defendants] assumed that a particular legal relationship then existed between the plaintiff and the defendant, or expected that a particular legal relationship would exist between them …”
Here, there is no representation as to a legal relationship, rather only an assurance as to performance of an apparently contractual obligation. If one accepts the defendants’ account of these matters, no equitable estoppel has been made out.
(d) Collateral contract (Particular 12)
90Particular 12 states:
“January 2016, verbal offer made to lease property by Sam Cosentino over the phone to Kim Russell. This is the establishment of an oral agreement which in our view is a collateral contract with the Machinery, the Lease and the crop Contract.”
This was followed by a capital ‘E’, indicating that it establishes an estoppel. I am not quite sure what this contention entailed, but it does not seem to have been pursued by the defendants at trial. I reject the suggestion there is either a collateral contract or some form of estoppel established. Presumably, the alleged estoppel is a promissory one. The matters alleged, even if accepted as having been proven, plainly fall short of the requirement of promissory estoppel, as stated in the passage from the judgment of Brennan J in Walton Stores referred to above.
(e) Labour, accommodation, et cetera (Particular 14)
91Once again, the matters alleged in particular 14 seem not to have been pursued at trial. The evidence does not sustain findings of misrepresentation, misleading or deceptive conduct or mistake, as alleged.
(f) Restraint clause (Particular 16)
92There was only a passing reference to the “restraint clause” which was not explained or elaborated on at all in the course of the trial. At DCB 42, there is what purports to be a clause with the side-note “Restraint”, said to be extracted
from the “Lease”, presumably the sub-lease. The restraint precludes Mr Cosentino for a period of three years from engaging “in any conduct derogating from the Tenant’s right to obtain the full benefit of the Lease. This restraint will not apply in any form to Jim Cosentino”. Precisely what the defendants’ defence on this point might be is not clear. In the ordinary course, a restraint clause precludes someone giving such a covenant from competing with the covenantee. Nothing of this sort appears to have been alleged against Mr Cosentino Senior. The contention might be that, if Mr Cosentino failed to live up to his contractual obligations never to let down the defendants, this appears to be a covenant by SFC with PEAQ. If, contrary to what I am inclined to think, any breach of this covenant were proved, the right to obtain any relief would lie with the first defendant, PEAQ, not with Messrs Russell and Glendining.
(g) Sales figures (Particulars 6 to 9)
93These matters formed the heart of the defendants’ defence. Mr Hosking of Estate Agency, Ray White, was retained in March 2014 to find a buyer for the farm. (T364, L20-21)
94Given that the freehold on the farm was vested not in SFC but, rather, in Mr Cosentino and his son, it would presumably have been them rather than SFC who retained Mr Hosking. As part of the attempt to sell the farm, a meeting was held there with a Mr Walker of the Yorta Yorta nation, representing its Tribal Cooperative. (T365, L15-23) Shortly before February 2015, Mr Hosking had met Mr Cosentino at a cherry farm in Echuca. During a meeting at the farm itself, not in Echuca, Mr Hosking had conveyed to Mr Cosentino in substance that the Yorta Yorta people were looking for some figures relative to the farm, and it was in response to that request that Mr Cosentino provided documents purporting to be financial statements for SFC for the years ending 30 June 2012 and 2013. The 2012 financial statements included what purported to be comparative figures for the year ending 30 June 2011. The effect therefore was, on the face of it, to provide what purported to be financial statements for SFC for the years ending 30 June 2011, 30 June 2012 and 30 June 2013.
These financial statements were emailed by Mr Hosking to Mr Kim Russell under cover of an email dated 5 February 2015. (DCB 3-19)
95Apparently, sometime in April 2015, according to Mr Hosking, there was a meeting at the farm attended by Mr Hosking, Mr Russell and Mr Cosentino. According to Mr Hosking, Mr Russell said that the figures were very good, to which Mr Cosentino replied, “It is what it is”. Mr Russell gave an account of this meeting to the following effect. He said to Mr Cosentino, “Sam, we have a problem. It seems to make too much money.” (T243, L12-13) According to Mr Russell, Mr Cosentino replied “It is what it is”, followed by a pregnant pause. (Ibid, L21-22) This meeting, it seems, was prior to a meeting that Mr Russell and Mr Glendining had with SFC’s accountant, Mr Peter Schreiner. (T243, L15- 17)
96I asked Mr Russell”
“Suppose I accept that Mr Cosentino said to you ‘it is what it is’, I have to ask myself, ‘what did that statement mean in context?’ So what was it that was, and it’s not what’s on the laptop or the spreadsheet because the spreadsheet wasn’t there in hard copy form. It’s what you were talking about across the table. So what did you say to him that was the basis for his responses ‘it is what it is’?”
