New South Wales Supreme Court CITATION : Dawson v LNG Holdings [2008] NSWSC 137 HEARING DATE(S) : 16-20/07/07; 23-26/07/07 JUDGMENT DATE : 29 February 2008 JURISDICTION : Equity JUDGMENT OF : White J DECISION : See paras 165 and 166 of judgment. CATCHWORDS : TRADE AND COMMERCE – Trade Practices Act 1974 (Cth) and related legislation – consumer protection – misleading or deceptive conduct or false representations – representations in relation to investment in property development – whether reasonable grounds for representations – whether misleading conduct by non-disclosure – whether omissions advertent – accessorial liability – causation of loss. Corporations Act 2001 (Cth) Bankruptcy Act 1966 (Cth) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) Civil Procedure Act 2005 (NSW) CATEGORY : Principal judgment Watson v Foxman (1995) 49 NSWLR 315 Yorke v Lucas (1985) 158 CLR 661 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 CASES CITED : Warner v Elders Rural Finance (1993) 41 FCR 399 Gould v Vaggelas (1985) 157 CLR 215 Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553 Briginshaw v Briginshaw (1938) 60 CLR 336 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 TEXTS CITED : M Pearce SC, Accessorial Liability for Misleading or Deceptive Conduct (2006) 80 Australian Law Journal 104 Rhonda Dawson & 4 Ors PARTIES : v LNG Holdings Pty Ltd & 2 Ors FILE NUMBER(S) : SC 2031/05 Plaintiffs: L Gyles COUNSEL : 1st Defendant: n/a 2nd Defendant: M B Evans 3rd Defendant: In Person Plaintiffs: Beckett & Associates SOLICITORS : 1st Defendant: Kordamentha 2nd Defendant: Ford Criminal Lawyers 3rd Defendant: n/a IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Friday, 29 February 2008 2031/05 Rhonda Dawson & 4 Ors v LNG Holdings Pty Ltd & 2 Ors JUDGMENT 1 HIS HONOUR: This is a claim for damages to compensate the first and second plaintiffs (Mrs Rhonda Dawson and Mr Wayne Dawson) for losses suffered by them from their investment in a failed property development. They also seek damages for money they felt morally obliged to pay, and did pay, to other investors whom they introduced to the project. 2 The property in question was a development site at 140-148 Beattie Street, Balmain. On 15 July 2002, the first defendant, LNG Holdings Pty Ltd ("LNG"), and its joint venture partner, Property & Equity Developments Pty Ltd ("PED"), exchanged contracts to purchase the site for $2,200,000. The directors of PED were Mr Peter Dixon and Mr Matthew Kelly. 3 LNG and PED are both now in liquidation. On 30 May 2005, Barrett J granted leave to the plaintiffs pursuant to s 471B of the Corporations Act 2001 (Cth) to begin and proceed with the proceedings against LNG. There was no appearance for LNG at the hearing. 4 The second defendant, Mrs Christine Nash, was not a director, officer or shareholder of LNG. She was, and is, the de facto partner of the third defendant, Mr Graham Vaughan. Mr and Mrs Dawson allege that they were induced to invest in the project and to procure others to do so by misrepresentations made by Mrs Nash and Mr Vaughan, and by Mrs Nash and Mr Vaughan not disclosing to them that Mr Vaughan was an undischarged bankrupt. 5 Mr Vaughan had been made bankrupt on 4 August 2000. LNG was incorporated on 5 March 2002. Notwithstanding that he was an undischarged bankrupt, Mr Vaughan was appointed a director of LNG. The other director was Mr Lyall Gorman. He is Mrs Dawson's brother. There were two issued shares in LNG. One was held by Mr Gorman. Mr Vaughan was registered as the other shareholder. (His share was vested in his trustee in bankruptcy or in the Official Trustee (s 58 Bankruptcy Act 1966 (Cth)), but no step was taken by his trustee to take control of the share. I infer that his trustee did not know of the share.) 6 PED, Mr Gorman and Mr Vaughan were involved in other projects for the development of property at Chatswood, Manly Vale and Dee Why. In June 2002, Mr and Mrs Dawson invested $150,000 in the Chatswood development. They did so as a result of their discussions with Mr Gorman. 7 In March 2002, Mrs Nash provided $180,000 for the Manly Vale project. She was also an investor in a second Dee Why project, with which Messrs Dixon and Kelly were associated. 8 In July 2002, Mr Vaughan told Mr Gorman, Mr Dixon and Mr Kelly that he had come across a great possible development site in Balmain. At about that time, Mrs Nash told him that she had already committed more money into Manly Vale than she intended, and was committed to the development in Dee Why. She said she did not want any involvement in another property. 9 In about August 2002, LNG executed a trust deed for the establishment of a trust to be called the Benchmark Property, Beattie Street Balmain Development Trust. The trust deed is dated 3 April 2002, but this date is wrong. The deed relates specifically to the Balmain property and it was not identified as an investment opportunity by Mr Vaughan until July 2002. In an email dated 5 August 2002, Mr Gorman said that accountants were "setting up the trust entity as we speak." 10 The trust deed provided for two classes of unitholders. LNG itself was the initial unitholder, holding four A-Class units. B-Class unitholders were to be entitled to receive: " ... an interest payment of 25% per annum if the First Business of the Trust (as defined in the first schedule) only proceeds with a minimum interest period of six months and repayment of the capital invested or an interest payment of 26% per annum if the Second Business of Trust [sic] (as defined in the first schedule) also proceeds with a further minimum interest period of six months and repayment of the capital invested. Such interest is to be in preference to any other payment made to unitholders of any other class and all B-Class units are to be fully redeemed by the Trustee upon payment of such interest and the capital for the issue for such unit or units is repaid to the unitholder or unitholders at the time of such redemption. " 11 The expression "First Business of the Trust" meant "the purchase of a development site being 140-148 Beattie Street, Balmain New South Wales and obtaining necessary consents and authorities for the re-development of the site by the trustee." The "Second Business of the Trust" was the "redevelopment of the site ... and the sale of such home units by the trustee." 12 The trust deed contained general conditions for the redemption of units and fixing the redemption sum for units to be redeemed. Those provisions were not consistent with the description of the rights and privileges attaching to B-Class units, but that is not material to the present case. Except in the case of fraud, dishonesty, or failure to exercise the degree of prudence and diligence required of a trustee, LNG was not bound to make any payment to unitholders except out of the Trust Fund and was not liable to unitholders to any greater extent than the moneys and assets of the Trust Fund. 13 Hence, a B-Class unitholder would be entitled to a high rate of interest and return of capital provided that the same could be paid out of the Trust Fund. The interests of all unitholders in the Trust Fund would be subject to the right of LNG to be indemnified out of the Trust Fund in respect of liabilities properly incurred by it in execution of the trust. 14 As I have said, contracts were exchanged for the purchase of 140-148 Beattie Street, Balmain on 15 July 2002 for $2,200,000. A five percent deposit of $110,000 was provided by LNG Global Enterprises Pty Ltd. This was a company associated with Mr and Mrs Gorman. The parties treated this money as having been provided by Mrs Gorman. 15 The contract of 15 July 2002 provided for completion after six weeks, that is, by 26 August 2002. By that stage, PED had obtained in principle approval of finance totalling $6,300,000 for the project. The finance was provided by two facilities: one for $5,000,000 and the other for $1,300,000. The lender was Guardian Trust Australia Ltd who, it may be inferred, were lending on behalf of McLaughlin's Financial Services Ltd ("MFS"). Just over $1,800,000 was approved as an advance for the acquisition of the property. 16 By 26 August 2002, LNG had not raised the balance of the finance needed to complete the purchase. A notice to complete was issued by the vendors on 9 September 2002. 17 According to Mr Dawson, in early September 2002, Mr Gorman said to him: " I have got another investment opportunity. LNG Holdings Pty Ltd is the trustee for the Beattie Street, Balmain Benchmark Property Trust and is a separate entity to LNG Holdings Pty Ltd as trustee for the Chatswood Benchmark Property Trust. My joint venture partners have got an option to purchase another property and they require investors in order to complete the option and purchase some land in Beattie Street, Balmain. Would you be interested in meeting these people and looking at the opportunity? Liana [Mrs Gorman] has provided the option fees for around $110,000 for Beattie Street. " 18 As a result of this approach, Mr and Mrs Dawson met with Mr and Mrs Gorman, Mr Vaughan and Mrs Nash at a coffee shop called The Coffee Bean in Rozelle on the morning of Saturday 7, September 2002. During the meeting, Mr Dawson was shown, either by Mr Vaughan or by Mr Gorman, a feasibility study for the Beattie Street development prepared by PED. Two days after the meeting, Mr Vaughan took Mr Dawson to inspect the development sites at Manly Vale and at Dee Why. On 11 September, Mr and Mrs Dawson, Mr Vaughan and Mrs Nash had dinner at the Bayview Hotel in Gladesville. 19 In their amended statement of claim, Mr and Mrs Dawson allege that representations were made to them by Mr Vaughan and Mrs Nash during the meeting at The Coffee Bean on the morning of Saturday, 7 September 2002 and over dinner on 11 September 2002 which induced them to invest in the project. The amended statement of claim named five plaintiffs. The claims of the third, fourth and fifth plaintiffs were settled. The amended statement of claim contains the following allegation: " Misleading or Deceptive Conduct 17. Further, or in the alternative, in and between about April and September 2002, the second and third defendants represented to the plaintiffs that ('the representations'): 17.1 investment in the development of the Beattie Street property was a safe investment; 17.2 the development of the Beattie Street property was a financially viable project; 17.3 there would be no undue difficulty in obtaining relevant consents for the development of the Beattie Street property from the local council; 17.4 any issues with obtaining relevant consents for the development of the Beattie Street property from the local council had been professionally considered and viable solutions had been arrived at; 17.5 the development of the Beattie Street property would be able to be proceeded with without any, or any undue, delay; 17.6 the initial unit holders in the trust for the development of the Beattie Street property would be able to redeem their initial investment within 12 to 18 months; 17.7 the return to the initial unit holders in the trust for the development of the Beattie Street property would be 25%; 17.8 investment in the development of the Beattie Street property would be a stand alone investment ... 17.9 the defendants were of sound commercial repute and were not impecunious, insolvent or bankrupt Particulars: ... To all the plaintiffs, by silence by failing to disclose that the first defendant was not solvent or that the third defendant was an undischarged bankrupt. " 20 It was alleged that the representations were misleading or deceptive because the investment was not safe, and there were numerous and long outstanding difficulties with satisfying the conditions of the development approval for the site and with obtaining a construction certificate from the Leichhardt Municipal Council. It was alleged that the development was unlikely to produce a return to unitholders of 25 percent, and it was unlikely that unitholders would be able to redeem their investment within 12 to 18 months because of the difficulties of satisfying the conditions of the development approval and obtaining a construction certificate. It was also alleged that the defendants engaged in misleading conduct by not disclosing the fact that Mr Vaughan was an undischarged bankrupt. The plaintiffs claimed that Mrs Nash and Mr Vaughan were both involved within the meaning of s 75B of the Trade Practices Act 1974 (Cth), in a contravention by LNG of s 52 of that Act, and also, that they both contravened s 42 of the Fair Trading Act 1987 (NSW). It was also alleged that the defendants owed a duty of care to Mr and Mrs Dawson in respect of the representations and breached that duty. 21 I will deal with the meetings of 7 and 11 September 2002 later in these reasons. 22 Mr Dawson received the feasibility statement which he had been shown at the meeting at The Coffee Bean on or about 9 September 2002. At about the same time, he received a copy of the trust deed and a document entitled "Benchmark Property Investments". He passed these documents on to other potential investors. 23 On 19 September 2002, Mr and Mrs Dawson transferred $150,000 to the account of LNG. Mr Dawson procured an investment of $150,000 from a Mr Brian O'Connor, and a further $150,000 from a Mr and Mrs Powter. The moneys from Mr O'Connor were transferred to LNG on 18 September 2002; the moneys from Mr and Mrs Powter were transferred to LNG on 19 September 2002. 24 On 24 September 2002, Mr Dawson signed the trust deed as a B-Class unitholder and was issued with a certificate addressed to Mr and Mrs Dawson that they were the holders of 150,000 B-Class units representing capital invested of $150,000. The certificate was signed by Mr Vaughan as a director of LNG. Difficulties of the Development 25 The development proposal was for the construction of six terraces, two apartments and two townhouses, together with associated car parking. A previous proprietor had obtained development consent for such a construction, subject to conditions. The consent was last modified in 2001. The site was in a flood-prone area. The major issue concerned the management of stormwater run-off in the event of flooding. Leichhardt Council would not approve a design whereby the development would increase the flow of stormwater to adjoining properties. 