CATCHWORDS TRADE PRACTICES - misleading or deceptive conduct - partnership formed to lease aircraft under a taxation reduction scheme - application by partnership members to set aside lease and for damages - common law claims for breach of warranty, misrepresentation and conspiracy - aircraft damaged in accident and unfit for use at time lease entered into - whether partners induced to enter scheme on the basis of false or misleading representations by promoters - representations as to fitness for use arising by necessary implication from nature of scheme - liability for representations as to future events or conduct - non-disclosure of altered circumstances amounting to misleading or deceptive conduct - liability of lessor company formed after original representations made - adoption of representations - whether conduct engaged in on behalf of body corporate under s.84(2) - whether lessor company "involved in" contravention of Act under s.75B - consequences of partner's knowledge of altered circumstances - whether sufficient notice to partnership. Income Tax Assessment Act 1936 ss.82AA, 82AD, 82 AQ(1) Trade Practices Act 1974 ss.4(2),52,53,75B,84(2) ,87 Partnership Act 1958 (Vic) s.20 Recewed F mary (46 J By y JOHN BARRY COLLIER, PAUL ENGLAND & STAFF PTY LTD, FOURTH TURIKI PTY LTD, HATTINGLEY PTY LID, LINDSAY QUENTIN HOGG, K.A. LOYALL PTY LTD, ROMANI PASTORAL CO PTY LTD and JAMES BRYAN FOSTER and ELECTRUM ACCEPTANCE PTY LTD (Receivers and Managers Appointed) and TREVOR BURTON HUTTLEY EDWARD CHRISTIAAN SENT BRIAN FORSHAW JON DEAN WILSON No. VG 44 of 1983 Woodward J. Melbourne 6 May 1986 IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG 44 of 1983 ) GENERAL DIVISION ) BETWEEN : JOHN BARRY COLLIER, PAUL ENGLAND & STAFF PTY LTD, FOURTH TURIKI PTY LTD, HATTINGLEY PLY LTD, LINDSAY QUENTIN HOGG, K.A. LOYALL PTY LTD, ROMANT PASTORAL CO PTY LTD and JAMES BRYAN FOSTER Applicants and ELECTRUM ACCEPTANCE PTY LTD (Receivers and Managers Appointed) Respondent /Cross-Claimant TREVOR BURTON HUTTLEY First Cross-Respondent EDWARD CHRISTIAAN SENT Second Cross-Respondent BRIAN FORSHAW Third Cross-Respondent JON DEAN WILSON Fourth Cross-Respondent MINUTES OF ORDER COURT: Woodward J. DATE: 6 May 1986 PLACE: Melbourne THE COURT ORDERS THAT: (NOTE: All parties have leave to serve and file any notices of motion or short minutes of orders sought in accordance with these Reasons for Judgment and in relation to the future conduct of these proceedings, such motions to be returnable on a date to be fixed. The matter be adjourned to a directions hearing on a date to be fixed. Settlement and entry of orders is dealt with in 0.36 of the Federal Court Rules.) IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG 44 of 1983 ) ) GENERAL DIVISTON BETWEEN : JOHN BARRY COLLIER, PAUL ENGLAND & STAFF PTY LTD, FOURTH TURIKI PTY LTD, HATTINGLEY PTY LTD, LINDSAY QUENTIN HOGG, K.A. LOYALL PTY LTD, ROMANI PASTORAL CO PTY LTD and JAMES BRYAN FOSTER Applicants and ELECTRUM ACCEPTANCE PTY LTD {Receivers and Managers Appointed) Respondent /Cross-Claimant TREVOR BURTON HUTTLEY First Cross-Respondent EDWARD CHRISTIAAN SENT Second Cross-Respondent BRIAN FORSHAW Third Cross-Respondent JON DEAN WILSON Fourth Cross~Respondent Woodward J. 6 May 1986 Melbourne A. B. reduction was quite to be in REASONS FOR JUDGMENT INTRODUCTION THE PARTICIPANTS EVENTS TO 23 MAY 1981 DAMAGE TO THE AIRCRAFT KNOWLEDGE OF DAMAGE TO THE AIRCRAFT THE DOCUMENTATION EXECUTION OF THE DOCUMENTS AMENDMENT OF THE PARTNERSHIP AGREEMENT THE REPRESENTATIONS THE PRICE OF THE CESSNA CONQUEST REPRESENTATIONS RELATING TO THE CHARACTER AND STATUS OF ELECTRUM REPRESENTATIONS AS TO UTILIZATION REPRESENTATIONS AS TO THE CONDITION OF THE ATRCRAFT ELECTRUM'S CORPORATE HISTORY RESPONSIBILITY FOR THE REPRESENTATIONS THE OPERATION OF S.84(2) OF THE ACT LIABILITY UNDER §.75B OF THE ACT THE CONSEQUENCES OF HUTTLEY'S KNOWLEDGE OF THE DAMAGE TO THE ATRCRAFT COMMON LAW CLAIMS REMEDIES AND CROSS-CLAIM A. INTRODUCTION This action arises from the break-down of a tax arrangement entered into in 1981. In concept the scheme legitimate, and had some elements in it which appeared the best interests of the general aviation industry - thus justifying the tax advantages which it offered. In practice it ran into difficulties and produced none of the expected benefits. The investors in the scheme are now seeking to recover their losses and protect themselves from further loss, alleging, in addition to certain common law claims, that they were induced to enter the scheme by conduct which was misleading or deceptive within the meaning of s.52 of the Trade Practices Act 1974 ("the Act"), or by false representations in breach of s.53 of the Act. The receivers and managers of the respondent company have cross-claimed against the former directors of that company, who were also directors of other companies involved in the scheme. The basis of the scheme was that a group of individuals or companies with money to invest would form a partnership to lease, from a finance company, an expensive aircraft. The partnership would then make the aircraft available, by way of charter, to an operator or operators in the aviation industry. Depending upon the demand for the aircraft, the charter payments might, but would probably not, cover the rental payable by the partners to the finance company. At the end of the period of the lease, uSually four or five years, the partners could expect to take the aircraft over from the finance company, at a pre-arranged residual price, and then resell it at a profit. At that time aircraft had been appreciating in value, provided they had not been over-used or otherwise damaged. The advantages to the partners were supposed to be (a) an initial investment allowance, (b) a steady income from the use of the aircraft, guaranteed up to a point by the promoters of the scheme, to be set against lease payments, but probably leaving {c) some tax losses, amply compensated by (d) a non-taxable capital gain upon the sale of the aircraft. From 1979 or 1980, a number of partnerships were formed, at the instigation of the originators of this scheme, for the leasing of various aircraft. Unlike the applicants' partnership, these ventures were apparently successful and, as far as I am aware, produced for the partners involved the benefits they were expecting from their investments. There were six basic groups involved in this and the other similar schemes: (a) the aircraft manufacturers and distributors; (b) the aircraft dealers, in this case the originators of the scheme, who wanted to sell, maintain and manage aircraft; (c) the arrangers of the partnership, who were in the business of marketing and selling several types of tax reduction schemes; (d) the members of the partnership; (e) the financiers; and (f) the end-users of the aircraft. The inter-relationships between the various members of these groups is complex, but an understanding of those relationships is crucial to the resolution of the difficult questions of fact and law which the case presents. This play has a large cast. It certainly has no heroes, but in my view it has no substantial villains either. I say that in spite of the fact that I believe a number of the witnesses were not entirely honest in giving their evidence, and that some things were done and said (or left undone and unspoken) in 1981 and later, which could not be defended on legal or moral grounds. B. THE PARTICIPANTS Before embarking on a synopsis of the story, which gradually emerged in evidence given over a month by nearly 30 witnesses, it may be convenient to list the principal actors, for convenient reference. They are as follows: (a) THE AIRCRAFT. DISTRIBUTOR The aircraft in question was a Cessna Conquest turbo-prop, registered VH-CCY, manufactured in the United States and distributed in Australia by Rex Aviation Pty Ltd ('Rex Aviation'). (b) THE ORIGINATORS OF THE SCHEME AND AIRCRAFT DEALERS ('Schutt') Companies: Petres Pty Ltd ('Petres'), trading as Schutt Aviation. Engaged in the buying, selling, flying and maintenance of various types of aircraft. Directors: Jon Wilson, Edward Sent and Brian Forshaw until 10 September 1981, when Trevor Huttley replaced Sent and Forshaw. Westwind Jet Corporation Pty Ltd ('Westwind') engaged in selling and maintaining of Israeli-manufactured Westwind jet aircraft. Directors: the same as for Petres. Electrum Acceptance Pty Ltd ('Blectrum'), brought into existence to arrange finance for leasing of aircraft. Directors: the same as for Petres. Individuals: Jon Wilson, experienced in the buying, selling and operating of aircraft. Edward Sent, had knowledge of the capabilities of different aircraft, but was more concerned with the financial side of the business. Brian Forshaw, Sent's partner in this and other businesses; particularly concerned with an automobile business; not actively involved in the aircraft leasing schemes. John Bowman, an employee of Schutt Aviation experienced in arranging finance; manager of Electrum. Graham Schutt, an employee on the sales side of Schutt Aviation; son of the founder. (c) THE MARKETERS OF THE SCHEME: Tarak Management Services Pty Ltd ("Tarak"), the principal directors of which were Trevor Huttley - undoubtedly the central figure in the story, and Kelvin Dyer - one of Huttley's business partners. (d) (As (As (As (As (As (As (As (As (e) THE PARTNERS (IN THE SCHEME) Lazar Aviation was the name adopted by the partnership which consisted of the following persons: to 10%) Barry Collier, a senior employee of the company (M.E. Hogg Pty Ltd) owned by the Hogg family which, for present purposes, consisted of the father, Maurice Hogg and his' two sons, Martin and Lindsay. to 10%) Fourth Turiki Pty Ltd, a company formed by the Hogg family to hold shares in this and similar partnerships. to 30%) Hattingley Pty Ltd, Martin Hogg's company. to 20%) Lindsay Hogg, also a director of Fourth Tur1ki Pty Ltd and Hattingley Pty Ltd. to 10%) K.A. Loyall Pty Ltd, the company of Kenneth Loyall, an insurance agent who dealt regularly with Barry Collier and the Hogg company. to 10%) Paul England and Staff Pty Ltd, a company of which Trevor Huttley was secretary and accountant. to 5%) Romani Pastoral Co Pty Ltd ("Romani), a company in which Trevor Huttley, his wife and Kelvin Dyer held 80% of the shares between them. to 5%) Dr J.B. Foster, who had no previous connexion with any of the other partners. THE FINANCIERS Australian Guarantee Corporation Ltd and its subsidiaries, ("AGC"), VL Finances Ltd ("VL"), and Citicorp Australia Ltd ("Citicorp"), were ail involved in succession. - 8 - (f) THE END-USERS (""Utilisers") Corporate Consultants International ("CCI"), or a related company, was intended to be the user of the aircraft. It was a company of which Lloyd Faint was a Brisbane principal and Trevor Huttley the Melbourne agent. It intended to use Seaworld, a Queensland company, to manage and maintain the aircraft. Cc. EVENTS TO 23 MAY 1981 It seems that the idea of aircraft syndication, along the lines already described, originated in the United States. It appealed to the directors of Schutt as a way of promoting the sale of the more expensive aircraft which they handled. Schutt had the franchise to sell the Westwind jet in Australia and, in 1978-79, it contracted with a company, referred to in evidence as Bongiorno, for the arrangement of partnerships to purchase these and other aircraft. It then so happened that a meeting early in 1980 between representatives of Schutt and Trevor Huttley of Tarak, which was then in the business of marketing tax reduction schemes, came at about the same time as a disagreement between Schutt and Bongiorno. It was agreed in discussions between Sent, Wilson and Huttley that Schutt and Tarak might find it mutually profitable to arrange aircraft syndications. The profits would flow to Schutt from the sales, and perhaps the maintenance, of the aircraft. They would flow to Tarak from commissions on sales - to be paid by Schutt - and from partnership management fees. Two such arrangements, in particular, were put together in 1980 and early 1981. These were known as Canberra Jet Charter and Melbourne Jet Charter. Both involved the sale of Westwind jets, and the use of AGC as the finance company which became the lessor of the aircraft to the respective partnerships. Up to March 1981, both these arrangements seemed to be working well, and other syndications were in train. Late in 1980, there was some contact between Schutt and Lloyd Faint in Queensland. Arising from this contact came a proposal in October 1980 for the acquisition by Faint of an aircraft, to be used exclusively by companies with which he was connected, and particularly in the development of a cattle project which had tax reduction implications. It was understood that Faint would bring together a group of his business associates to form a partnership for the leasing of an aircraft. On the strength of this understanding, Schutt went ahead and placed an order for a Cessna Conquest with Rex Aviation. Presumably it was thought that the Conquest was the most suitable available aircraft for the particular purpose which Faint had in mind. The order was dated 18 November 1980. After providing for payment of a deposit, it called for full payment on delivery not later than 28 February 1981. The agreed price for the aircraft, with certain stipulated fittings, was $l.1m. The weeks that followed saw nothing definite achieved. Faint was still interested in the aircraft but, apparently, found it difficult to raise the money for its leasing from among his associates. As a result, Rex Aviation was not paid on the due - 10 - date in late February and 1t began adding interest charges to the payment due and pressing for settlement of the transaction. Faint did however arrange for CCI to send Schutt Aviation a cheque for $45,000 deposit on 10 March. $1000 had been paid previously, presumably as an earnest of good faith. Schutt was concerned first to arrange its borrowing from AGC, which had agreed in principle to provide short-term (60 days) finance for the purchase of the aircraft. This "wholesale" finance arrangement would be replaced by "retail" finance when a partnership had been formed to lease the aircraft. To facilitate this AGC loan, at a time when the ultimate lessee partnership was undetermined, a telex message was arranged from Faint to Schutt, on 2 April 1981, giving an undertaking that Faint, an associate of his called Lupton, and the two principals of Tarak - Huttley and Dyer - would accept responsibility for the aircraft if they could not put a partnership together to take it on lease within 30 days. On the strength of this assurance AGC advanced $lm to Westwind, and Westwind paid that and other moneys to Rex Aviation, between 8 and 10 April 1981. Rex Aviation had submitted an invoice for $1.2m and, in a letter dated 13 May 1981, claimed that, of that amount, $95,274.98 was then still owing. The reason for the increase in price of the aircraft from $l1.1m to $1.2m is not clear. It presumably had something to do with the delay in payment after the agreed date of 28 February. Some additional fittings may also have been involved. - ll - Not long after Westwind paid Rex Aviation and acquired the aircraft, subject to a charge to AGC, it became apparent that Faint was not going to be able to put a syndicate together in Queensland, and Schutt started looking to Tarak to make such an arrangement in Victoria. One complication which had to be faced by Schutt was that there were very few pilots in Australia qualified to fly the Conquest - there being only two other such aircraft in the country at the time, neither of them in Eastern Australia. Since it was thought necessary to have at least one revenue-earning flight before the end of the financial year - to attract the investment allowance for that year - arrangements had to be made to have available a pilot qualified in its use. These arrangements were put in hand in the middle of May. Rex Aviation had delivered the aircraft to Schutt at Moorabbin Airport in Melbourne and it was agreed that, on 22 May 1981, a qualified pilot would fly Brian Forshaw to Sydney on a business trip and, whilst waiting to return, take the opportunity to give another pilot instruction in the flying of the aircraft. It seems that Jon Wilson was not happy with this arrangement, because Schutt had not been paid for the aircraft and he was concerned about letting it out of Schutt's hands, even for a limited time, in case anything went wrong. However there was an insurance policy in existence covering the aircraft, and he was -12- persuaded by Sent, Graham Schutt and Huttley that there would he no problems, and the early engagement of a pilot authorised to fly the aircraft was essential. In the event, something did go wrong in the course of instruction and the aircraft made a forced landing in a ploughed field near Bathurst, NSW. The reason for this accident is not entirely clear, but the generally accepted theory appears to be that, as the pilot under instruction was practising stopping and restarting one engine, he accidentally stopped the second engine instead of restarting the first. It then proved impossible to restart either engine in the