Yates v Whitlam

[1999] NSWSC 976

Reported Decision: [1999] 32 ACSR 595
[2000] 18 ACLC 55
[1999] ATPR 41-722

New South Wales

Supreme Court

CITATION:	Yates v Whitlam [1999] NSWSC 976
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	3916 of 1999
HEARING DATE(S):	21 September 1999
JUDGMENT DATE:	23 September 1999
PARTIES :	Ian Francis Yates (Plaintiff) Nicholas Whitlam (First Defendant) Timothy Shaw (Second Defendant) Alex Sanchez (Third Defendant) Anne Keating (Fourth Defendant) Stewart Gleeson (Fifth Defendant) Mark Coyne (Sixth Defendant) Dominique Collins (Seventh Defendant) Maree Callaghan (Eighth Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr. W.G. Muddle (Plaintiff) Mr. R.A. Conti Q.C. with him Mr. D.B. Studdy (Defendants)
SOLICITORS:	The Bruce & Stewart Commercial Practice (Plaintiff) Gilbert & Tobin (Defendants)
CATCHWORDS:	TRADE PRACTICES - Fair Trading Act - misleading and deceptive conduct in trade and commerce - statements made in election campaign; CORPORATIONS LAW - s995(2) and 1025(3) - whether advertisement in election campaign referring to future entitlements to shares is breach of sections
ACTS CITED:	Corporations Law, ss 995(2), 1025(3), 1324 Fair Trading Act, 1987 ss 41, 41(2), 42, 65, Trade Practices Act 1974, s 80,
CASES CITED:	Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594 Foss v Harbottle {1843} 2 HAR 461 NRMA Limited v Yates {1999} NSWSC 859 Plimer v Robertson (1997) 89 FCR 302 Stewart Alexander & Co (Interstate) Pty Ltd v Blinders Pty Ltd (1981) 53 FLR 307
DECISION:	Summons dismissed with costs

1

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY 23 SEPTEMBER 1999

3916/99 IAN FRANCIS YATES V NICHOLAS WHITLAM & ORS

JUDGMENT

1    HIS HONOUR: This action is part of the continuing contest between those who support in general the demutualisation of NRMA Insurance Limited (Insurance) and those who oppose it.

FACTS

2    As is widely known, at least in New South Wales, there is at present in progress an election of directors of NRMA Limited which I will call NRMA. That company is the ultimate owner of Insurance. NRMA has sixteen directors. Each two years, eight directors retire from office and an election is held for the eight vacant places. The election is held by postal ballot. For the present election the voting opened on 6 August 1999 and will conclude on 6 October 1999.

3    The defendants are standing for election as a team on a team ticket called "The Members First Team". Messrs Coyne, Sanchez and Shaw are not existing directors; the other five defendants are.

4    On 5 September 1999 there was published in the Sun Herald newspaper the following advertisement:

THE ONLY WAY TO IMPROVE
NRMA ROAD SERVICE;
PUT MEMBERS FIRST.


If you like the idea of NRMA Road Service staying a mutual, whilst also giving, the organisation shares worth at least $250 million*

(and yearly income), vote for the Members First Team.

Your vote will provide:


Upgraded vans to transport stranded passengers.

New technology to give the most accurate estimated time of arrival.

An average $3,000* worth of shares to each member. (*source Macquarie Equities)

But only if you vote for all 8 members of the Members First Team.

GOOD FOR THE NRMA, GOOD FOR YOU.

5    Underneath the wording which I have set out appeared photographs of the eight members of The Members First Team, and some words which I cannot make out from the copy in evidence, but which did include a statement that more information was available by visiting website Mr Carroll, who is a candidate for director in the election, and it appears, a supporter of Mr Yates, visited the website on 1 September 1999 and printed off The Members First policy statement appearing on the site. I will come back to that, but as the policy statement has been altered this may not have much significance as the declarations sought by the plaintiff relate to the statements made in the advertisement to which I have referred, although an injunction is sought restraining the making of statements similar to those in respect of which declarations are sought. Election brochures distributed for Mr Gleeson and Mrs Collins contain much the same statements but in a form which is less objectionable, if the advertisement statements are themselves objectionable.

6    By summons filed on 10 September 1999, Mr Yates seeks declarations that by making or authorising the statement:

THE ONLY WAY TO IMPROVE
NRMA ROAD SERVICE;
PUT MEMBERS FIRST"

(the first statement), and the statement:


"If you like the idea of NRMA Road Service staying a mutual, whilst also giving the organisation shares worth at least $250 million*

(and yearly income) vote for the Members First Team. (*source Macquarie Equities)"

(the second statement) and by making or authorising the statement:


"Your vote will provide... An average $3,000* worth of shares to each member (*source Macquarie Equities)

But only if you vote for all 8 members of the Members First Team

(the third statement) the defendants have, in respect of all three statements, in trade or commerce, engaged in conduct which is misleading or deceptive, or likely to mislead or deceive, in breach of s42 of the Fair Trading Act 1987; in respect of the second and third statements have engaged in such conduct in breach of s995(2) of the Corporations Law, and finally in respect of the second and third statements, have published a notice in breach of s1025(3) of the Corporations Law.

