. 373° CATCHWORDS TRADE PRACTICES - whether conduct of first respondent in commodities futures trading constituted misleading and deceptive conduct within the meaning of s. 52 of the Trade Practices Act 1974 - whether second and third respondents involved in first respondent's contraventions of s. 52. Trade Practices Act 1974: ss. 52, 75B. Federal Court of Australia Act 1976: s. 5I1A. ELIZABETH DENNISON and JULIET DENNISON v. ACE SHOHIN (AUSTPALIA) PTY. LIMITED, DAVID HUGHES and JOHN TAN G 179 of 1985 LOCKHART J. SYDNEY 17 JULY 1987 ad ' 17 SUL 1987 FEDERAL GOURT OF AUSTRALIA PRINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G179 of 1985 wee re wv GENERAL DIVISION IN THR MATTER OF THE TRADE PRACTICES ACT, 1974 ELIZABETH DENNISON First Applicant JULIET DENNISON Second Applicant ACE _SHOHIN (AUSTRALIA) PTY. LIMITED First Respondent DAVID HUGHES Second Respondent JOHN TAN Third Respondent JUDGE MAKING ORDER: LOCKHART J. DATE OF ORDER: 17 JULY 1987 WHERE ORDER MADE: SYDNEY MINUTE OF ORDERS THE COURT ORDERS THAT: l. The matter be adjourned to a date to he fixed; and 2. The applicants bring in short minutes of orders on that date to give effect to this judgment. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G179 of 1985 wee GENERAL DIVISION IN THE MATTER OF THE TRADE PRACTICES ACT, 1974 ELIZABETH DENNISON First Applicant JULIET DENNISON Second Applicant ACE SHOHIN (AUSTRALIA) PTY. First Respondent DAVID HUGHES Second Respondent JOHN TAN Third Respondent 17 July 1987 REASONS FOR JUDGMENT LOCKHART J. Mrs. Elizabeth Dennison lives in Newcastle, New South Wales, where she has spent most of her life. Mrs. Dennison has, like her father before her, invested for many years in real estate in the Newcastle area and, to a lesser extent, in Sydney. She purchases and lets houses and flats. The properties are held for a longa time and yield a high return. Mrs. Dennison usually finances the purchases by borrowing a large proportion of the purchase price on the security of 2. the properties concerned. She has been a very successful investor and derives a high income from her investments. Although she employs people to assist her, she devotes a large amount of her time to the selection of appropriate real estate for purchase and letting and to the collection of rents. Mrs. Dennison's business is what she describes as a cash business and most of her outgoings connected with her real estate investments are paid from the cash received from rents. Although she 1s a very shrewd and successful investor in real estate and to a limited extent in shares in listed companies, her experience in investment has not extended very much beyond this. She relies essentially on her own instincts which have, by experience, proved to be sound. In 1984 Mrs. Dennison embarked upon a new form of investment, namely, trading in commodity futures, and in particular commodities known as Tokyo Red Beans and Yokohama Raw Silk. She had no prior knowledge of commodity futures trading and was introduced to this somewhat speculative form of activity by the second respondent, David Hughes, who was an employee of the first respondent, Ace Shohin (Australia) Pty. Limited ("Ace Shohin"), a corporation engaged in the business of commodity futures trading including activities as a broker on behalf of its clients. Mrs. Dennison and Mr. Hughes met through a common association, namely, the ownership by each of them of shares in a home unit company known as the Stanley Flats in Stanley Street, East Sydney. Each of them occupied a flat in the building and was a member of the Roard of Directors of the company which owned the flats. Mrs. Dennison stayed in her Sydney flat from time to time and Mr. Hughes 3. lived there most of the time. It was through this association that they discussed matters of mutual interest and which led to Mrs. Dennison trading in commodity futures using Ace Shohin as her broker. During December 1984 and January and February 1985 Mrs. Dennison paid moneys to Ace Shohin for the purpose of trading in commodity futures. Overall she paid to Ace Shohin by cheques and cash a total of $77,691. It is this sum, together with interest thereon pursuant to s. 514 of the Federal Court of Australia Act 1976, that she seeks to recover from Ace Shohin and from Mr. Hughes. Mrs. Dennison sued Ace Shohin in this Court for alleged contraventions of s. 52 of the Trade Practices Act 1974 ("the Act"). She asserts that certain representations were made by Ace Shohin through its servants and agents, including Mr. Hughes, which led to her sustaining a loss of $77,691. She seeks to recover this sum as damages pursuant to s. 82 of the Act, and, in the alternative, as damages for breach of the contract between herself