SF Cosentino Pty Ltd v Glendining
[2020] VSCA 149
•9 June 2020
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2019 0004
| SF COSENTINO PTY LTD | Applicant |
| v | |
| JOHN GLENDINING and KIM RUSSELL | Respondents |
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| JUDGES: | TATE, KYROU and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 17 March 2020 |
| DATE OF JUDGMENT: | 9 June 2020 |
| MEDIUM NEUTRAL CITATION: | [2020] VSCA 149 |
| JUDGMENT APPEALED FROM: | [2018] VCC 1775 (Judge Macnamara) |
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GUARANTEE AND INDEMNITY – Crop sale agreement and sub-lease – Breach and termination – Claim against guarantors for unpaid sums – Defence of misleading or deceptive conduct – Whether conduct of sole director of head tenant and vendor attributable to company – Reliance – Whether any loss caused – Whether judge impartial in dealing with self-represented litigants – Australian Consumer Law s 18 – Leave to appeal granted in respect of finding of reliance – Appeal allowed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P G Cawthorn QC with Mr H Kirimof | SMR Legal Pty Ltd |
| For the Respondents | Dr M Wolff | Aqua Law |
TATE JA
KYROU JA
McLEISH JA:
TABLE OF CONTENTS
Introduction and summary..........................................................................
2
The history of the sub-lease and crop sale agreement ............................
3
Proposed sale....................................................................................................
3
Engagement of Rob Hosking............................................................................
4
Negotiations for sale with the Yorta Yorta people...........................................
5
The Hosking financials.....................................................................................
7
The kitchen meeting – 7 April 2015................................................................
13
The meeting with Schreiner – 22 April 2015..................................................
16
Russell expresses interest in the Yalca farm operations...................................
17
Valuation of crop – March to May 2016.........................................................
18
Execution of the contracts – personal guarantees and indemnities.................
19
The venture fails...............................................................................................
22
The County Court proceeding — SFC’s claim below...............................
24
The defences of Glendining and Russell....................................................
26
The judge’s reasons —misleading or deceptive conduct.........................
29
The grounds of appeal..................................................................................
33
Attribution: was providing the Hosking financials conduct by SFC? — Ground 1..........................................................................................
34
Reliance: did Russell and Glendining rely on the Hosking financials? — Ground 2...............................................................................
39
Loss: did any misleading or deceptive conduct cause loss? — Ground 3.........................................................................................................
43
Was the judge impartial? — Ground 4.....................................................
46
Conclusion......................................................................................................
47
Introduction and summary
Sam Cosentino (‘Cosentino’)[1] and his son Jim Cosentino (‘Jim’) were the registered proprietors of two farms in north eastern Victoria on which they grew vegetable crops for the wholesale market. One farm is in Yalca and the other is in Somerville on the Mornington Peninsula. Both farms were leased to the applicant, SF Cosentino Pty Ltd (‘SFC’), of which Cosentino was the sole director. In 2014 Cosentino was looking to retire, and to that end, after some exploration of an outright sale of both farms which came to nothing, SFC entered into an arrangement on 31 May 2016 with PEAQ Farms Pty Ltd (‘PEAQ Farms’) to sub-lease the Yalca farm for 10 years with an option for a further 10 years (‘the sub-lease’). On the same day SFC also agreed to sell to PEAQ Farms the crops already in the ground on the Yalca farm (‘the crop sale agreement’). SFC further agreed to sell items of SFC’s plant and farming equipment (‘the plant and equipment agreement’) to another entity, PEAQ Management Pty Ltd (‘PEAQ Management’). PEAQ Farms was unable to honour its financial obligations fully under the sub-lease and the crop sale agreement. The venture ultimately failed and SFC terminated the sub-lease and the crop sale agreement. SFC brought proceedings in the County Court seeking to enforce two guarantees and indemnities given by the respondents, John Glendining (‘Glendining’) and Kim Russell (‘Russell’), directors of PEAQ Farms, in respect of the obligations of PEAQ Farms under the sub-lease and the crop sale agreement.
[1]Sam’s given name is Salvatore but he was known as ‘Sam’.
A judge of the County Court dismissed SFC’s claim.[2] He also made an order, after delivering judgment, granting Glendining and Russell leave to file a counterclaim and, on that counterclaim, refused to order enforcement of the guarantees and indemnities given by Glendining and Russell with respect to PEAQ Farms’ obligations to SFC. The judge upheld their defence and counterclaim that they were induced to enter into the guarantees and indemnities by misleading or deceptive conduct by SFC in providing them with incorrect company financial documents, with the result that they were relieved of their obligations. Glendining and Russell were self-represented in the County Court.
[2]SF Cosentino Pty Ltd v PEAQ Farms Pty Ltd [2018] VCC 1775 (‘Reasons’).
SFC now seeks leave to appeal, and if leave is granted, to appeal from the judge’s decision.[3]
[3]In what follows we refer simply to ‘the appeal’.
For the reasons below, we would grant leave to appeal and allow the appeal.
In our view, the primary judge erred in inferring that Russell and Glendining relied on representations made by SFC when they executed their guarantees and indemnities for PEAQ Farms’ obligations under the sub-lease and crop sale agreement. There being no relevant reliance, they ought not to have been relieved of their obligations under the guarantees and indemnities.
The history of the sub-lease and crop sale agreement
Proposed sale
Cosentino had emigrated from Italy when he was 14 and had been engaged in vegetable crop farming in the Shepparton area for some 52 years. By 2011, he and Jim owned a farm at Yalca (some 510 acres, including a 66 acres shiraz vineyard) with a second farm in Somerville (some 96 acres in an area with potential as part of the Port of Hastings development) which was also part of the SFC operation.
In or about 2011 or 2013, Kagome, a large vegetable wholesaler, placed an advertisement in a local newspaper seeking land in the Shepparton area to lease for carrot growing. It was at this time that Cosentino first met Russell, who had been retained as a consultant by Kagome, when Russell conducted some soil tests on the Yalca farm. Russell had also worked for some 17 years as a corporate farm manager for a superannuation fund. Between 2012 and 2015, Russell visited Cosentino on a regular basis, two or three times a month, and formed a friendship with him. Cosentino gave evidence that when he mentioned to Russell that he had the farm up for sale because he wanted to retire, Russell asked if he could ‘have a go’ at finding some investors:
I said, ‘Look, I’m going to sell the farm, I’ve got it up for sale and I’m going to try and retire because, you know, I’ve been working since I was 14 years old, I’ve had enough.’ He said, ‘Oh, look, I know a lot of people, a lot of investors from Canberra, Sydney’, he said, ‘Do you mind if I have a go at it’, and I said, ‘Look, if you can find someone’ … ‘Don’t ask me for any money because I’m not paying you, you know, any money to sell and I’m not paying the agent money to sell, I can’t double up.’ He said, ‘No, no, let me have a go.’ I said, ‘All right.’
At some point, Russell introduced Glendining, who was working as an accountant for agricultural businesses, to Cosentino. Russell then took steps to help Cosentino find people from Russell’s network of investors to buy the farm, on the basis that Russell and Glendining would then establish a company to manage the operation for the investor. Russell explained that this would involve setting up a company to own the land and another entity to manage the operation, with the land owning company having a shareholding in the management company.
Engagement of Rob Hosking
In March 2014, Rob Hosking (‘Hosking’), a real estate agent with Ray White Rural Rochester, was retained to find a buyer for ‘the farm’. The judge concluded that it was probable that he was engaged by Cosentino and Jim, because they were the registered proprietors of the land.[4] In his evidence at trial, Hosking said he signed a sale authority in respect of the Yalca farm on 5 March 2014 for 90 days, with a continuing authority for a further 90 days. He confirmed that he and his firm were ‘most definitely’ engaged to find a buyer, and not to search for a tenant, because ‘[w]e 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. So the lease side had no interest to me.’ Hosking placed an online advertisement offering ‘the farm’ for sale for $2.75 million.[5] He confirmed in his evidence at trial that he was not acting as agent for SFC for the crop sale agreement and he ‘had nothing to do with it’, and that neither Glendining nor Russell ever asked him about the sub-lease.[6]
[4]Reasons [94].
[5]Reasons [20].
[6]See also the questions about Hosking’s continuing role: [43] below.
Russell also knew Hosking from the early 2000s. Hosking had been Victorian Farmer of the Year and Russell did a story about him when Russell was the executive of the International Commission on Irrigation and Drainage. He had kept in regular contact with him. Amongst the investors Russell tried to interest in buying the farm were the people of the Yorta Yorta nation through the Tribal Co-operative based in Shepparton. Hosking gave evidence that the Yorta Yorta people were clients of Russell, and it was through him that Hosking was introduced to them.
Negotiations for sale with the Yorta Yorta people
At some time in early 2015, Russell took Rob Walker (‘Walker’), the CEO of the Tribal Co-operative, to meet Cosentino and inspect the farm. Hosking also attended this meeting, it seems at Russell’s request. By this stage, Hosking’s sale authority with Cosentino and Jim had expired. Following a request by Walker for ‘a section 32 and a section 52’, the next week Cosentino provided Hosking with copies of documents purporting to be SFC’s financial accounts for the years ended 30 June 2012 and 30 June 2013. These came to be described by the judge as ‘the Hosking financials’. Despite their name it was not contended that Hosking created these financial documents; the name reflects the fact that these financial documents were provided to Hosking and he later sent them to Russell.
The request by Walker for a ‘section 32 and a section 52’ is a reference to a statement under s 32 of the Sale of Land Act 1962 and a statement under s 52 of the Estate Agents Act 1980. Section 32 of the Sale of Land Act provides that a vendor under a contract of sale of land must give the purchaser a statement, signed by the vendor, that relates to matters in respect of the land and the use of the land.[7]
[7]This includes particulars of: any mortgage and any charges over the land; the amount of any rates, taxes and charges and similar outgoings and any interest payable on them; information about insurance relating to the land; easements, covenants, issues about access, zoning and planning requirements; details of any notices pertaining to the land; details about building permits and owner’s corporations; any requirement to provide growth areas infrastructure contributions; disclosure of non-connected services for the land; and evidence of title and information about subdivision: Sale of Land Act ss 32A(a)–(c), 32B, 32C, 32D, 32E, 32F, 32G, 32H, 32I (respectively).
