CATCHWORDS TRADE PRACTICES - misleading and deceptive conduct - whether false statements were made inducing partner to retire from firm -whether partner suffered loss of a commercial opportunity. Trade Practices Act 1974, ss 52, 82. Fair Trading Act 1987 (NSW), ss 42, 68. Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 GRAHAM JOHN MORTON & ANOR v DAVID LEWIS BAKER & ORS NG 558 OF 1992 Sackville J. 8 June, 1995 Sydney FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY) No NG 558 of 1992 GENERAL DIVISION ) BETWEEN: GRAHAM JOHN MORTON First Applicant VALFRONT PTY LTD Second Applicant AND: DAVID LEWIS BAKER, JOHN EDWARD MYTTON BARNES, KENNETH CHARLES BORDA, PAUL GREGORY BROWN, RONALD JAMES CABBLE, PHILLIP JOHN COSTA, MARK HUNTER CULLEN, RICHARD GRANT GIBSON, RICHARD JOHN HARDMAN, HENRY K HERRON, REINHARD GOTTFRIED HOLZ, MAURICE LIONEL NEWMAN, PAUL CHRISTOPHER ROWE, JOHN BAYLEY RUSSELL, DENNIS GREGORY SCOTT, ROBERT RELLEE SKINNER, DAVID GLEN SLATER, DONALD WILLIAM STAMMER, DENNIS JOHN STYLES, GEORGE VARLAMOS, ANTHONY JOHN WHITEHEAD, MICHAEL GEOFFREY WHITWORTH, KEVIN EDWARD WYLD, ROBIN YANDLE First Respondents BAIN HOLDINGS PTY LTD Second Respondent BAIN & COMPANY LTD Third Respondent SACKVILLE J. SYDNEY 8 JUNE 1995 THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicants pay the costs of the respondents. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY) No NG 558 of 1992 GENERAL DIVISION ) BETWEEN: GRAHAM JOHN MORTON First Applicant VALFRONT PTY LTD Second Applicant AND: DAVID LEWIS BAKER, JOHN EDWARD MYTTON BARNES, KENNETH CHARLES BORDA, PAUL GREGORY BROWN, RONALD JAMES CABBLE, PHILLIP JOHN COSTA, MARK HUNTER CULLEN, RICHARD GRANT GIBSON, RICHARD JOHN HARDMAN, HENRY K HERRON, REINHARD GOTTFRIED HOLZ, MAURICE LIONEL NEWMAN, PAUL CHRISTOPHER ROWE, JOHN BAYLEY RUSSELL, DENNIS GREGORY SCOTT, ROBERT RELLEE SKINNER, DAVID GLEN SLATER, DONALD WILLIAM STAMMER, DENNIS JOHN STYLES, GEORGE VARLAMOS, ANTHONY JOHN WHITEHEAD, MICHAEL GEOFFREY WHITWORTH, KEVIN EDWARD WYLD, ROBIN YANDLE First Respondents BAIN HOLDINGS PTY LTD Second Respondent BAIN & COMPANY LTD Third Respondent SACKVILLE J. SYDNEY 8 JUNE 1995 REASONS FOR JUDGMENT Introduction In these proceedings, the first applicant ("Mr Morton") and the second applicant ("Valfront") claim relief by reason of misrepresentations alleged to have been made in breach of s.52 of the Trade Practices Act 1974 and s.42 of the Fair Trading Act 1987 (NSW). The applicants allege that the misrepresentations were made by certain of Mr Morton's former partners in the stockbroking firm known as the Bain & Company Partnership, previously known as Bain & Company ("the partnership"). The first respondents were the members of the partnership. Valfront is a company controlled by Mr Morton, which held units in the Bain Holding Trust ("the Trust"), of which the second respondent ("Bain Holdings") was the trustee. The third respondent ("Bain") is the principal operating entity in the Bain group. The applicants claim that the misrepresentations induced them to enter into a deed of retirement on 14 August 1989, whereby Mr Morton retired from the partnership and Valfront redeemed all its units in the Trust in return for certain payments. the applicants also claim that the respondents, in making the misrepresentations, breached fiduciary duties owed to the applicants. The applicants say that, by reason of their entry into the deed of retirement, they lost the commercial opportunity of participating in a later sale or disposition by the partners of their equity in the partnership (in the form of units in the Trust) to Deutsche Bank Australia Ltd ("DBAL"). The relief sought by the applicants includes damages under s.82 of the Trade Practices Act 1974 or s.68 of the Fair Trading Act 1987 (NSW), an inquiry into profits said to have been made by the unitholders and orders setting aside the deed of retirement. No claim was made that the respondents had breached the terms of the deed. The Representations Alleged The statement of claim alleged four relevant sets of representations. First, the applicants pleaded (paragraph 9) that the deed of retirement of 14 August 1989 contained the following representations: "(i) To the best of the knowledge and belief of the partners the Graham Morton current account was in deficit to the extent of approximately $370,000 which balance had been arrived at by applying consistent and non-discriminatory principles. (ii) Further that the partners, Bain and the Trustee [Bain Holdings] represent that neither they nor any one of them were aware of any proposal by Deutsche Bank Australia Limited or any nominee of that Bank to acquire a further interest in the Bain Trust. (iii) That neither the partners, Bain and the Trustee nor any one [of] them had been involved with or were aware of any discussions with the said Bank concerning any acquisition of the nature referred to in paragraph (ii) above. (iv) That neither the partners, Bain or the Trustee nor any one of them were aware of any proposal for any discussion or any other communication with the said Bank in connection with any acquisition of the nature referred to in paragraph (ii) above." Secondly, it was alleged (paragraph 11(a)) that immediately prior to 14 August 1989, Mr Ronald Cabble and Mr Phillip Costa, both of whom were principals in the partnership, had represented on behalf of the partnership and Bain Holdings, that "Morton's current account balance in the accounts of the Partnership being the sum unsecured by any assets of Valfront was in deficit for approximately $370,000". It will be seen that this representation is similar to the first of the pleaded representations said to have been made in the deed of retirement. Thirdly, it was alleged (paragraph 11(b)) that, immediately prior to 14 August 1989, Mr Cabble and Mr Costa had represented that "if Morton remained a member of Bain & Co and made disclosure to Westpac [Banking Corporation Ltd] of the financial position of his partnership interest and did not otherwise make any arrangements Westpac would require the immediate repayment of a loan made by Westpac to Morton in the sum of $500,000." I refer to this as "the Westpac representation". Fourthly, it was alleged (paragraph 12) that immediately prior to 14 August 1989 Mr Maurice Newman, acting on behalf of the partnership and Bain Holdings, represented that "there was no proposal or intention by Deutsche Bank Australia Ltd to acquire any further interest in the Bain Trust of which the partners, Bain or the Trustee had any knowledge". This representation, as pleaded, covers some of the matters referred to the last three of the representations said to have been made in the deed of retirement, but goes further than those representations. I refer to it as "the Deutsche Bank representation". Particulars of Falsity The statement of claim alleged that each of the representations was false, misleading and/or deceptive. The particulars alleged as follows: "(i) The current account of Morton...in the accounts of the said Partnership was not in deficit to approximately $370,000 but was in fact in deficit to a sum no greater than $200,000 as at 14 August, 1989. (ii) No proper calculations or inquiries and no proper accounts had been made by the partners to ascertain the balance of Morton's account with the Partnership and there was [sic] no reasonable grounds for representing that Morton's account was in deficit to approximately $370,000. (iii) The responsible officers at Westpac...had not represented that in the circumstances described in (ii) above Westpac would require the immediate repayment by Morton of his loan from Westpac. (iv) Deutsche Bank Australia Ltd did in fact have an interest in acquiring further capital in Bain and Co and all or some of the partners knew or ought to have known of that said interest. (v) Deutsche Bank Australia Ltd had not represented to any partner that it no longer had an interest in acquiring any further capital in Bain & Co." The Arbitration and Application to Amend In order to follow the course of the proceedings some background is necessary. Clause 5.5 of the deed of retirement