time available and the forced, "wheels-up", landing was made. It is convenient to stop the narrative at this point in order to see what steps had been taken up to this time towards putting together a Melbourne-based partnership for the leasing of the Conquest. As it happened, a partnership was in the process of being formed by Tarak for the leasing of another Westwind aircraft. The Hogg family had been involved, through their company Fourth Turiki, in both the Canberra and Melbourne Jet Charters partnerships. Now Martin Hogg saw a need to make further tax reductions for the 1980/81 financial year and, through Barry Collier, asked Tarak if another syndicate could be formed. In reply to this inquiry, Huttley checked with Schutt and it seemed - 13 - that another Westwind would be available. He so informed Collier. Collier decided that, on this occasion, he would also take an interest in the partnership on his own account. When he heard about these steps, Mr Maurice Hogg, the father, decided that Fourth Turiki should be involved again, and he also proposed to take a share in his own name. He later surrendered this share to his other son, Lindsay, who it seems protested strongly when he returned from overseas and found that he had been left out of the new arrangements. In the meantime, Collier had told Loyall about the proposed arrangement and, after receiving promotional material from Tarak and discussing the matter with his wife and his accountant, he also had agreed to join the scheme. By this time, Trevor Huttley had invited Paul England to take a share, in the name of England's company. England also was given Tarak material explaining and promoting the particular scheme then proposed. In addition, Huttiey himself had resolved to take a share in the name of Romani. That prospective partnership's arrangements to lease a Westwind went forward in the name of Capital Aviation. At some time in the month of April, or early May, it became apparent that no Westwind would be available before the end of the financial year. However the Cessna Conquest was there for the asking and it must have seemed to be in everyone's interest to substitute it for the Westwind. To differentiate the new from the old arrangement, - 14 - the Conquest partnership was given the name Lazar Aviation, but documents which had been brought into existence for purposes of Capital Aviation, particularly statements about the financial standing of the prospective partners for use by the finance company, were used for Lazar purposes without amendment. The only person who was 'signed up' expressly for the Lazar partnership was Dr Foster, whose name appears linked to the Cessna Conquest as early as 2 April 1981 - no doubt because he was identified at an early stage as having investment requirements more suited to the less expensive Conquest aircraft. It seems that even he was first told of the Westwind, but all written communications, to and from him and his accountant, including promotional material, related to the Cessna. Thus, by 23 May 1981, when the Cessna had its forced landing, the prospective partners in Lazar Aviation had mostly been identified and they had made statements about their respective financial positions. One exception was Lindsay Hogg, who was overseas from 10 May 1981 to 10 June and only heard about the new syndicate on his return. However, although Huttley said in evidence that he first spoke to Collier early in May about a change-over from the Westwind to the Cessna, it is not clear which of the prospective partners in Capital Aviation had been told of the change by 23 May. Certainly finance for the lease had not been arranged, no partnership agreement had been signed by anyone, and the aircraft was still the property of Schutt, although there was room for - 15 - argument as to whether it was actually owned by Petres or Westwind. The original order for the aircraft and the first invoice were in the name of Schutt Aviation (Petres), with which Rex Aviation usually dealt; but the finance documents showed a loan by AGC to Westwind, which was the company with which AGC had standing arrangements for the making of loans. The second invoice from Rex Aviation, at the time of payment, was in the name of Westwind. This would seem to make Westwind the owner, but the Department of Transport's Certificate of Airworthiness was sought, on 10 April 1981, and given, in the name of Petres. When VL took over the 'wholesale' finance of the aircraft from AGC on 7 July 1981 a mortgage was executed by Petres and Westwind, but not Electrum. The validity of this document is not in issue in the present case. VL was paid out by means of a Citicorp loan of 29 September 1981. The Receivers and Managers of the respondent have been appointed by Citicorp. D. DAMAGE, TO THE AIRCRAFT Evidence established that when the aircraft made its forced landing ina ploughed paddock, with its wheels up, it suffered some quite significant damage. In the first place, all six propellor blades were very badly bent, one flap was' slightly bent, and the slide for 245 metres on the belly of the aircraft resulted in the tearing away of the port under-carriage door and the VHF aerials. There was also dirt in the engines. So far as the framework of the aircraft was concerned, the floor of the nose luggage compartment had bulged upwards through contact with the nose wheel, and there was a slight wrinkling of the fuselage just - 16 - forward of the door, and on the underside just aft of the door. It was difficult to close the door. There was evidence that wrinkling of the fuselage could be quite an expensive repair in the case of a pressurized hull. The air safety inspector who gave this evidence said that he classed the overall damage as "substantial" rather than "minor", in the international terminology used, but thought that the structural damage could be repaired in a month or less in the United States. Given that this was only the third aircraft of its type in Australia, there could be problems in repairing it locally, which could add to this time. In the event, the total cost of repairs, excluding recovery costs and engine repairs, was some $42,000, of which one half represented spare parts. Apparently all these costs were met by the aircraft's insurer. The difficulties caused by the accident were greatly exacerbated by the circumstances surrounding the forced landing. The pilots were not prepared to admit any error, and so it became necessary to send the engines to the United States for complete overhaul, in order to determine if there was any defect in them. Apparently none was found, but the total cost of this exercise was over $70,000 and, for reasons which are not entirely clear from the evidence, it was over a year from the date of the accident before the aircraft was able to fly again. - 17 - E. KNOWLEDGE OF' DAMAGE TO THE ATRCRAFT Perhaps the central questions in this case are: who knew about the forced landing of the aircraft, when did they know, and what was the extent of their knowledge? It is clear that the pilot in charge of the aircraft rang to report the forced landing, within afew hours of its occurrence on Saturday 23 May 1981. He spoke to Graham Schutt, at his home, at about 5 p.m. He said that the aircraft was damaged, as the result of a wheels~-up landing ina paddock, when both engines had stopped and could not be restarted. The damage was to both the propellors and the fuselage. In the course of the conversation there was discussion about the need to have the aircraft dismantled and taken to Bankstown aerodrome, where Rex Aviation had its workshop. Mr Schutt, who gave this evidence, went on to say that he then rang either Sent or Wilson to pass the information on, but he could not remember which of the two he rang or any details of the conversation. Mr Wilson, who was unrepresented, put it to him in cross-examination that he (Wilson) had been the recipient of the call, but this did not assist Mr Schutt's memory. Nor could Mr Schutt recall giving any general briefing to Schutt''s senior officers on the following Monday morning, which was put to him by Mr Wilson, although he could recall discussions with both Sent and Wilson during the following week. -~ 18 - Wilson elected not to give evidence in the cross-claim, so there is no direct testimony from him as to the state of his knowledge in the days that followed the accident. In my view it is reasonable to assume, and I do assume, that both he and Sent (who also gave no evidence) would have become aware, during the week after the forced landing, of all that had been told to Graham Schutt by the pilot. They would also have given instructions, or at least been told, about the removal of the aircraft from the landing site to a hanger at the Bathurst Airport. The aircraft was examined by an officer of the Bureau of Air Safety Investigation, and by an experienced loss assessor on behalf of the insurance company, within one or two days of the accident. On 27 May it was taken on ai truck cross-country to the Bathurst Airport. Thus, within the first week, there were several sources of information available to Schutt about the extent of damage and, in the absence of any evidence to the contrary, I think I. should infer that both Wilson and Sent were well informed. Forshaw seems to have played a much lesser role in the day-to-day management of the operations side of Schutt's business, so I am unable to infer the actual state of his knowledge of the damage to the aircraft in the weeks following its forced landing. One matter which was not appreciated by anyone for some time, and may not have been fully understood until after 30 June 1981, was the difficulty which would be caused by the refusal of the pilots (rightly or wrongly) to admit any error. It was this which meant that the engines had to be completely overhauled - a fact which contributed considerably to the delay in getting the aircraft back in the air. - 19 - The next point to be considered 1s the extent of Trevor Huttley's knowledge, in the period between 23 May and 30 June 1981, of the damage to the aircraft caused by the forced landing. In his evidence he was at pains to stress that, although he was told about it by Graham Schutt at Moorabbin and then had "at least a dozen" discussions with Wilson in the weeks that followed, he was always given to understand that damage was "very minor", the aircraft would be flying away from the site of its forced landing, and it would be back in service very soon. As far as details are concerned, he says that he discovered at an early stage that the propellor blades had been badly bent and would have to be replaced, and there could also be some problems with the under-carriage, requiring perhaps some temporary welding, before it could be flown away. Huttley said further that, between the end of May and the end of July, when he learned that the aircraft was at Bathurst Airport, he had assumed that it had been flown to Bankstown. He said that he was concerned when he first heard of the incident but "that concern abated considerably as I discussed it with Mr Wilson and Mr Schutt". In his cross-examination of Huttley, Wilson did not attempt to challenge the assertion that, so far as Huttley was aware, damage was very minor. Instead, he attempted to suggest that Graham Schutt had a motive for playing down the seriousness of the damage because he had recommended the flight (as had Huttley) in the face of Wilson''s misgivings. Huttley forbore to accept this reading of the situation. Wilson did not question Huttley about his expressed belief that, throughout June and July 1981, the aircraft was at Bankstown. ~ 20 - In spite of all this, I am inclined to believe that Huttley was, like Wilson, fully aware of the true situation of the aircraft at all relevant times. In my view, Graham Schutt had no reason for keeping any of the facts from them - they all had to emerge soon enough. And the same can be said for Wilson in his dealings with Huttley. They were involved in something of a joint venture to which they were both heavily committed. They were in touch on a daily basis and were obviously looking forward to a continuing close relationship. In these circumstances I find it incredible that Wilson would deceive Huttley in a way which would almost certainly have to be revealed ina matter of weeks. Why should he let Huttliey think the aircraft was at Bankstown when he knew very well it was at Bathurst? This was their joint problem for which I have no doubt they were looking for joint solutions - although it may well have been that the true dimensions of the problem only dawned on them as the weeks between 23 May and 30 June passed, and it began to appear that the aircraft engines would have to be fully overhauled. I think it is most probable that both Wilson and Huttley suspected this necessity - even if it had not been confirmed - by the beginning of the last week in June. It follows from the nature of his involvement with Schutt that it is more probable than not that Sent also knew of the developing dimensions of the problem at all relevant times until at least the end of July 1981. (He and Forshaw, after some negotiations, finally sold their interests in Schutt to Wilson on 10 September 1981.) - 21 - The next question I have to consider, and one which I find more difficult to resolve, is Bowman's state of knowledge, during the relevant period, about the condition of the aircraft. He said that he first learned of an incident involving the aircraft from an insurance representative, Mr Butler, probably early in June; Mr Butler knew no details. A few days later he asked Wilson, who denied that there had been any incident. Soon afterwards he asked Huttley, who said "I hear there was a bit of a dint". As a result of this, Bowman claimed, "I ... at all stages thought it was avery minor incident ... there may have been a dint in the wing ...". However he learned otherwise when he saw photographs some weeks later, probably at the end of August. Bowman was a most unconvincing witness. He displayed signs of extreme nervousness throughout his evidence and, as will be seen later, on some matters he gave quite circumstantial details of events which could not have occurred as he described them. He was very anxious to distance himself from any knowledge of the true state of the aircraft at relevant times, and was by no means persuasive in doing so. On the other hand I think it is quite possible that Wilson and Huttley did not confide in him, believing that he could carry out his functions better if he were not burdened unnecessarily with inconvenient knowledge of the forced landing. In the result I am not persuaded that, by 30 June, Bowman knew anything more than that there had been' some incident in which the aircraft had suffered some minor damage. Turning then to the state of knowledge of the signatories for the applicants, the prospective partners, when - 22 - they signed the lease agreement for the aircraft, and the accompanying guarantees, in or about the last week of June 1981, it is clear, first, that Dr Foster knew nothing of the forced landing then or for a long time afterwards - probably not until August 1982. It is equally clear that Mr and Mrs Loyall knew nothing until September 1981, when Mr Loyaill was told by Collier that there had been a forced landing, but that the aircraft was able to carry on. It was not until June 1982 that the Loyalls learned of the extent of the damage and of the date when it had occurred. Mr England was not aware of any difficulty with the aircraft until Huttley told him, probably on 13 August 1981, at a Board Meeting of the England company, that the aircraft had experienced "a heavy landing in New South Wales, but would be flown back to Moorabbin for repairs". I am satisfied that this statement by Huttley was, at best, disingenuous. It must have been clear to him by then that it was going to be some considerable time before it flew to Moorabbin or anywhere else. It was some months later that he told Mr England that the engines would have to go to the United States; and not until October 1982 did Mr England learn that the forced landing had occurred before the partnership was formed and the lease and guarantees entered into. Leaving aside Romani for the time being, the only applicant who possibly had some knowledge of damage to the aircraft, before the last week in June 1981, was Barry Collier. - 23 - In his evidence-in-chief, Huttley spoke of telling Collier, within a few days of the incident, that there had been a forced landing, that the propellors had been damaged, and they would have to be changed before the aircraft could return to Moorabbin. However in cross-examination he extended the possible time of this discussion to "within a few weeks [Cof the accident] .... not a long time afterwards". Collier himself firmly fixes the date of his first knowledge as 23 July 1981, the day before he left on an overseas trip. There is some corroboration for this date from the Hogg brothers, who say Collier first mentioned the matter to them in August or September 1981. Lindsay Hogg said it was "around September" and he was told there had been a wheels-up landing, but the damage was not severe. Martin Hogg said that