CATCHWORDS MISLEADING AND DECEPTIVE CONDUCT - written and oral representations and projections - representations materially false - effect of a disclaimer in written document - time at which applicants ceased to rely on representations. INDEMNITY AND CONTRIBUTION - second respondent relied on third and fourth respondent - justified in trusting their judgment and advice - entitled to indemnity. PROCEDURE - application for leave to issue cross-claim - lateness of application - stranger to contract of insurance proposing to seek declaration against insurer - application refused. Insurance Contracts Act 1984 (Cth) Bankruptcy Act 1966 (Cth) Judiciary Act 1903 (Cth) Federal Court of Australia Act 1976 (Cth) Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (SA) Misrepresentation Act 1972 (SA) The Companies (South Australia) Code 1989 J N Taylor Holdings Ltd (in liquidation) v Bond (1993) 59 SASR 432 Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107 Gould v Vaggelas (1985) 157 CLR 215 Spreag v Paeson Pty Ltd (1990) 94 ALR 679 Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41- 043 Yorke v Lucas (1985) 158 CLR 661 Cummings v Lewis (1993) 41 FCR 559 Sebastian Properties Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Fraser v NRMA Holdings Ltd (1995) 127 ALR 543 Gardam v George Wills & Co Ltd (1988) 82 ALR 415 Netaf Pty Ltd v Bikane Pty Ltd (1990) 92 ALR 490 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 No. SG 15 of 1994 BAZZA INVESTMENTS PTY LTD and DAVID JOHN BARRATT Applicants - and - INNOVATION MANAGEMENT PTY LTD, JOHN DONALD STIRLING TAYLOR, KARL MARTIN DE PORTEOUS, and MICHAEL LAWTON HARRINGTON SOUTH Respondents O'LOUGHLIN J. ADELAIDE 13 OCTOBER 1995 IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIAN DISTRICT REGISTRY ) ) GENERAL DIVISION ) No. SG 15 of 1994 B E T W E E N: BAZZA INVESTMENTS PTY LTD and DAVID JOHN BARRATT Applicants - and - INNOVATION MANAGEMENT PTY LTD, JOHN DONALD STIRLING TAYLOR, KARL MARTIN DE PORTEOUS, and MICHAEL LAWTON HARRINGTON SOUTH Respondents MINUTES OF ORDER JUDGE MAKING ORDER : O'LOUGHLIN J. WHERE MADE : ADELAIDE DATE OF ORDER : 13 OCTOBER 1995 THE COURT ORDERS THAT: 1. That these proceedings be adjourned for further consideration. 2. That any party be at liberty to bring the matter on for further hearing on seven days notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIAN DISTRICT REGISTRY ) ) GENERAL DIVISION ) No. SG 15 of 1994 B E T W E E N: BAZZA INVESTMENTS PTY LTD and DAVID JOHN BARRATT Applicants - and - INNOVATION MANAGEMENT PTY LTD, JOHN DONALD STIRLING TAYLOR, KARL MARTIN DE PORTEOUS, and MICHAEL LAWTON HARRINGTON SOUTH Respondents REASONS FOR JUDGMENT Coram: O'Loughlin J. Place: Adelaide Date : 13 October 1995 This litigation has resulted from the claims of the applicants, Bazza Investments Pty Ltd ("Bazza Investments") and David John Barratt ("Mr Barratt") that they have lost substantial sums of money as a result of their investment in a project to manufacture and market a particular toy doll that came to be known as the Bush Baby Doll. The doll was the invention of the third respondent, Karl Martin De Porteous ("Mr De Porteous"). He had secured a licence to develop it from the owners of the intellectual property that included the late May Gibbs' famous Bush Babies; the doll was intended to harmonise with her characters. A great deal of evidence was devoted to the components and intended operation of the Bush Baby Doll, to the history of its development and to the difficulties that were encountered during the course of its development. Although I have come to the conclusion that it will not be necessary for me to examine the bulk of this evidence, it is desirable to give some general introduction to the principal features of the invention. The doll was described in Ex A1 in these terms: "The basic doll consists of a skeleton within a foamed body form over which there is a durable skin. The product, as a result, features a remarkable 'feel' and is fully poseable, allowing the body to assume poses consistent with those of our own bodies and showing the same skin wrinkles, etc. This feature alone represents a 'first', and ensures that the product stands apart, and ahead, of the rest of the doll market." Mr De Porteous was in need of finance to develop his project. He therefore turned to the first respondent Innovation Management Pty Ltd ("Innovation Management"). The second respondent, John Donald Stirling Taylor ("Mr Taylor") was then, and at all times material to this litigation remained, the managing director of that company. Innovation Management was beneficially owned and financed by the South Australian Government. I accept Mr Taylor's evidence that its role was to assess and foster the commercialisation of new technology. On occasions, Innovation Management would also invest in appropriate projects and take up board representation. Mr Taylor, on behalf of Innovation Management, having made a decision in principle to foster Mr De Porteous' invention, engaged the fourth respondent, Michael Lawton Harrington South ("Mr South"), to act as a consultant to the project and to assist with its development and marketing. As part of the involvement of Innovation Management in the project, Mr Taylor became a director on 22 March 1988 of Ophir Australian Marketing Pty Ltd ("Ophir") the company that had been acquired by Mr De Porteous to develop and market the Bush Baby Doll. Mr Barratt gave evidence that he had a business background in rural industries, marketing and accounting. I reject the submission that he was "totally naive" in the area of manufacturing but I do acknowledge that he had no previous experience in that field. That lack of experience was, in my opinion, compensated to a degree by Mr Barratt's general business background. Bazza Investments was one of several companies controlled by Mr Barratt and his family. Another of his companies having disposed of a rural property in 1990, the Barratt group had surplus funds to invest. A decision was made that Bazza Investments would be the company in the Barratt group of companies that would be used as the vehicle for an investment which would be non-rural related. Those were the circumstances which led to Mr Barratt contacting Mr Taylor in October 1990 and, as Mr Barratt would have it, to him seeking advice from Mr Taylor as to how best to invest his group's surplus funds. It will be necessary to make specific findings about what was said by Mr Taylor to Mr Barratt on that occasion but that issue can be put to one side for the time being. There can be no doubt that Mr Taylor was instrumental in introducing Mr Barratt to Messrs De Porteous and South and there can be no doubt that the Barratt group acquired, at a cost of $350,000, 350,000 fully paid shares of $1 each in the capital of Ophir. Those shares were acquired in the name of Bazza Investments. The issue price was paid in the following instalments on or about the following dates: 3 December 1990 $100,000 10 January 1991 $100,000 1 March 1991 $ 50,000 1 April 1991 $ 50,000 1 May 1991 $ 50,000 $350,000 In addition to investing $350,000 in the acquisition of shares, Bazza Investments also executed a Deed of Guarantee in the sum of $150,000 on 14 May 1991 in favour of the Commonwealth Bank of Australia, Ophir's banker. The execution of that Deed was part of the overall agreement to invest in the project that had been negotiated in the latter part of 1990 and, as a consequence, an amount of $150,000 was deposited with the Commonwealth Bank on 11 January 1991, ear-marked for the guarantee. In December of 1991 the Bank called up the Guarantee and Bazza Investments paid $150,000 to the Bank in satisfaction of its obligations under the guarantee. The Barratt group also lent Ophir a further $100,000 in September 1991; of that advance, $25,000 was repaid in March 1993 but the balance, together with the earlier investment of $350,000 and the payment of $150,000 under the guarantee have since been irretrievably lost. The project for the manufacture and marketing of the Bush Baby Doll collapsed and Ophir went into liquidation in November 1992. The applicants, having lost $575,000 together with the use of that money, have claimed, under various heads, that the respondents were responsible for their losses. Counsel for Innovation Management and Mr Taylor submitted that the evidence in the trial revealed that the first instalment of $100,000 (paid 3 December 1990) and the last instalment of $50,000 (paid 1 May 1991) were paid out of an account styled "DJ and EM Barratt". That was sufficient, according to his submissions, to deprive the applicants of any right to claim damages with respect to those payments. But that submission does not do justice to the whole of the evidence. It was quite clear from what Mr Barratt said in evidence that although a particular account styled "DJ and EM Barratt" was the original source of these two payments, it was the intention of the Barratt group that Bazza Investments would be identified as the member of the group that would be the investor and book-keeping and accounting entries were made to record that fact. In this regard Mr Barratt's evidence was corroborated by his accountant, Mr Hudson. I accept their evidence. The applicants were represented by Mr Morecombe QC. Mr Evans represented both Innovation Management and Mr Taylor. Mr De Porteous acted for himself throughout the proceedings. Initially Mr South was represented by the solicitors for Innovation Management and Mr Taylor. On 19 August 1994 he filed a notice that he was acting for himself, but on 31 January 1995, a week or so before the commencement of the trial, another firm of solicitors filed a notice of acting on his behalf. That firm only remained on record until 20 February however. On that day, after the trial had been in progress for ten days, they filed a notice that they were no longer acting. Mr Anderson QC who, until then, had acted as counsel for Mr South, also informed the court that his instructions had been terminated. The trial thereafter continued. Mr South acted for himself for a short time and then announced that he was "withdrawing" from the proceedings. Although he did not attend the last part of the hearing he did, by arrangement, file written submissions as did the remaining litigants other than Mr De Porteous. Cross-claims seeking contribution and indemnity were filed by Innovation Management and Mr Taylor against Mr De Porteous and also against Mr South. Those gentlemen, in turn, likewise filed cross-claims seeking contribution and indemnity not only from Innovation Management and Mr Taylor but also from each other. On 23 June 1994, as a result of leave sought and obtained, Mr South filed a cross-claim against FAI General Insurance Co Ltd ("FAI") seeking indemnity pursuant to the terms of a Professional Indemnity insurance policy. However, during the course of the trial, the parties to that cross-claim settled their differences. On 20 February, 1995, the eleventh day of the trial, on the application of FAI, with the consent of Mr South and against the opposition of Innovation Management and Mr Taylor, an order was made dismissing Mr South's cross-claim with no order as to costs. No other terms of the settlement were disclosed. As a result of this development Innovation Management and Mr Taylor thereafter applied for leave to join FAI as an additional respondent in the proceedings; Mr H C Williams QC appeared with Mr Evans but only for the purpose of submitting argument on that issue. After hearing argument, I refused the application for joinder, stating that I would later publish my reasons; I now do so. In support of his application, Mr Williams handed up a copy of an intended Statement of Claim, which, in reality, amounted to a proposed cross-claim by Innovation Management and Mr Taylor against FAI. It was pleaded in the proposed Statement of Claim that on or about 22 July 1993, a contract of insurance was made between Mr South, MLH South and Co a company called Hartley Pty Ltd as co-insureds with FAI. It was alleged that the contract was express and in writing and comprised various documents including a nominated Policy Schedule to a particular master policy. It was further alleged that the policy provided indemnity up to $1M to an insured against any claim for compensation made against the insured during the period of cover specified in the schedule to the policy for breach of professional duty in the conduct of "the practise" (as defined in the policy) by reason of any negligence. On or about 8 March 1994 Mr South was served with the proceedings in this action at the suit of the applicants and later he was served with cross-claims including that of Innovation Management and Mr Taylor. Mr South duly gave notice to FAI of the claims that had been made against him but on about 6 May 1994 FAI declined to indemnify him. Having recited those facts, it was then pleaded in pars 10, 11 and 12 of the proposed Statement of Claim in these terms: "10.In the event that judgment is entered against Innovation Management Pty Ltd and John Taylor in respect of the proceedings and as against South on the Cross Claim South will become liable to Innovation Management Pty Ltd and John Taylor for the payment of monies thereby becoming due namely for damages interest and legal costs. 11. By reason of the matters pleaded herein and by virtue of sections 13 and 54 of the Insurance Contracts Act 1984 (Cth) FAI was and is liable to indemnify South for any damages interest and legal costs within the meaning of the policy. 