Supreme Court New South Wales Medium Neutral Citation: Adcock Private Equity v Porges [2018] NSWSC 1363 Hearing dates: 7/08/2018, 8/08/2018, 9/08/2018 Date of orders: 05 September 2018 Decision date: 05 September 2018 Jurisdiction: Equity - Commercial List Before: McDougall J Decision: Judgment for the plaintiff against the first defendant in the sum of $941,703.38 together with interest. Reserve the question of costs. Catchwords: COMMERCE – misleading or deceptive conduct – where first defendant encouraged plaintiff to purchase shares in a start-up called "SecureOne" – where SecureOne was involved in potentially ruinous litigation – where first defendant had fallen out with the management of SecureOne – misleading or deceptive to portray the potential profitability and viability of SecureOne without disclosing those matters. COMMERCE – misleading or deceptive conduct – causation – ability to infer reliance and causation in appropriate cases – objectively viewed, plaintiff would not have made investment in SecureOne had the true position been disclosed – plaintiff entitled to judgment. Cases Cited: Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751 Hanave Pty Limited v LFOT Pty Limited [1999] FCA 357 Jones v Dunkel (1959) 101 CLR 298 Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796 Skinner v Redmond Family Holdings [2017] NSWCA 329 Category: Principal judgment Parties: Adcock Private Equity Pty Ltd (Plaintiff) Stephen Robert Porges (First Defendant) Serena Catherine Porges (Second Defendant) Representation: Counsel: P Crutchfield QC / C McMeniman (Plaintiff) K C Morgan SC / A R Jordan (First and Second Defendants) Solicitors: Maddocks (Plaintiff) Clayton Utz (First and Second Defendants) File Number(s): 2017/80166 Judgment 1. HIS HONOUR: The plaintiff (APE) is an investment company controlled by Mr Brook Adcock. In 2015, APE agreed to buy from the first defendant (Mr Porges) 1,300 shares held by Mr Porges in SecureOne Corporation, a company incorporated in the British Virgin Islands (SecureOne). There is a dispute as to whether there were two contracts, for separate parcels of shares (as APE says), or one contract (as Mr Porges says). It is, however, common ground that the shares were transferred in three tranches, and that by agreement the total number purchased was reduced from 1,300 to 1,100. 2. APE executed and delivered to Mr Porges, for his signature and then for registration, forms of transfer for the three tranches by which the transaction was consummated. There was a very considerable delay in registering the transfers. Ultimately, before the transfers were registered, APE purported to rescind the contracts, on the basis of frustration. Mr Porges denied that the contracts had been frustrated and denied that the rescission was effective. He subsequently procured registration of the transfers. 3. APE says that Mr Porges engaged in misleading or deceptive conduct, in breach of a relevant statutory prohibition. There was some question as to the relevant statutory source, but since the parties proceeded on the basis that one or other of the statutory proscriptions of such conduct applied to the transaction, there is no need to go into detail on this point. That misleading or deceptive conduct, APE says, induced it to make and complete the contracts. Mr Porges denies that he engaged in the conduct alleged, and denies that any conduct of the kind pleaded had a bearing on APE's decision. 4. APE claims damages for misleading or deceptive conduct. It quantifies its damages as the total paid for the shares: USD 710,000, or (rounded) AUD 942,000. Alternatively, APE claims repayment of the total amount paid because of the alleged frustration, or upon total failure of consideration. The issues in dispute 1. The parties agreed on the real issues in dispute, arising from the quasi-pleadings. I set out their agreed statement: 1. Whether the alleged contracts were frustrated. 2. Whether, in the alternative, there was a total failure of consideration in relation to the alleged contracts. 3. If there was a total failure of consideration in relation to the alleged contracts, whether the alleged contracts were rescinded based upon the total failure of consideration. 4. Whether the plaintiff is estopped from claiming that the alleged contracts have been discharged by frustration or that the alleged contracts have been rescinded based upon a total failure of consideration. 5. Whether the first defendant made each of the representations as alleged by the plaintiff. 6. Whether the representations, if made, constituted conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law (NSW) and/or s 1041H of the Corporations Act 2001 and/or s 12DA of the Australian Securities and Investments Commission Act 2001. 7. If the first defendant engaged in misleading or deceptive conduct, whether the plaintiff suffered any loss or damage by reason of the conduct and, if so, the quantum of that loss or damage. 8. If the first defendant engaged in misleading or deceptive conduct, whether the plaintiff is contributorily to blame for any loss or damage. 9. If the first defendant engaged in misleading or deceptive conduct, whether other persons are concurrent wrongdoers in respect of any loss or damage. 10. If the first defendant engaged in misleading or deceptive conduct, whether the plaintiff failed to mitigate its loss or damage. 1. Unfortunately, the agreed statement of issues is of little utility. There are two reasons. The first is that the parties' closing submissions addressed the dispute thematically rather than by reference to the agreed issues. The second is that the submissions, in particular the ones relating to the alleged representations said to have been made by Mr Porges and Mr Adcock's reliance thereon, focused close attention on the underlying pleadings rather than the issues, thereby requiring analysis of the evidence by reference to the detail of the relevant parts of the pleadings. The witnesses 1. The only witness of fact was Mr Adcock. APE had sought to rely on an affidavit sworn by Mr Campbell McComb who at the relevant time was APE's Chief Investment Officer (CIO). However, Mr McComb, who has since left the employ of APE, was unavailable for cross-examination; although efforts had been made to procure his attendance. APE did not seek leave to rely on his affidavit in the absence of cross-examination. 2. Mr Porges swore two affidavits. They were not read. APE tendered extracts from his affidavits as admissions. 3. Ms Morgan of Senior Counsel, who appeared with Mr Jordan of Counsel, for Mr Porges [1] , did not attack directly the credibility of Mr Adcock's evidence. Nor did she submit that I should disbelieve him. 4. In general, I thought that Mr Adcock sought to tell the truth to the best of his ability. The accuracy of his testimony was, no doubt, affected by the passage of time and the well-known imperfection of human memory. In my view, it was also affected, although subconsciously and not to a great extent, by perceptions of self-interest. Having said all that, there were some passages in his evidence that were difficult to accept. 5. It is unnecessary to say more. The bulk of the evidence is to be found in contemporaneous documents. In my view, they provide a sure guide to what the parties thought and did at the time. 6. Ms Morgan did not submit that I should draw a Jones v Dunkel [2] inference (where relevant) based on the failure of APE to call Mr McComb. As to Mr Porges: Mr Crutchfield of Queens Counsel, who appeared with Mr McMeniman of Counsel for APE, seemed to be content to rely upon those passages of Mr Porges' affidavits that had been tendered as admissions. However, in my view, to the extent that there are disputed questions of fact on which Mr Porges could have given evidence, and where there are inferences available from such evidence as was before the court, I may be more comfortable in drawing those inferences by reason of the unexplained failure to call Mr Porges [3] . Approach to resolution of the issues 1. The parties provided detailed written submissions, and supplemented them orally. I do not propose to attempt to summarise those submissions. The competing positions that the parties took on the crucial issues of fact (whether the representations were made, whether the conduct was misleading or deceptive, and whether there was any reliance) will be obvious. 2. Counsel also referred to a number of authorities. The relevant principles are clear. For the most part, there is little to be gained by referring to those, or indeed other, authorities. 3. I propose to address the issues in a slightly different way to that in which they are stated. I shall start by looking at the alleged representations, considering whether they were made, whether they were misleading or deceptive, and whether there was any relevant reliance. Since (as will be seen) Mr Porges did engage in misleading or deceptive conduct, and APE was thereby induced to enter into the share purchase contracts, the issues as to frustration do not require resolution. There is no dispute as to the relevant primary facts. They lie within a small compass, and for the most part are found in the relevant documents. Accordingly, I shall leave frustration for others to consider should it become necessary to do so. 4. The issues relating to contribution, apportionment and mitigation can be dealt with briefly, just as the parties did in their submissions. 5. Finally, and for convenience only, I proceed (as indeed I have done, although without making the point, already) on the assumption that there were, as APE claims, two separate contracts. The only possible significance of the question as to whether there were in fact two contracts would seem to be that if there were only one, any misleading or deceptive conduct occurring after that one contract was made (but, on APE's case, before the second contract was made) could have no relevant causal effect. 6. If it matters, the better analysis is probably that there was one commercial "agreement", but that it was given legal effect through two separate contracts for the sale and purchase of shares. That would seem to follow from, among other things, the separate negotiations and the different prices charged per share (USD 300 in respect of the first instalment, and USD 700 in respect of the first and second tranches of the second instalment). Background Directmoney Finance Pty Ltd 1. By early 2015, APE had made substantial investments in a company known as Directmoney Pty Ltd (which changed its name to Directmoney Finance Pty Ltd, and which subsequently changed its name to Wisr Ltd and became listed on the ASX). For convenience, I shall refer to this company as "DMF". DMF was a start-up whose purpose was to facilitate peer-to-peer lending. Shortly before DMF was listed (which was effected as a "backdoor" listing involving a company known as Basper Ltd), APE's total investment in shares and convertible notes was said to be about $8.4 million [4] . 2. According to Mr Adcock (and there is no reason to doubt this aspect of his evidence), the shareholders in DMF decided, in late 2014, to seek to list it on the ASX. Since Mr Adcock, through APE, then held about 21.45% of the issued shares in DMF, his views were of some importance. For the most part, as the shareholders in DMF developed and implemented their plan to have the company listed, Mr McComb represented APE's interests. Mr Adcock said (and again there is no reason to doubt) that it was Mr McComb who introduced the idea of a backdoor listing through Basper. 3. Mr Adcock and the other shareholders in DMF realised that DMF would be more attractive to investors if it had a well-known and appropriately experienced person prepared to act as the non-executive chairman. They canvassed a number of possibilities. Again, Mr Adcock says (and again, there is no reason to doubt), Mr McComb represented APE in these discussions. 4. I should note that in some parts of the evidence, the role is described as "non-executive chairman", and in others as "executive chairman". For convenience, I shall simply refer to the role as that of "chairman". I add that the email referred to at [41] below suggests that the role proposed for Mr Porges may have changed by late March 2015. 5. A number of possible candidates were considered. Mr Porges was one of them. Mr Adcock considered Mr Porges to be a suitable candidate, having regard to his considerable business experience and prominence. Negotiations for the purchase of SecureOne shares 1. Mr McComb had a number of discussions with Mr Porges, some of them including Mr Adcock as well. Mr Porges said, in one of the paragraphs of his first affidavit [5] that was tendered, that in one of his discussions with Mr McComb, he told Mr McComb that he would need APE to buy some of his shares in SecureOne to "free up some cash so I can meet personal expenses and invest those funds if an opportunity comes along". 