Act, s.52 - diamond investment and futures contracts - whether representations were misleading puffery - disclaimers - hindsight irrelevant - measure of damages - loss of opportunity. Chaplin v. Hicks [1911] 2 K.B. 786 ~ con KHALAF AGAIBY v. DARLINGTON COMMODITIES LIMITED and DARLINGTON FUTURES LIMITED No. G 135 of 1983 Beaumont, J. 7 March 1985. Sydney. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES REGISTRY No. G 135 of 1983 GENERAL DIVISION BETWEEN : KHALAF AGAIBY Applicant AND: DARLINGTON COMMODITIES LIMITED First Respondent AND: DARLINGTON FUTURES LIMITED Second Respondent QRDER Judge making order: Beaumont, J. Date order made: 7 March 1985. Where made: Sydney THE COURT ORDERS THAT: 1. Order that the respondents pay the applicant damages in the sum of $2,500.00. 2. Application otherwise dismissed. i. 'der that the applicant pay four-fifths of the respondents' costs. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES REGISTRY ) No. G 135 of 1383 ) GENERAL DIVISION ) BETWEEN : KHALAF AGAIBY Applicant AND: DARLINGTON COMMODITIES LIMITED First Respondent AND: DARLINGTON FUTURES LIMITED Second Respondent QO co is Fe Beaumont, d. le ra i C3 o 7 March 1985, _ REASONS FOR JUDGMENT In these proceedings, the applicant, Khalaf Agaiby, zeeks relief against the respondents, Darlington Commodities Limited and a related corporation. Darlinaton Futures Limited, pursuant to ¢s.37 and 82 respectively of the Trade Practices Act, 1974 ("the Act") in connection with a number of transactions entered into between the applicant and the respondents involving dealings in diamonds and, subse- quently, commodity futures contracts. The applicant also ie) claims damages for negligence under the general law. Specifically, the applicant seeks an order declaring that an agency or brokerage contract dated 13 May 1981 made between himself as principal and the second respondent as his agent or broker 1s void ab initio pursuant to s.87 of the Act and seeks an order pursuant to s.87 of the Act directing the second respondent to pay to the applicant all payments and expenses paid under the contract. Alternatively, he seeks an order pursuant to s.82 of the Act directing the second respondent to pay him the amount of loss or damage suffered by him by reason of his entry into the said contract and an order pursuant to s.87 of the Act directing the first respondent to pay him the value of certain diamonds aa at January 1981. Alternatively, the applicant seeks an order pursuant to s.82 of the Act that the first respondent pay him the amount of loss or damage suffered. By his amended points of claim, the applicant says that the first respondent carried on the business of dealing in and advising on investment in commodities including gold, silver and diamonds and that the second cespondent carried on the business of dealing in and advising on commodity futures. The applicant charges the respondents with several contraventions of the provisions of ss.52. 53 and 55A of the Act. He alleaqes that the respondents engaged in false or misleading conduct by inaking a number of misrepresentations to him in connection with the purchase and sale of certain investment diamonds and, subsequently, commodity futures. In his general law claim, the applicant alleges negligence on the part of the second respondent in giving advice and in failing to give advice in connection with futures trading. In December 1978, the applicant. an engineering geologist, read an advertisement placed in "The Sydney Morning Herald" by Bullion Sales International Pty. Ltd. The advertisement, describing Bullion Sales International Pty. Ltd. as a dealer in gold, silver and diamonds carrying cn business at the Bank of Adelaide Building. 275 George Stcaet., Sydney, and emphasising that over the previcus 1U years, investment diamonds had increased in value at an average rate of 20% per annum. The advertisement went on to say: "Investment diamonds have long been bringing exceptional returns. Rising in value at an average of better than 20% a year over the past 10 years. Last year's rise was 30%. And now Bullion Sales International bring you aosystem of benefits and saafequards that make diamonds a more reliable and Liquid investment. Close to the Source Prices. DGL Laboratory Grading Certificates. A Written Resale Service Guarantee. Double-Sealed Diamond Investment Boxes. Find out all about investing in diamonds now. Call in, phone or fost the coupcen for our free brochure." In response to the advertisement. the applicant telephoned the office of Bullion Sales International Fty. Ltd. in December 1978 and spoke to Patricia Coley. The applicant said that he would like to buy some diamonds but that it would be about January before he would be ina position to do so. Patricia Coley informed him that if he came in then or in early January, Bullion Sales International Pty. Ltd. would sell him diamonds at the price existing before the price increase due in January. On 9 January 1979, the applicant attended on Patricia Coley at her office. According to the applicant. she said that investment in diamonds was "very good"; that the return on investment in diamonds in the last 10 years was 25% per annum; and that the price increase of 10% due in January would not apply if he then purchased some diamonds. Patricia Coley gave the applicant a brochure entitled "The International System of Diamond Investments" published by Bullion Sales International Pty. Ltd... In describing the "diamond trading system for investors", Bullion Sales International Pty. Ltd. offered a "resale service" in these terms (the amendment of the commission percentade was made by Patricia Coley): "Investment diamonds are purchased witha definite intention of eventually re-selling. It 1s therefore wise to investigate resale procedure before purchase is made. At Bullion Sales* International we offer our clients an attractive resale proposition. We will offer your diamond, through our extensive marketing network, for sale on your behalf at the then prevailing prices. Because your diamond has documented grading, this process is exceptionally straightforward. Your diamond need not even leave your possession until the sale is finalised. For this resale service we charge a commission which is currently (figure deleted) 15% lst yr 10% thereafter (these last items were handwritten). You receive our written Resale Service Guarantee with your diamond. The known grading plus our resale service make diamonds, from Bullion Sales International, very liquid investments." According to the applicant, at the time she handec the brochure to the applicant, Patricia Coley informed him that. if he purchased diamonds, resale would take from two to four weeks, The respondents challenge this evidence, relying in particular upon Che applicant'3s failure to mention this important part of the discussion in his affidavit