12. The plaintiffs claim: 12.1A declaration that FAI is obliged to indemnify South for any loss sustained by South in consequence of judgement being entered against South in terms of the Cross Claim." Mr Williams acknowledged at the outset that his clients had no right of action against the insurer for the recovery of any loss which they have sustained in consequence of any wrongful act of Mr South, or of the amount of any judgment which they might obtain against Mr South: J N Taylor Holdings Ltd (in liquidation) v Bond (1993) 59 SASR 432 at 435. Nevertheless, he put forward, as his primary proposition, that the existence of his clients' cross-claim against Mr South entitled his clients to investigate whether, upon the proper construction of the relevant FAI policy, indemnity was available to Mr South in the circumstances of this case; as a secondary issue, he submitted that his clients would be entitled to investigate whether Mr South had lost his rights of indemnity by virtue of the terms of settlement that had been reached between Mr South and FAI. In support of the latter proposition he submitted that there is, by virtue of the provisions of the Insurance Contracts Act 1984 (Cth) an obligation of good faith owed by an insurer to a third party and that the provisions of the Bankruptcy Act 1966 (Cth) with respect to voluntary settlements exist for the protection of his clients. I do not consider that either of these Statutes, or their contents, can have any operation in the present state of these proceedings; the proposed Statement of Claim does not suggest that the settlement between Mr South and FAI was for no or insufficient consideration; no question of Mr South's solvency or insolvency was addressed; it was not pleaded that the settlement was tainted by fraud, duress, undue influence or mala fides on the party of the parties or either of them. There was nothing before the court that pointed to the potential for either of these statutes to have any application at any time to the settlement. As I assessed the situation, Mr South was, when he effected his settlement with FAI, advised by competent senior counsel, Mr Anderson QC. Prima facie, one is entitled to assume that Mr South obtained a fair settlement, irrespective of the size of payment that he received as a consequence of his settlement (if indeed he received any payment). In addition, there was no evidence put before me that Innovation Management and Mr Taylor had known of the existence of Mr South's Policy of Insurance in their initial preparation of their case for trial, nor any evidence that pointed to their subsequent preparation and presentation being affected when they acquired knowledge of the existence of the policy. It was put that the court ought to be concerned at the prospect of some of the issues in this trial being litigated in separate proceedings between Innovation Management and Mr Taylor of the one part and FAI of the other part. That could be the likely consequence,so I was told, of not granting leave to serve the Statement of Claim on FAI. But that risk had to be weighed in the balance with the fact that the application had come on 21 February 1995, the 12th day of a trial that was expected to conclude on the 15th day. Agreeing to the application would have inevitably meant that the trial would have had to be adjourned for an indefinite period of time. Ultimately, a decision on an issue such as this must be left to the discretion of the trial judge, although in this case the exercise of the discretion to reject the application is fortified by the provisions of O 6 r6 of the Rules of Court. It provides: "Where any joinder of parties or of causes of action may complicate or delay trial of the proceeding or is otherwise inconvenient, the Court may order separate trials or make such other order as the Court thinks fit." It could be that this court would have the jurisdiction to make the orders sought by Innovation Management and Mr Taylor. Orders of that nature were made by the Full Court of the Supreme Court of South Australia in J N Taylor v Bond (supra) and, should it be necessary, s78 of the Judiciary Act 1903 (Cth) could be called in aid. There is also dicta in Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107 to the effect that a person, even though he or she is not a party to a policy of insurance, may enforce the indemnity for which the policy provides. It is not necessary for me to decide whether the facts of this case would fall within the umbrella of the High Court's decision. If they do, the cause of action will not be lost because of this decision, which merely denies to Innovation Management and Mr Taylor the opportunity to initiate their case as part of these proceedings. Mr Williams rightly drew my attention to s22 of the Federal Court of Australia Act 1976 (Cth) and its mandate that, as far as possible, all matters in controversy between the parties should be completely and finally determined so that multiplicity of proceedings can be avoided. But in the final analysis I concluded that I should exercise my discretion against the application for joinder. I did so for the following reasons:- . In J N Taylor v Bond there had been an outright denial of liability by the insurer whereas in the present case there had been some settlement (on undisclosed terms) of Mr South's claims. That therefore raises a doubt, at least, about any person having any entitlement to seek the proposed declaration unless, of course, the settlement could be set aside. . In J N Taylor v Bond, there was a clear case for seeking declaratory relief, because of the insurer's continuing denial of liability, whereas in the present case the applicants for joinder could only presume that the settlement may have been on terms that were adverse to their interests. . Innovation Management and Mr Taylor did not claim fraud, duress, undue influence or mala fides with respect to the settlement. . Undoubtedly Innovation Management and Mr Taylor and their advisers were caught unawares by the settlement but they could have earlier protected their position by filing with their defence a cross-claim against FAI. . Such rights as they have will not have been lost to them merely because of the dismissal of this application. . Finally, the application came so late in the trial and so close to the finish of the trial that it would have been very unfair to the other litigants to grant the application; granting the application would have meant adjourning the trial to an indefinite date because of other existing court commitments. During the course of the trial Mr De Porteous and Mr South each announced that it was not his intention to give evidence. That remained the case so far as Mr De Porteous was concerned but Mr South ultimately entered the witness box as a result of being called as a witness by Innovation Management and Mr Taylor. Mr South's original discipline was Agriculture; he holds a Bachelor's Degree in Agricultural Science. Later he progressed into Management, acquiring a Graduate Diploma in Business Administration. In the period that is relevant to this litigation he carried on business as a Management Consultant specialising in strategic planning. He is a member of the Australian Institute of Management Consultants and started consulting through the South Australian Public Service Board before branching out into private practice in 1986. His evidence was helpful in many respects. Although there were areas in which I find myself unable to agree with him, that was not because he was, in any sense, untruthful as a witness: rather, as a result of self-interest or because of some defensive mechanism, he was inclined to put a gloss on aspects of his evidence where it might best help his cause. It also became apparent that he (and indeed everyone associated with the project, including Mr Barratt) were overly optimistic about the prospects of the doll. In Mr South's case, that optimism clouded his judgment. In uncontentious areas I found myself able to rely upon his evidence but in some areas where his evidence was under challenge it became necessary to evaluate it carefully and to look for corroborative or supporting evidence. Mr South explained that he first met Mr De Porteous in early 1988 as a result of a reference by Innovation Management; he had on earlier occasions engaged in consulting work for that company. As Mr Taylor described it, Mr South's duties were to "assess the commercial viability" of a project and "make suggestions as to different commercial directions..." (868). When asked to explain the nature of work that he performed for Mr De Porteous, Mr South explained that he assisted by finalising the "May Gibbs Licensing Agreement"; he also negotiated on Mr De Porteous's behalf and resolved a commercial or financial problem that then existed with a local manufacturer; Mr South also said that he assisted Mr De Porteous "in obtaining funds" (1034). In April 1989, Mr South suffered a heart attack; as a result, his involvement in Mr De Porteous's affairs diminished. Nevertheless, he acknowledged that Ex A1, ("the Interest Document"), was prepared by him at the request of Mr De Porteous and from information obtained by him from Mr De Porteous. Mr South's recollection was that most of his work in preparing the Interest Document took place in September and October 1990; he identified Ex A1 as being a copy of the final version of the Interest Document and as a copy of that which he gave to Mr Barratt. It was Mr South's recollection that a draft of the Interest Document had been given to Mr Barratt on an earlier occasion and returned by Mr Barratt at a second meeting in return for a copy of the final engrossment, that is Ex A1. A comparison of the documents that were identified by Mr South as the draft and the final copy of the Interest Document (Ex R3.370 and Ex A1) confirmed his evidence that the differences in the documents were either minor or cosmetic. It was the case for the applicants that the Interest Document contained both written representations and written projections that were materially inaccurate. During the course of the trial a substantial amount of time was devoted to determining when Mr Barratt might have received the final copy of the Interest Document as distinct from an earlier draft. I agree with the submissions of counsel for the applicants that this has become, essentially, an immaterial consideration to the fundamental questions that are before the court. I am satisfied, from all accounts, that Mr Barratt had the Interest Document (or a version of it) as and from his first meeting with Mr De Porteous and Mr South on 31 October 1990. I am also satisfied that his accountant, Mr Hudson, had access to the same document as from that occasion. Because any differences in the draft and the final version are immaterial it will be sufficient to refer, hereafter, to Ex A1 which was a copy of the final engrossment. The title page to the Interest Document bears the following endorsement:- "Prepared by M L H South & Co in co-operation with the company October 1990." The reference to "the Company" is a reference to Ophir. On the following page there is a reference to Messrs Taylor, De Porteous and South in these terms:- "Further information can be obtained by contacting any of the following: Mr Karl De Porteous, Managing Director Ophir Australian Marketing Pty Limited Phone (08)3642180 Fax (08)3641043 or Mr John Taylor, Manager Innovation Management Pty Limited Phone (08)2608222 Fax (08)3492436 or Mr Michael L.H. South, M.L.H. South & Co. Phone (08)3885379 Fax (08)3640735" The evidence of Mr South thus far summarised was not disputed in any material sense and I accept it as a reasonable summary of events that led to his involvement successively with Mr Taylor, Mr De Porteous and, finally, Mr Barratt. Mr Taylor, who holds degrees in Mechanical Engineering and Business Management, has worked for Innovation Management since 1984. Prior to that, he had three years employment with the Commonwealth Government's Department of Science and Technology. He described his work in the Department as: "... the industrial research and development scheme grants that were provided by the Commonwealth Government to companies for research and development." (865) Having regard to the nature of the claims that have been made against Mr Taylor and Innovation Management, it would, in my opinion, be of assistance to set out in some detail the purposes and objectives of Innovation Management. Mr Taylor gave the following description which I accept: "Innovation Management's responsibility is to try and assist and to foster the commercialisation of new technology and, I guess, we provide that in a range of different sorts of assistance. In its simplest form it might be free guidance and advice to inventor and, for example, we may have something like 1000 inquiries each year from inventors seeking assistance. They might be given some advice on patenting. They might be referred to patent attorneys. They might be referred to companies, and the like. The next stage could be that if the inventor wanted further help and, if we deemed it appropriate, we may assist in licensing his invention to an established company. The next stage of assistance could be that if there was some deficiencies and there was - a need for some money to assist that inventor in getting his invention, perhaps, to a prototype stage, at our decision, we would perhaps provide that money and spend it directly ourselves in developing that invention to a stage so that it either