Section 52 of the Estate Agents Act provides that a person seeking to sell a small business shall, before signing a contract or taking a deposit, provide a statement in the prescribed form, signed by the vendor, setting out the particulars of the business. The prescribed form at the relevant time was a detailed form set out in the Estate Agents (General, Accounts and Audit) Regulations 2008,[8] which included a requirement for financial and accounting information for the last two accounting periods certified by a practising accountant as being in accordance with the vendor’s books of account and as being true and fair.
[8]Estate Agents (General, Accounts and Audit) Regulations 2008 reg 7, sch 2 Form 2.
Cosentino gave evidence at trial during cross-examination by Glendining about how the Hosking financials were produced, saying that his accountant, Peter Schreiner (‘Schreiner’), prepared his financials and Jim copied the information from them:
Q: Sam, the figures that Rob Hosking had, where did he get them from?
A:The day that Kim [Russell] brought Rob Walker, which is the CEO of the Aboriginal people, and went through with Rob Hosking, myself, Kim and Rob Walker, we went through the whole farm so he could have a look at it. Rob Walker was the one that asked me for a section 32 and a section 52.
HIS HONOUR: Yes, and that’s a section under the Estate Agents Act 1980 and it’s a statement of profitability of a small business?
A:Yeah, well, I didn’t know what they were, Your Honour, and he turned around and he said, ‘The financials’, I said, ‘Right. Rob’, I turned around and said to Rob Hosking, ‘Rob, I will ring home, I will get copies and next Monday, when I come up, I will give them to you’, and that’s what happened. On the following Monday, I gave them to Rob Hosking to give them to Rob Walker.
Q: So who prepared those - - -?
A: My accountant prepares my financials.
Q: You got them from Schreiner, Mr Schreiner?
A:No, I think my son copied them off Mr Schreiner’s financials. We keep a copy ourselves.
The evidence given by Hosking was that following the meeting with Walker at the farm and his request for ‘the financials’, Cosentino arranged to meet Hosking at a cherry farm just outside Echuca where he handed over the Hosking financials to Hosking.
The judge found that Cosentino provided the Hosking financials to Hosking in response to being told that the Yorta Yorta people were looking for financial information on the Yalca farm:
During a meeting at the farm … 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.[9]
[9]Reasons [94] (emphasis added).
The proposal to sell the Yalca farm to the Yorta Yorta people was unsuccessful.
The Hosking financials
As mentioned, the Hosking financials purported to be copies of SFC’s financial accounts for the years ended 30 June 2012 (with a comparison with the 2011 year) and 30 June 2013 (with a comparison with the 2012 year). At the foot of the balance sheet for each year the following statement appears: ‘The accompanying notes form part of these financial statements. These financial statements have not been subject to audit or review and should be read in conjunction with the attached Compilation Report.’ In addition to the balance sheet and a profit and loss statement for each of the relevant years, the Hosking financials include a ‘Trading Statement’ for each year which sets out under the heading ‘Income’ a single line item ‘Sales’ with a figure for that year and a comparison with the preceding year, and details of costs:
SF COSENTINO PTY LTD
ABN …
Trading StatementFor the Year ended 30th June 2012
2012 2011 $ $ Income Sales 2,777,580 2,040,758 2,777,580 2,040,758 Less Cost of Sales Opening Stock 15,000 15,000 Fertilizer 88,823 72,096 Cos Produce 130,755 77,061 Seeds 750,182 663,741 Packaging 151,432 98,462 Freight 388,572 283,249 1,524,764 1,209,609 Closing Stock 15,000 15,000 1,509,764 1,194,609 Gross Profit 1,267,816 846,149 Gross Profit Margin
45.6%
41.5%
SF COSENTINO PTY LTD
ABN …
Trading Statement
For the Year ended 30th June 2013
2013 2012 $ $ Income Sales 2,030,110 2,777,580 2,030,110 2,777,580 Less Cost of Sales Opening Stock 15,000 15,000 Cleaning equipment
1,393
—
Fertilizer Sprays 127,837 88,823 Cos Produce 73,664 130,755 Seeds 747,840 750,182 Packaging 108,044 151,432 Freight 274,576 388,572 1,348,354 1,524,764 Closing Stock 75,000 15,000 1,273,354 1,509,764 Gross Profit 756,756 1,267,816 Gross Profit Margin
37.3%
45.6%
The Hosking financials did not set out weekly sales figures. However, as counsel for SFC submitted on the appeal, based on the total 2011 sales figures, $2,040,758, the weekly sales figure was about $39,245; based on the total 2012 sales figures, $2,777,580, the weekly sales figure was about $53,415; and based on the total 2013 sales figures, $2,030,110, the weekly sales figure was about $39,040. As the sales figures related to SFC’s financial accounts, they included both the Yalca farm and the Somerville farm.[10]
[10]See [27] and [40] below.
The judge described the Hosking financials as ‘bogus financial statements’.[11] The judge found that Cosentino’s providing the Hosking financials to Hosking amounted to misleading or deceptive conduct on behalf of SFC.[12]
[11]Reasons [118], [142], [143], [149], [150].
[12]Reasons [118]. See [72] below.
This characterisation appears to be based on a comparison of the sales figures in the Hosking financials with the sales figures in a set of SFC financial documents for the same years produced at trial by SFC’s accountant, Schreiner, pursuant to subpoena. The subpoenaed documents showed markedly different sales figures, for which Cosentino had no explanation. The judge described those discrepancies in the following terms:
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’.[13]
[13]Reasons [104] (citations omitted).
The judge found that Hosking emailed these financial statements to Russell on 5 February 2015.[14] That email said: ‘Hi Kim, Please see attached figures. Thanks Kim. Kind regards, Rob’. There were two attachments. The first attachment was a Ray White Rural brochure headed ‘SF Cosentino P/L’ followed by a description of the two farms: ‘Property 1’ being the Yalca farm, ‘Property 2’ being the Somerville farm. Under the heading ‘Market Gardening on a large scale’ were the following descriptions:
[14]Reasons [94].
·Property 1 Price $2,500,000
·510 Acres or 205.7 Ha
·510 meg Spear Bore and Deep leed Bore access to GMW Supply
·66 acres Shiraz Vineyard
·80 acres Permanent Sprinklers
·Property 2 Price $7,000,000
·96 acres or 29 Ha
·3 x 50 meg Dams feed by local creek
·550 ml rainfall
·Lease has two years to run
·Outstanding capital growth area
Contact: Rob Hosking …
With respect to the Yalca farm, the brochure included photographs of the permanent sprinklers, bore water pumps, a large packing shed, workers’ quarters, a machinery shed with other workers’ quarters including six shower blocks, a sprinkler computer station, and images of the sandy soil described as ‘ideal for vegetable production’.
The second attachment to the email of 5 February 2015 from Hosking to Russell was the Hosking financials.
Cosentino gave evidence that he was not aware that Hosking had sent Russell this information, in particular the Hosking financials, and had not authorised him to do so. His evidence was that the first time he realised that Russell and Glendining had the Hosking financials was during discovery some six weeks before trial.
With respect to the sales figures in the Hosking financials, Russell said he and Glendining ‘never for one minute thought that those figures were for both farms’, and he was ‘disturbed a little bit’ to hear during the cross-examination of Schreiner that this was so. However, later in his cross-examination he admitted that he knew before the agreements were signed that SFC operated the farm at Somerville in addition to the Yalca farm.
The judge noted that SFC submitted that the Hosking financials were for the entire SFC business, which ‘purported to cover two farm operations’,[15] as was made clear by the accompanying sales brochure, and therefore there was no justification for Russell assuming they related exclusively to the Yalca farm.
[15]Reasons [125].
The judge found that, although the exact provenance of the Hosking financials was unknown, it was likely that Cosentino prepared them or someone prepared them on his behalf:
The 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.[16]
[16]Reasons [116].
Russell gave evidence that after he received the Hosking financials, he prepared a gross margin analysis on his laptop which involved him creating a spreadsheet based on ‘crop by crop analysis’ (‘the spreadsheet’). This presented sales figures in the following way:
| 2011 | 2012 | 2013 | Projected GM Cosentino 80 Acres (33 Ha) | ||
| These are actual figures from 2011–2013 | Average | ||||
| Income | |||||
| Sales | $2,040,758 | $2,777,580 | $2,030,110 | $2,282,816 | $3,138,112 |
| Per Week | $39,245.35 | $53,415.00 | $39,040.58 | $43,900.31 | $60,348.31 |
| … | |||||
| Gross Profit | $846,149 | $1,267,816 | $756,756 | $936,907 | $1,840,719 |
Russell explained at trial that the analysis he adopted for the spreadsheet used an average weekly sales figure of $43,900 derived from the Hosking financials, which he then ‘scaled up’ to slightly over $60,000 per week based on an increase of the land under cultivation to 80 acres.[17] He further explained that the figure of $60,000 per week was the result of ‘a “three-pronged analysis”: the Hosking accounts, the gross margins analysis and the valuation of the crop in the ground.’[18]
[17]Reasons [139]. The judge also noted that Russell had said that ‘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)’: Reasons [40].
[18]Reasons [141].
When conducting the examination in chief of Glendining, Russell explained to the judge the relationship between the Hosking financials and the spreadsheet somewhat differently. (Some of the statements made by Russell or Glendining during the course of examining witnesses, or in response to questions from the judge while engaged in that examination, were treated as evidence but no objection was taken to this). Russell said to the judge that he and Glendining prepared a ‘forensic analysis that we did [which] we then compared to Rob Hosking’s, and it gave us the comfort’. Glendining also commented to the judge, with respect to the turnover figure in the Hosking financials, that it ‘gave me confidence that the forecast that had been prepared had some reality’. On this account, the Hosking financials appeared to have functioned as support or corroboration for figures at which Russell and Glendining had independently arrived.
The kitchen meeting – 7 April 2015
On or about 7 April 2015, well after the proposed sale to the Yorta Yorta people had collapsed and more than a year before the sub-lease and the crop sale agreement were entered into, Cosentino, Russell, Glendining and Hosking met in the kitchen of the farmhouse at the Yalca farm, which also acted as the SFC operations office (‘the kitchen meeting’). They were all seated around the kitchen table, and according to Russell, he had his head in his laptop in front of him on which he had the spreadsheet with the analysis he had prepared using the Hosking financials.[19] The spreadsheet was not there in hard copy form, but the Hosking financials may or may not have been on the table in hard copy form. Russell’s evidence was that he said to Cosentino, ‘Sam, we have a problem. It seems to make too much money.’ Russell asserts that in response, Cosentino said, ‘It is what it is’, followed by a pregnant pause.[20]
[19]See further [36] and [99] below.