provided as follows: "Any disputes with respect to the amount of [Mr Morton's] Current Account or any entries relating thereto (whether occurring previously or hereafter) shall be referred to Arbitration by such person as shall be mutually agreed upon between the parties." In August 1992 the present proceedings were commenced. In November 1992, the respondents moved this Court for an order that the proceedings be stayed, pending an arbitration to be conducted pursuant to cl.5.5 of the deed of retirement. The motion was granted by Einfeld J., in a judgment delivered on 25 March 1993. His Honour made the following order: "That part of the proceedings as concerns a dispute as to the proper sum owing under the first applicant's current account with any or all of the respondents is stayed pending arbitration." Subsequently an arbitration was conducted before Mr G.S. Kirk as arbitrator. The arbitration occupied five hearing days. On 28 February 1995, the arbitrator delivered an award, containing some 75 pages of reasons. As I said in a judgment delivered in this matter on 26 April 1995, I would have thought it tolerably clear from the terms of Einfeld J.'s judgment and order that the arbitrator was not to attempt to resolve the factual questions presented by the claim pleaded by the applicants, except insofar as the proceedings concerned a dispute as to the proper sum owing under Mr Morton's current account with the partnership. The arbitrator himself expressed reservations about the course he was apparently asked (at least by the applicants) to adopt. Nonetheless, he addressed a number of issues beyond the meaning of the term "current account" as used in the retirement deed, and an assessment of the amount properly due by Mr Morton to the partnership in respect of that account. When the matter came before me for hearing, on 24 April 1995, Dr Birch, who appeared for the applicants, sought leave to amend the statement of claim. He said that the applicants no longer disputed that Mr Morton's current account, at the relevant time, was in deficit to the extent of about $370,000. However, the applicants wished to amend to allege that they had been misled or deceived by the respondents' conduct into believing that the $370,000 current account debt represented their overall financial position in relation to Bain & Co. Dr Birch stated that his intention was to rely upon an issue estoppel in favour of the applicants, which he said to arose from the arbitrator's award. In the judgment delivered on 26 April 1995, I refused the application to amend. I held that the arbitrator's findings could not found an estoppel in relation to the issues the applicants sought to add to the statement of claim. Dr Birch accepted that the applicants could not be permitted, at such a late stage of the proceedings, to adduce additional evidence to make out the case alleged in the proposed amendments. Accordingly, I rejected the proposed amendments as futile. Thereafter, Dr Birch did not pursue the applicants' claim based on the representations as to the state of the current account. He relied on the Westpac and the Deutsche Bank representations, although also relying on the representations in the deed of retirement as pleaded in paragraph 9(ii), (iii) and (iv) of the statement of claim. Mr Morton's Interest in the Firm Mr Morton joined Bain & Co in 1983. On 1 July 1985, Mr Morton became a partner and was allocated a share of 0.94% of equity. That share was subsequently increased to 1.6% on 1 July 1986, to 1.61% on 1 January 1987, and to 3.25% on 1 July 1987. These increases in Mr Morton's share of the partnership equity were funded almost entirely out of his earnings. As from 3 August 1987 the Bain Group, including businesses owned by the partnership, was restructured. All partners or their associated corporate entities were required to subscribe for units in the Trust equivalent to their share of the partnership equity as at 1 July 1987. Mr Morton nominated Valfront as the vehicle by which he subscribed for his entitlement to 3.25% of units in the Trust. In 1987 Mr Morton became head of the fixed income division of the partnership. Events Leading to the Deutsche Bank Agreement The partnership suffered extensive losses as a result of the stock market crash of October 1987. At that time, the partnership had an executive committee of seven partners. This executive committee was elected annually by a meeting of all of the partners and was responsible for the day to day management of the partnership's business. Mr Morton was elected to the executive committee in November 1987. The executive committee, in late 1987 and early 1988, faced the unpleasant task of estimating the losses incurred by the partnership as a result of the stock market crash, and recommending action to alleviate those losses. The partners resolved, apparently in November 1987, that the unit-holders would make additional capital contributions to the Trust, in proportion to their existing capital shares. The total of contributions was $14.5 million. Valfront thereby incurred an obligation to provide an additional $471,250, being 3.25% of the total $14.5 million. (At a later stage, Valfront's share of units in the Trust increased to 5.026%.) Mr Phillip Costa, who was at all material times the administration partner of the partnership, arranged finance to meet the capital contribution obligations on behalf of those unitholders unable to meet those obligations out of their own funds. This arrangement on behalf of the unitholders was made with Westpac Banking Corporation Ltd ("Westpac") by the increase of an existing facility known as the Partners' Capital Contribution Financing Scheme ("the Scheme"). At Mr Morton's request, Mr Costa wrote to Westpac on 8 December 1987 requesting, on Mr Morton's behalf, that Westpac grant to Mr Morton a facility to draw down $471,250 under the Scheme. On 8 January 1988, Westpac wrote to Morton advising him of Westpac's approval of a facility of $472,000 to him. On 17 March 1988, Mr Costa sent to Westpac the executed documentation required for the facility. The effect of the documentation was to subordinate the interests held by Mr Morton in the partnership and Valfront in the Trust to the Westpac facility. Prior to the further capital contributions by partners, the capital of Bain & Co was $115.5 million. According to Mr Costa, whose evidence on this issue was not challenged, a company known as First Bain Leasing Pty Ltd had lent unitholders $100 million, while the additional $15.5 million had been provided by the unitholders themselves. In mid 1988 various strategies by the partners were discussed to alleviate the consequences of the stock exchange crash. The minutes of a partners' meeting of 25-26 June 1988 record a "feeling" that the partnership should seek an external shareholder who would pay sufficient to enable the partners to extinguish their debts in exchange for the least equity. In about July or August 1988 Mr Garrick Hawkins, the then chairman of the partnership, retired and redeemed the units held by him or his interests in the Trust. On 5 August 1988 Mr John Barnes became Bain's Managing Director and Chief Executive of the Bain Group. The agreement between Mr Hawkins and his partners included a provision to the effect that Mr Hawkins would receive a share in the proceeds of any sale of equity by the partners, in respect of which substantial negotiations had commenced prior to 31 December 1990. Mr Hawkins or his interests had held approximately 25% of the units in the Trust. Over the period 19-21 September 1988, representatives of Deutsche Bank met with the Bain representatives to negotiate the sale of equity in the partnership. (Mr Morton thought the meeting was over three days in October 1988, but the documentation suggests that the September date is correct.) By this time, the Commonwealth Bank of Australia had made an offer for the equity, on which it required an early decision. The Bain representatives included Mr Barnes, Mr Newman and Mr Morton. The Deutsche Bank representatives were all officers of the West German parent, Deutsche