26 LNG's consultants, Bowdens, were retained to devise a solution to the stormwater issue. On 2 August 2002, Bowdens outlined to the Council two alternative proposals for an appropriate stormwater system. On 27 August 2002, a meeting was held at the Council attended by Mr Hourigan of Bowdens, Mr Kelly and Mr Gorman, as well as by Council officers and the Council's consultants. The minutes record that the Council's representatives stated they were happy with the concept details provided, but additional issues needed to be addressed. One of the requirements for dealing with the stormwater issue was to acquire a drainage easement over an adjoining block of land. 27 On 10 September 2002, the adjoining landowners, Mr and Mrs Searle, signed a letter confirming that they agreed, in principle, to providing the required drainage easement for the sum of $100,000. A formal agreement was subsequently entered into. The money was paid on 30 October 2002. 28 On 23 September 2002, Bowdens provided a quote of $44,765 for providing a stormwater design including management of the project concerning the stormwater design. 29 The vendor agreed to an extension of a time for completion to 4 October 2002. It required payment of a further five percent of the deposit. A further five percent deposit of $110,000 was paid by LNG on 24 September 2002. Between 16 September and 19 September 2002, LNG had raised $825,000 from various investors who provided mezzanine finance by taking up B-Class units. The $110,000 was paid from the funds so raised. 30 The purchase was settled on 4 October 2002. Of the moneys raised from investors, about $560,000 was applied to complete the purchase and to pay stamp duty. Following the purchase, LNG held $194,000 of funds raised from investors. After paying other expenses and paying for the easement, LNG held $32,000 in its bank account. 31 The construction finance arranged by PED with MFS included $300,000 to be applied towards the costs of the stormwater management plan, $150,000 as PED's costs as project manager (which accrued at $15,000 per month), $310,000 for contingencies, and $3,000,000 for construction costs. The balance of the loan included $590,000 for capitalised interest and $146,000 for document establishment fees. 32 In 2003, LNG raised further finance. It raised $500,000 from a Mr Ferizis on 24 June 2003, and $400,000 from a Mr Frickier on 2 July 2003. To obtain these funds, LNG gave options to each of Mr Ferizis and Mr Frickier to acquire a unit in the development at a favourable price. If the option were exercised, the moneys paid as the option fee would be applied towards the purchase price. Mr Ferizis and Mr Frickier were also entitled after 11 months to give notice requiring repayment of the option fee together with interest whereupon the option would be surrendered. 33 LNG did not obtain a construction certificate. On 26 November 2002, Leichhardt Council advised Mr Kelly that, whilst it agreed in principle, with the philosophy behind PED's proposed drainage system, the Council required a detailed report outlining the operation of the system, giving details of the hydrology and hydraulic calculations used as a basis for sizing the system. The design was to cater for all events up to and including a 100-year flood event with the provision of a fifty percent blockage of the intake structure within Beattie Street. 34 All of this took considerable time. It appears that a completed proposal was delivered to the Council in the middle of December 2002. The Council's consultants (Lyall & Associates) were not satisfied. Correspondence ensued between Lyall & Associates and Bowdens during January and February 2003. Further reports were provided by a further consultant for PED relating to the proposed on-site detention system for stormwater in March 2003. On 22 April 2003, Lyall & Associates advised the Council that it needed further information, including the provision of a structural engineer's report to detail the staging and construction methodology for the proposed stormwater drainage system. Various other concerns were identified. A meeting was held with officers of the Council and the various consultants on 29 May 2003. The matters discussed included the construction of drains, a detention tank, the capacity and location of pipes and culverts, and structural reports on a proposed construction method for the buildings which was designed to provide the above-ground flow path across the site. The design involved suspending buildings on piers which, in turn, raised issues concerning the strength of the foundations and piers to support the buildings. 35 On 28 July 2003, LNG lodged its application for a construction certificate. The Council forwarded the design and models prepared by Bowdens to Lyall & Associates for review. On 6 November 2003, Lyall & Associates commented on the latest design and models. They advised that the applicant should be required to address risks in the event of a flood larger that a "100 year ARI design storm event" to quantify the impact of a probable maximum flood. There were other more detailed comments including adjustments to floor levels in the design of two of the units. 36 On 14 January 2004, the Council advised that it would be prepared to approve the construction certificate once certain revised architectural details had been submitted and outstanding fees, deposits, contributions and bonds had been paid. Even then, the Council advised that its drainage consultant and drainage engineer were still finalising drainage conditions and that the draft conditions attached to the Council's letter of 14 January 2004 might change. The draft conditions included that the development be implemented in accordance with reports and plans provided by LNG and PED's consultants from November 2002 to 22 December 2003. 37 These delays in obtaining Council's approval to a design to deal with the flood and stormwater issues had other consequences. The loans from MFS were repayable 12 months from the first drawing, that is, they were repayable on 4 October 2003. On 12 June 2003, MFS wrote to PED and advised that because of the delay in the project and the accrual of interest on the drawn loan amounts, the loan to value ratio was rapidly increasing. They required that interest payments be made on the loan commencing on 27 June 2003. Substantial costs were being incurred on the project. 38 Relations between PED and LNG had been strained from at least August to September 2002. This was largely due to PED's and Mr Vaughan's complaint that Mr Gorman had not satisfactorily carried out his role of procuring finance. As at September 2002, there were negotiations between Mr Kelly, Mr Dixon and Mr Gorman with the view to terminating their relationship. PED proposed that it take over the entire responsibility for the management of the Balmain project, but Mr Gorman did not agree to those terms. By July 2003, Mr Vaughan, Mrs Nash and Mr Gorman had reached an agreement on the terms for buying out Mr Gorman's share in LNG. 39 On 14 July 2003, Mr Dawson told Mr Gorman that he wanted to withdraw the Dawsons' investment in the Chatswood project. Mr Gorman responded by saying that he was in the process of arranging for his shares to be transferred to Mrs Nash, and for Mrs Nash and Mr Vaughan to be appointed as directors of LNG as part of an agreement for him to sell his shares in LNG. He said that while that was happening, he was no longer effectively involved with LNG. Deed of 9 December 2003 40 Mr Vaughan was discharged from bankruptcy on 29 November 2003. On 9 December 2003, an agreement was made between PED, LNG, Mr Dixon, Mr Kelly, Mr Gorman, Mr Vaughan and Mrs Nash. The agreement dealt with the Manly Vale property, the Balmain property, and a property at Dee Why known as 2-10 Hawkesbury Avenue. It was agreed that Mr Vaughan, on behalf of PED, would pay LNG or its nominee $288,055.53 representing the entitlement of certain named investors in the Manly Vale project and a further $100,000 to Mr Gorman or his nominee. $250,000 was payable on the date of the deed and the balance on or before the "Settlement Date". The Settlement Date was 23 January 2004 or such other date as the parties might agree. Mr Vaughan also agreed on behalf of PED to pay a sum of $70,239.72 to each of LNL Global Enterprises Pty Ltd and Mr Gregory Gorman in relation to the Dee Why project. Under the deed, PED agreed immediately to transfer its interest in the Balmain property to LNG for nominal consideration. The agreement recorded that LNG, Mr Gorman and Mr Vaughan intended to enter into an agreement to discharge the existing loan agreement and securities in respect of the loans for the Balmain project on the Settlement Date and that the directorships, shareholding and control of LNG would then be changed. 41 By 21 January 2004, the loan to MFS was in default. The facility had been extended until 27 January 2004. Refinance was urgently needed. On 11 February 2004, a further deed was entered into between Mrs Nash, Mr Vaughan, Mr Gorman and LNG. It recited that Mrs Nash and Mr Vaughan had been unable to obtain the release of Mr Gorman and LNG from all obligations in respect of the loan and security documents in respect of the Balmain property. Mr Gorman and LNG agreed to release security apparently held by them against the Manly Vale property on payment of the balance of the moneys payable under the deed of 9 December 2003. 42 Mrs Nash provided the funds to make all of the payments due by Mr Vaughan (but which were to be made by him on behalf of PED), under the deed of 9 December 2003. Failure of the Project 43 In 2004, Mr Frickier and Mr Ferizis lodged caveats on the titles of the Balmain property. Further valuations were obtained. On 24 June 2004, Landsburys valued the site as it then was in the sum of $3,000,000, although that valuation was based upon an assumption that the proposed development had a construction certificate. Offers of finance were made by Ray White Investments and Capital Finance Australia Ltd. It is unclear as to whether or not those offers would have been sufficient to discharge LNG's debts. In about November 2004, Capital Finance advised that they required that Mr Frickier be repaid from the proceeds of the advance. This effectively would have reduced the available finance by $500,000 plus interest. 44 A practical difficulty for Mr Vaughan and Mrs Nash was that they did not control LNG. Mr Vaughan had resigned as a director of LNG by a letter of 23 September 2002. Mr Gorman was the sole director of LNG and, as a fifty percent shareholder, would have been able to block any shareholder resolution for his removal as a director or for the appointment of another director. Mr Vaughan and Mrs Nash demanded that he transfer his shares and resign as a director because all of the payments under the deed of 9 December 2003 had been made. He declined. He had not been released from his obligations as a guarantor of the loan facilities provided by MFS in respect of the Balmain project. From Mrs Nash and Mr Vaughan's perspective, this was a catch 22. LNG could not enter into new finance facilities without Mr Gorman signing the agreements on behalf of LNG, but unless the refinance occurred, they could not enforce his removal as a director or obtain a transfer of his share. 45 On 8 November 2004, Mr Vaughan and Mrs Nash attended at the Australian Securities and Investments Commission. Mr Vaughan, with Mrs Nash's acquiescence, lodged a return which he signed purportedly as secretary of LNG, stating that Mr Gorman had ceased to hold office as a director and secretary of LNG on 3 November 2004, and had transferred his share to Mrs Nash. This was false. The form purported to show that Mrs Nash had been appointed a director of LNG, but this was also false. On the same day, they attended at the Land Titles Office and purported to lodge a withdrawal of a caveat which had been lodged by a solicitor on behalf of the investors in B-Class units in the Beattie Street trust. That purported withdrawal was ineffective. 46 In the result, no agreement was reached with Mr Gorman and with the B-Class unitholders, including Mr and Mrs Dawson. No agreements with the new financiers were entered into. Perpetual Nominees Ltd, which acted as agent for MFS on the loan transactions, served a statutory demand on LNG. The demand was made on 29 November 2004 and was for an amount of $2,011,500. The demand could not be satisfied. On 27 January 2005, Perpetual Nominees Ltd filed an application to wind up LNG in insolvency. A winding-up order was made on 29 March 2005. MFS exercised its power of sale of the Balmain property as mortgagee. The amount realised was insufficient to meet the mortgage debt. The Issues 47 Mr and Mrs Dawson seek recovery of their investment. A claim that the defendants were liable for misapplying moneys raised for the Balmain project towards other ventures was not pursued. The sole questions were: (a) whether LNG, Mr Vaughan or Mrs Nash engaged in misleading and deceptive conduct in soliciting the investment in contravention of s 52 of the Trade Practices Act (in the case of LNG) or s 42 of the Fair Trading Act (in the case of Mr Vaughan and Mrs Nash); (b) whether Mr Vaughan or Mrs Nash were involved in misleading and deceptive conduct engaged in by the other or by LNG; (c) whether any of the defendants owed a duty of care to Mr and Mrs Dawson, and if so, whether they breached that duty; (d) whether Mr and Mrs Dawson relied on Mr Vaughan or Mrs Nash in making the investment and procuring the investments of others; (e) whether the plaintiffs' loss was caused by the lodgment by Mr and Mrs Dawson and other investors of caveats over the Balmain property which prevented the refinance of MFS' debt and not by any misleading and deceptive, or negligent, conduct of the defendants; and (f) whether Mr and Mrs Dawson could recover as damages amounts they felt morally obliged to pay, and did pay, to the investors whom they introduced. 