2. Mr Porges sent a copy of an Information Memorandum (prepared to solicit investment in SecureOne – see at [39] below) to Mr McComb, as an attachment to an email dated 23 December 2014. In that email, Mr Porges said: This is very old but gives you some idea of where the company [SecureOne] was six months ago. 1. On 19 January 2015, Mr McComb sent an email to Mr Porges setting out "a very brief summary proposal REM for the role of NE Chair". Mr Porges replied on 29 January 2015, saying: Generally seems ok. Need to understand the current cap. structure to know what 6 mill shares means. My general view however is that if I am going to get active and assist in making a company grow and succeed I want about 5% of the group. Having significantly less than this destabilises the portfolio. Obviously this however depends on valuations, hurdles, risks, stage of business etc. I have a lot more than this in SecureOne and more also in Katasi. The two other larger Bio and real estate deals I am looking at will be smaller stakes but larger and more developed businesses. As stated yesterday the space is interesting and I think we can build something of significance. Getting the team right for partnerships, risk/credit/financing and also aggressive mkting will be our challenge. Talk shortly. 1. On 4 February 2015, Mr Porges emailed Mr McComb, sending "docs for Katasi". Katasi was another business in which Mr Porges had invested, and into which APE was also to invest. A postscript to the email referred to discussions that Mr Porges had had with various people and added: "Will fwd transfers for SecureOne shortly". Mr McComb replied, in a manner which does not call for comment. 2. Later on 4 February 2015, Mr Porges sent a follow-up email. It said, among other things: On separate issue one buyer with SecureOne is dicking about and I think I am going to pull out. I am completely relaxed but if having 300 not 150 is of interest then I can do. 1. Mr McComb replied saying: Thanks… [ellipsis in original] $150k probably do us for now as we have about $5m going into things over next 2 weeks and struggling to balance the ledger. 1. On 21 February 2015, Mr Porges sent an email to Mr McComb about a "[c]ouple of things". So far as it is relevant, the email said: Katasi guys getting antsy so last night I invested another 250k to keep them happy. Your 500 still protected but must close ASAP. LJ hooker private equity team in town next week and I am likely tied up with them a few days. They have asked for a full time commitment for next month and any interest in ongoing CEO role of roll up plus bringing fin services into the mix via a mortgage acquisition. Have told them I cannot commit but can give a few days advice over the DD phase. Have concurrently raised the issue of us doing their personal loans and that very much on the cards – assuming the acquisition goes ahead. All this has reinforced Serena's view that if I don't sell 500 k SecureOne she will be strongly "suggesting" I take the amp gig which they are still harassing me over. She does [sic] like the LJH role at all and is supportive of the portfolio approach but only if it is cash flow neutral. Need also to understand how you envisage the options package would work. The amount of time DM likely to take over next 6 months will limit any other roles so this increasingly impt in final decision. Do you have anything on paper yet ? Want to get all this locked down so we can push ahead rapidly. 1. In the third paragraph quoted, referring to "Serena's view", the word "not" seems to have been omitted. Although it is of little moment, I think that in context the sentence should have read: She does not like the LJH role at all… 1. On 22 February 2015, Mr Porges sent an email to Mr McComb, in which he said (in relation to SecureOne): Business continues ahead of plan. In final discussions over commercials with AMP and ME bank. Both see the option of going from around 300k customers to 3 mill by using card as loyalty to become main bank for all union (ME as it is owned by the industry funds) or superannuation (AMP) customers. I met with AMP last Thursday and they are "incredibly excited" by the prospect. Stocks most recent raising at about USD 600 share, stock you are buying is at USD 500 so immediate mark to mkt profit. Internationally they are in advanced negotiations with Discover Card, the third largest card group in US trying to get an angel against VISA and MasterCard and First Data, who process the majority of mobile transactions globally. End game here probably acquisition or IPO in next 12-24 months although competition Loop was just acquired by Samsung last week so rarity value becomes interesting. 1. Mr Porges then added, to his summary of the business of SecureOne, the following comment: I own around 20% [of SecureOne] worth [no value was stated] at last valuation so only diluting slightly to fund Kitasi and satisfy Serena. I believe this is a billion dollar business. 1. After dealing with another proposed investment, Mr Porges added: My feeling is SecureOne is a [sic] 12 months to liquidity at many multiples but likely to grow more after that… 1. A little later on 22 February 2015, Mr Porges sent a further email to Mr McComb. Mr McComb had asked some questions, and Mr Porges replied. I set out, first of all, the relevant text of Mr McComb's email and then the relevant text of Mr Porges' reply: 1. Mr McComb's email: Left you a message. When are the Katasi guys going to be out here? Can you shoot through a quick update on who they are talking to (Telco / Insurance etc). I had it as $10m value - $500k buying 5%. Another raise coming at …? Secure One – just need some more detail on the potential JV's – AMP etc. What is the total company valued at and what is next raise at? Will send separate email on Director options. 1. Mr Porges' reply: Have just answered in crossover emails. Send any queries not covered. Kitasi next raising probably closer to 20 but all depends on deals we cut. May not need another. SecureOne currently valued around 40, next raising Series B into US at 100 but have yet to see docs as again may not be needed. Struggling to find Loop comparative acquisition cost but told it was "large". 1. On 13 March 2015, Messrs Adcock and Porges met over lunch. They discussed a number of matters. According to Mr Adcock, Mr Porges expressed his interest in the role of chairman of DMF, but said that he would need to liquidate some assets, including some of his shares in SecureOne. Mr Porges asked Mr Adcock if Mr Adcock would be prepared to buy them, and Mr Adcock said that he would "have a look at that". There were other matters discussed. 2. Thereafter, Mr McComb said, further discussions took place between Messrs McComb and Porges. The first contract 1. On 23 March 2015, Mr Porges sent an email to Mr McComb. The subject of the email was "300 shares at USD 500". The email read: As discussed once transfers are prepared I Stephen Robert Porges will transfer 300 shares at USD 500 per share. For clarity this was the most recent capital raising at the time the discussions commenced. It is only subsequent raisings that have occurred at the USD 750 level 1. By 24 March 2015, Mr Porges had been given copies of two documents prepared by Nectar Partners for SecureOne. Nectar Partners appears to have been assisting SecureOne to raise capital. One document was an Information Memorandum, dated about June 2014, offering "sophisticated and professional investors" the opportunity to subscribe for shares in SecureOne at USD 500 per share. The other document was an Investor Brief, often referred to in emails as the "eight-pager" or "nine-pager". It was prepared later than the Information Memorandum (but the precise date is unclear). That document offered, it would appear to the same class of investors, the opportunity to subscribe for shares at USD 750 per share. 2. On 25 March 2015, Mr McComb emailed the Information Memorandum to Mr Richard Cansick, who was the CFO of APE. Mr McComb included in his email a "summary" of the memorandum. That summary was lifted directly (i.e. cut and pasted) from the section of Mr Porges' email of 22 February 2015 that I have set out at [32] above. 3. Also on 25 March 2015, Mr McComb sent an email to Mr Porges. That email set out Mr McComb's view on various "[p]ackages" that might be offered to Mr Porges were he to take on the role of chairman of DMF. Mr Porges replied the following day. He said, so far as his reply is relevant: Getting closer. My challenge is till [sic] twofold. I am happy to take risk but with Exec Chair role it has increased. Predominantly due to the amount of time involved here significantly limiting what else I can do. I am still also being pressured, both at home and by Directors, to take on the bank CEO gig. Therefore; 1. Sale of SecureOne even more necessary as unable to do other boards for cashflow, both from a time and also a conflict position. 2. Add another 5 at call it 50 cents. 1. On 27 March 2015, Mr Cansick sent an email to Mr Porges, copied to Messrs Adcock and McComb. The subject was "SecureOne/Transfer of Funds". The email stated: Further to your discussion with Campbell we are transferring on Monday AUD191,791.33 (the equivalent of USD150,000@.7821) to the following account: [details provided] We were hoping to transfer the funds today but there was a mix up at the Bank. Could you please confirm once you receive the funds and send the appropriate transfer documentation. 1. Mr Cansick did cause the funds to be transferred to Mr Porges' nominated account. Mr Porges acknowledged receipt in an email of 30 March 2015, in which he said: Funds in account. Welcome to SecureOne. I will organise transfer of shares as soon as possible. With the latest raise [sic] at 750 you are already doing well ! Events leading to the second contract 1. On 9 April 2015, Messrs Adcock and Porges met, together with the CEO of Katasi. They discussed a number of matters including SecureOne. 2. It is clear from Mr Adcock's affidavit that he has no real recollection of what was said at this meeting, and that he relies on documents to prompt his memory. He referred to an email from Mr Porges dated 9 April 2015 which, Mr Adcock said [6] , "accords with my recollection that, at the meeting Mr Porges had requested that I purchase 1000 further shares in SecureOne in order to keep Mr Porges' wife, Serena, happy". 3. Mr Porges' email to Mr Adcock of 9 April 2015 attached, among other things, the SecureOne Investment Memorandum and the Investor Brief. Mr Porges said, among other things: Most recent doc is the nine pager that was used for the recent USD750/ share raise. The larger doc was used for the 500 round a few months ago and had more info so I include that also. I have sent a message trying to get any info re the Series A round that will be a multiple rise again and will fwd if I receive. My understanding however is that it is a private corporate deal so we may not see another IM for that. Confirming it is fine to sell in a couple of tranches over the next few weeks, Richard has bank details etc. 1000 shares at 700 will keep Serena [Ms Serena Porges, Mr Porges' wife] comfortable that she is not eating into other capital and make the Direct Money, Katasi etc, deals all possible. One side of me says I should not be selling as the Series A is so far up but the excitement of the other companies makes me want to grow these businesses for personal satisfaction. Once we have completed I will get the entire parcel registered so we have some time to decide what vehicle you want to register. 1. On 13 April 2015 (a Monday; 9 April was a Thursday), Mr Adcock sent an email to Mr McComb, who appears to have been in New York. Among other things, Mr Adcock said: I spoke to Stephen before he left regarding buying some extra Secureone shares off him in order to keep his wife happy. He sent me an IM which looks OK I guess but he wants a fairly large commitment so we'll need to have a much closer look at it now that the quantum is larger. Would you mind talking to him about it while you're over there to see if you can get a handle on exactly where SecureOne is up to and when we ourselves can exit. The only reason I'm looking at it is because DM needs Stephen now and he's pretty much committed his reputation to DM as well and , I don't want to leave him hanging. How is his package negotiation going? Has that been sorted yet? I thought that would have been finished ages ago and I got the impression from him that it hasn't been. 1. Mr McComb replied the next day. He said, among other things, that Mr Porges "is pretty much sorted on package, just going to have a chat to him now about it". 2. Mr Adcock replied, stating that Mr Porges' package "is important and almost finished is not finished…". He then said: I want to help Stephen out by buying some more of his Secure One shares but I won't do that unless I know more about it. Can you please find out all you can about Secure One from Stephen and then let me know if you would recommend buying into it if it wasn't for helping Stephen. 