Collier told him sometime between August and October that there had been a crash landing in a paddock, but it was not a serious affair and the aircraft was being flown to Bankstown. Although I think it is possible that Collier knew more than he told the Hoggs, it is more likely that he did not, and that Huttley played down the seriousness of the damage when telling him about the forced landing. I think it is most likely that Collier knew nothing of the landing until about 23 July 1981. I also accept that neither Collier, nor any of the Hogg family, learned until June 1982, or possibly even October 1982, that the forced landing had occurred before 30 June 1981. - 24 - F. THE DOCUMENTATION As might be expected, there were a substantial number of documents associated with the scheme, and introduced or discussed un the evidence. There were certain formal documents that set up the various structures required: the Partnership Agreement (purportedly dated 25 June 1981) setting out the obligations of the partners in the Lazar partnership, and covering such matters as capital contributions and appointment of a management committee; the Lease Aqreement (dated 29 June 1981) between the partners of Lazar Aviation and Electrum Acceptance Pty Ltd, setting out the terms and conditions of the lease of the Cessna Conquest VH-CCY over 48 months from 25 June 1981; monthly rental payments were set at $35,559.59 for a total rent of $1,706,860.30; the residual value of the aircraft was fixed at $990,000; the Consent of Lessor (dated 25 June 1981) between Electrum Acceptance Pty Ltd as lessor and Lazar Aviation as lessee, wherein Electrum consented to the utilisation of the aircraft by the manager under the management agreement; the Management Agreement (dated 25 June 1981) between Lazar Aviation as lessee of the aircraft and Petres Pty Ltd (trading as Schutt Aviation) as the manager of the aircraft for reward over the period of the lease; the agreement required the manager to arrange utilization of the aircraft and provided for a minimum income for' the partnership, guaranteed by the manager; - 25 - - the Guarantee and Indemnity (apparently undated) guaranteeing the performance of the lease by the Lazar partners; the guarantors were the corporate partners of Lazar and most of the principals and directors of the corporate partners (the three Hoggs, Mr Loyall, Mr and Mrs Huttley and Mr and Mrs England). Schutt had apparently developed some of the documents for use in its dealings with Bongiorno, and drafts or examples of the partnership and management agreements were handed by Wilson to Huttley when Tarak first became involved in the scheme. The principal document promoting the scheme to potential partners was described as - the Aircraft Syndicate document; this document appeared in a number of forms and had obviously been through a number of drafts; it was prepared by Huttley and purported to be produced by Tarak; it bore the heading "Aircraft Syndication - An Investment Opportunity" and set out details of the scheme over 10 pages; details of Tarak and Schutt were attached, and usually financial details and a cash-flow statement for a particular aircraft were provided to prospective partners with the document. The other document which is of some relevance is - the Application for Retail Lease Finance; this was a document (or perhaps more correctly a compilation of documents) prepared by Bowman and "presented by Schutt -~ 26 - Aviation". It contained copies of the Aircraft Syndicate document, a "pro forma" Partnership Agreement and a Management Agreement, and financial details of the Lazar partners. G. EXECUTION OF THE FORMAL DOCUMENTS The evidence presented at the trial concerning the execution of the formal documents - the lease agreement, consent of lessor, guarantee and indemnity, and the partnership deed - was one of the most unsatisfactory aspects of this case. It appears that Bowman was largely responsible for arranging execution of most of these documents. As I have already said, his evidence was far from convincing, and he did not impress me as a reliable witness. [I put this down, in part, to the length of time that has elapsed since these documents were executed, and to the fact that Bowman was then under a great deal of pressure to obtain many signatures ona large number of documents, covering other syndicates as well as the Lazar syndicate, before the 30 June 1981 deadline. However, I also believe that Bowman was at times deliberately evasive and, in certain aspects of his evidence, was simply not telling the truth. Bowman gave evidence that he obtained most of the signatures to the lease, the consent and the guarantee. The partnership deed was executed on a separate occasion or occasions, and apparently without his involvement. - 27 - What follows is a brief outline of the effect of Bowman's evidence. The first signature he sought, to the guarantee, was that of M.E. Hogg. He refused to sign the guarantee until he had received legal advice about it. Bowman had to wait until Hogg's solicitor arrived before the document was signed. This occurred sometime before 30 June 1981, and probably within a week of that date. There is some doubt that the guarantee then signed was the one involving Lazar, as Mr Hogg's signature, on the Lazar document is witnessed by Dyer, and not Bowman. The next signature Bowman sought to obtain was that of Martin Hogg. He went to Martin Hogg's factory in Dandenong, probably on the day following his visit to Hogg senior. Martin Hogg also refused to sign the documents, and particularly the guarantee, until other parties and particularly Huttley had signed. Bowman left without obtaining Martin Hogg's signature. The next signature obtained was that of England. Bowman originally gave evidence that he drove to England's office immediately after leaving Martin Hogg, and that he specifically remembered driving through heavy rain from Dandenong to Essendon. When recalled to give further evidence, however, he withdrew his original evidence, and indicated that he saw England the following day. In any event, he recalled visiting England's office, with England, Huttley, and Huttley's secretary, Helen Urquhart, in attendance. The England company seal was found and affixed, and Bowman apparently witnessed Huttley's signature to the guarantee, but England's was witnessed by Helen Urquhart. - 28 - After obtaining Huttley's and England's' signatures, Bowman went back to Martin Hogg. Again, he was confused whether this was on the same or the following day. However he witnessed Martin Hogg's signature to the guarantee, and then stated that he visited Loyall to obtain his signature. Yet again, Bowman was not sure whether this occurred on the same day as he obtained Martin Hogg's signature, but he believed so. In relation to Loyall''s signature, Bowman at first gave the following account: ",.. I still had left the Loyalls and Dr Foster to sign. So the next day I went and signed up Mr Loyall out at Kew and then proceeded - I was on my way home on the Burwood Highway. His was a_ trust, so I had to get the personal guarantee of his wife for he and his wife. It was on the way home I thought I will leave that as the last thing and I will slip in there and everything will be under control and I wili just get her to sign the guarantee. I can assure you it was not quite as easy as that. She had no knowledge at all that he was even in the aircraft, and proceeded to express her thoughts rather forcibly, I can assure you. Virtually she told me to get out. It came as a great surprise to me because I was absolutely flabbergasted. It was the first time that had ever happened to me. Anyhow, I went out and saw him the next morning and I had a few words to say to him. Anyhow, I then went back to her and she reluctantly signed. ..." When recalled, Bowman confirmed that he first visited Mr Loyall, witnessed his signature to the guarantee and obtained his signature as director of K.A. Loyall Pty Ltd, visited Mrs Loyall, returned to Mr Loyall, and the following day returned to obtain Mrs Loyall's signature and affix the Loyall company seal. - 29 - Finally, Bowman said he obtained the signature of Dr Foster at his surgery in the presence of Haggerty. He recalled they arrived at approximately 10.30 a.m., waited whilst Dr Foster saw a patient, and then returned to Schutt's office at Moorabbin after obtaining his signature. It is clear that Bowman's memory was not good, and that he had difficulty placing the exact day of attendance on certain of the signatories. However, he was originally quite sure that he had the order of his visits correct, and was adamant that all signatures were obtained before 30 June 1981, and within ten days of that date. If Bowman's evidence were to be accepted, he would apparentiy have obtained the signatures over a period of three, or possibly four, consecutive days. However, as I have said, Bowman's evidence is directly contradicted by other evidence, the most significant of which is that of Loyall and his wife. Loyall became interested in the scheme after speaking to Collier in March or April of 1981. He also swore that he and his wife were overseas between 13 June and 6 July 1981. He remembered signing some documents in haste before they left for overseas, and some possibly a week after their return. Mr Loyall admitted that he affixed his wife's signature on the partnership agreement, and believed that was done under pressure to sign documents before the trip. However her signatures on the lease and guarantee were genuine, no doubt affixed in the presence of Bowman. She did not sign the consent. - 30 - Mrs Loyall confirmed the dates of the overseas trip and remembered meeting Bowman at the Loyalls' home on one occasion. She could not, however, specifically recall signing any documents, either before or after the trip. I accept the Loyalls' evidence at this point, which necessarily implies that Bowman was either confused about when he had the Loyalls affix their signatures, or he was not truthful. It is apparent that Bowman's visit to the Loyalls' took place independently of his attempts to sign the Hoggs, England and Foster, and probably took place before the Loyall's left for overseas on 13 June 1981. It is clear that some documents were signed in the week leading up to 30 June, as England was able to f1x the signing of documents at his Essendon office as being on 25 June 1981, through an independent event. He recalled that Bowman brought' some documents for execution, and that Huttley and his secretary, Helen Urquhart, were then present. This indicates that the guarantee was executed then, as Urquhart witnessed England's signature on that document. The seal of Paul England and Staff Pty Ltd was probably also affixed at that meeting, although England cannot recall the seal of Romani being affixed then. Mrs Huttley attested to Romani's seal on the lease as 4 director of Romani but she was not present at the meeting of 25 June 1981. It also appears that Dr Foster, whose evidence I accept, signed the lease and consent in the week preceding 30 June 1981, and his evidence in that regard supports Bowman. - 31 - H. AMENDMENT. OF THE PARTNERSHIP AGREEMENT The partnership agreement was a document of some 20 pages, and included a schedule bearing the partners' names, addresses, partnership shares and initial capital contributions, a schedule describing the aircraft - the Cessna Conquest 441, and three pages of attestations. The document was substantially typewritten. Two versions of the executed agreement were admitted into evidence. One, a photostat copy, had a number of gaps or blanks in its body that were not completed. The second, an original, differed from the first in the following particulars: the date "25 June 1981" was handwritten on the front page; the sum of $20,000 was inserted as the initial capital of the partnership in clause 8; the names of Huttley, Collier and L.Q. Hogg were inserted as the initial Management Committee in clause 18; the date "29 June 1981" and the name "Electrum Acceptance Pty Ltd" were inserted in clause 31; and in the schedule of partners' names, the words "Retirement Fund" were deleted from the name "Paul England & Staff Pty Ltd Staff Retirement Fund" and the words "As Trustee of the Hogg Aircraft Trust" and "As Trustee of the Loyall Family Trust" were added to the names "Fourth Turiki Pty Ltd" and "K.A. Loyall Pty Ltd" respectively. In addition, the words "(Staff Retirement Fund)" were deleted from the name "Paul England & Staff Pty Ltd (Staff Retirement Fund)" in the attestation clause. Save for the date on the front page, these additions or amendments were all 'witnessed' by sets of six initials, being those of Maurice, Lindsay and Martin Hogg, Martin Hogg's wife, Collier and, it seems, Dr Foster. - 32 - The evidence surrounding the circumstances leading to these amendments was somewhat confused. [It 1s clear from both the evidence and the existence of the two copies that the amendments were made, and initialled, some time after the original was executed and witnessed. Bowman agreed that the amendments were made by him, but could not recall the exact date. The amendments were suggested by Mallesons, the solicitors acting for Citicorp, in a letter addressed to Citicorp and dated 18 September 1981. Bowman saw that letter, and he believed (despite some inconsistency in his evidence on this) that he filled in those blanks and made the anendments in a meeting attended by Mr Eather, the solicitor acting for Tarak, and Messrs Wassell and Turner of Citicorp, in early 1982. He did not arrange the initialling of the document, but he believed it was taken from that meeting by Eather, and handed to Huttley to obtain the initials to the amendments. Bowman also prepared a type-written document dated 27 January 1982 and headed "Action Required to Effect Settlement", which listed the amendments set out above and referred to Huttley and himself as bearing "responsibility" for the amendments, and to Wilson, Huttley and himself as bearing responsibility for the "Ratification under seal that Bowman authorised to accept lease offer on behalf of Electrum Acceptance Pty Ltd". Bowman seemed to assert that this document was prepared after the meeting with Eather, Wassell and Turner, and therefore after he had made the amendments. -~ 33 - Bowman's evidence was contradicted by Wassell, who placed the meeting with Bowman as occurring on 7 January 1982. He denied that the matters raised in Malleson's letter were resolved at the meeting but, instead, he believed that Bowman undertook to attend to them within 14 days, and that as far as Citicorp was concerned, the matters were never attended to. I have no hesitation in accepting Wassell's account in preference to Bowman's, although little turns on it. It is clear, and I find, that the amendments were not made until at least 7 January 1982, and that the initials were not put beside the amendments until some time later. Although this was not raised in the pleadings, the circumstances of the amendments raise the question whether the applicants, or any of them, could be said to have affirmed or ratified the partnership agreement in, or shortly after, January 1982 when they affixed their initials to the amendments. There are several points to be made on this matter. First, it should be noted that not all the applicants initialled the amendments. Secondly, the only document that could be said to be affirmed is the partnership agreement, and the continuing existence of the partnership does not seem to be in dispute in this case. Although the affirmation of the partnership agreement in or after January 1982 may have indirectly indicated an intention then, on the part of those initialling, to continue with the scheme, it cannot jeopardize the partners' present attempts to set the lease agreement aside and recover payments made under it. - 34 - Finally, I have already made findings in relation to the various partners' knowledge of the occurrence and extent of the accident. On those findings, none of the persons whose initiais appear next to the amendments to the partnership agreement could be deemed to have ratified the agreement with full knowledge of the accident, and particularly the date of the accident. T. THE REPRESENTATIONS The applicants' case was based primarily on s.52(1) of the Act, which prohibits a corporation from, in trade or commerce, engaging in conduct that is misleading or deceptive or likely to mislead or deceive. It was also argued that the respondent had, in connexion with the supply or possible supply of goods or services, falsely represented that goods were new, and represented that goods had performance characteristics, uses or benefits they did not have (see s.53(b) and (c) of the Act). The representations on which the applicants rely to establish their case were set out in paragraph 21 of their statement of claim as follows: "(a) that the aircraft was new; (b) that it was capable of being chartered for use or utilised as an aircraft; (c) that the applicants would be entitled to a 20 per cent investment allowance allowable under the Income Tax Assessment Act 1936 in relation to the purchase of the aircraft by the respondent; -~ 35 - (d) that