FEDERAL COURT OF AUSTRALIA De Bortoli Wines Pty Ltd v HIH Insurance Limited (in liq) [2012] FCAFC 28 Citation: De Bortoli Wines Pty Ltd v HIH Insurance Limited (in liq) [2012] FCAFC 28 Appeal from: De Bortoli Wines Pty Ltd v HIH Insurance Limited (in liq) [2011] FCA 645 Parties: DE BORTOLI WINES PTY LIMITED (ACN 000 146 672) v HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575), ANTHONY GREGORY MCGRATH IN HIS CAPACITY AS LIQUIDATOR OF HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) and CHRISTOPHER JOHN HONEY IN HIS CAPACITY AS LIQUIDATOR OF HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) File number: NSD 1064 of 2011 Judges: JACOBSON, SIOPIS & NICHOLAS JJ Date of judgment: 15 March 2012 Catchwords: TRADE PRACTICES – appellant claims to have suffered loss following multiple purchases of shares in reliance on misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) – whether the primary judge erred in finding that appellant did not rely on the representations made – questions of reliance are be considered in light of the circumstances surrounding each purchase – primary judge did not err in finding that appellant relied on own judgment and experience in making each purchase – no error in primary judge's finding that reliance not established – appeal dismissed Legislation: Trade Practices Act 1974 (Cth), ss 52 and 82 Cases cited: Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 Como Investments Pty Limited (in liq) v Yendal Nominees Pty Limited (1997) 19 ATPR 43,617 Gould v Vaggelas (1985) 157 CLR 215 Henville v Walker (2001) 206 CLR 459 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 MGICA (1992) Limited v Kenny and Good Pty Ltd (1996) 140 ALR 313 Smith v Chadwick (1884) 9 App Cas 187 Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Date of hearing: 3 November 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 115 Counsel for the Appellant: BA Coles QC with MR Gracie Solicitor for the Appellant: Noyce Salmon & D'Aquino Solicitors Counsel for the Respondents: F Gleeson SC with KJ Williams Solicitor for the Respondents: Blake Dawson IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1064 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: DE BORTOLI WINES PTY LIMITED (ACN 000 636 575) Appellant AND: HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) First Respondent ANTHONY GREGORY MCGRATH IN HIS CAPACITY AS LIQUIDATOR OF HIH INSSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) Second Respondent CHRISTOPHER JOHN HONEY IN HIS CAPACITY AS LIQUIDATOR OF HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) Third Respondent JUDGES: JACOBSON, SIOPIS & NICHOLAS JJ DATE OF ORDER: 15 March 2012 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The Appellant pay the Respondents' costs of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1064 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: DE BORTOLI WINES PTY LIMITED (ACN 000 636 575) Appellant AND: HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) First Respondent ANTHONY GREGORY MCGRATH IN HIS CAPACITY AS LIQUIDATOR OF HIH INSSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) Second Respondent CHRISTOPHER JOHN HONEY IN HIS CAPACITY AS LIQUIDATOR OF HIH INSURANCE LIMITED (IN LIQUIDATION) (ACN 008 636 575) Third Respondent JUDGES: JACOBSON, SIOPIS & NICHOLAS JJ DATE: 15 March 2012 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 Between 11 August and 22 December 2000, De Bortoli Wines Pty Ltd ("DBW") purchased nearly 20 million shares in HIH Insurance Limited ("HIH") on the Australian Stock Exchange ("ASX"). The shares were purchased in 66 separate transactions at a total cost of more than $7.1m. 2 On 15 March 2001, HIH was placed into provisional liquidation thereby effectively destroying the entire value of DBW's investment. 3 Nearly 8 years later, in February 2009, DBW lodged a proof of debt with the Liquidators of HIH for the total cost of the shares purchased. The proof of debt was supported by a statutory declaration made by Mr Darren De Bortoli, the Managing Director of DBW. 4 The effect of Mr De Bortoli's statutory declaration was that DBW (acting through Mr De Bortoli) had been induced to purchase the shares by reason of misleading information about HIH's financial position contained in a variety of publicly available documents released by HIH as well as stockbroker analyses based upon that information. Mr De Bortoli also claimed to have relied upon statements about the financial health of HIH made to him by two former officers of that company, Mr John Clarke and the late Mr Randolph Wein. 5 Therefore the substance of DBW's claim to be a creditor of HIH was that it had a cause of action for damages under s 82 of the Trade Practices Act 1974 (Cth) (the "Act") by reason of the misleading or deceptive conduct of HIH in contravention of s 52 of the Act. Such a cause of action requires the claimant to establish that its loss has been caused by the impugned conduct: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 ("Wardley"). The conduct need not be the sole cause but it must be a cause of the loss: Henville v Walker (2001) 206 CLR 459 ("Henville v Walker"). 6 In February 2010, the Liquidators of HIH rejected DBW's proof of debt, in particular because they were not satisfied that the materials lodged in support of the claim established that DBW had relied upon any misleading conduct that had been engaged in by HIH. 7 DBW appealed against the Liquidators' rejection of the proof of debt. The primary judge (Stone J) dismissed the appeal. Her Honour did so on the ground that the evidence adduced by DBW in the appeal did not establish the necessary causal link between the loss claimed by DBW and certain statements which were admitted by HIH to have been misleading. 8 The essential issue which arises in this appeal is whether the primary judge erred in her findings about the absence of causation. In particular, DBW contends that the primary judge failed to accord proper weight to the principle stated in a number of authorities that there may be "a fair inference of fact" that a misleading statement made by a defendant with a view to inducing a plaintiff to enter into a contract has had that effect: see eg Smith v Chadwick (1884) 9 App Cas 187 at 196 ("Smith v Chadwick"). The share purchases 9 DBW's share purchases commenced on 11 August 2000 with a parcel of 130,060 shares at a purchase price of slightly in excess of $1.04 per share. DBW made a number of further purchases during August 2000 at prices between $1.04 and $1.07. 