48 Subsection 52(1) of the Trade Practices Act provides: " 52 Misleading or deceptive conduct (1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. " Subsection 42(1) of the Fair Trading Act is to the same effect, but applies directly to individuals. Subsection 4(2) of the Trade Practices Act provides: "(2) In this Act: (a) a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant; (b) a reference to conduct, when that expression is used as a noun otherwise than as mentioned in paragraph (a), shall be read as a reference to the doing of or the refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant; (c) a reference to refusing to do an act includes a reference to: (i) refraining (otherwise than inadvertently) from doing that act; or (ii) making it known that that act will not be done. ... " Section 4(4) of the Fair Trading Act is to the same effect. What Representations Were Made? 49 The proceedings were commenced on 5 May 2005. In the statement of claim filed on that day the representations alleged in paragraphs 17.1-17.7 of the statement of claim as set out in para [19] above were said to have been made by Mr Vaughan and Mrs Nash to Mr and Mrs Dawson during the meeting at The Coffee Bean in early September 2002 and during a further meeting shortly thereafter during a motor vehicle ride around Dee Why. In the amended statement of claim filed on 31 July 2006, it was no longer alleged that any representation relied upon was made during a motor vehicle ride around Dee Why. Instead it was alleged that representations were made to Mr and Mrs Dawson at a restaurant meal at Gladesville, as well as during the meeting at Rozelle. This amendment necessarily raises questions as to the reliability of the plaintiffs' recollection of the oral representations allegedly made to them after the meeting at Rozelle. 50 Both Mr and Mrs Dawson swore two affidavits. Their first affidavits were sworn on 10 February 2006. Their second affidavits were sworn on 31 August 2006. Mr Dawson deposed that in early September 2002, Mr Gorman said to him words to the effect set out at para [17] above. 51 Although the plaintiffs read an affidavit sworn by Mr Gorman, Mr Gorman did not give evidence corroborating this conversation. Nor was he required for cross-examination. It would be surprising if Mr Gorman did use the words attributed to him. By September 2002, LNG had exchanged contracts for the purchase of the Beattie Street land. It had not taken an option to purchase the land. It was LNG and PED, not Mr Vaughan and Mrs Nash, who had entered into the contract. No claim for misleading and deceptive conduct was made against Mr Gorman. 52 Mr and Mrs Dawson were at some pains to distance Mr Gorman from the representations which they said they relied on. In his second affidavit, but not in his first affidavit, Mr Dawson said that when introduced to Mr Vaughan and Mrs Nash by Mr Gorman, Mr Gorman said that: " I want Christine and Graham to outline the project to you as I don't want to influence you as family. ... " 53 Likewise, Mrs Dawson in her second affidavit, but not in her first affidavit, said that at the time of introduction, Mr Gorman said that: " There's a development at Beattie Street Balmain that I am interested in, but I want you to make an independent decision of me and I'd like you to meet with my other current investors, Graham Vaughan and Christine Nash. Will you meet with them? " 54 There is an obvious incongruity between the text of the conversation attributed to Mr Gorman and Mrs Dawson's evidence that those words were said at the time of her introduction to Mr Vaughan and Mrs Nash. Presumably Mrs Dawson meant that the words were said shortly before the introduction. Be that as it may, I am not satisfied that Mr Gorman told Mr and Mrs Dawson that he did not want to influence their decision. He was instrumental in their Chatswood investment. There is no obvious reason that he should have sought to distance himself from their investment in the Balmain project. I accept Mr Vaughan and Mrs Nash's evidence that no such words were said in their presence. Mr Gorman did not corroborate this evidence. 55 The meeting at The Coffee Bean took place on the morning of Saturday, 7 September 2002. Mr Gorman's wife, Liana, was also present with their infant child. The setting was a social one. I accept Mr Dawson's evidence that Mr Gorman said words to the effect: " Graham is the co-director of LNG Holdings. Christine is Graham's partner. LNG Holdings is working as a joint venture partner with PED in a number of projects. " 56 Mr and Mrs Dawson both attributed words at the meeting as having been said by both Mrs Nash and Mr Vaughan. Mr Dawson said that in the course of the meeting: " Christine and Graham ... said to my wife and I [sic] words to the following effect: 'We have this option to purchase a development site at Beattie Street Balmain, for which Development Approval has been obtained. We need some investors to provide funding to assist us in buying the land and developing the site. We're looking for about half a million dollars from investors to finalise the settlement of the land. Terraces, units and townhouses will be developed on the site. The investment opportunity will be through a Unit Trust of which LNG Holdings Pty Ltd is the Trustee. We've got a feasibility document here which shows our profitability and the finances of the proposed development. Do you want to have a look at it?'" 57 According to Mr Dawson, he was shown a feasibility document describing the Beattie Street development and after briefly reviewing it he returned it and said that he and Mrs Dawson would be more than interested in investing. Mr Dawson deposed that later in the meeting a conversation to the following effect occurred. He said: "'How long do you wish to have the investment funding for?' They said in reply words to the following effect: 'We will need the money to invest in Beattie Street Balmain from you for about 12-15 months'" 58 In oral evidence, Mr Dawson said that he could not recall which of Mr Vaughan or Mrs Nash said the words quoted in para [56]. He said that it was Mrs Nash who indicated the period of time of the investment in the conversation set out in para [57]. In oral evidence he said that Mrs Nash was actively involved in the conversation discussing the other developments at Dee Why and Manly Vale and "from that I took her involvement and knowledge of the Balmain matter." 59 I am not satisfied that Mrs Nash said the words attributed to her by Mr Dawson. There was a degree of reconstruction in his evidence. He was giving evidence about a meeting over coffee which had occurred almost five years previously. 60 Mrs Nash had no financial interest in the Balmain development at that time. She had invested in projects in Dee Why and Manly Vale but had made it known to Mr Vaughan and Mr Gorman that she was sufficiently committed to those projects and did not wish to participate in the Balmain project. She was not a shareholder nor a director of LNG. Whilst, for reasons below, I have reservations about the reliability of her evidence, particularly some of her affidavit evidence, and the reliability of her memory, I accept her evidence of not having had any financial involvement in the Balmain project at that time. It is more likely that Mr Gorman or Mr Vaughan would have indicated the period for which the investment was required than Mrs Nash. 61 In a case such as the present in which the plaintiff relies upon oral utterances, particularly utterances allegedly made many years before affidavits are prepared or oral evidence is given, the observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 are apt. His Honour said: " Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described [sic] as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court ' must feel an actual persuasion of its occurrence or existence' . Such satisfaction is ' not … attained or established independently of the nature and consequence of the fact or facts to be proved' including the ' seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding' : Helton v Allen (1940) 63 CLR 691 at 712. Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), in the absence of some reliable contemporaneous record or other satisfactory corroboration. " 62 When Mr Dawson swore his first affidavit he did not feel able to attribute those words to one or other of Mrs Nash or Mr Vaughan. I do not accept his evidence that Mrs Nash said the words quoted in para [57] above. 63 Mrs Dawson deposed that in the course of the meeting "Nash and Vaughan" said to her husband and her words to the effect "We only want your investment for a limited period", and that in response to her husband and her asking how long Mrs Nash and Mr Vaughan thought that the property development at Beattie Street would take to be completed before their funds and interest would be returned, "Vaughan/Nash" replied with words to the effect: " You'll get your capital and interest back within 12-15 months of your advancing the investment. " She said that " Vaughan and Nash " said that if they invested their money they would get a fixed rate of return of 25 percent. In her oral evidence, Mrs Dawson confirmed that she could not recall which of Mr Vaughan or Mrs Nash said words to that effect. 64 Mr Vaughan conceded in cross-examination that Mrs Dawson asked how long the construction would take and he said that he would have told her that it would be around 12 months. 65 I conclude that Mr Vaughan, but not Mrs Nash, told Mr and Mrs Dawson at the meeting at The Coffee Bean that their investment would be repaid with interest within 12 to 15 months. 66 There was a dispute as to whether the feasibility study was immediately available at the meeting at The Coffee Bean. Mr Vaughan and Mrs Nash said that Mr Vaughan left the cafe at Mr Gorman's request to pick up a copy of the document. Nothing turns on this. It was common ground that Mr Dawson was shown a copy of the document, that he reviewed it at the meeting, handed it back, and asked for it to be sent to him. It is common ground that that document, together with other documents referred to in para [22] above and para [72] below, were sent to Mr and Mrs Dawson before they invested. 67 The feasibility study was a document prepared by PED. Amongst other things, it described the proposed development and the anticipated time for the different phases. The document was evidently prepared prior to 26 August 2002 as that date was described as the "proposed settlement date". The document set out that the program for development required, amongst other things, completion of the easement to allow stormwater drainage from the site, the redesign of the stormwater management plan, negotiations with the Council to explain the "new remedy", the redrawing of architectural plans, the appointment of consultants for construction certificate approval, the appointment of a building company, and the lodgment and payment of council fees and bonds. 68 All of this was to take place before the construction phase commenced. The program for completion of those tasks was for the months of August, September and October. The construction phase was programmed to commence in October and the building phase to commence in November with the completion of the building phase to be approximately 12 months. The feasibility study stated that the development was envisaged to be completed within 12 months because of its size and status, that is, that development consent was already in place. It stated that there were pitfalls associated with the development but that PED was well resourced to handle most problems and otherwise knew where to go. 69 The study projected realisations from the sale of townhouses and apartments in the development of between $8,500,000 and $10,000,000 against total budgeted costs, including finance costs, of $6,726,000. 70 After "briefly reviewing" the feasibility document at the meeting at The Coffee Bean, Mr Dawson gave evidence that he told Mrs Nash and Mr Vaughan that "Rhonda and I would be more than interested in investing in this site. Can you send us a copy of this feasibility document?" He acknowledged in cross-examination that on reviewing the document he had seen the projected time frame for the development. He estimated spending about 10 minutes reviewing the document at the meeting. 71 Mr Dawson denied knowing that there was a stormwater problem with the site, and gave evidence in cross-examination that he was informed by Mr Vaughan that the water issues had been resolved. Mr Dawson had made no reference to such a statement in either affidavit. However, Mr Vaughan conceded in cross-examination that at some point he told Mr and Mrs Dawson that there was a history on the site of a stormwater easement and there was also a stormwater culvert on the site which needed to be upgraded. According to Mr Vaughan, he told them that both were "do-able" and it needed a redesign. He told them that his background was as a commercial/industrial plumber and that he was used to such large stormwater issues. He agreed that he indicated to Mr and Mrs Dawson that the stormwater and drainage issue was one he would be able to sort out with no difficulty. 72 Mr Dawson inspected development sites at Manly Vale and at Dee Why in company with Mr Vaughan on or about 9 September 2002. After that inspection, Mr and Mrs Dawson received the feasibility report prepared by PED, the trust deed and a document entitled "Benchmark Property Investments". The feasibility document was sent to Mr and Mrs Dawson through the mail. The other documents were sent by Mr Vaughan to Mr Dawson by email. The document entitled "Benchmark Property Investments" described the methodology adopted by LNG for attracting mezzanine finance for such projects. After receiving these documents Mr Dawson passed them on to other persons whom he considered might be potential investors in the Beattie Street project. He did not obtain any independent legal or accounting advice. Mr Dawson deposed that during the course of a further meeting with Mrs Nash and Mr Vaughan, Mr Vaughan asked him for his thoughts and he replied with words to the effect: " We are happy for the return of our investment along with 25% interest from the date of our investment, to be returned after 12-15 months that you have stated the project will take. " 73 According to Mr Dawson, Mr Vaughan replied in words to the effect: " Yes we'll give you the return of your capital and you'll also get a 25% return on your investment for the period of your investment. You'll get your return through LNG Holdings Pty Ltd which is the trustee of the Beattie Street, Balmain Benchmark Property Trust. Lyall and I are the directors of LNG Holdings Pty Ltd. You'll get your capital and 25% return from the trust. " 74 I accept that evidence, but the question remains whether Mr and Mrs Dawson relied upon the oral statements made by Mr Vaughan, or whether they wholly relied upon the documents they were given and Mr Gorman's involvement in the project. It is noteworthy that apart from the statements made by Mr Vaughan as to management of the stormwater drainage issue, the various statements attributed by Mr and Mrs Dawson to Mr Vaughan or Mrs Nash at the meeting at The Coffee Bean go no further in substance than setting out what appeared in the feasibility document and describing the interest which would be payable on the investment. 