the respondent was a leasing company for the purposes of section 82AD of the Income Tax Assessment Act; (e) that arrangements had been made for the aircraft to be used by Seaworld, Queensland; (f) that arrangements had been made for the aircraft to be used for reward; {g) that the price of the aircraft to be paid by the respondent was $1,550,000 or thereabouts; (h) that it was undamaged; (i) that it was fit for use as an aircraft; (j) that it was airworthy; (k) that 1t was being acquired by the respondent for a reasonable market price." These representations were said to have been made or adopted by the respondent, and the manner of their making was set out in detail in particulars to the statement of claim. The representations were alleged to have been partly in writing, partly oral and partly to be implied. The documents which constituted the alleged written representations were: (a) the syndicate plan, (b) the deed of partnership, {c) the lease, (d) the consent of lessor, (e) the guarantee and indemnity, (f) the management agreement, and (g) the application for lease finance. - 36 - In the case of Loyall, the applicants also allege that he relied upon the opinion of an expert taxation lawyer, Mr Neil Forsyth QC, who had earlier been briefed to advise on the scheme. The oral representations made to individual partners (or in the case of the corporate applicants, their representatives) were said to have been made by various persons on behalf of the respondent. In the case of the applicants Collier, the England company and Romani, Huttley was alleged to be the source. Alternatively, it was argued, the representations were made by Sent, Wilson and/or Forshaw to Huttley, who was acting for and on behalf of the applicants. Huttley (or alternatively Sent, Wilson and/or Forshaw) was said to be the source of representations made to Loyall and the Hoggs and their companies (the third, fourth and fifth applicants) through Collier. Dr Foster was the 'odd man out'. Representations were alleged to have been made to him by Bill Haggerty (a commission agent for Tarak) both directly and through Foster's accountant, Simon Blackford. In so far as the representations were to be implied, the particulars stated that the implications arose from: "(i) the fact that the applicants and each of them would not be entitled to an investment allowance for the aircraft allowable under the Income Tax Assessment Act unless the aircraft was then chartered or utilised; (ii) the fact that the applicants and each of them would not be entitled to a deduction under the Income Tax Assessment Act for the - 37 - lease payments unless the aircraft was actually chartered or utilised; (iii) the price for which the aircraft was being acquired by the respondent; (iv) the amount of the rent that was to be paid by the applicants under the lease; (v) all the circumstances surrounding the transactions between the applicants and the respondent and the Scheme." The "circumstances surrounding the transactions" included the "essential features of the scheme", identified as follows: "(i) that the aircraft to be leased by the investors was new; (ii) that the aircraft was capable of being and would be chartered for use or utilised as an aircraft; (iii) that the investors entering the Scheme would be entitled to a 20 per cent investment allowance allowable under the Income Tax Assessment Act 1936 in relation to the purchase of the aircraft by the leasing company ; (iv) that the leasing company would be a_ finance company for the purposes of Section 82AD of the Income Tax Assessment Act; - 38 - (v) that the lease payments umder the lease would be allowable deductions under the Income Tax Assessment Act; (vi) that the aircraft would generate income by being used as an aircraft; (vii) that it would be undamaged; (viii) that it would be fit for use as an aircraft; (ix) that it would be airworthy." It was submitted both by counsel for the respondent, and by counsel for the cross-respondents Sent and Forshaw, that nothing in the evidence supported the claim that express representations, either written or oral, were made to the applicants or were acted upon by them. I think that is to a large extent true. In the case of Collier and the Hoggs (covering the first, third, fourth and fifth-named applicants) their knowledge of the scheme arose from their involvement with other partnerships. The genesis of the Lazar partnership lay in the contacts between Collier and Huttley in relation toa Westwind aircraft. It was obvious that Collier and the Hoggs were not particularly interested in the type of aircraft involved, nor its capabilities. The elements of the scheme that led to taxation advantages were the main attraction for them. The documents presented were essentially the same as those used in previous partnerships. They had been submitted by the Hoggs to their solicitors for advice well before the Lazar partnership was under consideration. - 39 + England had also been involved ina previous aircraft leasing scheme, referred to as England Aviation, which began in 1980 and was running successfully in 1981. Dr Foster gave evidence of the approaches made to him by Haggerty of Tarak. The aircraft leasing scheme was originally proposed to Foster by Blackford, his accountant, in March 1981. He expressed interest, and was visited by Haggerty later that month. Foster was told that the aircraft (originally referred to as a Westwind) would be leased by a partnership over several years and would be available for charter. The purchase of the aircraft would attract a 20% investment allowance, lease instalments would be tax deductible and the aircraft could be sold, or re-leased, at the end of the original lease period. He apparently did not discuss the price of the aircraft, whether it was to be new or second-hand, nor details of the utilization. It would be fair to say that Dr Foster did not discuss details with Haggerty; indeed, he volunteered the information that he was not particularly concerned with the sort of aircraft involved, as long as it flew. Loyail, like Foster, had not been involved in previous syndicates. His evidence about his conversations with Collier exhibited a lack of discussion concerning specific aspects of the scheme. The same could be said of England's conversations with Huttley. All demonstrated an acceptance that there were certain risks involved with the investment. If any representations were made that are actionable against the respondent Electrum they must arise by necessary implication either from the documents submitted to the applicants - 40 - - relevant particularly in the cases of Foster, Loyall and perhaps England - or from the very nature of the scheme entered into. J. THE PRICE OF THE CESSNA CONQUEST Two of the representations allegedly giving rise to a breach of the Act ((g) and (k) as set out in the previous section ef these Reasons for Decision) related to the price of the aircraft. It was argued on behalf of the applicants that the lease charges under the scheme and the estimates of the resale value of the aircraft depended upon its purchase by the lessor company (in this case Electrum) for a "reasonable market price". The breach of s.52 was said to arise from a failure to disclose to the applicants the reasonable market price and, by implication, that the price paid was not the reasonable market price. The Aircraft Syndicate document used by Tarak in relation to the Lazar partnership included a page with a break-down of costs and expenses for the Cessna Conquest. It referred to the "prime cost" of the aircraft as $1,650,000. It is clear that the price of the aircraft rose considerably from its initial purchase price, agreed at $l.1lm by Rex Aviation and Schutt in November 1980. The increase in price to $1.2m has already been discussed. At the time negotiations with CCI were in full swing in December 1980, Schutt was suggesting a figure of $1.55m as a "fair retail price". An invoice in the sum of $1.65m was raised from Schutt to Electrum bearing the date 25 June 1981, and the total of the rental payments and the residual value of the aircraft agreed for the Lazar partnership amounted to $1.7m. - 41 - The growth in price was certainly a rapid one, although, as I have stated, the increasing burden of interest costs was no doubt a significant factor. However, the evidence does not demonstrate either that any express representations were made to the applicants that the price was a "reasonable market price", or that in fact the price ultimately paid was outside the range of what was reasonable. Some of the partners might have been disturbed to find that the original "Sale price" of the aircraft was some $500,000 less than the partnership was being asked to pay for it. Schutt's mark-up was 37.5%. As the attraction of the scheme depended significantly on achieving a non-taxable profit on the sale of the aircraft after the initial lease period, the partners would be concerned not to pay an inflated initial purchase price. However, there were apparently no discussions or negotiations between the partners and the Schutt representatives over the sale price, and it seems the figure of $1.65m was presented on a 'take it or leave it' basis. Perhaps the involvement of Huttley and Tarak, who might have been seen as representing both partnership and Schutt interests, affected the partners' attitudes. In any event, and leaving aside any question of adoption of representations by Electrum, I am not persuaded that any representations were made as to price which are actionable, either under the Act or at common law. - 42 - K. REPRESENTATIONS RELATING TO THE CHARACTER AND STATUS OF ELECTRUM Representations (c) and (d) as set out in section I of these Reasons related to matters that were described as going to the "character and status" of the respondent. They both concerned the 20% investment allowance that was to be available on the purchase of the aircraft under the then existing provisions of the Income Tax Assessment Act 1936. The existence of the investment allowance was an important incentive for potential participants in the scheme. The Aircraft Syndicate document discussed the implications of the allowance in the following terms: "The most important income tax aspect is the 20% investment allowance to which the partnership seeks to be entitled. To achieve this:- 1. The finance company must qualify for the investment allowance. Section 82 AC. 2. The finance company must transfer the benefit to the partnership. Section 82 AD. 3. The partnership must do nothing to disqualify itself from the benefit. Sections 82 AH, 82 AG. To qualify for the investment allowance, the finance company must enter into a lease of an aircraft to the partnership for a period of not less than four years. The aircraft must be new. The partnership must use the aircraft wholly and exclusively in Australia for the purpose of producing assessable income. It must not grant to others the right to use the aircraft. Thus, the Management agreement is carefully structured so that the manager is acting as the agent of the partnership and is an operator rather than a user. The investment allowance is forfeited automatically 1f, within twelve months of its first use, the lease comes to an end (otherwise than by purchase of the aircraft by the partnership - in which case the partnership must not sell the aircraft). The investment allowance may, at the Commissioner's option, be forfeited if one of a number of specified events occurs more than twelve months after first use. The most relevant event is the - 43 - acquisition and sale of the aircraft by the partnership where the Commissioner is satisfied that, at the time the partnership took the aircraft on lease, it was intended to acquire and sell it. The general view is that where this occurs at the expiration of the lease period, there 1s virtually no risk of the Taxation Office seeking to amend assessments to disallow the investment allowance allowed four years previously. Where a partner disposes of his interest in the partnership within twelve months of first use of the aircraft, that partner forfeits his share of the investment allowance. In the event of disposal after twelve months, there is the risk of forfeiture. In either case there are no implications for the other partners. In the case of a number of partnerships formed in prior years using the same basic concept, it is understood that the Taxation Office has closely scrutinised the arrangements and that the investment allowance has been allowed." As it transpired, the partnership's application for the investment allowance for the financial year 1981-82 was disallowed by the Commissioner of Taxation. It appears from the Commissioner's file that he did not accept that Electrum satisfied the definition of a "leasing company" pursuant to s.82AQ(1) of the Income Tax Assessment Act 1936. The partnership has sought a review of that decision before a Taxation Board of Review. The hearing had not taken place at the time this case was heard. The applicants argued that the respondent had impliedly represented and, in the case of some applicants, had expressly represented through Bowman, that it was a leasing company. The applicants claim that this statement was incorrect. Further, they allege that the respondent did not disclose to the applicants: - 44 - (a) that the respondent had not been accepted by the Commissioner of Taxation as a leasing company for the purposes of s.82AD, (b) that the respondent had not been engaged in transactions of any kind before the last week of June 1981, (c) that the respondent had never previously provided finance, (d) that the respondent had never borrowed money, and (e) the facts and circumstances concerning the bringing of the respondent into the Schutt group of companies. The applicants face difficulties in establishing that express representations were made, by or on behalf of Electrum, that it was a suitably qualified leasing company. The Aircraft Syndicate document itself points out the risks or qualifications involved. Even if I were to accept that such representations were made, either expressly or impliedly, I would have difficulty in concluding that they were false, or that they constituted misleading or deceptive conduct. As has been pointed out by Sent and Forshaw's counsel, the matter is still far from concluded and the Commissioner's original decision may yet be reversed. Even putting this point to one side, I do not consider that an action based on the representations as alleged can succeed under ss.52 or 53 of the Act. - 45 - The attraction of the investment allowance to the purchase depended upon the partnership claiming the allowance ina taxation return. It was very important for some members of the partnership that the allowance should be claimed in the 1981/82 financial year. Its availability depended upon the receipt of a favourable assessment from the Commissioner. In so far as it is relevant, that was made clear in the Aircraft Syndicate document. The representations that were made were not of an existing fact, but related to a future event. It was not represented that approval had already been obtained from the Commissioner. Liability for representations as to future events or conduct under s.52 was considered by Lockhart J in Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242. After referring to the principle that an intention to mislead or deceive is not a necessary ingredient under s.52, his Honour stated at 247; "The application of these principles is clear in the case of statements as to past or present facts, but their application is productive of considerable difficulty in cases of representations as to future events or conduct where issues as to the respondent's state of mind are involved. This difficulty was recognized by Fitzgerald J in Stack wv Coast Securities No 9 Pty Ltd (1983) ATPR 40-342 at 44,119; 46 ALR 451 at 456, where his Honour said: 'It would be appropriate at this interlocutory stage, and not inconsistent with any submission made before me on behalf of either applicants or respondent, for me to act upon a view which has been consistently adopted by a number of judges of this court that irrespective of whether representations as to the future events or conduct constitute promises or predictions, they involve contraventions of the presently relevant provisions of the Act only if it is established that the belief of the respondent was at the time different from what was stated, or that the respondent did not believe what was stated, or was recklessly indifferent as to what was stated. Accordingly, an issue as to the respondent's state of mind at' the relevant time is, in fact, central to these - 46 - proceedings as it was to the proceedings in the Supreme Court'; see also Fitzgerald J's judgment in Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) ATPR 40-343 at 44,153; 47 ALR 114." At 250 he added: "The mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive, notwithstanding that the applicant has relied on them and has altered his position on the faith of them. In this case, the lone fact that the agreed procuration fee was not paid did not transmute' the conduct of the respondent from conduct that was not, to