10 The market price of HIH shares began to decline in September 2000 but DBW continued to purchase further substantial parcels of shares. During the month of September, DBW purchased approximately 1,000,000 shares including two parcels totalling nearly 500,000 shares at 52¢ a share. 11 The price of HIH shares continued to fall during October to December 2000 but DBW continued to purchase shares in increasing volumes. Large parcels were acquired in October 2000 including a parcel of 650,000 at 47¢ per share. The same pattern occurred in November commencing with a purchase of a million shares at 31¢ on 1 November 2000. 12 By 11 December 2000, the market price of HIH shares fell below 30¢ but DBW acquired more large parcels of shares commencing with a parcel of two million shares on 11 December 2000 at 29¢, culminating in a purchase of nearly 695,000 shares at just under 23¢ per share. 13 The total number of shares acquired by DBW during the four and a half month period ending on 22 December 2000 was 19,683,138. The total purchase price was stated on the face of Exhibit B to be $7,167,278.01. 14 DBW's proof of debt claimed losses suffered on an additional $3,345,000 in HIH purchased by a related company, Aabrofay Pty Ltd ("Aabrofay"). Mr De Bortoli started purchasing shares on behalf of Aabrofay on 15 June 2000. The Liquidators of HIH rejected the proof of debt for those share purchases on the ground that the shares purchased by Aabrofay were not a loss suffered by DBW. DBW's evidence of causation: the Statutory Declaration 15 In the hearing before the primary judge, DBW's evidence in support of its claim of causation of loss was found in a number of different sources. The principal source was Mr De Bortoli's statutory declaration dated 6 February 2009 in which he confirmed in an affidavit filed in the proceeding at first instance. 16 The substance of Mr De Bortoli's statutory declaration was that he relied on three different categories of information in making his decision to acquire shares in HIH. 17 The first category consisted of financial reports, media releases and statements made by the Chairman and Chief Executive of HIH during the period from March 2000 to December 2000. 18 Eleven such documents were listed in paragraph 4 of the statutory declaration. They included HIH's 1999/2000 Interim Results for the 6 months ending 31 December 1999 and HIH's Concise Annual Report for the financial year ending 30 June 2000. The Interim Report appears to have been issued in March 2000. The Annual Report was dated 16 October 2000. 19 The other nine documents consisted principally of media releases issued by HIH to the ASX. They included a media release issued on 31 October 2000 and four releases issued during November 2000. 20 Mr De Bortoli stated that he read all the documents at DBW's head office in Griffith, NSW "from March 2000 as and when I received them and thereafter". 21 Mr De Bortoli went on to state that he took particular notice of the statements that were marked in yellow on the documents. He set out details of the statements which he said he had read. They included statements of HIH's profits and financial position as at 31 December 1999 and 30 June 2000. HIH reported operating profits of $40.2 million and $18.4 million respectively for those periods as well as net assets and shareholders' equity of nearly $1 billion. 22 The second category consisted of documents Mr De Bortoli described as "Stockbrokers' Advices" received by DBW. Seven advices were listed, comprising one such advice from Salomon Smith Barney ("Salomons") dated 3 March 2000, four from JB Were dated 17 March 2000, 17 and 30 November and 15 December 2000 and two issued in July and August 2000 by an independent research organisation known as Barra Research. 23 Mr De Bortoli declared that he read the Stockbrokers' Advices at DBW's office at Griffith "as and when I received them". He said he took particular notice of the statements marked in yellow on the Advices. 24 The Stockbroker Advices were based upon HIH's published financial statements and announcements including its interim profit report for the half-year ending 31 December 1999 and the Annual Report for the 1999/2000 financial year. The salient details of those reports were set out in the Advices. 25 The Stockbrokers' Advices issued by Salomons and JB Were in March 2000 contained an "Outperform" and "Buy" recommendation for HIH. The JB Were advices issued in November and December 2000 contained a "Hold" recommendation. 26 The third category of information consisted of statements said to have been made to Mr De Bortoli by Mr Clarke and Mr Wein during the period from June to December 2000. Mr Clarke was the General Manager, Public Affairs of HIH and Mr Wein was a director. 27 The statements attributed to Mr Clarke and Mr Wein were to the effect that HIH was a profitable company. One such statement was said to have been made by Mr Clarke at a dinner on 25 October 2000 at a Sydney restaurant known as Grappa. The statement was: Buy shares in HIH it is a good company – good profits and is undervalued. 28 Mr De Bortoli went on to say that he relied upon each of the three categories of information when purchasing shares in HIH "from time to time". He then said The Creditor would not have purchased the shares had the true financial position of HIH been known or disclosed. Had the Creditor known the true financial position of HIH at the time, as has now been revealed by the HIH Royal Commission, the Creditor most certainly would not have purchased the shares. Had the Creditor known that HIH had engaged in Misleading and Deceptive Conduct as has now been revealed by the HIH Royal Commission the Creditor would not have invested in HIH at all. The Creditor found out for the first time about the Misleading and Deceptive Conduct of HIH after HIH went into liquidation. At that stage the shares were no longer traded on the ASX and were worthless. The Creditor was unable to sell the shares to mitigate the loss. The Liquidators' Examination 29 The primary judge admitted into evidence selected parts of the transcript of the Liquidators' examination of Mr De Bortoli to which no objection was taken by HIH. The examination took place on 17 August 2009 and 19 October 2009. 