Storm Industries Pty Ltd trading as trustee of the T&L Trust v Unicar Australia Pty Ltd

[2020] NSWDC 51

District Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Storm Industries Pty Ltd trading as trustee of the T&L Trust v Unicar Australia Pty Ltd [2020] NSWDC 51

Hearing dates:

18-21 February 2020, 6 March 2020

Date of orders:

18 March 2020

Decision date:

18 March 2020

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraphs 365-370

Catchwords:

TRADE AND COMMERCE – alleged misleading or deceptive conduct in connection with investment in a ‘start-up’ company – applicable statutory regime – whether representations misleading or deceptive – whether omission to disclose matters relating to circumstances of investment misleading or deceptive

 

DAMAGES – whether reliance made out – damage suffered – whether ‘real’ value of shares at date of acquisition established – whether appropriate to make order for compensation – relevance of contributory negligence

JURISDICTION – monetary claim under ss 236 and/or 237 of Australian Consumer Law – whether the Australian Consumer Law is applicable as state law –monetary claim falls within the monetary limit of the jurisdiction of the District Court of New South Wales – whether the District Court has jurisdiction to grant other relief under s 237

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth)
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
District Court Act 1973 (NSW)
Fair Trading Act 1987 (NSW)
Interpretation Act 1987 (NSW)
Trade Practices Act 1974 (Cth)

Cases Cited:

ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640
Adcock Private Equity v Porges [2018] NSWSC 1363
Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353
Allstate Life Insurance Co v ANZ Banking Group (No. 5) (1996) 64 FCR 73
ASIC v Maxwell (2006) 59 ACSR 373
ASIC v Narain (2008) 169 FCR 211
Astley v Austrust (1999) 197 CLR 1
Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200
Bendigo & Adelaide Bank v Cairncross, Bendigo & Adelaide Bank Ltd v Elite Advertising Group Pty Ltd [2011] NSWSC 610
BHPB Freight Pty Ltd v Cosco Oceania Charting (No.3) [2009] FCA 1087
Browne v Dunn (1893) 6 R 67
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Campbell v Backoffice (2009) 238 CLR 304
Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45
Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Forrest v ASIC (2012) 247 CLR 486
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Gould v Vaggelas (1985) 157 CLR 215
Gregg v Tasmanian Trustees Ltd (1997) 73 FCR 91
H20 Learning Pty Ltd v Swim Loops Pty Ltd Jump Schools [2019] NSWDC 165
Hamilton v Whitehead (1988) 166 CLR 121
Henville v Walker (2001) 206 CLR 459
Heydon v NRMA (2000) 51 NSWLR 1
Houghton v Arms (2006) 225 CLR 553
HTW Valuers (Central Qld) v Astonland Pty Ltd (2004) 217 CLR 640
I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Ingot Capital Investments v Macquarie Equity Capital Markets & Ors [No.6] [2007] NSWSC 124
Ireland v WG Riverview Ltd [2019] NSWCA 307
Ivanoff v Phillip M Levy Pty Ltd [1971] VR 167
K & M Prodranovski Pty Ltd v Northshore Car Rentals Pty Ltd [2017] NSWSC 625
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413
Khoury v Sidhu [2011] FCAF 71
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Levy v Bablis [2011] NSWSC 461
Marks v GIO Australia Holdings (1998) 196 CLR 494
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234
McLean Tecnic Pty Ltd v Digi-Tech (Australia) Pty Ltd [2005] NSWSC 386
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357
Morellini v Adams [2011] WASCA 84
Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700
National Exchange Pty Ltd v ASIC (2004) 49 ACSR 369
Perpetual Trustee Co v Milanex Pty Ltd (in liq) [2011] NSWCA 367
Podresbek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529
Potts v Miller (1940) 64 CLR 282 at 289
Provectus Care Pty Ltd v Epicor Software (Aust) Pty Ltd [2009] NSWSC 1281
Rosenberg v Percival (2001) 205 CLR 434
Structum Pty Ltd v Basilios Mihalopoulos & CWCN Pty Ltd [2019] NSWDC 119
Taylor v Crossman (No.2) [2012] FCAFC 11
The NTF Group v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Watson v Foxman (2000) 49 NSWLR 315
Wynbergen v Hoyts Corp Pty Ltd (1997) 149 CLR 25

Texts Cited:

J.D Heydon, Competition and Consumer Law (Vol 2) (looseleaf, Thomson Reuters) [140.7000]
J.D Heydon, Heydon on Contract (Thomson Reuters 2019) [14.100], [14.340]

Category:

Principal judgment

Parties:

Storm Industries Pty Ltd trading as trustee of the T&L Trust (Plaintiff)
Unicar Australia Pty Ltd (First Defendant)
Mr M Tsingolis (Second Defendant)
Mr C Radcliff (Third Defendant)

Representation:

Counsel:
Mr L Gyles SC and Ms A Campbell for the Plaintiff
Mr D Tynan for the First and Second Defendants
Dr E Peden SC for the Third Defendant

  Solicitors:
I.D. Haege for the Plaintiff
Simmons & McCartney Lawyers & Attorneys for the First and Second Defendants
O’Loughlin Westhoff for the Third Defendant

File Number(s):

2018/379654

Publication restriction:

Nil

TABLE OF CONTENTS

INTRODUCTION

FACTUAL BACKGROUND

The Plaintiff’s Case

ISSUES

The Appropriate Legal Regime

THE REPRESENTATION CASE

The First Seed Capital Representations

Mr Burns

Mr Tsingolis

Mr Radcliff

Mr Yates

The Second Seed Capital Representations

Mr Burns’ Evidence

Mr Tsingolis

Mr Radcliff

Submissions Regarding Storm’s Representation Case

Storm’s Submissions

The Defendants’ Submissions

Mr Radcliff’s Separate Submissions

Principles relating to representations as a species of misleading or deceptive conduct

Credit

Mr Burns

Mr Tsingolis

Mr Radcliff

Mr Yates

Browne v Dunn

Watson v Foxman

The First Seed Capital Representations – February 2017

The ‘ground level’ price representation

The $600,000 representation

The ‘other investors agreement to invest $100,000’ representation

The Second Seed Capital Representations

Mr Radcliff’s 1 March 2017 email

Mr Tsingolis’ Representations on 5 April 2017

Were the representations made in trade or commerce?

Did the representations amount to misleading or deceptive conduct?

The ‘ground level price’ representation

The $600,000 dollars representation

The ‘other investors have agreed to invest $100,000’ representation

Mr Radcliff’s 5 March 2017 email

Mr Tsingolis’ 5 April 2017 Representations

THE NON-DISCLOSURE CASE

Principles

Submissions on the Non-Disclosure Case

Storm’s Submissions

The defendants’ submissions

Mr Radcliff’s separate submissions

Determination

ACCESSORIAL LIABILITY

General

DAMAGES

Causation

Principles

Evidence

Mr Burns

Mr Tsingolis

Submissions on Causation

Storm’s Submissions

The Defendants’ Submissions

Determination

REMEDIES

Jurisdiction to order relief

Principles

Assessing the value of Unicar

The financial position of Unicar

Position as at end of financial year 30 June 2019

The development of the App

Receipt of ATO refunds

The R & D expenditure

Business Opportunity

Submissions on Damages

Storm’s Submissions

Defendants’ Submissions

Determination

Contributory Negligence

Submissions on Contributory Negligence

Defendants’ Submissions

Storm’s submissions

Determination

Proposed Relief

ORDERS

judgement

INTRODUCTION

1. This case concerns the circumstances which led to an investment of $300,000 by a shareholder in a ride sharing business targeting university students as drivers. The business was called ‘Unicar’. Unicar, in concept, was described in Senior Counsel for the plaintiff’s opening as being something of a competitor to Uber; but an incidentally intended class of beneficiary was university students. Essentially, Unicar purchased vehicles wholesale; students would rent them and drive passengers around and, over time, they would eventually purchase them at substantially discounted prices. The principal for the plaintiff, Mr Burns, explained that the concept aligned with his values – it helped university students develop important business and life skills and culminated with them owning an asset.

2. The case is brought by Mr Burns who, through the use of his corporate entity, the plaintiff (Storm), was one shareholder in Unicar.