and Ace Shohin. The alleged breach of contract being that Ace Shohin breached its duty to Mrs. Dennison to act on her behalf with reasonable care and diligence in advising her in relation to futures exchange contracts and other related matters. Mrs. Dennison sued Mr. Hughes pursuant to s. 75B of the Act as a person involved in certain of the alleged contraventions of the Act by Ace Shohin. She also sued Mr. John Tan, the third respondent, pursuant to s. 75B of the Act. Mr. Tan was the "immediate manager" of Mr. Hughes in Ace Shohin. The manager of Ace Shohin's Sydney office was a gentleman known as Charlie Ali. The case occupied six days of hearing and it was at the eleventh hour that some arrangement was made between Mrs. Dennison and Mr. Tan through their respective legal advisers whereby, by consent, judgment was entered in favour of Mr. Tan against Mrs. Dennison on her claim against him with no order for costs as between themselves. On the application of Mr. Tan the Court dismissed a cross-claim brought by him against Ace Shohin seeking indemnity or contribution in resnect of any damages which he may have been ordered to pay Mrs. Dennison arising from his involvement in any contravention of the Act whilst acting as an employee or officer of Ace Shohin, together with any costs awarded against hin. Ace Shohin was represented by counsel and solicitor until the eleventh hour of the case. At that time the solicitor acting for Ace Shohin filed, in accordance with the Rules of this Court, a notice of ceasing to act as solicitor. Ace Shohin played no further role in the proceedings. It was not represented by a solicitor or counsel nor did 1t appear in any other capacity. There then arose the relevance of Ace Shohin's cross-claim. The cross-claim of Ace Shohin against Mr. Hughes and Mr. Tan asserted in essence that 1t was a term of their retainer with Ace Shohin that they would act with due skill and care in the performance of the1r duties and that they breached that duty in their dealings with Mrs. Dennison. Ace Shohin claimed contribution or indemnity from Mr. Hughes and Mr. Tan in respect of any damages and costs found to be 5. due to Mrs. Dennison by Ace Shohin. At the request of Mr. Tan and Mr. Hughes the Court dismissed this cross-claim. Consequently, at the very end of the case, the parties playing an active role before me were Mrs. Dennison and Mr. Hughes. This left on foot the principal claim by Mrs. Dennison against Ace Shohin and Mr. Hughes. It also left alive a cross-claim brought by Mr. Hughes against Ace Shohin seeking a like indemnity or contribution to that sought by Mr. Tan. I should mention that there 1s a second applicant in the proceedings, namely, Juliet Dennison, the daughter of Mrs. Dennison. It 1S common ground that Miss Dennison was added as a precautionary measure by Mrs. Dennison. Miss Dennison was represented throughout by the same solicitor and counsel as represented Mrs. Dennison and the interests of mother and daughter are one and the same. The evidence in the case consisted mainly of Mrs. Dennison's evidence and that of her daughter. Mrs. Dennison was in the witness box for a long time. Mr. Hughes, who represented himself throughout the hearing, elected to give evidence but only for an hour or two. Apart from one other formal witness, no other oral evidence was called by any party. Hence, although Mrs. Dennison was' extensively cross-examined by counsel for Ace Shohin and Mr. Tan and to a limited extent by Mr. Hughes, no oral evidence was called by any respondent, save for Mr. Hughes himself, to contradict the evidence of Mrs. Dennison or Miss Dennison. Although Mrs. Dennison at times gave some self-contradictory evidence I am satisfied that she was a credible and reliable witness. She was obviously unfamiliar with the witness box and not an easy witness to examine or cross examine, but these matters do not in my view adversely affect her credibility or reliability. Her dauahter, Miss Dennison, also gave evidence. I accept her as a witness who was both truthful and reliable. Where the evidence of Mrs. Dennison or her daughter conflicts with the evidence of Mr. Hughes, who was the only other witness, I prefer to accept the evidence of Mrs. Dennison and her daughter. I base these conclusions not only upon my impressions of them as witnesses in the witness box, but also on the probabilities and the documentary evidence as well as the failure of any of the respondents, except Mr. Hughes, to call oral evidence rebutting their evidence. So far as Mr. Hughes himself 1s concerned he 1s a complex personality. He was employed at all material times by Ace Shohin. Mrs. Dennison was the first client whom he introduced to Ace Shohin and he