7    The plaintiff seeks injunctions restraining the defendants from making or authorising the making of the first, second or third statements or any statements to the like effect, or from further publishing or broadcasting such statements. The plaintiff also seeks an order for the publication or broadcast of a correcting advertisement in a certain form.

8    It is not denied that the statements were made or authorised by the defendants.

9    While the declarations sought do not relate to the statements published on the website the material is relevant to the claim for an injunction in that it is stated that the Members First Team supported the floating of the insurance company because that would provide NRMA with shares worth at least $250 million plus income each year and will "enable members to receive on average shares worth about $3,000". The source, at least so far as the latter figure was concerned and probably the former was stated on the website material to be Macquarie Equities. Articles from the Daily Telegraph headed "NRMA float to pay $3,000" and "Vote for Whitlam is vote for free shares" were posted on the website. Also posted was a report, or part of a report from Macquarie Equities, which referred to the average NRMA member as being one of fifteen years standing, being a member of both NRMA and Insurance, and holding two insurance policies, and which also stated that based on Macquarie Equities calculations, the average member would become entitled to receive shares worth approximately $3,000 on insurance demutualisation and further stated that based on the assumption that NRMA would receive 5 percent of the equity in Insurance by way of shares that would equate to roughly $250 million.

10    There is further evidence that visits, as they are always described, to the website on 10 and 13 September disclosed that the policy statement had been altered removing reference to the likely value of shares to be received by NRMA and the members. The new statement however said:

"Every NRMA member would receive a windfall benefit in the form of shares. This will provide members with an ongoing investment in the insurance company".

11    The newspaper articles have been deleted from the website as has the Macquarie Equities material. The evidence is that what are described as "activated headlines" flash across the screen, those appearing on 21 September being the following:

1. "NRMA Share Bonanza", Sun Herald, 11 July1999.

2." Analysts tip $5b for NRMA float", The Age, Melbourne, 9 July 1999.

3. "Why Nick needs the numbers", The Daily Telegraph, 11 July 1999.

4. "NRMA Float: Voter Turnout Key Factor", Australian Financial Review, 9 July 1999.

5. "NRMA worth $5 billion: Bank", Sydney Morning Herald, 9 July 1999.

6. "Float of NRMA: A Share Bonanza", The Australian, 9 July 1999.

12 The defendants raised as a preliminary point the standing of the plaintiff, Mr Yates, to bring these proceedings. So far as the claim under s65 of the Fair Trading Act for an injunction to restrain conduct which contravenes s42 of that Act is concerned, such an application may be brought on the application of the Minister, the Commissioner or "any other person", the same words appearing in s80 of the Trade Practices Act 1974. In cases under the latter provision, it has been held that the words mean what they say, so that no particular interest is required as a condition of entitlement to bring proceedings. That reasoning should be reflected in the interpretation of s65. So far as the Corporations Law is concerned, standing to bring the claims based on section 995(2) and s1025(3) depends upon the plaintiff falling within s1324 of the Law. That requires the plaintiff to be a person "whose interests have been, are or would be affected by the conduct" complained of. It is not necessary to go into this question in detail and there is no time for it. Shareholders have been held to have an interest, creditors have been held to have an interest. If the section derogates from the rule in Foss v Harbottle {1843} 2 HAR 461 so be it. Mr Yates is a director of both NRMA and Insurance. It is not necessary to decide whether or not all members of NRMA would have sufficient interest to bring the present action. In my view a member who is a director of NRMA is a person who has the necessary interest to bring the present proceedings.

CLAIMS FOR RELIEF UNDER THE CORPORATIONS LAW

13 Section 995(2) of the Corporations Law is as follows:

995. Misleading or deceptive conduct
(2) A person shall not, in or in connection with:


(a) any dealing in securities; or

(b) without limiting the generality or paragraph (a):
(i) the allotment or issue of securities;

(ii) any prospectus issued, or notice published, in relation to securities;

(iii) the making of takeover offers or a takeover announcement, or the making of an evaluation of, or of a recommendation in relation to, takeover offers or offers constituted by a takeover announcement; or
(iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (iii);

engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

14 The argument of the plaintiff is that the second and third statements referring to NRMA Road Service as receiving shares in Insurance worth at least $250 million and an average of $3,000 worth of shares being received by each member, amount to misleading or deceptive conduct in connection with the carrying on of negotiations, making arrangements or doing other preparatory work in any way related to the allotment or issue of securities. I do not consider it could be thought that the statements which have been made are made in connection with negotiations, arrangements or preparatory acts related to the allotment or issue of securities. The statements which have been made are made in support of the defendants' candidature for election. If they succeed, and if they maintain their present views, then there can be no doubt that it is likely that a proposal for demutualisation of insurance will be put before the members and subsequently before the court for approval pursuant to a scheme of arrangement. The election is, I consider, too far removed from the possibility of any future issue of securities to bring the statements within s995(2).