97Mr Russell replied “The average sales figures for the operation are $63,000 per week.” (T244, L2-10) Mr Russell continued “I was sitting there as he used to very often disparage me for being – with my head being in a computer.” (ibid, L13-14)
98In cross-examination, Mr Russell put to Mr Cosentino that, in the course of this discussion, he raised sales figures of $3,138,000 with him, presumably derived from the computer, by virtue of the “gross margin” analysis. Mr Cosentino denies having seen this analysis. He also did not recall Mr Russell saying “Sam, it makes too much money”. (T126, L1-11)
99Around the same time, Mr Russell requested permission to have an interview with Mr Schreiner, SFC’s accountant. Mr Cosentino said he would not have a
problem with that, but continued, “They never said that they had the financials in their hands and they were going to talk about the financials or the money or whatever, whatever”. (T124, L4-10)
100I enquired of Mr Cosentino what, in the circumstances, Mr Russell and Mr Glendining would be talking to SFC’s accountant about except the business’s financial performance. (Ibid, L14-17) Neither Mr Cosentino nor Mr Russell gave any explanation as to what the conversation they had with Mr Schreiner might have covered.
101Mr Schreiner gave evidence that he had been given notice by Mr Cosentino that Mr Russell and Mr Glendining would be attending for an interview. (T207, L19-
25) Mr Schreiner said that “The specifics on financial statements weren’t reviewed, no. I wouldn’t have felt comfortable, ah, as my client wasn’t – wasn’t present.” (Ibid, L16-18) Mr Schreiner’s task was to prepare financial statements for tax purposes. (T210, L31) He was not a management accountant and therefore was not in a position to speak to the profitability of individual divisions of the Plaintiff company, much less the relative profitability of individual crops.
102Having heard evidence from those in attendance at this meeting, which apparently took place on 22 April, I was at a loss to understand what they could have been speaking about. I suggested in the circumstances it sounded rather like a performance of Hamlet without the Prince of Denmark, but ultimately I received no explanation as to what substance could have transpired at the meeting.
103Mr Russell asked Mr Schreiner whether he (Mr Russell) had mentioned the figure of $2.7 million in annual sales, leading Mr Schreiner to reply “Yeah, that would pull it up”. Mr Schreiner replied, “I can’t recall saying that. Depends in which context you ask the question”. (T206, L16-21) I asked Mr Schreiner if he understood the meaning of the phrase “that would pull it up”, and he said that he did not and that it did not ring a bell for him. (Ibid, L22-25)
104The significance of these exchanges is that the alleged financial statements which reached Mr Russell and Mr Glendining via Mr Hosking are inconsistent with the financial statements for the relevant years as prepared by Mr Schreiner. What one might describe as SFC’s “genuine” financial statements were produced by Mr Schreiner upon a subpoena issued by the defendant and put into evidence as Exhibit 2. The trading statement in the genuine accounts for the year ending 30 June 2011 showed total sales of $1,564,984, whereas the Hosking financial statements show sales income for that year in the sum of
$2,040,758. The Hosking accounts show sales for the year ending 30 June 2012 of $2,777,580. The genuine accounts show sales income of $1,618,012. For the year ending 30 June 2013, the Hosking financial statements show sales of $2,030,110, but the genuine accounts show total sales as $1,350,920. Invited to explain these and other discrepancies when being cross-examined by Mr Glendining, Mr Cosentino said “I’ve got no idea … I can’t explain it, no”. (T133-4, especially L2, 5-6)
105There was no challenge in cross-examination by Mr Kirimof of Mr Hosking’s account of how he, Mr Hosking, came into possession of the Hosking financials.
(h) Misleading or deceptive conduct – legal considerations
106Section 18 of the Australian Consumer Law states:
“Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).”
107Speaking of the phrase “misleading or deceptive” as used in s52 of the Trade Practices Act 1974, the predecessor of s18, Gibbs CJ said:
“Those words are on any view tautologous. One meaning which the words ‘mislead’ and ‘deceive’ share in common is ‘to lead into error’. (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 198.
108Conduct may be regarded as engaged “in trade or commerce”, a phrase which operates to restrict the breadth of s18’s prohibition, where the relevant conduct
“is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character”. (Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, 603 per Mason CJ, Deane, Dawson and Gaudron JJ)
109Whilst conduct engaged in relative to the sale of a private residential property is not regarded as being “in trade or commerce” (Smolonogov v O’Brien (1982) 67 FLR 311), here, the leasing transaction and associated contract all pertain to a money-making enterprise. The farm, which was the subject of all these transactions, was being conducted as a business enterprise.