sworn in May 1983. (The matter was first raised in one of the amendments made to the applicant's points of claim in September 1983.) Patricia Coley was not calied by the respondents but her absence was at least partially explained by the difficulties experienced by the respendents 1n now locating her. Whilst Iam satisfied that the respondents made some efforts to find Patricia Coley, I am prepared to accept the applicant's version of the conversation to a limited extent. Given the general tenor of the statements made in the brochure, I think it is likely that some estimate of the time in fact taken for resale would have been discussed. On the other hand, it is hardly likely that Patricia Coley would have been sufficiently precise in her statement to the applicant as to give, in effect. an absolute warranty that. in every future case, resale would be achieved in less than four weeks. The more probable situation is that Patricia Coley attempted to indicate what was the general experience of investors dealing with Bullion Sales International Pty. Ltd. rather than to give a specific warranty to the applicant that whenever he requested a resale and whatever the current state of the market. his diamcnds would be resold in less than four weeks. In the absence of any contemporary documentation of the statement attributed to Patricia Coley. given the time which has elapsed since the conversation occurred, I am not satisfied that Patricia Coley warranted that any future resale would necessarily occur within four weeks of an investor's request. At che same time, it is at least possible that Patricia Coley cffered a period of two to four weeks as her best estimate of the time needed to achieve a resale in the market conditions then prevalent. 7. (Before continuing the history of the applicant's dealings with the respondents, it should be noted that the respondents take the point that the brochure was not published by either of them. Whilst, strictly speaking, Bullion Sales International Pty. Ltd. was, as publisher, the party at least primarily responsible for the contents of the brochure, there was at some stage at least a relevant association between it and the respondents. The corporate history, so far as material, is as follows. The first respondent was incorporated on 16 November 1979 under the name Precipita Limited. In February 1980. it changed its name to Darlington Commodities Limited. On 1 July 1980, the first respondent purchased the assets and goodwill (excluding liabilities) of the business conducted by Bullion Sales International Pty. Ltd... Until 1 July 1980,the name of the second respondent was Robert Howes and Associates Ftv. Limited. On that date, it changed its name to Darlington Futures Limited. On 21 July 1980, it became a wholly owned subsidiary of the first respondent. The exact corporate relationship, if any, between the respondents and Bullion Sales International Pty. Ltd. prior to 1 July 19890 was not explored in the evidence. However, at all relevant times the respondents carried on business at the same address as that of Bullion Sales International Pty. Ltd.. vic.. Bank of Adelaide Burlding, 275 George Street, Sydney. Further, by its points of defence. the first respondent admitted that Patricia Coley was its employee from 13 November 1978 to 30 June 1980. By its points of defence, the second respondent admitted that Patricia Coley was its employee from 1 July 1980 to 22 August 1980. Finally, it should be mentioned that in correspondence in 1980, the second respondent, then named Robert Howes & Associates Pty. Limited, described itself as "incorporating Bullion Sales International". This "incorporation" arose out of the acquisition by the second respondent of the whole of the issued share capital of Bullion Sales International Pty. Ltd. on 21 December 1979.) During their discussion on 9 January 1979, the applicant agreed with Patricia Coley to purchase six diamonds for a total price of $5,030.00. The applicant was given a sale note from Bullion Sales International Pty. Ltd. dated 9 January 1979 confirming the sale and the receipt of the purchase price. The diamonds, described as new and or "good" make were priced at $459.00 in the case of two diamonds, $507.00, $529.00, $1,169.00 and 31,907.00 respectively. In 1979 and 1980. the applicant received circular letters from Bullion Sales International Pty. Ltd. and Robert Howes & Associates Pty. Limited {said to be incorporating Bullion Sales International Pty. Ltd.) claiming that diamond peices were increasing and recommending further investment in diamonds. A letter from Robert Howes & Associates, Diamond Division dated 25 July 1979 was typical: "Dear Mr Agaiby, I would like to take this opportunity to introduce myself as the National Manager of the Investment Diamond and Bullion Divisions of Robert Howes and Associates (Incorporating Bullion Sales International). After the spectacular rises in diamond prices in 1977 and 1978. diamond prices have remained steady for most of this year. However demand internationally has suddenly started to build up very quickly in the last few weeks. All indications point to a major increase by De Beers at their sight holdings in the very near future. It seems that diamond prices are about to take off again. For those of you who regularly purchase investment diamonds. I would strongly suggest that right now is a perfect time to add to your holdings. One of our two diamond consultants, Patricia Coley or Angela Venardos, will ring you where possible, before the increases, to give you up to the minute details. In addition, I would like to extend an anvitation to you to inspect the diamond Grading Laboratories' Australian laboratory, which opened last November. We have arranged with DGL to show groups of our clients over the laboratory at 5.30 p-m. on Tuesdays over the next five weeks. Please ring Pat Coley to arrange 4 suitable date for you. 10, We look forward to being in touch in the near future. Yours truly, (Sgd.) Phil Dixon Phil Dixon National Manager" In May 1980, the applicant contacted Robert Howes & Associates and requested a valuation of his diamonds. By letter dated 19 May 1980, Robert Howes & Associates advised the applicant that current valuations of his diamonds, totalling $12,539.00, were as follows: INDEX CARAT CLARITY COLOUR PRICE CURRENT NO. WEIGHT VALUE 53026 9.23 VS2 G $459 $1144 $3027 0.23 VS2 G $459 $1144 53035 0.23 VS2 F $507 $1264 $3036 0.24 VS2 F $929 $1319 $3040 6.40 VS2+ G- $1169 32914 33055 0.60 S12+ G- $1907 $4754" Some time after July 1980, the first respondent published another brochure entitled "The International System of Diamond Investment". The brochure, which was apparently handed to the applicant in January 1381 ata seminac (to be mentioned later), was in similar terms to the earlier publication of Bullion Sales International Pty. Ltd. although its