proved that it could perform, or into a stage where it could be submitted to a company for licensing. Then, finally, there may be an instance which did evolve with Innovation Management, and just prior to its formation, where we might take equity in companies and, indeed, to the very extreme on that, we might totally manage that company as 100 per cent fully owned subsidiary, and take it to a stage where we could spin it off - sell if to others." (866) Mr Taylor said that Mr De Porteous approached him sometime in 1987 or 1988 with an early prototype of the doll; he needed funds to assist him to progress to the next stage of development. Mr Taylor said that he was very impressed with Mr De Porteous's work; he described the achievements from his (Mr De Porteous's) own resources as "quite remarkable" (868). Some financial assistance and some assistance with patent applications was given by Innovation Management to Mr De Porteous at that stage. Mr Taylor said that the financial assistance was to enable Mr De Porteous to do further research and development work with respect to a hinge in the skeleton of the doll that was causing difficulty and also with respect to the polyurethane foam inside the latex skin. Innovation Management took up a nominal parcel of 500 shares in the capital of Ophir, Mr Taylor agreed to become a director of the company (with effect as from 22 March 1988) and Ophir, in return, entered into an agreement to pay Innovation Management a royalty of three per cent on the net sales of the Bush Baby Doll. As at October 1990 when Mr Barratt first became aware of the existence of the doll as a potential investment, Innovation Management had invested approximately $75,000 in Ophir and the invention. This investment included payments of sundry invoices, Mr South's consultancy fees and some sustenance payments to Mr De Porteous. It was Mr Taylor's evidence that Innovation Management ceased using Mr South's services as a consultant in April 1989 when Mr South suffered a heart attack. However, it is common ground that Mr South resumed his association with Mr De Porteous after his recovery and, in particular, involved himself heavily in the preparation of the Interest Document. Mr Taylor said that the involvement of Innovation Management with the project "phased out a little towards the end" (872). When asked to explain this statement he replied that "the expectations and the activity became significantly less" as Mr De Porteous was still having difficulty with the hinge; he concluded by saying "I didn't spend much time on it". There was however, an entry under the heading "Ophir" in the minutes of the meeting of the Board of Directors of Innovation Management of 24 October 1990 in terms indicating an ongoing interest in the project: "Mr Taylor informed the Board that Barry Barratt is a possible new investor. Discussions have yet to be held to establish the level of his financial interest." Mr Taylor affirmed the accuracy of that entry; he recalled Mr Barratt speaking with him on the telephone on one occasion prior to 24 October but he could not nominate the date except to say that he believed that it was after 3 October - that being the date of the preceding directors' meeting. Mr Taylor said in evidence that Mr Barratt identified the primary purpose of his telephone call as an inquiry about investing in a certain boat. Mr Taylor replied that he could not recommend it but suggested that Mr Barratt might like to consider the Bush Baby Doll project. The applicants' case was presented upon the premise that there were seven (7) identifiable issues which, individually and in combination, had given rise to their various causes of action. It is now necessary to identify each of those seven subjects but specific findings with respect to them can, in most cases, be deferred for the time being. (a) The Initial Representations These were said to have been made by Mr Taylor on behalf of Innovation Management and Ophir when Mr Barratt first rang him in October 1990. In brief, it was claimed that Mr Taylor recommended the Bush Baby Doll as a financially sound investment which would provide investors with great financial rewards; it was also alleged that Mr Taylor had said that there had been extensive research and development carried out and completed with respect to the dolls and that the dolls were ready to be manufactured and sold on a large scale: (see generally par10 of the Statement of Claim). Innovation Management and Mr Taylor denied that any such representations had been made. (b) The Written Representations After his first telephone contact with Mr Taylor, I find that Mr Barratt and his accountant Mr Hudson, a partner of Pannell Kerr Forster, had meetings with Mr De Porteous and Mr South on 31 October, 7 November, 12 November and 14 November 1990. I am satisfied that Mr Taylor was present at the last mentioned meeting but not at the three earlier ones. The meetings of 31 October, 7 November and 14 November were held at the offices of Pannell Kerr Forster; the meeting of 12 November was held at the home of Mr De Porteous and was also attended by Mr Leung of Hong Kong. Mr Leung was the intended manufacturer of a section of the Bush Baby Doll. At the meeting of 31 October, Mr South handed Mr Barratt a copy of a draft of a document entitled "Australian Bush Babies Come to Life - Ophir Australian Marketing Pty Ltd interest document" Ex R3 370. At the next meeting on 7 November Mr Barratt received a revised and final version of the same document (Ex A1). In par16 of the statement of claim it is pleaded that the Interest Document contained the following representations (these representations are referred to in the pleadings as "the written representations") "16. (a) That Ophir was seeking additional funds of $350,000 by the issue of $1.00 ordinary shares at par; (b) That the additional funds would enable Ophir to commence the manufacture and marketing of 40cm dolls and accessories based on the May Gibbs theme, Australian Bush Babies; (c) That Ophir was ready to commission production tooling, engage manufacturers and produce dolls for product release in April 1991. (d) That all research and development was complete (e) That manufacturing prices had been obtained. (f) That the additional funds would fund production tooling and operations through to July 1991 when Ophir was projected to assume positive operational cash flow. (g) That Ophir had spent a period of 4 years on research and development and that is was ready to commence manufacturing the product at low cost. (h) That the dolls would be manufactured in Hong Kong at quoted prices." In par11 of their defence, Innovation Management and Mr Taylor admitted the facts alleged in par 16(a)-(f) and (h) of the Statement of Claim; in answer to the allegation in par16(g) they said that the Interest Document "stated that Ophir had spent a period of 4 years on research and development and as a result had in hand the product and the innovative manufacturing methods to achieve the product at low cost." The separate defences of Mr De Porteous and Mr South were in identical terms to that of Innovation Management and Mr Taylor. Neither assertion with respect to the alleged representation in par16(g) of the Statement of Claim is an exact quotation. The relevant passage appears on p7 of the Interest Document and is in these terms:- "After four years of research and development, funded largely by Karl with the assistance of capital and loan funds from the South Australian Government and Innovation Management Pty Ltd, the company has achieved these aims. It has now in hand, the product and the innovative manufacturing methods that achieve that product at low cost." (c) The Written Projections It was next alleged in the Statement of Claim (and admitted by all respondents) that the Interest Document contained the following written projections: ". Sales in Australia in the first three year period commencing April 1991 are expected to exceed 850,000 units and result in company profit to June 1994 of $8.78 million. . Export sales of consequence could increase the profits by as much as $100 million dollars or more." However, the respective defences went on to plead that the document further stated that: ". predicted sales were based on the level of penetration of the Australian market of sales of Cabbage Patch Kids and My-Child dolls; . that sales overseas were difficult to project; and . that retail support level would be subject to adequate promotional/advertising campaigns." Statements in these terms are to be found in the Interest Document. (d) The Oral Representations It was alleged in par24 of the Statement of Claim that during the meetings (being those of 31 October and 7, 12 and 14 November), "the respondents and Ophir made oral representations to Barratt..." in accordance with and confirming the written representations. These allegations were denied by all respondents. It seems to me that this is an issue that can be put to one side. Save for the qualification in par16(g) with respect to the language of that representation, the respondents have admitted that the Interest Document contained the written representations. If those representations, or any of them, turn out to be inaccurate or untrue, that may give rise to remedies for the applicants. But the fact, if it be a fact, that inaccurate or untrue representations were, or were not, subsequently repeated orally will not further advantage the applicants in terms of the remedies that might be available to them. That observation is not intended, however, to diminish the evidentiary importance of anything that might have been said. The same comments can be made with respect to the oral projections that are next mentioned. It must also be remembered that, as Mr Taylor was not present at the first three meetings, neither he nor Innovation Management could be held responsible for anything that Mr De Porteous or Mr South might have said unless the evidence disclosed the necessary authority; there was no such evidence. (e) The Oral Projections During the same meetings as are referred to in par(d) above, all respondents and Ophir allegedly gave Mr Barratt oral projections "in accordance with and confirming the written projections": see par28 of the Statement of Claim. These allegations were also denied by all respondents, but for the reasons that I have already mentioned, I do not think that it will be necessary to devote much time to this issue; there are, after all, admissions that the written projections were contained in the Interest Document. As a matter of chronological sequence, the next matter of importance was the letter of offer that was submitted by Bazza Investments to Ophir. Mr Hudson composed a letter of offer dated 16 November 1990 (Ex A98) which was submitted to the Secretary of Ophir on behalf of Canad Marketing Pty Ltd (the original name of Bazza Investments). It is a lengthy letter, important for what it contains and important for what it does not contain. Despite its length, it is helpful for an understanding of the dispute to set out its contents in full: "Dear Sir EQUITY PARTICIPATION This sets out the investment to be made by Canad Marketing Pty Ltd, a company controlled by Mr D J Barratt and his family in Ophir Australian Marketing Pty Ltd ('the company'). An equity position has been offered by the company for Mr Barratt and his family to subscribe at par for share capital of 350,000 $1.00 ordinary shares in the company which possesses the rights to production and marketing of polyurethane dolls in the style of author/authoress May Gibbs' 'Australian Bush Babies'. It is understood that the issue price of $350,000 will be called up over a period of time being:- 3rd December 1990 (issue date) $100,000 (i.e. $0.2857 per share) 10th January 1991 $100,000 1st March 1991 $ 50,000 1st April 1991 $ 50,000 1st May 1991 $ 50,000 In addition to share capital the company requires an effective guarantee to its bankers by the investor, limited to $150,000 which will expire on the 31st December 1991. A guarantee fee of 6% of the face value of the guarantee will be payable by the company to the investor for this facility on 31st December 1991. It is acknowledged that this guarantee is a commitment which will be effective from the 10th January 1991. The investor's guarantee will allow the company to borrow, if required, new funds from its bankers, at commercial rates, with a debenture over the company's assets, but without guarantees from the other investors or directors. It is understood that the directors of the company to take effect 3rd December 1990 will be and remain:- Mr M L H South (Chairman) Mr K M De Porteous (Executive Director & Secretary) Mr J D S Taylor Mr D J Barratt It is further understood that the shareholders at the 3rd December 1990 will be:- K M De Porteous 500,002 Shares Canad Marketing Pty Ltd 350,000 Shares M Panozzo 10,000 Shares Innovative Management Pty Ltd 500 Shares Precise Plastics Pty Ltd 1,800 Shares Barry James Engineering Pty Ltd 1,200 Shares T J Hilbig 4,447 Shares Total 867,949 Shares It is further acknowledged that the accountants but not auditors for the company will be Pannell Kerr Forster and that the registered office of the company will be transferred to:- C/- Pannell Kerr Forster 4th Floor 190 Flinders Street ADELAIDE SA 5000 It is acknowledged that financial statements of the company for the financial year ended 30 June 1990 have been received and it is my understanding as confirmed by yourself, that the financial position of the company has not changed in any