75 Mrs Dawson deposed in her first affidavit that either Mrs Nash or Mr Vaughan said words to the effect: " The wealth that we have been able to generate from property development has contributed to the lifestyle that we enjoy today. This is a very cut and dry project. We buy the land, develop the land and then sell the land. Those investors who participate in this development will be repaid their capital and interest. " 76 Mrs Dawson said that she could not remember who said those words. I am not satisfied that those words were said. 77 I am not satisfied that any representation was made implying that the investment was safe, as alleged in para 17.1 of the statement of claim. No-one investing money at 25 percent per annum interest in a property development which required the obtaining of a construction certificate, the building of townhouses or apartments, and the sale of the townhouses or apartments, could reasonably expect that there were no risks attached and that return of their money was assured. 78 In her second affidavit, but not in her first, Mrs Dawson deposed that either Mrs Nash or Mr Vaughan said words to the effect "this will be an incredibly viable project for you to invest in." I do not accept that a representation in those terms was made by either Mrs Nash or Mr Vaughan. 79 Mrs Dawson deposed that, at a subsequent social meeting at the Gladesville Hotel over a meal, she and her husband asked how the Beattie Street development was progressing and in reply, either Mrs Nash or Mr Vaughan said words to the effect: " The development is progressing well. We are now just waiting on the CC from Council and building can begin. " She asked when construction would begin and Mr Vaughan said " soon ". 80 In Mrs Dawson's first affidavit she deposed that that conversation took place between September 2002 and June 2003. In her oral evidence, she said that that meeting took place the week after the meeting at The Coffee Bean. There were obvious difficulties with her recollection of this meeting. If, when she swore her affidavit, she had recalled that the meeting took place at that time there would have been no reason she would not have said so, rather than placing the meeting at any time between September 2002 and June 2003. Moreover, it is quite unlikely that a week after the meeting at The Coffee Bean when the Dawsons knew that LNG was in the course of trying to arrange finance to acquire the Beattie Street site, a conversation as to the progress of the development would have occurred as deposed to by Mrs Dawson. I do not accept her evidence that an express representation was made by Mr Vaughan at that meeting that construction would begin soon. 81 I conclude that oral representations were made to Mr and Mrs Dawson by Mr Vaughan in Mrs Nash's presence that their investment would be required for a period of 12 to 15 months and they would be entitled to interest at 25 percent per annum. I do not accept that representations were made that the investments would be "safe" or that the investment was "incredibly viable" or that it was a "financially viable project". I do not accept that there was any express representation as to the time at which construction would commence. Nor was a representation made in express terms that "the development of the Beattie Street property would be able to be proceeded with without any, or any undue, delay". I do not accept that an express representation was made that there would be no undue difficulty in obtaining relevant consents for the development of the Beattie Street property from the Council, or that any issues with obtaining relevant consents had been professionally considered and viable solutions had been arrived at. However, a representation was made by Mr Vaughan in substance that there was a stormwater and drainage issue which LNG would be able to resolve without difficulty. 82 I accept that Mr Vaughan, in the presence of Mrs Nash, represented that if the plaintiffs invested, they would be able to redeem their investment within 12 to 15 months. I do not accept that a representation was made in terms that the return to the initial unitholders in the trust for the development of the Beattie Street property would be 25 percent. The representation was not a promise. Rather, Mr Vaughan represented in substance that initial unitholders would be entitled to a return of 25 percent per annum. In relation to the last distinction, Mr Dawson accepted in cross-examination (T140) that when Mr Vaughan said that the Dawsons would get a return on their capital of 25 percent, he was doing no more than saying what was in the Benchmark Trust Deed and was reaffirming what was indicated in the documents. Nonetheless, that impliedly conveyed that there were reasonable grounds to expect that the plaintiffs would receive a 25 percent per annum return on their investment. 83 No reliance was placed on the alleged representation that the investment in the development of the Beattie Street property would be a stand-alone investment. There was no dispute that Mr and Mrs Dawson were not informed that Mr Vaughan was then an undischarged bankrupt. 84 It follows that there are essentially four matters which might constitute the engaging by LNG, or Mr Vaughan in misleading and deceptive conduct, namely: (a) representing that the plaintiffs' investment was required for 12 to 15 months; (b) representing that the stormwater drainage issue would be resolved without difficulty; (c) representing that the plaintiffs would be entitled to a 25 percent per annum return on their investment; and (d) not disclosing Mr Vaughan's bankruptcy. In relation to the first three matters, the question is whether there were reasonable grounds for the representations when they were made. The first two representations were as to future matters and the onus lies on LNG and Mr Vaughan to show that reasonable grounds existed for making those representations (s 51A Trade Practices Act ; s 41 Fair Trading Act ). The third representation was also "in respect of" a future matter. Although it was a representation as to entitlement, the entitlement was as to a future return on investment. The onus lies on LNG and Mr Vaughan to establish reasonable grounds for the representation. A further question is whether Mr and Mrs Dawson relied on those representations, or whether they wholly relied upon the documents with which they were provided, and upon Mr Gorman. 85 Mrs Nash did not make any of the representations. If she is liable, it would be as an accessary. For her to be liable as an accessary, it would be necessary at the minimum to show that she knew of the facts which made the representations misleading, and it may be necessary to show that she knew that the representations were misleading (Yorke v Lucas (1985) 158 CLR 661; M Pearce SC, Accessorial Liability for Misleading or Deceptive Conduct (2006) 80 Australian Law Journal 104 at 108-110). 86 Whether any of the defendants engaged in misleading and deceptive conduct by not disclosing Mr Vaughan's bankruptcy depends on different principles. Silence is to be assessed as one of the factors in a party's conduct having regard to what the party did, what it said, and what it did not say or do, in order to determine whether its conduct as a whole was misleading or deceptive (Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 34, 41). If the circumstances are such as to give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, silence may support the inference that that fact does not exist (Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,195; Demagogue Pty Ltd v Ramensky at 32, 41; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 at 114; Warner v Elders Rural Finance (1993) 41 FCR 399 at 405). 87 Although for a time he denied it, Mr Vaughan was aware that he was an undischarged bankrupt. Whether Mrs Nash was aware that Mr Vaughan was an undischarged bankrupt was a hotly contested issue. If she was not so aware, she could not have been guilty of misleading and deceptive conduct by not disclosing that fact. The definition of the expression "engaging in conduct" in s 4(2) of the Trade Practices Act and s 4(4) of the Fair Trading Act, requires that where the conduct consists of not disclosing Mr Vaughan's bankruptcy, the legislation would only be contravened if such non-disclosure were otherwise than inadvertent. In other words, there must have been a conscious, or advertent, non-disclosure of Mr Vaughan's bankruptcy, assuming that the circumstances were such that there was a reasonable expectation that if he were bankrupt that fact would be disclosed to Mr and Mrs Dawson. The First and Second Representations were Misleading 88 The same questions arise in deciding whether there were reasonable grounds for representing that the plaintiffs' investment was required for 12 to 15 months, as in deciding whether there were reasonable grounds for representing that the stormwater drainage issue would be resolved without difficulty. Until the stormwater drainage issue was resolved, the construction certificate would not be issued and construction would be delayed. The issue of a construction certificate would add value to the project which could facilitate raising of funds to pay out the B-Class unitholders before moneys were received from the completion of sales of the townhouses, but it was necessary to obtain the construction certificate within a reasonable time if the plaintiffs' investment were to be repaid within the projected 12 to 15 months. PED's feasibility study provided for a development program which involved the lodging of redrawn architectural drawings with the Council for approval, the lodgment and payment of the Council's fees and bonds, and the commencement of the construction of the easement and stormwater management system by the end of October, with the building phase to commence in November and to take approximately 12 months. 89 Previous developers had had a long history of negotiation and litigation with the Council over the proposed development. A development application for the erection of 10 dwellings on the site had been lodged in January 1998. On 14 July 1998, Leichhardt Municipal Council gave a "deferred commencement" consent to the development application subject to conditions. An amended consent was issued on 21 June 1999 but it still required resolution of stormwater drainage issues to the Council's satisfaction. A firm of hydraulic engineers, Burgess & Arnott Pty Ltd, provided a stormwater drainage analysis on 16 September 1999. It appears from that analysis that the then developer's proposal for managing stormwater run-off was for the provision of a conduit running parallel to the existing Sydney Water drain from Beattie street to the rear of the site, and terminating in a detention chamber with a weir outlet control to regulate the velocity of flows. Burgess & Arnott concluded by saying that the scheme proposed was the same as the previously submitted scheme for which verbal approval had been given. However, the Council was not persuaded. 90 The then owner of the site exchanged contracts for its sale in April 2000 but that contract was not completed. It appears that the reason for non-completion was the absence of a construction certificate in respect of an earlier building application. Instead the site was sold to Kelley Prestige Investments Pty Ltd in August or September 2000. That company paid $2,600,000 for the site. It was the vendor to LNG and PED on 15 July 2002 for $2,200,000. The existing buildings on the site had been demolished in May 2001. 91 In July 2001, Kelley Prestige Investments commissioned a new firm of hydraulic engineers, Taylor Thomson Whitting. They provided an amended drainage design. Amongst other things, the revised drainage design allowed for the overland flow path to be piped under the development. The detention chamber was to be relocated. The designs required detailed calculations of water flows. In January 2002, Ms Hunt of Leichhardt Council advised the then developers that the Council had referred the complete file regarding the original drainage proposal and the revised details to an independent external consultant. The consultant had advised that the concept of putting an overland flow path underground and piping it was flawed, and that the volumes of water in question would result in flooding of the underground car park in a one in 20 storm occurrence. There were also issues with the retention chambers to which it is not necessary to refer. 