get-up was different. The first respondent's brochure described the "resale service" in these terms: ll. "We guarantee you a resale service Investment diamonds are purchased with a definite antention of eventually re-selling. It is therefore wise to investigate resale procedure before purchase is made. At Darlington Commodities Limited we offer our clients an attractive resale system. We will offer your diamond through our extensive marketing network, for sale on your behalf at the prevailing prices. Because your diamond has documented grading, this process is exceptionally straightforward. Your diamond need not even leave your possession until the sale is finalised. For this resale service we charge a commission, which is 15% for diamonds resold within 12 months of purchase, reducing to only 10% thereafter. You receive our written Resale Service Guarantee with your diamond. The known grading plus our resale service makes diamonds from Darlington Commodities Limited a very liquid investment." According to the applicant, at about Christmas 1980, he telephoned Denise Denman, an employee of the second respondent and. upon enquiring about the diamond market, he was told that the market was "up". The applicant said thar he would like to sell his diamonds. Denise Denman advised him to bring the diamonds to the respondents' office for "certification" and "correct valuation for sale". The applicant says that on 13 January 1981, on his attending upon Denise Denman with the six diamonds. he was told that it would take two to three weeks to certify the stones. According to the applicant, Denise Denman then said: "I'1l 12. Send you a valuation and at the same time proceed for sale", She then gave the applicant two "sales invoices". The first anvoice dated 13 January 1981 on the letterhead of the first respondent purported to confirm the putting "up for resale" of three diamonds (5.3036, S.3040 and $.3055). The price was left blank. In the "remarks" column in each case there appeared the statement "subject to cert'n.". Below the particulars of sale the words "waiting for stones" appeared in blue ink in parenthesis. Beside this, in black ink, in apparently different handwriting, appeared the words "from client". Beside this, in blue ink. appeared the words "Revd from client". Under the sub-heading "Special Instructions" appeared the words "up for resale cert'n to be done first". The printed terms of sale provided that the diamonds were sold subject to their subsequent grading and certification. The following notations also appeared at the end of the sales invoice: "Pls notify Denise on return" "RCVD from client" "On resale journal 13.1.81". (The resale journal contained an entry on 13 January 1981 for the sale of these three diamonds. The entry was ruled through and beside 1t appeared the statement "cancelled 10/2/81". The first respondent's stock cards contained the following entries in respect of these diamonds: "13.1.81. Resale journal." "10,2.81 Withdrawn from resale".) 13. The second sales invoice on the letterhead of the respondent bore date 10 February 1981, although the applicant claims that it was handed to him on 13 January 1981. Beside the printed words "We confirm our sale/delivery of the following diamonds" appeared the word "certification" in handwriting. The invoice was numbered 1830 and was in respect of the remaining three diamonds ($.3026, $.3035 and $.3027). The price was left blank. Beside the sub-heading "Special Instructions" appeared the notations "certification" and "Possible for resale" (each in farentheses). This invoice was signed by Denise Denman and contained the further notation: "RCVD from client". The respondents made some efforts prior to the hearing to locate Denise Denman but were unable to make contact. Although she was not available to be called, the applicant was challenged in cross-examination on his version of these events. In particular, it was suggested to the applicant that he called upon Denise Denman on two separate occasions - on 13 January and 10 February 1981: that or the ficsat visit, he requested the sale of three diamonds only; that on the second visit, he brought in all six stones but on that occasion withdrew from sale the three diamonds Te previously on offer; and that on that second visit, he gave the three other diamonds to the second respondent foe the purpose of certification with an ultimate view to sale but not for the purpose of effecting an immediate sale. The 14. applicant dented this version of the events notwithstanding its conformity with the documentation mentioned above. A further complication in this area of the dispute is that the applicant claims that in February 1981 he received an undated letter from the first respondent. Whilst 1t is common ground that the first respondent sent the letter, there is a serious issue between the parties as to the date at which it was sent: the first respondent says that the letter was not written until April 1981. Although the applicant made a handwritten notation on the letter which suggested that it was received in about February 1381, there is cogent internal documentary evidence that it was not written until April. In the letter, Michael OCades, the managing director of the first respondent. wrote: "Re: The Investment Diamond Market Iam enclosing the first of a new series of Darlington Investments Letters which you will be receiving quarterly from now on. As you wlll see, 1t is largely devoted to the Investment Diamond Market. which as you may be aware is causing a measure of concern at the moment. This is especially so among those investors who have bought diamonds for speculative purposes - rather than for long term appreciation perfcrmance, which we still believe to be unassailable. Let me summarise the current situation and its long term implications. one (2) (3) 15s. The Australian position As Australia's leading trader in diamonds, Darlington Commodities are normally in a position to cushion the effects of world price valuations for the benefit of Australian investors, and it has always been our policy do so this. In the present situation however, we have been reluctantly obliged to respond to the severity of the downturn by revaluing Australian diamond holdings to fall more closely into line with world values. These falls have averaged 25% to 35%, according to diamond type, compared with three months ago. The present value for most stones 15 about the same as this time last vear. How to benefit from the present situation Plainly, it is not a good time to sell diamonds, and the prudent investor will simply 'sit tight' till the normal trend of past years reasserts itself. Those who have all or part of their holding on sale offer in order to raise funds will be well advised to reconsider the position and look at some other part of their portfolio for liquidity. Conversely, 1t could