[20]Reasons [95].
When Russell was asked by the judge during the course of his examination in chief, ‘what did you say to him that was the basis for his response “it is what it is”?’, Russell said, ‘The average sales figures for the operation are $63,000 per week.’[21] Russell acknowledged that Cosentino was not a computer user.[22] However, he said that Cosentino ‘should have spoken up at that point when I pointed to that figure of $63,000, because that was loud and clear on the computer’.[23] Russell said that he then asked Cosentino if he and Glendining could have an interview with Schreiner, and Cosentino indicated he did not have a problem with that.[24]
[21]Reasons [96]–[97], [140].
[22]Reasons [139].
[23]See the spreadsheet at [29] above. The reference to ‘$63,000’ and not ‘$60,348’ seems to have been (and been treated by the judge) as a slip.
[24]Reasons [99].
Hosking also gave evidence about the kitchen meeting. He appears to have been asked to attend the meeting by Russell. Hosking’s evidence confirmed that when Russell said that the figures were very good, Cosentino had replied, ‘It is what it is’.[25] Hosking assumed that the figures Russell was referring to were those on his laptop, which Hosking did not see, and that the figures were the ones which Cosentino had provided to him as the Hosking financials, ‘being the figures provided in connection with the Yorta Yorta transaction’.[26] This is in conflict with Russell’s evidence which was to the effect that he was looking at the spreadsheet he had prepared and not the Hosking financials. Under cross-examination, Hosking conceded that he could not tell whether Russell was referring to the Hosking financials, or some analysis that had been prepared, or some other figures.[27]
[25]Reasons [95].
[26]Reasons [137].
[27]Reasons [138].
Cosentino denied seeing the analysis on Russell’s laptop and could not recall Russell saying, ‘Sam, it makes too much money’.[28] He denied ever making any representation that the farm would make $60,000 per week; indeed, his evidence was that when Glendining and Russell had asked him a few times while on the farm about its profitability, he ‘told them that the farm and the market side of it was very volatile, that they could be earning a dollar one day and nothing the next, and that’s all that was said.’
[28]Reasons [98].
Russell asked Cosentino in cross-examination whether he, Russell, had raised the sales figure of $3,138,000 with him.[29] Cosentino denied it:
[29]Reasons [98]. See the spreadsheet at [29] above.
Q:I will say, Sam, that you were not significantly computer literate, are you? You don’t use a computer as a matter of course?
A: No, I don’t.
HIS HONOUR: Just so that I’m clear as to what’s being put to the witness, what I understood it to be was that there was a printout of this spreadsheet on the table in the kitchen but the last question that you asked, perhaps hinted that maybe I had misunderstood, so could you clarify it? Is the suggestion that you are putting that there was a hard copy of this on the kitchen table, or was it on somebody’s laptop sitting on the table?
Q:It was definitely on the laptop in the computer with the spreadsheets and the discussion was one-on-one, day by day and when those all added up in the spreadsheet, it came to a figure which you will see there as the sales, $3,138,000. That figure is drawn up exactly ….?
A: $3 million? How did you come up with that?
Q: I went through the gross margin with you?
A: I’ve never seen this.
Q:So you would have agreed when I said, ‘Sam, it makes too much money’?
A: No, I don’t remember, I don’t recall it.
Cosentino agreed that Russell asked to speak to SFC’s accountant, Schreiner, but Cosentino said that: ‘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 …’.[30]
[30]Reasons [99].
The meeting with Schreiner – 22 April 2015
On 22 April 2015, Russell and Glendining met Schreiner at his offices. Russell gave evidence that he placed his laptop showing the spreadsheet on the desk, turned it to face Schreiner and explained how he and Glendining had analysed the SFC operation, focusing on the total annual sales figure of $2.7 million in the Hosking financials.[31] He said that Schreiner seemed to be impressed and said, ‘That would about pull it up’. Russell said he took Schreiner to mean by this: ‘that in his view, from his experience of watching the books, that farm wouldn’t do much more than that. ... He was saying to me, the message that I received from that was, “don’t go expecting any more than that”. But inherent in what was said that was that you could reasonably expect that sort of figure.’ Russell said that the meeting with Schreiner reinforced their interest in the farm. He also said that in their business planning presentations to interested parties, one sophisticated rural investor had ‘said a similar thing’. When asked if the investor used the expression ‘that would about pull it up’ Russell responded: ‘No, he said, “it looks a bit too good to be true” was his terms’.
[31]This would appear to be a reference to the sales of $2,777,580 in the 2012 figures in the Hosking financials.
Schreiner gave evidence that Cosentino had told him that Russell and Glendining ‘wanted to come down and have a chat’, but Cosentino ‘didn’t give me specifics’ about what Schreiner could tell them or what he was authorised to disclose. He recalled the meeting and that he was impressed with their knowledge of CSIRO statistics on soil contents and the like. He said they asked ‘generic questions about the business’. In relation to the financial performance of the business, Schreiner said that: ‘The specifics on financial statements weren’t reviewed, no. I wouldn’t have felt comfortable … as my client wasn’t — wasn’t present.’[32] He thought that they had some documents with them which may have included a spreadsheet, but he could not say what the documents were and he did not have ‘a chance to ... have a look at … the meaningful figures that were on that spreadsheet’. He had not seen the Hosking financials until he was shown them in his examination in chief.
[32]Reasons [101].
Schreiner said he could not recall mentioning an annual sales figure of $2.7 million during the meeting, or saying, ‘That would pull it up’; indeed, he said that the phrase did not ‘ring a bell with me’. His evidence was that his engagement by SFC was to ‘operate at a tax altitude’ looking at the ‘overall picture’, but SFC’s tax situation was not discussed. Since he was not a management accountant, he was not in a position to speak about the profitability of individual divisions in SFC’s operation, or the yield of individual crops. He confirmed that SFC financial statements do not distinguish between the two operations in Yalca and Somerville, and so looking at those statements as a whole would not assist anyone interested in the performance of the Yalca farm alone.
Russell expresses interest in the Yalca farm operations
After the sale to the Yorta Yorta people did not proceed, Russell made a number of presentations to potential investors but all the other expressions of interest also failed to result in any sale. During his visits to the farm, Russell had said how impressed he was with it and that he would ‘love to do something like this’. At some point, Cosentino said ‘somewhat jokingly’ to Russell, ‘Well, if you’re so impressed, why don’t you buy it yourself?’. Russell said he could not afford to buy it but he would lease it.[33] Cosentino and Russell then discussed a 10 year lease with an option to renew for a further 10 year period, and Cosentino proposed a rental of $220,000 per year (being $18,333 per month) plus all outgoings, plus GST.
[33]Reasons [7].
Cosentino gave evidence that, after this discussion, Russell asked to speak to people SFC dealt with at the produce markets in Sydney and in Melbourne. He said the negotiations for the deal started sometime after May 2015 with the idea that Russell and Glendining would take over in November 2015. However, there were delays until Cosentino in April 2016 told Russell, ‘Listen, we will either go forward or we’ll stop now because I can’t be held in limbo’, to which Russell replied, ‘No, we will definitely do the deal at the end of May’. Hosking was still somewhat involved in the negotiations.
Cosentino gave evidence during an exchange with the judge about Hosking’s role in the following terms:
Q: You’ve mentioned him being present at quite a few of the meetings that you’ve been describing, so was he involved in bringing these transactions forward and did he ultimately earn a commission from it or did he drop out at some point?
A:No, he never earned a commission of it, your Honour. The very first one, the very first meeting we had, he was asked by Kim [Russell] to be there and on the second meeting that we had, he was asked by Kim to be there because the second one had nothing to do with selling the farm, really.
Q:So does that mean that when you’ve been describing ongoing negotiations and eventually you putting your foot down and saying, ‘Either you’re doing the deal or you’re walking away, but we can’t keep delaying’, by this stage Mr Hosking had disappeared from the scene?
A:No, no, Mr Hosking was still around but he wasn’t on the day, it was Kim and I talking about it.
Q: Yes, I see?
A: And I put Kim on the spot.
Q:But at any rate, he wasn’t involved in negotiating a transaction that he was going to derive a commission from?
A: No, he was not.
Valuation of crop – March to May 2016
On 4 March 2016, Jim, who was responsible for marketing the farm produce, undertook a valuation of the crop then growing and under cultivation at the Yalca farm for the purpose of the crop sale to PEAQ Farms. He explained that his approach was to use as a guide the prices for which he had been able to sell the produce at the market on the previous day. He then took into account that the plants would be at different stages of growth at the date of sale, so PEAQ Farms would be able to harvest some crops immediately, while others would need up to 12 weeks to grow. To make allowance for that, he thought a fair approach would be to allow 50 per cent of the market price for crops which were ready or nearly ready for harvest, and then 25 per cent of the market price for the rest.[34] The result was a crop valuation report with a total value of $640,000.[35]
[34]Reasons [26]–[27].
[35]Reasons [30].
When there were delays in executing the agreements, Jim undertook a second valuation in May 2016, this time by driving around the farm with Cosentino, Russell[36] and Glendining, as Glendining made a note of crop values. As some of the crops had been harvested and others had been sown since the last valuation but were not fully grown, the crop was valued at $560,000.[37] The judge observed that in fact the crop realised $677,790.13.[38] On the analysis performed by Russell and Glendining, based on the price of the crop under the crop sale agreement, it should have realised $1,331,920.[39]
[36]Reasons [28].
[37]Reasons [30].
[38]Reasons [79].
[39]Reasons [36].
Execution of the contracts – personal guarantees and indemnities
On 20 May 2016, SFC and PEAQ Farms agreed on a purchase price of $560,000 in respect of the crop sale agreement, to be paid in four equal monthly instalments of $140,000, with the first instalment due at the end of June 2016.
On 31 May 2016, SFC and PEAQ Farms and PEAQ Management executed the suite of contracts to give effect to the handover of the farming operation, namely, the sub-lease, the crop sale agreement and the plant and equipment agreement.[40]
[40]The judge described the plant and equipment agreement as involving the sale of some 40 items identified in a document called ‘Cosentino Equipment Schedule — May 2016’: Reasons [33].