1. Mr McComb replied, saying: Had a good chat to Stephen over a coffee and got a bit more info on Secure One. He is going to send me the updated info he went through with you, including an 8 pager. I will take more of a deep dive once I get that. We also landed on a package, but understand the almost finished comment. 1. On 30 April 2015, Mr Porges sent an email to Mr Adcock concerning a number of matters. It included the following: 4. SecureOne. Continues on track with local roll out to be announced shortly. They also now have two term sheets from a local group and one in US wanting to put large lumps of capital (around USD 10 mill) in the Series A round. 1. Messrs Adcock and Porges had a further meeting on 21 May 2015. It is apparent from Mr Adcock's affidavit that he has no independent recollection of the meeting, and that his belief as to what was discussed is based on subsequent emails [7] . The second contract 1. Mr Porges sent an email to Mr Adcock on 22 May 2015. Of present relevance, he confirmed an agreement apparently reached at the meeting the day before, to sell to APE two further tranches of SecureOne shares, each of 500 shares at USD 700 per share. Mr Adcock replied the following Monday (25 May 2015), in terms that make it clear that Mr Porges had summarised the discussions accurately. Mr Adcock said that "Richard [Cansick] will be in touch to get the bank details…". 2. Mr Cansick did indeed contact Mr Porges. In an email sent on 26 May 2015, Mr Cansick said, among other things: In relation to the first tranche of 300 SecureOne shares we purchased on the 30th March 2015 for usd150,000(AUD191,791.33) could you please confirm the shares have been transfer to us and provide a share certificate. Regarding the 500 shares now at USD700/share => USD350,000 and the same in a months' time. I am not sure on your tax position but do you want to push this sale out to July so you defer your tax for another year. Only a suggestion and we are obviously happy to push payments out to July. 1. Mr Porges replied on 1 June 2015. He suggested that "we therefore do only 250k now and the balance in July". In answer to Mr Cansick's question about share certificates, Mr Porges said: … the company does not issue at this stage. What I will ask is for a register or change of ownership note from them for both the initial 300 and the balance to be sent out as soon as possible. I assume this is ok ? 1. Mr Cansick replied on 3 June, saying, relevantly: Regarding share certificate, no problems. Happy for a copy of the transfer document or as you suggest the share register record. On the new SecureOne shares, Given there is a total of 1,000 Shares at 700usd per shares I suggest we do 280 shares in June and 720 shares in July. At the current aud/usd rate of .78 this will get you approx. 251aud in June and 646k in July. 1. Mr Porges replied the same day accepting the proposal. 2. Mr Cansick remained uneasy at the absence of any proof of ownership of the initial tranche of 300 shares. On 5 June 2015, he emailed Mr Porges asking for "share transfer documentation or updated register details on the original 300 shares" and for "a transfer or some documentation regarding to [sic] 280 shares so we can transfer the funds". 3. Mr Porges replied on 11 June 2015, essentially repeating his position that "a simple note of transfer from me is all that is required". 4. Thereafter, Mr Cansick caused the AUD equivalent of USD 196,000 to be transferred to Mr Porges' nominated account and confirmed this by email of 15 June 2015. Mr Porges replied the same day, inquiring "how should we handle the 720 shares in July ?" Mr Adcock reconsiders his position 1. At some stage between 15 June and 14 July, Mr Adcock began to rethink the desirability of investing in SecureOne to the extent that he had agreed with Mr Porges. By then, DMF had listed, and its shares were not performing as well as Mr Adcock had hoped. His investment in DMF prior to listing was "over $8 million" [8] , and since listing he had purchased a further 17 million shares, raising his total investment "to the tune of nearly $12 million" [9] . 2. Mr Adcock denied that his attempts to renegotiate his investment in SecureOne were influenced by the poor performance of DMF. I do not accept that evidence. There is no other credible explanation available. In addition, the explanations that Mr Adcock did give, in an email of 15 July 2015 to which I shall turn in a moment, were specious. 3. On 14 July 2015, in an email copied to Messrs Adcock and McComb, Mr Cansick wrote to Mr Porges. He said: Sorry for the slow response I have been out of the office moving house and Brook is overseas. Please find attached signed transfer forms for the first two tranches of S1 Shares: - 300 shares on 27th March 2015 for usd150,000/aud191,791.33 - 280 shares on 15th June 2015 for usd196,000/aud251,282.05 Unfortunately, we are not in a position to purchase more S1 shares as you would be aware we had to bail out Direct Money for $1.5 million in relation to the Mark Grieg Loan. Add to this the current share market conditions and our options trading we have had a major shortage of funds. Our apologies for this and hope it does not cause you to [sic] much inconvenience. We had no alternative but to put further funds into DM and trust that you understand that it was for the benefit of all involved. Further to this Brook was of the understanding that when you agreed on an amount for the S1 shares it was in AUD, not USD. 1. Mr McComb replied (excluding Mr Porges) the same day, saying: I think this may cause some problems. I have had an agry [sic] email already about people sticking to commitments. Hard to deal with from here but have had a quick chat to him. Lets speak Friday. 1. Mr Adcock replied to Messrs McComb and Cansick on 15 July 2015. He said: I'm happy to stick to commitments but my commitment was in AUD not in USD. I'm an Ozzie and speak in AUD unless I specifically agree otherwise. I let the first lot go as it only meant an extra $40k AUD but I can't let this second lot go through as USD. I won't budge on that. On top of that, I've been more than fair to DM and just do not have the cash to bail everyone out. I agreed to $750 AUD and have paid about $250 AUD. I believe I only owe him another $500k AUD but would like to scale that back to just another $250 AUD given I've already sole more shares than I would have liked to (some $3M just to bail out DM). I think that's fair given I don't even like Secure One as an investment. 1. It is impossible to accept as correct Mr Adcock's insistence that his decision had been one to invest "in AUD not in USD". All the evidence, including of the various emails, is to the contrary. As I have said, I think that the statement to which I have referred was a specious excuse to attempt to escape the balance of the commitment. 2. The final sentence of Mr Adcock's 15 July email is a little difficult to understand. He gave the following evidence [10] : Q. But as it came up to July 2015 and the shares were not performing well on the ASX, you decided that you didn't need Mr Porges as much as you thought you did? A. That's not correct. Q. The only difference, when you decided that you didn't like the investment, was the change in the economic situation of Direct Money? A. That's not correct. Q. You hadn't done any due diligence into the company as an investment, had you? A. Are we talking Direct Money or SecureOne? Q. Sorry, SecureOne. A. I hadn't ‑ I repeat what I've said before, I looked at the investment IM in regards to the technology and to what the company did, but the rest of the investment decision was based on my discussions with Mr Porges and his emails. Q. And so nothing between May and July 2015 ‑ nothing further had been done beyond what you've just referred to in the witness box? A. Other than the failure to register the first tranche of shares, which was becoming a problem for us. Q. So beside that, so looking at SecureOne actually as an investment proposition, when you say on 15 July 2015, "I don't even like SecureOne as an investment," nothing had changed in relation to your knowledge about SecureOne as an investment for Adcock Private Equity? A. Not the business itself, no. 1. As will be seen, Mr Adcock was unable to explain what it was about SecureOne that provoked the comment that "I don't even like Secure One as an investment". 2. Regardless, the deal was renegotiated so that the remaining commitment was reduced to 520 shares. On 1 September 2015, Mr Cansick emailed Mr Porges saying: Further to your discussion with Campbell we have transferred $498,630aud to your bank account being payment for the S1 shares @ 700usd per shares, .73 aud/usd FX rate. Could you please confirm once you receive the funds. I also attached the signed transfer form. Could I please ask that you transfer a total of 1100(300+280+520) S1 shares to Adcock Private Equity Pty Ltd ATF Adcock Private Equity Trust and send through the appropriate documentation. 1. Mr Porges replied, acknowledging receipt of the money, and stating "[w]ill organise [the share transfers] ASAP". The pleaded representations 1. APE pleaded that two groups of representations were made by Mr Porges in relation to each of the two contracts, and that it relied on those representations in deciding to purchase from him in total 1,100 shares in SecureOne. One group of representations related to SecureOne's business plan, prospects and the like. The other related to what APE said was Mr Porges' represented reluctance to sell his shares in SecureOne. 2. The first group of representations is called the Profit Representations and the Further Profit Representations. The second is called the Reluctant Seller Representation and the Further Reluctant Representation. The Profit and Further Profit Representations 1. In relation to the first contract to purchase shares (for 300 shares), those representations are pleaded as follows [11] : 32. In conjunction with the offer referred to in paragraph 7 above, the first defendant represented to the plaintiff that (Profit Representations): a. The first defendant was involved in the day-to-day business of SecureOne and had reliable information about its performance; b. SecureOne was trading profitably; c. SecureOne had a viable business plan that was being effectively executed; d. SecureOne was likely to be attractive to a potential purchaser of its shares and/or to investors who may participate in a later initial public offering of its shares; e. The plaintiff was likely to make a net profit if it purchased shares in SecureOne at a price based upon the most recent issue of shares by SecureOne; f. Purchasing shares in SecureOne at US$500 per share would be a good and profitable investment for the plaintiff; Particulars The Profit Representations were implied by reason of i. The document titled "SecureOne Corporation – Information Memorandum" provided to the plaintiff by the first defendant ii. Email from the first defendant to Mr McComb dated 29 January 2015 iii. Email from the first defendant to Mr McComb dated 22 February 2015 at 8.51pm. iv. Email from the first defendant to Mr McComb dated 22 February 2015 at 8.46pm 1. The second pleaded representation – that SecureOne was trading profitably – was abandoned in final submissions. 2. In relation to the second contract to purchase shares (for, ultimately, 800 shares in total), the Further Profit Representations were pleaded as follows [12] : 40. In conjunction with the offer referred to in paragraph 12 above, the first defendant represented to the plaintiff that (Further Profit Representations) a. The first defendant was involved in the day-to-day business of SecureOne and had reliable information about its performance. b. SecureOne was trading profitably; c. SecureOne had a viable business plan that was effectively executed; d. SecureOne was likely to be attractive to a potential purchaser and/or to investors who may participate in a later initial public offering; e. The plaintiff was likely to make a net profit if it purchased shares in SecureOne at a price based upon the most recent issue of shares by SecureOne. f. Purchasing further shares in SecureOne at $US700 per share would be a good and profitable investment for the plaintiff; Particulars The Further Profit Representations were implied by reason of: The matters particularised in paragraph 32 above; The document titled "SecureOne – The Future of Digital Commerce" provided to the plaintiff by the first defendant on 9 April 2015 The document titled "SecureOne Corporation – Information Memorandum" providing again to the plaintiff by the first defendant on 9 April 2015 Email from the first defendant to Mr Adcock dated 9 April 2015 Email from the first defendant to Mr Adcock dated 30 April 2015 1. Again, the alleged representation as to profitable trading was abandoned. 