material way since that date nor will the position alter up until 3rd December 1990. Please acknowledge receipt of this letter by signing the attached copy and returning it to me C/- Pannell Kerr Forster, GPO Box 1969 Adelaide SA 5000. Yours faithfully CANAD MARKETING PTY LTD (signed) D J BARRATT Director." The letter was silent about the important representations and projections but its references to the appointment of Mr Barratt as a director of the company and his accountants as accountants for the company were, as I find, terms that were negotiated for his group's benefit and in return for its willingness to enter into the venture. (f) The Further Representations In par34 of the Statement of Claim it was alleged that in January, February and March 1991, all respondents and Ophir made further oral representations to Mr Barratt. In particular it was alleged that they represented to him: "(a)That the Hong Kong manufacturer had pulled out of the project and would not be manufacturing the dolls; (b) That the third and fourth respondents would arrange for the dolls to be manufactured in Adelaide by an Adelaide manufacturer; (c) That the change in the manufacturing arrangements were (sic) only a minor set back and would only cause a slight delay in the release of the dolls on the market. (d) That as soon as alternative manufacturing arrangements were made manufacturing and sale of the dolls could be commenced immediately on a large scale; (e) Save for the qualifications referred to in paragraphs (a) to (d) inclusive hereof the respondents confirmed to Barratt the written representations and projections." Between the meetings of Ophir's directors on 3 December and 10 January 1991, Mr De Porteous and Mr South travelled overseas; in Hong Kong they met and talked with Mr Leung and as a result they were forced to report to the Board Meeting on 10 January (at which Mr Taylor and Mr Barratt were present) that it might be necessary to change plans and look for an Australian manufacturer. Doubts about the progress of the project would have therefore surfaced as early as that meeting. The minutes of that meeting recorded that Mr South in his capacity as Chairman of Ophir:- "... reported on his recent trip to Hong Kong and Malaysia with Mr De Porteous and advised that Latex negotiations were successful, however, they ran into some problem with the production side in Hong Kong, but he still considered them on track." Taken in isolation, that passage does not appear overly significant. However, later in the same set of minutes the following passage appeared: it quite clearly showed that Mr Barratt was expressing grave concerns:- "The Board expressed concern that Euro-Tech would not commit themselves to the polyurethane dispensing machine. Mr Barratt informed the meeting that what finally persuaded him to invest in the company was Julian Leung's assurance that the process would go ahead with no problems and that Mr De Porteous' association with him would assure this. Mr Taylor pointed out that the foaming was one of the most important aspects of the production process and that he would feel uncomfortable with someone who did not specialise in the foaming process. Mr Barratt advised the meeting that until this matter was resolved to his satisfaction he would not give the company his $150,000 guarantee." The next director's meeting of Ophir was held on 21 February 1991. Again, the minutes (Docs Vol.1 p32) revealed that there were concerns about the project, as is apparent from the following entry:- "Sample Dolls for Toy Fair to be foamed in Singapore. Critical is completion (sic) of H P Tooling in Hong Kong. De Porteous expressed some concern that they may not be ready in time, even though J Leung has indicated they will be." It was at this meeting of 21 February that the members of the Board became aware of the pending withdrawal of Mr Leung and it was also at this meeting that discussions commenced about the possibility of using the services of a Mr Brandenburg, a local manufacturer. Mr South, in cross-examination, said that he did not initially see Mr Leung's withdrawal from the foaming process as a major problem for Ophir, but he acknowledged that it did, from some unspecified date, become "a real headache for us" (1075). He was then asked:- "Right. Were you present when Mr Barratt gave his evidence that throughout 91 problems came up in Ophir but at the board meetings there was always a solution given and it was perceived as a problem that could be worked through. Is that a fair summary?... Yes, I think that's a fair summary. And so by August or September 91, when Mr Barratt was looking at putting in another $100,000 and Innovation Management were looking at putting in another $100,000 is it the case that you believed that the project would succeed?... Yes, certainly." The so-called further representations were denied by the respondents. They claimed, in their respective defences, that at the directors' meeting on 10 January 1991 at the office of Mr Hudson, Mr De Porteous had told those present that Mr Leung would no longer agree to purchase a particular machine (the "Gusmer" polyurethane high density dispenser) that was needed for a part of the manufacturing process of the Bush Baby Dolls; Mr Leung had suggested that, instead, Ophir should purchase its own machine. The defences referred to Mr Barratt's statement that he had been persuaded to invest in Ophir because of Mr Leung's assurance "that the process would go ahead with no problems" and to his statement that until the matter was resolved to his satisfaction he would not proceed with the promised guarantee for $150,000. They presented those statements as evidence that he did not rely on anything that any of the respondents had told him and as evidence that he was a person who had proceeded as a result of his own inquiries. Mr Barratt agreed in evidence that the presence of Mr Leung at the meeting at Mr De Porteous's home on 12 November 1990 together with Mr Leung's assurances about his abilities to manufacture the Bush Baby Doll influenced his decision to invest in the project. That factor does not, however, necessarily offer any assistance to the respondents; they cannot escape liability (if indeed they are liable) for their conduct because another matter, extraneous to them, influenced the applicants in making their decision. In Gould v Vaggelas (1985) 157 CLR 215 at 236 Wilson J said that it would be sufficient if the respondents' representation "plays some part even if only a minor part in contributing to the formation of the contract." See also Spreag v Paeson Pty Ltd (1990) 94 ALR 679 at 713 per Sheppard J. The defences continued (in common terms) that further discussions, involving Messrs Barratt, Taylor, De Porteous and South, addressed the possibility of engaging a local South Australian manufacturer (Mr Brandenburg), in place of Mr Leung, and, secondly, the source of funds needed to purchase the "Gusmer" machine. In par17.16 of their respective defences, the respondents (after pleading that the applicants had nevertheless completed paying for the shares and had given to the Bank the $150,000 guarantee notwithstanding the alleged making of the disputed further representations) concluded by saying that: "... the decisions to manufacture dolls in Adelaide by Brandenburg as a result of Leung pulling out of the project were made jointly by the directors of Ophir, including Barratt, on the basis of the information available and after full discussion by the Board of the problems and possible solutions." It is appropriate to mention at this stage that Mr Barratt and Mr South joined Mr De Porteous and Mr Taylor as directors of Ophir on 3 December 1990 when Mr Barratt made the decision that Bazza Investments would invest in the Bush Baby Doll. All four were thereafter directors during the period that is relevant to these proceedings. (g) The August Representations The final bracket of representations upon which the applicants have relied were said to have been made by all respondents and Ophir by way of further oral representations to Mr Barratt during the month of August 1991: see par39 of the Statement of Claim. It was alleged that Mr Barratt was told that Ophir required a further loan from him of $100,000 "... to fund the purchase of a Gusmer Delta rim 80 moulding machine and accessories which had been purchased by Ophir to enable manufacturing of the dolls to be carried out in Adelaide by an Adelaide manufacturer, namely Brian Brandenburg Moulding Pty Ltd". In addition to this need for additional funds (and the reason for the need) it was also pleaded that all respondents otherwise confirmed the earlier written representations and written projections. The allegations in par39 of the Statement of Claim were denied by the respondents. There was some dispute about the identity of the lending party in the Barratt group, but subject to that it was common ground that on about 25 September 1991 both Mr Taylor and Mr Barratt informed the others that Innovation Management and Bazza Investments were each prepared to lend Ophir $100,000 (i.e. a total of $200,000) so that it could purchase the "Gusmer" machine. With respect to each of the seven representations and projections it was pleaded that Mr Taylor and Innovation Management (with regard to the initial representations), and that all respondents and Ophir (with regard to the others), knew or ought to have known that Mr Barratt, acting for and on behalf of Bazza Investments, would rely on the representations or projections (as the case may be) and that it would be reasonable for him to so rely; it was also pleaded that the relevant respondents owed a duty of care to the applicants in making the various representations and projections and that they had breached that duty. Those allegations were disputed by the respondents. They asserted that Mr Barratt was an experienced investor who had sought independent financial advice from his accountant, Mr Hudson, before making the decision to invest; they also claimed that he had relied on his own inquiries and investigations and the advice and information that had been given to him by his accountant and by Mr Leung of Hong Kong. In addition, the respondents pointed to the form of disclaimer that appeared in the Interest Document at the foot of the first page. It was in these terms: "This document is prepared to supply some information on the background and activities of Ophir Australian Marketing Pty Limited. It is available only on direct request to the company and should not be construed as supplying appropriate information to enable an investment decision." It was pleaded in pars44 and 45 of the Statement of Claim, and admitted in each defence, that between September 1991 and September 1992 Ophir experienced substantial problems with the design, function and appearance of the dolls as well as with their manufacture. The applicants also alleged in par46 of the Statement of Claim that, as a result of these problems, Ophir, during this period had to expend a substantial amount of its funds; the applicants claimed that this expenditure was with respect to "further necessary research and development", a hotly contested issue in the trial. The respondents, whilst agreeing that there was a need for further expenditure, asserted that it was for "fine tuning the reproduction prototype to enable production, purchasing the Gusmer machine equipment and establishing the manufacturing facility". In par46 it was further pleaded, and admitted by the respondents, that as a result of the problems that were listed in pars 44 and 45, Ophir was not able to manufacture and sell the dolls on a large scale and, on the contrary, it was only able to sell a small number of dolls. In fact, it was admitted that in this period Ophir incurred substantial financial losses and was ultimately wound up by order of the Supreme Court of South Australia on 4 November 1992. Further allegations in par46 of the Statement of Claim that many of the dolls sold by Ophir before its liquidation were returned by purchasers because of defects such as skin discolouration and flaking and loss and breakage of limbs were not admitted by the respondents but the evidence made it clear that this allegation was quite accurate. Mr South's notes for the meeting of the Board of Directors of Ophir for 7 July 1992, for example, offer some support for that allegation. He recorded: "As of last night I have tested 62 for the following results: 35 OK & now with heads 11 or 12 that may be able to be fixed with Si. [Silicon] in hands/feet/body Rejected 4 ankles, 2 hips, 1 elbow, 1 knee, 2 latex, 1 skin wrinkle, 3 foam bubble, The 2 with latex may be able to be patched and it might be that the ankle joint in some may although broken may be able to be got away with. There are 83 that I have yet to look at. In addition there are batches 1 to 7 (at least) that have TOO torso & MOO male parts that I believe would not be advisable to use. Working on the same percentages I may get 46 from the lot yet to look at plus 14 rejects that may be recoverable. Out of a total of 145 I estimate 81 saleable +25 fixable 106 I am a little concerned with the wings staying in & would like a second opinion on this and the product I am saying is saleable, before dispatch." (Ex A34 Docs Vol 1 p197) In my opinion, the fact that it was necessary to make a report to the Board about deficiencies in the product was indicative of the fact that in July 1992, over eighteen months after the entry of the applicants into the venture, the project was