Contentions as to misleading or deceptive conduct
110The defendants’ case is that the Hosking financial statements led them into error by their exaggeration of the sales turnover of the farming enterprise which they had their companies buy into. In entering into guarantee obligations, they say they suffered separate and distinct loss and damage which was not merely derivative from the loss and damage suffered by the first defendant and by PEAQ Management. (Gould v Vaggelas (1985) 157 CLR 215)
111Mr Kirimof on behalf of SFC advanced a series of arguments aimed at refuting the defendants’ contention.
112First, he submitted that the provision of the Hosking financial statements to Mr Hosking and then to the defendants could not “be attributed to the plaintiff”. He noted, correctly, that Mr Hosking was engaged as an agent only for the sale of the farm and not for its leasing. He noted Mr Hosking’s evidence that he could not act as agent to find a tenant because his company had “sold off the property management of our business and we were not allowed to go into doing any property management side of the business for five years”. (T364, L25-27)
113In seeking to sell the freehold interest in the farm, Mr Hosking was necessarily the agent of Mr Cosentino Senior and Mr Cosentino Junior, and not of SFC. He continued that SFC “never held Mr Hosking out as one of its agents”. The
figures were provided in connection with a proposed sale to the Yorta Yorta people, not any transaction between SFC and the defendants. He noted Mr Hosking’s evidence that he (Mr Hosking) was not acting as agent for any party relative to the sale of crop contract. (T378, L20)
114In summary, Mr Kirimof contended that the provision of the Hosking financials was not conduct of SFC.
115There is necessarily an air of unreality in seeking to draw distinctions between the actions of private individuals and proprietary companies which are, in substance, their alter egos. The proprietary companies are, and must be dealt with as, separate entities. Yet, they can only act through servants or agents or corporate officers. As a director of SFC, Mr Cosentino Senior was plainly one of its corporate officers and the most important one. Whilst SFC could not be vendor in a sale of the farm to the Yorta Yorta people, its interests were plainly affected. A purchaser of the farm would, as the first defendant and PEAQ Management did, likely be involved with purchase transactions from SFC relative to growing crops and plant and equipment. Whether SFC itself gave Mr Hosking an authority to sell, it was plainly involved in the sale process, and anyone seeking to advance that process would, to that extent, be acting on SFC’s behalf.
116The precise steps which brought the Hosking financial statements into existence were not disclosed. Mr Cosentino would, in the circumstances, likely have known how this happened but he chose to make no disclosure. His statements in cross-examination that he had “no idea” about these matters are plainly incredible. The inference that he either brought these financial statements into existence himself or that somebody did so at his request is inescapable. Likewise, the thought that in doing so he acted other than as a director of SFC is difficult to escape. These statements spoke in the name of SFC and were propounded by its director.
117Mr Kirimof was concerned, on behalf of the plaintiff, to put the provision of the Hosking financials into context by tendering as Exhibit B not merely the “gmail” from Mr Hosking to Mr Russell, but also what was apparently included in the package, a sales brochure headed “SF Consentino P/L” [a misprinted reference to the plaintiff], offering two properties for sale.
118For the reasons given, bringing the bogus financial statements into existence and providing them to Mr Hosking for the commercial purpose of marketing trading assets in the form of two vegetable growing properties, was misleading or deceptive conduct in trade or commerce. This conduct was engaged in by Mr Cosentino on behalf of SFC, whether or not he can be regarded as having acted also on behalf of himself and his son, or not.
119It follows that, on the face of it, SFC has engaged in misleading or deceptive conduct in trade and commerce on this score. Nevertheless, Mr Kirimof contended that reliance on those financial statements “was unreasonable for a myriad of reasons” and, in any event, he contended, that the defendants did not rely on this misleading or deceptive conduct. He said it was:
“accepted that contractual provisions such as entire agreement clauses cannot exclude the application of s18 of the ACL. That said, contractual provisions that seek to exclude reliance upon pre-contractual statements are relevant in examining whether the alleged conduct is misleading and deceptive. The Court must look at the conduct as a whole, which includes a consideration of the disclaimers and/or exclusion clause.”