be an outstanding time to buy ..... There is an excellent opportunity for investors who have funds they can commit for medium to long term appreciation, to add to their diamond portfolio while prices are relatively low. lo. Such investors will naturally bear in mind that diamonds are not, and never have been, a suitable commodity for short term speculation, and that the market is currently in a stage of consolidation. If you have any diamonds currently on offer through us, we shall be contacting you shortly with the new valuation. However, if you have already decided to withdraw them from sale, we shall appreciate your letting us know without delay. An indication of the time of writing of the undated letter was provided by a newsletter entitled "The Darlington Investments Letter" dated April 1981. It dealt. inter alia, with the investment diamond market, mentioning the first respondent's "price cut" in the context of what was euphemistically described as "a correction phase in the long term capital appreciation of investment quality diamonds". This was said to be the first of such newsletters and was plainly the newsletter referred to in the undated letter. The applicant's suggestion the he received the undated letter in February 1981 must be rejected. This is a matter which must reflect poorly upon the applicant's credibility in this area. In the light of the contemporary documentation in the form of the sale invoices, the resale journal and the stockcards already mentioned, his version of 17. the conversation with Denise Denman on 13 January 1981 is not acceptable. It is more probable that on this date the applicant placed only three diamonds on the market and withdrew them from sale on 10 February. But matters did not rest there. On 5 March 1981, the first respondent wrote to the applicant informing him of the current valuation of his diamond stock portfolio and that the stock had then been "certificated". The valuations, giving a total value of $15,669.00 were as follows: C35-3027 $1,516 CS-3035 $1,605 CS-3036 $1,516 CS-3040 $4,006 CS-3055 §5,538 C5-3026 31,488 (Certificates from Diamond Grading Laboratories Lamited dated 17. 20, 23 and 24 February 1981 in cespect of tests carried out on the diamond stock portfolio were tendered in evidence.) The applicant then says that on about 1] March 1981, he telephoned Denise Denman and, upon inquiring when his diamonds were going to be sold, was told that "the matter will take a couple of weeks to a month to be settled". The applicant said that he was content to wait. Whilst it is quite possible that on this occasion the 18. applicant discussed market prospects with Denise Denman, it is unlikely, inthe light of the documentation already mentioned, that the actual sale of the applicant's diamonds was then dealt with. On 31 March 1981, the first respondent wrote to the applicant informing him that Denise Denman was about to resign and that Sally Ann Parkman would act in her stead. According to the applicant, upon receipt of the letter, he telephoned Sally Ann Parkman and, in response to his enquiry as to whether the diamonds had been sold, he was told: "I don't recommend you to sell the diamonds because there is another increase due in June or September of about 10%". The applicant says that he then agreed to take the diamonds off the market. The applicant's evidence of what Sally Ann Parkman said is supported by his handwritten note on the letter as follows: "Sally Ann Diamond looks healthy. An increase in June or September 10%." Sally Ann Parkman was not called but her absence was explained by the fact that she 13 now living in England. In some respects, the applicant's version of events was 19. confused, yet giving due weight to the apparently contemporary handwritten note to which I have referred. I accept his evidence of what Sally Ann Parkman told him. It is common ground that, contrary to Sally Ann Packman's suagestion, with an exception not presently material. there was no 10% price rise between 31 March and 7 December 1981. On 16 April 1981, at about the time the applicant received the first respondent's undated letter and newsletter, the applicant went to the office of the first respondent with a view to collecting his diamcnds. Sally Ann Parkman told him that the value of diamonds had recently gone down. She gave hima "sales invoice" No. 6959 dated 16 April 1981 sub-headed "from Syd. safe to client". =U ascribed current values to the diamonds as follows: 3027 $1,516 3035 $1,264 3036 $1,319 3040 $2,914 3055 $4,754 3026 $1,144 $12,911 Shortly thereafter. the applicant telephoned Sally Ann Parkman, saying that there appeared to be a mistake in the valuation insofar as diamonds Nos. 2027 and 2026 were given different values whereas previously they had been 20. valued in the same amount. Subsequently, 3ally Ann Parkman admitted that a mistake had occurred and that a new valuation would be prepared. On 20 May 1981, the first respondent wrote to the applicant, apologised for what had happened and confirmed the following current valuations (totalling $10,857.00): 3027 $1,035 3035 $1,180 3036 $1,035 3040 $2,793 3055 $3,850 3026 S$ 364 On 13 May 1981, the applicant, in the courses of discussing the diamond investment market with Sally Ann Parkman, was told that the futures market was "very interesting". She suggested that he contact Lee Murrell, an employee of the second respondent, which was described as another division of the first respondent ona different floor of the building. The applicant had already had some contact with the respondents in this connection. He had attended a seminar on futures organised by them in January 1981. According to the applicant, the seminar audience was told that there was "enormous profit potential in trading commodity futures. Put your money with us as we know how to invest it... Invest with us ana we will keep tyour money) 21. alive. We are experts and have international communications and facilities to watch the market movement and our consultants and research department will help the client to make profits regardless of movement up or down". At the seminar, several brochures were distributed by the respondents. One, entitled "A Guide to Trading in Commodity Futures", contained such statements as: "Intelligent hedging can produce overall profits through careful timing and strategy"; "Profits can be made from falling prices as well as from rising prices through the medium of selling short"; "The simple truth 1s that statistically something like 80% of all futures traders end up losing money. The corollary 1s of course that the 20% who win, win big;"" "The failure of most traders to win 13 not due to any inherent failings in commodity futures. Similar statistics apply to any trading market. The high percentage of losses is due to emotional and undisciplined trading and lack of adequate information"; "Our research department will assist greatly in providing quality information and our consultants will help wherever possible in evolving a disciplined and well-planned trading strategy". 