unable to proceed to commercial production. The admissions of the allegations in pars44 and 45 were not consistent with "fine tuning the reproduction prototype to enable production...". ........................... It is not necessary to give further detailed consideration to the remaining allegations in the Statement of Claim. There was a pattern and it will be sufficient to summarise that pattern. With respect to each of the five oral and written representations there was a plea that the representations were untrue, that they were made negligently in breach of a duty of care that was owed to Bazza Investments and to Mr Barratt, and that they amounted to conduct that was misleading or deceptive or that was likely to mislead or deceive and as such, amounted to a contravention of s52 of the Trade Practices Act 1974 (Cth) ("the TPA") and s56 of the Fair Trading Act 1987 (SA) ("the FTA"). It was also pleaded that if any of the representations were representations in respect of future matters then there were no reasonable grounds for making them. Finally, it was pleaded that Messrs Taylor, De Porteous and South aided and abetted in the contraventions of the TPA. All these claims were denied by the respondents. As to the written and oral projections, it was pleaded and admitted that Ophir did not achieve them. However, the respondents denied the allegation that the projections were not, in all the circumstances, reliable, achievable, realistic or reasonable. They also denied the further allegations that the respondents were negligent in making the projections and were in breach of a duty or care that they owed to Bazza Investments and to Mr Barratt. As with the five written and oral representations, there were further allegations (all of which were denied) to the effect that the written and oral projections were misleading or deceptive or likely to mislead or deceive and as such, constituted breaches of s52 of the TPA and s56 of the FTA. It was also alleged that the projections were representations with respect to future matters, that neither Innovation Management nor Ophir had reasonable grounds for making them and that Messrs Taylor, De Porteous and South aided and abetted the contraventions of the TPA. These last mentioned allegations were also denied. In addition to the matters to which reference has already been made, the applicants also sought relief pursuant to s7 of the Misrepresentation Act 1972 (SA) as a consequence of the acquisition of the shares, the giving of the guarantee and the loan of the $100,000. This was one of the few areas in which there was a divergence in the defences of the respondents. In the joint defence of Innovation Management and Mr Taylor, those respondents denied the allegation that the applicants had been induced to enter into the various agreements; they also denied that they had made any representations, but added, as an alternative plea, that if any representations had been made by them, then they were not misrepresentations within the contemplation of s7 of the Misrepresentation Act. They added a further alternative plea based on subs7(2) of the Misrepresentation Act that they had reasonable grounds to believe, and did believe, that the representations were true as they were made as a result of information supplied to them by Messrs De Porteous and South which information they were entitled to rely upon. The separate defences of Mr De Porteous and Mr South likewise denied inducement and the making of any representations. Mr De Porteous went no further but Mr South invoked the defence offered by subs7(2) of the Misrepresentation Act but without attributing blame (or the source of information) to a third party. The applicants have also sought relief pursuant to the provisions of the Companies (South Australia) Code 1989 ("the Code"). They have pleaded that the Interest Document that was given to Mr Barratt at the meeting in Mr Hudson's office on 7 November 1990 was a prospectus (or should be deemed to be a prospectus) that was issued by Ophir within the meaning of the provisions of ss5 and 104 of the Code. The applicants have alleged that the document contained untrue statements; they have also claimed that it did not disclose material matters that all respondents knew to be material. Finally, in pars77, 78 and 85 of the Statement of Claim issues of fiduciary duties were pleaded as a consequence of the further representations and the August representations. In par77 it was asserted that when, in January, February and March 1991, the further representations were made to Mr Barratt, Messrs Taylor, De Porteous and South then, and at all material times thereafter, owed Bazza Investments and Mr Barratt fiduciary duties to act honestly and in good faith and to exercise and execute their offices with reasonable care and diligence. The respondents in their respective defences admitted to the existence of these fiduciary duties but denied that they had breached them. In par 78, the allegation of breach of fiduciary duties was limited to Messrs De Porteous and South: Mr Taylor had been excluded. In par34 of the Statement of Claim, however, it was alleged that all respondents and Ophir had made the oral representations to Mr Barratt that constituted "the further representations": Mr Taylor had, therefore, been expressly included. The same mistake did not occur in par85 and the August representations. In par39 of the Statement of Claim it was alleged that all respondents and Ophir had made the oral representations to Mr Barratt that constituted "the August representations" and in par85 it was alleged that Messrs Taylor, De Porteous and South all breached their fiduciary duties to Bazza Investments and to Mr Barratt by their participation in the making of the August representations. The omission of Mr Taylor's name in par78 of the Statement of Claim was probably a mistake, but in light of the decision that I have arrived at, it is not a matter of any consequence unless, of course, the matter is to go further. The threads of the many factual assertions that have been raised by the pleadings and the evidence can be conveniently drawn together and summarised in this fashion:- . There are seven (7) basic allegations in the case for the applicants, they being: (a) The initial representations allegedly made by Mr Taylor and Innovation Management in October 1990; (b) The written representations that were contained in the Interest Document; (c) The written projections; they were also contained in the Interest Document; (d) The oral representations that were allegedly made in the meetings of 31 October and 7, 12 and 14 November 1990; (e) The oral projections; these were alleged to have been made at the same four meetings; (f) The further representations allegedly made in January, February and March 1991; and (g) The August representations; these were alleged to have been made in August 1991. . The applicants have alleged that in reliance of representations (a) to (e) inclusive, Bazza Investments was induced to enter into an agreement with Ophir to take up an issue of 350,000 shares at $1.00 each and to provide to Ophir's Bank a guarantee to secure Ophir's indebtedness to the Bank up to an amount of $150,000. . The applicants have further alleged that in reliance of representations (a) to (f) inclusive, Bazza Investments was induced to continue with and complete the performance of its agreement (that is, at the time of the further representations in January, February and March 1991, Bazza Investments had not paid all $350,000 nor had it given the guarantee to the Bank); . The applicants have finally alleged that in reliance of representations (a) to (g) inclusive, Bazza Investments was induced to provide Ophir with a further loan of $100,000. . As a result of all the representations to which reference has been made, Bazza Investments lost the $350,000 that was used to acquire the shares, it was forced to pay the Bank $150,000 under the guarantee (and both those sums are irrecoverable) and finally it recovered only $25,000 of the loan of $100,000 to Ophir. It has lost a total of $575,000 as a result of its investment and it seeks that sum together with interest as damages to compensate it for its loss. The Initial Representations It is now necessary to have regard to the evidence on this subject. Because of the importance of this telephone conversation I set out the relevant passages from the evidence of Mr Taylor and Mr Barratt. I will commence with Mr Taylor's evidence: "When you say you explained the project, can you now recall the effect of what you said to Mr Barratt?... Yes. The effect of what I said was that the project involved a unique doll. It had some features that were patentable. It resulted in a doll that felt soft and cuddly like a baby and it had articulated joints. I explained that it had a plastic skeleton inside a latex skin which was filled with soft foam and I also said that the company had the world-wide exclusive rights to manufacture this in the form of the May Gibbs bush babies. What did Mr Barratt say in relation to your advice as to that investment, if any?... I don't believe he asked any questions at all and I said that if he wanted to know more, he should telephone Mr South and I gave him Mr South's phone number. About how long did that conversation last, can you recall?... I would have thought 5-10 minutes. Might it have been longer than 5-10 minutes?... Certainly no longer than 10. During that conversation, did you discuss figures at all?... No figures were mentioned at all. Did you discuss whether or not the investment would be a financially sound investment?... No. I didn't. Did you discuss the rewards which an investor may get if they invested in that company?... No. Do you recall whether you discussed research and development at all?... Yes. What did you say in relation to research and development?... I didn't discuss it. The matter never arose. At that stage, as I understand your evidence, you did not have a copy of the interest document?... That is correct. Were you in a position prior to receiving the interest document to discuss figures?... No. I was not. Was there any discussion as to the amount of money that Mr Barratt may be looking at investing?... There was none." Mr Taylor's evidence about his telephone conversation with Mr Barratt in October 1990 must be compared with that of Mr Barratt's for the obvious reason of noting and assessing the conflicts. Mr Barratt's evidence-in-chief appeared at 212 of the transcript: "Right, and did you telephone Innovation Management?... I telephoned Innovation Management and spoke to the managing director there. Do you remember the name of the person you spoke to?... John Taylor. Do you recall approximately when that took place?... In October 1990. As best you can recall, would you tell us who said what in that conversation?... I opened the conversation with an inquiry about this boat and that was dealt with fairly quickly by Mr Taylor telling me that they didn't think it was really a good proposition or good investment and then went on to say that Innovation Management had something if I was looking for an investment that was really outstanding and from then on went to explain what they had offering in the way of a bush baby doll and I have a memory that it's one of the longest conversations I've had on the phone, because my conversations are usually very short but I believed that conversation was at least 20 minutes which, to me, was something outstanding and I know the basis of what he told me, because I told other people close to me, because I thought at this stage what he'd told me had brought me..." (There was then an objection to the manner in which Mr Barratt was answering the question). "For the moment if you would just concentrate on what you discussed with Mr Taylor?... The main points of the conversation, which are very clear to me, was that they had a May Gibbs bush baby and a license to produce it. They had patented new radical techniques that consisted of an articulated skeleton, a latex skin and a method of foaming out that made a doll that felt, with the skin, lifelike and looked lifelike. Its arms and legs moved and that it would be a greater seller in the world than a thing called cabbage patch doll and barbie doll which even I had heard of. Did he say anything on the topic of whether the investment was sound or not?... He quoted some figures which I cannot recollect promising that an investment in this would result in what, to me, were fabulous returns. Are you able to now recall what those figures were?... No, sir. Did he say anything in respect of research and development?... He said that all research and development was completed and that all that was necessary to go into production was for someone to supply the money. Did he say anything on the topic of anyone overseas?... Yes, he said that once the Australian market had been supplied there was also a big potential overseas for the doll because it was unique. Did he say anything on the topic of who was to manufacture?... I don't think so." Mr Taylor said in evidence that his next contact with Mr Barratt (and the first occasion when he met him personally) was at a meeting at Mr Hudson's office on 14 November 1990. However, as he acknowledged, he would have received progress reports from Mr De Porteous and Mr South about their discussions with Mr Barratt in the intervening period of time. I accept his evidence on this subject and I also accept his evidence that he first saw the Interest Document when he received a copy on