120Mr Kirimof said that the defendants had had legal advice from Hargraves Lawyers before entering into the contracts. He said, further, that they each admitted to reading the contracts and would have noted the entire agreement clauses to be found therein. He continued:
“If the defendants had carefully read each contract, they would have known pre-contractual representations were sought to be excluded by the contract and were not to be relied upon. Having been advised by lawyers, it is likely they would have been advised of the same and in any case had an opportunity to ask about the effect of the entire agreement clauses.”
121In any event, the defendants had what Mr Kirimof contended were, “inflated expectations”. He referred to Exhibit C, which was prepared for the purpose of
presentation to potential investors which predicted growth sales of $86,000 per week in the first year of operation. He said, according to the evidence, the defendants received warnings about these inflated expectations. This undermined the “unreasonableness of their continued reliance on old financial statements”.
122A lack of reliance on the Hosking financial statements was evident according to Mr Kirimof, in that when the defendants sought an adjournment of the trial date in May this year, they did not mention these matters. He referred to those affidavits which were Exhibits E and J. Insofar as the defendants had adopted a figure of weekly sales of $60,000, they “did not explain how that figure was arrived at as it has no apparent connection and far exceeds the figures in the Hosking Financials”.
123Any reliance that the defendants might have placed on the Hosking financials was unreasonable because, when the subject transactions were entered into on 31 May 2016, the most recent of the Hosking financials was three years out of date. An analysis of the Hosking financials showed average weekly sales of
$43,900.31, he said, with a minimal net profit averaging $11,000 per year and significant variations, with gross sales ranging from $1.267 million to $756,756. As a result of the 2016 transactions, the defendants and their companies were taking on approximately $400,000 of liabilities, despite which they forecast average weekly sales of $60,348.31 and a net profit of $470,687.
124Mr Kirimof noted disclaimers which appear on the Hosking financials to the effect that they had not been the subject of audit or review. Statements which, according to Mr Russell’s evidence (T315), he read and noted. Likewise, Mr Glendining. (T421)
125Mr Kirimof said that the financial statements purported to cover two farm operations, namely the subject farm at Yalca and a separate operation at Somerville. This was made clear by the accompanying sales brochure. (Exhibit
B) There was no justification, said Mr Kirimof, therefore for Mr Russell to assume that the Hosking financials related exclusively to Yalca.
126As to a Powerpoint presentation prepared by the defendants (Exhibit C), Mr Kirimof said that it demonstrated “the enormous leaps they made assuming
$86,000 in consistent gross profit per week in their first year of business”. He noted:
“they knew that Mr Cosentino would not be the farm manager. They seemed to suggest that Alex Russell [Mr Kim Russell’s son] with no experience, would be the farm manager. Mr Russell admitted that they themselves had no experience of vegetable farming.”
(i) Conclusions as to misleading or deceptive conduct
127In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 321, French CJ said:
“Where the impugned conduct comprises allegedly misleading pre-contractual representations, a contractual disclaimer of reliance will ordinarily be considered in relation to the question of causation. For if a person expressly declares in a contractual document that he or she did not rely upon pre-contractual representations, that declaration may, according to the circumstances, be evidence of non-reliance and of the want of a causal link between the impugned conduct and the loss or damage flowing from entry into the contract. In many cases, such a provision will not be taken to evidence a break in the causal link between misleading or deceptive conduct and loss. The person making the declaration may nevertheless be found to have been actuated by the misrepresentations into entering the contract. The question is not one of law, but of fact.”
128The entire agreement clauses relied on by the plaintiff exist and are of contractual force. Whilst Mr Russell agreed that he had read these clauses, there was nothing in the evidence to suggest that they were regarded by him as other than legal boilerplate. The question of reliance is, as French CJ observed, a matter of fact. Mr Russell did not concede that, having read the entire agreement clauses, he proceeded to disregard pre-contractual representations.
129To be entitled to relief relative to a breach of s18 of the Australian Consumer Law, it is necessary to demonstrate that one has suffered loss or damage and that this loss or damage was caused by the misleading or deceptive conduct.
The test of causation is the same as in common law actions such as claims in tort – Henville v Walker (2001) 206 CLR 459.
