New South Wales Supreme Court CITATION : Yolarno Pty Ltd v TransGlobal Capital Pty Ltd & Ors (No 2) [2003] NSWSC 1004 HEARING DATE(S) : 6 May 2003 - 8 May 2003; 3 November 2003 - 6 November 2003 JUDGMENT DATE : 19 November 2003 JUDGMENT OF : Gzell J DECISION : First and second defendants liable for damages under the Trade Practices Act 1974 (Cth), s 82. Third defendant not liable. Defendants not liable under the Corporations Law (Cth), s 780 or s 781 CATCHWORDS : TRADE PRACTICES - Consumer Protection - Whether representation made that beef industry irrelevant to capital raising - Whether representation misleading or deceptive - Whether individuals involved in contravention - Whether plaintiff relied on representation in entering into contract with first defendant to cause shares to be listed on stock exchange - CONTRACTS - Discharge, Breach and Defence to Action for Breach - Whether first defendant had good reason not to achieve milestones - Whether anticipatory breach - CORPORATIONS - Supervision, Regulation and Correction - Whether obligation to obtain agreement in principle from an underwriter constituted a business of inducing persons to make an agreement for underwriting securities - Whether a dealing in securities without a licence - Whether the first defendant carried on a business of advising others about securities without a licence LEGISLATION CITED : Trade Practices Act 1974 (Cth) Corporations Law (Cth) Watson v Foxman (2000) 49 NSWLR 315 Jones v Dunkel (1959) 101 CLR 298 Cubillo v Commonwealth (2000) 103 FCR 1 Equity Access Pty Ltd v Westpac Banking Corporation (1989) 16 IPR 431 Yorke v Lucas (1985) 158 CLR 661 CASES CITED : Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545 British & Beningtons Ld v N W Cachar Tea Co [1923] AC 48 Fairway Estates Pty Ltd v Federal Commissioner of Taxation (1970) 123 CLR 153 National Companies and Securities Commission v Industrial Equity Ltd [1982] 1 NSWLR 42 at 60 Von Doussa v Owens (No 1) (1982) 30 SASR 367 Ryan v Triguboff [1976] 1 NSWLR 588 Yolarno Pty Ltd - Plaintiff PARTIES : TransGlobal Capital Pty Ltd - 1st Defendant Garry Charles Taylor - 2nd Defendant Stuart Murray - 3rd Defendant FILE NUMBER(S) : SC 4575/00 Mr TS Hale SC and Mr JM White - Plaintiff COUNSEL : Mr SL Bell - 1st and 2nd Defendants Mr RKM Rasmussen - 3rd Defendant Hunt Partners - Plaintiff SOLICITORS : Webster O'Halloran & Associates - 1st and 2nd Defendant Castrission & Co - 3rd Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J WEDNESDAY 19 NOVEMBER 2003 4575/00 YOLARNO PTY LTD v TRANSGLOBAL CAPITAL PTY LTD & ORS (No 2) JUDGMENT 1 Yolarno Pty Ltd is a highly resilient family company that has operated in the meat processing industry since 1981. Yolarno has meat-processing works at Inverell, Orange and, through an associated company, at Murgon in Queensland. It trades through a subsidiary, Bindaree Beef Pty Ltd. In 1999 it had a turnover of approximately $232 million. This represented approximately 25% of the New South Wales meat industry. 2 It is an accepted fact that the meat industry is not attractive to financiers and the raising of debt finance has been difficult. 3 Garry Charles Taylor is the managing director of TransGlobal Pty Ltd. It offers corporate consulting services to companies wishing to attract investment capital. TransGlobal entered into an agreement with Yolarno to provide services. Both TransGlobal and Yolarno purported to terminate the agreement. Yolarno claimed damages for breach of contract, for breach of the Trade Practices Act 1974 (Cth), s 52 and for breach of the Corporations Law (Cth), s 780 and s 781. 4 Andrew John McDonald, known as AJ, was the managing director of Yolarno. His father, John Ronald McDonald, known as JR, who had founded the company, held a majority shareholding in Yolarno. JR and his wife, AJ, JR's two daughters and their husbands were each involved in senior positions in the company. Decisions affecting Yolarno were made by family consensus. 5 Yolarno had acquired a non-operating abattoir at Orange, had refurbished its boning room and had obtained Orange City Council approval to expand the abattoir to 1,500 head per day over two shifts. In 1998 the company was seeking finance for this project. 6 The New South Wales Department of State and Regional Development organised a tour of regional New South Wales for members of the financial and investment community. Mr Taylor was a member of that party. Following a tour of the Orange facility, AJ explained Yolarno's position and its desire for funds for its expansion programme. Mr Taylor was introduced to AJ and explained that TransGlobal was in the business of assisting clients to seek development capital. 7 Mr Taylor met with AJ in Sydney in early February 1999. In correspondence, TransGlobal pointed out that investors did not have a good perception of the meat industry and a back door listing was probably the most appropriate strategy. In early March 1999, TransGlobal estimated the cost of an initial public offering of $30 million at $2.485 million. 8 Yolarno had retained Ernst & Young to prepare a proposal for finance. In June 1999 it produced an equity investment memorandum. It stated that the capital cost of an upgrade of the Orange Abattoir to 1,500 head per day had been estimated at $30 million. It offered a 35% equity stake in Yolarno for $17.5 million. The document contained a detailed analysis of the meat industry and Yolarno's place in it. In its overview of the industry, Ernst & Young indicated that, historically, the experience of lending to the meat processing industry had not been a good one for financiers. 