2. APE's pleading could have been understood to suggest that some of the representations alleged relating to profit were representations as to future matters. However, in his response to the 2FACLS, Mr Porges said, of the relevant allegations, that: 1. there were no positive matters alleged as to the absence of reasonable grounds, and that he proposed to hold APE to its pleading; and 2. in any event, that he had had reasonable grounds (particulars of which he gave) if it were found that he had made any of the relevant representations. 1. APE filed a Commercial List Reply. At [10], it said: … the Profit Representations and the Reluctant Seller Representation were representations of fact and the plaintiff is not required to allege or prove the absence of reasonable grounds. 1. It may be assumed that APE takes the same view of the Further Profit Representations and the Further Reluctant Seller Representation. The Reluctant Seller and Further Reluctant Seller Representation 1. In each case, that representation was pleaded to be that Mr Porges "was a reluctant seller of the shares" [13] . 2. In relation to the first contract, the Reluctant Seller Representation was said to arise from emails from Mr Porges to Mr McComb dated 21 February and 26 March 2015. In relation to the second contract, it was said to arise also from Mr Adcock's conversation with Mr Porges on 9 April 2015, and from Mr Porges' email of the same date. Were the Profit Representations made? 1. As APE's case is pleaded, the crucial dates for assessing whether the Profit Representations (as I shall call them collectively) were made are: 1. in respect of the first contract, 27 March 2015, when Mr Cansick caused APE to transfer to Mr Porges' nominated bank account the equivalent of USD 150,000, and told Mr Porges this was being done (see at [42] above); and 2. in respect of the second contract, 3 June 2015 when, according to APE, agreement was reached for APE to buy a further 1,000 shares in SecureOne from Mr Porges at USD 700 per share, in two tranches, one before and one after 30 June 2015 (see at [54]-[57] above). 1. The Profit Representations are said to arise, in the first place, from: 1. Mr Porges' providing the Information Memorandum to APE; 2. Mr Porges' emails to Mr McComb of 29 January 2015 (see at [25] above); and 3. the two emails of 22 February 2015 (see at [32]-[35] above). 1. In closing written submissions, Mr Crutchfield identified also, as a source of the Profit Representations, Mr Porges' email to Mr McComb of 23 March 2015 (see at [38] above). Ms Morgan did not object that this went beyond the representation case as pleaded and particularised. In any event, it seems to me, that email is part of the overall factual position that the court must consider, in deciding whether the representations alleged were made and, to the extent that it finds they were, whether they were, in all the circumstances, misleading or deceptive. 2. I start with the Information Memorandum (and I should make it clear that although I am dealing with the documents separately, what is required is, as I have just said, a consideration of their overall effect). Ms Morgan submitted that Mr Porges was acting only as a conduit when he sent the document to Mr McComb. I am not sure that this is correct. 3. On its face, the Information Memorandum was prepared by Nectar Partners for the purposes of SecureOne; specifically, for provision to and consideration by potential investors in SecureOne. However, Mr Porges did more than merely pass the Information Memorandum on to Mr McComb. As I have noted, he said that the document would give "some idea of where the company was six months ago". That statement carries with it the implication that Mr Porges was sufficiently knowledgeable as to the affairs of SecureOne that he could, as in effect he did, attest to the substantial historical accuracy of the Information Memorandum (as of six months earlier). 4. There are two contrasting features of the Information Memorandum. On the one hand, it suggests that SecureOne has the potential to be a successful investment. On the other, and as Ms Morgan stressed in her submissions, it points out the many risks attending any investment in SecureOne. It was directed to sophisticated professional investors. The underlying assumption that permeates the Memorandum is that those to whom it was addressed would consider it, and apply their own knowledge, skill and experience in deciding whether to make the investment. 5. Nonetheless, even if Mr Porges were no more than a mere conduit, the very fact that he provided the Information Memorandum to Mr McComb, in a context where APE through Mr McComb was considering buying from Mr Porges some of his shares in SecureOne, conveyed the suggestion that Mr Porges thought that the Memorandum contained relevant information. That Mr Porges provided the Information Memorandum to Mr McComb without (so far as the evidence goes) expressing any doubt or hesitation about the wisdom of an investment in SecureOne is not without significance. 6. In my view, having regard to the circumstances as they existed as at 23 December 2014 when Mr Porges sent the Information Memorandum to Mr McComb, Mr McComb was entitled to think that if Mr Porges were aware of any information that would suggest the picture conveyed by the Information Memorandum was inaccurate, he would be told. Mr Porges had stressed his close involvement in SecureOne's business. He had suggested that he was desirous of retaining the bulk of his shareholding in the company. His professed reason for selling some shares was that he needed to raise funds to keep his wife in her accustomed style, given the diminished earnings he would receive as chairman of DMF. Mr Porges must have understood that he been approached to take on that role because DMF and APE trusted him and respected his experience and ability. 7. In all the circumstances, if (as has proved to be the case [14] ) Mr Porges had been aware of information that was inconsistent with the glowing picture he painted of SecureOne's prospects, the most basic considerations of commercial honesty would have dictated that he disclose those circumstances to APE. Certainly, APE, through Mr McComb, was entitled to think that it was being given all relevant information Mr Porges had concerning the purchase of shares in SecureOne. It was entitled to think that if Mr Porges had information that was inconsistent with the picture he was painting, he would, in the contemporary idiom, share it with APE. 8. Turning to Mr Porges' email of 29 January 2015, the only significance of this appears to be that, having said he wanted about a 5% stake in DMF, he made the comment "I have a lot more than this in SecureOne…". 9. The first and longer email of 22 February 2015 is significant. Clearly, it "talks up" the prospects of SecureOne. Further, it conveys the very strong impression that Mr Porges was directly involved with SecureOne. He refers to "final discussions" with potential end users of SecureOne's product, stresses that he met with one of those potential end users, and reported what he said was their reaction to the product. 10. The email gave further detailed information of SecureOne's activities. The nature of that information again suggests that Mr Porges was closely involved with the company. 11. The email pointed out that Mr Porges held a 20% stake in SecureOne. Thus, it is not surprising that he would have involved himself closely in the development of its business. Finally, the email stated Mr Porges' belief that SecureOne "is a billion dollar business". 12. The second and shorter email of 22 February 2015 likewise conveys the impression that the company was progressing well. Mr McComb had asked for "more detail on the potential JV's", the total valuation, and "what is next raise at". Mr Porges replied in the terms that I have set out. He suggested that the next "raising" (i.e. capital raising) "may not be needed": a statement that, once again, suggests that SecureOne was progressing well in its plans to develop its product and put it into the marketplace. 13. The email of 23 March 2015 is also of some significance. It confirmed that there had been a capital raising at USD 500 per share, and stated (as an existing fact) that subsequent raisings had "occurred at the USD 750 level". That could be taken to suggest that SecureOne was having little trouble finding investors at the price levels stated. 14. Considering all that material in context, I conclude that the following representations were made: 1. that Mr Porges was involved in the day to day business of SecureOne and had reliable information about its performance; 2. that SecureOne had a viable business plan that was being effectively executed; 3. that APE was likely to make a net profit if it bought shares in SecureOne at USD 500; and 4. that a purchase of shares in SecureOne at that price would be a good and profitable investment for APE. 1. The first of those representations seems to me to flow inevitably from Mr Porges' statements in his earlier and longer email of 22 February 2015. The second and third flow from the statements in his shorter email of the same date and in his email of 23 March 2015. The fourth flows, in particular, from the earlier and longer email of 22 February 2015, including the statement of Mr Porges' belief that SecureOne was "a billion dollar business". 2. To the extent that the Further Profit Representations are said to be implied, or inferred, from the facts particularised in support of the Profit Representations, the same conclusion would follow. In addition, there are Mr Porges' emails of 9 and 30 April 2015. I have set those out at [46], [51] above. 3. The present significance of the 9 April 2015 email is that: 1. it confirms the impression that Mr Porges was directly involved in the business affairs of SecureOne; 2. it forwards the Information Memorandum (which had already been sent to Mr McComb) and the Investor Brief; 3. it suggests that there "will be a multiple rise again" for any future raising of capital; and 4. it says that this may be effected by "a private corporate deal" – that is, that SecureOne has reached a stage where, in effect, corporate investors are prepared to subscribe to its capital. 1. The email of 30 April 2015 confirmed that SecureOne "[c]ontinues on track with local rollout to be announced shortly", and notes that there are investors waiting, who want "to put in large lumps of capital". 2. In short, nothing that occurred after 27 March 2015 detracted from, or gainsaid, what Mr Porges had conveyed to APE in the period leading up to that date. In truth, the first and second of the representations that I have found were made in respect of the first contract for purchase of shares were effectively confirmed, or corroborated. 3. I find that Mr Porges made to APE the four representations identified at [97] above, and that he did so before APE agreed to buy the first instalment of 300 shares in SecureOne at USD 500 per share and the second instalment (in two separate tranches) of shares in SecureOne at USD 700 per share. In relation to the second transaction, it is not without significance that Mr Porges had stressed the fact that future capital raisings would be conducted at USD 750. It would follow that a purchase at the increased price of USD 700 had the potential to yield an immediate mark to market profit. Were the Reluctant Seller and Further Reluctant Seller Representations made? 1. As for the Profit Representations, the crucial dates are 27 March and 3 June 2015 (compare at [82] above). 2. The first Reluctant Seller Representation is said to be implied from Mr Porges' emails to Mr McComb of 21 February and 26 March 2015 (see at [30], [41] above). 3. The same matters are said to have given rise to the Further Reluctant Seller Representation. In addition, APE relies on Mr Porges' conversation with Mr Adcock on 9 April 2015, and Mr Porges' email to Mr Adcock the same day (see at [45], [46] above). 4. In my view, it is clear that in those various communications, Mr Porges did, objectively, convey that he was a reluctant seller, and that his only reason for selling was to raise funds, both to enable his wife to be satisfied that her standard of living would not be affected adversely and, more generally, "for cashflow" (the latter expression comes from the email of 26 March 2015). That message was reinforced by the conversation and email of 9 April 2015. 5. I conclude that: 1. before the first contract was concluded and transacted on 27 March 2015, Mr Porges represented to APE that he was a reluctant seller of the shares in SecureOne; and 2. Mr Porges' representation continued before the second contract was negotiated and (in part) transacted on 3 June 2015. Were the Profit and Reluctant Seller Representations misleading or deceptive? 1. In what follows, when I refer to the "Profit Representations" I refer to the representations that I have found were made, as set out at [97] above. 