about 6 November. He recalled being impressed by its contents and circulating it to the other directors of Innovation Management under cover of his memorandum of 7 November (Docs: Vol 1 297). Mr Taylor also said and I accept that he was not consulted about any aspect of the Interest Document other than to consent to his name being inserted in the document as a source of further information. The meeting of 14 November, was accordingly to Mr Taylor, a short meeting; he said that the Interest Document was not discussed. He said that he gained a "general impression" at the meeting that it was clear that Mr Barratt was wanting to proceed with the investment. Under cross-examination, Mr Taylor acknowledged that in October 1990 he had a belief in the potential of the Bush Baby Doll; he also believed that its research and development had been completed. A year earlier in November 1989, he had reported to his Board that Innovation Management might receive as much as $120,000 per annum by way of its three per cent royalty if Ophir's expectations became a reality. In doing this, he was impliedly expressing some measure of confidence in projected gross sale of $4M per annum. There can be no doubt that Mr Taylor was an enthusiastic supporter of the project. But that enthusiasm and Mr Taylor's beliefs do not, without more, translate into misrepresentations or negligent misstatements. It remains necessary for the applicants to isolate one or more statements in that telephone conversation and to prove, on the balance of probabilities that they were inaccurate in a material particular. I start with the premise that it is my opinion that if Mr Taylor, during the course of the telephone conversation, said to Mr Barratt no more than I have recorded from his evidence-in-chief, then his evidence would not disclose any cause of action in favour of either applicant. Such a telephone call would be classified as a mere introductory inquiry and a general referral to a potential investment. To that initial premise I add my assessment of his evidence in cross-examination - it did not throw up any contradictions nor did it reveal any inconsistencies and counsel for the applicants in his written submissions did not suggest that any existed. This then is one of these difficult tasks when it becomes necessary to weigh in the balance the competing evidence of two witnesses, neither of whom could be labelled untruthful. Each suffered minor blemishes; Mr Barratt's memory let him down from time to time and Mr Taylor tended, at times, to be somewhat expansive - almost loquacious- when answering questions. Despite these factors, there was nothing about either man or his evidence that would enable an independent party to say, with justification, that the evidence of one was to be accepted in preference to that of the other. In that unsatisfactory state of affairs it becomes necessary to resort to concepts of onus of proof: the responsibility is that of the applicants; they must satisfy the court on the balance of probabilities that their version of the conversation should be accepted. I am compelled to say that I cannot accept that they have met that onus. There can be no doubt that Mr Barratt was exposed to an air of great enthusiasm about the Bush Baby Doll in those early days; the contents of the Interest Document without more, would be sufficient to excite a potential investor's interest. It could be that looking back in retrospect over the events of many months duration, Mr Barratt has since convinced himself that Mr Taylor made statements in that first telephone conversation that were more assertive and more promising than were in reality made. It follows from the conclusion that I have reached with respect to the state of evidence concerning this telephone conversation between Mr Barratt and Mr Taylor that no cause of action has been established by either applicant against Innovation Management or Mr Taylor with respect to the telephone conversation in October 1990. The evidence is insufficient to sustain findings that relevant misrepresentations or misstatements were made; it is also insufficient to establish a necessary relationship from which any duty of care might arise. In coming to the conclusion that I do not have the requisite degree of satisfaction about Mr Barratt's version of the telephone conversation I have been influenced by his poor memory. In a letter from his solicitors dated 25 May 1994 supplying further and better particulars of the Statement of Claim, two passages appeared. The first said: "Mr Barratt had a lengthy conversation with Mr Taylor of approximately one hour." The second said: "Mr Taylor further referred Mr Barratt to the prospectus prepared by Mr Michael South and Ophir." The second statement was plainly wrong. Mr Barratt did not assert it in evidence and Mr Taylor's evidence (which I accept) was that he did not get the Interest Document (or the prospectus) until 6 November. The first statement is at variance with Mr Barratt's evidence where he estimated that the conversation lasted about 20 minutes. I feel that those two factors support my tentative observation that Mr Barratt may have unwittingly kaleidoscoped some of the past events relating to this matter. The written representations and the written projections. In assessing the contents of the Interest Document, it is important to separate representations as to existing facts from projections or estimates of likely events. I turn first to so much of the document as deals with assertions of fact. Even then, the only matters to which I will refer are those that have been challenged. For example, it was asserted that Ophir had a licence to manufacture the Bush Baby Doll. As that assertion has not been challenged it, and others like it, will not be referred to. A summary of the relevant representations, extracted from the Interest Document is as follows: ". After four years of research and development... the company has achieved these aims. It has now in hand, the product and the innovative manufacturing methods that achieve that product at low cost." ". The company is now ready to commission production tooling, engage manufacturers, and to produce the dolls for product release in April 1991." ". All R & D is complete and manufacturing prices have been obtained." These were assertions of existing facts: any one reading the interest document was entitled to assume that the innovative manufacturing methods were then operational, that the company was ready to engage manufacturers, that all R & D had been completed and that manufacturing prices had been obtained. The evidence with respect to pricing is complex and difficult to assess. The evidence of Mr South at 545, 551, 562, 568 and 569 refers to correspondence and inquiries throughout January 1991 in which he was attempting to obtain fixed prices. Putting that to one side, the evidence otherwise clearly revealed that each of the remaining assertions was false in a material particular. Correspondence passing between Mr Leung and either Mr South or Mr De Porteous pre-dating 15 November 1990, (the likely date of Mr Barratt's decision to invest) showed that none of these goals had then been achieved. An amount of technical evidence was led as to what is meant by "Research and Development" and when, if ever, research and development is completed. Mr James who had previously worked with Mr De Porteous on developing the doll, said that research and development was completed "once you know what to do and how to do it" (1117). He gave evidence on behalf of the respondents. On the other hand I note that the applicants' expert witness, Mr Townsend, in his report (Ex A 398) indicated that research and development had not then been completed on the skeleton for the Bush Baby Doll. In my opinion, an investor such as Mr Barratt was not expected to have technical and scientific knowledge on a subject such as this. He was entitled to assume, in a common sense manner, that completion of research and development meant that preliminary experimental work that was necessary and preparatory to actual manufacture had been successfully completed. Such an interpretation is consistent with the statement that "the company is now ready to commission production tooling, engage manufacturers, and to produce the dolls for product release...". It was possible that the respondents had a genuine belief in the truth of those assertions; there was, after all, great optimism about the success of the Bush Baby Doll. But subsequent events proved that this optimism was unjustified and that the assertions in the Interest Document were, unfortunately, inaccurate. A successful manufacturing technique had not even been established by November 1992 when Ophir went into liquidation. Although it falls into the field of a projection, the assertion that the dolls would be ready for release in April 1991 added reality to the presumed accuracy of the representations; one would be entitled to assume that it was only because research and development had been completed so that the company could engage manufacturers that April 1991 could be set as the projected date for the release of the dolls. According to Mr Hudson, the subject of research and development was addressed at one of the meetings. He said that Mr South claimed that: "... they'd been researching the development of this product and that they'd been finalised and research and development in relation to it so it can go into production and they were looking for equity finance so they could produce this doll." (537) One particular aspect of Mr South's evidence cast doubts about the reliability of his primary investigations into the project. He said that it was fundamental to his proposal that he would first obtain a substantial order for dolls from within Australia and have that purchaser set up a letter of credit against which production could commence in Hong Kong. He said that it was his understanding that this was common practice within the industry. However, it was clear from his evidence that he had not in fact confirmed any such practice. This is evident from the following exchange during the course of his cross-examination:- "Did you also understand that the manufacturer was prepared to await payment until the product had been delivered to the retailer, that is the person purchasing from you?... Well, I wouldn't have expected that to be the case, I would expect it to be the case that a letter of credit would be drawn down, this is recollection, be drawn down as the goods are loaded. In other words you get a bill of lading. HIS HONOUR: Well, that means you are asking your purchaser to pre-pay for the goods when they are not even in the country?... He's got requirement for them, the container was going direct to him, your Honour, it wasn't coming through us. You were expecting departmental stores and the like to pre-pay for goods which are still on the wharf in Hong Kong?... Yes, your Honour. MR MORECOMBE: Did you check out how realistic that was?... I believed it was realistic. HIS HONOUR: No, did you check it out?... No. I am aware of it being done within the tile industry which I was involved in and I didn't see any reason why it wouldn't work here. MR MORECOMBE: that was fundamental to your cash flow, was no it?... Certainly. HIS HONOUR: It was fundamental to the whole success of the venture, was not it?... To get the back to back working like that, yes. No, not back to back, to get your purchasers to pre-pay for the goods when they were not even in the country?... Yes. MR MORECOMBE: Indeed, when they were only on the wharf in another country?... Yes. You did not think that was worth checking out?... No, I believed it to be a normal practice." (1077) No independent evidence was led to support Mr South's proposition that such a prepayment was normal practise and, in the absence of such evidence, I cannot accept his assertions. Indeed, his failure to make enquiries about such an important subject is consistent with a willingness to make optimistic assumptions without first making appropriate inquiries. In my opinion, Mr South has independently supported the conclusions at which I have arrived. On 24 May 1992 he submitted a confidential memorandum to Mr Barratt and to Mr Taylor in which he expressed some views about the history of Ophir. In the memorandum he said that in about October 1990 Mr De Porteous had come to him saying that "all the technology problems were solved and Ophir was ready to commence production of dolls". Thereafter Mr South recounted various historical events and then concluded in these terms: "I believe that the single most contributing factor to our lack of achieving production has been KDP: lack of experimental or R & D disciplines..." Mr South tried to resile from this document claiming that it had been written when he was under "pressure", when he was at the end of his "tether". He claimed that it was a "jaundiced" version. I do not accept these passages from his evidence; on the contrary the deficiencies in research and development became obvious as the trial progressed and his memorandum was documentary evidence supporting that conclusion. In my opinion, the Interest Document contained written representations that were false in a material particular. Innovative manufacturing methods had not been achieved, the company was not ready to engage manufacturers and research and development was not then completed. The disclaimer appearing at the beginning of the document cannot afford a defence to material misstatements; a potential investor was entitled