9 Letters written to Yolarno by TransGlobal during August and September 1999 were highly encouraging. TransGlobal said: "Our initial view on the capital raising prospects of Bindaree Beef, having had the opportunity to study the financial data you left with us, is that it is well suited to an IPO - if the whole of the assets and operations at all locations are included." "The information requested in 1, above, will make any plans we develop more accurate. In general, however, we believe we can come up with 2 or 3 strategies to put to you, from which we can decide upon a final approach to capital structure and strategic corporate development of Bindaree Beef as a publicly listed company." "Rather than present you with several choices of direction, we have decided upon a single strategy that, in the current market, will give you (the Vendors) maximum post-float control and which is "saleable" to the institutional investors that are fundamental to a successful promulgation of an IPO." "We will need to move very swiftly thereafter to take advantage of the 'ground-swell' of interest we have already developed with institutional investors." "Further to our fax to you dated 25 August 1999, and based upon the financial data that you supplied us that were prepared by Ernst & Young, we have established a model for the corporate structure of Bindaree. We believe it will support a capital raising in the desired order of $25 million (net of float expenses), while simultaneously maximising vendor equity and appealing to institutional investors and underwriters." "We have, on a "no-names" basis, approached certain institutions and brokers known to us and have received a very positive response to such a proposal." 10 Stuart Murray was contacted by Mr Taylor in November 1998 and asked if he could assist Yolarno in borrowing funds. Mr Murray contacted AJ who confirmed that Yolarno was seeking to borrow $15 million. Mr Murray said that would be pretty difficult because Yolarno was an abattoir. 11 Having visited the Inverell premises, Mr Murray made inquiries of several banks and private lenders without success. He subsequently advised AJ that it was unlikely that Yolarno could raise debt finance because it was undercapitalised. Mr Murray closed his file. He was subsequently asked by Mr Taylor to accompany him to Inverell on 22 September 1999 where a meeting took place between members of the McDonald family, Mr Taylor and Mr Murray. 12 Estimates of the length of the meeting varied between one and half hours and four hours. The recollections of the witnesses as to what was said at the meeting differed. Mr Taylor did most of the talking. He spoke about PE ratios. 13 At the conclusion of the presentation, JR said he asked one question: "I only have one question for you - this is the meat industry". He said that Mr Taylor gave a lengthy answer to the effect that when you were raising capital in a public offer, success or failure was determined by the PE ratio and not the type of industry involved. 14 Mr Taylor denied that he said anything to indicate that the meat industry did not matter. On the contrary, he said he informed the meeting that the meat industry was a difficult sector of the economy, at that time especially, from production, export and investment viewpoints. But as Yolarno had informed TransGlobal that it was profitable and had most of its sales arranged under formal contract, it was in a better position than many participants in the meat industry at that time. Mr Murray did not recall JR asking the question. 15 AJ remembered the question and answer. He said it was a defining moment in the meeting. His sister, Leigh Anne Belbeck recalled her father asking a question along the lines: "We're the meat industry and nobody wants to put any money into the meat industry" to which she said Mr Taylor responded that it did not matter so much what the business was. It did not matter that it was the meat industry. It was all about how you marketed and presented it that made it an attractive option for people to purchase shares. Mrs Belbeck regarded that exchange as the main part of the meeting. 16 Jayant Parshotam, an accountant employed by Yolarno, was at the meeting. He recalled JR saying: "I only have one question for you - this is the meat industry" to which he said Mr Taylor responded: "It does not matter what industry you are in. It all revolves around capital markets, the raising of capital in these markets, the power of the P/E ratio multiple and how this multiple increases significantly once a company is listed". 17 Keri Anthony Brown, a solicitor retained by and subsequently employed by Yolarno, also recalled JR asking the question to which he said Mr Taylor responded: "When you are raising money on the capital market by way of public offer, the particular industry is not relevant. The important issue which determines the success or failure is the P/E ratio." 18 It was submitted that the differing versions of what was said at the September 1999 meeting might indicate that all too often what is actually remembered is little more than an impression from which plausible details are then, often subconsciously, constructed (Watson v Foxman (2000) 49 NSWLR 315 at 318-319). It was submitted that it followed that the court must feel an actual persuasion of the occurrence of the impugned event in the context of the nature and consequence of the facts to be proved, the seriousness of the allegation made, the inherent likelihood of the occurrence and the gravity of the consequences flowing from a particular finding. 19 AJ had the letter from Mr Taylor of early February 1999 that contained the observation that investors did not have a good perception of the meat industry. He also had the Ernst & Young memorandum reporting that the experience of lenders to the meat processing industry had not been a good one for financiers. It was submitted that if Mr Taylor made the alleged representation, AJ would have said something in response. In cross examination he agreed he said nothing. But the tone of the TransGlobal correspondence had changed dramatically since early February. The optimism of the letters of August and September 1999 was consistent with a change in view. 20 In cross examination it was put to Mrs Belbeck that Mr Taylor said at the meeting words to the effect that the meat industry was a difficult sector of the economy at that time from a production, export investment viewpoint. But Yolarno having informed TransGloblal that its profit and most of its sales were arranged under formal contract, Yolarno was in a better position than many in the meet industry at that time. Mrs Belbeck said word for word she did not recall the statement. It was put to her that Mr Taylor may have said those words. She said he may have. 21 On the other hand, Mrs Belbeck was quite convinced that Mr Taylor had responded to JR by saying it did not matter so much what the business was. It did not matter that it was the meat industry. It was all about how you marketed and presented it that made it an attractive option for people to purchase shares. 