2. Further, when I refer to the "Reluctant Seller Representations", I refer to the representations that I have just found were made, at [108] above. The pleaded case as to all the Representations 1. APE's pleaded case as to the Profit Representations is that: [15] 35. The Profit Representations were misleading or deceptive because: a. SecureOne and its major shareholders were up until March 2015 then the defendants in proceedings brought by Play LA Inc in the Eastern Caribbean Supreme Court, High Court of Justice (Commercial Division) claim number 103 of 2014 (Play Proceedings); b. In the Play Proceedings, it was alleged that SecureOne and its major shareholders had breached a Share Purchase Agreement signed on 12 December 2012; c. In the Play Proceedings, Play LA was seeking damages of US$10,798,500 from SecureOne and its eleven major shareholders; c.1 The Play Proceedings: i. had put a cloud over SecureOne's attempts to raise capital resulting in a situation where SecureOne did not have sufficient funds to defend the Play LA proceedings; ii. would have been catastrophic for SecureOne if successful. d. Under Part IX of the BVI Business Companies Act 2004 (Virgin Islands) once Play held 90% of SecureOne's shares, it would be possible for Play LA to forcibly acquire the remainder of the shares held by any person; e. SecureOne had entered into an agreement with Ogier that resulted in SecureOne being liable to Ogier for all the defendants' legal costs that had been, and would in the future be, incurred in defending the Play Proceedings; f. At that time, SecureOne would not have the means available to pay those legal costs as and when they would [sic] due and payable; g. The Play proceedings and the legal costs that SecureOne was and would be liable for had materially affected the ability of SecureOne to execute its business plan; h. SecureOne had already ceased, or was likely in the future to cease, effecting its business plan; i. SecureOne was unlikely to be attractive to a potential purchaser or to investors participating in an initial public offering; j. The viability of SecureOne as a going concern was subject to material doubt; k. The plaintiff was unlikely to make a net profit if it purchased shares in SecureOne at a price based upon the most recent issue of shares by SecureOne; l. Purchasing shares in SecureOne was unlikely to be a good and profitable investment for the plaintiff; m. The first defendant believed that the ATO had reason to investigate SecureOne and its shareholders and that if the ATO did so, this would result in a "clusterf---" for SecureOne and its shareholders. n. The first defendant was of the view that there were even more serious matters affecting SecureOne than that involving the Australian Tax Office; o. In September 2014, the first defendant had demanded that SecureOne buy back $US200,000 to $US500,000 of shares in SecureOne held by Mr Porges; p. In November 2014, the first defendant had demanded that SecureOne buyback $US500,000 worth of shares from the first defendant purchase price of only $US125 per share but SecureOne did not then have the funds to make the purchase; q. As at November 2014, the first defendant believed that: i. The SecureOne story and team were falling apart: ii. Shareholders in SecureOne were becoming increasingly "pissed off" with SecureOne; iii. KPMG had been misled by SecureOne; iv. SecureOne was close to collapse; v. It was in the first defendant's interests to sell his shares in SecureOne as soon as possible; vi. The morality and ethics of those involved in SecureOne's business and assets were questionable and the first defendant was disappointed by this; 1. APE relies upon the same matters in support of its case that the Reluctant Seller Representations were misleading or deceptive. 2. Ms Morgan submitted that APE had not pleaded a case of misleading or deceptive conduct by reason of silence. That may be correct, as a narrow reading of the pleadings. However, it is clear that APE did rely on silence. Its case, as pleaded, was that the positive conduct (the making of the Profit Representations and the Reluctant Seller Representations) was, in all the circumstances, misleading or deceptive. The circumstances are the matters pleaded at 2FACLS, [35]. It is implicit in the pleading that part of the conduct relied upon to show that the representations were misleading or deceptive was, first, the existence, to Mr Porges' knowledge, of those matters in fact and, secondly, that none of them was disclosed to APE. 3. In any event, as I understand Ms Morgan's submissions, she did not regard this as an obstacle to APE's running the "silence" case. On the contrary, her submissions proceeded on the basis that such a case was being run, and sought to deal with it. What Mr Porges knew or did 1. The Play Proceedings (for convenience, I use the term as it is defined in 2FACLS, [35]) started off with a document known as "Notice of Direct Claim". I assume that this is some kind of pre-action notice required to be given in the High Court of Justice in the British Virgin Islands. The Notice stated that Play LA Inc (Play LA) had a claim against some 12 defendants, including SecureOne, for breach of an agreement under which the first to eleventh defendants had agreed to sell to Play LA their shares in SecureOne. As a matter of interest, the Notice stated [16] that, among others, Mr Porges was a vendor, but had not signed the agreement. The Notice stated that Play LA claimed damages in the sum of USD 10.8 million, together with costs of USD 89,000, "and accruing thereafter". 2. The Notice of Direct Claim was undated, but was served on 23 June 2014. On 26 June 2014, Mr Miles Sterrick of Nectar Partners sent an email to Mr Porges attaching a number of documents, including the Notice of Direct Claim and the letter under cover of which it had been served on SecureOne. 3. Also on 26 June 2014, Mr Sterrick sent to Mr Porges, presumably for the latter's consideration, a draft press release that SecureOne proposed to publish. That draft stated that: 1. SecureOne "was surprised by the actions taken by Play LA…"; and 2. SecureOne regarded the claims as "false and frivolous" and intended "to earnestly defend the matter". 1. By 4 July 2014, Mr Porges had decided to sell at least some of his shares in SecureOne. It is unclear, from the documentary evidence, whether this desire related to all or only part of his shareholding. Mr Porges chose not to give evidence explaining whether his wish was to sell down, or to sell all of, his shareholding. It would appear that Mr Geoff Cairns, the CEO of SecureOne, became aware of Mr Porges' desire to sell. On 4 July 2014, Mr Cairns sent an email to Ms Maribel Jordan, who appears to have been the secretary of SecureOne, asking "[w]hat do our bylaws say about current shareholders selling shares privately? Do we need to grant permission?" 2. Ms Jordan replied the next day. She said: Yes, if private shareholders want to sell shares, they have to put in writing what they want to do, who they sell to etc (cover letter address to the company). If it is a company, we should need a corporate resolution and a power of attorney. If private, we would need a power of attorney. When we as a company are happy with the documentation, we need to prepare a resolution allowing the sale of shares (or transfer) and then we would re-issue. 1. Mr Porges' request, or inquiry, about selling may have been addressed initially to Mr Sterrick, because on 5 July 2014, Mr Cairns emailed Mr Sterrick, forwarding a copy of Ms Jordan's email. Mr Cairns said: Here is the technical answer to Porges request. That said it is ridiculous and destructive to our efforts. He needs to be back of the boat like the rest of us rowing hard. 1. Two days later, on 7 July 2014, Mr Sterrick forwarded that email chain to Mr Porges. Mr Sterrick said: [F]urther to our chat, mate – see below 1. It would appear that Mr Porges took offence at Mr Cairns' comments. On 7 July 2014, he replied to Mr Sterrick. He said: Options over shares would easily work in this situation. I have been on board this boat for 15 years and have done nothing by assist and do not appreciate any suggestion otherwise. I have personally funded salaries, travel, accommodation etc for years. That said the recent lack of initiative or explanation to follow up e.g. Mint potential partnership/litigation, disturbs me. Let alson eth [sic] impasse between the co and Nectar as to who should pay my expenses. I have altered what I need to sell to assist the company but need 200k out of this in the next short period to get rollover relief into new deal. It is far better for NFC/Nectar to organise. The other option is I talk to shareholders, market etc direct and that just creates more confusion and concern over play LA etc. 1. On 26 August 2014, Play LA commenced proceedings in the High Court of the British Virgin Islands. Its claim reflected the Notice of Direct Claim, although the costs claimed were reduced by USD 40,000, for reasons that are unexplained and perhaps inexplicable. 2. On 3 September 2014, SecureOne issued some form of update to shareholders, in the form of a letter signed by Mr Cairns. One brief paragraph in that document referred to the action by Play LA. It said no more than that SecureOne's position was "that the transaction [on which Play LA had sued] failed based on the inability of both sides to agree on terms and PlayLA's unilateral failure to close at the prescribed closing date". 3. Mr Sterrick sent that document to Mr Porges by email dated 8 September 2014. The email said, among other things: With your selling, you will need to talk to Geoff. There is a bit of an issue, and I think I need to keep well clear. 1. Mr Porges replied on the same day. He said: I have been trying to talk to Geoff and he also has not been responding. I have been more than fair to this business over 14 years and have invested large amounts of money and reputation. Nobody has been as integral or committed to this business as I over an extended period. I have made representations to the tax office as to my investment and they have ruled on rollover based on this. I cannot go back and feel I have given you all enough warning. I either sell 200-500k of stock back to the company, or with their assistance, or I start discussing this with other shareholders/partners, with the obvious negative ramifications. I continue to want to do the right thing but cannot continue to be lied too [sic] and feel disappointed by the actions of both Geoff and yourself over this. My lack of trust concerns me as my word has been given and also my name used to investors. This should be an easy and small matter or it could be clusterf--- 1. The euphemism in that quotation – the omission of the letters "uck" from the last word – appears in the original. I understand the expression, whether written elliptically or in full, to denote a perilous state of affairs [17] . 2. On 5 November 2014, Mr Porges sent another email to Mr Cairns. It was copied to a Mr Ken Mages (who appears to have had some role in or associated with SecureOne) and Mr Sterrick. Mr Porges' email stated: After I have done nothing for 14 years but support this company, personally pay wages, assist you in redefining our initial sale contract so you could continue to raise capital, pay my own way around the world to raise capital for the group (including personally paying for your meals, hotels etc), open my rolodex to all investors and defend others against Benson; to say I am disgusted by your suggestion is mild. Anything else I write now would simply be negative and abusive so achieve nothing. Simply take this to know that I will be selling as soon as possible and find myself again disappointed by the morality and ethics of people involved in these assets. Miles, I would strongly suggest you do not use me as a reference for investors. 1. On 11 November 2014, Mr Porges sent another email to Mr Mages. It stated: To say I am disappointed with the decision by the board regarding my stock is an understatement. I honestly thought I had entered into business with people I respected and trusted. For the last three years I have opened all relationships and funding opportunities for the company and even when Geoff needed me to alter our contract so he could raise further capital I did so, putting myself in a worse position as a result. I am now put in a position of either placing the company and all shareholders at significant risk or putting myself and my family through extreme stress and selling my family home. Obviously as a senior business person here I cannot afford to place the investors at risk so I will have to bear the burden directly. That said, I am astonished by the decision and cannot see any value or logic that is achieved by your decision.. I am as I say extremely disappointed but associations and logic concerning these assets stopped surprising me long ago. 1. Mr Mages replied on 12 November 2014: Again Stephen I'm unclear on the specificity of your disappointment. We want to make sure you are made whole and that goes for everyone who's a shareholder. Nothing has changed since our last correspondence. We are searching for new money and buyers. We have no spare cash. What exactly do you want and what changed? 