22. On 13 March 1981, the applicant met Lee Murrell and told him of his interest in the futures market. According to the applicant, Lee Murrell told him that the commodity futures field was "very interesting ... you could makea profit and sometimes you can make a loss, but with the expertise of this company and the facilities available of the research branch you can make more profit than loss in the long run... we will supply you with the information, recommendations and advices then the decision is vours, but it is based on our recommendations". According to the applicant, a discussion then took place between them with respect to his entry into a written contract of agency with the second respondent. The applicant then signed a contract document but the circumstances surrounding its execution are controversial, for reasons which need not be stated yet. Lee Murrell was called to give evidence. He said that he would have told the applicant that the second respondent would keep him informed of the market movements and offer advice based on technical analysis; that the applicant should keep in touch with him rather than expect the second respondent to keep in touch with the applicant: that the applicant should contact him on a daily basis: that the second respondent took an optimistic view of trading but "it is a two-way market: for every buyer there is a seller. so when a person buys he is puying from somebody who 13 expecting to make a profit from that sale": and that the 23. "risks are quite great trading in futures - a highly leveraged market and a high risk form of speculation". Lee Murrell agreed with that part of the applicant's version of the conversation which attributed to him the statement that "You can make a profit and sometimes you can make a loss". Otherwise, Lee Murrell did not accept the applicant's assertions of what Lee Murrell said. It is common ground that on this occasion the applicant executed an agency contract with the second respondent dated 13 May 1981. However, there is dispute as to the contents of that agreement in one critical respect. The respondents tendered in evidence a four page document signed by the parties containing on the first page particulars of the client and a section entitled "Clisnt's Declaration of Understanding of Risk" as follows (the answers were handwritten by Lee Murrell): "Darlington Futures Limited wish to ensure that their clients understand the risks of trading in commodity futures contracts. We ask each client to consider carefully whether such trading is suitable for them having regard to their financial circumstances, and therefore request you answer the following qustions: 1. Do you understand that you may lose the whole of the funds which you may deposit with us to establish or maintain a position in the commodity futures market and that you may alsc lose additions' funds you do not have deposited with us? Yes. 24. 2. Do you understand that if the market in a commodity moves against the position which you have taken up, we may call upon you to deposit a substantial amount of additional funds on short notice? Yes. 3. Do you understand that aif you do not provide any additional funds which we call upon you to provide, we may liquidate your position at a loss, and that you will be liable for any resulting deficit in your account? Yes. 4. Do you understand that under certain market conditions, for example, when there is a significant change in prices over a short period, it may be difficult or impossible to liquidate a position by buying or selling a particular contract? Yes. 5. Do you understand that placing 2 contingent order with us, such as a 'stop-loss' or a 'stop-limit' order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute these orders at the intended time? Yes. 6. Bo you understand that the high degree of leverage that is often obtainable in futures trading (because of the comparatively small deposit of funds required to initiate a position) can also mean that the whole of that deposit, together with further funds, can quickly be lost? Yes." Notwithstanding his complaint that Lee Murrell read these questions to him quickly the applicant accepts that the first page is part of the contract he made vith the second respondent. He also accepts that the fourth (last} + page of the document was part of that contract. (The 25. applicant signed both the first and last pages.) The second, third and, toa limited extent, the fourth page contain the printed terms of the agency or brokerage contract between the parties. In his oral evidence, contrary to his affidavit evidence, the applicant made the strange suggestion that it was agreed with Lee Murrell that the second and third pages of the document were not applicable in his case. Lee Murrell denied the suggestion and I accept his evidence on the point. In any event, it 1s inherently improbable that the parties would intend to use only part of the document and to leave their relationship to be governed by an open trading contract with no special terms. I cejyect the version given by the applicant in his oral evidence that the second and third pages were to be excised for his purposes. Again, this aspect of the applicant's evidence reflects poorly on his credibility and has significantly influenced me in forming the view that. whenever their evidence is in conflict. I should prefer the version given by Lee Murrell. Under the contract, described as "Client's Agreement", the applicant appointed the second respondent his agent for the purpose of making contracts for the purchase and sale of commodities. Clauses 6 and 7 were as follows: 26. "6, The Client acknowledaes that a guarantee or assurance of profit is impossible in commodity trading and accordingly acknowledges that it has not received any such guarantee or assurance from the Agent or any of its representatives. The Client has not entered into this Agreement and will not be transacting any orders in reliance upon any such guarantee or assurance. The Client further acknowledges that the Agent will not be responsible for any loss should the Client follow any of the Agent's trading recommendations or suggestions, nor for any loss, in the case of Discretionary Accounts, arising from trading by the Agent on behalf of the Client. The Client finally acknowledges that the Agent will not be responsible for any loss arising in any way out of any trading activity undertaken on behalf of the Client whether pursuant to this Agreement or not, and that the Agent shall not be liable to account to the Client for any profit made by the Agent in any or the circumstances set out in clause 9 whether or not such circumstances result in a loss to the Client. 