30 In the examination, Mr De Bortoli stated that he read the entirety of each of the documents referred to in his statutory declaration. He said he read them soon after the documents were released except for the Interim Results which he read just before 15 June 2000, that being the date on which Aabrofay commenced purchasing shares in HIH. 31 Mr De Bortoli said he made his initial purchase of shares after receiving advice from Mr McCormack of Salomons. Thereafter he did not receive advice from a broker suggesting that HIH was a good buy, but I think that was the conclusion I arrived at myself backed up by the stockbroker analyst reports. 32 Mr De Bortoli was asked about the yellow highlighting on the documents to which he referred in his statutory declaration. He said he did not do the highlighting himself but that his solicitor did it under Mr De Bortoli's direction as to which bits should be highlighted. 33 Mr De Bortoli went on to say that he gave equal weight to each of the three categories of misleading information which he identified but ultimately his evidence was that he gave more weight to the yellow highlighted portions. He said that those portions contained "the more obvious misleading claims". 34 The transcript of the examination reveals that only three of the eleven public documents released by HIH were highlighted but all of the seven stockbroker advices contained yellow highlighting. 35 The three public documents on which the yellow highlighting appeared were the HIH Interim Results for the six months ending 31 December 1999, a statement to shareholders from the Chairman and Chief Executive of HIH dated 13 September 2000 and the Concise Annual Report. The statement to shareholders was directed in particular at a new joint venture between HIH and another well known general insurer, Allianz Australia Limited. 36 Mr De Bortoli was asked about a number of the highlighted statements in the public documents. He said that the statements kept influencing his decisions through to the end of December 2000, that is to say, when the last purchases were made. 37 The following passage in the transcript appears to reflect Mr De Bortoli's evidence given in the examination as to his approach to the published financial reports of HIH: MR GLEESON I'm putting to you what you would have done if you had understood that the NTA per share was below the share price. Are you saying that wouldn't have changed your – MR DE BORTOLI Not at that time. MR GLEESON Why not? MR DE BORTOLI From all reports the company was doing – was doing all right. MR GLEESON What reports? MR DE BORTOLI The financial reports. MR GLEESON Such as the interim results published in March 2000? MR DE BORTOLI Correct. MR GLEESON Which indicated NTA and yet you seem to be suggesting, as I understand you, that in fact NTA wasn't that significant to you? MR DE BORTOLI Well it depends on what period of time you're looking at. Later on net asset backing became more important to me. MR GLEESON But it was not important to you to begin with in June 2000? MR DE BORTOLI Correct. MR GLEESON Well why not? MR DE BORTOLI Because I believed the company was undervalued at that stage. MR GLEESON Why? MR DE BORTOLI Well, based on its financials. MR GLEESON What financials? MR DE BORTOLI The financials that stated it was profitable and all the comments made concerning the performance of the company. MR GLEESON Comments by? MR DE BORTOLI From the – I'm talking about the financial reports, I'm talking about comments later from the Chairman, Mr Cohen. MR GLEESON So when you indicated on a previous day that you had two key criteria guiding your investment choices, profitability and NTA, is it in fact the case that profitability was much more important than NTA as at the time you commenced purchasing shares in mid 2000? MR DE BORTOLI I would say they were still equal weighting. 38 Mr De Bortoli's evidence at the Liquidators' examination was that he read all of the 7 Stockbrokers' Advices in their entirety shortly after he received them and that he took particular notice of the parts that were highlighted in yellow. 39 Counsel for the Liquidators examined Mr De Bortoli on the significance of the departure from the initial recommendation of "Outperform" that was contained in the Salomon Smith Barney Advice given in March 2000. 40 Mr De Bortoli conceded that from July 2000 the effect of the changed broker recommendation was that he was no longer relying on the "Outperform" recommendation previously given by Salomons. He went on to say, in effect, that by this time he was taking encouragement from the information he received from Mr Clarke. 41 The effect of Mr De Bortoli's evidence as to the influence upon him of the broker downgrades in November and December 2000 was that he was basing his assessments during that time on information he received from Mr Clarke and from HIH's published financial statements. 42 Mr De Bortoli was examined on his conversations with Mr Clarke. He conceded that he understood during 2000 that Mr Clarke's job was to "push" HIH with the aim of seeking to keep DBW on the share register and to encourage Mr De Bortoli to buy more shares. 43 Mr De Bortoli was also asked about the "bland" or general statements attributed to Mr Clarke. The effect of his evidence was that he accepted what Mr Clarke told him "in the context of the other information", that is to say the HIH public documents which comprised the first category of information on which Mr De Bortoli said he relied. He said he gave Mr Clarke's statements "equal weighting" with the public documents and the Stockbrokers' Advices. Cross-examination of Mr De Bortoli 44 In the hearing before the primary judge, Mr De Bortoli acknowledged that he was an experienced share trader who had purchased $20m to $30m of other stocks prior to DBW's acquisition of its shareholding in HIH. 45 Mr De Bortoli also acknowledged that he attempted to follow the market in relation to the stocks he was investing in. Initially, he refused to concede that he kept himself apprised of media commentary in the financial press. However, ultimately he conceded that he read the financial press "sometimes" in 2000, that the Australian Financial Review was delivered to DBW's head office daily and that he "looked at" that publication. 