92 On 3 April 2002, the consulting water engineers retained by the Council, Lyall & Associates, commented on the then drainage proposal. Amongst other things, they said that the proposed stormwater system was not capable of conveying flows of a magnitude of 8m³/s in the event of a 100-year storm without substantial increases in the depth of ponding in Beattie Street compared with present day conditions. This would increase flood risk to both existing and future development in the area. A number of other comments were made about the proposal to which it is not necessary now to refer. On 17 and 28 May 2002, the Council wrote to Kelley Prestige Investments highlighting areas where it contended there was non-compliance with the stormwater conditions of the development consent. The Council summarised the matters raised in Lyall & Associates' letter to the Council of 8 April 2002. At that time, proceedings were on foot between the Council and Kelley Prestige Investments in the Land and Environment Court. The letter of 28 May 2002 formed part of a detailed statement of issues in relation to those proceedings. Amongst the Council's comments were the following: " i) The applicant's engineers (referring to Taylor Thomson Whitting (TTW)) have not submitted any formal reports which specifically detail the performance of the revised stormwater trunk drainage system. The amendments to the design significantly alter the hydraulic performance of the system (as previously investigated by Burgess & Arnott Pty Ltd (BA)) thus justifying the submission of a Design Report by TTW (refer Condition 43). The Design Report should include interpretation of model results, justification for model parameters used and how the revised design meets the relevant consent conditions. Serious reservations are held concerning the hydrologic and hydraulic assessments undertaken by both Consultants. TTW could not rely on the earlier reports submitted by BA to provide an accurate assessment of the overall performance of the trunk drainage system. ii) As there is no formal report on the revised trunk drainage system no comment can be made specifically on any calculations undertaken by the applicant's engineer. Based on the limited information submitted by TTW, it is believed the system will not function as purported and that the flood risk to both existing and future development in the area will be increased. iii) No details have been provided by the applicant's engineer which pertain to the operation of the revised on-site detention (OSD) system (refer Condition 33). Details of the operation of the system during a range of storm events of varying magnitude need to be considered and the results presented in the Design Report. ... v) No assessment of the pit inlet capacities within Beattie Street has been provided by TTW. It is considered that BA has overestimated the inlet capacity of the proposed system in Beattie Street. TTW cannot rely on those calculations as part of their supporting documentation to accurately assess flooding conditions in Beattie Street (refer Condition 48). It is the consultants [sic] view that the flood inundation plan prepared by BA (8179-C1), which is to be used as supporting documentation for the appeal, is not a true representation of post-developed flooding conditions in Beattie Street for the 100 year event. Further detailing is required indicating the true representation of post flooding conditions. ... " 93 In its letter of 28 May 2002, Leichhardt Council said that the opinion of their consultants was that an appropriate stormwater system for the proposed development would involve a pit and pipe system similar to that then proposed, but with additional hydraulic capacity, together with maintenance of an overland flow path through the development. Design options would need to be explored by the applicant and the applicant's consulting hydraulic engineer to comply with conditions of consent. The Council advised that if the applicant wished to propose changes to the development consent conditions, then, depending on the extent of change, a new development application may be required. The Council's position was that the design proposed by the vendor did not satisfy the existing conditions of the development consent. The proposed development blocked an existing flow path which currently conveyed substantial overland flows in the event of a 100-year storm. There were, according to Council, insufficient safeguards to deal with flash flooding of the proposed underground car park as well as other difficulties in dealing with flash flooding. 94 The Council's correspondence of 17 and 28 May 2002 was disclosed by Kelley Prestige Investments to LNG and PED prior to the sale. 95 On 9 July 2002, Bowdens advised PED and Mr Vaughan that they had reviewed the design documents of the then existing owner, Kelly Prestige Investments. They advised that they believed that the development application conditions relating to stormwater run-off could not be complied with under the current design. They advised that they believed that the majority of the Council's concerns would be addressed during any subsequent designs and of reports, but that the current development layout would require amendment to the existing development application, thus opening the conditions of consent for review by Council. They advised that the changes required may be significant enough for Council to require a new development application and that the most likely outcome would be that an overland flow path would have to be created through the site which would effectively divide the site into two and would affect the viability of the site. 96 As noted in para [26], Bowdens were retained to devise a solution to the issue and outlined two alternative proposals to the Council on 2 August 2002. The first proposal followed the previous designs prepared by Burgess & Arnott with a pipe running parallel to the Sydney Water culvert carrying the 100-year storm event flows through the site, with provision of an overland flow path through the car park as well as surcharge facilities at the rear of the site. The second proposal followed that of the previous designs by Burgess & Arnott with a pipe running parallel to the Sydney Water culvert but with the pipe system continued through to Roseberry Street, thereby, it was said, reducing the impact upon downstream owners and alleviating the necessity for a surcharge facility at the rear of the site. There would still be an overland flow path through the car park and landscaped areas as well as the properties downstream of the site to maintain the pre-development flood risk for the environments around the site. Bowdens advised that they proposed to undertake and provide: " 1. A drainage study and report detailing the parameters, calculations and design certification of the proposed drainage schemes, 2. A complete hydrological and hydraulic study for the major and minor stormwater system affecting the site and adjoining environ 3. The on-site detention facilities performance shall be incorporated in the hydraulic study for the site and associated report. ... The areas identified in previous correspondence that will be addressed as part of the Drainage Study and Report are the: 1. Hydraulic performance of existing and proposed inlet and outlet facilities, 2. Capacity of piped systems contained within the development site and its environ, 3. Assessment and possibility of inundation of any car parking areas, driveways, landscaped areas and adjoining residential lands, 4. Freeboard requirements to habitable dwelling areas for any overland flows. " 97 It is evident that these proposals involved substantial and detailed work and that the Council and its consultants would need a substantial amount of time to consider the proposals once full details and calculations were submitted. 98 As noted in para [26], a meeting was held on 27 August 2002 attended by, amongst others, representatives of the Council's consultant, Mr Hourigan of Bowdens Group, Mr Kelly and Mr Gorman, as well as officers of the Council. A concept design was presented to the Council. It was stated that the design was preliminary and detailed calculations would be undertaken to confirm the design configuration as soon as possible. The Council stated that it was happy with the concept details provided, but additional issues needed to be addressed. These included: " The provision of an emergency overland flow path through the site; be it a low flow pipe, weir in the rear of the garage or open fencing in rear of garage; the depth of water and egress from the car park in these events need to be addressed ... the proposal for surcharge flows across the downstream boundary needs to be addressed, i.e., so that flow discharge in a manner that would not negatively impact upon the downstream properties, i.e. control weir. " 99 As noted in para [27], LNG and PED obtained agreement in principle from the adjoining landowners to the provision of a drainage easement by 10 September 2002. 100 At the time the representations were made to Mr and Mrs Dawson that their investment would be required for 12 to 15 months and that the stormwater problems could be addressed without difficulty, Bowdens had only recently begun their work. Their quotation for providing the stormwater design was not provided until 23 September 2002. As noted in para [33], on 26 November 2002, the Council advised that it would require a detailed report outlining the operation of the system, giving details of the hydrology and hydraulic calculations used as a basis for sizing the system. That was not new information about the Council's requirements. The Council had required such calculations in respect of the earlier designs and had referred the designs to its external consultants. It had made it clear that it would do the same in relation to the proposals put forward by PED and LNG. As noted in paras [33]-[36] the detailed proposal was submitted to the Council from the middle of December 2002 and was still under discussion in November 2003. Drainage conditions were still being finalised in January 2004. 101 The defendants did not call Mr Hourigan of Bowdens Group to support their contention that there was a reasonable basis for the representations. I infer that no evidence from Bowdens Group would have supported the defendants in their contention that it was reasonable to assume that the stormwater management issue would be resolved promptly or without difficulty. Nor was any evidence led from Mr Kelly of PED who was involved in the discussions with the Council to show that there was a reasonable basis for such optimism. Nor was any officer of the Council called to support such a case. 102 The issues in question are technical. I do not accept Mr Vaughan's bare assertion that it was reasonable to expect that the issues could readily be resolved. That was contradicted by subsequent events which showed that the stormwater issue took a long time to be resolved. It was not resolved until late 2003 or early 2004. That it should have taken so long is no surprise having regard to the history of the site. The onus is on the defendants to show a reasonable basis for the representations (s 51A Trade Practices Act; s 41(2) Fair Trading Act). It is unnecessary to consider whether the effect of s 51A(2) is spent once the corporation adduces evidence. In this case, LNG did not adduce any evidence. Section 41(2) of the Fair Trading Act, which applies to the claim against Mr Vaughan as a primary contravener, does not have the same difficulties in interpretation. It simply provides that the onus of establishing that a person had reasonable grounds for making a representation with respect to any future matter is on the person. That onus has not been discharged. I conclude that LNG and Mr Vaughan, in trade or commerce, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive by making the first two representations referred to in para [84] without reasonable grounds. 103 The next question is whether Mrs Nash is liable as an accessary pursuant to s 75B of the Trade Practices Act in respect of LNG's contravention of s 52 of that Act, or pursuant to s 61 of the Fair Trading Act. Section 82 of the Trade Practices Act and s 68 of the Fair Trading Act provide that a person who suffers loss or damage by conduct of another person that is contravention of, relevantly, ss 52 or 42, may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention. Sections 75B(1) of the Trade Practices Act and 61 of the Fair Trading Act relevantly provide that a reference to a person involved in a contravention of Part V of the Trade Practices Act or the Fair Trading Act as the case might be: "... shall be read as a reference to a person who: a) has aided, abetted, counselled or procured the contravention; b) has induced, whether by means of threats or promises or otherwise, the contravention; c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or d) has conspired with others to effect the contravention. " 104 As noted in para [85], for Mrs Nash to be liable as an accessary it is at least necessary to show that she knew of the facts which made the representations misleading. In other words, for Mrs Nash to be liable, it has to be shown that she knew of the facts which showed that there were not reasonable grounds for the representations. There is no evidence that Mrs Nash was aware of any of the details of the history of Council's dealings with the stormwater issue. She did not attend any meetings with Council. There is no evidence, and it was not suggested, that she had any discussions with Mr Kelly or with Mr Gorman about the issue. She deposed that she witnessed the signatures of Mr Krakue of Kelley Prestige Properties (in fact Kelley Prestige Investments Pty Ltd) and the signatures of Messrs Dixon, Kelly, Gorman and Vaughan on the contracts for the sale and purchase of the site. (She deposed that she did this on 22 September 2002 but this was a mistake as the contracts were exchanged on 15 July 2002.) The contracts themselves (as distinct from the front page) were not in evidence, but it was common ground that the correspondence between the Leichhardt Municipal Council and the vendor was included as an attachment in the contract. Nonetheless, there is no evidence that Mrs Nash examined the attachments to the contract or that her attention was drawn to the correspondence. 105 Mr Gorman who had been present at the meeting with the Council on 27 August 2002 said nothing at the meeting to contradict Mr Vaughan's representations as to the time for which investment was required or as to the ease with which the stormwater management issue could be resolved. There is no evidence that Mrs Nash had read the feasibility study prepared by PED, but if she had, it would not have alerted her to the risks of delay due to this issue. 106 The plaintiffs have not shown that Mrs Nash knew of facts which made the first two representations of LNG and Mr Vaughan referred to in para [84] misleading. 