was determined to try and make a success of his dealings with her. He correctly perceived that she was a woman of some substance. She was also, in relation to commodity futures trading, a woman who was somewhat naive. He obviously showed great enthusiasm and offered boundless possibilities of success to her in relation to this form of business activity. He had no prior training whatsoever in futures trading and no prior experience in 1t. He is a metallurgist by tralning. He was engaged in the field of metallurgy before his employment with Ace Shohin and after he left that occupation. Ace Shohin itself is apparently a Sinqaporean based comnany which, in 1984 and 1985, had very lavishly decorated offices in Sydney. Some of the senior staff may have been experienced in commodity futures trading but many other employees, including Mr. Hughes, were inexperienced. Ace Shohin embarked upon a deliberate policy of inducing members of the public such as Mrs. Dennison to become its clients for the purpose of dealing in commodity futures with a view to obtaining their money, using it for trading and deducting very large sums as commission. It inveigled people to become clients by stressing the beneficial features of commodity futures trading and saying little if anything about the risks involved. Its officers behaved, at least towards Mrs. Dennison, 1rresponsibly and improperly. Mr. Hughes showed a reckless disregard for Mrs. Dennison's interests and for the truth in what he told her and her daughter. The recklessness arose from a curious combination of motives: a desire to keep her as a client, some sentiment because she was the first client he introduced to Ace Shohin, ambition to succeed in commodity futures trading and qenerally to advance his own cause with Ace Shohin itself. Although Mr. Hughes acted irresponsibly throughout his dealings with Mrs. Dennison, he nevertheless impressed me as a person who was out of his depth in this sphere of business activity and has realised that his conduct at the time was wrong. He appears to regret this, realises the error of his ways and accepts the consequences that must flow from his activities. Mr. Tan chose to settle the case between himself and Mrs. Dennison at the eleventh hour; indeed, at a time shortly before, 1f he was to give evidence at all, he would have had to go into the witness box himself. The critical representations upon which Mrs. Dennison relies were those made by Mr. Tan in the presence of Mr. Hughes. Notwithstanding the settlement between these parties Mr. Tan must accept responsibility for the fact that he, on behalf of Ace Shohin, of which he was a senior officer, made false and misleading and deceptive representations to Mrs. Dennison which were designed to extract money from her for the purpose of investment in commodity futures and ultimately for the profit of Ace Shohin through very substantial commissions. For instance, of the $77,691 paid by or on behalf of Mrs. Dennison to Ace Shohin, a total of $31,080 represents commissions in favour of Ace Shohin which amounts to nearly half of the moneys invested by her with it. I find that Ace Shohin represented to Mrs. Dennison that, 1f she acquired through it as a broker' futures contracts for Tokyo Red Beans and Yokohama Raw Silk then because of the experience and competence of Ace Shohin as a futures broker there was little risk to her of making any loss through any such' investment. The representation was made by Mr. Tan on behalf of Ace Shohin in the presence of Mr. Hughes. The representation was false, misleading and deceptive. The very nature of futures trading involves risk which 1s not insubstantial, but I do not think this was obvious to Mrs. Dennison at the time she invested money with Ace Shohin. Plainly she 9. realised there was some element of risk, but any reservations she had in this respect were assuaged by the soothing assurances of Mr. Tan and Mr. Hughes. The representation was in essence one of fact and led directly to the loss of the moneys invested by Mrs. Dennison. I also find that Ace Shohin represented to Mrs. Dennison that it was about to be accepted by the Sydney Futures Exchange as a member, that this representation was made by Mr. Tan on hehalf of Ace Shohin at Ace Shohin's offices in Sydney in late November or early December 1984 in the presence of Mr. Hughes and that, on the faith of those representations, Mrs. Dennision invested, though in varying amounts and at different times, the whole of the moneys which she now seeks to recover by way of damages. It was false for Mr. Tan to say that Ace Shohin was about to be accepted by the Sydney Futures Exchange as a member as it had taken no steps, including an application for membership, likely to lead to its admission as a member. Although Mrs. Dennison put her case in various ways, some of them in the alternative, in view of my findings as to these two representations (which together entitle her to recover damages, the measure of which is the whole of the moneys which she has paid, from Ace Shohin) I do not think it necessary to deal with the other bases on which the case was. put, except to say that the other representations relied upon by Mrs. Dennison and pleaded in the amended statement of claim (in paras. 