22 It was submitted that if JR regarded the proposal as "Disneyland time" he would have questioned Mr Taylor's response to his question. He did not question the two gentlemen from Sydney. He said he was an uneducated person and was out of his league. He said he kept his mouth shut because he did not want to put his big foot in it. Mrs Belbeck said Mr Taylor gave the impression he was very very successful: "Very confident. Yeh, he was a very very good salesman doing his job very well". 23 I do not regard the differences in recollection of the precise words used by Mr Taylor as giving rise to a doubt that the recollections of those present are suspect. Nor do I regard the absence of comment by AJ and JR as significant. 24 It was submitted that since Yolarno had not called all the people present at the September 1999 meeting, I should draw an inference in terms of Jones v Dunkel (1959) 101 CLR 298 that their evidence would not have assisted Yolarno. 25 Five participants at that meeting were called. Each gave evidence of the question asked by JR and the answer given by Mr Taylor. The rule in Dunkel does not require a party to give cumulative evidence. It does not compel time to be wasted in calling unnecessary witnesses (Cubillo v Commonwealth (2000) 103 FCR 1 at 120). 26 I do not accept Mr Taylor's denial of the conversation. It was an important matter to the McDonald family who had experienced difficulties in raising debt finance. For AJ it was a defining moment. For Mrs Belbeck the answer was crucial. Had Mr Taylor not said these words, she said she would not have supported the proposal. 27 Following the presentation, the family met to discuss the matter. JR was sceptical. But other members of the family wanted to go ahead and he did not stand in their way. 28 Mr Murray had no direct relationship with TransGlobal. He was an employee of an accounting firm on a salary and commission basis. The accounting firm had an arrangement with TransGlobal that if it raised any funds under a prospectus for Yolarno, it would receive a commission from TransGlobal. Mr Murray was likely to promote the prospectus on behalf of the accounting firm and, if he was successful in obtaining finance under it, he would receive a bonus from the accounting firm. 29 Mr Murray denied that he attended the September 1999 meeting to assist Mr Taylor in the presentation. He said he went with a view to obtaining Yolarno's accounting work for his firm. 30 Mr Murray had provided Mr Taylor with information to enable Mr Taylor to construct a curriculum vitae of Mr Murray. In early March 1999, Mr Taylor had provided AJ with CVs for "all members of the TransGlobal team." A CV of Mr Murray was included in that material. Mr Murray was aware that Mr Taylor would use the information for purposes associated with TransGlobal. He placed no restrictions on the use of the information. Mr Murray assumed that a CV of him had been provided to the McDonald family for the September 1999 meeting. 31 Mr Murray failed to indicate to the members of the McDonald family that he attended the September 1999 meeting in an individual capacity. Mr Taylor had represented that Mr Murray was associated with TransGlobal. Mr Murray assumed that this had been done. He took no steps to correct the impression he assumed Mr Taylor had created. 32 The evidence of Mr Murray's involvement in the meeting varied. He said he was asked at the end of the meeting whether he wanted to make any comments and he said that if the McDonald family was not committed to going public, they should not do it because it involved a lot of hard work on their part to which they would need to be fully committed to the objectives and not just involved in the process. He gave a humorous analogy: "In the production of bacon and eggs, the pig is committed and the hen is involved". He said the McDonald family would have to assist with the fundraising. If they were to go public, they would have to assist with the promotion of the prospectus and assist with its compilation. Most of the witnesses present at the meeting recalled Mr Murray's analogy. 33 AJ said that Mr Murray had said: "To the overseas market, the industry you are involved in is irrelevant" and that Mr Murray has also responded to JR's question saying something about PE ratios. This evidence was supported by Mr Brown in a second affidavit produced in reply. Mr Brown said that Mr Murray also answered JR's question: "In my experience with capital raisings here and overseas, the industry that a company is involved in is irrelevant, only the price to earnings ratio is important to investors." No other attendees at the September 1999 meeting recalled Mr Murray making these observations. 34 It was submitted that I should not feel satisfied that Mr Murray made any representation about the irrelevance of the beef industry. 35 I accept that submission. Furthermore, if Mr Murray made any such observation it had little impact upon those present. It was the statement made by Mr Taylor that caught their attention. 36 The representation that in a capital raising the fact that Yolarno was in the meat industry was irrelevant, was wrong. No attempt was made to establish its accuracy. Indeed, it was subsequently disavowed by Mr Taylor. 37 On 28 February 2000, Mr Taylor sent an email to AJ with a copy to Mr Parshotam reporting that Morgans, stockbrokers of Brisbane, had declined to underwrite the capital raising. He said: "The short story is that they have said "No", based on the alternative market demand they must service for the ".COM" sector, plus the traditional ignorance/trepidation of the market to the beef industry". 38 This drew a response from Mr Parshotam the next day: "Please advise what other issues are of concern at this stage (apart from dot com) and the meat industry (which was never an issue, in your own words)". 39 Mr Taylor responded on the same day: "This is also a topic for the IPO Committee Meeting. However, your quoting to me of words that I would never have said in a pink fit indicates a certain organisational approach inclined towards blame and preparation of scapegoats. I have always said that the beef industry was a problem and that our greatest challenge would be to differentiate Bindaree's management expertise as the reason it was different from the norm. This is the consistent approach we have taken to brokers." 