to rely on the contents of the document so far as they related to or constituted statements of existing facts. In Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367, Sheppard J, as a member of the Full Court discussed the effects of exemption clauses and s52 of the TPA. He said at 371: "Parties may agree that statements and representations made antecedently to their entering into a contract are not to form the basis of any remedy in the event of there being a subsequent disagreement. Except in cases of fraud, the common law will give effect to their contract. But the remedy conferred by s52 of the Trade Practices Act will not be lost, whatever the parties may provide in their agreement. If a vendor of goods has engaged in misleading or deceptive conduct, the law makes him accountable for loss and damage suffered as a result of his unlawful conduct. That conduct will usually have been committed, as in this case, prior to the signing of any contract. If, as a result of the conduct, a person is induced to enter into a contract and suffers loss, an action to recover it lies. The terms of the contract are irrelevant. As Wilcox J said in Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 378: 'Whatever may be the effect of cl 19 [the exemption clause in that case] in relation to an action brought in contract, in which reliance is placed upon an alleged warranty or condition not included in the contract of sale, that clause should not be allowed to defeat a claim based upon s52. To permit such a clause to defeat such a claim would be to accept the possibility that a vendor might exacerbate his deception, as by actively misleading a purchaser as to the existence or nature of such an exclusion, and thereby ensure that he would escape liability.' I refer also to Byers v Dorotea Pty Ltd (1986) 69 ALR 715; [1987] ATPR 40-760, per Pincus J at 48230." See also Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043. A contravention of s52 of the TPA "does not require an intent to mislead or deceive and even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive": Yorke v Lucas (1985) 158 CLR 661 at 666; see also Cummings v Lewis (1993) 41 FCR 559. I am satisfied that Ophir through the agency of Messrs Taylor, De Porteous and South intended the applicants to rely upon these representations in making their decision to invest in Ophir and I am satisfied that Bazza Investments relied on them when making its investment. It is true that the applicants had the benefit of Mr Hudson's advice before a decision was made that Bazza Investments would make the investment. However, I do not feel that the aspect of Mr Hudson's involvement is a matter of great weight. On this subject Mr Barratt said: "He didn't advise me one way or the other. I think he said I had to be satisfied with the people and what I'd been told and seen and make my own mind up about it." (226) His evidence is supported by Mr Hudson who said: "... I said that it's a company that is in its infancy, and that while the figures were well presented, it would be impossible for me to substantiate those figures because it had no... financial track record." (531) I do not consider that any respondent knowingly inserted false information in the Interest Document. But their extreme optimism and confidence constituted reckless indifference to the truth of the representations that amounted to negligence. They were wrong and their innocence does not afford them a defence. In addition, it was reasonably foreseeable that the applicants were likely to suffer loss should the information that was contained in the Interest Document turn out to be incorrect. The requirements to establish a duty of care and the breach of that duty through negligent misstatement have been made out: Sebastian Properties Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340. On the other hand I regard the disclaimer, and its presence in the document, as having a material effect upon the written projections. It is evident from reading the Interest Document that it related to a new, untried product in a new market. It was not a cautious document; on the contrary it was very optimistic. It referred to annual dividends of 70% and of profits measuring hundreds of millions of dollars. Indeed I would think that Mr Nicol, Mr Hudson's partner, adequately described the project when he said it was "a totally at risk venture" (831) and that any experienced chartered accountant would advise his client in those terms. Whether the written projections could constitute misleading or deceptive conduct is to be assessed by a consideration of the whole of the contents of the Interest Document and the context in which it was presented to and read by the applicants: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199. The relevant context in this case is an Interest Document inviting an investment in an unproven project that must be classified as an obvious "high risk". Statements and projections about the future of such a business will not necessarily be misleading or deceptive if, having regard to the contents of the document, the reader is given an opportunity to assess the method or means by which the projections have been calculated. Furthermore, the nature of the business will be a material factor. The vendor of an established business who makes a projection with respect to increased turnover based on historical figures would face a sterner task than the respondents in the present case. Having regard to the obvious fact that it was a new undeveloped business, to Mr Barratt's general experience in business and to the presence and assistance of Mr Hudson as his accountant and financial adviser, I consider that it would be unreasonable to hold that the applicants were induced to enter into the various agreements as a result of the written projections; in my opinion, it is self-evidence that they did not rely on those projections and that none of the respondents intended that they should rely on them. I find that the existence of the written projections does not constitute a cause of action for the benefit of the applicants. The Oral Representations and the Oral Projections I am satisfied that Mr De Porteous and Mr South discussed with Mr Barratt and Mr Hudson the history and the future of the project in terms consistent with the contents of the Interest Document. It was not suggested that they corrected or added to the contents of the document. I am therefore satisfied that their oral representations, insofar as they were made on behalf of Ophir, would have been actionable to the same extent as the written representations. On the other hand, I found nothing in the evidence that would make their oral projections actionable. The Further Representations I find that at some time in the first three months of 1991 the respondents, or one or more of them, told Mr Barratt that Mr Leung "had pulled out of the project and would not be manufacturing the dolls". That was the truth. I also find that it was truthfully represented to Mr Barratt that Messrs De Porteous and South "would arrange for the dolls to be manufactured in Adelaide by an Adelaide manufacturer". The next two representations that were allegedly made were, in my opinion, expressions of opinion that were borne out of the optimism in which this venture was originally conceived; it was claimed that it was represented to the applicants that the change in the manufacturing arrangements was only a minor set back and would only cause a slight delay and that as soon as alternative arrangements were made manufacturing and sale of the dolls could be commenced on a larger scale. Such assertions were wrong. The loss of Mr Leung was a major set back and the delay was anything but slight. This was because the doll was not ready for manufacture and because Mr Brandenburg lacked the necessary expertise to master the technical problems. However, these problems were as well known to Mr Barratt as they were to the respondents. Any statements that might have been made about "minor set backs" and "slight delays" (and I have no doubt that both Mr De Porteous and Mr South would have talked in those terms) were borne out of their continuing faith in the project - a faith that was infectious and shared by Mr Barratt. I do not find anything in the further representations that amounted to a fresh cause of action in favour of the applicants. The August Representations Counsel for the applicants in his written submissions acknowledged that during 1991 there was "a continual series of promises of progressive launch dates for the doll." That concession is important for it is the background against which it is necessary to assess the alleged August representations. The applicants have alleged that the respondents then made further oral representations to Mr Barratt, upon which he relied, which induced him to provide Ophir with a further sum of $100,000. At the same time, Mr Taylor was instrumental in having Innovation Management also provide Ophir with a second sum of $100,000 so that the total of $200,000 could be used by Ophir to effect the purchase of the Gusmer machine. By the time that these representations were allegedly made to Mr Barratt he had been a director of Ophir for almost nine months; although he was not involved on a day to day basis in the affairs of the company, he had unrestricted access to its records and his accountants had been the accountants for the company for that nine months. He had seen the promises of production of the Bush Baby Doll come and go. By August 1991 he knew that the representations that had induced him to invest in November 1990 had been proved inaccurate; by August 1991 it was an entirely different situation. I have no doubt that Mr Barratt was prepared to invest a further $100,000 - as was Mr Taylor - because, notwithstanding the delays and disappointments, Mr Barratt had become as enthusiastic as Mr Taylor and the others about the project. He was not relying, in a meaningful sense, on anything said to him by any of the respondents when he made that decision to invest a further $100,000 into the venture. He was then still confident, as a result of his own knowledge, in the ultimate success of the venture. For example at 251 of his evidence-in-chief Mr Barratt said that in August 1991 he had no "significant doubts about the future of the project". It would, in my opinion, be unreasonable to attach blame to any of the respondents and to hold them accountable for the applicants' lost $75,000. Mr Barratt, as a director of Ophir, and one who voted in favour of the decision to borrow further funds in the name of Ophir for the purchase of the Gusmer machine, had the same responsibilities as the other directors of Ophir to ensure that he was fully informed on the subject prior to voting. In the absence of any allegation that another director of Ophir knowingly withheld material information from him or knowingly made a material misstatement to him (c.f. Fraser v NRMA Holdings Ltd (1995) 127 ALR 543 at 556), Mr Barratt must be presumed to have had the same knowledge (or, at least, access to the same knowledge) as the other directors when he voted. The Claims against Innovation Management In my opinion, the applicants have not made out a case against Innovation Management; its only connection to the applicants was through Mr Taylor. In October 1990, when Mr Taylor had the telephone conversation with Mr Barratt, he was speaking in his capacity as managing director of Innovation Management. But thereafter, and until the decision to lend money to Ophir in September 1991, Mr Taylor's connection as from 14 November 1990 with the applicants was exclusively in his capacity as a director of Ophir. The evidence is not sufficient to point to Mr Taylor involving Innovation Management in any of the representations subsequent to that first telephone conversation. The name of Innovation Management does not even appear in the Interest Document except as part of Mr Taylor's address. The Claims against Mr Taylor Neither Mr Taylor nor Messrs De Porteous and South will be guilty of aiding and abetting a contravention of s52 of the TPA unless the applicants can establish (with respect to each of those respondents severally) that he had intentionally participated in making the misrepresentations with knowledge of their falsity. But there remains the provisions of s56 of the FTA; it provides, in terms that are (mutatis mutandis) the same as s52 of the TPA: "(1)A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1)." Thus in terms of assessing the liability of a natural person under the FTA, a contravention of s56 does not require an intent to mislead or deceive; even though the person acts reasonably and honestly, he or she may nonetheless engage in conduct that is misleading or deceptive. Although the applicants accepted that Mr Taylor was not present at the earlier meetings of 31 October, 7 and 12 November, they have nevertheless claimed that he should properly be regarded as a party to the written and oral representations and projections that had been made at those meetings. In support of that proposition they pointed to the following features, each of which I accept as a correct factual assertion: . he was at all material times a director of Ophir; . he knew and approved of the contents of the Interest Document including the use of his name in it; . he knew that Mr Barratt was a potential investor and that he had been given a copy of the Interest Document. . he had been informed from time to time by Mr De Porteous and Mr South of the progress of