7.a) Neither the Agent nor its servants or agents shall be liable to the Client for any loss or damage resulting directly or indirectly from delays in the transmission or execution of orders whether or not such delays involve neqligence. b) Neither the Agent nor its servants or agents shall be liable to the Client for any loss or damage arising or resulting directly or indirectly from any statement, information or advice made or given, whether negligently or otherwise. in relation to any commodity or the sale or purchase thereof. c) Any liability on the Agent's part or on the part of its servants or agents for damages for or in respect of any claim arising out of or in connection with the relationship established by this agreement or any conduct under it or any orders or instructions given to the Agent by the Client, cther than any liability which 1s 27. totally excluded by paragraphs (a) and (b) hereof, shall not in any event (and whether or not such liability results from or involves negligence) exceed one hundred dollars. da) Every exemption from liability, defence and immunity of whatsoever nature applicable to the Agent or to which the Agent is entitled hereunder shall also be available and shall extend to protect every one of its servants or agents acting hereunder or making or giving statements, information or advice as aforesaid and for the purpose of this clause the Agent shall be or shall be deemed to bs acting as agent or trustee on behalf of and for the benefit of all persons who are or micht be 1ts servants or agents from time to time as well as on its own behalf and all such persons shall to this extent be or be deemed to be parties to this agreement." Pursuant to this agreement, the parties began trading and, from time to time, Lee Murrell asked the applicant to put in funds for this purpose. Towards the end of June 1981, in response toa request for cover. the applicant lodged his diamonds as security. Subsequently, he lodged 30 gold sovereigns as further security. In the period of trading from May 1981 onwards, the applicant paid over the total sum of $21,000.00 of which $4.285.00 was withdrawn on 15 September 1981 to buy the 30 gold sovereigns. The diamonds were stolen from the first respondent in a robbery and, apparently, an insurance claim 1s awaiting resolution. (The applicant has rejected ar offer by the first respondent to replace the diamonds lost an the robbery.) 28. According to the records of the second respondent, the applicant embarked upon some 45 futures transactions. In 23 cases, he made a profit and in 22 cases he suffered a loss. With interest and other charges of $1,894.55, the applicant's trading account with the second respondent is in debit in the sum of $5,498.93. The main complaint of the applicant on this branch of the case is that Lee Murrell did not close contracts sufficiently quickly to make a profit or minimise the loss whereas other consultants employed by the second respondent were able to achieve better results. But no serious attempt was made on behalf of the applicant to develop this case by specific evidence. The matter was allowed to rest in assertion only and the uncontrovertible facts are that the respondent's documentary evidence indicates that the applicant was little better or worse aff in dealing through Lee Murrell compared with other consultants. I will now deal with the applicant's claims in respect of the diamond investment. In the first instance, reliance 1s placed upon the representations allegedly made on behalf of the first respondent on 9 January 1979 in the form of the statements in the brochure handed to the applicant coupled with what Patricia Coley 'is then alleded to have said. These representations are said to constitute conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s,52 of the Act in 29. that the representations therein misled or deceived the applicant into believing that the first respondent's diamond resale service was reliable, efficient, quick and easily put anto operation; that the first respondent would resell diamonds on request; that a major attribute of the respondent's diamonds was the ease with which they could be sold; that the first respondent would not delay the sale of investors' diamonds; and that the first respondent would not discourage the sale of investors' diamonds. I have already found that it 15 unlikely that Patricia Coley specifically warranted that any future resale would be completed in two to four weeks. Further, the facts that the brochure was published by Bullion Sales International Pty. Ltd. and that the sale was effected by that company are, I think, fatal to the applicant's claim: 1t was not until 1 July 1980 that the first respondent purchased the assets of Bullion Sales International Pty. Ltd.. Although it is admitted that Patricia Coley was employed by the second respondent on 9 January 1979, she was not employed by the first respondent until 1 Jul 960. The het tH evidence is not clear as to the corporate relationship between the first respondent and Bullion Sales International Pty. Ltd. as at 9 January 1979, I amunable, on the material available, to impute to the first respondent vicarious liability for the actions cf Fatricia Coley cn 30. that date (cf. s.84(2) of the Act: cf. N.S.W. Mutual Real Estate Fund Ltd. v. Brookhouse (1978) 38 F.L.R. 257). T reject this part of the applicant's claim (see amended points of claim, paras.16 and 16A so far as it referred to para.5). Next, the applicant relies on the representations in correspondence to him in 1980 to the effect that diamond prices were increasing and that clients should buy more diamonds as there would be further price increases, together with the representation made by Denise Denman shortly before 13 January 1981 that diamond prices were "up". It is said that these statements also constituted conduct which was misleading or deceptive or likely to mislead or deceive in contravention of 5.52 of the Act in that they misled or wers likely to mislead or deceive the applicant into believing that the first respondent's diamonds were a good investment; that investors' diamonds increased in value by significant and specified amounts at frequent and specified intervals; that investors should buy mocs diamonds to make more profits; and that investors' diamonds would be soid ata price higher than that which thev paid by about the percentage stated in the correspondence (see amended points of claim, para.16A). 