1. Mr Porges replied to that email on 11 November 2014 (it is obvious that the International Date Line was causing confusion, in relation to the dates of these emails), saying: Very simple. Get money and cash for the company and I have again been doing all I can to assist this effort. Once that is done however, let me find a buyer of 500k of my stock and transfer to them. I obviously maintain the majority of my exposure but have a tax obligation to reduce it. It should have no effect whatsoever on the company. Maybe Geoff is confused by that point. 1. Mr Mages replied on 12 November 2014, stating among other things that Mr Cairns "is working like a dog to buy your shares under favourable circumstances to both you and the company". 2. Mr Mages' reply does not seem to have placated Mr Porges. He wrote an email on 11 November 2014, stating: I don't want him or the company to buy my shares. Someone else will i.e. a new shareholder. That is why it is not his problem. Why does he care if I or someone else owns them ????? The predicament was exacerbated as I entered into the agreement only AFTER I told the co. I would be selling. Then after I get the ruling I am told you will not register a new holder. Again this makes no sense and either shows that no one was paying attention when first told or that the board wishes for some reason to penalise me ??? For me to now undo the deal with the ATO, they will reanalyse but are p1ssed [sic] off and have threatened to do a complete audit of the company, its advisors and its shareholders. Thus I cannot really submit everyone to an audit. It truly should be that easy. I have absolutely no idea what is achieved by refusing to register the shares in someone else's name ??? 1. So far as the evidence goes, that email is the first mention of any "deal with the ATO", or of the prospect of "a complete audit of the company…". 2. Mr Mages replied, saying that if all Mr Porges wanted to do was transfer his shares, he would support it. That appears to have excited Mr Porges, who replied saying: Bingo. I don't want the company to buy and NEVER have, I will find a buyer, indeed think I have one. It should be purely a transaction between me and the buyer as all normal share transactions are. The company only has to register the stock out of my name and into another. 1. Mr Porges' reference to a claim by the ATO may have ruffled a few feathers. On 14 November 2014, Mr Sterrick sent an email to Mr Porges in the following terms: Can you please provide a detailed description of the claim that you represent the Australian Tax Office has over SecureOne and its shareholders that would subject everyone to an audit. The company has had no communication from the ATO nor have any reason for such as the company is a fully compliant foreign domiciled company. Please have your solicitor contact us with this information and the company will act upon it accordingly. 1. Mr Porges replied saying, among other things, "[t]he ato is the least of issues". 2. Mr Sterrick sent that reply onto Mr Cairns. Mr Cairns directed that an email be sent to Mr Porges in the following terms: SecureOne is willing to consider all of your concerns if you provide them in writing, preferably through your solicitor; until then, SecureOne and ourselves consider further conversations to be a distraction from proper responsibilities to the business. In the meantime, SecureOne's previously communicated offer addressing your desire to sell up to $500,000 worth of your shares remains intact; explicitly, that offer being a purchase of your shares at the rate of $125/share and said offer being executable only after the business raises sufficient funds to enable the purchase. Alternatively the board will approve a private party sale if you have a buyer identified that is not currently in dialogue with Nectar and who is willing to buy your shares and acknowledge in writing that the funds are going to you and not funding company operations or any other purpose. In this scenario your buyer will also need to sign the requisite investment disclosure documents and a general release with the company. We would be pleased to facilitate the assistance of SecureOne's local solicitor for either of these transactions provided all discussions towards such an end are in writing. 1. An email along those lines was sent to Mr Porges on 17 November 2014: Further to recent communication, as you know, we are the advisers to SecureOne and as has been communicated from ourselves and SecureOne, the Company is willing to consider your concerns regarding the partial sale of your holding in the company. However, in order to deal with the matter in an appropriate manner would you please forward your sale request and/or any concerns in writing, either directly or through your lawyer, directly to the company and copy Nectar Partners. In the meantime, SecureOne's previously communicated offer addressing your desire to sell up to $500,000 worth of your shares remains intact; explicitly, that offer being a company purchase of your shares at the rate of $125/share and said offer being executable only after the business raises sufficient funds to enable the purchase. Alternatively the board will approve a private party sale if you have a buyer identified that is not currently in dialogue with Nectar and who is also willing to buy your shares and acknowledge in writing that the funds are going to you and not to fund company operations or any other purpose. In this scenario your buyer will also need to sign the requisite investment disclosure documents and a general release with the company. We would be pleased to facilitate, with the assistance of SecureOne's local solicitor, for either of these transactions provided all discussions towards such an end are in writing. 1. Mr Porges replied saying: I don't think this is going to work. Let me talk to the guys but I fear it may be all over after 15 years !! 1. On 22 November 2014, Mr Porges sent an email to Mr Sterrick, with the subject line "Falling apart". The email stated: The SecureOne story and team are falling apart. ME and Mystate both loose, shareholders increasingly pissed off, KPMG being, in my opinion, mislead [sic] and Peter Clare now also disengaged. I have been trying to tell james but he and Geoff do not appear to believe. We can either help and fix or watch it collapse. Your call Nero. 1. Mr Sterrick forwarded that email to Mr Cairns and others, with the following comments: John, you had better copy me in on these re Porges and Nick the lawyer. Prior to heading to India this last week I had copped scores of texts (mainly) and emails and calls on this from Stephen over the previous 8 weeks or so. Now that I am en route home I expect that he will return his attention to me. I have a swathe of emails and texts I can furnish Maribelle with. Just this morning I awoke to the below email. Nick needs to pull his finger out fast. 1. None of the matters covered at [115]-[142] above was disclosed, even in summary form (let alone in any detail) to APE, Mr Adcock or Mr McComb. Postscript: the Play Proceedings 1. What follows in the next four paragraphs is included at this point as a matter of interest. Events occurring after the dates the relevant contracts were made may assist in assessing the probability, at those dates, of occurrence of those events. But of themselves, they cannot assist in deciding whether conduct that occurred before those dates was then misleading or deceptive. 2. It appeared to be common ground that if Play LA had recovered damages against (among others) SecureOne in the amount claimed, USD 10.8 million, the result would have been to bankrupt all the defendants. There is no evidence that SecureOne could have paid anything like that sum. Ultimately, however, the Play Proceedings were settled. 3. The defendants in the Play Proceedings (including SecureOne) had retained a firm of lawyers in the British Virgin Islands known as Ogier. It would appear that they had had difficulty in paying Ogier's costs, including costs required for the defence of the claim. At some time in November 2015, those defendants entered into a deed of settlement with Ogier, under which they agreed to pay a "settlement sum" of USD 1.739 million. The defendant parties were jointly and severally liable for that sum. Further, to secure its payment, the shareholder defendants charged to Ogier their shares in SecureOne and SecureOne charged to Ogier its right, title and interest in its intellectual property, including certain patent rights. 4. SecureOne could not meet its liabilities to Ogier. It has collapsed. Ogier presumably has the benefit of the patents, whatever that benefit may be. SecureOne has been administered in insolvency under the applicable laws of the British Virgin Islands. It is an agreed fact between the parties to this litigation that shares in SecureOne are worthless. 5. The deed, and the collapse of SecureOne, preceded, by a considerable period of time, the date when Mr Porges finally procured registration of the transfers of his shares to APE. The representations were, in context, misleading or deceptive 1. As Mr Crutchfield's submissions acknowledged, what must be analysed is not just the representations but the whole of the conduct (including, where relevant, what was not said as well as what was said) which formed the context within which those representations were made. 2. It is impossible to accept that an intelligent and experienced businessman, as Mr Porges appears to have been, could have thought that the information summarised at [115]-[142] above was of no importance to APE, as a possible purchaser of some of Mr Porges' shares in APE. The only basis on which Mr Porges might have thought so would be that he believed, for reasons that objectively were reasonable, that APE was desirous of purchasing the shares regardless of the prospects of SecureOne's performance. Since Mr Porges did not give evidence, there is no basis on which I could conclude that he held such a belief. Nor is there any evidence on which I could conclude that such a belief, if held, was reasonably based. 3. The overwhelming impression that one gets from the events of June to December 2014, as I have summarised them above, is that Mr Porges had become disenchanted with his investment in SecureOne, had fallen out with the management of (and, perhaps, other investors in) SecureOne, and, in the vernacular, "wanted out". Mr Porges could not have failed to understand that if the Play Proceedings succeeded, SecureOne would be wiped out. Even if Mr Porges believed, on reasonable grounds, that the lawsuit would fail (and again, there is no evidence of belief nor of grounds), he must have understood that the cost of defending the proceedings would be a crippling burden for SecureOne to carry. The expense of defending the proceedings would have diverted SecureOne from its primary function of completing the development of its product and bringing it to market. 4. In my view, Mr Porges' conduct in making the Profit Representations but in failing to disclose the matters to which I have referred at [115]-[142] above was misleading or deceptive, or at the very least likely to mislead or deceive. It ought be so characterised because it withheld from the recipient of those representations, APE, information that any purchaser considering an investment in SecureOne shares would have thought material to its decision whether to proceed, and if so on what terms. There is no need for expert evidence on that point; the bright light of common sense illuminates a sure path to the conclusion. 5. Further, in my view, those matters falsify the Reluctant Seller Representations. Mr Porges was not reluctant. On the contrary, for the reasons I have given, he wanted to sell. 6. There is another, although secondary, reason for thinking that the Profit Representations were misleading or deceptive. Mr Porges' email of 23 March 2015 (see at [38] above) referred to "subsequent raisings that have occurred at the USD 750 level". In fact, at that time, there had been no capital raising at that level. It is correct to say that SecureOne hoped to raise capital at USD 750 per share; that was the subject of the Investor Brief. Mr Porges did not have the investor brief when he sent the email of 23 March 2015 (he received the document the next day). There is no evidence to suggest that any investor had subscribed for shares at USD 750. Nor is there any other evidence that could have founded a reasonable belief that this had happened. Reliance 1. The relevant principles are not in doubt. Where a plaintiff says that it was induced to enter into a contract by reason of misleading or deceptive conduct, it must show some link between that conduct and its decision to enter into the contract. Where the conduct said to be misleading or deceptive consists of representations, the plaintiff must show that it relied on those representations. No doubt, it must also be apparent that, objectively, it was reasonable for the plaintiff to do so. The interaction between that last point and the question of contributory negligence (see at [158] below] may be left for a case where it is more squarely in issue. 