3. By this proceeding, Storm seeks remedies arising under the Australian Consumer Law (‘ACL’) (as Schedule 2 to the Competition and Consumer Act2010 (Cth) (‘CC Act’)), as the ACL is applied by the Fair Trading Act1987 (NSW), seeking the avoidance of the share issue agreement; and, alternatively, orders for damages (s 236) or compensation (s 237); and damages under s 1041I of the Corporations Act2001 (Cth).

4. This asserted entitlement to relief is founded upon claims that misleading or deceptive conduct occurred in trade or commerce in the form of representations by the second defendant (Mr Tsingolis) and the third defendant (Mr Radcliff) and the non-disclosure by them of information which, Mr Burns contends, he reasonably could have been expected to have had disclosed to him. It is contended that the representations were made to induce Storm to invest quickly and were false. Such representations (and omissions to disclose information which could reasonably be expected to be disclosed) induced Storm to make the investment: but for the misleading conduct, the investment would not have been entered into at all, and Storm would not have paid the sum of $300,000 to Unicar.

5. Storm says that it elected to rescind the share sale agreement on or about 19 September 2017, such that it is void.

6. Storm sues Unicar, as the principal corporate entity, for recovery of its investment. Storm says, and it is not seriously disputed, that any misleading or deceptive conduct engaged in by Messrs Tsingolis and Radcliff was also conduct engaged in by Unicar. Storm also sues Messrs Tsingolis and Radcliff as persons who both allegedly directly contravened the proscription against misleading or deceptive conduct themselves and, alternatively, were allegedly accessories to Unicar’s misleading or deceptive conduct.

FACTUAL BACKGROUND

7. Most of the following factual background is reflected in a (substantially) agreed chronology [1]  or the documents put before the Court [2] . Differences in the witnesses’ recollections will be identified in the account of the evidence that is to follow.

   1. Exhibit B and Exhibit E.

   2. Principally comprising a three-volume tender bundle, Exhibit C.

8. In 2014, Mr Burns met Mr Tsingolis. Mr Tsingolis was a promoter of the entity that came to be incorporated, Unicar. They socialised together and became friends. Mr Burns was a man in his early 30s, of an athletic build and had spent time at an American college. He was reared (especially by his grandmother) in a wealthy Sydney family. Mr Tsingolis was an experienced businessman involved in property developments across the eastern seaboard but particularly in Queensland. Mr Radcliff was his personal lawyer during the period concerned in this proceeding. In the same year, Mr Burns met Mr Radcliff, (who eventually became) the general counsel of Unicar.

9. During 2016, Mr Tsingolis allegedly explained to Mr Burns that he was developing a ride sharing business for which he was looking for seed capital investment. Back in January 2016, Mr Radcliffe alleges that he entered into an agreement whereby he would provide legal services in exchange for share capital (in lieu of fees, where his charge out rate was $500 per hour) in the proposed business.

10. In July 2016, Mr Radcliff says that he met with Mr Tsingolis and Mr Aiden Quig. He says Mr Tsingolis recognised that his time and effort should be compensated for by shares in Unicar.

11. Late in 2016, Mr Tsingolis visited Mr Burns at his home and told him that he was working on the ride sharing idea involving university students as drivers. In November, Mr Tsingolis and Mr Radcliff meet with Mr Aiden Quig and representatives from Volkswagen to discuss the possibility of a business relationship whereby Volkswagen may provide vehicles to Unicar at reduced prices.

12. By early November 2016, Ms Jacqueline Scott (Mr Tsingolis’ partner) set out, in an internal document, some aspects of what was required to establish the business. Specifically, this included a need to construct an ‘App’, a requirement which she thought would cost approximately $120,000.

13. An Information Memorandum (IM), prepared by Mr Radcliff in July 2016, was in evidence. There was no suggestion that Mr Burns was aware of its content prior to making his investment. Senior Counsel for Storm relied upon the document, amongst other reasons, to support his client’s case of non-disclosure as well as general background. The IM relevantly set out projected sources of revenue, including student rents to the fleet of vehicles purchased by the entity, commission on sales which the entity would take once a student had driven a passenger and advertising. The internal document envisaged a capital raising of $40 million, with an issue price of $1.10 per share. It also listed, as part of the management team, Mr Tsingolis, Mr Radcliff (General counsel) and Mr Aiden Quig (App & IT developer). It also listed Mr Radcliff’s law firm as the entity’s lawyers.

14. As to its proposed form, at that point, the IM foreshadowed that the entity would be an unlisted public company limited by shares; which would be allocated in the proportions of 70% for the Chairman (Mr Tsingolis’ company) and 30% for investors. It was to be managed by Mr Radcliff, Mr Tsingolis and Ms Scott.

15. The IM recognised the existence of and sought to manage several conflicts of interest: Mr Radcliff, the entity’s proposed General Counsel, was also a director of a law firm. Mr Tsingolis was the owner of the licensor of the ‘ride sharing platform’ (in which Mr Radcliff also held an interest). The reference to the licensor was to a Singaporean entity, Aurlev Holding Pte Ltd (UEN 201617443Z). A deed of 30 July 2016 (backdated after Unicar was incorporated) was in evidence. The effect of the licensing arrangement, as Senior Counsel for Storm put it, was to entitle this offshore entity to receive 5% for every dollar earned through the exploitation of the license to the technology platform. The IM indicated that the Board may use equity in the company (up to 2%) to remunerate its advisers.

16. On 21 November 2016, Unicar was incorporated. Its directors were Mr Tsingolis and Ms Scott, although Ms Scott ceased to be a director within a matter of months. Its sole shareholder at the point of incorporation was a corporate entity associated with Mr Tsingolis (Aurlev – the Australian subsidiary of the Singapore company Aurlev Holding Pte Ltd), which held 60 million shares. There is a dispute whether those shares were fully paid.

17. Later that month, Mr Radcliff alleges that he and Mr Tsingolis agreed that he would receive 10% of the equity in Unicar as compensation for the legal work he had provided (and would provide) in lieu of his charging for legal fees. Such agreement was only verbal.

18. By December 2016, a business plan for Unicar was developed. Part of that contemplated a capital raising. At this point, the plan envisaged interests associated with Mr Tsingolis and Ms Scott owned about 70% of the shares.

19. In February 2017, Mr Tsingolis told Mr Burns that he was proceeding with the ride sharing business as a start-up and was looking for investors. Mr Tsingolis invited Mr Burns to attend a presentation for prospective investors.

20. Before the presentation, on 10 February 2017, Mr Radcliff says that Mr Tsingolis asked him to prepare a single page ‘investment opportunity’ document. There is a dispute as to whether this document was provided to Mr Burns on the boat, or at any subsequent time. Mr Burns says he did not receive it. The document set out certain information including Unicar’s business model, the membership structure and proposed use of investment funds.

21. On 23 February 2017, the investor presentation occurred on a luxury boat owned by Mr Tsingolis, which was berthed near the Star Casino at Pyrmont Bay. Mr Burns attended a presentation by Mr Radcliff. The presentation occurred in the presence of other potential investors in Unicar. At certain points, Mr Tsingolis was not in attendance. This will be elaborated later. Amongst other things, Mr Burns alleges that Mr Radcliff emphasised that invitation was being extended to him to invest first round seed capital in the company at ‘ground level prices’. Mr Burns says he took this to mean the prices that the original investors had paid, or would pay, for their shares. Mr Burns says he was not supplied with any documentary material during or after the presentation.

22. According to Mr Burns, shortly after the presentation, on the same day, Mr Tsingolis indicated that he had already invested the sum of $600,000 in Unicar through his use of a corporate entity (Aurlev) managed and substantially controlled by him. Mr Burns says that the circumstance that Mr Tsingolis represented that he had ‘skin in the game’ was important to him deciding to invest.

23. Mr Burns pleads that on the basis of what was said during or after the presentation, whilst on the boat Mr Tsingolis had made several express and verbal representations. The representations were, essentially: first, that other persons had already agreed to invest amounts of $100,000 in Unicar; secondly, that if he invested in Unicar, Mr Burns could acquire his shares at the same price as that which had been paid by Mr Tsingolis himself (and/or other investors) and/or the same (pro rata) shares which Mr Tsingolis had received for his $600,000 investment. These representations are denied. Mr Burns says that the representation which he alleges was made about other investors agreeing to invest $100,000 was also important to him.