31. Again, so far as concerns the correspondence before 1 July 1980, it is not possible to attribute liability to the first respondent for the conduct of either Bullion Sales International Pty. Ltd. or Robert Howes & Associates Pty. Ltd. (the former name of the second respondent). The second respondent may, of course, be liable in its own right but little, 1f anything, turns on the point since the applicant did not act on the earlier correspondence: the relevant contact was not made with Denise Denman until January 1981 by which time the first respondent had taken over the business of Bullion Sales International Pty. Ltd. At all events. since the applicant did not suffer any loss asa result cf the correspondence, this part of his claim must also be rejected, So far as concerns the statements attributed to Denise Denman on 135 January 1981 that the market was "up", there is no evidence that this statement was imaccurate: on the contrary, the unchallenged evidence of Graham J. Oades, a director of the respondents, was that the down-turn in the Australian market was not recognised until March 1981. I reject this part of the applicant's claim also. Then the applicant relies on the statement he attributes to Denise Denman at this time to the effect that at would take two to three weeks for the applicant's diamonds to be certified and a further two to four weeks for them to be sold. This part of the applicant's claim must 32. also be rejected. I have already made adverse findings on the credibility of the applicant's version of these events in finding that, in the light of the contemporary documents, the applicant put up for resale only three diamonds which he withdrew from sale on 10 February 1981. Next, the applicant relies on the fact that shortly after 31 March 1981 Sally Ann Parkman represented to him that his diamonds should not be then sold as the market looked "healthy" and a further price increase of 10 per cent was to occur in June or September. Principally because of the applicant's handwritten note on the letter dated 31 March 1981, I have upheld the applicant's version of this conversation. It is conceded by the respondents in the evidence of Graham J. Oades that. in fact, they were aware that the Australian market had deteriorated by March 1381. Ironically, if the applicant had been right in his claim that the undated letter previously mentioned was received in February rather than. as the respondents correctly submitted, in April, it may been have difficult, to say the least of ait. for the applicant to succeec on this part of his claim since the letter would have put him on notice by February, before the conversation with Sally Ann Parkman now celied on, that the market had by then deteriorated. Having found that the letter was not received until April. I think 33. it is proper to infer that the conversation noted on the letter dated 31 March 1981 occurred after the end of March but before the applicant received the undated letter and the newsletter dated April 1981. Prima facie, these statements made by Sally Ann Parkman in early April 19981 were misleading or likely to be SO: the diamond market was then not at all healthy as claimed and there was no basis for then suggesting that a price rise was feasible. On the evidence of Graham D. Oades alone, the respondents had by March "identified the seriousness of the downturn". Prima facie, a contravention of s.52 has been made out on this score. The respondents sought to answer the applicant's case generally by suggesting that regard should be had to the experience of the applicant as an investor and asa trader in the futures field. True it is that the applicant invested in shares and in real estate in Perth. He aisc dealt in futures through another broker. But none of this sort of experirence could have had any specific béaring in the impact upon the applicant of the particular representations made to him by Sally Ann Parkman in early April 1981. That was specific advice tendered on a particulac matter and any amount of general experience attributed to the applicant would have had little influence eon his decision-making processes. I accept the evidence of 34. the applicant that he relied on the advice he was then given and there 1s no reason to suppose that the applicant had any insider knowledge to the contrary of what he was told. It follows, in my opinion, that a contravention of s.52 has been established in respect of the statements made by Sally Ann Parkman in early April 1981. I turn next to consider the appropriate measure of damages to be awarded under s.82 in respect of this contravention (see generally Corbidge v. The Bakery Fun Factory Fun Shop Pty. Limited [£1984] A.T.P.R. 40-493 at p-45,688). In my opinion, the appropriate measure of damages on this branch of the case is damages assessed on the basis of the loss of the applicant s opportunity to sell the diamonds in early April 1981 (see Chaplin v. Hicks £19113 2 K.B. 786). By about that time the diamond market had begun to deteriorate and it is by no means certain that the applicant would have then sold on a falling market. A further complication is the volatility of the market itself at all relevant times. Nonetheless. by accepting the advice of Sallv Ann Parkman not to sell then, the applicant lost the chance of selling at that stage. What is the measure of the applicant's loss on this account? 35. The respondents' own valuations show a depreciation in value occurring from $15,669.00 on 5 March 1981 to $10,857.00 on 20 May 1981 - in the order of $5,000.00. I assess the probability of a sale by the applicant in early April if he had known of the deterioration of the market at SO per cent. In the result, I have come to the conclusion that damages in the sum of $2,500.00 should be awarded under s.82 for this contravention. The applicant further complains that he was never informed that before resale it was necessary or advisable to have diamonds certified or that, after such certification, his diamonds might be reclassified (amended points of claim, para.18A). This allegation was raised for the first time during the hearing and must be rejected. In cross-examination, the applicant conceded that he was at all material times aware of the requirement of certification. The concession was rightly made since "documentary grading" was mentioned in the description of the resale service in the Erochures given to the applicant. Grading was also mentioned in the original "fydney Morning derald" advertisement in December 1978 and in the letter to the applicant from Robert Howes & Associates dated 25 July 1979. It is unnecessary to take the matter any further, save to note that even if a contravention had been made out on this score, it would seem that only nominal damage could be established. 