Reported Decision : (2005) ATPR 42-058 New South Wales Court of Appeal CITATION: TRANSGLOBAL CAPITAL PTY LTD & ANOR v YOLARNO PTY LTD [2005] NSWCA 68 HEARING DATE(S): 08/03/05 JUDGMENT DATE: 17 March 2005 JUDGMENT OF: Handley JA at 1; Hodgson JA at 2; Brownie AJA at 3 DECISION: Appeal be dismissed with costs. CATCHWORDS: Misleading or deceptive conduct - the fact that a person to whom a representation is made has doubts about the accuracy of the representation does not of itseslf negate a claim. Misleading or deceptive conduct - reliance by a corporation upon conduct constituted by a representation - the fact that a person who holds the majority of the voting shares in the corporation is not convinced by the conduct does not mean that the corporation does not rely upon the conduct. LEGISLATION CITED: Trade Practices Act ss52, 75B, 82 Haas Timber and Trading Company Pty Ltd v Wade (1954) 94 CLR 593 CASES CITED: Gould v Vaggelas (1984) 157 CLR 215 Hanave Pty Ltd LFOT Pty Ltd (1999) 43 IPR 545 Transglobal Capital Pty Ltd - First Appellant PARTIES: Garry Charles Taylor - Second Appellant Yolarno Pty Ltd - Respondent FILE NUMBER(S): CA 41238/03 Mr S Bell for Appellant COUNSEL: Mr T S Hale SC with Mr J M White for Respondents Webster O'Halloran & Associates - Appellants SOLICITORS: Hunt Partners - Respondent LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): EQ 4575/00 LOWER COURT JUDICIAL OFFICER: Gzell J IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41238 /03 HANDLEY JA HODGSON JA BROWNIE AJA Thursday 17 March 2005 TRANSGLOBAL CAPITAL PTY LTD & GARRY CHARLES TAYLOR v YOLARNO PTY LTD Judgment 1 HANDLEY JA: I agree with Brownie AJA. 2 HODGSON JA: I agree with Brownie AJA. 3 BROWNIE AJA: The respondent, through subsidiaries, conducts a meat processing business. In 1999 it wished to raise some capital, and it retained the first appellant to assist it in this regard. It is difficult for those engaged in the meat industry to raise capital, but on the respondent's case the first appellant, through its Managing Director Mr Taylor, who is the second appellant, represented to the respondent that there were good prospects of raising the capital under consideration, and in particular raising it through an initial public offering (IPO) and, critically, that what was important when one was raising money on the capital market by way of a public offer, was not the nature of the industry, but the P/E (or Price-to-Earning) ratio that potential investors might expect. The respondent said that, relying upon this representation, it set out to raise capital by way of an IPO, in the way recommended by the first appellant; no underwriter for the IPO could be found; and the respondent suffered loss. 4 At trial, Gzell J found all these issues in favour of the respondent, and entered judgment for the respondent for damages, pursuant to the terms of ss52 and 82 of the Trade Practices Act, as against the first appellant. His Honour also found for the respondent against the second appellant, on the basis that the second appellant knew that the representation he made was false, but he made it nonetheless and intentionally: section 75B (1) (a) and (c). 5 On appeal, the appellants submitted that the respondent had not established a causal connection between the conduct in question, that is the making of the representation mentioned, and the making of the decision by the respondent to proceed to implement the recommended proposal. This argument turns largely upon the decision-making process of the respondent. 6 It seems apt to describe the respondent as a family company, in that all of its shareholders and directors are members of the one family. Mr John Robert McDonald, known as JR, founded the company, he was one of the directors, and he held seven of the thirteen shares to which voting rights were attached. His son, Andrew John McDonald, known as AJ, held two shares, and was the managing director. JR had two daughters, Leigh Belbeck and Kerry Newton. Their respective husbands each held two shares, and each of them was a director. Earlier, JR's wife, and JR's two daughters had been shareholders and the daughters had been directors. The evidence does not disclose the circumstances in which this position had been changed, but the evidence was that decisions about the affairs of the respondent were (at least sometimes) made by way of family consensus, that is consensus amongst JR and his wife, AJ, Mr and Mrs Belbeck and Mr and Mrs Newton. 7 The critical representation was made at a meeting held on 22 September 1999 at Inverell, when there were about fifteen people present, including JR, AJ, Mr and Mrs Belbeck, Mr and Mrs Newton, Mr Brown (a solicitor acting for the respondent) and Mr Parshotam (an accountant acting for the respondent). Later on the same day, there was another meeting at which only members of the McDonald family were present, when it was decided amongst those present that the respondent would act in the manner that Mr Taylor had recommended. 8 JR had been sceptical about what Mr Taylor said. At the first meeting, he said to Mr Taylor: "I've heard what you said and I have only one question – this is the meat industry". Mr Taylor made a lengthy reply. Different witnesses gave somewhat different versions of it, but his Honour found that the critical representation mentioned above was made. That is not in contention any longer. 