24. On 1 March 2017, Mr Burns received an email from Mr Radcliff in which the latter asked him if he (Mr Burns) was keen to proceed with the investment and invited an indication from him as to how much he might invest (and the form of it), whilst indicating that ‘we are meeting with an investor next week who will likely take out the remaining seed investment round available.’ Senior Counsel for Mr Burns says that this was false: no other investor had put money in and this statement amounted to a pressure tactic to induce Mr Burns to make a quick decision to invest by conveying that it was likely that the other investor might scoop whatever shares for the seed round were available.

25. Mr Burns responded to this email by indicating an interest in investing $100,000 whilst saying that he would be meeting with his accountant and bank. There followed some correspondence about the form of the investment. Mr Burns asked Mr Radcliff how the investment would work and said he would let you know when he had cleared accountancy and banking.

26. In about the middle of March 2017, Mr Burns met with his accountant (Mr Hawkins), who discussed with him different investment structures. Mr Hawkins clarified that he could not give him investment, legal or financial advice.

27. Mr Radcliff penned a handwritten on 3 April 2017 which, it was said, indicated Mr Radcliff’s awareness of Mr Burns’ prospective contribution, his prospective share price ($0.50) and the proportions of the capital which other investors would acquire, as was contemplated at that point. The same note recorded a reference of $1.00 as the prospective share offer price to Damian Yates. (There was a reference of $0.80 to another person, referred to in the note as ‘Paul C’). Mr Radcliff said in his evidence that, as far as he was concerned, any differential in share price to be paid by potential investors was a matter for Mr Tsingolis’ discretion.

28. On 4 April 2017 Mr Burns and Mr Radcliff exchanged emails in which the former asked the latter what the next steps were and provided Mr Radcliff with details of Storm and the T&L Trust. He informed Mr Radcliff that he was looking to invest “2-3 hundred” (i.e. thousand).

29. On 5 April 2017, Mr Burns and Mr Tsingolis spoke on the telephone. Mr Burns alleges that he informed Mr Tsingolis that he was aiming to invest $300,000 through Storm and that Mr Tsingolis had informed him (Mr Burns) that the investment price per share have gone up however he would “honour our original offer that other investors had received that anyone investing after you, including Corey (Radcliff) and his mates, will be paying double”.

7. On 6 April 2017, Mr Radcliff emailed Mr Burns attaching a draft share issue agreement, pursuant to which Mr Burns was to pay $300,000 in consideration for 600,000 shares in Unicar, being a price of $0.50 per share. At this time the only other shareholder in Unicar was Aurlev. The price per share offered to Mr Burns was more than 50 times the price ($0.01 per share) which the ASIC records indicates was paid by Aurlev for its shares. There is a dispute as to whether Aurlev did in fact pay the amount which is recorded in ASIC’s records. Mr Burns says that at the time Mr Radcliff sent this, he knew that 15 million shares would soon be issued by Unicar to other investors. Notwithstanding this, Mr Burns complains that Mr Radcliff did not inform him of this fact. This is an omission relied upon in Storm’s case on misleading or deceptive conduct arising from the non-disclosure of information which, it contends, could reasonably have expected would be disclosed.

8. On 13 April 2017, and in response to emails from Mr Burns in which he provided the draft share issue agreement, Mr Hawkins provided advice to Mr Burns; which was to the effect that although he would look at the document from an ‘accounting/tax perspective’, Mr Burns should have a lawyer review the agreement. Mr Hawkins sent a further email to Mr Burns stating, amongst other things, that although the agreement appeared fairly standard, it did not have much to say about the investment. Mr Hawkins attached to the email an ASIC search for Unicar for Mr Burns’ information. He also raised a series of questions for Mr Burns to consider. Mr Burns did not however read this ASIC search.

9. On 20 April 2017, Mr Burns sent Mr Radcliff an email stating that he would need longer to gather the cash for his Unicar investment. Mr Burns and Mr Radcliff exchanged other emails that day concerning a proposed date for settlement.

10. On 24 April 2017, Unicar issued 15 million shares, comprising: 6 million shares to Board Engine (an entity in which Mr Radcliff owned half the shares and was one of two directors) for nil dollars; 3 million shares to Ms Christina Quig for nil dollars; 6 million shares to Jacqueline Scott for nil dollars. Mr Burns was not informed about these transactions.

11. An issue in the proceeding is why these other members received the shares for no apparent consideration. The defendants point to the arrangements entered into in which Mr Radcliff, an experienced solicitor, agreed to forego monetary compensation for his services as the lawyer to the start-up entity but received equity in the company instead. Mr Burns questioned this, citing what was contained in the internal IM; which foreshadowed that a relatively modest financial allowance was to be paid to professional service providers; and contending that the value of the shares received, indirectly by Mr Radcliff (through the corporate entity Board Engine) vastly exceeded the monetary compensation anticipated in the IM.

12. On 27 April 2017, Mr Radcliff sent to Mr Burns an updated share issue agreement. The only material change to the agreement was the amendment of the settlement date to 5 May 2017. Senior Counsel for Storm noted that the communication did not disclose the issue of 15 million shares to a range of other investors.

13. On 1 May 2017, several events occurred in quick succession. At about 10:40am that day, Mr Burns emailed Mr Radcliff and stated that he was sending the $300,000 today. Slightly less than an hour later, this sum was transferred into Mr Radcliff’s law practice’s trust account. Mr Radcliff then asked Mr Burns to print and sign the contract and scan it back to him, which Mr Burns says he would do. At 1:41 pm, after Storm had paid the purchase price, Unicar lodged the relevant form with ASIC recording the additional (15 million) shares issued, on 24 April 2017. Mr Tsingolis was described on the form as the company officer certifying the accuracy of the information. Mr Burns says that the timing for the lodgement of the ASIC form, so closely after Storm had paid its money, was not coincidental but was indicative of an intention to conceal the interests and involvement of other Unicar investors.

14. On 2 May 2017, Mr Burns signed the share issue agreement, scanned it and emailed it to Mr Radcliff. Mr Radcliff then emailed Mr Burns acknowledging receipt of the funds and foreshadowing that he would talk to Mr Tsingolis tomorrow and then would issue Mr Burns his shares.

15. On 30 June 2017, Unicar lodged a form with ASIC recording that on 1 May 2017, 600,000 shares (representing 0.079% of the issued capital) were issued to Storm for the sum of $300,000 (fully paid), being $0.50 per share.

16. Bank statements of account produced during the proceeding revealed that the $300,000 was deposited by Storm into Mr Radcliff’s law firm’s trust account on 2 May 2017.

17. A large sum (nearly $58,000) was outlaid to pay Mr Radcliff’s firm. Another large proportion (just over $77,000) was used to pay the supplier of the App developer. Mr Tsingolis himself was the recipient of $10,000. Unicar received from its lawyers’ trust account the total sum of $102,482 in different tranches. The first ($20,000) was on 15 June 2017. The second ($25,000) was paid on 11 July 2017 and the final payment ($57,482) was paid on 14 September 2017. ANZ Bank account statements throughout 2017 for Unicar indicated where the total sum $102,457 went. But first, it is notable that the bank account statements revealed a nil balance as at 1 February 2017. This was, Senior Counsel for Storm noted, contrary to the alleged representation of Mr Tsingolis at about that time that he (or Aurlev) had put in $600,000. Senior Counsel for Storm observed that close examination of the bank statements indicate that Unicar expended a large proportion of the total sum of $102,457 on a range of services (including dining and entertainment) which appeared to be, at most, peripheral to Unicar’s main business activities. The amount of $102,457 was fully expended by October 2017.

18. On 28 August 2017, Mr Burns enquired Mr Radcliff whether he would receive any paperwork about the issue of shares. The same day, Mr Radcliff responded in an email to Mr Burns indicating that he was doing some paperwork that week but confirming that the shares were allocated to Storm when Unicar received payment as per the agreement. In the circumstances, however, Mr Burns did not receive any share certificate.