2. In an appropriate case, reliance may be inferred. The process of inference may be easy. For example, if representations are made which, objectively, were clearly intended to induce the representee to act in a certain way and, following the making of the representations, the representee so acts, an inference of reliance may readily be drawn. Of course, a plaintiff may give express evidence of reliance. However, such evidence should be scrutinised with caution, because of the inevitable tendency for it to be affected by hindsight analysis and perceptions of self-interest. 3. Where reliance is said to constitute the causal factor that links the misleading or deceptive conduct with the loss complained of, it is not necessary that the misleading or deceptive conduct should be the sole or only cause of the loss. It may be one of a number of causes. Indeed, its causal potency, considered against the potency of other causes, may be seen to be slight. But as long as the misleading or deceptive conduct is in part at least (and in more than an insubstantial way) a cause of the loss, that is enough. 4. It is not necessary that the plaintiff should have been vigilant to protect its own interests. No doubt it is desirable that people should always be vigilant. But the statutory proscriptions of misleading or deceptive conduct and prescriptions of remedies for such conduct exist to protect the careless as well as the careful. What might be called contributory negligence is only relevant, in a causal sense, if on a proper analysis it is seen to be the sole cause of the plaintiff's loss, or to have broken the chain of causation otherwise attaching that loss to the defendant's misleading or deceptive conduct. The submissions for Mr Porges 1. It is necessary, at this point, to give a brief outline of the way in which Ms Morgan put her submissions on reliance. 2. Those submissions embraced a number of themes. They were developed with a complexity and subtlety in a way that means the following summary does them less than justice. Nonetheless, the summary is sufficient to identify the critical questions. 3. In essence, Ms Morgan submitted, there were two reasons why APE's reliance case should fail. First, the only reason that APE purchased shares in SecureOne from Mr Porges was to enable, or induce, him to take on the role of chairman of DMF (including, importantly, after it listed on the ASX). The second reason, Ms Morgan submitted, was that APE's evidence failed to prove actual reliance. That submission focused heavily (indeed, I think, exclusively) on the evidence given by Mr Adcock. 4. As to the representation case, Ms Morgan submitted that reliance was not proved, for the following reasons: 1. Mr Adcock gave no evidence of reliance on any representation; 2. APE would have proceeded in exactly the same way as it did had it known what on its case was the true position; those matters were irrelevant to its sole motivation (see at [161] above); 3. APE's failure to make inquiries or carry out any due diligence, and lack of care otherwise, broke the chain of causation; 4. it must have been obvious to APE that any predictions as to the future of SecureOne were highly uncertain; 5. the Information Memorandum contained numerous warnings to prospective investors; and 6. APE was already committed to buying the first instalment of shares by 4 February 2015, well before much of the conduct relied upon to establish the representations occurred. Decision 1. I start with the last reason – that APE was already committed by 4 February 2015. Ms Morgan's submission was based upon the emails to which I have referred at [26]-[29] above. There are four problems with the submission. 2. First, it is inconsistent with Mr Porges' Commercial List Response, which insists that there was but one agreement and that it arose from discussions, emails and conduct ranging from 19 January to 26 March 2015. The particulars given do not include, among the many emails listed, those upon which Ms Morgan based this submission. 3. The second problem is that it is APE's pleaded case that the first contract was made on 27 March 2015 when APE accepted Mr Porges' offer to sell 300 shares at USD 500 per share. It was never put to Mr Adcock that, contrary to APE's pleaded case, the contract was concluded, and became legally binding, more than 7 weeks earlier. 4. The third problem is that the reading of those emails that is necessary to extract from them an agreement of the kind suggested by Ms Morgan requires use of the eye of faith rather than the eye of reason. There is certainly reference to forwarding a transfer for SecureOne. But it is unclear whether this is for 150 shares, or 300 shares, or indeed for AUD 150,000 worth of shares. And in any event, the proposition that a binding agreement was then reached is at odds not only with the pleaded case of each party but, more importantly, with the facts as to how the negotiations progressed, and were finally consummated, over the following seven weeks. 5. The fourth problem is that the submission is inconsistent with Mr Adcock's unchallenged and uncontroverted evidence referred to at [36] above. 6. I turn to the other ways in which Ms Morgan sought to deal with the case on reliance. 7. It should be accepted that APE wanted Mr Porges to take on the role of chairman of DMF. It should be accepted, also, that APE was prepared to assist him to do so by considering the purchase of some of the shares held by Mr Porges in SecureOne. However, it does not follow, either as a matter of logic or on the evidence, that APE would have committed to spend, in total, in excess of $940,000 had it been given the information summarised at [115]-[142] above. 8. Further, the focus on Mr Adcock's evidence diverts attention from two fundamental propositions: 1. first, the decision was one for APE, and Mr McComb was heavily involved in considering the purchase and making a recommendation to Mr Adcock; and 2. secondly, in my view, this is a case where reliance may be inferred. 1. I accept that Mr Adcock's evidence as to express reliance was scanty. As to the first contract, Mr Adcock said [18] that his decision to buy 300 shares in SecureOne at USD 500 per share was based on: 1. his trust in Mr Porges; 2. what Mr Porges said in the meeting of 13 March 2015 (see at [35] above); 3. information contained in Mr McComb's email to Mr Cansick of 25 March 2015 (see at [40] above), which was copied to Mr Adcock and which he read (although he did not, I think, read the attachments in detail); and 4. "Mr McComb's recommendation": a reference to the same email. 1. In the same affidavit, Mr Adcock gave evidence of Mr McComb's role as CIO of APE [19] . Mr McComb's duties included the provision of advice and recommendation in respect of potential investments, and assistance in managing existing investments. Mr Adcock gave the following evidence [20] : Q. When you had a chief investment officer, so with Mr McComb and potentially with Mr Nantes for a period, was their role ‑ Mr McComb's role was to ensure investments for Adcock Private Equity were prudent. Is that right? A. I doubt that he would have brought any investments that he didn't believe in himself, yes. HIS HONOUR Q. "Prudent" is rather a difficult concept in your line of investment, isn't it? A. Yes, your Honour, it is risky from time to time. Q. Exactly. MORGAN Q. Keeping that idea in mind, that for a venture capital business you're invariably assessing risky businesses and investing in risky businesses, Mr McComb, as chief investment officer, was trying to ensure that the investments he proposed or recommended were advantageous to Adcock Private Equity? A. Yes. Q. You smiled when I said that but that's because obviously he's your employee, that's his job, so that's what you'd expect him to do. A. I'd be disappointed if he brought me things that he didn't believe in. 1. Mr McComb's role is important because many of Mr Porges' communications were with or directed to Mr McComb rather than Mr Adcock. No doubt, Mr Porges understood from this that Mr McComb was one of those charged with the responsibility of considering and making a recommendation on the proposed purchase of shares in SecureOne. 2. Although Mr McComb did not give evidence (and since the reason why he did not do so has been explained, I draw no Jones v Dunkel inference from that), one may ask what, objectively, his state of mind might have been had various matters been communicated to him. Suppose he had been told that: 1. SecureOne was a defendant in a lawsuit, and that if the lawsuit succeeded, SecureOne would collapse; 2. SecureOne would be crippled by the burden of paying legal costs to defend itself in that lawsuit; 3. there was a possibility that the ATO might audit, or further audit, SecureOne and its investors; 4. Mr Porges had ceased to trust the management of, and perhaps other investors in, SecureOne; or 5. at one stage towards the end of 2014, those matters in combination had led Mr Porges to the view that he should quit the whole of his holding in SecureOne. 1. Suppose, first, that any one of those matters had been disclosed to Mr McComb. Is it likely that, as the CIO of APE, he would nonetheless, have recommended the investment, without further inquiry? Is it likely that, absent further inquiry, he could have concluded that the proposed investment was advantageous to APE? More broadly, is it likely that he would have concealed the information from Mr Adcock, and made his recommendation regardless? In each case, objectively, the answer must be "no". 2. Suppose that several of those matters had been disclosed to Mr McComb. Ask the same questions. In each case, and even more emphatically, the answer must be "no". 3. Finally, suppose that all those matters had been disclosed to Mr McComb. Again, ask the same questions. The answer in each case must be a resounding, indeed deafening, "no". 4. Move the analysis from Mr McComb to Mr Adcock, and make the same escalating series of assumptions as to disclosure. Ask the equivalent questions. Would the answers be any different? Objectively, they would not. The proposition that they would have been different depends entirely on Ms Morgan's fundamental case theory: that APE was so keen to get Mr Porges on board as the chairman of DMF that it was prepared to buy his shares in SecureOne, and would have done so regardless of what it might have been told. It is to that point that I now turn. 5. Ms Morgan relied on Mr Adcock's evidence in cross-examination. I set out the relevant passage (starting five lines before, and finishing two lines after, the precise passage on which Ms Morgan relied) [21] : Q. Originally, your decision to purchase what was to be 1,000 shares in SecureOne was to ensure that Mr Porges would remain and be involved in DirectMoney as it continued to listing? A. That's not quite correct. Q. But it was an important feature of the decision? A. The decision to purchase the shares was to facilitate or to enable Mr Porges to take on the role. It wasn't anything to do with his remuneration. We put him ‑ as per his ‑ put him in a position to take on the role, if he saw fit. Q. When you say facilitate, that was ‑ it was to encourage him to take on the role, that's what you mean by the word "facilitate"? A. It was to enable him to do it. Q. You wanted him as the face of DirectMoney? A. Correct. 1. Ms Morgan relied on a later passage in Mr Adcock's cross-examination. I set that out, again slightly more extensively than the particular reference that Ms Morgan gave [22] : Q. And so in 2015 when you made the decision to purchase the SecureOne shares, the purpose was for that facilitation, that's right? A. To provide liquidity for him and Serena. Q. And the issue was he would then be executive chairman of DirectMoney, that was the facilitation we're talking about? A. To use the analogy again, the understanding was he would buy another house or he would take on this role, yes. Q. So he'd take on the role as the executive chairman? A. Mm‑hmm. 1. Mr Adcock was quite open in agreeing that he wanted Mr Porges to take on the role of chairman of DMF. He was quite open in agreeing that he saw this as beneficial for APE, because APE held 21.45% of the issued shares in DMF. He agreed that the purchase of shares in SecureOne "was to serve the purpose of facilitating Mr Porges' acceptance a [sic] position as chairman of DMF" [23] . All of that may be accepted. 2. Likewise, it may be accepted, as Ms Morgan submitted, that it was commercially rational for APE to purchase Mr Porges' shares in DMF. That follows from the matters just listed. It does not however follow that, as Ms Morgan submitted, the purchase "was not a gift it was an investment… in effect an investment by APE in relation to its 3.5m investment in DMF". The proposition that APE was prepared to contemplate throwing away $940,000 does not seem to me to be particularly commercially rational. 