The sub-lease for the Yalca farm between SFC and PEAQ Farms was signed by Cosentino on behalf of SFC and by Glendining, both in his own capacity and under a power of attorney granted by Russell, as directors of PEAQ Farms. Clause 3.1 provided that PEAQ Farms would pay rent to SFC, noted in the schedule to be $220,000 per annum exclusive of GST ‘payable per calendar month in advance’. Clause 8.14 provided for interest to be paid at 8 per cent on any unpaid amounts, calculated daily and payable on the first day of each month. In the event that PEAQ Farms were to be wound up or go into liquidation, SFC had a right to terminate the sub-lease and re-enter the property (cl 8.1).
The sub-lease contained an entire agreement provision in the following terms:
Entire Agreement
10.8Each party acknowledges that the terms of the Lease cover the whole of the agreement between the parties and the Tenant hereby acknowledges and declares that the Tenant has not been induced to enter into this Lease by any promise, representation, warranty or undertaking (other than those contained in this Lease) which may have been given or made by the Landlord or the Landlord’s agent as to the suitability of the Land for use to be carried on it by the Tenant or any other promise, representation, warranty or undertaking AND to the full extent permitted by law the Tenant hereby waives the benefit of any such promises, representations, warranties or undertakings which may have been made and hereby expressly agrees that the Tenant is hereby estopped from alleging any such promises, representations, warranties or undertakings, in any legal or other proceedings in respect of this Lease.
The sub-lease guarantee and indemnity in respect of the obligations of PEAQ Farms was in the following terms:
Guarantee
11.3 The Guarantor unconditionally and irrevocably guarantees to the Landlord the due and punctual performance by the Tenant of the Tenant’s obligations under this lease, any renewal of this lease and any holding over period, including the obligation to pay Rent and other money.
Indemnity
11.4 As a separate undertaking the Guarantor unconditionally and irrevocably indemnifies the Landlord against all liability or loss arising from, and any costs, charges or expenses incurred in connection with, a breach by the Tenant of this lease, any renewal of this lease and any holding over period, including the obligation to pay Rent and other money. It is not necessary for the Landlord to incur expense or make payment before enforcing that right of indemnity.
Russell and Glendining were named personally as guarantors in the schedule.
The crop sale agreement provided for the sale by SFC to PEAQ Farms of ‘all the right title and interest’ in ‘the Crop’ for $560,000 ‘to be paid in monthly instalments as agreed between the parties commencing on the date of the commencement of the Sub-Lease between the parties’. In the event of default by PEAQ Farms, cl 5.1.2 provided for interest to be payable at a rate of 2 per cent higher than the rate for the time being fixed under s 2 of the Penalty Interest Rates Act 1983. The document did not include any definition of ‘the Crop’, although it was clear the agreement related to the Yalca farm. SFC was obliged to give possession of the Crop to PEAQ Farms on settlement and PEAQ Farms took such possession at its sole risk. Included in the warranties given by SFC was a warranty that the Crop ‘is sold without warranties or conditions other than those included in this Agreement’.[41]
[41]Clause 7.2. The other warranties related to the Crop being the sole property of SFC at settlement with no third party interests, and an undertaking to release any security registrations over the Crop.
The crop sale agreement also included an entire agreement clause, which relevantly provided:
12 Full Agreement
The Purchaser acknowledges that in order to avoid any suggestions of misrepresentation or later uncertainty —
12.1 The Purchaser has written into this Agreement any representation or term which affects the offer for the Crop so that these may be fully considered by the Vendor before acceptance of the offer.
12.2Any other representation or term is withdrawn by the Purchaser prior to the Purchaser signing this Agreement.
12.3The Purchaser shall not rely on or make any claim in respect of any other representation or term that may have otherwise affected the decision of the Purchaser to purchase the Crop.
The crop sale agreement included an obligation for the execution of a guarantee by the directors of PEAQ Farms:
17 Guarantee Annexed
If the Purchaser is or includes a company, the company will immediately upon execution of this contract or upon nomination of a company as Purchaser, procure the execution by each of its directors of the Guarantee annexed to that part of this contract to be held by the Vendor.
The crop sale guarantee and indemnity was signed by Glendining, again in his own capacity and on behalf of Russell, on 31 May 2016.[42]
[42]The crop sale guarantee incorrectly refers to the guarantee being given in relation to a contract for the sale of ‘land’, rather than the sale of the ‘crop’. However, it was an agreed fact between the parties (as part of an agreed chronology at trial) that cl 17 of the crop sale agreement (set out above) provided for personal guarantees and indemnities to be given by the directors of the purchaser, if the purchaser was a corporation, and that in respect of the crop sale agreement, the ‘Guarantee and Indemnity is contained in the last three pages of the Sale Contract at Schedule A hereto [that is, to the agreed chronology] and these pages are a true copy of the Guarantee and Indemnity’. The effect of this is that it was admitted that the relevant Guarantee and Indemnity was annexed to the crop sale agreement. The judge clearly considered that the guarantees and indemnities in respect of the crop sale agreement and the sub-lease prima facie bound Russell and Glendining and that it was only by reason of SFC’s misleading or deceptive conduct that the guarantees and indemnities were not enforced. In those circumstances, the reference to the ‘land’ rather than the ‘crop’ in the crop sale guarantee is not material.
The venture fails
By 31 May 2016, Russell and Glendining were ‘short of money’[43] to meet the obligations under the various agreements. On that day the cheque they had drawn for $140,000 for the first instalment under the crop sale agreement was instead applied towards discharging the obligations of PEAQ Management under the plant and equipment agreement. The judge noted that Russell and Glendining had wanted to defer payments under the plant and equipment agreement, which were to be met by funding provided by a finance company, but Cosentino insisted that the obligations under that contract be fulfilled by the due date. As a result, some $160,000 was paid on behalf of PEAQ Management, while the first instalment of $140,000 under the crop sale agreement remained unpaid.[44]
[43]Reasons [44].
[44]Reasons [44]–[45].
Although PEAQ Farms had taken title to the crop in the ground and proceeded to sell it, it nevertheless continued to encounter difficulties meeting its obligations under the crop sale agreement. At the end of June 2016, it was only able to pay $70,000 and continued to be in default in relation to the initial $140,000 payment. The judge noted that, with the reluctant agreement of Cosentino, PEAQ Farms then made ‘four or five’ payments of $5,000, after which it ceased payments.[45] The parties agreed that PEAQ Farms paid SFC $70,000 on 30 June 2016, $10,000 on each of 11 August 2016 and 16 September 2016, and $5,000 on each of 14 October 2016, 21 October 2016, 28 October 2016, 4 November 2016 and 18 November 2016.[46]
[45]Reasons [47].
[46]‘Agreed Chronology at Trial’, [12].
During the period when PEAQ Farms was in occupation, there were a myriad of issues with the farm. Cosentino had been engaged as a consultant manager for the farm at the time of the transition to PEAQ Farms, but on 20 November 2016 he was given written notice that he was no longer required and another manager was appointed.[47] Initial sales of the crop from 1 June 2016 to 31 October 2016 were disappointing: $677,790 compared to $1,331,920 that Glendining and Russell were expecting.[48] Later PEAQ Farms was able to achieve sales of $55,000 to $60,000 per week, and at its peak $80,000 per week.[49] However, as the judge noted, in the end Russell acknowledged that the venture failed for PEAQ Farms because the Filipino workforce upon which the Yalca farm depended was only 40 per cent visa compliant which was unacceptable to the major supermarket chains. This issue applied to the whole industry and was nobody’s fault.[50]
[47]Reasons [37], [39].
[48]Reasons [35]–[36]. See [45] above.
[49]Reasons [41].
[50]Reasons [42]–[43].
After serving written notice of breach of the crop sale agreement on 31 January 2017, and the failure by PEAQ Farms to remedy the breach, SFC terminated the crop sale agreement on 8 February 2017. On the same day, SFC served written notice demanding performance of the guarantee and indemnity by Glendining and Russell in respect of PEAQ Farm’s obligations under the crop sale agreement. Glendining and Russell failed to remedy PEAQ Farm’s defaults. On 16 February 2017, SFC commenced proceedings in the County Court against PEAQ Farms, Russell and Glendining for debt and damages.
On 29 November 2017, PEAQ Farms passed resolutions for it to be wound up in insolvency and a liquidator was appointed.[51] On 4 December 2017, SFC terminated the sub-lease. In order to mitigate its loss, SFC entered into a new sub-lease with VBA Farms Pty Ltd, which took possession from 1 March 2018 and paid a lesser rent than that paid by PEAQ Farms, $16,666.67 (excluding GST) per month.
[51]Reasons [48].
The County Court proceeding — SFC’s claim below
In its second amended statement of claim, SFC characterised its claim against Glendining and Russell as a claim for recovery of a debt and/or damages for liability under the guarantees for the default by PEAQ Farms under the sub-lease and the crop sale agreement.
In relation to the crop sale agreement, the claim was for unpaid monies of $445,000. There is no dispute that this is the amount that was owed by PEAQ Farms. In its closing written submissions at trial, SFC provided details of its claim under the sub-lease for $238,298.67.[52] The claim took account of the payments received in mitigation. In addition, there was a claim for interest under the crop sale agreement ($87,927.12)[53] or in the alternative under s 60 of the Supreme Court Act 1986 ($72,175).[54] There was also a claim for interest under the sub-lease pursuant to s 58 of the Supreme Court Act ($6,250.30) which was at a rate higher than that provided for under cl 8 of the sub-lease.[55] This resulted in a total claim of about $777,475.[56] However, there was a dispute about whether PEAQ Farms had paid the November 2017 rent.[57] If that payment ($18,333) was excluded, the claim under the sub-lease is $219,965.67. This would necessitate the interest on that payment also being excluded ($1,838.32) with the result that the interest claimed under the sub-lease pursuant to s 58 of the Supreme Court Act (if appropriate) would be $4,411.98. On that basis, the total claim would be $757,304.[58]
[52]PEAQ Farms was obliged to pay $2,199,960 (being $18,333 per month for 120 months or 10 years) but it had made only 17 payments totalling $311,661 under the sub-lease. SFC claimed that four payments (November and December 2017, and January and February 2018) were outstanding: $73,332. The remainder of the lease was for 99 payments. This would have resulted in the sum of $1,814,967. SFC entered into a new sub-lease with VBA for $16,666.67 (excluding GST) per month from March 2018 ($1,650,000.33), leaving a deficit of $164,966.67. The result ($73,332 plus $164,966.67) was a claim by SFC for $238,298.67.