19. In late August 2017, Mr Burns was speaking with his solicitor on other unrelated matters when he mentioned that he had a company and trust which held shares in Unicar and he instructed the solicitor to carry out ASIC searches of that company to establish that shareholding. Those searches were undertaken on 7 September 2017 and it was the result of those searches, and what they indicated about the management and membership of Unicar, which shocked Mr Burns. A few days later, he instructed his solicitor to undertake further ASIC searches.

20. On 19 September 2017, Mr Burns’ solicitor sent a letter of demand to the defendants. That set in train the exchange of correspondence over a long period between his solicitor and Mr Radcliff (on his own behalf and on behalf of Mr Tsingolis) featuring many intemperate assertions.

21. The letter of demand sought, amongst other things, information as to what had occurred with Storm’s investment.

22. In January 2018, Unicar entered into a Participation Agreement with Volkswagen, by which the latter agreed to supply vehicles to support Unicar’s business growth and the development of its business. The agreement included certain milestones in the development of the business.

23. Storm commenced this proceeding in December 2018.

The Plaintiff’s Case

47. Storm’s case of misleading or deceptive conduct centres firstly, upon express verbal representations. In short, these were:

1. as at February 2017, that Mr Tsingolis represented to Mr Burns that:

1. he had invested $600,000 in Unicar; and

2. that there were other investors who had agreed to invest $100,000 each.

2. as at February 2017, that Mr Tsingolis and/or Mr Radcliff represented to Mr Burns that if he invested in Unicar he would receive his shares at the same price Mr Tsingolis had paid for his shares and/or at the price paid by first round seed capital investors; and/or the same pro rata number of shares which MR Tsingolis had received for his $600,000;

3. on 1 March 2017, Mr Radcliff engaged in misleading or deceptive conduct by representations contained in his email to Mr Burns;

4. on 5 April 2017, Mr Tsingolis further represented that:

1. the seed investment price per share was increasing;

2. Mr Tsingolis would honour (for Mr Burns) the original seed investment offer price per share, so that any investment made by him would be at the same price as all others who had invested to that point in time; and

3. any new investors (including Mr Radcliff and his mates) would pay double that share price.

48. Secondly, Storm argues a case of misleading or deceptive conduct as a result of the non-disclosure of information it says it reasonably expected to receive. Mr Burns says that unbeknownst to him, prior to his making the investment, in late April 2017, Unicar had issued 15 million shares in separate portions to other persons and a corporate entity (Board Engine) for free. Mr Radcliff controlled Board Engine. Mr Burns complains that Mr Radcliff (in addition to Aurlev, Board Engine and the other shareholders of Unicar) had a conflict of interest in encouraging Storm to provide investment capital to Unicar whilst diluting the shares issued by Unicar to Storm so as to preserve their equity. At any rate, by early May 2017, only Storm, amongst Unicar’s investors, had paid for its portion of shares (60 million shares at $0.01 per share). Mr Burns complains that the net result was that Storm was in an inferior position vis a vis other Unicar shareholders: it did not receive its shares at the same price as Mr Tsingolis or other original (or first round) seed capital investors; it paid 50 times more for its shares than Aurlev; it had an equity interest of less than 1% of Unicar’s issued capital; and had negligible control over the running of Unicar. In short, in the circumstances in which Storm acquired its shareholding in Unicar, it was much worse off than Unicar’s other shareholders.

49. In this proceeding, Storm wishes to recoup the $300,000 it invested.

ISSUES

50. The issues are:

1. whether Mr Tsingolis represented to Mr Burns (at the presentation in February 2017) that:

1. he had invested $600,000 in Unicar;

2. there were other investors who had agreed to invest $100,000 each in Unicar;

3. Mr Burns (or his nominated entity) would receive shares at the same price as Mr Tsingolis;

4. Mr Burns could invest seed capital in Unicar at ‘ground level prices’ (and if so, the meaning of that expression);

5. Mr Burns would receive shares at the same price Mr Tsingolis had paid and/or the same price paid by first round seed capital investors and/or the same pro rata number of shares Mr Tsingolis had received for his ($600,000) investment;

2. whether Mr Radcliff:

1. represented to Mr Burns in February 2017 that Mr Burns could invest seed capital in Unicar at ground level prices (and if so the meaning of that expression); and

2. on 1 March 2017, engaged in misleading or deceptive conduct as a result of what was conveyed in his email of that date;

3. whether Unicar/Mr Tsingolis represented to Mr Burns on or about 5 April 2017 that:

1. in circumstances where the seed investment price per share was increasing, Mr Tsingolis would honour for Mr Burns the original seed investment offer price per share, so that any investment by Mr Burns would be at the same price as all others who had invested at that time; and

2. any new investors after that time (including Radcliff and his ‘mates’) would pay double that price (the ‘Second Seed Capital Representations’);

4. whether any representations made by Messrs Tsingolis and Radcliffe to Mr Burns (as found) were false or misleading;

5. to the extent that the representations related to future matters, whether Mr Tsingolis and/or Mr Radcliffe had any reasonable basis for making them[3] ;

   3. Reliance was placed upon s 4 of the ACL. A similar provision exists in s 769C of the Corporations Act.

6. whether Mr Tsingolis and/or Mr Radcliffe engaged in misleading or deceptive conduct by omitting to disclose certain matters to Mr Burns before he (through Storm) made his investment, being:

1. prior to 2 May 2017, the only shareholder who had purportedly bought shares in Unicar was Aurlev (which had purportedly paid $600,000 to receive 60 million shares at $0.01 per share);

2. prior to 2 May 2017, Aurlev had not paid $600,000 to receive 60 million shares;

3. 15 million shares in Unicar have been issued to 3 other shareholders on or about 24 April 2017 for nil dollars;

4. in return for Storm’s $300,000 investment, it would:

1.    not receive its shares in Unicar at the same price as Mr Tsingolis (through Aurlev) had paid;

2.    not receive its shares at the price paid by first round seed capital investors;

3.    be paying 50 times more than Mr Tsingolis (through Aurlev) had purportedly paid;

4.    have an equity interest of less than 1% of the issued share capital in Unicar;

5.   have only negligible legal rights to have input into the running or administration of Unicar; and

6.   have a shareholding in Unicar which had virtually no voting power and, in substance, no material value;

7. that Messrs Tsingolis and Radcliff (and Aurlev and Board Engine) had a conflict of interest in that while they encouraged Storm to invest in Unicar and to provide working capital for Unicar, it was in their interest that the number of shares fully issued to Storm be kept to a minimum, so as to preserve the equity of Aurlev, Board Engine and other shareholders of Unicar;

1. in November 2016, Mr Tsingolis (on Unicar’s behalf) agrees to issue 10% of Unicar’s shares to Mr Radcliff for work and contribution to Unicar’s business (the ‘Omitted Investment Matters’);

8. whether Mr Tsingolis and/or Mr Radcliffe were person(s) ‘involved in’ Unicar’s alleged misleading or deceptive conduct by (a) making the representations; and/or (b) failing to disclose to Mr Burns the Omitted Investment Matters; and

9. the nature of Storm’s loss, if any, caused by any misleading or deceptive conduct.

The Appropriate Legal Regime   

51. At the outset, I questioned Storm about the applicable statutory regime. Its complaint concerns the circumstances in which it acquired shares in a company, Unicar, induced by alleged misleading or deceptive conduct. It appeared to me that this amounted to the acquisition of a financial product in connection with the supply of a financial service. Ordinarily, the ACL does not apply to financial products and/or to conduct involving the supply of financial services[4] .

    4. CC Act, s 131A.

52. In response, Storm sought and obtained leave to add an action for contravention of s 1041H of the Corporations Act, which, Storm submitted, the Court had jurisdiction to deal with under s 558AA of the Corporations Act (Storm eschewed any reliance upon s 12DA of the Australian Securities and Investments Commission Act2001 (Cth)).

53. Storm maintained its action (against the individual defendants) under the Fair Trading Act. The defendants plead in their respective defences that no action arises against any of them under the Fair Trading Act.

54. The present issue is whether the Fair Trading Act applies to this conduct and if so, to which defendants and to what extent it applies federal legislation.