130Typically, the causal connection between misleading or deceptive conduct and loss or damage said to have been incurred is reliance upon a misleading or deceptive representation. This reliance need not be the sole factor influencing the decision which leads to the loss and damage. As Gaudron, Gummow and Hayne JJ said:
“… it is hardly surprising that it is now well established that the question presented by s 82 of the Act is not what was the (sole) cause of the loss or damage which has allegedly been sustained. It is enough to demonstrate that contravention of a relevant provision of the Act was a cause of the loss or damage sustained.” (My emphasis) (I & L Securities v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, 128 [57]
131So, in Henville, three of the five Justices constituting the court, namely McHugh, Gummow and Hayne JJ (Gleeson CJ and Gaudron J contra) were of the view that the losses which could be recovered under the former s82 of the Trade Practices Act 1974 were not to be reduced where an architect entered a development transaction based upon defective advice as to market demand from an estate agent, despite the fact that the architect’s loss might also have been regarded as the result of his having underestimated the costs of the development. The award at trial reduced the damages award based on this consideration. The architect’s victory was completely reversed on appeal. In the High Court on further appeal, as it was requested to do, the Court restored the trial judge’s award, though a majority of the court, as previously noted, would have made a larger award.
132In Henville, Gleeson CJ observed:
“The purpose of the legislation [viz s52 of the Trade Practices Act and s18 of the Australian Consumer Law] 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 under s 82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.” (2001) 206 CLR 459, 468 [13]
133It may be accepted that reliance by the defendants upon the Hosking financial statements in all the circumstances was naïve and careless. Mr Kirimof relied on the judgment of St John J in HW Thompson Building Pty Ltd v Allen Property Services Pty Ltd (1983) 48 ALR 667. According to the head note to his Honour’s decision, his Honour decided, inter alia, whether the conduct of the tender was misleading depended upon the effect of the conduct on reasonable members of the class to which the purchaser belonged. He held that the vendor’s conduct was not misleading having regard to, amongst other things, the experience of the purchase in the property market.
134Taking these and similar factors into account, his Honour said:
“I am satisfied that Mr. Thompson Jnr. did not rely on the alleged mis- leading conduct in deciding that the applicant companies should enter into their respective contracts. (1983) 48 ALR 667, 675
135Accordingly, nothing that his Honour said was inconsistent with the analysis of Gleeson CJ from Henville quoted above. If in fact the defendants relied on the Hosking financial statements, a causal link would exist to any loss or damage suffered if they are to be regarded, as they must be, as being misleading or deceptive conduct. This is so despite the evident unreasonableness of that reliance.
136When I asked Mr Russell, what it was that he and Mr Glendining had relied upon that constituted misleading or deceptive conduct on the part of SFC in leading them into these transactions, he referred to a meeting said to have taken place in the kitchen at the farm in March/April 2015. This is the meeting where, according to Mr Russell, he put it to Mr Cosentino that the farm made too much money, presumably implying that the figures which he was relying upon were too good to be true, to which Mr Cosentino was said to have replied, “it is what it is”. (T44-5)
137Mr Hosking’s memory of this meeting was that it took place in April 2015. Mr Russell said the numbers were “very good” and Mr Cosentino replied, “it is what
it is”. (T370, L18-24) He understood the figures being referred to were “the figures that Sam supplied”. (T370, L29) That is, the figures which Mr Cosentino had hand delivered to him (T371, L5) being the figures provided in connection with the proposed Yorta Yorta transaction. (Ibid, L6-8)
138Under cross-examination, he agreed that he was making an assumption as to what figures were being referred to, and he could not be sure. (T380, L3-6) Mr Cosentino denied having said this. (T123, L15)
139Mr Russell suggested to him that the figures under discussion were in his laptop computer which was on the table during discussion albeit that Mr Cosentino was not a computer user. (T125-6) The analysis in question appears at DCB
20. The figure apparently derived from the Hosking financials for average weekly sales was $43,900. This was scaled up by Messrs Russell and Glendining to an amount slightly over $60,000 per week based on an increase of the land under cultivation to 80 acres. In fact, as was in contemplation the area under cultivation was increased by 27 acres just before the takeover by PEAQ on 31 May/1 June 2016.
140I pressed Mr Russell to explain what it was that was the subject of the discussion which he said led to the response from Mr Cosentino “it is what it is”. He replied, “the average sales figures for the operation are $63,000”. This appears to be a reference to the figure $60,348.31 under the heading “Projected GM Cosentino 80 Acres (33 ha). This is a somewhat tortured narrative. In the end, however, I think it boils down to a statement that, but for the Hosking financial statements, the defendants would not have entered into the transactions.