46 Mr F Gleeson SC, who appeared for HIH and the Liquidators at the hearing before the primary judge (and on the appeal to the Full Court) cross examined Mr De Bortoli about the yellow highlighting on the documents upon which Mr De Bortoli claimed to rely. The following exchange took place: MR GLEESON: That happened in 2009? MR DE BORTOLI: Correct. MR GLEESON: It happened after both you and your solicitors had read the HIH Royal Commission Report? MR DE BORTOLI: I never read the report. MR GLEESON: Okay, thank you. You – so far as you understood, your solicitor had read the report? MR DE BORTOLI: My legal representatives, yes. MR GLEESON: And they were identifying on your behalf what you considered to be misleading statements by HIH in its financial statements? MR DE BORTOLI: Correct. MR GLEESON: Okay, and in marking up the documents, nine years later, you were trying to identify those documents which contained misleading statements by reference to the HIH report, weren't you? MR DE BORTOLI: As I said in the transcripts… MR GLEESON: Could you please answer the question, Mr De Bortoli? MR DE BORTOLI: I would say all the documents were misleading. MR GLEESON: Okay, so we know that's your opinion. What I'm putting to you is, your solicitors on your instructions, were marking up the documents in yellow in 2009 by reference to the HIH Royal Commission Report seeking to agitate your claim of misleading conduct, weren't they? MR DE BORTOLI: They were stating the more obvious misleading claims, yes. 47 Mr De Bortoli went on to concede that he did not make any markings or notations on the Interim Results document when he read it and that he could not remember the occasion or the circumstances in which he read that document. Nevertheless, he insisted he read the whole of the document, although not necessarily when he received it in March 2000. He said he "would have" read the document: "possibly between March and when I first started purchasing shares, 15 June". 48 Mr Gleeson then asked Mr De Bortoli about the conversation with his broker that preceded the first purchase of shares. He acknowledged that his broker, Mr McCormack of Salomans, told him that there was a rumour that Mr Rodney Adler was purchasing shares in HIH at that time. He also appeared to concede that the information he received from Mr McCormack about Mr Adler, and that there was a potential for a takeover, was a "catalyst" for his first purchase of HIH shares. Mr De Bortoli said that he was also influenced by his view that the shares were undervalued. 49 Ultimately, Mr De Bortoli conceded that Mr Adler's purchase "certainly stimulated my interest" in HIH. He did not concede that the information about Mr Adler was a fact or merely a rumour and that it was not yet public but it is plain from the cross-examination that he knew Mr Adler was a director of HIH. 50 Mr De Bortoli was also asked about the "recommendation downgrade" he received from Salomons dated 6 July 2000. He acknowledged he received the document and that he read the warning in the document that, although the stock appeared extremely cheap, the broker believed it was a greater than average investment risk. 51 Notwithstanding this, Mr De Bortoli went on to insist that during July 2000, the Interim Results of HIH dated March 2000 "gave me some comfort". After several further questions, the following exchange took place: MR GLEESON: So there was nothing positive in this report, was there? MR DE BORTOLI: Well, I wouldn't say it's negative either. MR GLEESON: Okay, so you don't read "high risk" as negative or "recommendation downgrade" as negative? MR DE BORTOLI: Downgrade but it's not a sell. They've still got it as neutral. 52 Mr De Bortoli acknowledged that when he first gave instructions in August 2000 on behalf of DBW, the financial information contained in the Interim Results, dated as at 31 December 1999, were 8 months old. He agreed that "[s]tale would be a good descriptor" of those results but he refused to concede that stale information was of no value in his investment decision. Rather, Mr De Bortoli said it gave "some context" to the decision. 53 Mr De Bortoli was again asked about media commentary on HIH, in particular about commentary in August 2000. He said he was not aware of headlines that described HIH as struggling, as troubled and as a distressed seller of assets. He would not concede that he read commentary to that effect. The following exchange is instructive: MR GLEESON: Okay, and so if there were articles The Financial Review concerning HIH, it's likely that you saw them around the time that you were investing in shares in the company? MR DE BORTOLI: If I actually read the paper, yes. 54 Mr De Bortoli was also asked about his continued purchases of shares in September 2000 notwithstanding the drop in the share price. He said he was aware the price was dropping. His evidence, as revealed in the following exchange with counsel, was that he knew better than the market: MR GLEESON: But the market was telling you something different, wasn't it? People who were holding shares in HIH were selling them out at prices less than 50 cents throughout September and October? MR DE BORTOLI: I reiterate, I felt they were exceptionally good value at that time. MR GLEESON: So you felt you knew better than the market; is that the case? MR DE BORTOLI: Correct. MR GLEESON: And you backed your own judgment and your own assessment, didn't you? MR DE BORTOLI: Correct. MR GLEESON: And you were prepared to ignore the negative press commentary about HIH and its fortunes, weren't you? MR DE BORTOLI: The information I was relying on was correspondence with John Clarke, information coming from HIH, and all that information appeared to validate my faith in the company. I never assumed that the accounts were dodgy in the first place, or the directors were dodgy. 