55. The Fair Trading Act would ordinarily apply to individuals. It also applies to corporations[5] .

    5. Interpretation Act 1987 (NSW) s 21.

56. By reason of s 131A(2)(a) of the CC Act, the provisions in the ACL do not apply to conduct engaged in in relation to financial services. Storm argues that by s 131C(1) of the CC Act, this ‘carve out’ for financial services does not extend to exclude or limit the concurrent operation of state law, which includes the Fair Trading Act. In this, I consider that it is correct. Section 28 of the Fair Trading Act provides that the ACL applies as part of that Act. The Fair Trading Act did not, however, adopt the text of the CC Act (including s 131A(2)(a)).

57. In my view, the Fair Trading Act is potentially applicable for claims against individuals and Unicar for damages for misleading and deceptive conduct in relation to financial services. That is indicated by some authorities drawn to the Court’s attention during argument[6] in which the state fair trading legislation was invoked.

THE REPRESENTATION CASE

6. Bendigo & Adelaide Bank v Cairncross, Bendigo & Adelaide Bank Ltd v Elite Advertising Group Pty Ltd [2011] NSWSC 610 at [53]; Levy v Bablis [2011] NSWSC 461.

The First Seed Capital Representations

Mr Burns

58. Mr Burns prepared two affidavits. In his principal affidavit affirmed on 13 March 2019, Mr Burns deposed to the circumstances and content of the presentation he received in February 2017. Mr Tsingolis had invited him, his accountant or anybody else Mr Burns might wish to join in, to a presentation to potential investors in the ride sharing business during the last week of February. This occurred on a luxury boat named ‘Take Two’ which was berthed at the wharf in Pyrmont Bay. Mr Burns deposed that at the beginning of a presentation in the middle the morning, he was welcomed by Mr Tsingolis. Other potential investors were present as well as Mr Radcliff, who was described as Unicar’s solicitor. Mr Tsingolis left the boat just before the presentation was to commence and left it to Mr Radcliff to deliver it.

59. The presentation was made on a laptop computer. There were PowerPoint slides, an animated video clip advertising Unicar and financial forecasts. Mr Burns deposed that during the presentation, Mr Radcliff made certain statements explaining the concept of Unicar, the relationship with Volkswagen (to supply the fleet of vehicles), the development of the App, and the rights to drivers. One of the attendees (who had earlier been introduced to someone who had managed the Qantas car fleet) indicated that he would be managing the fleet for Unicar. No copies of materials presented were handed out or provided to Mr Burns before, during, or after this presentation.

60. Mr Burns deposed in his first affidavit (paragraph 13(f)) that during the presentation, Mr Radcliff stated, amongst other things, that an “invitation was being made to you to invest in first round seed capital in the company at ground level prices”.

61. After this presentation and whilst Mr Burns remained on the boat, he deposed to having a conversation with Mr Tsingolis (who by this stage had returned to the boat) about investment, substantially to the following effect:

Burns:      “How much are you investing?”

Tsingolis:   “I have already put in $600,000”

Burns:      “How much are other investors putting in?”

Tsingolis:   “$100,000 each”

Burns:   “If I was to invest in Unicar I would have to use my margin loan accounts to borrow the amount I would invest. I should be able to claim the interest as a tax deduction”

62. Mr Burns was challenged as to his recollections of what occurred, and what was said during the February 2017 meeting, Mr Burns had a clear recollection of the topics that were discussed: there was the concept of Unicar (and how university students would benefit), advertising, when the company would likely break even and technology that would illuminate the good drivers for the company. Under cross-examination, he struggled to give a verbatim account of what was specifically said. Mr Burns denied being shown the one page (‘investment opportunity’) document [7] which Messrs Radcliff and Tsingolis assert had been prepared in February.

    7. Exhibit C, page 154.

63. When asked to explain the circumstances in which Mr Tsingolis allegedly made his representation about his own shareholding, Mr Burns explained that this had come about by his asking Mr Tsingolis how much he was putting into the company and that he had similarly asked him how much other investors were putting in.

62. Mr Burns accepted in cross-examination that at least after the presentation on the boat – what might be called the business side of the meeting – he had allowed himself to become intoxicated. He also indicated that he was not alone in that respect. Mr Radcliff indicated that he had started to consume alcohol not long after getting on the boat. Mr Burns had stayed on the boat overnight and he told Mr Radcliff that it took him a few days to recover. In re-examination, he said that from past experience, heavy nights out had not previously impaired his ability to recall events from the previous day and he maintained that he recalled the substance of what was said during the presentation, prior to the period when he allowed himself to become intoxicated.

63. He accepted that he took no notes during the presentation. He had no advisers (such as his accountant) with him. He said that after he made the decision to invest, he discussed it with his grandmother (to whom he was very close), who supported the idea; and his uncle, who did not.

64. It was put to Mr Burns, and he rejected the proposition, that he had been shown a particular PowerPoint presentation. In this regard, Mr Burns was cross-examined on the differences in the content of the slides presented to him with the content of the PowerPoint slides he recalled seeing in February 2017.

Mr Tsingolis

67. In his affidavit sworn on 10 May 2019, Mr Tsingolis deposed, in narrative form, to the circumstances and content of discussions in the February 2017 presentation. Part of that evidence was objected to as to form and Mr Tsingolis had the opportunity to state in his evidence in chief what he said to Mr Burns. He recalled that Mr Radcliff was going to deliver the presentation; comprising a PowerPoint slideshow revealing features of the Unicar App and another slideshow presentation that had been used to present to Volkswagen.

68. In his affidavit, Mr Tsingolis did not directly respond to Mr Burns’ account of what was said on the boat. He said he was not there. When asked in cross-examination why he could not have delivered the presentation himself, which he agreed amounted to an ‘investor pitch’, Mr Tsingolis explained that his preference was to leave it to Mr Radcliff, his legal representative and Unicar’s general counsel. Mr Tsingolis explained that the presentation was not intended to be a business meeting, which I found implausible, having regard to the effort Mr Radcliff plainly expended to arrange to have PowerPoint slides and an excel spreadsheet and (on the defendants’ collective case) a single page investment opportunity sheet on hand. He understood, though, that the purpose was for Mr Radcliff to speak to prospective investors (not limited to Mr Burns).

69. Mr Tsingolis deposed to Mr Burns indicating to him, in advance of the presentation, that Mr Burns’ family was wealthy, that Mr Burns had ran investments for the family and that they, the family, were looking for a ‘start up’ to invest in; and that Mr Burns was interested in making investments on behalf of family and on his own behalf. This evidence (objected to in its original form in his affidavit) was challenged as simply an attempt by Mr Tsingolis to make it appear that Mr Burns was more financially sophisticated than Mr Tsingolis understood he was, to support Mr Tsingolis’ case. Mr Tsingolis denied that this was his intention.

70. Mr Tsingolis deposed that an offer was made to Mr Burns and Mr Damien Yates (another potential investor at the presentation) in the same terms: an offer of $0.50 per ordinary share up to an investment of $100,000. Mr Tsingolis deposed that he made it clear to Mr Burns that he had invested approximately $600,000 in start-up costs, to that point, in both the actual costs as well as his time devoted to the concept of the Unicar App and that he had issued himself 60 million shares in Unicar. No documents were produced in answer to a request made on Mr Burns’ behalf which would verify the fact that this sum was paid. Mr Tsingolis explained that he shuffled money around between his companies to make payment.

71. Mr Tsingolis explained that he was offering to his friends half of what was being offered to (other) investors. He deposed that he had prepared a short ‘Investment Opportunity’ term sheet, which he said had been provided to Mr Burns (and Mr Yates) at the meeting on the boat.

Mr Radcliff

72. Mr Radcliff is a solicitor. He is a legal director of the firm CRSTLAW Pty Ltd, which trades as ‘Radcliffs’ (formerly ‘Radcliff Taylor Lawyers’). Mr Radcliff prepared two affidavits. The first was dated 9 April 2019; the second was dated 13 February 2020.

73. In his first affidavit, Mr Radcliff deposed to the circumstances in which the February 2017 presentation was arranged. He indicated that it was primarily for the benefit of KIS Capital Partners, which everyone understood as an experienced capital investor. However he was informed, prior to the presentation; that a few of Mr Tsingolis’ friends would be joining the presentation for a ‘general discussion’ as they were also interested in investing in Unicar.