40 The IPO meeting took place on 2 March 2000. One of the representatives of TransGlobal said words to the effect: "The difficulty we are having in finding support is that the investment is in the meat industry. We can't get anyone to support it". Mr Brown turned to Mr Taylor and said: "That was the only question JR asked at the presentation at Inverell. And you replied: 'It's got nothing to do with the industry you're in'". Mr Taylor responded: "No, I didn't. I never said that. I would never make such a stupid statement". AJ said: "We can't deal with you anymore Garry". Paul Murray, one of the TransGlobal representatives, said it seemed appropriate that he should take the lead role. This evidence was not controverted by Mr Taylor. 41 My satisfaction that Mr Taylor did make the representation of irrelevance of the meat industry at the September 1999 meeting is not only based upon the weight of evidence to the contrary of his denial. Notwithstanding his statement early in February 1999 that, generally speaking, investors did not have a good perception of the meat industry, the hyperbole present in the correspondence of August and September 1999 is consistent with his answering JR's seminal question in the way those present at the meeting recalled it. Furthermore, the immediate reaction of Yolarno representatives to the first mention by Mr Taylor that the meat industry was a problem, tends to confirm the making of the representation. 42 The principles applicable to the operation of the Trade Practices Act 1974 (Cth), s 52 are usefully set out by Hill J in Equity Access Pty Ltd v Westpac Banking Corporation (1989) 16 IPR 431 at 440-441. 43 First, in order for impugned conduct to be misleading or deceptive it must convey, in all the circumstances, a misrepresentation. That what was said at the September 1999 meeting amounted to a misrepresentation is established by the subsequent conduct of Mr Taylor and the difficulty TransGlobal experienced in obtaining anyone to underwrite the issue. 44 Secondly, there is no contravention of the Trade Practices Act 1974 (Cth), s 52(1) unless error or misconception results from the conduct of the corporation and not from other circumstances for which the corporation is not responsible. That requirement is satisfied in the instant circumstances. Mr Taylor was the managing director of TransGlobal. 45 Thirdly, conduct is likely to mislead or deceive if there is a real or not remote chance or possibility of misleading or deception regardless of whether that is more or less than 50%. The question whether conduct is misleading or deceptive or is likely to be so, is an objective one to be determined by the court itself. Evidence that persons of the relevant class were misled, although admissible, is not determinative although in some cases it may be highly persuasive. In light of the clear dichotomy between the representation and the fact, there can be no doubt that the conduct of Mr Taylor on behalf of TransGlobal was misleading or deceptive. 46 Fourthly, conduct of a corporation causing mere confusion or uncertainty in the sense that the public may be caused to wonder whether two products may have come from the same source is not necessarily co-extensive with misleading or deceptive conduct. That aspect has no application in the instant circumstances. 47 Fifthly, in certain cases the applicant must establish that it has acquired a relevant reputation in a name that has become distinctive of its business in a particular country or geographical area. That aspect, also, has no application in the instant circumstances. 48 Finally, the Trade Practices Act 1974 (Cth), s 52 is not confined to conduct that is intended to mislead or deceive and a corporation that acts honestly and reasonably may, nonetheless, engage in conduct that is likely to mislead or deceive. That aspect is also inapplicable in the instant circumstances. 49 In my view, Mr Taylor's representation that the meat industry did not matter to a capital raising constituted misleading and deceptive conduct on the part of TransGlobal on whose behalf the representation was made in terms of the Trade Practices Act 1974 (Cth), s 52. 50 While I am not satisfied that Mr Murray made any representation himself, the question remains whether he is within the Trade Practices Act 1974 (Cth), s 75B(1)(a) or s 75B(1)(c). 51 The Trade Practices Act 1974 (Cth) s 75B(1)(a) provides that a person is involved in a contravention of, relevantly for present purposes, s 52 if the person has aided, abetted, counselled or procured the contravention. The concept of aiding, abetting, counselling or procuring is taken from the criminal law and there is nothing in the context of the Trade Practices Act 1974 that requires the concept to be given a different meaning. A person falls within the concept only if he or she intentionally participates in the impugned conduct. To form that requisite intent the individual must have knowledge of the essential matters that make up the contravention in question (Yorke v Lucas (1985) 158 CLR 661 at 666-668). 52 The Trade Practices Act 1974 (Cth) s 75B(1)(c) provides that a person is involved in a contravention of, relevantly for present purposes, s 52 if the person has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention. The word "knowingly" significantly confines the operation of the provision. For Mr Murray to fall within it, it must be shown that he had knowledge of the misleading nature of the statement made by Mr Taylor. 53 Mr Murray attended all but one of the IPO meetings. He said this was for purely educative purposes. When a prospectus issued he could inform clients of the activities of the Yolarno group. Mr Murray was aware that it was notoriously difficult for abattoirs to borrow substantial funds. Yet he knew little about capital raisings and it has not been established to my satisfaction that he should have been concerned at Mr Taylor's response to JR. Significantly, he was not cross examined to suggest that he knew the statement of Mr Taylor to be false. 54 In my view, Yolarno has failed to establish that Mr Murray was involved in the contravention of the Trade Practices Act 1974 (Cth) s 52 by TransGlobal. 