15 Section 1025(3) of the Corporations Law is as follows:

1025. Certain notices etc. Not to be published
...
(3) Except as provided by subsection (2), a person shall not publish a notice that:
(a) offers for subscription securities of a corporation or proposed corporation;
(b) issues invitations to subscribe for securities of a corporation or proposed corporation; or
(c) refers or calls attention, whether directly or indirectly, to:
(i) a prospectus in relation to securities of a corporation;
(ii) an offer or intended offer for subscription or securities or a corporation;
(iii) an invitation or intended invitation to subscribe for securities of a corporation; or
(iv) another notice that refers or calls attention, whether directly or indirectly, to a prospectus in relation to securities of a corporation or such an offer, intended offer, invitation or intended invitation, not being a notice referred to in subsection (2).

I am unable to see any basis upon which the statements could be said to fall within this subsection.

FAIR TRADING ACT CLAIM - IN TRADE OR COMMERCE

16 This part of the claim is more difficult. The defendants are seeking election or re-election as directors of NRMA. The statements in question were made in support of their claims for election. I do not consider standing for election to be a business or professional activity. The ramifications, if it were, considered together with s41 of the Fair Trading Act, would be rather frightening. A candidate for election as a union secretary or perhaps as a shop steward in a particular company might well stand on a platform of increasing workers' rewards by distributions from income regularly applied by a company to reserves and stated by the candidate to be not needed for that purpose in future years. This would be a representation as to a future matter in respect of which the representor would bear the onus to show reasonable grounds for its making. The activity of seeking election might be in connection with a future business intention if elected, but I do not consider it to be in trade or commerce. The boundaries in these matters are not always easy to determine, particularly when one is dealing with a matter which requires determination with great speed to give the determination any effect, but the boundaries are at least confined by the principles laid down in Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594 at 604. I accept as was held in Plimer v Robertson (1997) 89 FCR 302 at 326 that the same principles and boundaries apply to conduct under s42 of the Fair Trading Act. It follows, as Lindgren J said in the latter case at page 326 that "it is necessary to enquire whether the representations of the defendants were made by them in trading or commercial dealings between persons" (or between a personal representor and a corporation). Statements directed to electors by election candidates may be made in connection with trade or commerce In that they may bear upon the commercial activities of the body to be governed as a result of the election, but in my view they are not made in trade or commerce. Neither do I think it could be said that the statements were made for the purpose of promoting the business of the other members of the NRMA as those members do not have a business. Neither could it be said that the statements were made for the purpose of promoting the business of NRMA itself. They are made for the purpose of giving the defendants the chance or opportunity to endeavour to bring about some change in the business of NRMA purportedly for the benefit of the members, but that in itself does not make it conduct in trade or commerce.

17    I have of course been directed to the recent decision of Santow J in NRMA Limited v Yates {1999} NSWSC 859, where he held that misleading advertisements as to past claimed loss of $50 million in one transaction of NRMA was misleading conduct in trade or commerce of NRMA. It is, I think with respect, somewhat difficult to see how misleading statements as to alleged inefficient management of NRMA, was conduct for the purpose of promoting the business of NRMA, rather than promoting the chances of Mr Yates' success at the election, but in any event the finding was partly based upon the position of Mr Yates as a director and his fiduciary obligations in that capacity which are no part of the present action. It follows that I have come to the conclusion that the statements were not made in trade or commerce so that relief as sought under s65 of the Fair Trading Act is not available.

MISLEADING AND DECEPTIVE CONDUCT

18    If I were wrong in the conclusion I have just reached, it would have been necessary to determine whether the impugned statements were misleading or are deceptive or likely to mislead or deceive and it is desirable I deal with this.

19    So far as the first statement complained of is concerned it seems to me to be the type of statement one often sees in advertisements or in election campaigns. In some ways it is like saying that some product is the best. When one considers it in the light of its being published in connection with an election campaign, the only complaint that could possibly be made about it, is the inclusion of the word "only". It is perfectly true, as appears from the affidavit of Mr Talbot, that members of rival teams have plans to improve NRMA road services. But the statement of Lockhart J in Stewart Alexander & Co (Interstate) Pty Ltd v Blinders Pty Ltd (1981) 53 FLR 307 at 310 as to a robust approach being called for when considering whether television commercials are misleading or deceptive applies with even greater force to an election campaign. There is of course no evidence of anyone having been misled, but I do not think that it could possibly be thought that the members would believe that no other course, apart from the election of the defendants, could improve the NRMA road service. I find that first statement was not misleading and deceptive within s42 of the Fair Trading Act.