74. He deposed in his second affidavit that he prepared a one-page investment opportunity document which he was instructed (by Mr Tsingolis) to provide to any potential investor thereafter, who requested further information about the investment. In neither affidavit did Mr Radcliff give an account of the substance of what was said during the presentation in a way that directly responded to Mr Burns’ account in the latter’s affidavit.

75. Under cross-examination, he was referred to statements in it which might have conveyed to someone reading them statements of current fact: namely, that the company generates (as in the present tense) revenue and was launched in February 2016. Mr Radcliff stated that this was not the intention of the statements. The statements were made to indicate to prospective investors what would happen in the future. He also said that the reference to ‘Series A investment’ in the ‘business summary’ was distinct from, and followed, seed investment. Mr Radcliff was also referred to the description of the use of funds in the document. It was put to Mr Radcliff that the company’s banking documents, which traced how Mr Burns $300,000 was in fact used was quite different in nature to what was conveyed in this sheet: the sheet suggested that the funds were to be utilised to develop the business of the company. Mr Radcliff said he had no interest in how Mr Burns’ investment proceeds were to be used – he was just following instructions.

76. He also deposed that Mr Tsingolis instructed him that his friends and associates (in Sydney) could purchase shares at $0.50, rather than $1.00.

77. Mr Radcliff deposed to showing Mr Burns (and Damian Yates) a PowerPoint slideshow showing features of the business model and the features that the App would have (it had not yet developed but was in ‘concept stage’). He said that another slideshow which had been presented to Volkswagen was also shown.

78. Mr Radcliff gave evidence that Mr Burns had told him that his family was very wealthy and were looking to invest. He said he was involved in the decision to invest some of the family wealth in a start-up business and that he had its permission to make investment decisions in relation to a start- up business. He was challenged about his evidence that Mr Burns said these things, but he adhered to the correctness of his recollections in that regard. It was specifically put to, and denied by Mr Radcliff, that he was trying to elevate Mr Burns’ financial sophistication because he thought that might assist his case.

79. Under cross-examination, Mr Radcliff said he did not regard the February 2017 presentation on board Mr Tsingolis’ boat as being important. He said he had started to consume alcohol almost from the time he got there. Although he said he understood that the purpose of his presenting a slideshow was to inform (if not impress) potential investors, and that he understood that those in attendance might become investors in Unicar, he said he did not feel uncomfortable engaging in this activity in the environment he was in.

80. Mr Radcliff deposed that he did not request any investment from Mr Burns that day and that he did not hear Mr Tsingolis request any commitment to make such investment that day. He acknowledged however, that such a request was made on (or by) 1 March 2017.

81. Mr Radcliff denied making any representation to the effect that Mr Burns was invited as a first round seed capital investor in Unicar at ‘ground level prices’.

Mr Yates

82. Mr Yates is an electrician. He was another friend of Mr Tsingolis. He prepared an affidavit (dated 12 April 2019) in which he deposed to his recollections of what occurred on the yacht in February 2017. He went on to the boat after being told about Unicar’s development of an app and a meeting that was to occur with professional investors; followed by a social gathering on the boat.

83. He deposed to looking at a slideshow on the boat which showed features of the business model and the features that the app would have. Another slideshow featuring Volkswagen was shown.

84. When he gave his evidence, he said he had been informed that the app was in development, but had not yet been released. He said he recalled that a price of $0.50 would be offered to Michael’s (Mr Tsingolis’) friends, although no offer was made to purchase shares. He recalled Mr Radcliff saying that he should go and seek independent advice in making any investment.

85. In these last respects, Mr Yates’ recollections were challenged in cross-examination but he adhered to them. Mr Yates accepted that he was not issued shares as a result of the February 2017 presentation. He said he had subsequently made a $70,000 investment in Unicar. It was put to Mr Yates, but he denied, that the $0.50 per share purchase price was only the result of more recent discussions (T 353) (i.e. subsequent to the February 2017 presentation).

The Second Seed Capital Representations

Mr Burns’ Evidence

86. As noted in the factual narrative earlier, on 1 March 2017, Mr Burns received an email from Mr Radcliff. Salient parts of that email included the following:

“Could you let me know if you are keen to move forward with an investment and if so what entity would you like to hold your shares and the amounts to be invested by email.”

“We are meeting with an investor next week who will likely take out the remaining seed investment round available.”

87. Mr Burns deposed that he understood the email to mean that if he did not invest quickly there was a risk that he would lose the opportunity to do so at the same price as the original investors. He reiterated his understanding that the seed investment would be an investment at ground level prices.

88. Senior Counsel for Mr Radcliff questioned Mr Burns why, if he felt pressured to make an investment decision because of the prospect of another investor, he did not communicate that concern to anyone, or sought a timeframe from Mr Radcliff. It was put to him that timing was not a great concern when the investment opportunity was being presented by a friend, Mr Tsingolis, who Mr Burns trusted. But there were other emails later that same day, which were drawn to Mr Burns’ attention in re-examination. I do not read those messages, however, as providing any objective basis for thinking that there really was a degree of urgency. Mr Burns did say that, from these messages, he started to get his ‘ball rolling’ in the sense of prompting him to taking active steps to bring about the investment.

89. A common feature of the cross-examination was Mr Burns’ requests for advice to Mr Radcliff as to some basic legal and financial concepts, such as the differences between a trust and company, an indication as to how the investment worked, and an indication of the information that he would need for his accountant and bank. Eventually, Mr Burns received answers to these questions from his own accountant, Mr Hawkins.

90. On 4 April 2017, Mr Burns had several email communications with Mr Radcliff putting in train steps to insert Storm as the investor in its capacity as trustee of the trust which Mr Burns had established.

91. Mr Burns deposed that on or about 5 April 2017, he received a telephone call from Mr Tsingolis. Mr Burns indicated his objective of investing $300,000 through his company, Storm and his trust. Their conversation relevantly proceeded substantially to the following effect:

Tsingolis:   “That’s great news. Volkswagen has signed on an investment price per share has gone up.”

Burns:   “Will you still honour the original seed investment offer that we discussed on the boat?’

Tsingolis:   “Yes for you I will honour our original offer that other investors have received that anyone investing after you, including Corey and his mates, will be paying double. Volkswagen was to become full financial partners with Unicar, and our long-term strategy is for Volkswagen to buy out, so that shares in Unicar will become worth were a lot of money.

Burns:      “That sound(sic) great”

Mr Tsingolis

92. In his affidavit, Mr Tsingolis indicated that he was aware of Mr Radcliff’s email of 1 March 2017, but deposed that he kept himself separate from negotiation of the terms of investors and left the progress of the matter to Mr Radcliff; who kept him verbally updated. Nevertheless he was aware that Mr Burns was interested in investing up to $300,000; which was reflected in the circumstance that Mr Radcliff had sent a share issue agreements to Mr Burns for 600,000 ordinary shares at $0.50 per share.

93. Mr Tsingolis acknowledged the issue of 15 million shares (in the aggregate) to Jacqueline Scott, Board Engine Pty Ltd and Christina Quig. These, he deposed, were issued in recognition of the unpaid work that each of those parties had put into development of the Unicar App. He was challenged about how these proportions were worked out, including what steps, if any, he took to determine what ‘value’ these other investors had brought to Unicar. He said, amongst other things, that he had conferred with Mr Radcliff about this. Mr Radcliff subsequently gave evidence indicating that there had been no such discussions with Mr Tsingolis specifically identifying the value provided by these other investors.

Mr Radcliff

94. Mr Radcliff’s account in his first affidavit was sparse. He annexed to his affidavit the correspondence he had with Mr Burns on 1 March 2017. This was before 4 April 2017, when he responded to Mr Burns request for information about how to set up the business and asked Mr Burns how much he would be prepared to invest and the appropriate entity for a draft agreement. He suggested that this be provided to Mr Burns’ accountant. This draft agreement was sent to Mr Burns on 6 April 2017.