[53]This was calculated from 8 February 2017 (the date the formal notice of default was served) to 1 October 2018 (the commencement of the trial). This was claimed under cl 5.1.2 of the crop sale agreement which provided for interest on default at 2 per cent higher than the rate fixed under s 2 of the Penalty Interest Rates Act 1983 on the money overdue during the period of default. See [52] above. The rate claimed by SFC was 12 per cent which was 2 per cent higher than the rate fixed under the Penalty Interest Rates Act of 10 per cent per annum on and from 1 February 2017: Attorney-General, Victoria, Victoria Government Gazette, No G 1, 5 January 2017, 1, 9. In the alternative the same figure was claimed under s 58 of the Supreme Court Act from 8 February 2017 to 1 October 2018.
[54]This was calculated from 17 February 2017 (the date on which the proceeding was commenced by writ) to 1 October 2018.
[55]The rate for interest under the sub-lease was 8 per cent calculated on daily balances and payable on the first day of each month. See [48] above. Interest not paid was itself to bear interest. However, the claim made by SFC calculated interest at a rate of 12 per cent pursuant to s 58(1) of the Supreme Court Act, which relevantly provides that the Court must on application by a creditor in a proceeding for recovery of a debt or sum certain, unless good cause is shown to the contrary, allow interest on the debt or sum at a rate not exceeding the rate fixed under s 2 of the Penalty Interest Rates Act or, in respect of any bill of exchange or promissory note, at 2 per cent per annum more than that rate. As mentioned at n 53 above, interest under s 2 of the Penalty Interest Rates Act had been fixed at the rate of 10 per cent per annum on and from 1 February 2017.
[56]In this Court, SFC was granted leave to amend the application for leave to appeal to substitute the sum of $777,475 for the initial sum sought on the appeal of $782,375. SFC also submitted that any unresolved issues on quantum should be determined by this Court rather than being remitted to the County Court. The respondents opposed this course. The parties filed supplementary submissions on quantum pursuant to leave given at the hearing.
[57]Clause 5 of the sub-lease provided that the rent was ‘payable per calendar month in advance’. Russell said to the judge that ‘all the rent was paid the last day of the month for the next month and we had paid November’s rent so as of 30 November we didn’t owe any rent’. However, this was said by way of an opening address and not in evidence. There was doubt over whether the first instalment was paid by way of a bond or as rent. The judge noted that on the subject of a bond or a security deposit, Russell proposed giving a personal guarantee: Reasons [10]. The evidence was unclear as to whether it was agreed that a personal guarantee would make it unnecessary to have a bond. When cross-examined on whether the first instalment of rent was paid on 31 May, Russell ultimately responded: ‘I don’t know’. Cosentino denied that the rent had been paid for November 2017.
[58]That is, $445,000 + $219,965.67 + $87,927.12 + $4,411.98 = $757,304.
The defences of Glendining and Russell
There was some difficulty at trial identifying what defences Glendining and Russell were seeking to raise. Before PEAQ Farms was wound up and the sub-lease was terminated, it seems PEAQ Farms, Russell and Glendining were relying on a counterclaim which was filed on 8 June 2017. This was later struck out. They filed an amended defence and counterclaim on 13 September 2017. After SFC terminated the sub-lease, it filed an amended statement of claim to include unpaid rent from the early termination of the sub-lease in addition to the outstanding purchase price for the crop, interest and costs. On 5 April 2018, the solicitors who until then had been acting for Russell and Glendining were granted leave to file a notice of ceasing to act. From this point onwards, Russell and Glendining became self-represented litigants. On 10 April 2018, they consented to orders dismissing their counterclaim without adjudication on the merits. No further counterclaim was filed until after judgment.
The trial was listed for hearing on 23 May 2018. However, during a directions hearing before Tran JR on 21 May 2018, that date was vacated to allow Russell and Glendining to amend their defences to formulate their allegations more precisely in relation to SFC. Tran JR made orders to that end, and relevantly for present purposes, set out under ‘Other matters’ an extensive summary of what she understood was the gist of the defences made by Russell and Glendining against SFC based on misleading or deceptive conduct. This included the allegation that a representation had been made before entry into the various agreements that cash flow would be $55,000–$70,000 per week.
Notwithstanding the detailed orders made by Tran JR, the form of the amended defence filed by Russell and Glendining on or about 6 September 2018 did not clearly raise a defence based on misleading or deceptive conduct although it referred to s 52 of the Trade Practices Act 1974 (Cth) and s 18 of the Competition and Consumer Act 2010 (Cth),[59] meaning the Australian Consumer Law.[60] Paragraph 20A was in the following terms:
[59]Section 18 of the Australian Consumer Law provides as follows: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[60]The Australian Consumer Law consists of sch 2 to the Competition and Consumer Act 2010 (Cth), and the regulations under s 139G of that Act, as applied by the Australian Consumer Law and Fair Trading Act 2012 s 8.
The second defendant [Glendining] admits signing the document, however the Guarantee and Indemnity is unenforceable against the second and third defendants by operation of:
(a)The third defendant [Russell] did not sign the Guarantee and Indemnity;
(b)The Guarantee and Indemnity was signed by the second defendant as attorney under power of the third defendant;
(c)The third defendant gave the second defendant a power of attorney to execute a guarantee and indemnity for or an indemnity for or on behalf of the third defendant;
(d) By reason of the matters alleged, the Guarantee and Indemnity is unenforceable against the second and third defendants by virtue of section 52 of the Trade Practices Act 1974 and section 18 of the Competition and Consumer Act 2010 (Cth);
(e)The liability (if any) of the co-guarantors under the Guarantee and Indemnity is joint.
PARTICULARS
To avail themselves of the provisions of section 52 of the Trade Practices Act1974 and section 18 of the Competition and Consumer Act 2010 (Cth) the defendants will prove actionable misrepresentations were made by demonstrating that 1) misrepresentations were made; 2) they were made negligently if not fraudulently; 3) that the defendants were induced by the misrepresentations to enter into all the contracts in question … and 4) as a result the defendants suffered loss and damage.[61]
[61]The judge noted that Glendining and Russell were unsuccessful in seeking to purchase from the liquidator any claims raised in the counterclaim that PEAQ Farms might have against SFC because SFC outbid them. Glendining and Russell sought relief from Digby J on 28 September 2018 in relation to the assignment of those rights to SFC, but his Honour declined to intervene: Reasons [58].
The matter came on for trial before the judge on 1 October 2018. During their opening address, it became apparent that Glendining and Russell sought to rely on a number of matters that were not raised in their most recent amended defence. The judge adjourned the trial until 4 October 2018 to allow them a further opportunity to set out their defence, as a result of which they filed a document entitled ‘Response to Orders 1 October 2018’. That document raised a number of complaints, but in relation to the allegations of misleading or deceptive conduct, Russell and Glendining did not purport to rely on any representation that cash flow would be $55,000–$70,000 per week. Instead, Russell and Glendining relied on the following allegations, ‘Particulars’ 6 to 9, using a code, namely: Misrepresentation (R), Misleading or deceptive conduct (D), Estoppel (E), Mistake, failing to stop a serious mistake (M):
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).[62]
[62]The timing of the kitchen meeting (as having taken place after rather than before the meeting with SFC’s accountant) appears to be at odds with the evidence.
In addition to these allegations of misleading or deceptive conduct, Glendining and Russell raised other complaints, all of which the judge dismissed. These included the allegation that SFC engaged in misleading or deceptive conduct in relation to valuing the plant and machinery to be sold as part of the transaction;[63] that Cosentino had misrepresented that the bore water on the farm was suitable for irrigating all the crop types grown;[64] that the crop in the ground had been overpriced;[65] that there was a collateral oral contract and misleading or deceptive conduct about arrangements for labour and accommodation; and an allegation in respect of a restraint clause in relation to Cosentino’s consulting and management contract.
[63]The judge found there was no substance to those allegations, that there was no evidence about the quantum of any loss in any event, that even if they had been made out Glendining and Russell would have proceeded with the transactions anyway.
[64]The judge found that as Cosentino had warned Russell and Glendining about the quality of the bore water before the transactions were complete, there was no misleading or deceptive conduct, and this complaint provided no defence to the claim.
[65]The judge found that there was no misrepresentation by Jim, who undertook the two valuations, about the method he had used nor any evidence that he used incorrect market prices. His methodology was clearly set out in the crop valuations. The failure by PEAQ Farms to achieve a satisfactory price for the crop thus did not provide any defence to Glendining and Russell.
The judge’s reasons — misleading or deceptive conduct
The judge proceeded on the basis that, unless Glendining and Russell could establish viable defences, PEAQ Farms had failed in its obligations under the sub-lease and under the crop sale agreement, and SFC could enforce the guarantees and indemnities against Russell and Glendining.[66]
[66]Reasons [61].
The judge described the issue of the ‘sales figures’ and the complaints in Particulars 6 to 9 as ‘form[ing] the heart of the defendants’ defence’.[67] He summarised their defence as being 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. ...[68]
[67]Reasons [93].
[68]Reasons [110] (citation omitted).
The judge, as mentioned,[69] described the Hosking financials as ‘bogus’ financial statements. He rejected a submission made on behalf of SFC that, when Cosentino provided those statements to Hosking, this was not conduct of SFC because those documents were provided in the context of a proposed sale of the land, and SFC was not the registered proprietor of the land. The judge held that such an argument was not tenable, there being an air of unreality in the attempt to draw the distinction, in the circumstances, between SFC and Cosentino as its sole director. He also held that the impugned conduct could be attributed to SFC because it was ‘involved’ in the sale process and anyone advancing that process, including Hosking, would be acting on SFC’s behalf. He said:
There 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 … 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 to 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.[70]
[69]See [20] above.
[70]Reasons [115] (emphasis added).
These observations on the attribution of Cosentino’s conduct to SFC are challenged by Ground 1 of the grounds of appeal.