107 The next question is whether Mr and Mrs Dawson relied upon the representations. They both swore they would not have invested had they not believed that the investment would be repaid with the promised return within the timeframe indicated. I accept that evidence. It was submitted for the defendants that Mr and Mrs Dawson relied only on what they were told by Mr Gorman, or on the fact that Mr Gorman introduced the investment to them and was a director and shareholder of LNG, and on written documents provided to them after the meeting at The Coffee Bean. 108 Whilst I accept the defendants' submissions that Mr and Mrs Dawson did place reliance on Mr Gorman and on the information contained in the documents they were given, I do not accept that they placed no reliance on what they were told by Mr Vaughan. The documents confirmed what Mr Vaughan had said. Mr Vaughan's representations were as to material matters and it is a reasonable inference that Mr and Mrs Dawson would rely upon what they were told by Mr Vaughan in deciding whether or not to commit funds to the project (Gould v Vaggelas (1985) 157 CLR 215 at 236). 109 The representations were made in trade or commerce, even though it was LNG and not Mr Vaughan personally who was engaged in commerce (Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553). 110 Mr Vaughan submitted that the true cause of the plaintiffs' loss was the lodgment of caveats by them and other investors which prevented the refinance of the MFS loan, which in turn led to the winding-up of LNG and the sale of the Balmain property by the mortgagee. 111 I do not accept that the lodgment of these caveats broke the chain of causation. Rather, they were part of a chain of events which led to the plaintiffs' loss. In fact, on 14 February 2005, Mr and Mrs Dawson and three other investors offered to uplift their caveats so as to permit a new lender to provide sufficient funding for the purpose of repaying the MFS loan to a sum of $2,200,000. I do not conclude that the only reason the loan was not refinanced was due to the lodgment of caveats. The evidence did not establish that sufficient finance had been raised to discharge the MFS loan or that all of the conditions of the proposed financiers could have been met. Be that as it may, the difficulties of refinance and the lodgment of caveats were themselves the result of the delays in the project. The misleading conduct engaged in by LNG and Mr Vaughan was in representing the time by which the plaintiffs' investment would be repaid and the difficulties associated with the stormwater management issue. The problems of the secured lender calling up its loan, and of other investors seeking to protect their position by the lodgment of caveats, were the kind of problems that could naturally arise from delays in the development. That is, the inability to refinance, even if it were caused by the lodgment of caveats, was not a new and intervening cause of loss. It was the kind of risk about which the plaintiffs were liable to be misled by over-optimistic assurances as to the ease and likely speed of the development. 112 It follows that the plaintiffs are entitled to recover from LNG and Mr Vaughan the amount of the loss or damage suffered by them by the misleading conduct of those defendants. Before dealing with the quantum of that loss, I will deal with the other bases upon which damages are claimed for breach of s 52 of the Trade Practices Act and s 42 of the Fair Trading Act. Representation of a 25 Percent Per Annum Return 113 I have already said that the representation that Mr and Mrs Dawson would be entitled to interest on their investment of 25 percent impliedly conveyed that there were reasonable grounds to expect that that return would be achieved. Notwithstanding my conclusion that there were not reasonable grounds for projecting a return on the investment within 12 to 15 months, I consider that LNG and Mr Vaughan had reasonable grounds for projecting a return on the investment of 25 percent per annum. They were right to think that the stormwater management issue was soluble, albeit that they were over-optimistic as to how readily the problem would be solved. 114 On 8 August 2002, Herron Todd White valued the property on the basis that it had a development land value, that is, as it then stood, of $2,400,000. The property was valued at $8,860,000 on completion of the development. LNG had secured the land for $2,200,000. That valuation provided reasonable grounds for the projection that gross realisations on the sale of the terraces, townhouses and apartments once completed could reach $8,860,000. As I understand the report, the valuers assessed the development land value of $2,400,000 partly by undertaking a "residual analysis" which took the anticipated gross realisations, the costs of the development, including finance costs, the time for the development, and an appropriate margin for the developer, to assess the development value of the land. Unfortunately, the relevant page of the valuation which sets out the calculations is illegible. No better copy was provided notwithstanding that this was pointed out during the hearing. The valuer also looked at comparable sales of development sites. Notwithstanding these difficulties, I take the valuation of 8 August 2004 to project that allowing for financing costs and developer's profit, the land was worth $200,000 more than LNG had paid for it. Prima facie, that would provide a sound basis for thinking that the finance costs, which would be paid before the developer's profit margin was realised, would be met from the proceeds of sale of the apartments once constructed. 115 PED's feasibility study was based on projected gross realisations of between $8,500,000 and $10,000,000. The land acquisition costs were $2,317,000 which was in line with the actual costs. They allowed $3,500,000 for construction costs, including $500,000 for "stormwater contingency". Other development costs totalled $595,000 and finance costs of $450,000. This assumed 12 months of construction. The total budgeted cost came to $6,762,000. Whilst delays in construction would inevitably blow out the cost budget, there was a healthy buffer between the projected realisations in the valuer's report of $8,860,000 and projected costs of $6,762,000. The mezzanine financiers would be entitled to their return before any margin to the developer. 116 In my view, this provided a reasonable basis for the projection of a 25 percent per annum return on Mr and Mrs Dawson's investment. 117 The subsequent failure of the project does not mean there was not a reasonable basis for the representation when it was made. As noted in para [43] the site in its then condition was valued at $3,000,000 on 24 June 2004 by registered valuers with Landsburys. It is true that that valuation was based upon the assumption that a construction certificate had been obtained. Whilst that assumption was not correct, it appears from the Council's letter of 14 January 2004 that the certificate could have been issued. Revised architectural details were required to be submitted, but it was not contended by the plaintiffs, or put to Mr Vaughan, that that was not done or could not have been done. The real problem was that before the construction certificate would be issued substantial moneys had to be paid to the Council by way of fees, deposits, contributions and bonds. But because of the delay and the mortgagee's insistence on having its finance repaid, the money was not available. That does not detract from the inherent value of the site reflected in the valuations of Herron Todd White in 2002 and of Landsburys in 2004. The Landsburys valuation was based upon projected realisations of a little over $9,000,000 and on the assumption that a reasonable price to pay for the land (including stamp duty and legal costs) was $3,157,990. Allowance was then made for construction costs, consultants' fees, holding charges, miscellaneous expenses and interest to reach a projected total cost of $7,652,872. It seems to me that that material would provide further support for the reasonableness of the projection that the development was such that a return to the mezzanine financiers of 25 percent per annum on their investment (in substance their loans) would be achieved. 118 Accordingly, I do not conclude that LNG or Mr Vaughan engaged in misleading or deceptive conduct by reason of Mr Vaughan's representation as to the plaintiffs' entitlement to a 25 percent per annum return on their investment. It necessarily follows that Mrs Nash could not be liable in respect of that representation. Non-Disclosure of Bankruptcy 119 On 17 September 2002, Hickey Lawyers, who acted for the lenders on the advance to PED and LNG, wrote to Mr Greg Nash, solicitor, who was acting for the borrowers. (Greg Nash is not related to Mrs Nash.) Hickey Lawyers advised that Mr Vaughan was an undischarged bankrupt and therefore should not be a director of LNG and could not provide a personal guarantee. Accordingly, the loan security documents were amended to delete Mr Vaughan as a guarantor of the loan. 120 Initially in his cross-examination, Mr Vaughan said that until he received that letter he did not know that he was a bankrupt (T300-301). In his affidavit Mr Vaughan had deposed that: " [36] In mid 2003 the Balmain funders did credit checks on the directors of PED and LNG and it was brought to my attention that I was an undischarged bankrupt, this was a surprise to me as I thought that discharge is automatic and bankruptcy was for two years. I was mistaken on two counts: firstly it is not automatic, you have to apply, and discharge is three years. Upon receiving this news I immediately resigned my directorship of LNG Holdings ." 121 Apart from the inaccuracy as to date, this evidence was inconsistent with Mr Vaughan's oral evidence that the first time he had become aware that he had been made bankrupt was when this was brought to his attention as a result of the credit check (T302). Initially, Mr Vaughan said that it was para 36 of the affidavit which was incorrect. He resiled from that evidence on being presented with other documents, such as his statement of affairs, the summons to attend an examination by the trustee in bankruptcy, and a file note of his examination. 122 The lenders to LNG and PED had required tax returns, a curriculum vitae, and a statement of assets and liabilities in support of the funding application. On 5 August 2002, Mr Gorman sent an email to Mr Vaughan saying that he needed that information urgently. Mr Vaughan fobbed off the inquiry, saying he had not lodged tax returns due to divorce difficulties and that his accountant had a dispute with the Australian Taxation Office. Those were not the only difficulties facing Mr Vaughan if he were required to provide the information. I am satisfied that he was conscious in August 2002 of his status as an undischarged bankrupt. 123 Mr Vaughan deposed that he resigned as a director of LNG upon becoming aware that he was an undischarged bankrupt. The company search of LNG records that he ceased to be a director on 23 August 2002. Mr Vaughan gave oral evidence in cross-examination that upon becoming aware of the fact that he was an undischarged bankrupt he told Mr Gorman that he would be resigning as a director and gave him a formal letter of resignation. He was unable to say why the company records indicated a "cease date" of 23 August 2002 but said that possibly Mr Gorman put the resignation in. He accepted in cross-examination that there was no doubt that by 30 August he had appreciated the problem (T390). Mr Vaughan was cross-examined about this matter in proceedings brought by Mr Ferizis in the District Court in which he and Mrs Nash were defendants. Part of the transcript of his cross-examination was tendered. In the District Court, he was asked whether he had resigned by a letter dated 23 September 2002. He said he did not recall but he did send a letter to that effect. He agreed that in the letter of resignation he had confirmed a conversation of 30 August 2002 in which he had said that he was resigning, effective immediately. He agreed that he did that because he was an undischarged bankrupt. 124 No letter was tendered, whether dated 23 September 2002 or any other date, in which Mr Vaughan confirmed a conversation of 30 August 2002 that he was resigning effective immediately. On 26 September 2002, Mr Vaughan sent Mr Gorman an email with an enclosed attachment. In the attachment he said: " I have picked up and delivered the new loan documents to PED for signing. We'll pick them up later today. The bad news was that McLaughlans as I had predicted did knock me back as a guarantor, so I will not be allowed to sign the documents as Baxter had said I could, very embarrassing but that's that! So as not to affect the settlement I shall have to resign from LNG for the time being, I realise this should put me in a more vulnerable position for a short while but I have no issue of trust with you looking out for my interests during this period. You will however have to inform ASIC of my resignation. " 125 This document is inconsistent with Mr Vaughan's having sent a letter on 23 September 2002 to Mr Gorman confirming a conversation of 30 August advising of his resignation as a director. It is quite unclear why the records of LNG should record his having ceased to be a director on 23 August 2002 when he was only advising Mr Gorman of his intention to resign on 26 September 2002, so far as the documentary evidence reveals. 126 Notwithstanding the discrepancy between this document and Mr Vaughan's oral evidence, there is no reason not to accept Mr Vaughan's admission that he had told Mr Gorman on 30 August that he was resigning, and that his reason for doing so was because he was an undischarged bankrupt. I do not conclude that he told Mr Gorman the true reason. He avoided doing so in the only correspondence on the subject in evidence. 127 I am satisfied that Mr Vaughan's failure to disclose his bankruptcy to Mr and Mrs Dawson was deliberate. 