conduct that was misleading or deceptive. That conduct, namely the relevant representations or statements, retained the same character throughout. The only variable was that the agreed fee was not paid. That was the cause of the applicant's loss or damage, if any. If the respondent had made representations or statements with knowledge of their falsity or with reckless indifference to their accuracy the applicant's case may then fall within what I believe to be the present law on this subject as expressed by Fitzgerald J on Stack's case to which I have already referred. However, the applicant has not pleaded any intent on the part of the respondent to mislead or deceive, nor has it pleaded any reckless indifference as to the accuracy of the statements made." See also Thompson v Mastertouch TV Services Pty Ltd (1977) 15 ALR 487 at 495, Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25 at 31, Bell v Australasian Recyclers (W.A.) Pty Ltda £1986] ATPR 40-644, and James v Australia and New Zealand Banking Group Ltd (unreported decision of Toohey J, 26 February 1986). In this case there is no evidence that those involved in anything which might be construed as a representation concerning Electrum's status as a leasing company did not believe that it would be entitled to attract the investment allowance; nor were they recklessly indifferent to its entitlement. It - 47 - appears that all involved in the scheme genuinely believed that the investment allowance would be available. It was very much in their interests that that should be so. The need for Electrum to be brought into existence seems to have arisen from Citicorp's unwillingness to deal directly with the Lazar partners. I do not consider that any possible representations as to the investment allowance can be interpreted as representations of an existing fact - for instance that Electrum possessed the qualities of, or had been accepted by the Commissioner as, a leasing company at the time the representations were made, or that it had conducted previous leasing transactions. Nor do I consider that the failure to disclose the matters set out as points (a) to {e) above is actionable under s.52 or at common law. As will be seen shortly, there may be situations where silence, or a failure to disclose relevant matters, amounts to misleading or deceptive conduct, particularly if there is an alteration in circumstances after representations were made (see Allpike Honda Pty Ltd v Marbellup Nominees Pty Ltd (1983) 47 ALR 86, Capelvenere v Omega Developments Pty Ltd (1983) ATPR 40-386 and Rhone Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (unreported decision of Wilcox J in this Court, 19 September 1985). However, in relation to this particular representation, this is not such a case. It was represented to the applicants that the purchase should attract the benefit of the investment allowance as the aircraft was to be leased from a leasing company within the meaning of 5.82AQ(1). There was no obligation on those - 48 - representing that to advise the potential partners on what basis the promoters reached that conclusion, or what matters might be considered by the Commissioner in later determining a claim for the allowance. There was no information not disclosed, deliberately or otherwise, to the applicants that could be said to give rise to misleading or deceptive conduct or breach of a common law duty. If the promoters of the scheme had become aware that Electrum would not qualify as a leasing company under the Income Tax Assessment Act 1936, that would no doubt have created an obligation to disclose that information to the applicants before they entered into the lease. However that situation did not arise. Iam also of the opinion that the applicants cannot succeed in a claim under s.53(c) of the Act based on representations relating to the investment allowance. In considering somewhat similar circumstances in Hollis v A.B.E. Copiers Pty Ltd (1980) 41 FLR 141 at 151, Lockhart J said "In my opinion a representation that a purchaser or lessee of goods will qualify for an investment allowance in respect of goods to he supplied to him by the person making the representation is not within the purview of s.53(c). It is a statement that a particular fiscal advantage will accrue to a taxpayer if he acquires certain goods. It is not a representation that the goods have a benefit." I respectfully agree with, and adopt, his Honour's fanding. - 49 - L. REPRESENTATIONS AS TO UTILIZATION The applicants also argued that it had been represented to them that arrangements had been made for the aircraft to be used for reward, and in particular that arrangements had been made for the aircraft to be used by Seaworld in Queensland. Seaworld was apparently first mentioned in relation to the Cessna Conquest in connection with the proposed CCI syndicate in Queensland. Seaworld, based at Surfers Paradise, was to maintain and operate the aircraft, apparently out of Brisbane airport, but the intention was that CCI would itself use the aircraft. It was, therefore, never envisaged that Seaworld itself would be the "utilizer" of the Cessna, although discussions took place "as to whether Seaworld would have some additional charter for the aircraft". There were various statements made to different partners concerning utilization. Dr Foster was originally told about' the Westwind, but the Aircraft Syndicate document, which referred to a Cessna Conquest, stated that the end user was to be Wards Transport. Foster was not personally told who was to utilize the aircraft, but his son was told by Haggerty that "a charter arrangement was being worked out with Seaworld". On the other hand, Loyall was told by Collier of the Plans for utilization; "a company definately mentioned was Wards Transport or TNT or someone like that". England recalled that CCI was mentioned as the end-user of the aircraft in his discussions with Huttley in June 1981. Huttley, of course, knew that the - 50 - CCI/Seaworld proposals had collapsed in May 1981, and that no end-user had been arranged when the formal documents were signed at or about the end of June. Although it is clear that the utilization of the aircraft for reward was an essential aspect of the scheme, it is understandable that the partners may not have paid particular attention to who was to use the aircraft, or ensured that a utilizer had been firmly committed before they signed the lease agreement, as the scheme guaranteed a minimum payment from the manager even if the aircraft was not in use, and they were told that although low utilization kept income down, it produced tax losses and increased the resale value of the aircraft at the end of the lease period. On the whole I am satisfied that no firm representations were made by anyone on behalf of Electrum concerning existing agreements for utilization of the aircraft. This conclusion is supported by the existence of the management agreement with Schutt, which specifically left open the identity of the end-user. Although representations were made that the aircraft would be utilized, or that it was intended to be utilized, they can at best amount to representations as to the future, and there is no evidence that, at the time of the formation of the partnership, either Electrum or anyone acting on its behalf did not intend that the aircraft would be used for reward as early as possible in the lease period. ~ 51 - M. REPRESENTATIONS AS TO THE CONDITION OF THE AIRCRAFT The final series of representations relied upon by the applicants related to the condition of the aircraft. The accident of 23 May 1981 and the consequential damage, it is said, rendered the representations misleading and deceptive. The representations allegedly made or implied were:- - that the aircraft was "new", - that it was capable of being chartered for use or utilised, - that it was undamaged, - that it was fit for use as an aircraft, and - that it was airworthy. The question of whether the aircraft was new" was important to ensure that the investment allowance was obtained under s.B2AB of the Income Tax Assessment Act 1936. However, a representation that the aircraft was new was also of some relevance to the price to be paid for the aircraft and the potential resale price obtainable by the partners at the expiration of the lease. The respondent and cross-respondents argued that no such representation was expressly made. That is questionable, as the Aircraft Syndicate document stressed (at page 8) that to qualify for the investment allowance "the aircraft must be new". In any event, I am prepared to accept that such a representation was clearly implied by the very nature of the scheme. - 52 - A question arises whether the aircraft could no longer be considered "new" as a result of the flights on 22 and 23 May and the accident. So far as the flight to Sydney was concerned, I am satisfied that a single flight, which was essentially for the purpose of pilot qualification, did not mean that the aircraft was no longer new for purposes either of the Act or of any implied representation which had been made. It was argued also that the accident did not of itself disqualify the partners from obtaining the benefit of the investment allowance: s.82A0(1) of the Income Tax Assessment Act provided that an aircraft was "new" if it had not previously been used by any person and had not previously been acquired by any person for use by that person. It was further argued that the mere occurrence of the damage did not affect the description of the aircraft as a "new" aircraft. Reliance was placed on a decision of the Court of Appeal in R v Ford Motor Co Ltd £19741 1 WLR 1220. The court was there considering the question whether a motor car which had been damaged and subsequently repaired could still be considered "new". Delivering the judgment of the Court, Bridge J said, at 1228, "It seems to us that in this respect the questions to be asked when a car has sustained damage which has thereafter been repaired, both events having occurred away from the manufacturer's premises, are: First, what is the extent and nature of the damage? And, second, what is the quality of the repairs which have been effected? If the damage which a new car after leaving the factory has sustained is, although perhaps extensive, either superficial in character or limited to certain defined parts of the vehicle which can be simply replaced by new parts, then provided that such damage is in practical terms perfectly repaired so that it can in truth be said after repairs have been effected that the car is as good as new, in our judgment it would not be a false trade description to describe such a car as new." - 53 - That decision was considered by a Full Court of this Court in Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 where at 94 Franki J said, "The meaning of the word "new", particularly in relation to motor vehicles, has been considered several times in the courts. It seems there are at lease five possible meanings which the word may bear when used to describe a vehicle. They are:- (1) That the vehicle has not been previously sold by retail, that is, that 1t is not a_ second-hand vehicle. (2) That the vehicle is a current and not a superseded model. (3) That the vehicle has not suffered significant deterioration or been used to any significant extent. (4) That the vehicle is of recent origin. (5) That the vehicle is one which has suffered a measure of damage but this damage has been quite effectively repaired, or any damaged part replaced, and the vehicle is otherwise new in every respect." (See also the judgments of Northrop J at 111 and Fisher J at 114). Obviously, whether goods can properly carry the aescription "new" must be considered in the specific context of their sale, lease, or other disposition. Where the goods have been damaged, the question must be one of degree and will depend on the goods involved, the extent of the damage and the nature of repairs required. In the circumstances of the present case, I think that a representation that the aircraft was new meant, at least, that it was very little used and in excellent condition, with no possibility of significant deterioration having occurred. In this case, the damage was described by an inspector of air safety at the Bureau of Air Safety Investigation as "substantial". He estimated that the damage could have been repaired ina top workshop in the United States in about a month. (The substantial delay in actually getting the aircraft fixed was, of course, due to the requirement of testing the engines in the United States). - 54 - The effect of the accident on the resale value of the aircraft was considered by Mr Bell, the principal of Staywood Air Pty Ltd, a company which is engaged in the purchasing, importation and sale of aircraft. He concluded that the damage caused to the aircraft would have resulted in a penalty on resale of up to 20%. The representations, whether express or implied, that the aircraft was new, and therefore undamaged, were of particular importance to the prospective partners, both for the purposes of obtaining the investment allowance and for the effect on resale value of the aircraft at the end of the lease period. It has not been shown that the disallowance of the investment allowance was brought about by the damage sustained in the accident; in fact 1t is clear that Electrum's status as a leasing company was the immediate difficulty. However, I accept that the accident that occurred on 23 May 1985 caused substantial damage to the aircraft, and that that was a matter that could affect the availability of an investment allowance for the current financial year (see below) and was likely to affect, to a significant extent, the resale value of the aircraft. The occurrence of the accident was known, at least, to Bowman, Huttley and Wilson at the time the Lazar partnership was being formed and documents signed, although the extent of Bowman''s knowledge was probably much less than that of the other two. Not to disclose the fact that the aircraft had been involved in a substantial accident and was, at that time, neither repaired nor capable of flying was, in my opinion, conduct that was both misleading and deceptive within the meaning of s.52. - 55 - In Rhone-Poulenc Agrochemie SA v UIM Chemical Services Pty Ltd (unreported decision of Wilcox J, 19 September 1985), his Honour was considering in what circumstances liability may lie under s.52 where the respondent's conduct involved mere silence or non-disclosure. He first examined the position arising at common law. He said, "Halsbury 'Laws of England' 4th ed. Vol 3 para 1050 identifies 'two main classes of case' in which silence may constitute, or contribute to, actionable misrepresentation: where known material qualifications of an absolute statement are omitted; and where the circumstances raise a duty on the representor to state certain matters, if they exist, and where, therefore, the representee is entitled to infer their non-existence from the representor''s silence. As to the first, there must be an express statement which is rendered inaccurate by reason of the omission of necessary qualifications or other material. As to the second, the duty may arise because - to the knowledge of the representor - incomplete and potentially misleading information has been given by him or upon his behalf to the representee. The duty also will arise where, the representation being continuous, the circumstances have changed; so that a statement which was true when it was made is no longer true." Apart from those circumstances, and those cases where a positive duty of disclosure arises by virtue of the position of the parties (e.g. a fiduciary relationship) or the nature of a transaction which 1s of the utmost good faith (e.g. a contract of insurance), his Honour pointed out that "mere silence or inaction, however morally reprehensible it may be, does not constitute misrepresentation". He then concluded that "equally, as it seems tome and applying Taco Company of Australia Inc. v Taco Bell Pty Ltd (1982) 42 ALR 177, such silence cannot constitute misleading or deceptive conduct within the meaning of 5.52." ~ 56 ~- However, he considered that there may be cases where, without considering the nature of the duty placed on the representor, a failure to disclose information or reveal changed circumstances of itself amounts to misleading or deceptive conduct. Such a case was Lubidineuse v Bevanere Pty Ltd (1984) 3 FCR 1. There the purchaser of a business had been led into believing that a key employee of the business would stay on after the sale. It was accepted by counsel for the respondent that the failure of the vendor to advise the purchaser that the employee had changed her mind and intended to leave the business and set up in competition amounted to misleading or deceptive conduct. Wilcox J concluded in the Rhone-Poulenc case, "The critical question in the present case is whether there exist circumstances such that it may be concluded that the non-disclosure has resulted, or will be likely to result, not merely in confusion, or in a misconception, by potential purchasers but in a misrepresentation to them of some relevant matter." Bearing those