10, 21 and 26) have been established. I find also that the contravention of s. 52 of the Act alleged in the amended statement of claim (paras. 12, 23 and 28) have also been established. All of these matters arise out of the same basic substratum of fact. 10. These findings entitle Mrs. Dennison to succeed against Ace Shohin and to recover from 1t damages of $77,691. Although Mr. Hughes was present during the conversations in which the representations about the absence of risk and membership of the Sydney Futures Exchange were made to Mrs. Dennison by Mr. Tan on behalf of Ace Shohin, 1t is not alleged that any liability attaches to Mr. Hughes with respect to those representations. The case against Mr. Hughes is that he was a person involved in certain contraventions of s. 52 of the Act by Ace Shohin, namely, the contraventions alleged in paras. 10, 21 and 26 of the amended statement of claim. The representation pleaded in para. 10 of the amended statement of claim is that on or about 6 December 1984 Mr. Hughes on behalf of Ace Shohin requested Mrs. Dennison to sign certain documents and that Mr. Hughes by his words and conduct represented to Mrs. Dennison on behalf of Ace Shohin that: (a) the documents were the usual formal documents which were necessary to authorise Ace Shohin to buy and sell commodities on a Japanese Futures Exchange on her behalf; (b) the documents did not substantially alter or govern the contractual relationship between Mrs. Dennison and Ace Shohin created the day before, namely, on or about 5 December 1984; and ll. (c) the documents were not inconsistent with and did not give to Ace Shohin any greater authority than the agreement verbally made on 5 December 1984 between Mrs. Dennison and Mr. Hughes on behalf of Ace Shohin. It 1S asserted in the amended statement of claim that Mrs. Dennison acted on the faith of those representations, that she did not read the documents or inform herself of their terms before signing them (para. 11), that the representations were false, misleading and deceptive in that they purported to authorise Ace Shohin through the person of Mr. Hughes to transact on her behalf commodity futures trading with very wide powers and in that one of the documents entitled "Client Authority and Acknowledgment" purported to set out the terms of an agreement between Mrs. Dennison and Ace Shohin which had little in common with the terms verbally aqreed beforehand (para. 12). I find that these allegations have been established, but they did not (nor was 1t asserted that they did) lead to any damage being sustained by Mrs. Dennison. They simply negate an essential part of Ace Shohin's case, namely, that the documents govern the contractual relationship between Mrs. Dennison and Ace Shohin. Paragraph 21 of the amended statement of claim alleges, so far as is material, that on 5 January 1985 Mr. Hughes on behalf of Ace Shohin represented to Miss Dennison that $19,711 was required to meet Margin calls on futures contracts for the purchase of Tokyo Red Beans 12. authorised to be acquired by Ace Shohin for Mrs. Dennison, that Ace Shohin was authorised by Mrs. Dennison to request the payment of $19,711 by Miss Dennison, that relative to the amount invested by Mrs. Dennison and at risk if the payment of $19,711 was not made the sum was a small amount and that it was required only to preserve Mrs. Dennison's existing investment from the risk of loss and was not itself at risk. I find that this representation was made, that the sum of $19,711 paid on behalf of Mrs. Dennison to Ace Shohin was paid pursuant to the making of the representation and acting on its faith, that the representation was false, misleading and deceptive and that Mrs. Dennison suffered loss and damage in the sum of $19,711. Mr. Hughes is liable as a person involved in this contravention by Ace Shohin under s. 52 of the Act in that he was aware that the representation was false, misleading and deceptive. It was false because less then half of the $19,711 was required by Ace Shohin to meet margin calls. The balance was to enable Ace Shohin to engage in extra trading in futures without the authority of either applicant. Paragraph 26 of