55 As for Mr Taylor, however, I am satisfied that he knew his representation to be false but made it nonetheless and intentionally. In my view he was involved in the contravention of the Trade Practices Act 1974 (Cth) s 52 by TransGlobal in terms of s 75B(1)(a) or s 75B(1)(c). 56 The Trade Practice Act 1974 (Cth), s 82(1) provides that a person who suffers loss or damage by conduct of another person done in contravention of s 52 may recover the amount of the loss or damage by action against that person or against any person involved in the contravention. The use of the word "by" connotes causation (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525). 57 It was submitted that there was no direct evidence of reliance upon Mr Taylor's representation. AJ did not say he relied on the representation and JR thought the proposal was "Disneyland time". Mrs Belbeck said she relied upon what Mr Taylor had said and assumed that it must be true. She saw the proposal as a means to extinguish family debt. It was objected that she was not a director or shareholder. Her husband was as was her brother in law, but neither of them gave evidence. JR held a majority of the shares in Yolarno. 58 JR and his wife, their son, their two daughters and their husbands were at various times directors. Each was involved in a senior role within the company. Decisions on its behalf were made as a matter of consensus within the family. While JR was sceptical of the proposal, the other members of the family wanted to go ahead with it. He did not stand in their way. A family decision was made that Yolarno would proceed with a public float and engage the services of TransGlobal. 59 Causation does not have to be established by direct evidence of reliance. It is open to the court to determine the effect that the representation had (Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545). In my view the representation was intended to have the effect of placating family concerns that raising funds for a meat industry operation was difficult. The making of the representation, the significance placed upon its reception by the family, their meeting immediately following the presentation to discuss the matter, the consensus that they should go ahead with the proposal notwithstanding the scepticism of JR and the fact that an agreement was reached with TransGlobal within a short space of time, lead to the inevitable inference that the representation caused Yolarno to proceed with the proposal. 60 The plaintiff relied upon three other representations. It was alleged that at the September 1999 meeting, Mr Taylor and Mr Murray said that if Yolarno entered into an agreement for investment banking services with TransGlobal, TransGlobal would be able to raise $30 million by way of a public share offering on the Australian Stock Exchange so as to enable Yolarno to finance expansion of the Orange abattoir. 61 There was no evidence of any statement in these terms. It was submitted on behalf of the plaintiff that this was a summary of the proposal to the September 1999 meeting. 62 If the conduct relied upon as being misleading or deceptive is an oral representation, there must be some precision in pleading the impugned representation. A summary of the effect of an impugned representation is not, in my view, sufficient. Serious consequences flow from misleading or deceptive conduct and a party against whom a claim is made under the Trade Practice Act 1974 (Cth), s 52 is entitled to know precisely what is alleged to have constituted the misleading or deceptive conduct. That is not the case with the plaintiff's further amended statement of claim. 63 An agreement for investment banking services dated 1 October 1999 was executed by Yolarno and TransGlobal. It was alleged that on or about 1 October 1999, Mr Taylor on behalf of TransGlobal said that TransGlobal had the knowledge, expertise and qualifications to comply with the terms and provisions of the agreement within the time period specified in the agreement. 64 There was no evidence that any such statement was made. It was submitted that such a representation was plain from the manner in which the agreement was executed at an IPO meeting. The pleading was of an oral representation and not one constituted by conduct. In any event, there was a lack of causation between any such representation and execution of the agreement. Yolarno had decided before 1 October 1999 that it would enter into an agreement with TransGlobal. 65 Finally, it was alleged that on or about 1 October 1999, Mr Taylor said that in the event that TransGlobal did not comply with the terms and provisions of the agreement within the time period specified, Yolarno would not be liable to pay fees. 66 The agreement specified a number of milestones. Milestone 5 was the presentation to underwriters to gain agreement in principle to establish a capital raising timetable. The target date for it was nine weeks from execution of the agreement. The agreement also provided that Yolarno would pay TransGlobal a fee of $300,000 at the rate $25,000 per month. The first payment was to be made on the execution of the agreement. 67 AJ gave evidence that shortly before executing the agreement Mr Taylor said to him: "There are already clauses in the contract, as the milestones set out the weekly performances. The figure of $50,000 relates to milestone no 5 such that if the underwriters say it's not feasible then you have effectively got an exit clause because you don't have to proceed and won't need to pay TransGlobal any further fees." AJ said that these remarks eased his concern that Yolarno did not have to continue to pay fees without a link to TransGlobal's performance. Mr Taylor denied this conversation. 68 I have some doubt as to whether this conversation took place. Mr Brown wrote on 1 October 1999 on AJ's instructions and while a reduction in the rate of payment of the TransGlobal fee was sought, there was no reference to an agreement that TransGlobal's remuneration was tied to the milestones. 69 I do not have to resolve this issue, however, because there was no evidence that AJ communicated his conversation to other members of the family. In the absence of reliance on behalf of Yolarno, the representation had no relevant effect. 