Submissions Regarding Storm’s Representation Case

Storm’s Submissions

95. Storm submits that by their defence, Unicar/Mr Tsingolis admitted to making a representation that Mr Tsingolis had invested $600,000, and any slight variation as to what Mr Tsingolis said when he gave evidence should be rejected as being inconsistent with that admission. It submits that by Mr Tsingolis’ own admission, which was the effect that he had contributed $600,000 in cash and ‘sweat equity’ the representation was false.

96. Storm submits that the representation by Mr Tsingolis that other investors had agreed to invest $100,000 was a representation as to existing matter that was false: no investors had agreed to contribute that sum.

97. Storm submits that Mr Radcliff’s alleged statement about an invitation being made to Mr Burns to invest at ‘ground level prices’ was false. What was being objectively conveyed to Mr Burns was that if he invested he would receive shares at the same, or lower, price per share than those who had invested before and after in Unicar, including Mr Tsingolis. This was also misleading in circumstances where Mr Tsingolis, through Aurlev, could have only paid one cent per share, in comparison to the $0.50 per share offered to and subsequently paid by Storm; and the only other shareholders in the company were issued their shares in exchange for nil dollars. Storm says that the question whether the other investors received shares for free as compensation for their work and respective services for Unicar, was irrelevant.

98. Storm submits that Mr Radcliff represented, by his email on 1 March 2017, that he and Mr Tsingolis were meeting another investor who would likely take out the remaining seed investment. This, Storm submits, was a representation as to a future matter which, by reason of section 4 of the ACL, has the deeming effect that if the representor adduces no evidence of reasonable grounds, the representation will be taken to be misleading. Storm submits that the only purpose for the statement was to induce Mr Burns to invest. This was said to flow from the circumstances that not only was an indication given to Mr Burns that a window for investment was soon to close, but also that it was Mr Radcliff’s representation that another investor was likely to take out the seed investment.

99. Storm says that Mr Radcliff’ evidence that he represented that he and Mr Tsingolis were meeting other investors did not establish any grounds, let alone any reasonable grounds, for the making of the representation. At any rate, even that representation was false in circumstances where the objective evidence was that Mr Radcliff had no meetings in the following week with investors and was not in Singapore with Mr Tsingolis.

100. Storm submits that on 5 April 2017, Mr Tsingolis falsely promised that the share price had gone up, but Unicar would honour its original offer that other investors had received. This was false because there had been no other investors who had invested in Unicar. At the time the representation was made, there was an intention to issue shares to Mr Radcliff for nil dollars.

101. Storm submits, in general, that all of these representations were material.

The Defendants’ Submissions

102. The defendants collectively made certain submissions: Unicar and Mr Tsingolis adopted many of the submissions advanced on Mr Radcliff’s behalf. In some respects, Mr Radcliff differentiated his position with the position of Mr Tsingolis.

103. Both defendants submit that Mr Burns’ recollections of what was said on the boat were undocumented, uncorroborated and were not reliable. Both submit that such representations as were made in or about the February 2017 presentation were made in a social context and were not “in trade or commerce” and were therefore not caught by the ACL.

104. Both submit that the ‘ground level price’ representation was too vague in its terms to be actionable.

105. Both defendants say that, in their cases, certain representations were not, in terms, put to the defendants in cross-examination and that the rule in Browne v Dunn (1893) 6 R 67 would now preclude the Court from considering them.

106. Mr Tsingolis says it was not put to him that he made either the $600,000 representation or the representation that other investors had agreed to put in $100,000. Both defendants say that Mr Burns did not raise any questions arising from such representations being made. They say that Mr Burns was offered shares at 50% less than other investors, which amounted to seed capital or ground level prices in any event.

Mr Radcliff’s Separate Submissions

107. Mr Radcliff submitted that he could not be liable for the ‘Seed Capital’ representations made by Mr Tsingolis to Mr Burns. He said that it was not put to him that he made the representations.

108. Mr Radcliff says that the alleged representation in the email on 1 March 2017, regarding the prospect of other investors taking out the remaining ‘seed investment round’ is of its nature a representation as to a future matter, but the facultative provisions in s 4 of the ACL or s 769C of the Corporations Act were not pleaded; with the result that Storm had to prove misleading or deceptive conduct without the benefit of any deeming provision.

Contributory Negligence

338. The defendants relied upon s 1041I(1B) of the Corporations Act, being a defence of contributory negligence, in order to reduce damages recovered by Storm, to the extent that the Court thinks it just and equitable having regard to the claimant’s share in the responsibility for its damage.

339. They accepted that no such defence is applicable to any valid claim for damages under the Fair Trading Act 1987 (NSW), should that legislation apply in this proceeding. (Section 1041(3) of the Corporations Act indicates that the defence does not affect any liability that a person has any other law). As indicated earlier, since the Fair Trading Act may apply to corporations, on the premise that the legislation applied, this would mean that none of the defendants could rely upon contributory negligence to reduce damages awarded under s 236 of the ACL.

340. As to the Corporations Act action, section 1041I(IB) sets out multiple requirements, being proof that:

1. the claimant has suffered (relevantly) economic loss caused by its (or their) conduct done in contravention of s 1041H;

2. the claimant suffered the loss partly as a result of its failure to take reasonable care and partly as a result of the conduct of the defendants in contravention of s 1041H; and

3. the defendant did not intend to cause the loss or damage; and did not fraudulently cause the loss or damage.

341. I note that, on the assumption that these requirements are met, there is no legislative prescription as to the principles by which contributory negligence is to be considered in the federal legislation; unlike, say the principles of the defence in general law which are to some extent modified by statute[47] .

     47. Civil Liability Act 2002 (NSW), s 5R.

342. Under general law, contributory negligence means the failure of a plaintiff to take reasonable care for the protection of his or her person or property. The defence is concerned with the plaintiff’s failure to protect his or her person or property against damage. It is not, however, concerned with whether such failure contributed to the event (here the misleading or deceptive conduct of the defendants) which caused the damage[48] . The focus of the inquiry is on the conduct of the plaintiff, in all of the circumstances of the case, and potentially including conduct of the defendant[49] . The standard of care required of the plaintiff is determined objectively: leaving aside the position of minors, the beliefs or lack of knowledge of the plaintiff cannot prevent a finding of contributory negligence if a reasonable person in the same circumstances would have taken steps to protect the plaintiff’s interests[50] .

Submissions on Contributory Negligence

Defendants’ Submissions

48. Astley v Austrust (1999) 197 CLR 1 at [21].

49. Ibid at [30].

50. Ibid at [35].

343. The defendants say that Mr Burns took no care to check anything or was indifferent to the alleged representations. He acted contrary to professional and family advice on purchasing the shares. They say that no one associated with Unicar asked him to invest $200,000-$300,000. It was his decision. If there be any loss, then the amount should be limited to the sum of $100,000 which is the amount that Mr Burns said that he was asked to invest.

344. The defendants submit that the contributory fault regime under Corporations Act is not defeated because of any intention to cause loss or any fraud.

Storm’s submissions

345. Mr Burns says that no contributory fault defence is available in the action under the ACL, since the state legislation did not adopt s 137B of the Competition and Consumer Act. Senior Counsel for Storm initially accepted that, at least insofar as the remedy under s 237 (and s 243) of the ACL is concerned, the Court would be empowered to effectively reduce the amount of compensation awarded if it thought that the justice and equity of the facts militated in favour of a reduction for compensation on account of the plaintiff’s failure to exercise reasonable care. That concession was later withdrawn.

346. In relation to the action under the Corporations Act, at a factual level, Senior Counsel for Storm submitted that I would not make any reduction for contributory fault in circumstances where Messrs Tsingolis and Radcliff had, by reason of their misleading or deceptive conduct, essentially ‘disarmed’ Mr Burns, or lulled him into a state of security and therefore discouraged him from making inquiries which a reasonable prospective investor in his position might otherwise make.

347. He submitted that if reduction was made, there was no basis to reducing the amount of compensation to the sum of $100,000 to correspond to the representation that other investors had agreed to put in that amount. Senior Counsel submitted that it was nonsensical to suggest that the decision to invest $300,000 was based on any different matters than if the decision was made to invest $100,000.

Determination

348. No contributory fault will reduce Storm’s damages under s 236 of the ACL for the contravention of s 18 of the ACL. I will return to s 237 later.