9 JR remained unconvinced about the representation, but AJ and Mrs Belbeck were convinced, and at the second meeting, they set out to persuade and did persuade the other family members, JR excepted, that the respondent should follow the course that Mr Taylor had recommended. As JR put it, he thought that what Mr Taylor had said was "Disneyland time", but he did not force his view upon the rest of the family. He did not know what the expression P/E ratio meant, but he did not care to display this lack of knowledge at the first meeting. 10 The submissions for the appellants focus upon the proposition that JR was not convinced about the representation, and he held seven of the thirteen voting shares. Therefore, the argument runs, there was no sound basis for finding that the respondent had been induced to act, relying upon the representation. In my view, this submission fails for each of two reasons. 11 First, JR did not know what the true position was. He had a "gut feeling", but in relation to the question of raising capital from the public, when Mr Taylor and another representative of the appellant came from Sydney to attend the meeting at Inverell, he felt "out of my league", and he said that he "shut my mouth because I did not want to put my big foot in it". 12 At the second meeting, of the family members, he said: "I thought it would be Disneyland time but if they can achieve it, most times in my lifetime I am wrong and I could be wrong again. So let's go". However, all of the other members of the family were in favour of the proposal, so he "stood back", and allowed the view of the others to prevail, and he gave his support to them. He said: "I am training a future generation, I step back and I let the family and I go with the flow" (sic). There was no formal meeting of shareholders and (on his Honour's findings) the respondent entered into a formal contract with the first appellant on or about 7 October 1999. This is a document formally dated 1 October. 13 That is, JR did not know the true position, namely that the fact that the respondent's business was meat processing was an important, if not very important factor for the consideration of potential investors, and others necessarily involved in the proposed IPO. He distrusted the representation, but that was all, and assuming for the moment that his state of mind represented the respondent's state of mind, this is an insufficient basis for the appellant to succeed, in resisting the claim under the Trade Practices Act: Haas Timber and Trading Company Pty Ltd v Wade (1954) 94 CLR 593, 601 and Gould v Vaggelas (1984) 157 CLR 215, 228. 14 Secondly, companies might make decisions in different ways: by meetings of shareholders, by meetings of directors, or by some person or persons exercising some form of delegated authority. In the case of the respondent, decisions were often made, and the relevant decision was made at a meeting of family members, with it seems of all of the shareholders and all directors, as well as former directors and shareholders – all members of the one family – joining in discussion, and all of whom assented to the company making decisions in this way. 15 JR might, as a matter of theory, have insisted upon not proceeding with the proposal. He might have convened a meeting of shareholders, and he might have had resolutions passed giving him an effective power of veto, which power he might have exercised. He did not attempt to do any of those things, choosing instead in substance to be persuaded that because his view was one not shared by any of the other members of the family, he would act in the way that the others wanted. 16 The question boils down to whether the respondent was induced to act by the critical representation, and not whether JR was so induced. In my view, the appellants are not able to escape liability that would otherwise arise from the conduct constituted by the making of the critical representation, by saying that because JR was not personally persuaded, and because he might have been able to make his views prevail, therefore it can and should be said that the respondent was not induced to act by the representation. 17 The appellants also pointed to the fact that not everyone present at the first meeting had given evidence, suggesting that for this reason the Court should not have found that the respondent relied on the representation in question. Gzell J rejected the submission. To my mind, he was plainly entitled to do so, and to infer reliance by the respondent upon the representation from the fact that the representation had been made, and that shortly thereafter the respondent entered into the contract mentioned with the first appellant. This was particularly so, given the other evidence that his Honour accepted, summarised above. See Gould at 236 and Hanave Pty Ltd v LFOT Pty Ltd (1999) 43 IPR 545 at 556. The representation in question was calculated or objectively likely to induce the respondent to act, and it did act; and furthermore, the evidence of JR, AJ and Mrs Belbeck concerning the process by which the family made a collective decision, in substance to rely upon the representation, leads me to the view that no error is to be detected in his Honour's finding. 18 The appeal from the judgment under the Trade Practices Act therefore fails, so that it is unnecessary to consider either the appeal brought by the first appellant from the decision that it was also liable to pay damages for breach of contract, or concerning the measure of the damages for breach of contract, or the questions raised by the respondent's notice of contention. 19 I propose that the appeal be dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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