70 With respect to its claims under the Trade Practice Act 1974 (Cth), therefore, I am of the view that the plaintiff has made out one representation upon which Yolarno relied in entering into the agreement with TransGlobal. 71 The agreement provided that TransGlobal would provide to Yolarno the investment banking services necessary to effect the desired organisational restructuring and expansion of Yolarno operations. The investment banking services were to include, but were not limited to, TransGlobal assisting Yolarno to meet with corporations that had expressed or were likely to have a strong desire in investing in Yolarno; to negotiate and facilitate direct investment in Yolarno; to obtain from Yolarno or assist it to prepare a comprehensive Yolarno business plan; in accordance with the business plan to work closely with its staff to make Yolarno investment ready; to draft management agreements for principals and senior staff; to draft an information memorandum suitable to both investors and the relevant regulatory authorities; to design and implement an effective capital structure for Yolarno; to draft a pro-forma prospectus in sufficient detail to present to potential underwriters and investors; to identify and negotiate with brokers and underwriters; to plan and execute broker and institution road shows and to seek to make an IPO and supporting capital raising. 72 The agreement further provided that, unless there was good reason to do otherwise, TransGlobal was to adhere to a list of corporate development milestones. The agreement is likely to have been executed at an IPO meeting on 7 October 1999. Based on that date, the milestones and their target dates were as follows: No Target Activity Date 1 Receive signed mandate 07/10/99 2 Review and assess financials 21/10/99 3 Complete detailed group projections for financial year to 30 June 2002, including cashflow projections 11/11/99 4 Prepare investment proposal for potential underwriters 25/11/99 5 Presentation to underwriters/gain agreement in principle/establish capital raising timetable 09/12/99 6 Appoint auditors and legal advisers/establish due diligence committee 16/12/99 7 Complete first draft of prospectus 10/02/00 8 Draft group financials to 31 December 1999 available 09/03/00 9 Audit of 31.12.99 financials completed 06/04/00 10 Due diligence sign-off 20/04/00 11 Lodge financial/legal prospectus with ASIC/ASX 04/05/00 12 Print/issue prospectus 01/06/00 13 Close prospectus/issue shares 15/06/00 14 List shares on the ASX 22/06/00 73 Upon the agreement, Yolarno was required promptly to complete and return to TransGlobal any informational documentation reasonably required of Yolarno by TransGlobal. 74 The evidence revealed that by 1 May 2000, when a prospectus should have been about to be lodged with the Australian Securities and Investments Commission on the Australian Stock Exchange, the only milestone that had been achieved, apart from milestone 1, was milestone 7, the completion of a draft prospectus. The review and assessment of financial information at milestone 2 was continuing. 75 It was conceded by counsel for TransGlobal and Mr Taylor during final addresses, that TransGlobal was bound to adhere to the milestones unless there was good reason to do otherwise. It was submitted that there was such good reason in Yolarno's failure promptly to complete and return to TransGlobal reasonably required information. 76 In his closing address, counsel for TransGlobal and Mr Taylor identified the requests for information upon which reliance was placed. However, with the exception of a period of about five weeks from late November 1999 to early January 2000 when Mr Parshotam was on annual leave, he responded with due diligence to each request for information. And Mr Parshotam had given TransGlobal forewarning that he would be absent on holiday. 77 TransGlobal had been provided with consolidated accounts for the year ended 30 June 1999 before the September 1999 meeting. There appears to have been no timely analysis of this material and a request for further material by TransGlobal. Nor did it set out at any time a schedule of information or tasks it required Yolarno to perform. Instead, its requests for information have an ad hoc character about them. Nor were the draft prospectuses prepared in the period November 1999 to February 2000, impressive documents. A great deal of the information in them was taken directly from the Ernst & Young memorandum. 78 TransGlobal prepared a brokers' overview which it presented to potential underwriters. None was interested in underwriting the float. By the end of February 2000, there was no prospect that an underwriter would be found. Counsel for the plaintiff submitted that by the time of the meeting of 2 March 2000 the proposal was a "dead duck". I agree with that submission. 79 Frank Harvey Burke, a corporate adviser with more than 20 years experience, gave evidence that a reasonably competent financial adviser would observe a number of features about the proposal, any one of which would suggest it would be very difficult to float Yolarno, the combination of which would suggest that the prospects of successfully floating the company were remote. 80 Yolarno had a significant working capital deficiency at balance date in each year from 1997 to 1999. That working capital deficiency was so large that Mr Burke was of the view that a financial adviser would need to see cash flow forecasts and the directors' statement to ensure that the company could continue to meet its short term obligations as they fell due. 81 Alternatively, if Yolarno was fundamentally dependent on some other entity for its financial viability, Mr Burke's view was that the nature and sustainability of that support should have been queried and confirmed. Sanger Pty Ltd took all Yolarno's beef for export. It was a major lender to the company. 82 Yolarno had a very large investment in fixed assets. It held buildings and plant at Inverell and Orange of $24.8 million and $9.2 million respectively. 83 Furthermore, virtually the entirety of shareholders' funds was represented by a reserve rather than by subscribed capital or retained profits. In 1999, there was a large asset revaluation reserve of $21.7 million out of total shareholders' funds of $21.9 million. The size of the revaluation reserve was absolutely fundamental to the net worth of the company. Mr Burke said that the basis for the revaluation and its veracity required close examination. 