Bank Aktiengesellschaft ("DBAG"). It is common ground that, at the conclusion of the meeting, an understanding was reached that DBAL would subscribe for 50% of units in the Trust and would acquire an option to acquire a further 1% of units, exercisable between 1 July 1991 and 31 August 1991. In the meantime, Mr Newman, as Chairman of the partnership, was to have a casting vote in the event of a tied vote at Board meetings. In his statement, Mr Morton claimed that, during the negotiations, a "gentlemen's agreement" was reached concerning the purchase of further equity by DBAL. His account was as follows: "Mr John Barnes said: 'Due to an agreement between the firm and Garrick Hawkins in respect of his retirement from the firm it is in the interest of the remaining partners that the sale of the controlling interest in the firm not be disclosed until the agreement with Garrick Hawkins lapses in two years time.' Several of the Deutsche Bank officers said words the substance and effect of which was that they understood the difficulty and one of the Deutsche Bank officers which to the best of my recollection was Hans Voigt replied: 'It is the policy of Deutsche Bank to wholly own businesses over time. Deutsche Bank wants an assurance that further equity above the agreed sale of 51% will be available for purchase once the agreement with Garrick Hawkins lapses.' John Barnes replied: 'Over time further equity will be available for Deutsche Bank to purchase. However this should not be documented.' The person I believe was Mr Voigt stated: 'I understand a gentlemen's agreement will exist to make further equity in Bain & Co available for Deutsche Bank to purchase.' All of those then present nodded and uttered words to the effect that they agreed and accepted what had just been said by Mr Voigt and Mr Barnes. All of them shook hands." Mr Barnes denied this account and said that he made a statement to the following effect: "We should not make the existence of the 1% option public as it would have a negative impact on our staff who may think we are being taken over by a large bank which does not understand our business. You are aware that under Garrick Hawkins' agreement, he will be entitled to a share of the proceeds of sale of further equity if there are any discussions about sale over the next few years. We can't give you any assurance as to the sale of further equity. If you want to discuss the purchase of further equity that will have to take place at some future time." Mr Costa recalled Mr Voigt saying that the Bank desired to have full control over its subsidiaries and wished to know that additional equity would be available in the future. However, Mr Costa supported Mr Barnes' version of the response to Mr Voigt's observations. Both denied any reference to a "gentlemen's agreement". Mr Newman did not recall any specific discussion about the sale of further equity to DBAL over 51%, but thought there was a reference to the matter being discussed at some future date. On 21 September 1988 a written offer was received from DBAL. The following day a partners' meeting considered the offer. Mr Barnes prepared a memorandum comparing the offers from DBAL and the Commonwealth Bank. Mr Barnes' memorandum included the following statement: "Both offers are, I believe, acceptable. However, the offer from Deutsche Bank allows us to retain control for the next three years and also to keep 50% of our business. The remaining equity held by the Partnership is worth $50 million based on the current value and hence each 1% of the Partnership is worth $500,000. As Deutsche Bank is likely to wish to purchase additional equity in future years, the value of equity is for the first time tangible." At the meeting the partners resolved unanimously to accept the offer made on behalf of DBAL. An agreement between DBAL and the various entities associated with the Bain Group was ultimately executed on 5 January 1989. The terms, although complex, were substantially to the effect agreed in September 1988. A Deteriorating Relationship From the first half of 1988 it is clear that Mr Morton's relationship with some of his senior colleagues deteriorated. It is not necessary to go into the details or to determine whether the complaints were justified. Some events should, however, be noted. In May 1988, some employees of the Fixed Interest Division, then headed by Mr Morton, left the partnership to join a competitor. Discussions concerning losses in the Division took place at the partners' meeting of 25-26 June 1988 and it was agreed that Mr Barnes would discuss the management of the Division with Mr Morton. In late 1988 Mr Barnes formed the view that Mr Morton was continuing to take high risk positions, contrary to specific instructions. Mr Barnes at this time asked Mr Morton to step down from running the Division. At the partnership meeting of 20 December 1988, Mr Barnes advised that he had appointed a new head of the Fixed Interest Division and that Mr Morton was expected to accept a senior marketing role. An executive committee meeting of 11 January 1989, which Mr Morton did not attend, received a report detailing losses in the Division said to exceed $1 million. Losses in the Division were also discussed at the partners' meeting of 18-19 February 1989. The minutes record Mr Morton as having acknowledged responsibility for the losses, but claiming that his performance was affected by the need to undertake three jobs at the one time. In April 1989 Mr Barnes suggested to Mr Morton that he was insufficiently motivated and should leave the partnership. However, apparently in part because of the agreement with DBAL, which contemplated directors entering into service contracts, Mr Barnes did not pursue the matter further. On 22 June 1989 Mr Cabble sent a memorandum to Mr Morton concerning the latter's "overdrawn situation", a reference to the deficit in Mr Morton's current account. The memorandum noted that Mr Cabble and Mr Morton appeared to be "poles apart morally". Mr Cabble asked Mr Morton to sell assets to meet his "overdrawn situation", including the sale of a portion of his equity in the partnership. On 30 June 1989 Mr Morton had a meeting with Mr Cabble and Mr Costa at which there was discussion of the reason for Mr Morton's current account being in deficit and for the differences in calculating the size of the deficit. On 14 July 1989 Mr Morton prepared a memorandum to be sent to all unitholders. This memorandum expressed the view that "for all intents and purposes the Bain & Company Partnership died at the last Partners' Meeting on the 16th June". The memorandum presented a dire view of the partnership's financial position and recommended that those partners in financial difficulty should be allowed to approach DBAL regarding further sale of equity, in order to extinguish their liabilities. The Deutsche Bank Representation Mr Morton claimed that on 17 July 1989, he had a conversation with Mr Newman, to the following effect: "Morton: The Review Committee are forcing me into selling everything to meet losses which I cannot determine. I will attempt to meet my obligations. Given that Deutsche Bank wants to purchase further equity in Bain & Co can I approach Deutsche Bank to attempt to sell part of my equity?" Newman: The partnership will not allow it as we will lose management control. Morton: I have no choice. They are trying to bankrupt me. Newman: During my trip to Deutsche Bank in Frankfurt [I was aware that Maurice Newman had returned from Frankfurt on the previous day] they told me that they would not be buying any further equity in Bain & Co and will probably not even take up the extra controlling 1%. Get it out of your mind that Deutsche Bank will buy any further equity in Bain & Co. Morton: Phil Costa and Ron Cabble are forcing me into bankruptcy and forcing me to sell my equity. I would be left with nothing and I am in this situation because of the action of a number of the other partners. I want the paper I prepared requesting permission to approach Deutsche Bank be presented to the partners for discussion. Newman: It is unfortunate that there