128 Mr Vaughan submitted that his bankruptcy was not material because he was providing no financial support to the venture. However, the relevance of his bankruptcy was not confined to whether he could provide financial support to the venture. Bankruptcy carries a stigma. People invited to invest in a venture are likely to be concerned and suspicious if one of the promoters is an undischarged bankrupt. Bankruptcy may convey to a potential investor that the promoter is not a reliable or trustworthy person. At the very least, his or her financial acumen is called into question. Mr Vaughan's bankruptcy was a material matter for potential investors to know. The fact that he had been acting as a director of LNG notwithstanding his bankruptcy would also be material, but this was not a separate particular of misleading conduct. I conclude that Mr Vaughan, in trade or commerce, engaged in misleading or deceptive conduct by not disclosing the fact of his bankruptcy. It was a matter which, if it existed, Mr and Mrs Dawson would reasonably expect to be disclosed. I accept Mr and Mrs Dawson's evidence that had they known Mr Vaughan was an undischarged bankrupt they would not have invested in the project. 129 LNG also engaged in misleading and deceptive conduct by not disclosing Mr Vaughan's bankruptcy. Mr Vaughan was purporting to act as an officer of LNG at his meetings with Mr and Mrs Dawson. Mr Gorman held him out to Mr and Mrs Dawson as his joint venture partner and co-director. LNG, through Mr Vaughan, engaged in misleading and deceptive conduct by not disclosing his bankruptcy. 130 The more difficult question is whether Mrs Nash was aware that Mr Vaughan was an undischarged bankrupt, and if so, whether her role at the meeting at The Coffee Bean and subsequently at dinner with Mr and Mrs Dawson was such that she was knowingly involved in Mr Vaughan's misleading conduct by not disclosing his bankruptcy, or whether she herself, as part of the trade and commerce of LNG, engaged in misleading and deceptive conduct by not disclosing his bankruptcy. To show that Mrs Nash contravened s 42 of the Fair Trading Act by not disclosing Mr Vaughan's bankruptcy, the plaintiffs have to show not only that she engaged in conduct in trade or commerce (which would include trade or commerce engaged in by LNG), and not only that she was aware of his bankruptcy, but that her failure to disclose the fact of his bankruptcy was advertent. Similarly, to show that she was knowingly involved in Mr Vaughan's and LNG's misleading and deceptive conduct, the plaintiffs have to establish that she adverted to the fact that no mention had been made of Mr Vaughan's bankruptcy and consciously decided not to reveal it herself. 131 Mrs Nash gave evidence that the first time she heard about Mr Vaughan's bankruptcy was in a conversation with Mr Greg Nash when Mr Greg Nash said to Mr Vaughan words to the effect that "You know you could have been discharged months ago, why haven't you applied?" If this is correct she did not learn of Mr Vaughan's bankruptcy until some months after August 2003. 132 Mrs Nash did not deal with the question of when she first learned of Mr Vaughan's bankruptcy in either of her affidavits that were read. In her oral evidence, she denied knowing of Mr Vaughan's bankruptcy in September 2002. By a process of deduction she attributed her conversation with Greg Nash to some time in 2003 and therefore maintained that she had no knowledge of Mr Vaughan's bankruptcy until then. Faced with that position, counsel for the plaintiffs was not able squarely to confront Mrs Nash with the proposition that she consciously decided not to tell Mr and Mrs Dawson of Mr Vaughan's bankruptcy after she became aware of it. 133 The plaintiffs attacked Mrs Nash's credit. I do not consider her to be a reliable witness. Her affidavits contained a number of errors attributable to a reconstruction of events in her own mind in a way which at the time she perceived was to her advantage. In her first affidavit she deposed that her only involvement in the Balmain project was to witness the signatures to the contract for sale on the exchange of contracts. She said that contracts were exchanged on 22 September 2002. She said that her next involvement was about 12 months later when Mr Vaughan told her that MFS was refusing to capitalise the finance any longer as it had taken more than 12 months from the date of settlement to obtain the construction certificate. Not only was she wrong about the date, but this was not an accurate statement of her involvement. As well as witnessing the signatures on the contracts, Mrs Nash witnessed the signatures of Mr Gorman, Mr Kelly and Mr Dixon to the guarantees. She also witnessed declarations by the guarantors that they had received independent legal advice from her regarding the loan and security documents. Initially, she denied having provided any such advice. Faced with her signature witnessing such declarations, she sought to qualify that position. I doubt that she did provide any substantive legal advice notwithstanding her attestation of statutory declarations to the effect that she had done so. 134 Mrs Nash accepted in cross-examination that she had been "fundamental" in bringing about Mr Flickier's investment of $400,000 in July 2003. She had asserted in an affidavit (which was not read or tendered but the substance of which she acknowledged in cross-examination) that she had paid $110,000 as a deposit on the Balmain project. In cross-examination she said that this payment was either to repay Mrs Gorman's 5 percent deposit or was the payment of a second 5 percent deposit which the vendor required in order to extend the time for completion. It ultimately emerged that she did not make any investment at that time in the Balmain project. She did lend moneys in the first half of 2003 which were at least partially repaid from moneys raised from Mr Ferizis on 24 June 2003. She was paid $75,000 on 27 June 2003 in repayment or partial repayment of her advances. Mr Vaughan's evidence was that, by mid 2003, she had advanced about $140,000; maybe a little more, or maybe a little less. Her description of her involvement in the Balmain project up to about September 2003 as contained in her affidavit was therefore wrong. 135 As noted in para [45], Mrs Nash was knowingly involved in the lodgment by Mr Vaughan of a return with ASIC which falsely stated that Mr Gorman had ceased to hold office as a director, had transferred his share to Mrs Nash, and that Mrs Nash had been appointed as a director. This was false. She was also involved in the lodgment of a withdrawal of caveat when she must have known that she and Mr Vaughan had no authority to lodge that document. Along with Mr Vaughan, she gave instructions to her solicitors not to disclose those actions at the time to the persons affected. Although she and Mr Vaughan were under pressure when these steps were taken owing to her having paid more than $528,000 to meet Mr Vaughan's obligations under the deed of 9 December 2003 and had been unable to obtain control of LNG because they were unable to procure Mr Gorman's release from the securities he had given, there was no excuse for that conduct. These matters go to Mrs Nash's credit. I do not accept her as a reliable witness. 136 It does not follow that I should believe the opposite of what Mrs Nash asserts. In other words, it does not follow that because I do not accept Mrs Nash as a reliable witness that I should conclude that she did know of Mr Vaughan's bankruptcy because she denied it. The question rather is whether there is sufficient evidence that she did know of Mr Vaughan's bankruptcy in September 2002. 137 On 28 September 2002, Mrs Nash witnessed the signatures of Messrs Kelly, Dixon and Gorman to the guarantees given to Perpetual Nominees Ltd in connection with the loan. She gave the following evidence: " Q. At the time Mr Kelly and Mr Dixon were the directors of PED? A. Correct. Q. You understood that the lender was requiring guarantees from them? A. Correct. Q. And at the time Mr Gorman was a director of LNG and Mr Vaughan had been a director but had resigned, correct? A. Correct. Q. You knew that didn't you? A. Yes. " She later said that she did not know the date on which she learnt that Mr Vaughan was a director (T408). However, I prefer her admission that she knew that Mr Vaughan was not a director when she witnessed the signatures of Messrs Kelly, Dixon and Gorman to the guarantees on 28 September 2002. 138 In evidence in the District Court proceedings brought by Mr Ferizis against Mrs Nash and Mr Vaughan, Mrs Nash gave the following evidence: " Q. When was it made known to you if ever that Mr Vaughan had resigned as a director of LNG? A. I couldn't give you a day or a time or a date. Q. Roughly when was it ever made known to you? A. Look I probably knew, when I can't tell you. Q. Alright, so did you know because Mr Vaughan told you? A. I think I knew because Greg Nash who was the solicitor at one stage for PED and at another stage for LNG, at another stage for us, had a discussion in front of me with him saying ' do you realise that you can't be a director because you're not a discharged bankrupt? '. And I remember Graham saying ' I thought that happened automatically. I should be discharged by now. ' And I remember Greg Nash saying, ' No you've got to make an application '. So that's probably when I learnt that, I can't tell you when that was though. " 139 According to that evidence, the conversation with Mr Greg Nash at which Mrs Nash learned that Mr Vaughan was an undischarged bankrupt occurred when Mr Vaughan was still a director of LNG. That would place her knowledge of Mr Vaughan's bankruptcy as being some time prior to 28 September 2002. But her evidence that the conversation took place in the context of Greg Nash advising that Mr Vaughan was entitled to a discharge from bankruptcy would place the conversation at some time after August 2003. Greg Nash was not called by the defendants to give evidence as to when his conversation with Mrs Nash occurred. I infer that he advised Mr Vaughan that because he was an undischarged bankrupt he could not be a director of LNG shortly after he received the letter from Hickey Lawyers dated 17 September 2002 referred to in para [119]. As that advice was apparently given in the presence of Mrs Nash, I infer that Mrs Nash became aware sometime after 17 September 2002 that Mr Vaughan was an undischarged bankrupt and therefore had to resign as a director or LNG. 140 The other evidence relied on by the plaintiffs was evidence given by Mr Vaughan in cross-examination in the District Court proceedings. He gave evidence that he and Mrs Nash learned from McLaughlan's Financial Services that he was an undischarged bankrupt at the same time. He said that she was a bit shocked and they went to see their accountant. He later said that this event may have occurred later in 2003 and deposed that when he resigned as a director he did not discuss the reason for doing so with Mrs Nash. I think that highly unlikely. 141 Both Mr Vaughan and Mrs Nash said that they had been harassed in giving evidence in the District Court proceedings and were confused. Whilst the transcripts tendered showed their making inconsistent statements in their evidence in the District Court, there is nothing to show that this was the result of an harassing or confusing cross-examination. I see no reason not to accept their admissions. 142 Greg Nash received the letter from Hickey Lawyers after both the Saturday morning meeting at The Coffee Bean (7 September 2002) and the subsequent dinner at the Bayview Hotel at Gladesville (11 September 2002). The copy of the letter of Hickey Lawyers which was tendered has a fax imprint dated 19 September 2002. There was no evidence about that fax imprint. I infer that Greg Nash received or despatched the letter by facsimile on or about 19 September 2002. (That was the same day Mr and Mrs Dawson transferred $150,000 to LNG.) I conclude that on or about 19 September 2002 Mr Vaughan and Mrs Nash had a conversation with Greg Nash in which Greg Nash told them that Mr Vaughan could not be a director of LNG because he was an undischarged bankrupt. 143 I conclude that at the two meetings with Mr and Mrs Dawson at which Mrs Nash was present, that is, the meetings of 7 and 11 September 2002, Mrs Nash did not know that Mr Vaughan was an undischarged bankrupt. She could not have engaged in misleading and deceptive conduct, or have been involved in Mr Vaughan's or LNG's misleading and deceptive conduct, by not disclosing the fact of his bankruptcy on those occasions. 144 As at 19 September 2002, no units in the trust had been issued to Mr and Mrs Dawson. As at 23 September 2002, LNG held $865,958 in an account with Macquarie Bank. This was substantially comprised of the moneys raised from the investors in B-Class units of the trust. $825,000 had been paid by those investors between 16 and 19 September. On 24 September, LNG paid $110,000 from this amount as a further 5 percent deposit to Kelley Prestige Investments. The balance was further reduced by payments of $106,940 for stamp duty on 3 October, $455,114 towards payment of the purchase price of the land on 4 October, payment of other expenses totalling $63,000 on 14 and 24 October, and payment of $100,000 as the cost of acquiring the easement on 30 October 2002. By 30 October 2002 LNG's credit balance had been reduced to $32,398. 145 Mr and Mrs Dawson may have been able to recover their investment from LNG had they been informed of Mr Vaughan's bankruptcy and demanded repayment before the funds raised from the B-Class unitholders were spent. By 4 October 2002 at the latest it would have been too late to do so. It may have been too late to do so from 24 September, being the date the B-Class units were issued to Mr and Mrs Dawson and the first payment was made out of the funds raised from the B-Class unitholders. 146 The final issues are whether Mrs Nash's role in the meetings with Mr and Mrs Dawson was such that they could reasonably have expected her to disclose Mr Vaughan's bankruptcy upon her becoming aware of it, and, if so, whether she consciously adverted to that question. She was not an investor in the Balmain project. She became involved in the Balmain project during 2003 when, at the request of Mr Vaughan, she advanced money for it, and she introduced Mr Flickier as an investor. Prior to 2003 she had no financial involvement. 147 It was put to Mrs Nash in cross-examination that she had taken an active role in promoting the Balmain development to other investors. It was put to her that she had participated in meetings with other potential investors at her home and her office in July 2002 and had attended with Mr Vaughan on an accountant to give instructions for the preparation of trust documents for the project. Whilst not denying her presence on those occasions, she denied participating in discussions concerning the Balmain project. Mr Vaughan gave evidence to the same effect. None of the other participants was called. There is no evidence that Mrs Nash had any significant involvement in discussions with other potential investors in the Balmain project. 