84 Yolarno predicted a turnaround of its pattern of losses and a profit of $9 million for the year ended 30 June 2000. Mr Burke was of the view that it was pointless approaching the market with a string of losses and that the turnaround in profitability should have been achieved first and the market approached thereafter. 85 In my view TransGlobal demonstrated a lack of ability to achieve the investment banking services the subject of the agreement. 86 It was submitted that Yolarno did not seek to obtain precise costs for the Orange abattoir until March 2000. But in-house costings had been provided and there was a degree of flexibility about some of the components. An abattoir could be constructed in varying amounts. 87 It was pointed out that an integral part of the funding was to be by way of government grants, the applications for which were turned down in February 2000. That required some adjustment of figures in the draft prospectus. It was not a basis, in my view, for TransGlobal to fail to meet its obligations. 88 It was pointed out that the term of the agreement was two years. But the milestones called for the listing of the shares by 22 June 2000, a period less than a year and the instalment regime for payment of TransGlobal's fee of $300,000, covered a period of one year. The term of the agreement cannot excuse a failure to comply with the milestones. 89 At the meeting of 2 March 2000, it was agreed that the monthly payment to TransGlobal should reduce to $10,000 and revert to the higher level once a clear evaluation of support for the proposal was known. 90 On 1 May 2000 it was clear that there would be no listing on the stock exchange. Mr Taylor agreed that as at that date there was no underwriter and no prospect of an underwriter likely to lead to compliance with milestone 5. There was nobody in the Untied States interested in underwriting the proposal. By that date there was absolutely no one who was likely to underwrite the proposal. Yolarno ceased to pay the monthly instalment of fees to TransGlobal on 1 May 2000. 91 Clause 10.2 of the agreement provided that TransGlobal could terminate it if Yolarno failed to pay any amount properly payable under the agreement within 21 days of Yolarno receiving notice of the overdue payment. On 10 May 2000, TransGlobal gave notice under that provision which went unanswered. 92 In my view, by 1 May 2000 TransGlobal was wholly and finally disabled from performing its obligations under the agreement (British & Beningtons Ld v N W Cachar Tea Co [1923] AC 48 at 72) and Yolarno established an anticipatory breach by TransGlobal. Yolarno terminated the agreement on 1 June 2000. 93 Clause 10.3 of the agreement provided that Yolarno could terminate the agreement if TransGlobal, without good cause, had not substantially completed the objects of the agreement within its two-year term. Clause 10.4 provided that Yolarno or TransGlobal could terminate the agreement upon any material breach capable of being remedied if within 21 days of receipt of a notice requiring compliance the breach was not remedied. It was submitted that the former provision was inapplicable as at June 2000 and that Yolarno had failed to comply with cl 10.4 in that no notice requiring compliance was given. 94 I reject that submission. Anticipatory breach demonstrates an inability to remedy a default and that takes the situation out of the terms of cl 10.4. It could not have been the intention of the parties that in such circumstances Yolarno would have to await the expiration of the two-year term before it was entitled to terminate the contract. In my view, cl 10 of the agreement does not limit the right of either party to terminate the agreement where the other party was wholly and finally disabled from performing it. 95 In May 2000, a company related to Yolarno purchased the Murgon abattoir for approximately $3 million. It was submitted that this was the real reason for Yolarno not wishing to proceed with the public float. I reject that submission. The Murgon abattoir was a fortuitous acquisition at a low price. I accept the evidence of AJ and Mr Brown, both of whom denied that its acquisition was the reason for not going ahead with the float. 96 Yolarno's notices of the desire to rescind the agreement was given under the Corporations Law (Cth), s 798(1). Section 799 provided that a notice under that provision rescinded the agreement unless rescission would prejudice a right or an estate in property acquired by a person in good faith for valuable consideration without notice of the facts entitling a party to give the notice. 97 TransGlobal held neither a dealer's licence nor an investment adviser's licence. The Corporations Law (Cth), s 798(1) provided that a client might give a non-licensee a written notice stating that the client wished to rescind the agreement. 98 The Corporations Law (Cth), s 780 provided that a person must not carry on a securities business or hold out that the person carried on a securities business unless the person held a dealer's licence or was an exempt dealer. Section 781 provided that a person must not carry on an investment advice business or hold out that the person was an investment adviser unless the person was a licensee or an exempt investment adviser. 99 The Corporations Law (Cth), s 93(1) provided that a securities business was a business of dealing in securities. It was submitted that since the Yolarno float was the only one in which TransGlobal had been involved, there was an insufficient regularity, repetition or continuity of activity to constitute a business. But a business must start at some time and a single transaction may constitute a business if there was an intention to repeat the transactions (Fairway Estates Pty Ltd v Federal Commissioner of Taxation (1970) 123 CLR 153 at 163-164). 