55 From 13 September 2000, there was a dramatic fall in the HIH share price, and about the same time there was a rumour that Mr Adler was selling out his holding. Mr De Bortoli agreed that these two events prompted him to contact Mr Clarke. 56 Mr De Bortoli was also cross-examined about an article in the Financial Review dated 15 September 2000 which was headed "The price has slumped another 30 per cent yesterday." Mr De Bortoli said he did not recall seeing it. The following exchange then occurred: MR GLEESON: Are you seriously suggesting that in circumstances where you had invested a significant sum of money on behalf of the company in HIH shares, the share price drops almost 50 per cent in two days, but you weren't concerned to keep yourself abreast of whatever financial commentary there was about the company in the Financial Press? MR DE BORTOLI: I would have been following the press releases coming from HIH and ASX statements. I was not necessarily following what was stated in the press. 57 Shortly afterward, Mr Gleeson returned to the subject of the falling share price. He suggested to Mr De Bortoli that the market was saying it did not consider the shares to be worth anything more than the prices they were traded at. After a non-responsive answer from Mr De Bortoli, the cross-examination continued as follows: MR GLEESON: Please, answer the question, Mr De Bortoli? MR DE BORTOLI: I have invested in numerous companies where the share price had dropped significantly. MR GLEESON: Please, answer the question? MR DE BORTOLI: And I – by taking a longer term view, I've always been correct. MR GLEESON: So – thank you. Your view in 2000 was that you knew better than the market? MR DE BORTOLI: Correct. MR GLEESON: --- and that you are always correct? MR DE BORTOLI: In hindsight, obviously not. MR GLEESON: In 2000, your view was, you knew better than the market and you were always proved correct. That's what you have told us? MR DE BORTOLI: Yes. MR GLEESON: Okay. And whatever the market was telling you, in terms of the plummeting share price, that would have no effect on you whatsoever. Did it? MR DE BORTOLI: I just thought the shares offered even better value. MR GLEESON: Okay, because of this view you had, that you were always correct, and in the long term, you would do better than the market? MR DE BORTOLI: Well, I was backing my own judgment I had accepted – I had assumed that the directors and the auditors would behave ethically and professionally. And based on that assumption, I – my position was valid. MR GLEESON: You didn't…? MR DE BORTOLI: If the accounts were correct and everything was valid, then my assumption was valid. 58 Mr De Bortoli was also asked about other adverse reactions in the market to the fall in HIH's share price, in particular the fact that Merrill Lynch had removed the stock from margin lending prior to 10 November 2000. Mr De Bortoli conceded that Merrill Lynch had informed him of the fact and that he chose to ignore the implicit warning from Merrill Lynch that it was concerned about the equity value of HIH. He said he believed Merrill Lynch was wrong and that he thought that he knew better than that institution. The primary judge's approach to the issue of causation 59 Before turning to her factual findings, the primary judge comprehensively considered the authorities which have addressed the need for an applicant to establish that its loss was occasioned "by" the misleading conduct of the respondent. 60 As her Honour said, referring to Wardley, this inevitability raises the vexed question of causation. 61 Her Honour set out the relevant passages from the leading authorities at [49]ff, in particular Henville v Walker, which established the proposition that the impugned conduct need only be a cause of the loss and not the sole cause. She also referred to the well-known authorities on the application of the "common sense" approach to causation and to judicial endorsement for the proposition that questions of causation are to be answered in the legal framework in which they arise. 62 The primary judge then turned to the authorities which address the question of whether an applicant must prove reliance to establish the necessary causal link. She observed that whilst s 82 of the Act is not confined to cases where an applicant has relied upon the contravening conduct of the respondent, reliance must be established where an applicant claims to have suffered loss from a misrepresentation: see [55] – [64]. 63 Her Honour explained the distinction between cases such as Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526, where reliance is not required, and those where it is, by referring to the decision of the NSW Court of Appeal in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653. As that case explains, the distinction is between cases where a plaintiff is a passive sufferer of the loss and cases where the plaintiff is not passive but makes a positive decision to enter into a transaction to which a misrepresentation is said to be material. 64 The primary judge accepted that the present case is one which fell into the latter category. She said at [63] that to succeed in its claim in respect of each share purchase transaction DBW was required to show that it was induced to enter into the transaction by the impugned conduct of HIH. She continued by saying: Here reliance is critical to the applicant's claim; DBW must show that it relied on the misleading information and that that information emanated from HIH. 65 Her Honour then said at [65] that DBW has emphasised that the Court could infer reliance from the fact that HIH had engaged in misleading conduct and that DBW had invested in the shares. She set out the salient passages from the speech of Lord Blackburn in Smith v Chadwick at 196 in which he said that if it is proved that a defendant "with a view to induce the plaintiff to enter into a contract" made a statement to the plaintiff of a nature as would be likely to induce a person to enter into a contract, and the plaintiff did so, "it is a fair inference that he was induced to do so by the statement". 66 However, as the primary judge pointed out, Lord Blackburn's observation must be read in its context and any inference may be rebutted by other evidence citing Gould v Vaggelas (1985) 157 CLR 215 at 236. 