their meetings with Mr Barratt. . he knew that at the meeting of 14 November (which he attended) Mr Barratt had not yet made his decision to invest in the project. . he acknowledged that the Interest Document was a document upon which a potential investor could rely. It is obvious that the primary objective of the Interest Document was to attract investors. Mr Taylor accepted that proposition (929). Mr South was, at first, reluctant to acknowledge that fact but ultimately agreed (1054). The applicants rejected any suggestion that Mr Taylor, because of his lack of involvement, was not to be held responsible for the contents of the Interest Document or for the representations that were made to Mr Barratt and Bazza Investments during the subsequent meetings. They referred to the observations of French J in Gardam v George Wills & Co Ltd (1988) 82 ALR 415 at 427 where his Honour said: "The innocent carriage of a false representation from one person to another in circumstances where the carrier is and is seen to be a mere conduit, does not involve him in making that representation. Nobody would expect that the postman who bears a misleading message in a postal article has any concern about its content or is in any sense adopting it. The same is true of the messenger boy or courier service. When, however, a representation is conveyed in circumstances in which the carrier would be regarded by the relevant section of the public as adopting it, then he makes that representation." The applicants submitted that Mr Taylor could not claim to be a mere conduit: he was a director of Ophir and he was instrumental in introducing Mr Barratt to the company. Before Mr Barratt made his decision to invest, Mr Taylor read and approved the contents of the Interest Document, which included his name as a source of further information; thereafter he met with Mr Barratt and the others on 14 November and further discussed the project. That meeting was his opportunity to tell Mr Barratt that he disassociated himself from the Interest Document but he did not do so. I find that this combination of factors was sufficient to constitute a holding out by Mr Taylor from 14 November that he associated himself with the contents of the Interest Document. In doing that, I further find that Mr Taylor intended that Mr Barratt and his company would rely on the factual assertions that were contained in the Interest Document. In associating himself with Mr De Porteous and Mr South, with the project and with the Interest Document, Mr Taylor, along with Mr De Porteous and Mr South participated in the making of the material representations that were made in the Interest Document. Those representations were calculated to induce the applicants to invest in the project. Bazza Investments did invest in the project and I find that it did so because it relied on those representations and was induced by them to do so. I am aware that Mr Taylor did not have the same degree of knowledge as Mr De Porteous and Mr South but that does not, in my opinion, save him from liability. He was prepared to accept that research and development had been completed; he was prepared to associate himself with the contents of the Interest Document; his willingness to accept as accurate the contents of the Interest Document is the reason for his liability. Ophir was a corporation that and Messrs Taylor, De Porteous and South were persons who, in trade or commerce engaged in conduct that was misleading and deceptive. That conduct was the delivery to Mr Barratt of a copy of the Interest Document with its inaccurate statements. The claims under the FTA Even though I have found that Messrs Taylor, De Porteous and South were in breach of their duty of care with respect to the presentation of the written representations, that finding was based on recklessness and not on knowledge of the falsity of the representations. I do not therefore consider that the applicants have made out a case under s75 of the TPA of aiding and abetting a corporation in the commission of a breach of s52. I do, however, consider that the respective involvement of the three men in the presentation of the Interest Document is, for the reasons that I have given, sufficient to find, in respect of each of them, a contravention of s56 of the FTA. Summary of the Representations and Projections I have concluded that Messrs Taylor, De Porteous and South are susceptible to an award of damages because they were each concerned (albeit in different ways) in a contravention of s56 of the FTA. That conduct, based upon the material misstatements in the Interest Document, was intended to induce investors to participate in the venture for the manufacture and marketing of the Bush Baby Doll. Mr Barratt and Bazza Investments relied on those representations and were entitled to rely on them; they were under no obligation to go behind them and independently check them; the disclaimer afforded no protection for material misstatements of existing facts. I also find against these three respondents in negligence. I am satisfied that Bazza Investments reliance led to it entering into agreements to acquire the 350,000 shares and to give the guarantee of $150,000. It is true that I have found that by August 1991 Mr Barratt was no longer able to point the finger of guilt to the respondents for his further investment in Ophir. I have come to that conclusion because I am satisfied that by that date he had been sufficiently exposed to Ophir, both as a director and as an investor to be self reliant. That self reliance did not, of course, occur overnight, it would have been gradual and, it is possible that it may have arrived (for example) before May 1991 when the last instalment of the purchase price of the shares was paid and the Deed of Guarantee was executed. It is likewise possible that by May 1991 Mr Barratt would have known (or at least a reasonable person in his position would have known) of the falsity of the written representations. If that be the case does it therefore mean that Bazza Investments should not have paid the last instalment of the share price and given the guarantee? Should it be held against Bazza Investments that those losses would have been avoided if Bazza Investments had refused to make the payment and execute the Deed? I think not; in my opinion that would be a counsel of perfection. It must not be overlooked that the instalment payments for the shares and the execution of the Deed of Guarantee were made in pursuance of contractual commitments that had been entered into in about late November 1990. It is a difficult task at any time to make a decision to repudiate, lawfully, contractual commitments; it is the more difficult when the climate is one of continuing enthusiasm and confidence from all the main players. In those circumstances, I have come to the conclusion that it was understandable and reasonable for Bazza Investments to conclude its contractual commitments. Bazza Investments is therefore entitled to a judgment against Messrs Taylor, De Porteous and South based on its losses of $350,000 and $150,000. Indemnity and Contribution I do not believe that this is a case for indemnity or contribution between Messrs De Porteous and South. Their liability is sourced in their involvement in the preparation of the Interest Document; it differed but their presentation of it and their endorsement of its contents was the same. Mr Taylor's position was different. He played no part in the investigations or the assessments of the material that were inserted in the Interest Document. He was ready to associate himself with the document and its representations because, as he said, and as I accept, he relied on Mr De Porteous and Mr South. As between himself and them, he was justified in trusting them and relying on their judgment and advice. In those circumstances he is entitled to indemnity from Mr De Porteous and Mr South jointly and severally. Companies Code I find it unnecessary to consider the further heads of relief under which the applicants sought damages; none of them would increase the loss of damage that has been suffered as a consequence of the breach of s56 of the FTA and none of them would attach liability to any respondent as a consequence of the loss of $75,000 on the "Gusmer" machine. The applicants attempted to attach liability to Innovation Management through s107(1)(c) and (d) of the Companies Code. Assuming, for the purposes of this argument that the Interest Document was a prospectus, that subsection provides that liability can attach to a person (including a corporation) who:- "(a)is a director of the Corporation at the time of the issue of the prospectus; (b) authorised or caused himself to be named and is named in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time; (c) is a promoter of the Corporation; or (d) authorised or caused the issue of the prospectus (e) is liable to pay compensation to all persons who subscribed or purchased any shares or debenture or units of shares or debenture on the faith of the prospectus for any loss or damage sustained by reason of any untrue statement in the prospectus, or by reason of the non-disclosure in the prospectus of any matter of which he had knowledge and which he knew to be material." In my opinion, there was no evidence in the trial (and counsel for the applicants did not point to any in his submissions) that would justify a finding that Innovation Management was either a promoter of Ophir or that it authorised or caused the issue of the prospectus. Contributory Negligence The first and second respondents have alleged that Bazza Investments was guilty of contributory negligence. The substance of their allegation was that in October and November 1991 meetings Mr Barratt was told that he must carry out his own investigations; it is alleged that he was negligent in that he failed to do so. I cannot agree with this proposition. Assertions were made in the Interest Document which were assertions of fact. They were made for the purpose of inducing intending investors to invest and to rely upon them. Intending investors were entitled to rely upon them; there was no obligation on them to go behind the representations and to check their authenticity. Indeed, in this particular case, it would be difficult to envisage what enquiries could have been made by the applicants with respect to the state of research and development.Short of hiring independent experts to assess the stage reached in research and development, any investor would be entitled to read and rely on the contents of the Interest Document. In this regard I also accept the evidence of Messrs Hudson and Nicol that it is extremely difficult to verify "start-up" businesses such as Ophir. Interest Bazza Investments would normally be entitled to interest as part of its award of damages: Netaf Pty Ltd v Bikane Pty Ltd (1990) 92 ALR 490 at 507 per Wilcox J; Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 103-104 per Spender J. In his written submissions, however, counsel for Innovation Management and Mr Taylor claimed that interest under s51A of the Federal Court Act 1976 (Cth) must be pleaded and evidence must be adduced in support of such pleadings. In the particular circumstances of this case that is a rather surprising submission; counsel has obviously overlooked the fact that towards the latter part of the trial the subject of interest was raised and, as I understood, counsel agreed on certain aspects of the matter leaving only for final submissions the question of the rate or rates that should be used in the final computations. If I have not fairly summarised the agreement that was reached, then there has been an obvious misunderstanding and it might be necessary to hear further submissions in order to resolve the issue. I propose therefore to publish these reasons in their present form and defer entry of judgment until the parties have had an opportunity to consider the matter and, if necessary, apply to have it relisted. Subject to that observation, I have concluded that simple interest at the rate of 12% from date of payment to date of judgment would be an appropriate rate; in the case of the payment of the sum of $150,000 under the guarantee that commencing date would be 12 December 1991. The other commencing dates are those set out earlier in these reasons. I do not agree with the proposition that, because Bazza Investments had its funds on deposit with a Building Society, the appropriate rate of interest would be that paid by a Building Society. These funds were never intended to remain in such an account; that was merely a temporary deposit until an appropriate investment could be found. I will adjourn these proceedings for further consideration with liberty to any party to bring the matter on for further hearing on seven days' notice. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of Justice O'Loughlin. Associate Dated: Counsel for the Applicants : Mr N W Morecombe QC Solicitors for the Applicants : Phillips Fox Counsel for the first and second Respondents : Mr M G Evans Solicitors for the first and second Respondents : Fountain & Bonig The third Respondent appeared in person Counsel for the fourth Respondent (Until 20 February 1995) : Mr T P Anderson QC Solicitors for the fourth Respondent (Until 20 February 1995) : Eaton & Associates Counsel for the Cross Respondents: Mr P C Heinrich Solicitors for the Cross Respondent: Minter Ellison Baker O'Loughlin Hearing Dates : 6-10, 13-17 and 20-24 February 1995: 16 May 1995 (receipt of last of written sub- missions).