20 So far as the second statement is concerned, two claims are made by the plaintiff against it. The first is that it is misleading and deceptive in that it implies that the shares will be free or given to NRMA without stating that it already controls the board of Insurance and is entitled to all its assets on a winding up. In the context in which the statement was made I do not think that anything was said about free shares. An advertisement is not to be read in the same light as the documents required for a take over offer or for a scheme of arrangement. The word "giving" in the second statement when read in its context can be taken just as appropriately to mean leaving NRMA with or delivering to NRMA shares worth $250 million. It would be wrong, in my view, to give any undue emphasis to the word "giving" as it appears in the advertisement. The second complaint is the statement of the shares as being worth at least $250 million. The difficulty about this is that the figure comes from the Macquarie Equities report and relies upon an assumption in that report that five percent of the net worth of Insurance will be received by NRMA under demutualisation if it goes ahead. As the source of this statement, or at least the value of the shares, is stated to be the report of Macquarie Equities, and nothing whatever is said against that, it would seem to me that as the defendants clearly and openly stated that the figure was based upon the Macquarie Equities report, there were reasonable grounds for making that representation, provided there was some proper basis for the assumption that five percent of the net worth of Insurance would end up in the hands of NRMA. This is a difficult matter, but on balance I have come to the conclusion that in clearly relying upon the Macquarie Equities report for the statement made, the defendants must have accepted the assumption and been prepared to so act as to work to bring it about and accordingly had reasonable grounds for making the representation. There can of course be no doubt that if a severe earthquake hit the whole of the central business district and a large part of the metropolitan district of Sydney, the value of Insurance would be substantially reduced. But that does not mean there were not reasonable grounds for making the representation. I do not consider that the requirements of s41(2) of the Fair Trading Act require direct evidence by the defendants that they would act so as to make good the assumption relied upon in the Macquarie Equities report. I do not consider the fact that it has been shown to be more probable than not that NRMA has received in the last two years payments from Insurance, make the statement "and yearly income" misleading or deceptive in the context in which it is considered. It would, I consider, be different, as I have said before, in the case of a prospectus or a take over document or a scheme of arrangement.

21    So far as the third statement is concerned, I consider the same position as to reliance on the report applies, although it would probably have been desirable to have had the statement refer to provision of "$3,000 worth of shares to the average member being a member of NRMA of fifteen years standing with two policies with Insurance". In other words, I consider the Macquarie Equities report provided reasonable grounds. Once again this is election material and in that context I do not think the statement to be misleading. Neither do I think there could be any complaint about the last part of the third statement, namely, "but only if you vote for all 8 members of the Members First Team". While it may not be necessary for all eight members of that team to be elected as directors for demutualisation to be achieved, and there is no evidence about that, in circumstances where, at least up to the present time, it has been well-known that the board of NRMA is divided on the question of demutualisation, but it is established by the evidence in this case, that the boards of both companies decided on 25 February 1999 to develop a restructure proposal which would involve demutualisation of the insurance business and the continued provision of road service through a new mutual, and that subject to final approval of the board, the restructure proposal would be put to members of both companies through schemes of arrangement, it does appear that there would be more certainty of the boards continuing to put such decisions into effect if all members of the Members First Team were elected as directors. Once again in the context of an election campaign, this last statement does not appear to me to be misleading or deceptive or in any way likely to mislead or deceive the electors in the context of this particular election.

22    It follows that had it been necessary to so find I would find the claim under this heading fails.

23    Finally I should add that had I considered the statements were in breach of the Act and it was proper to grant an injunction I would not have made an order for publication of some correcting advertisement as I would not have thought that to be necessary.

24    In coming to the conclusion which I have it is not to be thought that I am recommending to the defendants they go back to their original policy statement. On the other hand, as it has been raised, it is also right to say that I can see no objection to the statement which on the evidence presently appears on the Members First Team website, which states that if the insurance company is floated, every NRMA member would receive "a windfall benefit in the form of shares". One of the meanings of the word "windfall" is stated in the Macquarie Dictionary to be "an unexpected piece of good fortune". If the road service continues as the defendants state it will on demutualisation of Insurance, then I do not consider that the statement of a windfall could be said to be misleading or deceptive, albeit that it could not be said that the benefit was "free".

25    It follows from these reasons that the plaintiff's claim should be dismissed with costs and I so order. The summons will be dismissed with costs. The exhibits can be returned.

Last Modified: 09/23/1999