141Under cross-examination by Mr Kirimof, it was put to Mr Russell that his expectation of weekly sales of $60,000 was based on market price, as revealed in the valuation process for the crops in the ground. Mr Russell replied, “no, it was on the basis of the gross margin analysis which included yields and
estimated prices suggested by Sam and the financials which we got from Sam.” He confirmed that these were the ones which he had received from Mr Hosking. Accordingly, he said it was a “three-pronged analysis”: the Hosking accounts, the gross margins analysis and the valuation of the crop in the ground. (T340, L8-24)
142I conclude that SFC had, for the reasons explained, engaged in misleading or deceptive conduct in the form of its director, Mr Cosentino’s propounding of the bogus financial statements. These matters are not excluded from contravention under s18 of the Australian Consumer Law on the basis of the authorities referred to above because the defendants displayed extreme naivety and carelessness in relying upon the bogus financial statements. They did place material reliance upon those statements, given that the projections and analysis at DCB 20 represented a working and a reworking of what was set forth in the bogus financial statements.
143I do not accept the proposition advanced by Mr Kirimof for SFC, in cross- examining Mr Russell and in closing submission, that reliance on the bogus financials was “a recent invention” by the defendants.
144Presumably, because these defendants are making no damages claim, there was no mention of Part 2-2 of the Competition and Consumer Act 2010 or s137B of that Act.
145Whilst the separate self-represented defendants did not explain precisely how a finding or findings of misleading or deception conduct attributable to SFC could defeat their liability as guarantor, I assume they seek orders under ss237 and 243 of the Australian Consumer Law relieving them from liability under the relevant guarantees and indemnities upon which they are sued in this proceeding.
146It seems to have been assumed that these orders might be made simply on the basis of the defendants having defended themselves against the plaintiff’s claim
by reliance upon the provisions of the Australian Consumer Law. There had been various forms of counterclaim filed in the proceeding which seem to have been dropped by the time the matter reached trial before me, apparently upon the footing that any counterclaim which might be made vested in the first defendant and, despite these defendants’ application to Digby J in the Supreme Court, any counterclaims available to the first defendant had not been assigned to them.
147Mr Kirimof’s closing submissions assumed that it was competent for the defendants to rely on s243 of the Australian Consumer Law in the proceeding as constituted, that is without a counterclaim.
148If there is any doubt about the propriety as a matter of law, in their seeking relief under this section without filing a counterclaim, in the unusual circumstances I would consider an application on their part to file or reinstate a counterclaim to deal with this issue.
149Turning now to the substantive, as distinct from the procedural, elements of reliance on s243, it entitles a person who has suffered loss or damage or is likely to do so, as described in s236 of the Australian Consumer Law, which includes loss and damage caused by misleading or deceptive conduct contrary to s18, to seek an order that any relevant contract or collateral arrangement be treated as void ab initio or from some other date, or an order refusing to enforce any or all of the provisions of such a contract. The guarantees and indemnities upon which these defendants are sued appear to fall within the description of the contract or contracts referred to in s243. I have found that, but for the propounding of the bogus financial statements by Mr Hosking for which SFC, amongst other persons, is responsible, these defendants and their companies would not have entered into the transactions on 31 May 2016. The effect of the misleading or deceptive conduct for which SFC, amongst others, is responsible, is that these defendants have been rendered guarantors of an insolvent
enterprise. That insolvency, however, does not appear to have been, in itself, caused by the misleading or deceptive conduct.
150Mr Russell’s evidence, referred to above, was that he and his son, and others, “pulled out all the stops” enabling the farm enterprise to achieve the sales levels which had been falsely depicted in the bogus financial statements. It was difficulties in sourcing visa-compliant labour which, on his account, forced the first defendant into insolvency and thereby crystallised the liability of these defendants under guarantees and indemnity.
151Where misleading or deceptive conduct leads a person into a transaction which he would not otherwise have undertaken, loss or damage flowing from that transaction, which might be regarded as immediately caused by some supervening event such as an unexpected collapse in the property market, is, nevertheless, regarded as loss or damage caused by the misleading or deceptive conduct and is compensable as such. (Kenny & Good Pty Ltd v MGICA Ltd (1999) 199 CLR 413.
152A basic requirement for the making of an order under s243 declining to enforce the guarantees given by these defendants appears to have been made out.
153Mr Kirimof, however, submitted that, in the circumstances, it would be unfair and inequitable to grant these defendants such relief in circumstances where, being aware of the truth, they had not sought to extricate themselves from liability or to rescind the May 2016 arrangement, but rather pressed on until the enterprise was forced into insolvency by separate and supervening events, leaving it to the plaintiff to bring the present proceeding.
154Beyond making that general submission, he referred to no authority.