considerations in mind, I am also satisfied that there was both misleading and deceptive conduct in relation to the capability of the aircraft to be used for charter. A fundamental aspect of the scheme was that the aircraft would be utilized, through the manager, for reward. As a direct result of the accident (although not only as a consequence of the damage sustained in the accident) the aircraft was not capable of being utilized for over twelve months after the accident. Although such a contingency was intended to be covered by the guaranteed minimum -~ 57 - income under the partnership agreement, it turned out that' the Manager (Petres Pty Ltd) was not in a position to meet those guaranteed monthly payments after about April 1982. And if the existence of insurance, and a guaranteed minimum income, was a complete answer to any concern about damage to the aircraft, why were the partners not told about that damage? The evidence did not show that express representations were made to the partners that the aircraft was airworthy and capable of being utilized for reward, but I have no difficulty in finding that such a representation was to be implied from the nature of the scheme and the documentation. At the time the partners were signing the documents in June 1981 the aircraft was damaged and had not flown for a period of about a month. It was very doubtful whether the flight of 22 May could be relied upon as use of the aircraft by the Lazar partnership for purposes of the investment allowance, or whether the aircraft could be said to be "installed ready for use" by 30 June within the meaning of s.82AB of the Income Tax Assessment Act 1936. It was clear that it could not make a money-earning flight before the end of the financial year, and probably not for some months at least. If there was a failure to disclose that information, in the words of Wilcox J in the Rhone-Poulenc case, "there exist circumstances [Lin this case such that it may be concluded that the non-disclosure has resulted -e++» 1M a misrepresentation .... of a relevant matter". Whether such conduct is actionable against Electrum at the suit of the Lazar partnership is another question altogether. - 58 - N. ELECTRUM'S CORPORATE HISTORY The respondent company, Electrum Acceptance Pty Ltd, began its corporate life on 28 May 1981 as Gelintar Pty Ltd, a shelf-company incorporated by the solicitors then known as Corr and Corr. Bowman, then acting on behalf of Schutt, was responsible for taking Electrum "off the shelf" on 24 June 1981. In his opinion, the purpose of "setting up" the company was "to effect retail leasing transactions for all aircraft with the exception of Casa" (a Spanish-made aircraft also handled by Schutt). The interpolation of a company such as Electrum was apparently suggested by Citicorp, which had indicated a willingness in principle to provide 'retail' finance provided it was satisfied with the credit ratings of the Lazar partners and did not have to deal with them separately. The company's name was changed from Gelintar to Electrum Acceptance on 25 June 1981 - the name Electrum was apparently suggested by Sent. The company began with an issued capital of $2.00, made up of two $1.00 subscriber's shares held by a solicitor and an accountant. A third $1.00 share was allotted to Scapela Ira Nominees Pty Ltd - a company controlled by Wilson. Sent, Forshaw and Wilson were appointed directors on 26 June 1981 to replace the original directors. Wilson was appointed company secretary on the same day. On 10 September 1981, Sent and Forshaw resigned as directors, and Huttley was appointed. - 59 - Bowman did not hold formal office in Electrum, but was the company's manager and attended to its books. However, he was paid by Schutt, (although he received commissions or ""kick-backs" from finance companies) and he used a business card describing him as Finance Manager of Schutt Aviation. Electrum operated from the Schutt premises at Moorabbin airport and used only Schutt staff and facilities. Although Bowman stressed in his evidence that Electrum maintained a separate corporate identity, I think that Electrum must be considered in a general and practical sense as a Schutt-controlled company. oO. RESPONSIBILITY FOR THE REPRESENTATIONS I have held that an integral part of the scheme, as represented to the partners of Lazar by Tarak, either directly through Haggerty or Huttley, or indirectly through Collier, was that the aircraft to be leased was new, airworthy and capable of being utilized for reward. The Cessna clearly was so capable when initial steps were being taken to arrange the lease, before May 1981. However, the aircraft was damaged in the accident on 23 May 1981, and was clearly not capable of being utilized at the end of 25 June 1981, when the formal partnership and lease documents were being executed. As I have found, the maintenance of silence in relation to the damage to the aircraft amounted to misleading and deceptive conduct. If Tarak and Huttley had been joined as respondents to this action, and no further evidence had been called, the case against them would have been made out. ~ 60 - However, no doubt for good reasons, the applicants' case is brought against Electrum Acceptance Pty Ltd alone. The action is brought to avoid the provisions of the lease entered into between that company and the partners, and also for damages. The partners have not sought to sue Tarak or Huttley, nor any of the Schutt principals or companies other than Electrum. The consequence of that approach is that the partners must establish that liability for the representations can somehow be brought home to Electrum. It is obvious from the evidence that Electrum was not directly liable for the representations made to the partners concerning the condition of the aircraft. The company was not "taken off the shelf" until 25 Jume 1985. The only direct contact between Bowman, Electrum's manager, and the partners, arose when he arranged the execution of the formal documents. Apart from Huttley, who was a director of Romani, the partners' contacts with Wilson, Sent and Forshaw, the initial directors of Electrum, were also limited. The focus of the partners' involvement in the scheme was Tarak and Huttley, dealing directly with some partners, and with others through Collier. I have no hesitation, on the evidence before me, in holding that implied representations as to the condition of the aircraft were made by officers of Tarak and by Huttley himself. Counsel for the respondent, in a submission that was supported by counsel for the cross-respondents Sent and Forshaw, made much of the argument that Tarak and Schutt were separate entities and that any liability for misleading representations, or for failing to - 61 - correct representations that later became misleading, could not attach to Schutt, let alone Electrum. They relied, generally, on the following circumstances: Schutt was only responsible for supplying to Tarak the aircraft that was to be utilised in the scheme; all the promotion, it was argued, was left to Tarak; Tarak did not have' sole rights to aircraft obtained hy Schutt and intended for syndication; Tarak was also involved in promoting tax minimization schemes outside its contact with Schutt, including schemes involving film investments; Tarak was responsible for preparing the partnership documents and the Aircraft Syndicate document; Schutt's only involvement with documentation was in relation to the lease and finance documents. In essence, it was said that the Tarak and Schutt operations were entirely separate, and although they were based on mutually beneficial business interests, the scheme was not propounded jointly by them. To so hold would, in my view, be to ignore the realities of the scheme and its operation. Huttley originally approached Schutt to interest it in tax schemes that Tarak was then propounding. However, Sent persuaded Huttley of the benefits which would flow from Tarak's involvement as promoters and marketers of the aircraft leasing scheme. The Schutt/Tarak business relationship began shortly thereafter, and over a period - 62 - of time the affairs of the principals became more and more closely intertwined. Drafts of documents that were used in the scheme were provided to Tarak by Wilson. In putting the scheme into effect, Schutt was responsible for producing the aircraft, Tarak for finding potential lessees, Schutt for arranging finance; both firms were involved in collecting lessees signatures; Schutt was to have a continuing involvement in the operational management of the aircraft, and perhaps its maintenance; Tarak would continue to watch the financial interests of the partners. The Tarak officers visited the Schutt offices at Moorabbin from time to time. Wilson was quite often at the Tarak office. In particular, Wilson and Huttley worked closely together, and were in touch with each other almost daily in May/June 1981. I have no doubt that each was aware of substantial aspects of the other's business, at least by May 1981 when steps were being taken to bring the Lazar partnership into existence, along with three other aircraft syndicates. In view of Schutt's difficult position after the CCI (Queensland) proposals collapsed, I have no doubt that Wilson was very carefully monitoring the attempts to put the Lazar syndicate together, and that Huttley was keeping him fully informed of progress. It is at least probable that Wilson kept Sent generally informed of developments. Although there were no formal links between Schutt and Tarak in the sense of a partnership or a contractual joint venture, each had an essential interest in their co-operative enterprises and they acted jointly for their own and each other's benefit in propounding and arranging the particular scheme. I find accordingly that the implied representations that were made by Huttley and Tarak in relation to the condition of the - 63 - aircraft were also either made on behalf of, or impliedly adopted by, Schutt - and in particular by Wilson on behalf of Schutt. Wilson, and therefore Schutt, knew that almost all the potential lessees of the Schutt aircraft were ignorant of its damaged condition. There must have been at least a tacit understanding between Wilson and Huttley that those parties would not be told of it before they contracted to lease the Schutt aircraft. If, contrary to my belief, Wilson had withheld from Huttley knowledge of the full extent of the damage to that aircraft, his responsibility would have been even greater. But, in any event, it was sufficient to lead to his and Schutt's liability in law for the representations. In a recent decision of Lockhart J, in this Court, in Milner v Delita Pty Ltd (1985) 61 ALR 557, his Honour considered liability for misleading or deceptive conduct under s.52 in a case involving the promotion of guava growing and marketing schemes in New South Wales. The first respondent, Delita Pty Ltd, was a corporation which had been involved in the growing of tropical fruits. The second and third respondents, and first cross-claimants, Glasson and Lewin, were that company's principals and its directors. The first cross-respondents and second cross-claimants, Morrison and Bennett, were business advisers to Delita who advised on and handled the promotion and marketing of the guava investment scheme. The action was brought by a number of applicants who had together invested in the scheme, and alleged misleading or deceptive conduct arising from misrepresentations made by the respondents which induced them to enter into the scheme. - 64 - His Honour dealt with the circumstances of the promotion of the scheme as follows: [{(Note. The first two paragraphs below have been edited out of the ALR report.] "In the early part of 1980, probably on or about 23-24 February 1980, Glasson, Lewin, Morrison and Bennett decided to promote the scheme for growing and processing guavas the subject of this case. Delita was a party to the joint enterprise; it was the proprietor of Australian Plantations which itself was to act as the manager of the relevant plantations. Each of Glasson, Lewin, Morrison and Bennett was to bring his own particular expertise to bear in the promotion and establishment of the property trusts and partnerships. Although the relevant documents upon which reliance is placed in this case were distributed by Robert Morrison & Associates and not by Glasson, Lewin or Delita it is plain that Lewin, Glasson and Delita were aware of the contents of the documents, of the fact that they were being distributed to potential investors for the purpose of involving them in a scheme for growing and processing guavas and that the distribution of the documents to potential investors fell within the tasks allotted to Morrison and Bennett. The evidence is not precisely clear as to whether there was any line of demarcation drawn between the activities required or expected of each of the participants in the joint enterprise, although some correspondence between the four tends to suggest that this was at least partly the case. That all four benefited from the arrangements and received profits from the venture is evident in the letter of 25 February 1981 from Australian Plantations to Morrison: 'Australian Plantations has received equal land profits as members of Ballina Plantations as well as acting as _ the principal contractors for the Trustees. John Bennett has also received approximately one hundred thousand dollars from the profits of the land sales and preparations as you have, and like Australian Plantations he has not received any commissions.' The statements made to investors in the documents distributed by Morrison & Associates or made orally by or on behalf of Morrison were all made within the scope of the authority given to Robert Morrison & Associates by Delita, Glasson and Lewin. Indeed, the objectives of the persons - 65 - concerned could not have been fulfilled without this involvement by Robert Morrison & Associates. It was an integral part of the arrangement. Cat 564] eee In my opinion the relevant representations which are the subject of this case were made by Delita. They were conveyed by Robert Morrison & Associates within the scope of authority given to Morrison and Bennett by the consortium which included Delita. Throughout the relevant conduct, Robert Morrison & Associates, in making representations to the investors, plainly acted for the benefit of Delita and Delita plainly ratified its conduct and derived benefit from it." Cat 5651 Although there are differences between the circumstances in Milner's case and those arising in the case before me, the facts are not as dissimilar as the respondent and cross-respondents would have me find. They argue that "this was merely the sale of a plane by Schutt to associates of Tarak", and that, unlike the position of Delita, Tarak was not authorised by Schutt to carry out acts on its behalf, and that Schutt did not ratify any conduct in which Tarak had engaged. I disagree. Although I do not find that Tarak was acting as an agent for Schutt, in the ordinary sense of the term, there was clearly an arrangement between them for the promotion of the aircraft leasing scheme, and both benefited from the joint arrangement, either directly or by way of commission. The statements that were made orally and in the promotion documents distributed to the partners of Lazar, either directly or indirectly, by Tarak, were well known to Schutt and its officers. Indeed, those documents were incorporated by Schutt in the application for retail finance which was made to finance companies. In the circumstances I am prepared to hold that the statements made by Tarak in the - 66 - documents and orally were, in the words of Lockhart J, "made within the scope of the authority" given to Tarak by Schutt. Although in this case the representations which are the subject of the claim were made by Tarak and conveyed to the applicants by it, again using the words of Lockhart J, "in making representations to the investors, CTarak] plainly acted for the benefit of CSchuttJ and CSchuttd plainly ratified its conduct and derived benefit from it". Accordingly, I am of the view that Schutt could be held liable for the alleged misrepresentations made on its behalf by Tarak. Schutt, and its directors Wilson and Sent at least, were aware of, and a party to, those representations. Amore difficult question to consider is Electrum's liability for misleading or deceptive conduct. As the company Electrum was not in existence at the time the representations were made, the applicants must establish that, through the actions of its officers, Electrum in some way adopted or ratified the representations, and so became responsible for them, or that its failure to reveal the circumstances of the aircraft's accident to the applicants amounted in itself to misleading or deceptive conduct. The applicants argue that a number of matters lead to the conclusion that Electrum adopted Tarak''s and Schutt's representations. These include: (a) Bowman, as manager of Electrum, procured the execution by the applicants of the lease, the guarantee and indemnity and the consent of lessor; - 67 - (b) Electrum accepted the applicants' offer to lease the