3. That exposes what I think is the real weakness in this aspect of the reliance submissions that Ms Morgan put. It was never put squarely to Mr Adcock that he would have permitted APE to buy Mr Porges' shares in SecureOne if there had been disclosed to him facts that showed the investment was likely to be risky significantly over and above the normal risks attending investment in start-up companies of that kind. It was never put to Mr Adcock that he would have permitted APE to make the investment regardless of the probability that it might be lost. It was never put to Mr Adcock that he was prepared to risk throwing away the whole of the investment for the sake of preserving, and perhaps increasing, the value of his stake in DMF. 4. Ms Morgan referred to the decision of Black J in Redmond Family Holdings v GC Access Pty Ltd [24] . His Honour, in considering the question of causation in relation to representations, made the point at [84] that there must be a causal connection between the representations and the loss for which the plaintiff seeks compensation. His Honour acknowledged that in a proper case reliance may be inferred; no doubt, as his Honour had pointed out, the inference could be drawn if a representation was objectively likely to act as an inducement to someone to act in a particular way. I do not think that the decision assists Ms Morgan's reliance submissions. 5. In any event, his Honour gave separate consideration to the question of inferred reliance where material matters had not been disclosed. On the facts before him, he concluded, at [163], that it was "simply inconceivable that [the plaintiff] would have entered into an agreement to acquire a specified percentages of shares in [the defendants] had disclosure been made that any percentage holding which it acquired could be diluted at will…". 6. There is a similar process of reasoning displayed in the decision of the Full Federal Court in Hanave Pty Limited v LFOT Pty Limited [25] . The applicant (appellant) in that case claimed that it had been induced by misrepresentations to buy a commercial property. Mr Richard Burke, the applicant's principal, gave evidence of reliance. It would appear that the primary judge thought that Mr Burke's evidence was unreliable (see Wilcox J, who agreed with Kiefel J that the appeal should be upheld, at [11]). That did not matter. Wilcox J said at [11] "that causation can sometimes (perhaps best) be resolved by the Court objectively determining the likely effect of the misleading conduct". 7. Kiefel J dealt with the same point at [45]. Since this passage of her Honour's reasons seems to me to be directly applicable to the way in which one should analyse the evidence in this case, I set it out in its entirety: The question of causation can sometimes be resolved not by direct evidence as to what part a misrepresentation played in the process of entry into contract, but by a Court determining what effect must be taken to have resulted. Indeed this course may sometimes be preferable to one which rested solely on evidence later given on the point. In Gould v Vaggelas Wilson J held that if a material representation is calculated (which is to say, objectively likely: Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993) 41 FCR 229; Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1, 166) to induce the representee to enter into a contract and the person in fact enters into a contract, a fair inference arises that the representation operated as an inducement, adding that it need not be the only cause. The latter point is now uncontroversial. It suffices for liability if a misrepresentation played some part in inducing entry into contract for the price agreed. That part of Wilson J's judgment was not stated to be an exhaustive rule, but is to be seen as a guide to a question of fact which may arise. A conclusion of inducement may then be reached where a combination of factors, including the quality of the representation itself, goes unanswered. In relation to the representation itself it would need to be of a kind likely to provide that inducement and such that "...commonsense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract." (Wilson J, 238), a statement regarded by the Full Court in Ricochet as providing a practical guide to the drawing of inferences in such cases. 1. In Hanave, the primary judge, having rejected Mr Burke's self-serving evidence of reliance, concluded that it was inappropriate to infer reliance, objectively, from the facts that had been proved. It is apparent that Kiefel J did not accept that the question of reliance must be resolved in that binary way. Her Honour said at [49] that it might not be appropriate, having rejected express evidence of reliance, to decline to go further and consider whether reliance should be inferred. Then, at [50] her Honour suggested that there could well be cases (and the case before the court was one) where the court should "in the first place, draw such an inference". 2. The same process of reasoning is available in the present case. It is the process that underpins the conclusions expressed at [175]-[178] above. 3. The Profit Representations, as I have found them at [97] above, were, viewed objectively, intrinsically likely to cause APE to proceed with its proposed purchase from Mr Porges of shares in SecureOne. APE did proceed to make those purchases. The inference of reliance is available, and I draw it. Not to do so would offend plain common sense. 4. None of the matters to which Ms Morgan pointed, considered either singularly or in conjunction (but in each case in context), affords any reason for concluding otherwise. In the words of Black J, it is simply inconceivable that APE would have proceeded with the purchases, at least without making further and detailed inquiries, had it been apprised of the matters summarised at [115]-[142] above. Loss 1. APE's case is in effect a "no transaction" case. For the reasons I have given, it is entitled to succeed. Mr Porges' misleading or deceptive conduct in respect of the Profit and Reluctant Seller Representations was a cause of APE's decision to buy the shares in question from Mr Porges. 2. It is common ground that the shares in SecureOne are worthless. It follows, subject to questions of mitigation, contributory negligence and proportionate liability, that APE is entitled to recover the full amount paid, AUD 941,703.38 [26] , from Mr Porges, together with interest from the dates of payment of the constituent amounts. Mitigation 1. The pleaded case is that on 22 December 2016, Mr Porges had offered APE a "free carry" of the right to convert its beneficial interest in 1100 shares in SecureOne to 1,100,000 shares in a company known as Verrency Holdings Ltd. It is common ground that APE did not take up the offer. In those circumstances, Mr Porges pleads, any damage accruing after 22 December 2016 was caused by APE's conduct in refusing to take up the offer. Alternatively, Mr Porges pleads, damages should be reduced having regard to APE's causal responsibility arising from its failure to take up the offer. 2. The pleaded case is a little difficult to understand. In terms, it appears to address questions of causation and contributory negligence rather than mitigation as that concept is generally understood. Analysis of this issue has not been helped by the very brief mention given to it in closing submissions. 3. The starting point seems to me to be that APE's loss was complete well before 22 December 2016. It had paid over the whole of the purchase money. It had not received legal title to the shares. It may well have had a beneficial interest in them. However, in circumstances where SecureOne was insolvent, that beneficial interest had no more value than the underlying shares. The shares were worthless well before 22 December 2016. 4. For Mr Porges to succeed on the issue of mitigation, he would have had to prove, among other things, that as at 22 December 2016: 1. the offered shares in Verrency had some value; and 2. in the circumstances then prevailing, it was unreasonable for APE to take up the offered "free carry" into Verrency. 1. Neither of those matters has been proved. I conclude that there should be no reduction to the amount of damages to which APE is otherwise entitled by reason of the pleaded failure to mitigate its loss. Contributory negligence 1. The pleaded contributory negligence is, by inference rather than direct statement, that APE failed to carry out appropriate due diligence inquiries on SecureOne. Mr Porges pleads that: 1. APE was a sophisticated commercial entity, a private equity investor experienced in assessing potential investments; 2. APE ought to have relied on its own due diligence before agreeing to buy the shares; and 3. the Information Memorandum included numerous warnings as to the risks inherent in an investment in shares in SecureOne. 1. APE did not carry out any due diligence investigation. Mr McComb did not "take more of a deep dive" as he said he would do in his email of 13 April 2015 (see at [50] above). Mr Adcock accepted, I think, that he had expected Mr McComb to do so, and was surprised that he had not. 2. Nonetheless, there is no basis for concluding that, had Mr McComb taken his deeper dive, he would have found out any of the information that Mr Porges had withheld from APE. It is totally unclear how any closer consideration of the projections in the Information Memorandum and (if it be relevant) the Investor Brief would have turned up any of those matters known to, but not disclosed by, Mr Porges (see at [115]-[142] above). 3. To put it another way, the misleading or deceptive conduct does not relate solely to the projections contained in those documents. It relates to Mr Porges' actions in both saying what he did (including by forwarding those documents) and withholding what he did. 4. If APE's case were merely that the representations contained in the Information Memorandum and the Investor Brief were misleading or deceptive, the pleaded case on contributory negligence would engage directly with it. But that is not the true thrust of APE's case. The pleaded defence of contributory negligence does not engage with the case on which APE is entitled to succeed. 5. There should be no reduction in the amount of damages on account of contributory negligence. Proportionate liability 1. Those said to be proportionately liable are the parties responsible for preparation of the Information Memorandum and the Investor Brief: specifically, SecureOne itself, Nectar Partners, and the directors or officers of SecureOne involved in the preparation of those documents. That defence must fail, essentially for reasons similar to those just given in respect of the defence of contributory negligence. Conclusion and orders 1. APE is entitled to judgment against Mr Porges for $941,703.38 together with interest. The parties should prepare an agreed calculation, including what might be called a "daily rate". On the face of things, APE should have its costs against Mr Porges. However, since there will no doubt be the usual disputes, I shall reserve the question of costs for further consideration. 2. The claim against Mrs Serena Porges should be dismissed with costs. 3. I make the following orders: 1. direct the parties to prepare short minutes of order to give effect to these reasons. 2. Stand the matter over to 9:30am on 7 September 2018 before me for entry of judgment. 3. Reserve for further consideration the question of costs. 4. Direct that the exhibits be returned. ********** Endnotes 1. APE had claimed also against Mr Porges' wife, but that claim was dropped before the commencement of the hearing. 2. (1959) 101 CLR 298. 3. It was common ground that Mr Porges was present in court throughout the hearing (as indeed was Mr Adcock). 4. T75.40-.44, T76.1-.4. 5. Affidavit affirmed 28 August 2017, [32]. 6. Affidavit affirmed 30 June 2017, [50]. 7. Affidavit affirmed 30 June 2017, [58]. 8. T:94.5-.7. 9. T:94.9-15. 10. T:94.17-.45. 11. Second Further Amended Commercial List Statement (2FACLS), [32]. 12. 2FACLS, [40]. 13. 2FACLS, [33] in relation to the first contract, [41] in relation to the second contract. 14. See at [115] and following below. 15. 2FACLS, [35]. 16. At [18]. 17. I am indebted to the analysis of Beach J in Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751 at [937]. Although the context is different, Mr Porges' euphemistic ellipsis of the word "clusterfuck" was no doubt intended, as Beach J said at [938], "to communicate information quickly and without the usual social niceties". 18. Affidavit affirmed 30 June 2017, [42]. 19. At [7]. 20. T37.6-.31. 21. T55.35-.50. 22. T104.12-.22. 23. Affidavit affirmed 20 September 2017, [18]. 24. [2016] NSWSC 796. An appeal from his Honour's decision was dismissed: Skinner v Redmond Family Holdings [2017] NSWCA 329. 25. [1999] FCA 357. 26. Although the sales were transacted in USD, APE is claiming the AUD amounts it expended to acquire the relevant USD amounts. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 September 2018