is nothing I can do. The paper is not on the agenda for the next partners' meeting therefore you cannot discuss it." Mr Newman's passport, noting his return from West Germany on 16 July 1989 and (less clearly) a diary note by Mr Morton, tend to confirm that a meeting between Mr Newman and Mr Morton took place on the date identified by Mr Morton. Mr Morton claimed that, prior to this conversation, he had believed that DBAL would purchase the whole of the remaining equity in Bain over the next two or three years, giving greater value to his share of the equity. He claimed that it was this discussion with Mr Newman that caused him to abandon that hope and to execute the deed of retirement. Mr Newman denied that he had said that Mr Morton should get it out of his mind that Deutsche Bank would buy any further equity in Bain & Co. In cross-examination Mr Newman said that he had told Mr Morton that it was not possible for him to sell his own equity to Deutsche Bank. He recalled that it was in that context that he might have used the phrase "get it out of your mind". Mr Newman said that the discussion was predominantly concerned with the possibility of Mr Morton selling his equity personally, rather than with the sale of the balance of the partnership's equity to DBAL. Mr Newman claimed that he made a statement to the following effect: "My visit to Frankfurt suggests that you don't rely on the Bank buying additional equity in Bain to resolve your current account position....It is unlikely that Deutsche Bank will acquire any additional equity in the immediate future." Mr Newman had visited Frankfurt in June 1989 and, together with Mr Barnes, had held meetings with DBAG representatives. Mr Newman said that during the Frankfurt visit a conversation between Mr Thelen of DBAG and himself took place, as follows: "Thelen: We are disappointed with Bain's performance last year, we believe the price we paid was generous, the results indicate it was a good price for you. Newman: Do you think the Bank will exercise the option. Thelen: You should not count on the Bank exercising the option, that decision won't be made until much nearer the time." Mr Barnes gave evidence of a conversation to similar effect in Frankfurt. There was evidence that the partnership had sustained a loss for the first six months of 1989, which Mr Newman stated was in the order of $400,000. The Westpac Representations At a meeting, which Mr Morton placed on 17 July 1989, but which may have taken place earlier, Mr Morton had a conversation with Mr Cabble as follows: "Cabble: You must sell your equity in Bain & Co. Morton: I do not see why I should do that and I believe I have a legal and moral obligation to inform Westpac of any sale of my equity as it was the security for my $500,000 loan." Mr Costa recalled Mr Morton making a statement to this effect at a meeting at which he was present, probably at a meeting that occurred on 10 July 1989. Mr Cabble made a file note of that meeting which recorded Mr Morton expressing the view that he felt obliged to match his disposable assets against his Westpac liabilities, rather than his current account deficit. Whatever the date of the meeting, Mr Costa claimed that he replied to Mr Morton's statement as follows: "We see no reason why you should approach Westpac because you have the capacity to put your overdrawn current account in order from your own resources. The value of your interest in the Bain Group, including Future Asset financing fees, if you fix your current account, is in excess of your loan from Westpac and therefore under the terms of our arrangement, there is no need to have any discussion with Westpac. If you put your $370,000 in, then your interest in Bain will exceed the amount of your liability to Westpac under the Capital Contribution Financing Scheme." On 17 July 1989, Mr Morton wrote to Mr Cabble, expressing the view that on a sale of equity by Valfront "it is highly likely that Westpac would expect retirement of the Capital Contribution Loan". Mr Morton referred to the argument, put by Mr Cabble and Mr Costa, that a sale of a portion of Valfront's units would not require repayment to Westpac under the Scheme. Mr Morton noted that the security for the loan had fallen to a level where the liability was not matched by the net asset value of the equity. Mr Morton said he would need written confirmation from Westpac that it had received full details on Bain & Co and was prepared to allow the proceeds to be offset against the current account deficit. Mr Morton said that he had a meeting on 18 July 1989 with the Review Committee, constituted by Mr Costa and Mr Cabble, at which the following was said: "Morton: I will attempt to meet my obligations but I think Westpac should be informed of my position. Costa: That will not be necessary. Morton: I believe it is. The net worth of the equity securing the loan has been reduced therefore we have to go to Westpac. Costa: I will organise a meeting." Mr Costa had no record of a meeting of the Review Committee on 18 July 1989, but thought that Mr Morton may have been referring to a meeting between the two of them at about 8 a.m. on 18 July 1989. Mr Costa, although acknowledging that Mr Morton had indicated that he (Mr Morton) wished to visit Westpac because the value of his equity had fallen below the loan, denied having offered to organise a meeting with Westpac. Rather, he said it was Mr Morton who asked him to organise the meeting. Mr Morton claimed to have had a further conversation with Mr Costa at about 1.15 pm on 18 July 1989 at which the Westpac representation was made. According to Mr Morton the conversation was to the following effect: "Costa: I have contacted the Account Manager at Westpac and discussed the situation. A meeting is organised for 3.30 pm today. Westpac want a statement of your position. I am having those figures typed now. I am telling you that based on my discussions with Westpac and the figures I am preparing Westpac will demand immediately repayment of the loan. Morton: If Westpac ask for full repayment as you say my overall situation based on your accounts would go from negative $375,000 to negative $875,000 and I will be bankrupt. I have no money to repay Westpac, all the money is in the firm." Mr Costa agreed that a meeting occurred at about the time identified by Mr Morton. However, he denied Mr Morton's version, claiming the following was said: "Costa: I don't know how many times I have told you, there is no need to see Westpac. Morton: I am between a rock and a hard place. I owe $875,000 and all my money is in the firm." The reference to $875,000 was to the approximate total of the amounts due to Westpac and on Mr Morton's current account with the partnership. Mr Costa said that Mr Morton was quite worried and agitated, and that Mr Morton was not prepared to listen to Mr Costa's attempts to reason with him. After a conversation with Mr Kenneth Borda, another member of the executive committee, Mr Morton had a further conversation with Mr Costa on the same day: "I have asked Borda to speak to Barnes. You have got me in a corner. Can you call the meeting off?" According to Mr Morton, Mr Costa agreed to this course. Mr Costa accepted that this last conversation may have occurred, but maintained that he agreed to the request merely to placate Mr Morton, having regard to his emotional state and despite the fact that he (Mr Costa) had never arranged any such meeting. Mr Costa said that he believed at the time that a meeting with Westpac was not in the interests of Bain & Co, given that three of the partners, between them, owed Westpac at least $3 million. Mr Morton said that, because of what Mr Costa had conveyed to him concerning Westpac's likely intention, and having regard to the fact that there was no prospect of a sale of equity in the future to Deutsche Bank, he believed that he had no choice but to sell his equity. He claimed that this belief motivated him and Valfront to execute the deed of retirement. Mr Morton's Retirement from Bain Mr Morton engaged a solicitor to assist in negotiating the terms of the retirement deed. The