aircraft, thereby electing to participate in the scheme; (c) Electrum has accepted the benefit of the scheme, and seeks to enforce its contractual rights against the applicants; (d) Electrum was responsible for settling the final form of the lease and the guarantee and indemnity; (e) Electrum has acted at all material times to further the scheme, e.g. by obtaining insurance and finance; and (f) Electrum's officers and manager acted in conjunction with Tarak's personnel." An additional factor is, as I have stated, the inclusion of the "promoters documents" in Electrum's application for finance. The respondents and cross-respondents argue that these matters have nothing to do with the adoption of representations, but "merely related to the administrative finalisation of the financing aspect of the investment". They say there is nothing in the evidence that supports the assertion that Electrum must bear the responsibility for the representations. If Electrum had been an entirely separate company, or a "stranger" to the scheme, there would be validity in the respondent's submissions. If an established finance company had been the lessor of the Cessna and had stood in Electrum's shoes, and had done no more than Electrum did, I doubt that it could be - 68 - said to have adopted any representations made by Tarak or Schutt; nor would it be guilty of misleading conduct because, in its ignorance, it failed to disclose the existence of the accident to the partners. That proposition is to some extent supported by a recent decision of Miles Cd in the ACT Supreme Court (Australian Guarantee Corporation Ltd v Bowman & Ors, unreported decision of 7 March 1986). That litigation (which is still proceeding) involved another partnership to lease a Schutt aircraft (the Marquise Aircraft Syndicate) and some of the parties to this action are also parties in that case. His Honour was dealing with an application for summary judgment brought by the ultimate financier of the aircraft involved, AGC, against the partners of the syndicate in proceedings for rental and other payments allegediy due under a lease agreement relating to the aircraft. Although the application was of an interlocutory nature, and no conclusive findings of fact were made, his Honour dealt with AGC's liability for misrepresentations, allegedly made by Schutt, that the aircraft was new as follows: "It was submitted firstly that the plaintiff should not be permitted to enforce the lease agreement because of its misrepresentation that the aircraft was new. I do not think that it is open on the material before me for the conclusion to be drawn that there was any representation of any kind on the part of the plaintiff or any of its officers or any conduct on its behalf which can be shown to have acted as an inducement to any of the members of the Marquise partnership to enter into the lease agreement. It was submitted that the plaintiff had allowed Schutt Aviation to act as its agent and that misrepresentation as to the state of the aircraft had been made to the plaintiff by Schutt Aviation on the plaintiff's behalf. Whilst 1t may be that there was misrepresentation on the part of Schutt Aviation, I do not think that the evidence permits of a conclusion that Schutt Aviation was - 69 - acting as the agent of the plaintiff for the purpose of such misrepresentation. Schutt Aviation was in a position similar to that of a commission agent and received financial recompense from the plaintiff for business referred to the plaintiff, but there is no evidence that the plaintiff authorised Schutt Aviation to act on its behalf for any purpose to which the making of any representation about the nature of the aircraft was incidental. To put it another way, there is no evidence that the ostensible authority of Schutt Aviation included the authority to make representations as to whether or not the aircraft was new." The circumstances in the present case are an interesting variation of the typical aircraft syndication scheme and differ somewhat from those arising in the Marquise syndicate litigation. Electrum is in a very different situation from that of AGC in that case. Although Electrum did have a separate corporate identity from the other Schutt companies, its initial directors were all directors of Schutt when the representations to the applicants were made. Wilson and Sent, I have found, had knowledge of the accident at the time Bowman was obtaining the signatures of partners and when Electrum was entering into the lease agreement. At that stage Wilson and Sent were aware that the aircraft had been partially dismantled, was incapable of flying, and that there was a serious doubt about when it would be back in the air. In the circumstances, and bearing in mind the factors listed in sub-paragraphs (a) to (f) above, I believe that Blectrum can be said to have adopted the representations about the condition of the aircraft. In any event, I am of the firm opinion that Electrum's silence on the circumstances of the accident amounted to misleading and deceptive conduct. If one accepts for present purposes that the partners, other than Romani, did not - 70 - have actual or implied notice of the accident, Wilson and Sent, as directors of Electrum, should not have allowed Bowman to proceed with the execution of documents, without first disclosing the circumstances of the accident to the partners of the syndicate. Whether that in fact was done is another question, which I will deal with shortly. Where, as in this case, directors of a selling or leasing company know that representations have been made about the subject-matter of the sale or lease, and because of changed circumstances, those representations are now false, I believe the company has a legal obligation to inform the purchasers or lessees before they sign contracts of sale or lease. The duty to inform is a continuing one and passes from one potential vendor or lessor to its successor, provided the information which ought to be divulged is known to the successor. For that reason I do not accept the assertion that Electrum cannot be liable for its maintenance of silence about the accident if it did not make the representations as to the condition of the aircraft in the first place. It also seems to me that Electrum's liability in this case is underlined because of the positive actions of its manager, Bowman, in procuring signatures on the contractual documents. This makes it clear that there was an opportunity for the appropriate disclosures to have been made. - 71- P. THE OPERATION OF S.84(2) OF THE ACT The applicants also call in aid of their claim s.84(2) of the Act, which provides that: "Any conduct engaged in on behalf of a _ body corporate by a director, agent or servant of the body corporate or by any other person at the direction or with the consent or agreement (whether express or implied) of a director, agent or servant of the body corporate shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate." The effect of that sub-section has been examined in a number of decisions of this Court, including the judgment of Toohey J in Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719. At 739-740 his Honour said "In my view s.84(2) is not intended to be an exhaustive statement of corporate responsibility under the Trade Practices Act. It deems certain conduct 'to have been engaged in also by the body corporate' so that that conduct by the director, agent, servant or CEother] person becomes as well conduct by the body corporate. It does not seek to make a corporation vicariously responsible; consistently with the theory expressed in Lennards Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 and Tesco Supermarkets Ltd v Nattrass £19721 AC 153, conduct of those persons is conduct of the corporation. I agree with the opinion expressed by Morling Jd in Trade Practices Commission v Queensland Aggregates Pty Ltd (1982) 44 ALR 391, at 404, that s.84(2) 'is not expressed to take effect to the exclusion of the common law' and that it 'appears to disclose a legislative intention to extend, rather than limit, the liability of corporations for the actions of others'. I would, however, read that last comment in the light of what is said in the preceding paragraph of these reasons. Sub-section (2) of s.84 is concerned with the conduct of persons representing a body corporate and of others acting at the direction or with the consent or agreement of those persons. It makes that conduct the conduct of the body corporate. The terminology of s.84(2), the reference to - 72 - conduct by 'a director, agent or servant ... or by any other person at the direction or with the consent or agreement... of a director, agent or servant ...' is not the terminology of Tesco with its directing mind and will. It is more the conventional language of agency. In my view s.84(2) is an extension of the principles expressed in Tesco and, where proceedings are brought under Pt IV of the Trade Practices Act, a corporation may be held liable either in accordance with the principles in Tesco or by the application of s.84(2). In the latter case questions of the nature and scope of the authority of the representative will arise. The answers will depend upon the particular circumstances. And this is so although proceedings under Pt IV are not criminal proceedings." That view was adopted ina recent decision of the Full Court in Walplan Pty Ltd v Wallace £19861] ATPR 40-650 where Lockhart J, with whom Sweeney and Neaves Jd agreed, said at 47,253, "Sub-section 84(2) is an enlarging provision of general application under the Act. It extends to proceedings, both civil and criminal, and is designed to eliminate the necessity to apply the various and at times divergent tests of the common law relating to a corporation's responsibility for the acts of its servants or agents. It extends those common law principles in order to facilitate proof of a corporation's responsibility." In particular, the expression "on behalf of" a corporation as used in s.84(2) does not import a requirement that the corporation's actual (express or implied) authority is required; nor do those words imply that the conduct engaged in must be "for the benefit of" the corporation. As Lockhart J. said in the Walplan case, at 47,252-3, "The phrase 'on behalf of' is not one with a strict legal meaning and it is used in a wide range of relationships. The words are not used in any definitive sense capable of general application to all circumstances which may arise and to which the sub-section has application. This must depend upon - 73- the circumstances of the particular case; but some statements as to the meaning and operation of the sub-section may be made. In the context of sub-s.84(2) the phrase suggests some involvement by the person concerned with the activities of the company. The words convey a meaning similar to the phrase 'in the course of the body corporate's affairs or activities'. The words 'on behaif of' also encompass acts done by a corporation's servants in the course of their employment; but those words are not confined to the notion of the master/servant relationship." The conduct referred to in s.84(2) and relied upon by the applicants consists, first, in the representations made to them as set out in the particulars to paragraph 21 of the statement of claim (see section I above). These representations were made by Huttley, and by Wilson and Sent, on behalf of Tarak and Schutt respectively. Tarak and Schutt would, in my opinion, be fixed with liability for their misleading effect, even without recourse to s.84(2). However, s.84(2) puts the matter beyond doubt. The other element of the misleading conduct relied on by the applicants is the failure to correct the representations made, when later events rendered them false. I have found that the conduct of Wilson and Sent, in not themselves informing the partners, or otherwise causing them to be unformed, of the occurrence and extent of the accident before they entered into the lease, was misleading, and subject to the findings I make about the knowledge of the partners and any notice that may have been given to the partnership, was actionable under s.52. I amalso of the opinion that, more specifically, an sending Bowman out on behalf of Electrum to arrange the signing of the documentation without first ensuring that the partners had been informed, Wilson and Sent were engaging in conduct that was - 74 - misleading or deceptive. Bearing in mind the expanded definition given to the word "conduct" in s.4(2), they were deliberately refraining from a necessary act of correction. They were also, in my opinion, acting "on behalf of" Electrum, within the meaning of s.84(2), in so instructing Bowman. Accordingly, relying on that sub-section so far as may be necessary, I find that the conduct of Wilson and Sent should be deemed to have been the conduct of Electrum, and that Electrum 1s liable under s.52 on that basis. Q. LIABILITY UNDER §$.75B OF THE ACT Apart from Electrum's direct liability under s.52, the applicants also allege in their amended statement of claim that Electrum was "involved in" the contravention of s.52 within the meaning given to those words in s.75B. As a consequence, the applicants argue an entitlement to relief against Electrum under 5.87(1A). Section 75B reads "A reference in this Part to a person involved in contravention of a provision of Part IV or V_ shall be read as a reference to a person who - (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention." The Full Court of the High Court recently considered the interpretation of s.75B in Yorke v Lucas (1985) 61 ALR 307; 59 - 75 - ALJR 776, The Court held that an individual could only be involved 1n a contravention of s.52 if he had knowledge of the essential matters which constitute the contravention. If the conduct complained of is constituted by misrepresentations, it is necessary to show that the individual either knew the representations were untrue or was recklessly indifferent to their truth. In the case of misleading or deceptive conduct arising from the maintenance of silence or the failure to advise of an altered situation, the liability under s.75B is more complex. I do not think it is arguable that Electrum induced the contravention within the meaning of s.75B(b). Leaving aside the question of conspiracy for the moment, the case under s.75Bla) - aiding, abetting, counselling or procuring the contravention, and under (c), being knowingly concerned in, the contravention, is much stronger. This case differs somewhat from cases commonly before the court where s.75B is raised to fix liability on an individual based on the contravention of s.52 by a corporation. Here, the applicants seek to fix liability on a corporation, Electrum, for a contravention by another corporation or corporations, Tarak and Schutt. However, I am satisfied that Electrum, through the knowledge of its directors, Wilson and Sent, had the requisite knowledge of the essential matters that constitute the contravention - that the aircraft had crashed and needed repairs, that it was not fit for flying or utilization at the time the partners entered into the lease, and in relation to those partners - 76- who did not have notice of the occurrence and extent of the accident, that neither Tarak nor Schutt had informed the partners of those facts. It was argued on behalf of the respondent that Electrum could not be liable under s.75B because it had not actively participated in the contravention. Mere silence, it was said, did not amount to involvement. Reliance was placed on a decision of the Full Court of this Court in Sent v Jet Corporation of Australia (1984) 2 FCR 201, which also involved litigation between some of the parties to this action. In those proceedings a claim was brought against, among others, Sent and Forshaw on the basis of their alleged involvement under s.75B in conduct engaged in by three companies in contravention of s.52. The appeal arose from a decision of a single judge refusing leave to strike out the claim against Sent and Forshaw. Smithers J considered the effect of the decision of the Full Court of the Federal Court in Yorke v Lucas (1983) 49 ALR 672, and at 208 said "What was in issue in that case was not whether a positive act had been committed by the alleged aider and abettor but whether he had knowledge of the falsity of what he had said to the party who was misled. If such knowledge had been shown his making of the statements would have constituted a sufficient positive act. Here the situation is different. The knowledge is alleged but not the positive act. If it were alleged that Sent and Forshaw performed some act associating themselves with the misleading conduct in which they knew Petres, Westwind and Dipson intended to engage there would be both the knowledge and the participation in the misleading conduct. Involvement would be clear. As was said in Yorke's case at 681 adopting the decision of Pennycuick V.C. in Re Maidstone Buildings Provisions Ltd £19713 1 WLR 1085 the expression 'party to' in -77- s.332(1) of the Companies Act 1948 (Eng.) must on its natural meaning indicate no more than "participates in", "takes part in" or "concurs in". And that, it seems to