the amended statement of claim alleges that on or about 1 February 1985 Mr. Hughes on behalf of Ace Shohin represented to Miss Dennison that $35,000 was required to meet margin calls on futures contracts authorised to be purchased by Ace Shohin for Mrs. Dennison, that Ace Shohin was authorised by Mrs. Dennison to request payment of that sum from Miss Dennison on her behalf, that Mrs. Dennison's investments were at risk and that the risk would be 13. negated if Miss Dennison on behalf of her mother paid to Ace Shohin $35,000 to meet margin calls. On the faith of that representation the sum of $35,000 was paid on behalf of Mrs. Dennison to Ace Shohin and 1t too is recoverable by her as loss and damage. Mr. Hughes is also liable for this damage as a person involved in the contravention by his employer as he was aware that the representation was false, misleading and deceptive. It was false because only a portion of the $35,000 sum was required to meet margin calls. Mr. Hughes is therefore liable pursuant to s. 75B of the Act to Mrs. Dennison in damages in the sum of $19,711 and $35,000, namely, $54,711. I reject a contention by Mr. Hughes that there was some form of joint venture between himself and Mrs. Dennison relating to certain of the moneys invested by her with Ace Shohin. It was denied by Mrs. Dennison. I accept her denial. In the result I find that the representations to which I have referred were made by Ace Shohin to Mrs. Dennison, thus constituting a breach of s. 52 of the Act and that the moneys paid by her to it have been lost and constitute damage directly resulting from the misleading and deceptive conduct constituted by the making of those representations. I propose therefore to make declarations accordingly and to enter judgment by way of damages for Mrs. Dennison against Ace Shohin in the amount of $77,691. 14. Mr. Hughes is liable as a person who was knowingly concerned in and a party to the contraventions of s. 52 of the Act pursuant to s. 75B of the Act relating to the representations leadina to the payments of $19,711 and $35,000. Judgment will be entered against him in the sum of $54,711. This is a case in which interest should be awarded pursuant to s. 51A of the Federal Court of Australia Act 1976 in favour of Mrs. Dennison. No good cause has been shown as to why interest should not be awarded. Hence I propose to award interest on the whole of the amount of $77,691 from 1 February 1985 (being the date when the sum of $35,000 was paid to Ace Shohin) to the date on which judgment is entered. I select 1 February 1985 because, although earlier payments were made by Mrs. Dennison (all payments were made over a period of only two months) the sensible course to f1x 1s to take the date of the last payment as the commencing date for the accrual of interest. In the case of Mr. Hughes, interest shall be awarded from 1 February 1985 but on the sum of $54,711. When the parties have calculated the appropriate amounts of interest this shall he included in the sums for which judgment is given. The rate of interest shall be fifteen percentum per annum, being the rate of interest on judament debts for which this Court's Rules provide: 0. 35 r. 8. In my opinion the appropriate order for costs 1s that Ace Shohin pay the costs of Mrs. and Miss Dennison of the proceedings including any reserved costs and that Mr. Hughes pay two-thirds of those costs. In the result, both Ace Shohin and Mr. Hughes will be 15. liable to pay the costs of Mrs. and Miss Dennison, but limited in Mr. Hughes's case to two-thirds of those costs. Mr. Hughes has, as I said earlier, bought a cross-claim against Ace Shohin in respect of any damages and costs found to be due to Mrs. Dennison or Miss Dennison by him. There should be judgment entered in favour of Mr. Hughes against Ace Shohin on this cross-claim and I propose to make a declaration that he 1s entitled to contribution or indemnity from Ace Shohin in respect of the damages and costs which I propose to award against him in favour of Mrs. Dennison and Miss Dennison. There should also be an order for costs against Ace Shohin in favour of Mr. Hughes on that cross-clain. In the circumstances I will make no orders today other than to stand the matter over to a date to be fixed. I direct the applicants to bring in short minutes of order on that date to qive effect to this judqment. 0 certify that this and the ew Fea OS) Precedit3 raz7s a-2 a t-u3 copy c? the Reasons tee Stsm ct bere cians Ronewr My. Sutice Lecknat Associate ry Dated \\. SOS4 WSF Counsel and Solicitors §.D. Robb instructed bv for the applicant: Messrs. Mitry French Walker. Dates of Hearing: 23, 24, 25, 26 March and 29 and 30 June 1987. Date of Judgment: 17 July 1987.