The judge concluded that when Cosentino provided the ‘bogus’ Hosking financials to Hosking, Cosentino was acting on SFC’s behalf and that the provision of those financial documents amounted to misleading or deceptive conduct:
For 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.[71]
[71]Reasons [118].
The judge then considered whether Glendining and Russell relied on the Hosking financials when they authorised PEAQ Farms to enter into the sub-lease and the crop sale agreement, and when they agreed to be bound by the guarantees and indemnities. He noted that there were entire agreement clauses in both the sub-lease and the crop sale agreement[72] and that Russell acknowledged reading them.[73] However, this did not preclude an inference that, as a matter of fact, Russell and Glendining relied on the pre-contractual representation in the Hosking financials:
The 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 [in Campbell v Backoffice Investments Pty Ltd[[74]]], a matter of fact. Mr Russell did not concede that, having read the entire agreement clauses, he proceeded to disregard pre-contractual representations.[75]
[72]See [49] and [53] above.
[73]Glendining also gave evidence that he read the agreements and guarantees.
[74](2009) 238 CLR 304, 321.
[75]Reasons [128].
The judge observed that the statutory norm prohibiting misleading or deceptive conduct can be contravened even where reliance on a misleading representation is not the sole factor influencing the decision which leads to the loss and damage.[76] He accepted that reliance on the Hosking financials by Glendining and Russell ‘in all the circumstances was naïve and careless’,[77] but he concluded that even if the reliance was unreasonable this was not sufficient of itself to sever any causal link between the contravening conduct and the loss or damage. He said, referring to Henville v Walker:[78]
[76]Reasons [130].
[77]Reasons [133].
[78](2001) 206 CLR 459, 468–9 [13] (‘Henville’).
In Henville, Gleeson CJ observed:
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 under s 82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.
...
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.[79]
[79]Reasons [132] (citation omitted), [135].
In finding that Glendining and Russell had relied on the Hosking financials, the judge considered the evidence of Russell about the kitchen meeting,[80] in particular the evidence about the laptop having been open on the table and Russell’s reference to a weekly sales figure above $60,000 that had been ‘scaled up’ from a figure derived from the Hosking financials. He concluded that but for the provision of the Hosking financials, Glendining and Russell would not have entered into the transactions because they placed material reliance on those financial statements in preparing their projections and analysis, which involved a ‘working and reworking’ of the figures in the Hosking financials:
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.
…
I 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 s 18 of the Australian Consumer Law on the basis of the authorities referred to above because the defendants displayed extreme naïvety and carelessness in relying upon the bogus financial statements. They did place material reliance upon those statements, given that the projections and analysis … represented a working and a reworking of what was set forth in the bogus financial statements.[81]
[80]See [29]–[33] above.
[81]Reasons [140], [142].
Ground 2 of the grounds of appeal challenges the judge’s conclusion on reliance.
With respect to the question of loss, the judge concluded that the effect of SFC’s misleading or deceptive conduct was that Glendining and Russell ‘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.’[82] He accepted that Russell’s evidence had been 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’.[83] He accepted that it was ‘difficulties in sourcing visa-compliant labour’ which forced PEAQ Farms into insolvency.[84] Nevertheless, he held that loss or damage caused by entering into a transaction can be compensable even if the loss or damage is immediately caused by a supervening event. He said:
Where 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.[85]
[82]Reasons [149].
[83]Reasons [150].
[84]Reasons [150]. See also [58] above.
[85]Reasons [151], citing Kenny & Good Pty Ltd v MGICA Ltd (1999) 199 CLR 413 (‘Kenny & Good’).
Ground 3 of the grounds of appeal challenges the judge’s conclusion on loss.
The judge, after delivering judgment and dismissing SFC’s claims, granted leave to Glendining and Russell to file a counterclaim, as mentioned.[86] On the strength of the counterclaim, he refused to order enforcement of the guarantees and indemnities Glendining and Russell had given of PEAQ Farms’ obligations under the crop sale agreement and the sub-lease. He considered that
there is no effective means of compensating [Glendining and Russell] 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.[87]
[86]See [2] above.
[87]Reasons [158].
The grounds of appeal
SFC seeks to rely on the following grounds of appeal:
1.The learned trial judge erroneously found that the alleged misleading or deceptive conduct, comprising the provision of the ‘Hosking Financials’ to the second respondent, was conduct engaged in by Mr Cosentino on behalf of the applicant. He should have found that the provision of the ‘Hosking Financials’ did not amount to misleading or deceptive conduct by the applicant.
2.The learned trial judge erroneously found reliance by the respondents on the allegedly misleading statements. He had found them to be extremely naïve and careless and their reliance evidently unreasonable. He should then have found that the respondents’ working and reworking of the Hosking Financials demonstrated such a significant failure on the respondents’ part to take care of their own interests that the Hosking Financials could not be regarded as the cause of the respondents’ error or loss.
3.The learned trial judge erred in finding misleading and deceptive conduct in that the respondents predicted sales of $55,000–$70,000 per week based on representations allegedly made to them but in fact PEAQ Farms Pty Ltd achieved approximately those sales, and the sales set out in the Hosking Financials, in any event, so that the representation, if made, was not incorrect or materially incorrect.
4.The learned trial judge failed to ensure the plaintiff was given a fair trial by not maintaining impartiality and becoming an advocate for the self-represented defendants.
If leave is granted and the appeal allowed, SFC seeks judgment in the sum of $777,475, interest and costs. For the reasons given above,[88] the total claim (excluding the rent for November and interest for that month)[89] may be $757,304.[90]
[88]See [62] above.
[89]See [118] below.
[90]See [119] below. The parties will be granted leave to file submissions on the appropriate judgment sum, including the interest components of the claims and/or any further interest claimed and on costs.
We turn to the grounds of appeal.
Attribution: was providing the Hosking financials conduct by SFC? — Ground 1
SFC submits that the judge erred in attributing to SFC the conduct of Cosentino in providing ‘bogus’ financial statements to Hosking, who in turn provided them to Russell. SFC submits that the judge erred in two respects: in attributing Hosking’s conduct to SFC, as its agent,[91] and in attributing Cosentino’s conduct to SFC because he was its sole director.[92]
[91]Reasons [115]. See [70] above.
[92]Reasons [115] and [118]. See [70] and [20] above.
SFC submits that the judge recognised that Hosking was engaged as a real estate agent for the sale of the farm only and not any subsequent leasing;[93] that he was not acting as agent for any party in relation to the crop sale agreement;[94] and that, as Cosentino and Jim owned the farm, it was not SFC who retained Hosking but Cosentino and Jim.[95] It submits that there was no evidence to support the judge’s finding that SFC was ‘plainly involved in the sale process’ and that SFC’s interests would be affected by any sale of the farm.[96] Furthermore, it submits that there is no legal principle which holds that anyone seeking to advance a process is acting on behalf of another person involved in that process, and that the judge should have realised that performing a task for, or for the benefit of, a person does not necessarily make them that person’s agent.[97]
[93]Reasons [112].
[94]Reasons [113].
[95]Reasons [94]. See [9] above.
[96]See [70] above.
[97]SFC relies on International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644, 652 and Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [171]–[179] (Allsop P), as well as s 139B of the Competition and Consumer Act 2010, which requires any agent to be acting within the scope of his or her actual or apparent authority.
With respect to Cosentino, SFC contends that his actions in providing the Hosking financials to Hosking were performed in his capacity as a vendor of the farm, and not in his capacity as a director of SFC. SFC submits that there was no evidence that Cosentino’s conduct, in propounding the Hosking financials in order to market the farm, had the authority of SFC. Moreover, the judge accepted that Cosentino gave the Hosking financials to Hosking in connection with the proposed sale to the Yorta Yorta people,[98] and not in relation to any transaction between SFC and PEAQ Farms, Russell and Glendining.
[98]Reasons [94]. See [16] above.
SFC further contends that any sale of the land was a matter for Cosentino and Jim as it (SFC) was only the head tenant of the farm. It submits that there is no evidence that SFC would sell its business, or any of its stock, to any prospective purchaser of the land, or that Cosentino would sell his shares in SFC, and no evidence as to the date on which SFC’s lease of the farm would expire.
Glendining and Russell focus upon the attribution of Cosentino’s actions to SFC. They respond by submitting that it is commercially unrealistic to say that the provision of the Hosking financials by Cosentino to Hosking cannot be attributed to SFC, particularly where such information is not publicly available and Cosentino was the sole director of SFC. They submit that it is clear that Cosentino was acting as an agent for SFC. They contend that the judge was correct to treat a distinction between the conduct of SFC and that of Cosentino, in the circumstances, as reflecting ‘an air of unreality’.[99] They submit that it would be naïve to argue that where a farm is for sale, the historical revenue and production figures for a farm, such as that contained in the Hosking financials, would not be used to further the sale of the farm, thus benefitting Cosentino.
[99]See [70] above.
In our view, with respect to Hosking’s role in the transaction, SFC is wrong to submit that the capacity in which Hosking acted was clear. The judge did not make a finding that Hosking’s role was as an agent for Cosentino and Jim only in respect of sale of the Yalca farm. He recognised that SFC’s submission was that Hosking’s role was limited[100] but his discussion of that issue is by way of an explanation of the submissions made by counsel for SFC.[101] His reasons do not suggest that he accepted SFC’s description as accurate. He observed that Hosking ‘is an important figure in this narrative’.[102] Hosking was ‘a well-known rural identity, having been Victorian Farmer of the Year some years previously’.[103] He ‘was already well-known to Mr Russell’.[104] Indeed, during cross-examination of Cosentino, Russell described Hosking as ‘our friend’. Hosking attended a number of meetings between Cosentino and Russell, most especially the kitchen meeting where there was some discussion of sales figures.[105] Furthermore, in the weeks before the relevant contracts were executed in May 2016, Hosking also provided the services of a member of his office staff to type up a list of the farming equipment that SFC agreed to sell to PEAQ Management.[106]
[100]Reasons [113].
[101]Reasons [111]–[114].
[102]Reasons [20].
[103]Reasons [20].
[104]Reasons [20].
[105]See [29] and [34] above.
[106]Reasons [20].