349. As to the action under the Corporations Act, I must be mindful of the availability of the defence to a statutory right to recover damages so that any reduction, if it is to be made at all, must be made against the context and purpose of the legislation. Subject to that, I consider that the general principles under the common law derived from cases such as Podresbek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529 at [523-33] and Wynbergen v Hoyts Corp Pty Ltd (1997) 149 CLR 25 provide useful guidance.

350. Much of the defendants’ submissions on this defence reprised their arguments on causation. It is that Mr Burns took no care and was indifferent to the correctness of the matters he says were misrepresented to, or not disclosed to him; to such degree that he rejected professional advice (to make inquiry) and family advice (from his uncle) as to the merits of the proposed investment.

351. Storm submitted, as it had on the issue of causation, that his conduct was consistent with the faith he reposed in a friend, Mr Tsingolis, who he looked up to and bore the trappings of business success, and his professional offsider, Mr Radcliff.

352. In my view, a reasonable investor in Mr Burns’ position would not have simply reposed complete faith in the promoter of a start-up company on the basis of the promoter’s assurances or indications of the company’s financial prospects, even if the promoter was a friend and appeared to be successful. A reasonable investor in Mr Burns’ position would have conducted some independent due diligence. Mr Hawkins’ email to Mr Burns on 13 April 2017 would, amongst other things, have triggered, in the minds of a reasonable investor in Mr Burns’ position, some cause for independent inquiry; as well as the seeking of independent financial advice. It was not the case that Mr Burns could not afford it or did not have the opportunity to seek it.

353. That Mr Burns did not do this was a contributing factor to Storm’s loss.

354. Although provisions in Part 7.10 of the Corporations Act (including ss 1041H and 1041I) are plainly beneficial to investors, s 1041(IB) indicates that prospective investors are expected to exercise care for their interests, where they can, before deciding to invest. Otherwise, there is a risk of moral hazard.

355. In terms of the primary considerations of culpability and causative impact, Mr Burns was far less culpable than the defendants (in the aggregate). He was inexperienced and had, I think, a misplaced confidence in his ability to make a prudent financial decision. But Mr Tsingolis took advantage of the trust that Mr Burns reposed in him; and Mr Radcliff materially assisted Mr Tsingolis in creating an environment where it would have seemed to someone like Mr Burns that this was an investment opportunity too good to reject and there was a need for some haste in committing to such investment lest the opportunity be lost. Mr Radcliff lent his authority and credibility, as a solicitor, in support of Mr Tsingolis’ promotional activities; even if it appears that at least at the February 2017 presentation, he appeared to be mixing his role as the company’s general counsel with promotional activity.

356. In terms of causative impact, I am again mindful of the statutory purposes of the legislative regimes upon which Storm relies. The norms of commerce enshrined in those statutory protections signify that inexperienced investors are entitled to repose trust in those who promote financial products and those who facilitate such promotion. He may have ‘liked the idea and the man (Mr Tsingolis)’, but he acted on the faith of what the man misrepresented to him.

357. I would have assessed the level of contributory fault (for the purposes of s 1041I(1B)) of the Corporations Act at the level of 20%.

Proposed Relief

358. I now return to the appropriate relief under s 237.

359. In my view, an effective order for rescission is appropriate. As I have noted, Storm elected to rescind not long after, as a result of its solicitor’s investigations, it learnt of the misrepresentations made to it by Mr Tsingolis and Mr Radcliff. Those misrepresentations were calculated to, and did induce Storm to make the investment it did. I have found that, at least in relation to the February 2017 representations by Mr Tsingolis, he knew that they were false. They remained operative at the point of acquisition. The shares were purchased at a time when no other investor had contributed capital. Whatever potential the concept of Unicar’s business, at the time of purchase, its value was predominantly potential; rather than actual. Storm has suffered loss and disadvantage by being locked into an investment in a company that has been beset by mismanagement. The questions in my mind whether rescission should be full or partial and whether the amounts payable by Mr Tsingolis and Mr Radcliff should be the same. The orders I propose will be to transfer back to Messrs Tsingolis and Radcliff, respectively, the residual value of Storm’s shares.

360. Uninstructed by authority, I would have considered that the Court’s discretion to award compensation under s 237 might also require assessment of the degree to which a claimant’s carelessness has contributed to its loss.

361. It is certainly true that in I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, the High Court rejected (at [60]-[61]) the proposition that a claimant’s carelessness could be taken into account to reduce the amount of compensation under s 87 of the former Trade Practices Act1974 (Cth). That reasoning was applied by McDougall J in McLean Tecnic Pty Ltd v Digi-Tech (Australia) Pty Ltd [2005] NSWSC 386 at [139]. That reasoning may, arguably, have been affected by the absence, at that time, of a provision like s 137B in the CC Act which recognised a limited entitlement in a wrongdoer to a reduction in a compensation order (for contravention of s 18 of the ACL) on account of the claimant’s failure to take reasonable care. The entitlement is limited because it concerns only a compensation order made under s 236 of the ACL (and not s 237, with s 243). There is Federal Court authority which posits that a claimant cannot evade the operation of s 137B by framing its entitlement to recovery under s 237 rather than s 236 [51] .

     51. BHPB Freight Pty Ltd v Cosco Oceania Charting (No.3) [2009] FCA 1087 per Finkelstein J at [62]; Khoury v Sidhu [2011] FCAF 71.

362. The parties agree that I should follow the course adopted by MacDougall J in McLean. Notwithstanding certain misgivings, I propose to do so. Even if I did not, independently, there is binding authority constrains me to hold that there can no reduction of any compensation order under s 237, which is applied by the Fair Trading Act action brought by Storm, in circumstances where s 137B is not applicable to state law: Perpetual Trustee Co v Milanex Pty Ltd (in liq) [2011] NSWCA 367 per Macfarlan JA (with whom Campbell JA and Young JA agreed) at [86].

363. No reduction should be made under s 237 on account of any contributory fault by Storm.

364. The amounts of each payment by each individual defendant take into account what I conceive to be the contributions of each individual defendant to causing the loss or damage (actual or potential) to Storm. In my view, there is no bar to the imposition of a compensation order against one respondent that is different to another in respect to a single loss[52] . The orders I have in mind do not limit the loss recoverable.

     52. Heydon v Jackson (1988) ATPR 40-845 per Pincus J at 49,107; cited in J.D Heydon, Competition and Consumer Law [140.7160].

365. In summary, I have found that the plaintiff has established contraventions by the defendants of the proscription against misleading or deceptive conduct under s 18 of the ACL, which is applicable under the Fair Trading Act. In the case of the second and third defendants, direct and ancillary liability is established.

366. In my opinion, the appropriate remedy for the action under the Fair Trading Act is in s 237 (in accordance with an amalgam of s 243(d) & (e)) of the ACL which would see:

1. the Second Defendant pay the plaintiff the sum of $225,000, plus interest;

2. the Third Defendant pay the plaintiff the sum of $75,000, plus interest; and

3. upon receipts of the said payments in (a) and (b), the plaintiff is to:

1. transfer 450,000 of its shares in the First Defendant to the Second Defendant (or its nominee); and

2. transfer 150,000 of its shares in the First Defendant to the Third Defendant (or its nominee).

ORDERS

367. The plaintiff is to prepare short minutes to reflect these reasons, including relevant interest calculations and costs and serve them upon the defendants within 7 days of these orders.

368. The defendants are to inform the plaintiff whether objection is taken to the short minutes (or if it suggests any variation to the proposed short minutes), and submit (in no more than 5 pages) the basis for the objection or variation within a further 7 days.

369. If disagreement persists, the plaintiff is to:

1. notify the defendants of its position, in response, to any suggested objections or variation (by submissions of no more than 5 pages); and

2. notify my Associate that disagreement applies to the proposed short minutes and provide copies of the parties’ statements of position,

within a period of a further 5 days.

370. Upon notification to the Court, the Court will determine the appropriate orders to dispose of the proceeding, including costs, on the papers, unless indication is given to the contrary.

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Endnotes

Amendments

18 March 2020 - Corrected minor typos.

Decision last updated: 18 March 2020