100 The Corporations Law (Cth), s 92(1) defined the term "securities" to include shares in a body. There was no definition of the term "dealing" but the term "deal" was defined in s 9, relevantly for present purposes, as follows: "In relation to securities - … means (whether as principal or agent) acquire, dispose of, subscribe for or underwrite the securities, or make or offer to make, or induce or attempt to induce a person to make or to offer to make, an agreement: (i) for or with respect to acquiring, disposing of, subscribing for or underwriting securities; or (ii) the purpose or purported purpose of which is to secure a profit or gain to a person who acquires, disposes of, subscribes for or underwrites the securities or to any of the parties to the agreement in relation to the securities." 101 It was submitted that TransGlobal fell within this definition because it carried on the business of inducing a person to make an agreement for underwriting shares. 102 In National Companies and Securities Commission v Industrial Equity Ltd [1982] 1 NSWLR 42 at 60, Needham J rejected the submission that acquiring a share in a company was dealing in that share for the purposes of a definition in substantially similar terms. His Honour commented that such a conclusion was on its face unreasonable and the definition had a business flavour about it requiring the carrying on of trading or dealing in securities as a business or profit making venture. 103 In Von Doussa v Owens (No 1) (1982) 30 SASR 367 at 377, Mitchell J agreed with this observation and concluded that the mere acquisition, disposition or subscription for securities could not properly be described as a dealing in securities. 104 In Ryan v Triguboff [1976] 1 NSWLR 588 Lee J held that directors of a company resolving to sell shares in another company cannot be said to be dealing in securities. 105 While the agreement included an obligation on the part of TransGlobal to gain an agreement in principle from a person or persons to underwrite the float, it does not seem to me that TransGlobal's business should be characterised as inducing persons to make agreements for underwriting securities. That was an incident of its business. It carried on or held itself out as carrying on other activities as an incident of its business which did not include approaching underwriters at all. On its website, TransGlobal advertised its services as corporate financial and business strategy, mergers, acquisitions and divestments, restructuring and recapitalisation, expansion financing, management buyouts, early stage financing, venture capital, trade finance, technology transfer, tax effective structures, syndicated finance, access to North American capital markets. 106 A solicitor's firm may be called upon to draw or settle an underwriting agreement for a client wishing to raise equity capital. While that activity is an incident of a solicitor's business, one would not describe the solicitor as in the business of inducing persons to make agreements for underwriting securities. 107 I reject Yolarno's claim that TransGlobal was in breach of the Corporations Law (Cth), s 780. 108 The Corporations Law (Cth), s 77(1)(a) defined an investment advice business as a business of advising other persons about securities. 109 There was no evidence that TransGlobal advised Yolarno or anyone else about securities. There was evidence of a casual remark at a social occasion by Mr Taylor that he was the financial adviser of Yolarno. I place no weight upon that remark as establishing a breach of the Corporations Law (Cth), s 781. The only other evidence is the statement on TransGlobal's website that it worked with Australian corporations and private investors seeking specialised financial advice, corporate and organisational development and investment banking services. In the absence of evidence of advice about securities having been given to any person, I decline to hold that TransGlobal was in breach of s 781. 110 Yolarno engaged Austin Australia Pty Ltd to design a $30 million abattoir at Orange. For that work it claimed $100,000 but a compromise was reached at $70,000. Following the failure of the float, Yolarno went ahead with a $5 million upgrade of the Orange facility. The work done by Austin was not utilised in the smaller project. 111 A similar outcome arose with Wulguru Constructions Pty Ltd, the abattoir specialists engaged on the large project whose work was not utilised in the smaller one. It was paid $53,397.00. 112 Yolarno engaged Peter Purins as chief engineer for Orange as a liaison person. AJ said that he would not have been employed had it not been for the large project. He was paid $51,140.11. Mr Purins was engaged in preparing a report on an inedible by-products processing facility because neither Austin nor Wulguru had that expertise. 113 Mr Purins did carry out other tasks as well, however. AJ explained that his wages were claimed in full but his other costs were not. The extent of his productive activity on other matters was not defined by the evidence. Some discounting must be made for it, in my view. The other costs to which AJ referred were not explored in the evidence. In my view, an appropriate discount is of the order of one third and I would allow $34,000 as the loss occasioned by Mr Purins' employment. 114 $14,155 was expended with Inverell Aviation on charter flights between Orange and Inverell. Mr Brown gave evidence explaining the purpose of each trip. All of them related to meetings with TransGlobal or meetings with others as a direct result of the agreement with TransGlobal. 115 In addition Yolarno paid TransGlobal $139,765.40. While TransGlobal performed some services under the agreement, those services were non-productive to Yolarno in light of the inability of TransGlobal to convince any underwriter to support the proposal and the inevitable consequence that the shares of Yolarno would not be listed on the stock exchange 116 Yolarno is entitled to judgment for $311,317.40 against TransGlobal under the Trade Practices Act 1974 (Cth), s 82 or as damages for breach of contract and is entitled to judgment for $311,317.40 against Mr Taylor under s 82 as a person involved in the contravention of Part V in terms of s 75B. Yolarno is not entitled to any judgment against Mr Murray. Yolarno is not entitled to any judgment under the Corporations Law (Cth), s 780 or s 781. 117 I will hear the parties on appropriate orders as to interest and costs. I direct the parties to bring in short minutes of orders reflecting these reasons. ********** Last Modified: 11/19/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.