minutes of a partners' meeting of 21 July 1989 record the following: "K Borda advised that he had had discussions with G Morton in relation to his resignation as a Director, and the redemption of his associated company's units in the Trust. It was agreed that Valfront Pty Limited's "B" class units in the Trust be redeemed at Net Tangible Assets ("NTA") as at 30 June 1989 and that G Morton's service contract be terminated by a payment for which a non-compete [sic.] period of six months would apply." The deed of retirement was executed by Mr Morton, Valfront, the partners, Bain Holdings and Bain & Company Ltd on 14 August 1989, although it appears that a draft of the agreement had been prepared as early as 21 July 1989. The deed provided that Mr Morton would retire from the partnership on 14 August 1989, but would continue to be liable for his share of losses and to be entitled to his share of profits of the partnership as at the retirement date. All units held by Valfront were to be redeemed at the retirement date. Valfront was to receive the "redemption amount", which was to be calculated in accordance with the redemption provisions in the Trust deed and based on the "deemed assumption" that the redemption took place on 30 June 1989. At the date of the deed of retirement, Valfront held 5.026% of the units in the Trust, its initial share of 3.25% having increased to 3.42% on 1 March 1988, then to 5.026% on 1 July 1988. The deed provided that approximately $475,000 of the redemption amount was to be paid to extinguish the debt due by Mr Morton or Valfront to Westpac and the balance of the redemption amount was to be credited to Mr Morton's current account. Mr Morton's service agreement with Bain was terminated in consideration of a payment of $200,000, of which $50,000 was to be credited to Mr Morton's current account. The deed dealt with the current account in cl.5, and provided for the arbitration of any "disputes with respect to the amount of the [current account]" (cl.5.5). Clause 6.1 contained warranties by the Partners, Bain Holdings and Bain: "(a)That they (or any of them) are not aware of any proposal by Deutsche Bank Australia Limited ("DBAL") or any nominee of DBAL to acquire a further interest (whether by unit subscription or otherwise) in the Bain Trust or in any other entity within the Bain Group other than pursuant to the express provisions of the Bain Unitholders Agreement. (b) That they (or any of them or any other member or representative of the Bain Group) have not been involved with nor are they aware of any discussions with DBAL concerning any acquisition of the nature referred to in paragraph (a) above. (c) That they (or any of them) are not aware of any proposal for any discussions or other communication with DBAL in connection with any acquisition of the nature referred to in paragraph (a) above." Further Arrangements with DBAL In April 1990, according to an internal DBAG document admitted into evidence, DBAG decided to attempt to open a dialogue with the partnership with a view to take-over of the remaining 50% of the equity. Of course, DBAL had an option to acquire a further 1%, exercisable in July 1991. At about the time DBAG made this decision, Dr Beck of DBAG enquired of Mr Barnes whether the partners would be prepared to discuss the sale of the 49% of equity not subject to contractual arrangements. This approach did not lead to any discussions, Mr Barnes reminding Dr Beck of the terms of the partnership's agreement with Mr Hawkins. In January 1991, Dr Beck told Mr Barnes and Mr Newman that the Board of DBAG wished to pursue further negotiations with a view to acquiring the remaining 49% of equity. Those negotiations took place from 12 to 14 February 1991. In March 1991, DBAG made a proposal, on behalf of DBAL, to acquire the remaining 49% of equity immediately after DBAL exercised its option in July 1991. On 18 July 1991, the unit holders in the Trust communicated their acceptance of the DBAG proposal, subject to certain amendments. The following day, 19 July 1991, DBAL exercised its option under the agreement of 5 January 1989 to acquire a further 1% of the units in the Trust. Thereafter, the unitholders decided that a preferable course was to negotiate an arrangement whereby DBAL would obtain immediately 100% of the votes in relation to the partnership, but would receive only an option to purchase the remaining 49% of units, exercisable in 1998. Negotiations on these matters took place over the period August to November 1991. These negotiations culminated in a seven page letter of offer from DBAG, on behalf of DBAL, on 4 December 1991. The proposed arrangements were complex. They included the redemption of all ordinary units by Bain Holdings as trustee of the Trust and the issue, in substitution therefor, of 150 million non-transferable, non-voting Class B units. DBAL was to subscribe for 150 million Class A units for a cash amount of $36.25 million. In return for a cash payment of $36.25 million, DBAL was to issue to the trustee a subordinated bond in the amount of $36.25 million, payable in 1998. The trustee was entitled to redeem the Class B units in 1998 for a payment of $60 million plus the proceeds of certain "Excluded Assets". A meeting of the unitholders on 5 December 1991 resolved to accept the DBAL offer. A formal Subscription Agreement was executed on 25 March 1992. So far as appears, the agreement substantially implemented the terms of the arrangement specified in the letter of 4 December 1991. Issues of Credit As has been seen, there were differences in the accounts of Mr Morton, on the one hand, and Mr Newman, Mr Barnes and Mr Costa on the other. I think it is significant in this case that the differences involve events mostly occurring some six years before the hearing and from four to five years before the first statements were filed in the proceedings. The events occurred at a time of considerable anxiety and stress, especially for Mr Morton. It is also significant that the differences in the versions of conversations, to a considerable extent, could reflect differences in perception coloured by the passage of time, intervening events and self-interest. For example, the differences between Mr Newman and Mr Morton, in relation to the Deutsche Bank representation, were not over whether there was discussion about the prospects of selling further equity to Deutsche Bank. There clearly was discussion on this topic. The issue is whether Mr Newman referred to the absence of any current proposal by Deutsche Bank to acquire further equity, or whether he assured Mr Morton that Deutsche Bank would not seek to acquire the remaining equity at any time in the future. Mr Morton's diary note of the conversation with Mr Newman is not inconsistent with Mr Newman's version of events. It would not have been difficult for Mr Morton, particularly if he felt aggrieved by subsequent events (as I think he did), to remember the conversation in a way that matched his sense of grievance. Similarly, although the accounts of Mr Costa and Mr Morton diverged in significant respects, there was considerable common ground as to the topics discussed between them. Mr Morton claimed that Mr Costa warned him, on the basis of his (Mr Costa's) discussion with Westpac, that the Bank would demand immediate repayment of Mr Morton's loan. Mr Oslington QC, who appeared with Mr Ryan for the respondents, put to Mr Morton that what was said was that, if the balance sheet prepared by Mr Morton was taken to Westpac, the Bank would call in the loans of every other partner. Mr Morton acknowledged that Mr Costa had said words to this effect, but claimed that this was only part of the conversation. Again, it would not take a great deal for Mr Morton, some years after the event, to remember the warning as directed specifically to him and to attribute to the conversation greater importance in his decision-making process than it actually had. My impression of Mr Morton was that he was prone to reconstruct events in a manner that corresponded to his belief that he had been the victim of injustice and, indeed, his belief that his former partners had conspired to deny him the commercial advantages flowing from a future sale of the balance of equity to DBAL. This impression was reinforced by some of his answers in cross-examination. Mr Morton was asked about his belief, prior to the meeting with Mr Newman, that DBAL would acquire further equity: "MR OSLINGTON:Had anybody told you before that meeting with Mr Newman that Deutsche Bank would probably not acquire any further equity?