The judge inferred that Hosking acted as an agent of SFC on the basis that SFC ‘was plainly involved in the sale process and anyone seeking to advance that process would, to that extent, be acting on SFC’s behalf’.[107] We do not accept that a person who ‘advance[s] [a] process’ for another thereby becomes their agent; such a general finding is far too wide and imprecise to establish agency. However, it is sufficiently clear from the judge’s reasons that he considered that Hosking’s conduct, in its totality, went beyond simply performing a task for the benefit of another.
[107]Reasons [115]. See [70] above.
Hosking’s involvement with Cosentino and SFC continued long past the date when the proposed sale to the Yorta Yorta people had collapsed. His presence at the meetings and administrative role in the transactions clearly conferred a plausibility to the negotiations. In our view, the judge made no error in treating Hosking as more than an agent of Cosentino and Jim’s for the proposed sale to the Yorta Yorta people. Hosking was clearly involved in assisting with and promoting the suite of transactions between SFC and PEAQ Farms and, in doing so, he was acting (at least) on behalf of SFC.
We also consider that the judge made no error in finding that Cosentino, in providing the Hosking financials to Hosking, was acting on behalf of SFC.
In this context it is important to see the broader context in which the agreements were reached. The proposed transaction for which the Hosking financials were prepared was more than the mere sale of the land because any prospective purchaser who wished to operate the Yalca farm would not be in a position to enjoy the benefits of the operation of the farm unless there was also an arrangement with SFC regarding the lease and the purchase of the crops, plant and equipment. In the absence of an arrangement with SFC, which held the head tenancy and owned the crops, plant and equipment, a purchaser of the land would become a mere landlord. The new land owner would have no rights to the crops, or the plant and equipment, while the lease remained in force; it could not conduct a market gardening operation without entering into a transaction with SFC. It is evident from the sales brochure that the transaction Cosentino proposed, first, it would appear, by way of sale and purchase with the Yorta Yorta people, and ultimately by way of sub-lease of the land and agreements for the purchase of the crop and plant and equipment, was a transaction by SFC for the disposal of the business.
In the sales brochure, the vendor is clearly SFC.[108] The brochure is headed ‘SF Cosentino P/L’ and the proposed sale of the two farms, the Yalca farm and the Somerville farm, are described under the heading ‘Market Gardening on a large scale’, a clear reference to the business being operated on the farms.[109] It is also apparent from the sales brochure that the land is treated as no more than the site of the business — hence the photographs of permanent sprinklers and a sprinkler computer station; water pumps; packing sheds; and workers’ quarters. In our view, SFC cannot be removed from the transaction, or what was done in respect of it, including Cosentino providing the Hosking financials, simply because it is not the registered proprietor of the land. The transaction promoted by the sales brochure was a transaction for the sale of the market gardening business. This is consistent with Cosentino’s discussion with Russell that he was intending to retire because he had been working since he was 14 and had ‘had enough’.[110] When Cosentino sent to Hosking the Hosking financials, and Hosking emailed them, together with the sales brochure, to Russell (at that stage in respect of the proposed transaction with the Yorta Yorta people), the proposed transaction was a sale of the business, that is, the business conducted by SFC. Cosentino was acting in his capacity as a director of SFC. We see no error in the judge’s attribution of Cosentino’s conduct to SFC.
[108]See [22] above.
[109]See [22] above.
[110]See [7] above.
We reject ground 1 of the grounds of appeal.
Reliance: did Russell and Glendining rely on the Hosking financials? — Ground 2
SFC submits that the judge erred in drawing the inference that Russell and Glendining relied on the Hosking financials in guaranteeing and indemnifying the obligations of PEAQ Farms under the crop sale agreement and the sub-lease. It submits that the judge erred in concluding that, despite any reliance Glendining and Russell placed upon the Hosking financials being careless, naïve and unreasonable, it led them to form an expectation of $63,0000 in weekly gross sales, which in turn induced PEAQ Farms to enter into the transactions. SFC contends that whether or not the Hosking financials were ‘bogus’ this did not have any legal consequence for the claims based on misleading or deceptive conduct because Russell and Glendining worked and reworked those figures in a manner that was so plainly negligent and misconceived that their expectation could not have been caused by the Hosking financials. It submits that s 18 of the Australian Consumer Law was not enacted for the benefit of people who do not take reasonable care of their own interests.[111] The causal chain will be broken or dislocated ‘where the real, essential, substantial, direct, appreciable or effective cause lies elsewhere, particularly in a cause or causes arising from the acts or omissions of the applicant [for relief] himself.’[112]
[111]Parkdale Custom Built Furniture Pty Ltd v Puxu (1982) 149 CLR 191, 199 (Gibbs CJ).
[112]Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193, 243 (Federal Court, Gummow J); ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640, 651–2 [39].
SFC further submits that it is inescapable from the evidence that Russell and Glendining failed to take reasonable care in their use of the Hosking financials:
(1) Russell and Glendining acknowledged that they knew that SFC conducted both farming operations, and that the Hosking financials were accompanied by a sales brochure for both farms, yet they used the Hosking financials, which purported to be for SFC’s entire operations, as though they encompassed only the operations of the Yalca farm.
(2) The Hosking financials did not show that the SFC operations made $63,000 in weekly gross sales; that expectation was arrived at by Russell as a result of ‘working and reworking’ the figures in a manner that was never satisfactorily explained. The actual figures were quite different: $39,245 for 2011, $53,415 for 2012, and $39,040 for 2013 (and these figures related to both the Somerville farm and the Yalca farm).[113]
[113]See [19] above.
(3) Despite Cosentino acknowledging the volatility of a farming business,[114] there was no evidence that Glendining and Russell took account of that volatility in their expectations, if at all.
[114]See [35] above.
(4) Glendining and Russell did not appear to take account of the diminished and different role of Cosentino who, despite being integral to the success of the operation of the farm, was only retained as a part-time consultant.
(5) Glendining and Russell did not have SFC’s financial statements for the years immediately preceding the purchase, that is, for the years ended 30 June 2014 or 2015. Their expectations were therefore based on financial documents which were three to six years old (and, again, despite their being made aware that the farming business is volatile).
(6) There was no evidence that Glendining and Russell sought to discuss the details of the Hosking financials with Cosentino. There was no evidence that in the 15 months from the time when the Hosking financials were provided (early 2015) to the time when the agreements were executed (May 2016) either Glendining or Russell brought the Hosking financials to the attention of Cosentino and asked him to confirm or comment on them in detail. There was no more than the evidence of the kitchen meeting when Russell said he referred to the figure of $63,000 appearing on his laptop and Cosentino made the cryptic remark, ‘it is what it is’. Cosentino denied having said this, and the judge did not reach any findings about what occurred at this meeting or whether Cosentino made the remark attributed to him or, if he had, what he meant by it.
(7) There was evidence that Russell and Glendining retained solicitors for the purpose of advising on the terms of the agreements. Amendments were made to the agreements at their request. They must have been aware of the force of the ‘entire agreement’ clauses and not simply viewed them as ‘legal boilerplate’ clauses.[115]
[115]See [73] above.
SFC submits that these matters demonstrate that the expectations formed by Glendining and Russell were fanciful and arose out of their own significant failure to take care of their interests, rather than by any conduct of SFC. No reasonable person, having received the Hosking financials, would have derived the expectations from those documents that Glendining and Russell did.
Glendining and Russell respond by submitting that the judge correctly noted that the sole question is whether there was in fact reliance, not whether the reliance was reasonable. Section 18 of the Australian Consumer Law is not confined to ‘reasonable reliance’; as his Honour observed, that section ‘is not restricted to the protection of the careful or the astute’.[116] Providing that there is a causal connection between the contravention and the loss or damage, negligence on the part of Glendining and Russell should not preclude a successful claim for misleading or deceptive conduct. The judge made a finding of fact that, but for the Hosking financials, they would not have entered into the transactions. SFC’s reference to examples of the failure of Glendining and Russell to take reasonable care are irrelevant; they submit that all that matters is that they did in fact rely on the Hosking financials, not what a prudent person would have done or not done.
[116]Henville (2001) 206 CLR 459, 468 [13]. See [74] above.
In our view, the judge was wrong to infer that the transactions were entered into in reliance on the Hosking financials. The evidence indicates that it is undeniable that Russell and Glendining entered into the guarantees and indemnities supporting PEAQ Farms’ obligations under the sub-lease and the crop sale agreement on the strength of the projected weekly sales figures and likely profitability recorded in the spreadsheet. The spreadsheet was open on Russell’s laptop at the kitchen meeting and Russell was pointing to figures that were ‘loud and clear’ on the computer.[117] Russell expressed surprise that ‘it seems to make too much money’.[118] This was conceded by the respondents on the appeal, the reference to ‘$3,138,000’ clearly being a reference to the figure in the projected column on the spreadsheet.[119] Similarly, the figure discussed for projected weekly sales figures, $63,000, is roughly the figure that appears on the spreadsheet, $60,348.[120] Russell’s evidence was that the figure above $60,000 for weekly sales as recorded on the spreadsheet was not drawn directly from the Hosking financials but from his own analysis — the working and reworking he did. This in turn was based on the ‘three-pronged analysis’ namely, the Hosking accounts, the gross margins analysis and the valuation of the crop in the ground.[121] (Indeed, the Hosking financials may have functioned as no more than a corroboration of calculations independently derived.[122]) In our view, this itself demonstrates that the connection with the Hosking financials is simply too remote to establish reliance.
[117]See [33] above.
[118]See [32] above.
[119]See [29] and [36] above.
[120]See [29] above.As mentioned, the reference to $63,000 rather than to $60,348 appears to have been a slip.
[121]See [30] above.
[122]See [31] above.
However, there are other reasons that show that there was no relevant reliance here. The behaviour of Russell and Glendining that the judge described as ‘evident unreasonableness’,[123] that displayed ‘extreme naïvety and carelessness’,[124] was more than that. The behaviour involved misunderstanding the sales figures in the Hosking financials in a fundamental way, as representing sales from one farm instead of two. This was not a matter of naïvely taking figures at face value and unreasonably omitting to verify them. Such behaviour may be consistent with an inference of naïve reliance. This was rather a matter of misunderstanding what business the figures related to, in circumstances where the sales brochure made it plain that SFC ran two market gardening farms and Russell knew this to be so. To flatly misunderstand what an accounting figure relates to, in circumstances where the context is plain and not obscured, is not a proper basis for inferring reliance. Russell and Glendining did not seek to establish that reliance on figures referable to both farms, rather than just the Yalca farm, had no bearing on the accuracy of the calculations they undertook.