148 Mrs Nash's evidence of the first meeting with Mr and Mrs Dawson was that so far as she was concerned it was a purely social occasion and that she and Mrs Dawson and Mrs Gorman did not discuss business matters in connection with the Balmain development. Mrs Nash had not recalled the dinner the following week at the Bayview Hotel in Gladesville when she swore her affidavits. She said in cross-examination that the dinner at the Bayview Hotel had nothing to do with Balmain, but concerned a piece of software Mr Vaughan was trying to launch. 149 Mr Gorman gave evidence, on which he was not cross-examined, that at the meeting at The Coffee Bean Mr Vaughan said that he and Mrs Nash were looking for investors to contribute funds towards the development and believed that investors would get a 25 percent interest return on their investment. According to Mr Gorman, Mr Vaughan said that Mrs Nash and he would be involved in the development but were looking to find investors to put money into the project as a lot of Mrs Nash's funds were tied up in another development with PED. According to Mr Gorman, Mrs Nash said that that was correct and that "we are looking for investors for this Balmain project." 150 Mr Gorman was not cross-examined on this evidence. Mr and Mrs Dawson also said that Mrs Nash was actively involved in the meeting. 151 I have concluded that Mrs Nash did not make any of the representations which Mr and Mrs Dawson attributed either to her or to Mr Vaughan, and I have not accepted Mr Dawson's belated attribution of a representation allegedly made at the dinner of 11 September 2002 to Mrs Nash. Nonetheless, I do not accept her evidence that she took no part in discussions concerning the Balmain project. There is some corroboration of Mr Gorman's and Mr and Mrs Dawson's evidence as to Mrs Nash's role in an email sent by Mr Vaughan to Mr Dawson on 18 September 2002. Mr Vaughan said that both he and Christine were looking forward "to the next one and the next one." 152 As McLelland CJ in Eq said in Watson v Foxman in the passage cited in para [61], whether spoken words are misleading can depend upon subtle nuances which cannot be accurately recaptured a considerable time after the event owing to the fallibility of human memory and the dangers of reconstruction, even subconscious reconstruction, by the witnesses to the event. Those observations apply equally to the more difficult task of accurately assessing Mrs Nash's role in the two meetings with Mr and Mrs Dawson to enable a conclusion to be drawn whether she engaged in misleading and deceptive conduct by not getting into contact with them days after the meetings, having then learned of Mr Vaughan's bankruptcy. Whether her role at the meetings was such that it could reasonably have been expected that she, as distinct from Mr Vaughan, would disclose those matters once she came to learn of them, depends upon what role she held herself out as having in seeking to induce Mr and Mrs Dawson to invest, or what role she allowed Mr Vaughan to hold her out as having. 153 Bearing in mind that Mrs Nash had no financial involvement in the project at the time and was not an officer or shareholder in LNG, I do not conclude that she played any greater role than not contradicting and being generally supportive of statements made by Mr Vaughan or Mr Gorman. Nonetheless, given that Mr Gorman was not cross-examined on his affidavit, I accept that Mrs Nash said that "we are looking for investors for the Balmain project" and that she assented to Mr Vaughan's statement that she would be involved in the development. I think that is sufficient to conclude that it was reasonable for Mr and Mrs Dawson to expect that if a material matter such as the bankruptcy of Mr Vaughan were known to Mrs Nash, she would disclose it to them. 154 It is at the last stage of there being proof of advertent non-disclosure that the plaintiffs' case against Mrs Nash breaks down. There was no focus in the evidence of Mrs Nash's position between about 19 September (which is when I infer she had the conversation with Greg Nash from which she learned Mr Vaughan was an undischarged bankrupt) and 4 October 2002. There is no evidence as to whether she was told that Mr and Mrs Dawson had advanced funds for the project, although she must have been aware that they were proposing to do so. There is no evidence as to what she was doing at this time. I cannot say one way or the other whether it is probable that she turned her mind to whether she should disclose Mr Vaughan's bankruptcy to the plaintiffs. She gave evidence that she would not necessarily regard bankruptcy as a material matter for disclosure. Whilst I have found that it was a material matter to be disclosed, it does not follow that she turned her mind to the question. There is no direct evidence that she did. Her only involvement with Mr and Mrs Dawson had been at two meetings in a social setting. A finding that she adverted to the question of whether she should disclose Mr Vaughan's bankruptcy and decided not to do so, and thereby misled the Dawsons into not seeking to retrieve their investment whilst they could do so, is a serious one. The principles expounded by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 apply: " The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. ... Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences. " 155 I am not so satisfied. It follows that it has not been established that Mrs Nash either herself engaged in conduct that was misleading or deceptive or was knowingly involved in Mr Vaughan's and LNG's contraventions of s 52 of the Trade Practices Act and s 42 of the Fair Trading Act respectively. Negligence 156 Having regard to my earlier findings, it is unnecessary to consider whether LNG or Mr Vaughan owed Mr and Mrs Dawson a duty of care and were in breach of that duty. I do not consider that Mrs Nash owed such a duty of care. The plaintiffs did not develop a submission that such a duty was owed. Accordingly, this part of the claim can be dealt with briefly. Mr and Mrs Dawson did not make it known to Mrs Nash that they were relying upon her skill or judgment in deciding whether to make the investment. They did not make it known to her that they were relying on her to provide them with information or advice in relation to the transaction. She did not make it known that she would assume any responsibility to them to provide them with information or advice. She did not warrant the correctness of advice given by others. She had no financial interest in the transaction. She met them only on social occasions. 157 No authority was cited to support the plaintiffs' claim that Mrs Nash's role was such that she owed a duty of care to the plaintiffs. In those circumstances, it is unnecessary to review the authorities. In my view, no such duty was owed. Quantum of Losses Recoverable from LNG and Mr Vaughan 158 It follows from my conclusion that LNG and Mr Vaughan contravened s 52 of the Trade Practices Act and s 42 of the Fair Trading Act that they are liable to compensate Mr and Mrs Dawson for the loss of the $150,000 they invested together with interest at the prescribed rates pursuant to s 100 of the Civil Procedure Act 2005 (NSW). The damages to which Mr and Mrs Dawson are entitled do not include the interest of 25 percent per annum to which they would have been entitled had there been sufficient moneys in the trust fund to pay interest to B-Class unitholders. 159 As well as paying $150,000 for the units acquired on 24 September 2002, Mr and Mrs Dawson made other payments. A company called The Dawson Consultancy Pty Ltd paid $100,000 in June 2003 to acquire the units of a Mr O'Connor. Those units were subsequently transferred to Mr Morris and the $100,000 investment by The Dawson Consultancy Pty Ltd was repaid. Mr Dawson said that the company did not receive an interest return of 25 percent per annum which it ought to have received. That company is not a plaintiff. It recouped its investment. The investment was not induced by the representations made in 2002. 160 On 5 July 2004 and 24 September 2004, Mr and Mrs Dawson, as trustees of the Dawson Superannuation Fund, acquired the units of Mr and Mrs Powter and Mr Morris. They did so by paying LNG the principal amount of the latter's investment together with sufficient moneys to pay the 25 percent return on those investments. LNG in turn paid each of those investors their capital sum and interest and Mr and Mrs Dawson became entitled to those investors' B-Class units in the trust. At the time these payments were made Mr and Mrs Dawson knew of Mr Vaughan's bankruptcy and, of course, knew of the delays in the development. The plaintiffs did not contend that they paid out Mr and Mrs Powter and Mr Morris in ignorance of Mr Vaughan's bankruptcy or under the continued influence of representations made to them in September 2002. Nor did the plaintiffs contend that they had a potential liability to Mr Morris or to Mr and Powter, which they reasonably compromised by the payments. They accepted that the payments were made voluntarily in the sense that they were under no legal obligation to make them. Their counsel submitted that the reason for the payments was that they felt they were under a moral obligation to the persons whom they introduced to the project. 161 I would accept that but for the representations which I have found were made by Mr Vaughan to Mr and Mrs Dawson in September 2002, and but for the non-disclosure of his bankruptcy, Mr and Mrs Dawson would neither have invested in the project themselves nor solicited others to do so. However, that is not a sufficient criterion for establishing a causal relationship between the loss they suffered and the misleading and deceptive conduct of LNG and Mr Vaughan. Moreover, by September 2003, when Mr Morris invested, Mr Dawson must have been well aware that the earlier representations made to him had not been met. 162 The plaintiffs did not give evidence about what they told Mr Morris and Mr and Mrs Powter about the development. Mr Dawson forwarded the documents he received from Mr Vaughan to Mr and Mrs Powter. There is no evidence as to what, if anything, he or Mrs Dawson said to Mr and Mrs Powter which may have induced the latter to invest. There was no evidence as to what matters Mr and Mrs Powter and Mr Morris took into account in making their investment. So far as appears, their investment may have been unrelated to anything to do with the representations made by Mr Vaughan. They may have been totally unaware of Mr Vaughan's involvement, or they may have carried out comprehensive searches of the financial position of all parties involved. 163 The loss suffered by the plaintiffs was the result of their deciding to acquire the units of Mr Morris and Mr and Mrs Powter. When those decisions were made, Mr Vaughan's conduct was no longer misleading. The true position as to his bankruptcy and the reliability of his earlier forecasts was known. The causal relationship between the loss and damage suffered and the conduct in contravention of s 52 of the Trade Practices Act or s 42 of the Fair Trading Act denoted by the word "by" in s 82 and s 68 of those Acts respectively takes up the practical or common sense notion of causation in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 525. Deciding to acquire the units of Mr Morris and Mr and Mrs Powter at their full value may have been an unbusinesslike decision. But given that it was not done by way of compromise of any claim that those investors may have had against the plaintiffs, and that it was not done under the influence of the defendants' misleading conduct, it could not in any common sense way be said to have been caused by the misleading conduct. Counsel for the plaintiffs frankly acknowledged that he could point to no authority to support this part of the plaintiffs' claim. In my view, it is not supportable. Conclusion and Orders 164 The plaintiffs did not sue LNG to recover the debt with interest at 25 percent per annum, presumably because there are no trust assets from which the debt could be paid. The plaintiffs are entitled to recover damages from Mr Vaughan and LNG of $150,000 plus interest at the prescribed rates from 19 September 2002. The plaintiffs' leave to proceed against LNG was made on terms that they not seek to enforce a judgment against the assets of LNG without leave of the Court. That term is unaffected by the orders I will make. The plaintiffs are not entitled to recover damages for the amounts paid to Mr Morris and Mr and Mrs Powter on the acquisition of their units. Nor are they entitled to judgment against Mrs Nash. 165 For these reasons I make the following orders: 1. Direct entry of judgment for the plaintiffs against the first and third defendants in the sum of $150,000 plus interest at the prescribed rates pursuant to s 100 of the Civil Procedure Act from 19 September 2002 to the date of judgment. 2. Direct entry of judgment for the second defendant on the plaintiffs' claims. 3. Order that the first and third defendants pay the plaintiffs' costs, not including costs payable by the plaintiffs to the second defendant. 4. Order that the plaintiffs pay the second defendant's costs. 5. Direct that the costs payable to the second defendant not include any costs in relation to the preparation of the affidavit of Buddy Sahyoun sworn 6 June 2006. 6. Exhibits may be returned after 28 days. 166 I direct that orders 3, 4 and 5 not be entered for 21 days. If any party seeks any different costs order he o-r she should notify my associate in writing within 21 days, in which event I direct that orders 3, 4 and 5 not be entered until further order. If any such application is made, I will hear argument on costs at a convenient time to be arranged with my associate. If no such application is made, orders 3, 4 and 5 should be entered after 21 days. ****** 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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