155On the question of the exercise of discretion to declare a contract or contracts void Miller’s Australian Competition and Consumer Law Annotated (39th ed
2017, 1844) refers to two cases upon the consequence of affirmation of the
relevant contract (Myers v Trans Pacific Pastoral Co Pty Ltd (1986) ATPR 40- 673 and Crisp v ANZ Bank [1994] ATPR 41-294. The learned author states:
“Affirmation of a contract entered as a result of misleading or deceptive conduct does not affect the applicant’s right to damages although it may affect the entitlement to a rescission order.”
156In Myers’ case, Pincus J found that a defendant vendor’s agent had misled and deceived the applicant purchasers of agricultural land. His Honour declared the relevant contract to be void ab initio. It had not been completed. His Honour said “affirmation of a contract is relevant to the issue of rescission if not damages for misleading or deceptive conduct”. In such circumstances, he said:
“the Court may look at the matter more broadly under sec 87(2) of the Trade Practices Act [the predecessor of s243 of the Australian Consumer Law] and is not confined to considering what remedies would have been given in an action for damages for fraudulent misrepresentation.” [1986] ATPR 40-673, 47,424
157In Crisp’s case, a bank was found to have misled or deceived guarantors of the obligations of a company known as Honeypot Pty Ltd. At the time of taking its guarantee, the bank did not disclose to the guarantor that it had dishonoured cheques drawn by Honeypot. Honeypot collapsed into insolvency and applied to the court for relief under the Trade Practices Act when faced with demands from the bank under the guarantee and the guarantee mortgage. In this circumstance where, as here, it could not be said that the relevant misleading or deceptive conduct was causative of the insolvency of the principal debtor except insofar as it might not have entered into these transactions in the first place but for the misleading or deceptive conduct, Northrop J declared the guarantee and mortgage void.
158Even assuming that the first defendant’s affirmation of the sub-lease and crop sale agreement can be attributed to Messrs Russell and Glendining, in the present case there is no effective means of compensating these defendants for the loss or damage they have suffered or are likely to suffer as a result of SFC’s misleading or deceptive conduct except by relieving them from their liabilities to it under the relevant guarantees and indemnity. That result might be achieved
simply by declining to enforce the guarantees and indemnities rather than taking the more extreme step of declaring them void ab initio. This is a matter upon which I will hear from the parties.
Conclusion
159These matters provide defendants, Mr Russell and Mr Glendining, with a complete defence to the plaintiff’s claims. It is unnecessary to consider those claims further. Subject to the procedural issue referred to earlier, it would seem there should be judgment for the defendants.
160I will direct the parties within 14 days to bring in short Minutes to give effect to these reasons. I have not heard full submissions on the question of costs and so I will reserve them.
Response to Orders 1 October 2018
Case ID: Cl- 17- 00614
Case Description: S.F. Cosentino Pty Ltd- v- PEAQ Farms Pty Ltd & Ors Event Type: Trial
Judge: His Honour Judge Macnamara Date of Order: 1 October 2018
Appearances:
Plaintiff:
2"d Defendant:
3rd Defendant:
Mr H. Kirimof of Counsel In Person
In Person
ORDER
1.The trial of this proceeding is adjourned to 10:30am on Thursday 4 October 2018.
2.By 9:30am on Tuesday 2 October 2018, the Second and Third Defendants shall file and serve (by email to the plaintiff's solicitor), jointly or separately, a document:
a. identifying the grounds on which they say they are not liable to the plaintiff under the guarantee and indemnity in relation to each of the:
i. crop contract between the plaintiff and the first defendant dated 31 May 2016;
ii. the sub-lease between the plaintiff and the first defendant dated 31 May 2016;
b. particularising any representations on which they rely in their defence including the date, form and content of each representation.
3.The parties shall have liberty to apply by email to the Judge's Associate (including the other parties) and identifying the nature of the application.
4.Costs reserved.
5. Grounds- Definition we are using: In law, grounds refer to a rational motive, basis for a belief or conviction, for an action taken, such as a legal action.
Grounds on which defendants say they are not liable.
| Contract & Nature of application for this trial. | Disputed | Mis- representation (R) | M or c | isleading deceptive onduct (D) | Estoppel (E) | Mistake (M) | |
| Oral Agreement Entered into in January 2016 (Defence as it relates to PEAQ Farms Pty Ltd and a counter claim as it relates to KR and JG.) | Yes | Yes | Yes | Yes | NA | ||
| The crop contract between the plaintiff and the first defendant dated 31 May 2016 (Defence as it relates to PEAQ Farms Pty Ltd) | Yes | Yes | Yes | Yes | Yes | ||
| The sub-lease between the plaintiff and the first defendant dated 31 May 2016 (Defence as it relates to PEAQ Farms Pty Ltd) | Yes | Yes | Yes | NA | NA | ||
| Machinery Agreement Dated 31 May 2016 (Counter claim as it relates to Machinery and Equipment | No | Yes | Yes | NA | Yes | ||
belonging to KR and JG.)