me, involves some positive step of some nature. I do not think it can be said that someone is a party to carrying on a_ business if he takes no positive steps at all'. But there is in Jet Corporation's pleading no hint of any positive step which might constitute participation on the part of Sent and Forshaw in the alleged misleading and deceptive conduct of Petres, Westwind and Dipson in connection with their sales to Jet Corporation. As pointed out in Yorke's case at 680, a_ statute may be cast in such terms as to imply a duty to foresee and prevent the act or thing that is the offence and that in such case any party, who could and should prevent the Act or thing, but omits to do so, is a party to and participates in the offence. In Yorke's case it was held that the terms of s.75B were not to be interpreted as imposing on the managers of a corporation a duty to take positive steps to prevent the corporation from engaging in misleading and deceptive conduct where they have no knowledge of the essential facts necessary to constitute the contravention. It is not to be thought that it imposes such a duty on a party who has no legal relationship of any kind with the person who proposes to engage in misleading and deceptive conduct in relation to a third person." It is of some importance to note that the provisions of s.75B are largely imported from the law of criminal complicity. In my opinion, it may be possible for a person to participate ina crime without actively engaging in overt conduct, for instance by deliberately failing to correct fraudulent statements made by an accomplice to a third person. Thus, where the conduct relied on to establish a breach of 5.52 is the misleading maintenance of silence, or failure to correct a misleading statement, it is, I think, possible for another person to be "involved" in such conduct by also maintaining silence, at least if that conduct also involves the doing of other positive acts. Here, Electrum did not - 78 - simply sit by. It was actively involved in the furtherance of the scheme generally, it was prepared to enter into an agreement with the partners, and its manager, Bowman, was actively pursuing the partners to obtain their signatures. The maintenance of silence by Electrum in those circumstances seems to me to be significantly different from the allegations against Sent and Forshaw in the Sent v Jet Corporation case. In my opinion it amounts to "participation" or "involvement" in the contravention of s.52 and I would find against Electrum on that basis also. R. THE CONSEQUENCES OF HUTTLEY'S KNOWLEDGE OF THE DAMAGE TO THE ATRCRAFT It seems accepted that "conduct will not mislead or deceive a person having a conscious awareness of the true facts or correct or true information" (per Fox J in Brown v The Jam Factory Pty Ltd (1981) 53 FLR 340 at 349). If it can be established that any of the applicants had actual, or imputed, knowledge of the accident and its consequences before entering into the partnership agreement, lease and guarantee, it follows that the respondent's failure to inform those applicants cannot be actionable under s.52. I have already held, as a question of fact, that the only applicant or principal of an applicant company that had the requisite knowledge was Huttley. It is therefore necessary for the respondent to establish that Huttley's knowledge can in some way be imputed to, or deemed to be notice to, the applicants. ~ 79 - I have no hesitation in concluding that Romani is fixed with Huttley's knowledge. Huttley is a director of that company, and was directly responsible for its decision to join the partnership. He signed partnership documents on behalf of the company, and in my view his knowledge must be considered to be that of Romani. I do not think it is possible to argue that he gained and held his knowledge of the accident in his capacity asa Tarak director only. However, the other applicants are in a different position. Although the England company was recruited to the scheme by Huttley, who was its secretary and accountant and who executed partnership documents in his capacity as secretary, just as he did for Romani, he could not and did not make, or participate in, any decisions concerning its conduct. To put it at its highest, his role was that of an employee and trusted adviser to the company. The England company should therefore not be treated in the same manner as Romani, but on the same basis as the other applicants. In The Societe Generale de Paris v The Tramways Union Company Ltd (1884) 14 QBD 424 at 438, 443, and 450 it was held that a company does not receive notice of a fact simply because the secretary of the company hears of the fact in his private capacity. In my view, this decision of the Court of Appeal is relevant to the position of the England company, but not to the Romani company. The Romani situation is quite different because Huttley is the controlling director of that company. Whether he went ahead with Romani's involvement in the partnership because he believed it could still be profitable in spite of the damage to - 80 - the aircraft, or because in view of his commitment to Schutt over the aircraft he felt he had no other choice, is not material for present purposes. Section 20 of the Partnership Act 1958 (Vic) is relied upon by the respondent. That section provides that "notice to any partner who habitually acts in the partnership business of any matter relating to partnership affairs operates as notice to the firm except in the case of a fraud on the firm committed by or with the consent of that partner". That provision is taken directly from the United Kingdom Partnership Act 1890 (s.16), the effect of which is discussed in Lindley on the Law of Partnership (14th Ed, 1979). At 260 the authors summarize the effect of the section: "When it is said that notice to one partner is notice to all, what is meant is (1) that a firm cannot, in its character of principal, set up the ignorance of some of its members against the knowledge of others of whose acts it claims the benefit, or by whose acts it is bound; and (2) that when it is necessary to prove that a firm had notice, all that need be done is to show that notice was given to one of its members who habitually acts in the partnership business. The expression means no more than this; and although every person has notice of what he himself does, it would be absurd to hold that a firm has notice of everything done by each of its members." As Huttley's knowledge is deemed to be that of Romani, I would be prepared to accept that Romani had "notice" within the meaning of s.20, but I do not believe that the section applies any further in these circumstances. The conduct which was misleading and deceptive was. the failure of Electrum to advise the prospective partners of the occurrence and extent of the accident. -~ Bl - It operated before they signed the relevant documents creating the partnership and taking a lease of the aircraft. It misled each applicant, Romani excepted, before it or he became a partner and before the partnership was formally constituted. Although there may be cases where notice to a prospective partner can be deemed to be notice to all, this is not such a case. Further, as. the partnership had not commenced operation in any capacity, it could not be said that Romani, or even Huttley as an individual, "habitually acted in the partnership business". In any event, there are strong grounds for arguing that Huttley's conduct amounted to a "fraud on the Lembryol firm committed by or with the consent" of Romani. The other Lazar partners cannot be fixed with Romani's knowledge. The other argument advanced by the respondent is that Huttley, in his Tarak guise, was acting as agent of the partners in forming the syndicate, and that his knowledge in that capacity should be imputed to the applicants. I reject this argument also. It is clear from the evidence that Tarak was instrumental in promoting the scheme and bringing together the partners, and that it was Tarak which had the closest contact with the partners. However, I am not prepared to accept that Tarak was acting as agent for the partnership to be formed. The scheme was jointly propounded by Schutt and Tarak, and it was Electrum, through Bowman, who actually obtained the partners' signatures, although Haggerty did assist Bowman. Wilson, I have found, was aware of Huttley's efforts to finalise the composition of the partnership, and it is more probable than not that he knew that Huttley had not told, and would not tell, the other partners of the accident. By - 82 - not ensuring, through its officers, that the applicants, other than Romani, were aware of the occurrence and extent of the accident, Electrum was in breach of s.52 of the Act, and the seven remaining applicants are entitled to relief therefor. s. COMMON LAW CLAIMS The applicants also seek relief against the respondent based on a number of common law claims brought under the Court's accrued jurisdiction. In light of the conclusions I have reached on the s.52 claim, it is not necessary for me to make findings in relation to these claims, except perhaps for purposes of determining a claim for interest before judgment; see Centrepoint Freeholds Pty Ltd v T.N. Lucas Pty Ltd (1985) 6 FCR 133. Paragraphs 32 and 33 of the amended statement of claim allege that the representations made to the applicants, that form the basis of the s.52 claim, also constitute warranties collateral to the agreement between Electrum and the partners, which have been breached. In my opinion it is possible to categorize the representations relating to the condition of the aircraft and its availability for utilization as warranties, notwithstanding that no express oral or written representations to that effect were made. I believe that, before the accident occurred, Schutt and Tarak intended to, and did, warrant by implication that the aircraft was undamaged and fit for use for reward. They did nothing to alter their positions after the accident occurred. The representations can be classified as warranties, and were clearly breached. The question whether Electrum can be held liable for the breach is more difficult to answer. - §3 - This depends on whether Electrum adopted the representations made by Schutt, a finding which I have indicated, in relation to the s.52 claim, I am prepared to make. I believe that, as a matter of fact, on the balance of probabilities, and as a question of law, Electrum did adopt the representations made by Tarak and Schutt, and that it should be liable in damages to the applicants, other than Romani - which had notice of the accident before it entered into the lease agreement. Of course the applicants' claim under this head is restricted to damages; they cannot set aside the agreement for a breach of warranty. In fact, apart from questions of interest, any damages that would lie for breach of warranty would be subsumed by damages which can be awarded under s.82 of the Act for breach of s.52. The statements in relation to the availability of the investment allowance do not, however, amount to a warranty that the deduction would be allowed. In my opinion all parties clearly understood there to be an element of speculation or risk in this aspect of the venture, and no party intended that a warranty be given and received. The applicants also rely on allegations of negligent misrepresentations based on the same representations (paras 44 and 45 of the amended statement of claim). In my view, had it been necessary to determine, this claim should also have succeeded, and the applicants been entitled to damages as a result. Both Schutt and Tarak were under a duty to present the scheme and its risks accurately to prospective lessees and, after 23 May 1981, were in breach of that duty. Electrum similarly owed a duty to the - 84 - applicants to advise them of the damage to the aircraft before encouraging them to enter into the lease agreement, and the failure to do so constituted a negligent, if not a fraudulent, misrepresentation. For the existence of a common law duty of disclosure ina situation not unlike the present, see Briess v Woolley C1954] AC 333 at 349, 353-4 and 359. Although the House of Lords was there concerned with deliberately false representations made by a person before he became the defendant's agent, and not corrected after he became agent, in my view the underlying principles of that decision apply to the present case. If a representation is false when it is acted upon, the persons then responsible for it in law are liable in an action for misrepresentation, even though it may have been true when made or those persons may not then have been responsible for it. The applicants abandoned claims alleging the receipt of secret commissions by Huttley and Tarak, but argued that their entering into the scheme and the leasing of the aircraft was brought about by a conspiracy to which Electrum was a party. A cause of action for conspiracy may arise where two or more persons combine to injure another, either by unlawful means (see Williams v Hursey (1959) 103 CLR 30), or with the purpose of intentionally injuring another in his business, whether by unlawful or lawful means (see Quinn v Leathem [1901] AC 495). The essential element is an agreement or combination to which Electrum was a party. In this case the combination would have to be between Wilson (and perhaps Sent), acting on behalf of Electrum, and Huttley, and I think the evidence falls short of establishing such an agreement. I have accepted that both Wilson and Huttley knew of the - 85 - circumstances and consequences of the accident, that neither told the Lazar partners of it before the lease was executed, and that both knew that the other had not told and would not tell the partners. However, I think there is insufficient evidence to conclude that the non-disclosure was the result of a conscious "coming together of minds" or that unlawful means or an intention to injure were involved. As a result the conspiracy claim should fail. T. REMEDIES AND CROSS~CLAIM At the close of evidence, counsel for the respondent foreshadowed that, in the event of my finding against the respondent and awarding damages, application could be made under s.87 of the Act for ancillary orders against Huttley, Wilson, Collier and Bowman. This could, in effect, add two additional parties to the proceedings, and would no doubt require extensive submissions. It was therefore agreed between the parties involved that the argument on that application should wait until my decision on the principal submissions. It was also agreed that argument on quantum of damages and on the cross-claim should be deferred until after these reasons for decision are handed down. Accordingly, the only order I need consider at this stage is whether the successful applicants should be granted the primary relief sought, orders under s.87(2) of the Act declaring the lease, the consent of lessor and the guarantee and indemnity void from the beginning, or alternatively rescinding them, together with an order directing the respondent to refund to the successful applicants moneys paid by them under - 86 - the lease. JI should perhaps record that the applicants claim to have rescinded their various agreements with the respondent by writing dated 22 December 1982. The respondent claims that the applicants repudiated their contracts on 25 May 1982 when they failed to make the lease payments which were then due. Section 87 empowers the Court, among other things, to declare the whole or any part of a contract void, to vary a contract or arrangement as it thinks fit, and to order that moneys paid under a contract be refunded. However, the factual situation in the present case is complex, and the findings I have made, in favour of all but one of the applicants, against the respondent and implicating three of the four cross-respondents, may add to the difficulties. Since questions of discretion are involved, and these could not be properly addressed until my basic findings were known, I think the better course would be to make no final orders at the present time but to give the parties an opportunity to consider their positions, and to set a date for a directions hearing at which the further course of this litigation may be determined. It would be appropriate for the parties to serve on each other, and file with the Court, any notices of motion or short minutes of orders which they may wish to have determined at the further hearings which will be set down following the directions hearing. wr - 87 - I certify that the eighty-six (86) preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon Mr Justice Woodward CSS ee Associate Dated: 6 May 1986 Dates of hearing: 10-13, 16-19, 23-25 September 1-3, 7-8, 10-11, 14-15 October 1985 Counsel for the applicants: Mr J.D. Merralls QC and Mr G.H. Garde Solicitors for the applicants: Cooke & Cussen Counsel for the respondent: Mr D. Milne QC and Mr R. Talbot Solicitors for the respondent: Madgwicks Counsel for the first and second cross-respondents: Mr A.C. Archibald QC and Mr D. Shavin Solicitors for the first and second cross-respondents: Ridgeway Clements The third and fourth cross-respondents appeared in person.