67 Her Honour also referred to other authorities which demonstrate that the weight of the factual inference will vary with the circumstances in which the representation was made, and that it may be buttressed by other evidence: Como Investments Pty Limited (in liq) v Yendal Nominees Pty Limited (1997) 19 ATPR 43,617; MGICA (1992) Limited v Kenny and Good Pty Ltd (1996) 140 ALR 313. 68 The primary judge dealt with DBW's submission that it was entitled to the benefit of a factual inference of reliance at [73] as follows: In my view, any factual inference must be weighed in the light of all the evidence. If, as the respondents submit, the evidence is such as to show that some or all of the share purchases were made without regard to the HIH representations then the inference will be rebutted and the causal link required under s 82 will not be made out. The primary judge's factual findings 69 Before turning to her assessment of Mr De Bortoli's oral evidence, the primary judge listed the eleven public documents and the seven stockbroker advices which Mr De Bortoli listed in his statutory declaration. She observed at [79] that the respondents admitted that certain statements in three of the public documents were misleading, or likely to be so, but that they made no admissions in relation to the other public documents or the stockbroker advices. The documents in respect of which admissions were made were: HIH's Interim Results for the 6 months ending 31 December 1999; the statement to shareholders from the Chairman and the CEO of HIH dated 13 September 2000; and HIH's Concise Annual Report for the year ending 30 June 2000. 70 Her Honour made the following finding at [82] about Mr De Bortoli's evidence of reliance upon statements made in those documents: Mr De Bortoli was not able to point to any marking or notation that he had made on the documents, either contemporaneous with reading them or later. He agreed that all of the yellow highlighting on the documents had been made, not by him when he read them in 2000, but by his solicitors in 2009 after they had read the Report of the Royal Commission into HIH. Mr De Bortoli's evidence on cross-examination was also curiously equivocal. He confirmed that he read the documents in their entirety "as and when" he received them but prevaricated about when that was. 71 The primary judge then made factual findings about reliance (or lack thereof) in relation to Mr De Bortoli's purchases in respect of four separate time periods, namely August 2000, September 2000, October-November 2000 and December 2000. The August 2000 purchases 72 Her Honour noted that Mr De Bortoli was, on his own evidence, an experienced share trader. She also observed that Mr De Bortoli accepted that the information on which he claimed to rely was "stale" but that he said he regarded it as still relevant despite the lapse of time and the intervening pessimistic reports about HIH. 73 Her Honour recorded Mr De Bortoli's admission that he received the Australian Financial Review in his office but she said he did not recall seeing articles about "Struggling HIH". She described Mr De Bortoli's evidence about some of the statements he claimed to rely upon as "vague". 74 The primary judge then made the following finding at [90]: It is clear from Mr De Bortoli's oral testimony that he had no independent recollection of reading the Interim Results Review for the 6 months to 31 December 1999 which, by the time he bought the shares, was almost 8 months old. In the absence of any contemporaneous notes or marking on the documents his assertion that he paid particular attention to statements highlighted by his legal advisors almost 9 years later cannot be regarded as reliable evidence. Moreover, Mr De Bortoli agreed that by August 2000 it was "stale would be a good descriptor" for that information but said it gave some context. 75 Her Honour said that Mr De Bortoli was "similarly vague" about when he read the stockbrokers' advices and "for the same reason, it is not possible to attribute any weight to the highlighted material." 76 The primary judge made an express finding that Mr De Bortoli's initial foray into the marker on behalf of Aabrofay was "more likely" to have been prompted by his broker telling him about Mr Adler's share purchases. She said at [92]: In any event, on the evidence presented by the applicant, I am not satisfied that Mr De Bortoli relied on any misleading representations by HIH in investing in HIH shares in August. The September 2000 purchases 77 The primary judge referred to DBW's continuing share purchases in September 2000 notwithstanding the dramatic fall in the share price. She observed that Mr De Bortoli said he was not concerned by the fall because he believed the net asset backing to be substantial. However, as her Honour pointed out, this approach was not shared by market analysts who downgraded the stock. 78 Her Honour then set out the passage from the transcript of Mr De Bortoli's cross-examination which we have reproduced at [54] above. 79 Her Honour went on to say that Mr De Bortoli gave inconsistent evidence about his communications with Mr Clarke. She said that Mr De Bortoli, in his statutory declaration, stated that he had telephone conversations with Mr Clarke from June to December 2000 but in cross-examination he said the occasion for contacting Mr Clarke was the drop in the share price. The primary judge then set out a number of the passages of the cross-examination of Mr De Bortoli on the topic of an article in the Australian Financial Review about the slump in HIH's share price. We have reproduced a part of that transcript at [56] above. 80 Her Honour said at [99] that "after some prevarication", Mr De Bortoli admitted that the sale of Mr Adler's shares indicated a lack of faith in HIH. She said Mr De Bortoli "agreed with the proposition that he knew better than the market and admitted he was 'backing my own judgment'". The October/November share purchases 81 The primary judge referred to the large number of HIH shares purchased by DBW in October and November 2000. She said Mr De Bortoli repeatedly denied that during this period he saw a significant amount of negative press sentiment about HIH but she referred to Mr De Bortoli's knowledge of HIH's downgrade. 