---No. Had anyone ever suggested to you before that meeting with Mr Newman that Deutsche Bank would not acquire any additional equity?---No. Did you believe before that meeting with Mr Newman that Deutsche bank was not a buyer of further equity?---I believed that Deutsche Bank was a buyer of further equity. Had anyone suggested to you, in any way at all, before that meeting with Mr Newman, that Deutsche Bank was not a buyer of further equity?---No. You are quite sure about that?---Yes. You are quite certain you are telling the truth about that, Mr Morton?---Yes." In the memorandum sent under his name to the unitholders in the Trust on 14 July 1989, Mr Morton had canvassed various options, having regard to his view that the partnership was "not financially sound" and "lack[ed] strategy [and] an effective and workable management structure". One option was an approach to Deutsche Bank for a sale of the equity of individual partners. Mr Morton said this in the memorandum: "the reasons stated to me why this is not possible are:- a) tax implications b) it victimises the people who may get a better price in the future c) Garrick Hawkins may get a share d) Deutsche Bank is not a buyer e) Control will go to Deutsche Bank." (Emphasis added.) The comment in (d) squarely contradicted Mr Morton's oral evidence. I do not think Mr Morton's explanation (that others had helped draft the memorandum which was sent in his name) was convincing. The memorandum of 14 July 1989 is significant for another reason. A fair reading of it suggests that Mr Morton, far from having decided to retain his equity pending DBAL's purchase of the remaining equity, had either decided, or come very close to deciding, that he should leave the partnership. The memorandum expressed Mr Morton's belief that the business was not viable because of "the amount of capital and debt servicing costs". Mr Morton also expressed the view that the partnership had a morale and management problem, in part because a number of partners and staff did not trust management. In cross-examination, Mr Morton accepted that he believed that a number of partners, including himself, were not financially viable. As Mr Morton said in his letter of 17 July 1989 to Mr Cabble, he thought the value of his units was less than the amount of the Westpac loan. No doubt these were among the reasons that prompted him to propose in his memorandum that unitholders should approach Deutsche Bank for a further sale of equity. In the penultimate sentence of the memorandum, Mr Morton said: "I for one would sooner earn a salary and bonus than be continuously fighting to keep the business going with the hope of a windfall gain". At this time, as he acknowledged, Mr Morton had been transferred to the Capital Markets Division where he was "doing odd bits and pieces" but had not been given a job. The terms of the memorandum and Mr Morton's oral evidence do not support his contention that, at the time of the meeting with Mr Newman, his plan was to retain his equity in the partnership, pending the purchase by DBAL of the balance of the units in the Trust. I formed the view that, by contrast, Mr Newman and Mr Barnes were reliable witnesses, who gave basically accurate accounts of the events in which they participated. They each frankly acknowledged that their recollection of some matters was imperfect, but in my view they were each clear on the substance of the significant events. Mr Newman's version of his conversation with Mr Morton was supported by his account of the discussions he had held with DBAG representatives in West Germany in June 1989. Mr Newman was not challenged in cross-examination on this part of his evidence. Mr Barnes was challenged on his account of events in West Germany, but the cross-examination, in my opinion, did not cast doubt on the substantial accuracy of his recollection. Dr Birch did put to Mr Barnes that the conversation with Mr Thelen, which he recalled as having occurred in June 1989, in fact took place in 1990. I do not think, however, that there is anything in the documentation or what was put to Mr Barnes which renders his account improbable. Furthermore, Mr Newman's account of the conversation with Mr Morton is, in my opinion, supported by the terms of cl.6.1 of the retirement deed. Each of the warranties refers to knowledge of, or participation in, a current proposal by Deutsche Bank to acquire a further interest in the Trust. Had the conversation with Mr Newman been as described by Mr Morton, it is very likely that cl.6.1 would have been drafted differently. The result is that, insofar as Mr Morton's evidence conflicts with that of Mr Newman or Mr Barnes, I prefer the evidence of Mr Newman and Mr Barnes. It is less easy to choose between the evidence of Mr Costa and Mr Morton. In addition to the difficulties with his evidence to which I have already referred, Mr Morton's account of his dealings with Mr Costa is not easy to follow. According to Mr Morton, he believed Mr Costa when the latter said that he had contacted Westpac's account manager, who wanted a statement of Mr Morton's position. Mr Morton also said that he believed Mr Costa's statement that Westpac would demand immediate repayment of the loan under the Scheme. It is difficult to understand why Mr Morton thought that cancelling the Westpac meeting would solve or ameliorate his problem, since (on his understanding) Westpac was aware of his position in any event. Mr Costa's account is also not free from difficulty. I do not think that Mr Costa was attempting to mislead the Court, but I have somewhat less confidence in the accuracy of his recollection of events than I do in the evidence of Mr Newman and Mr Barnes. For example, I found somewhat curious Mr Costa's statement that he told Mr Morton that he (Mr Costa) would call off the meeting with Westpac, even though (on Mr Costa's version) he had never made an appointment for Mr Morton. Nonetheless, both Mr Costa and Mr Morton agreed that, at the time, they believed that a disclosure to Westpac of Bain's poor financial situation would have serious consequences for the partnership. This supports Mr Costa's contention that he did not make an appointment for Mr Morton to see the Bank, since to do so would have created a potentially serious problem for the partnership. Although I view Mr Costa's evidence with some caution, on balance I think his account was broadly accurate. In my opinion, a useful indicator of what transpired between Mr Morton and Mr Costa is contained in the transcript of a conversation between Mr Morton and one of his former partners, Mr Mark Cullen, in April 1991. According to Mr Morton, that conversation was recorded in accordance with industry practice concerning calls made to and from the dealing rooms of financial institutions. The transcript of the conversation records Mr Morton as stating that the partnership had organised a meeting with the Bank in July 1989. Mr Morton is recorded as continuing as follows: "I went down to Costa's room and I said, 'Phil, this is ridiculous', and he looked at my balance sheet and he said, 'If we take this to Westpac', he said, 'they're going to pull the loan on every other partner here', and I just said, 'This is ridiculous'." Mr Morton acknowledged in cross-examination that Mr Costa had made these observations in the conversations of July 1989, but claimed that they were made later in the conversation, after Mr Costa had made the remarks attributed to him by Mr Morton. However, the fact that the transcript of the telephone conversation (which Mr Morton knew was being taped) makes no reference to those remarks suggests that Mr Costa did not make them. I