Kim Russell (KR) John Glendining (JG)
Legislation:
• Section 18 Section 18 of the Australian Consumer Law
• Trade Practices Act 1974 No. 51, 1974 - SECT 52
PARTICULARS (Date, Form and Content) Misrepresentation (R)
Misleading or deceptive conduct (D)
Estoppel (E)
Mistake, failing to stop a serious mistake. (M)
2015
6. 5th February 2015, financial figures passed to Kim Russell from Rob Hosking, Sam's Agent via email. (R) & (D)
7. 15th February through to late April 2015 Forensic analysis carried out in part
face to face and in part over the phone. Bay by bay discussion of each crop, Crops, growing time required, yields per "land" (or bed upon which plants are planted by transplant seedlings or direct seeding with seed drill/combine. Yield, price, area planted, seasonal variations. Packing and transport requirements. (R), (D), (E)·and (M)
8. April 22 2015 after analysing financial figures for the 2011, 2012 and 2013
years KR and JG met face to face with Peter Schreiner of Southern Partners in Mornington in Melbourne. Clarifications were made around this. (D)
9. April- 2015 Shortly after this meeting Rob Hosking, Sam Cosentino, John Glendining and Kim Russell met in Kitchen on the farm to discuss the financial viability of the business. Failed to correct a serious Mistake. (E & M)
10.0n a number of occasions in 2015 and in 2016 the bore was discussed, with
John and Kim Russell but most often with Km Russell and the quality of the water was represented as being suitable for irrigating all of the crop types grown. 2016 was a very wet year and the requirements for the bore were minimal in the first few months the breakdowns occurred and after repairs, the quaiity of the water was not apparent until some time after Sam Cosentino
had stopped working at the farm on the 22nd of November 2018, (R), (D), (E)
& (M).
2016
11.On or about the 5th of February 2016 Sam Cosentino's Agent Rob Hosking of Ray White Rochester inspected the plant and machinery item by item with Sam placing a valuation of each piece of equipment. Noting the hours, or kilometres that the item had on the odometer/hour meter. A schedule of items was drawn up by Mr Hosking and became the list by which KR and JG purchased the tractors and larger items and KR purchased the implements, rotary hoes, ploughs, seeder's, bed shaping equipment crates, washing equipment etc. This will be the subject of a claim of misrepresentation and misleading and deceitful Conduct. Further particulars provided on Thursday. Orally in Person, and via email from Agent. Also present was Alex Russell* (R), (D) & (M)
12.January 2016, verbal offer made to lease property by Sam Cosentino over the phone to Kim Russell. This is the establishment of oral agreement which in our view is a collateral contract with the Machinery, the Lease and the crop Contract. (E)
13.4th March 2016 First Valuation of crop in ground. This became known in PEAQ Fars as the WIP. Work In Progress. Jim Cosentino and Sam Cosentino Present with John Glendining and Kim Russell. (R), (D) & (M)
14. During March 2016 Kim Russell and John Glendining met with Sam
Cosentino and Andrew Moffatt the Labour contractor. At this meeting the arrangements for labour, accommodation and the nature of the contract, costs etc were discussed. (R), (D) & (M)
15. Another WIP Valuation was made in Early April, then early May With Sam Cosentino, John Glendining and Kim Russell with the final valuation done With Alex Russell, Sam Cosentino, John Glendining on 30th May 2016. Kim Russell was in India.. (R), (D), (E) & (M)
16.18th May 2016 Restraint clause inserted into the lease contract to ensure Sam
Cosentino was fully engaged as manager and consultant to teach and train Alex Russell, Kim Russell and John Glendining all they needed to know for the vegetable business in that environment. Restraint clause for Jim Cosentino removed from Lease Contract at his request.
The applications are for the defence of claims by the Plaintiff as they relate to the crop and the lease. The nature of the applications surrounding the oral or "verbal" contract which we have been referring to it as until now are for how they relate to the contemporaneous nature of all the contracts together as a "package". Further to this the misrepresentations, deceitful conduct, estoppel and mistake aspects formed inducements to enter the contracts.
*Alex Russell is Kim's son who was employed as the trainee manager to be trained in all aspects of the vegetable business by Sam Cosentino.
29 September 2018
-,1.'1lLA.-
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John Glendinning
Second defendant
Kim Russell
Third defendant
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12
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