82 Her Honour also referred in this section of the judgment to the meeting between Mr De Bortoli and Mr Clarke at Grappa Restaurant. She said that the statements attributed to Mr Clarke "were not statements to which one would attach much weight". 83 Her Honour also referred to the evidence of Mr Rowney, a friend of Mr De Bortoli, who attested to the truth of Mr De Bortoli's evidence of the conversation with Mr Clarke. She said at [102]: [Mr Rowney] admitted having been shown a copy of what Mr De Bortoli had reported but insisted that, despite the lapse of time, he had an independent and precise recollection of what had been said. 84 The primary judge concluded this section of her judgment with the following findings at [103]: Mr De Bortoli's actions over this period show that, far from relying on external information from HIH or any other source, Mr De Bortoli pursued his own strategy relying on his own views about investment generally and his own belief that what goes down must come up. His purchase of a large volume of shares in the face of strong independent statements in the financial press and by analysts that HIH was in severe financial trouble was not made in reliance on representations from HIH but on his own strategic plan. The December share purchases 85 The primary judge referred to DBW's acquisition of an additional 10 million shares in December at prices from 33¢ to 23¢. She said at [104]: The negative indicators about HIH had not improved over this period and it would seem that Mr De Bortoli was motivated by faith in his own long term view. The primary judge's conclusions 86 Her Honour's conclusions are summed up at [110]–[111]: In this case I am satisfied that any inference of fact that Mr De Bortoli's purchase of HIH shares was induced by HIH has been rebutted. Little weight can be given to Mr De Bortoli's evidence that he could recall giving particular attention to specific statements in documents issued by HIH when he could not recall when he read them. This is more so when there was no independent evidence of him having read the documents or directed his attention to particular assertions. The credibility of the evidence is also undermined by Mr De Bortoli's assertion that he was unaware of the very considerable negative media coverage referred to at [76] above and by the inconsistencies in his evidence. Mr De Bortoli was an experienced share trader who had purchased significant parcels of shares for Aabrofay as well as DBW. His assertions, made time and again, that he knew better than the market and that he relied on his own assessment are inconsistent with his claim to have relied on the representations of HIH. If Mr De Bortoli had merely been careless it would not, as explained above at [74]-[75], be sufficient to bar him from recovery under s 82. However, the problem here is not carelessness or even reckless neglect of DBW's interest. It is the absence of reliance on HIH's representations and thus the absence of the necessary causal link between representations and conduct that is fatal to DBW's claim. Discussion 87 Counsel for DBW did not take issue with the primary judge's discussion of the legal principles. Rather the gravamen of the attack on her Honour's judgment was that she was said to have made two substantial errors in her approach to the application of the accepted principles. 88 The first error was said to have been that she failed to give proper weight to the "fair inference" of fact recognised by Lord Blackburn in Smith v Chadwick, and in subsequent authorities. 89 The second error was said to be that her Honour applied an artificial or unrealistic test in determining whether to accept Mr De Bortoli's evidence of reliance. 90 The critical paragraphs in her Honour's reasons are contained in [82], [90] and [110]–[111] which we have set out above. Her Honour said she was satisfied that "any inference" of reliance was rebutted but it is not clear that she made a finding that such an inference should be drawn. 91 What is clear from the paragraphs of her Honour's reasons mentioned above is that she was not satisfied that Mr De Bortoli had relied upon the statements comprised in the three categories of misleading information in deciding to enter into any of the 66 transactions for the purchase of shares in HIH. Her Honour's conclusions at [110]–[111] are to be read with her finding at [101] that she would not attach much weight to the statements made by Mr Clarke. 92 It is true that the primary judge did not make an express finding that Mr De Bortoli was an untruthful witness. However the effect of her findings in the four paragraphs to which we have referred is that she did not accept his evidence of reliance. 93 In our view, a proper analysis of the evidence to which we were taken in argument on the appeal, and of the primary judge's reasons, shows that there was no error in her Honour's ultimate finding that Mr De Bortoli did not rely on any misleading statement made by HIH. 94 That is the finding on which the appeal turns because neither party contended that the so-called "fair inference" of reliance did not arise. DBW emphasised the importance of the inference and what was said to be the sufficiency of the evidence to support it. Counsel for the respondents pointed to the weakness of Mr De Bortoli's evidence and the material which supported her Honour's findings that he did not rely on HIH's misrepresentations. 95 It is therefore unnecessary for us to determine whether the proper approach to the matter is to proceed on the basis of a "fair inference" which was required to be rebutted. What was really at the heart of the appeal was whether the primary judge was in error in finding that Mr De Bortoli did not rely on the information. 96 We do not think that her Honour erected an artificial barrier to the acceptance of Mr De Bortoli's evidence. Her emphasis upon the absence of contemporary notes or markings of the documents was not a finding that this is an essential pre-requisite for any case in which a witness claims to have relied on misleading statements in a document. Rather, it was a step in her Honour's overall rejection of Mr De Bortoli's evidence, taking into account the fact that the yellow highlighting of the documents took place nine years after Mr De Bortoli claimed to have read the documents. 