accept Mr Costa's denial that he told Mr Morton that, based on his (Mr Costa's) discussions with Westpac, the Bank would demand immediate repayment of the loan to Mr Morton. Findings I find that Mr Newman did not say that Mr Morton should get it out of his mind that Deutsche Bank would buy any further equity in Bain & Co. To the extent that it is relevant, Mr Newman did not say anything to Mr Morton that could have led the latter to believe that any pre-existing arrangement or understanding between DBAG and the partnership, concerning the purchase of further equity, was no longer in effect. Mr Newman did say that his visit to Frankfurt had suggested that Mr Morton should not rely on the Bank buying additional equity to resolve his current account position. Mr Newman also said that it was unlikely that Deutsche Bank would acquire any additional equity in the immediate future. He did not make the statement alleged in paragraph 12 of the statement of claim. I find that Mr Costa did not say to Mr Morton that, based on his discussions with Westpac and the figures that he was preparing, Westpac would demand immediate repayment of the loan. Nor did Mr Costa make a representation to the effect of that pleaded in paragraph 12 of the statement of claim. Mr Costa did say that if Mr Morton took the balance sheet he had prepared to Westpac, the Bank would pull the loan on every partner. The "Gentlemen's Agreement" In his submissions, Dr Birch devoted sometime to the question of whether there had been a "gentlemen's agreement" reached in September 1988 between DBAG representatives and the partnership's negotiators. This issue is significant if I were to find that Mr Newman made the Deutsche Bank representations as alleged. That representation was said to be false, inter alia, because DBAG or DBAL had never abandoned its desire to acquire the balance of the equity in the partnership and, indeed, the "gentlemen's agreement" providing for the acquisition by DBAL of the balance of equity remained unimpaired by subsequent events. My findings on the Deutsche Bank representation make it unnecessary to consider whether there was a "gentlemen's agreement" on foot in 1988. The information that I have found was conveyed by Mr Newman to Mr Morton in July 1989 was not shown in any way to be inaccurate. On the contrary, it accurately reflected what Mr Newman had been told by the DBAG representatives in Frankfurt a short time earlier. This is not, however, necessarily an end to the matter. As I understood Dr Birch, he relied on the warranties in the retirement deed as creating separate representations, even though the applicants made no claim in the proceedings for breach of warranty. Although no argument was directed to whether the warranties in the deed were capable of operating as representations, independently of their force as contractual promises, I shall assume that they could have this effect. On this assumption, the relevance of the "gentlemen's agreement" is that its existence may have falsified the representation contained in the warranties. In particular, cl.6.1(c), which warranted that none of the partners was aware of any proposal for any discussion or other communications with DBAL in connection with its acquisition of further equity in the firm, may have amounted to a misrepresentation if a "gentlemen's agreement" of the kind alleged was in place. Dr Birch relied on a number of matters to support Mr Morton's evidence that there had been a "gentlemen's agreement", made in September 1988, to the effect that further equity would be made available to DBAL, once the agreement with Mr Hawkins had lapsed in December 1990. First Dr Birch pointed to an internal memorandum of DBAG, prepared by a Dr Breuer, dated 10 April 1990. I admitted this document into evidence over the objection of the respondents. The document opened with the following statement (translated from the German): "100 per cent take over of Bain and Company The Board of Directors had decided in principle at the occasion of our participation in Bain in September 1988 to aim for a majority in the group of companies. The Bain Partners were at the time not willing to give us a majority holding in a single transaction. We therefore commenced with a 50/50 solution but with a contractual entitlement to increase our share to 51 per cent in July 1991, using the purchase price established as a basis. This procedure took into account the desire of the Bain Partners to continue to appear independent to outsiders. The market did learn in the meanwhile however that we do possess the option and this aspect therefore is no longer of importance." The author of the document later said that - "DBAL would like to open a dialogue with the Bain Partners against this background in order to discuss a take-over of the remaining 50 per cent and therefore requests to be issued with a commercial power of attorney" (Emphasis in original.) One might have expected that any tacit understanding as to the transfer of further equity in the partnership would have been mentioned early in the document. There was no such mention in the early parts of the document. However, Dr Birch relied upon a later statement in the memorandum (again in translation): "An unspoken agreement existed during our takeover negotiations that we would talk about the transfer of additional shares in July 1991 after exercising our right of option." I leave to one side the fact that the author of this memorandum was not involved in the 1988 negotiations. In my opinion thestatement relied on by Dr Birch falls far short of establishing a "gentlemen's agreement" in 1988 that equity would be made available after Mr Hawkins' entitlement came to an end, or even that there would be negotiations in good faith concerning the sale of equity after Mr Hawkins' entitlement ceased. The tenor of the document as a whole is inconsistent with effect being given to a pre-existing understanding or agreement. The document recognises that the question of acquisition will have to be approached afresh and that negotiations will have to be conducted on a commercial basis. It does not refer to the agreement with Mr Hawkins, but to the exercise of the option by DBAL pursuant to the terms of the 1988 written agreement. In my view, the memorandum casts no doubt on the evidence of Mr Newman and Mr Barnes that there was no "gentlemen's agreement" of the kind alleged by the applicants. Secondly, Dr Birch relied on Mr Barnes' statement in the memorandum of 22 September 1988 recording that, "[as] Deutsche Bank is likely to wish to purchase additional equity in future years, the value of equity is for the first time tangible". However, this statement is quite consistent with the exercise of a commercial judgment by Mr Barnes that DBAL, having gone as far as it had, would be likely to wish to acquire the remaining equity at some time in the future. It does not necessarily suggest an understanding that additional equity would be sold to DBAL at some particular time in the future or even an understanding that such a proposal would be discussed at some future time without regard to the views of the partners at that time. Thirdly, Dr Birch sought comfort from another internal DBAG document, dated 12 March 1991. This recorded that, contrary to original expectations, commencement of negotiations with the partnership had to be put back to February 1991. This statement is, however, consistent with Mr Barnes' evidence as to his response to an approach by Dr Beck of DBAG in April 1990 inquiring whether the partnership would be prepared to discuss the sale of the remaining 49% of equity. Mr Barnes, whose evidence I accept, said that he reminded Dr Beck of the agreement with Mr Hawkins and stated that the partners would not be interested in discussions at that time. Finally, Dr Birch referred to the circumstances at the time of negotiations creating an incentive for the DBAG and partnership negotiators to reach an understanding concerning the remaining 49% of equity. The mere existence of a possible motive, however, cannot substitute for firm evidence of the asserted understanding