[123]See [74] above.
[124]See [75] above.
The circumstances are aggravated by Russell and Glendining taking the Hosking financials, which they misunderstood, and engaging in a projection based on the cultivation of an expanded acreage of land under cultivation to 80 acres.[125] The Hosking financials made no representation about the suitability of the soil, or terrain, for increased cultivation. This reinforces the conclusion that the figures presented in the Hosking financials were too remote from the decision taken to execute the guarantees and indemnities in respect of the sub-lease and crop sale agreement. In other words, the causal chain was broken by intervening acts in which SFC had no involvement.
[125]See [30] above.
We would uphold ground 2 of the grounds of appeal with the consequence that we would grant leave to appeal and allow the appeal. The other grounds of appeal can be dealt with briefly.
Loss: did any misleading or deceptive conduct cause loss? — Ground 3
SFC submits that the judge was wrong to relieve Glendining and Russell of liability under their guarantees and indemnities as a means of compensating them for loss because they had not established that they had suffered any loss or damage caused by any misleading or deceptive conduct of SFC. Merely entering into transactions that subjected them to detrimental legal relations was said not to be sufficient loss.
SFC submits first that the Hosking financials did not convey a representation of future sales of between $55,000 to $70,000 per week. It submits that the judge was wrong to infer that the Hosking financials conveyed a misleading representation about the future crop sales of the Yalca farm because there was no such representation conveyed by the Hosking financials. Furthermore, SFC submits, even if they did, the actual sales met that prediction. In order to prove misleading or deceptive conduct by SFC, Glendining and Russell needed to show that the future sales prediction was made, and that it was false. Instead, the evidence was that PEAQ Farms achieved sales of $55,000 to $60,000 per week, and at its peak $80,000 per week.[126] SFC submits that a comparison of the value represented and that achieved shows that no loss was suffered.[127] Russell conceded that the venture failed not because it did not achieve the expected level of weekly sales, but due to extraneous issues concerning the workforce.[128]
[126]See [58] above. SFC submits that the PEAQ Farm figures for the period June 2016 to July 2017 show an average weekly figure of some $50,000.
[127]The power to award relief under s 243 of the Australian Consumer Law would therefore not be enlivened: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 515 [54]–[55].
[128]See [58] above.
Glendining and Russell submit that SFC is wrong to argue that if PEAQ Farms ‘more or less’ achieved sales in the order of the Hosking financials there was no contravening conduct or loss suffered. What matters is that the Hosking financials were wrong as supported by the judge’s finding that they were ‘bogus’. Furthermore, they submit that their loss and damage is distinct from any loss or damage suffered by PEAQ Farms because they were being sued under their personal guarantees and indemnities.
We have concluded in respect of ground 2 that the judge erred by inferring that Russell and Glendining relied on the Hosking financials in executing their guarantees and indemnities. The causal chain having been broken, it is irrelevant to consider what loss might have been attributable to Russell’s and Glendining’s reliance on the Hosking financials if that reliance had been established.
In any event, it is significant that the judge did not make any finding that SFC made a prediction about future weekly sales of $55,000 to $70,000. The Hosking financials did not purport to say anything about future sales; they were merely a snapshot of what the entire SFC operation achieved as at 30 June 2011, 2012 and 2013, albeit probably a wrong snapshot given the comparison with the sales figures supplied under subpoena by Schreiner.[129] The judge made no finding that SFC, through Cosentino, made or adopted any representation in respect of the $63,000 figure of projected weekly sales at the kitchen meeting. Furthermore, between 2016 and 2017 PEAQ Farms appears to have achieved average actual weekly sales consistent with those recorded in the Hosking financials.[130]
[129]See [21] above.
[130]See [77] above.
The loss the judge sought to identify was thus not a loss suffered by reason of a failure to meet weekly sales figures. Rather, he considered that the loss flowing from the insolvency could be sheeted home to the representations in the Hosking financials because, on his view, Russell and Glendining would not have entered into the transaction in the absence of the Hosking financials, which ultimately led to PEAQ Farms becoming insolvent. This was despite the judge finding that the viability of the operation did not come unstuck because of the failure to meet predicted weekly sales but because of issues concerning the visas of much of the workforce, which failed to comply with the standards of the major supermarket chains. In our view, it is difficult to accept that loss premised on supervening factors so far removed and unrelated to the Hosking financials could be sensibly viewed as flowing from them.[131] This is especially so when any loss sustained could not have been derived from an incorrect valuation of future sales because those sales figures were in fact met: ‘a valuer is not liable for loss that would have been sustained if the valuation were correct’.[132] In any event, as discussed, we do not consider that the Hosking financials contained representations about future sales.
[131]Kenny & Good (1999) 199 CLR 413, 425 [17].
[132]Kenny & Good (1999) 199 CLR 413, 428 [28].
It is unnecessary to decide ground 3.
Was the judge impartial? — Ground 4
Ground 4 is relied on by SFC in the alternative to grounds 1 to 3.
SFC submits that, at times during the trial, the judge impermissibly became an advocate for Glendining and Russell by taking control of the manner in which their evidence was adduced.[133] In doing so, SFC argues that the judge unduly interfered with the conduct of the trial. In particular, SFC submits the judge took control of the examination in chief of Glendining and Russell. He controlled the way in which they told their ‘story’ when there was no need to do so. SFC submits that it was not appropriate for the judge to intervene before giving Glendining and Russell an opportunity to give their evidence simply in a narrative form but, instead, the judge frequently asked leading questions, or questions designed to establish the case that Glendining and Russell were seeking to prove. Neither Glendining nor Russell is unsophisticated: Glendining is an accountant, while Russell has a degree in agronomy and was a representative of an international agribusiness.
[133]See Kenny v Ritter [2009] SASC 139; (2009) 52 MVR 360, 366 [23] (Gray and Layton JJ, Anderson J dissenting at 379–81 [84]–[104] on the topic of assistance to be given by a trial judge to an unrepresented litigant).
Glendining and Russell submit that it is wrong to suggest that the judge was not impartial and acted as an advocate for them. They submit that the judge was merely seeking answers to relevant questions which he needed to determine; the fact that the answer might be detrimental to the case being put by SFC did not make the judge an advocate for them. They submit that the judge’s questioning did not result in any material unfairness to SFC. Moreover, during the course of the trial, he sharply criticised Glendining and Russell about the manner in which they presented their case. Those criticisms are reflected in remarks contained in the Reasons[134] including, more than once, that they failed to adduce any evidence to support a claim.[135] Further, as the Reasons demonstrate, the judge took a strict and robust view of many of the claims being put by Glendining and Russell in their defence and dismissed those claims.[136]
[134]Reasons [66], [72]–[73], [75]–[77], [82]–[84], [90]–[92].
[135]Reasons [73], [82].
[136]See [67] above.
In our view, the judge was doing no more than attempting to ensure that all issues were properly canvassed during the trial, albeit that he engaged frequently and robustly in the questioning of witnesses. Given that Russell and Glendining were representing themselves, and needed to adduce each other’s evidence, and cross-examine other witnesses, the trial was difficult. This was all the more so because the claims that Russell and Glendining sought to make, by way of defence or counterclaim, were vaguely formulated at best. The judge sought to do everything he could to clarify what the legal argument was in support of any claim and upon what factual basis it was made. This was at times trying and it is not surprising that the judge would seek to ensure that everyone was aware of what point was sought to be made and where it might lead. At times this may have made him appear to have become an advocate for the self-represented litigants but ultimately we do not consider that to be so. He was rather seeking to ensure there was a fair hearing and that all issues were canvassed in a coherent fashion and understood by all parties. There was no objection made at trial by SFC’s counsel. While a failure to object is not determinative, in the circumstances of the trial it was telling.
Given our conclusion on ground 2, it is unnecessary to determine ground 4. In any event, we reject it.
Conclusion
Leave to appeal should be granted and the appeal allowed.
As mentioned above, the judge proceeded on the basis that PEAQ Farms had failed in its obligations under the sub-lease and under the crop sale agreement and, unless Glendining and Russell could establish viable defences, SFC could enforce the guarantees and indemnities against them.[137] He dismissed all of the claims made by Russell and Glendining in their defence and counterclaim save for the allegation of misleading or deceptive conduct, which he upheld.[138] We have now concluded that he erred in upholding that allegation and thereby erred in refusing to order enforcement against Russell and Glendining of their guarantees and indemnities of the obligations of PEAQ Farms to SFC.
[137]See [68] above.
[138]See [67] above.
Paragraphs 2, 3 and 4 of the orders of the primary judge made on 30 November 2018[139] should be set aside, and, in their place, judgment should be entered for SFC and the counterclaim dismissed.
[139]The relevant paragraphs of the orders were: ’(2) On the counterclaim ordered [pursuant to paragraph (1)] the Court refuses to order enforcement against the second and third defendants of their guarantees and indemnities of the obligations to the plaintiff of the first defendant; (3) Counterclaim otherwise dismissed; (4) Plaintiff’s claim dismissed’.
SFC had the onus of establishing its claim for debt and damages owed by Russell and Glendining as guarantors. The evidence with respect to the payment of the November 2017 rent was not entirely clear. It was not sufficient to establish that the November 2017 rent had never been paid. On that basis we consider that the payment for the November 2017 rent, and whatever interest arises in respect of the November 2017 rent, should be discounted from the sum awarded.[140]
[140]See [62] above.
As noted above,[141] the claim under the crop sale agreement and the claim under the sub-lease included claims for interest. While the basis of the claim under cl 5.1.2 of the crop sale agreement was tolerably clear (although greater than the lesser sum proposed in the alternative), the claim for the interest component under the sub-lease was less clear and, in any event, the claims for interest under both the crop sale agreement and the sub-lease would need to be updated and/or a basis demonstrated for further interest. We consider that leave should be granted to the parties to file submissions on the appropriate judgment sum (excluding the November 2017 rent and interest in respect of the November 2017 rent). The submissions should address the interest components of the claims under the crop sale agreement and under the sub-lease and/or any further interest claimed. We also consider that leave should be granted to the parties to file submissions with respect to the costs of the proceeding below and the appeal.
[141]See [62] above.
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