97 Although her Honour did not say so expressly, the effect of her finding was that the absence of contemporary marking was contrasted with the yellow highlighting made by his solicitors nine years later and was a significant factor in light of his claim to have read the entirety of the documents even though he could not recall the occasion. 98 It may be true as Mr Coles QC submitted that one may not recollect, many years later, the time and place of reading a particular novel. But that is not an apt analogy. This was a substantial investment of money and her Honour cannot be said to have fallen into error in taking into account, as a factor tending against the claim of reliance, the absence of contemporaneous markings, and the lack of independent recollection as to when a supposedly material document was read. 99 Indeed, there are five reasons why her Honour's finding of absence of reliance was open to her and was supported by the evidence. 100 First, Mr De Bortoli conceded that his initial purchase of shares in 2000 (albeit before the purchases made by DBW) was prompted by the information he received from his broker that Mr Adler was buying shares in HIH. Her Honour made reference to this at [84] of her reasons and went on to find, at [92], that this was what prompted his interest. 101 In making that finding, her Honour contrasted the vague nature of Mr De Bortoli's evidence of reading the documents nine years earlier with his knowledge of Mr Adler's interest in the company. 102 There was no error in finding that this was the catalyst. Mr De Bortoli admitted it to be so and he admitted that the statements of HIH's profits and net assets in the 1999 Interim Results were stale. 103 It was, as her Honour found, more likely that Mr De Bortoli was prompted by the current information about Mr Adler than the stale information which was, by the time of DBW's first share purchase eight months out of date. 104 Her Honour's finding was to the effect that Mr De Bortoli did not read the statements he claimed to have read, or that even if he did, they were overtaken by the information about Mr Adler. The statements were therefore not even a cause of the decision to buy the shares. 105 Second, Mr De Bortoli's continued purchases of HIH shares from September onward were made in a falling market. As the primary judge found, Mr De Bortoli insisted that he knew better than the market. Her Honour correctly found at [111] that this was inconsistent with his claim to have relied upon the misleading statements made by HIH in the documents. 106 It is theoretically possible that Mr De Bortoli was purchasing HIH shares on the strength of his own judgment based upon statements made in HIH's accounts. But a finding to that effect is not open on the facts of this case. No attempt was made to support such a finding by any evidence that Mr De Bortoli undertook a detailed analysis of the financial accounts for the purpose of supporting his judgment as to the worth of his investment. . 107 Instead, the evidence revealed that Mr De Bortoli's strategy was not, relevantly, linked to the financial accounts. As he said in cross-examination in the passage set out at [57] above, he had previously invested in companies where the share price had dropped significantly and still made money by taking a longer term view. 108 Third, there was, as her Honour found, considerable negative media coverage about HIH from mid-September onward and there were inconsistencies in his evidence on this topic. Mr De Bortoli maintained that he was unaware of the negative press reports. But he admitted looking at the Australian Financial Review which was delivered to him "specifically". However, when pressed about the topic in the passage set out at [56] above, he said he did not read a highly pertinent article in the Australian Financial Review dated 15 September 2000. 109 It was therefore open to the primary judge to find, at [110] that the "credibility" of Mr De Bortoli's evidence was undermined by his assertion that he was unaware of the considerable negative media coverage and by the inconsistencies in his evidence on this topic. 110 Fourth, Mr De Bortoli's evidence of reliance was given at a very high level of generality. He did not give any evidence of how he understood the statements made in HIH's accounts or how they related to his assessment of the value of HIH's shares, in particular in a falling market and in light of the very considerable adverse warnings in circumstances where there was a great deal of negative sentiment surrounding HIH, of where Mr De Bortoli must have been aware. 111 The entire thrust of Mr De Bortoli's evidence as it emerged in cross-examination was that his decisions were made on the basis of his own strategy and that they were not informed in any way by the misleading statements in HIH's accounts. 112 Fifth, although Mr De Bortoli claimed to have relied on statements made by Mr Clarke over a period of time commencing in June 2000, he conceded that the event which led him to speak to Mr Clarke was the continued fall in the share price and the rumour that Mr Adler was selling out of the company. The issue therefore turned on what was said at Grappa Restaurant in October 2000. 113 There was no error in the primary judge's finding that the statements attributed to Mr Clarke were not ones to which much weight could be attached. They were bland, general statements as Mr De Bortoli effectively conceded. And they were statements which one would expect to receive from a person in Mr Clarke's position rather than a hook on which to rely for the purchase of many millions of dollars of shares. 114 Nothing therefore turned on Mr Rowney's corroborative evidence. It is true that her Honour did not expressly reject the accuracy of his evidence but, in any event, it is clear from what she said at [102] that she did not regard him as a reliable witness. Conclusion 115 The appeal must be dismissed with costs. I certify that the preceding one hundred and fifteen (115) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Siopis & Nicholas. Associate: Dated: 15 March 2012