36. So far as the claims made in respect of the diamond anvestment are concerned, it is unnecessary to consider the claims made under the other provisions of the Act, i.e. ss.53 and 55A, or the claims in negligence. In no case would the position of any party be any different in point of liability than in the case of the contraventions alleged of s.52. Also, the compensatory measure of damages available under the general law would be the same for present purposes as would be available under s.82 (see generally L. Shaddock & Associates Pty. Ltd. v. The Council of the City of Parramatta (1981) 150 C.L.R. 225). I turn next to that part of the applicant's claim which is concerned with the commodity futures market. In the first instance, the applicant charges the second respondent with a number of contraventions of s.52 arising out of the seminar conducted in January 1981. He complains that a number of the representations alleged to have been made at the seminar were false and misleading: that there was enormous profit potential in trading commodity futures: that potential investors should place their money with the second respondent because it knew how to invest it; that potential investors needed 20 per cent interest to keep money alive; that potential investors should invest with the second respondent to keep their money alive; that the second respondent was expert in the field of futures trading; that the second respondent had international communication and 37. facilities to monitor market movements; that the second respondent's consultants and research department would help clients make profits; that the second respondent was well established and had been a commodity broker for some time; and that the second respondent knew when the warket was to go up or down and when it was about to go down the second respondent would take such action as was necessary to protect its client (see amended points of claim, para.21). The applicant made no serious attempt to prove that these statements were false or misleading or likely to be so. Some of these statements are arguably in the natures of puffery which is generally difficult to ascribe as deceptive or misleading conduct of the kind outlawed by 5.52 (see Taperell, Vermeesch and Harland, Trade Practices and Consumer Protection, 3rd Ed. at pp.615-6156). Again, the matter was allowed to rest in general assertion only and in the absence of specific evidence of falsity or at least of a half-truth, no contravention of 5.52 has been made out. Even if there were some specific evidentiary foundation for the assertions now made, the applicant would still face the formidable hurdle of the operation of the "Client's Declaration cf Understanding of Pisk" and clauses 6 and 7 of the brokerage contract 'see Norman vy. Bennett C1974] 1 W.L.R. 1229). I reject this aspect of the applicant's claim. 38. The applicant charges the second respondent with other contraventions of s.52 arising, he claims, from things said to him by Lee Murrell. He says that Lee Murrell made the following representations all of which are alleged to be false or misleading or likely to be so: that the second respondent was experienced in commodity trading; that the second respondent was competent in commodity trading; that the second respondent would advise investors on how to maximise profits; that the second respondent would supply investors with market information; that the second respondent would supply investors with advice; that the second respondent would assist investors in minimising losses; that the second respondent's consultants and research department were competent; that the second respondent's consultants and research department would supply aunvestors with advice to make profits; that the second respondent would protect investors from losses; that Lee Murrell would safeguard the applicant's interests; that investors would make more profits than losses; that a novice investor would make more money from an ordinary contract than a discetionary contract; and that Lee Murrell would gecommend when it was a good time to buy or sell (see amended points of claim, para.33). 39. In my opinion, here also, no contravention of 5.52 is made out. Many of the representations were no more than puffs. Other representations were sufficiently specific to constitute conduct which is capable of offending s.52 but were accurate - @.9g. the statement that the second respondent would supply investors with market information and advice. Other allegations, for instance, that hee Murrell said that "investors would make more profits than losses" cannot be established as a fact. As has been said, where the evidence of Lee Murrell and the applicant is in conflict, I prefer the evidence of Lee Murrell. Again, if they were needed, the provisions of the "Client's Declaration of Understanding of Risk" and clauses 6 and 7 of the brokerage agreeement put the applicant on notice cf the actual risks so as to avoid any suggestion of misleading or deceptive conduct isee Norman v. Bennett, supra; Brown v. Jam Factory Pty. Limited (1980) 35 A.L.R. 79 at p.386}. Further, if 1t matters, despite the oral evidence of the applicant asserting the contrary, the documentation shows that the results of the transactions handled by Lee Murrell were of the same order as the results of dealings conducted by other consultants. It 1s, in any event, clear that the matter of testing the character of the representations complained of as false or misleading is something t9 be tested as at the date of the making of the representations 40, and not with the benefit of hindsight (see Bill Acceptance Corporation Ltd. v. G.W.A. Ltd. (1983) 50 A.L.R. 242 per Lockhart, J. at p.250). I reject this part of the applicant's claim also. As in the case of the diamond investment, it is unnecessary to consider the alternative ways in which the applicant framed this part of his case - whether under 3.532 or s.55A of the Act or in negligence. If the applicant i ier] unable to establish a contravention of 3.52, there wun be no basis for suggesting that a case has been made vsut otherwise. It has been necessary to deal in stages with the several ways the applicant put his case. In doing this, I have not overlooked the principle that, for the purposes cr applying s.52, the Court is concerned to look at the cenduct of the respondents as a whole (see Parkdale Custom Built Furniture Ptv. Ltd. v. Puxu Pty. Ltd. (1982) 149 C.L.R. 191). In my opinion. apart from the one contravention found, the applicant has failed to establish any misleading or deceptive conduct on the part of the respondents whether their conduct 15 looked at in isolated fragments or aza whole. 41. In the result, I propose to award the applicant damages in the sum of $2,500.00 but otherwise to dismis3 the application. Since the respondents have been substantially successful, I propose to order that the applicant pay four-fifth's of the respondent's costs. I make the following orders: 1. Order that the respondents pay the applicant damages in the sum of $2,500.00. tJ Application otherwise dismissed. Le5] Order that the applicant pay four-fifths of the respondents' costs. | cerufy Jat this and the "C preceding pages @ aro a true copy of the reasons for iggment herein cf The Honourable ily Jusiice Be aumont baie, . Sc Brae . Ass Dated 3 Data U4 KS cinta ro)