or arrangement. None of the material relied on by Dr Birch causes me to doubt the evidence of Mr Newman and Mr Barnes that no "gentlemen's agreement" of the kind alleged by the applicants was reached during the negotiations with DBAG in 1988. I accept their evidence. Thus, insofar as the applicants rely on the "gentlemen's agreement" to establish the falsity of representations embodied in the warranties in the deed of agreement, the contention fails. I should add that when I admitted the statements contained in the memorandum of 10 April 1990 into evidence over the respondents' objections, I indicated that I would give reasons later for doing so. Having regard to the factual conclusions I have reached, I do not think it necessary to do more than say that I admitted the document, insofar as it contained the statements, pursuant to s.69(1) and (2) of the Evidence Act 1995. I took the view, if it were necessary to do so, that the statements contained representations of fact rather than of opinion. Damages On the view I have formed, it is not necessary to consider whether the applicants are entitled to damages by reason of any misleading or deceptive conduct by the respondents. No such conduct has been established. However, as I think that the applicants have failed, in any event, to show that they have suffered any loss or damage, I should refer to this issue briefly. Dr Birch argued that, by reason of the respondents' misleading and deceptive conduct, Mr Morton and Valfront lost the opportunity of participating in the disposal of their remaining equity in the partnership to DBAL. Implicit in this submission was the contention that the value of the units had increased between August 1989, which was the date of the deed of retirement, and March 1992, when the Subscription Agreement was entered into. Under that agreement, as I have said, DBAL obtained an option to acquire the remaining 49% of equity in the firm, exercisable in 1998. The applicants adduced no valuation or accounting evidence. No evidence was given of the true value attributed to the units by the complex arrangements embodied in the Subscription Agreement. Dr Birch acknowledged that no such evidence was adduced because the applicants had taken a "short cut" in the presentation of their case. Dr Birch sought to overcome these difficulties by attributing a value of approximately $110,000 per 1% of equity in August 1989. This was on the basis that Mr Morton or Valfront had received (so Dr Birch contended) approximately $550,000 for the 5.026% of the units in the Trust held by Valfront at that time. There was also evidence from Mr Costa that units were traded in 1989 at a net redemption value of $110,000 per percentile. Dr Birch then attributed a value of $362,500 per 1% of equity in December 1991. He did this by relying on the letter of 4 December 1991, in which DBAL stated that it would subscribe for 150 million Class A units in the Trust for a cash amount of $36.25 million. Dr Birch's submissions assumed that the 150 million Class A units represented the remaining 49% of equity in the firm. They also assumed that the figure of $36.25 million was effectively the purchase price of units to be acquired by DBAL. As I have previously explained, the 150 million Class A units were to be issued to DBAL, but as part of a complex series of inter-dependent arrangements. Existing units in the Trust were to be redeemed and substituted by the issue of Class B units. Whether the Class A units simply represented 49% of the equity in the partnership was not made clear in the evidence. More importantly, however, the sum of $36.25 million, contrary to Dr Birch's submission, did not represent the commercial value of those units. The more critical figure would seem to be the sum of $60 million which was the price (or at least part of the price) to be paid in 1998 for the redemption of the Class B units. But whether DBAL chose to exercise its "option", as Mr Barnes said in evidence, was likely to depend on the performance of the partnership in the intervening period. In the absence of evidence as to the commercial effect of these arrangements, and in particular their value to unitholders, it is impossible to conclude that the Subscription Agreement demonstrated that the units had a particular value at March 1992. Dr Birch also relied on the value per percentile of units, referred to in the evidence of Mr Costa. Mr Costa, in addition to stating that units had been traded in 1989 at a net redemption value of $110,000 per percentile, gave evidence that one partner had received a net redemption value of $220,000 per percentile in January 1993. But the net redemption value, referred to by Mr Costa, was net of the partnership's liability to First Bain Leasing Pty Ltd. Moreover, the transactions referred to by Mr Costa were between partners. There was no evidence of the factors that may have influenced those sales, nor whether the particular transaction provided any reliable indication of the value of units on a sale of the balance of equity in the partnership to a third party. There was also no attempt by the applicants to explain the relationship between the payments made to Valfront under the deed of retirement of August 1989 and the discharge of Valfront's liability to First Bain Leasing Pty Ltd. The defence filed by the respondents alleged that the Valfront units were redeemed for a total of $5.58 million, of which Valfront itself was alleged to have received some $700,000 by July 1993. Dr Birchaccepted in argument that Valfront had received sufficient payment under the deed of retirement to discharge its liability to First Bain Leasing Pty Ltd, which he acknowledged was about $5 million. The relationship between these figures and the so-called net redemption value of units was never explained. On the evidence before me I am quite unable to find that the value of units in the Trust in March 1992 was any greater than their value at August 1989. In the absence of evidence valuing the units in 1992, or explaining the value fairly to be attributed to them in consequence of the Subscription Agreement, I am left in ignorance as to whether the value of units had increased between 1989 and 1992. Indeed the fact that a 50% share of equity was valued at $50 million in late 1988 (when the sale to DBAL occurred), suggests that values in 1992 might have fallen from their late 1988 or early 1989 levels. If it is correct that DBAL had an option to acquire 49% of the units for approximately $60 million in 1998, it would seem plausible, at least on the face of the arrangement, that the value of the remaining equity, discounted to 1992 dollars, was somewhat less than $49 million. It follows that, assuming the respondents had engaged in misleading or deceptive conduct, I would find that the applicants had not established on the balance of probabilities that they had suffered any loss or damage by reason of that conduct. This is because any such conduct by the respondents was not shown to have caused the applicants to lose a commercial opportunity having some value, not being merely a negligible value: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, at 355. Speculation cannot be a substitute for evidence. Conclusion It follows from what I have said that the applicants have failed to establish that any of the respondents made the false representations alleged in the statement of claim. Even if I had found that such representations had been made, I would have concluded that the applicants had failed to make out a case for damages. It also follows from these conclusions that the applicants cannot make out a claim founded on breach of fiduciary duty. The application must be dismissed, with costs. I certify that this and the preceding 42 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Dated: 8 June, 1995 Heard: 24 April to 2 May 1995 Place: Sydney Decision: 8 June, 1995 Appearances: Dr C. Birch, instructed by Hunt Musgrave & Peach, Solicitors, appeared for the applicants. Mr B Oslington QC and Mr D. Ryan, instructed by Middleton Moore & Bevins, Solicitors, appeared for the respondents.