Abdel Naser Qushair v Naji Raffoul

In response to a question from Mr Qushair about liabilities, Mr Raffoul said: "No. The company has no debts or liabilities. I will take you to the accountant". 17 Mr Qushair's evidence was that he duly attended an accountant's office and was shown figures and papers relating to the company, but that he did not understand what he was shown. He neither sought nor received any other advice in relation to the proposed transaction. 18 On 14 January 2006, Mr Qushair signed a letter addressed to Mr Raffoul at Raffoul Aviation in the following terms: "Refer to our meeting on Friday 13, Jan 2006. I would like to advice [sic] you that I'm interested in buying your share of 25% from Raffoul Aviation, Bankstown Airport NSW". 19 On 16 January 2006, Mr Raffoul, Raffoul Aviation and Mr Qushair executed the Share Transfer Agreement. The Agreement, which was drafted by a solicitor, recited that the 100 issued shares in Raffoul Aviation were held equally by four shareholders: Messrs Raffoul, Benedetto, Arva and Hallal. By cl 1 of the Share Transfer Agreement, Mr Raffoul agreed to transfer his 25 shares to Mr Qushair for the consideration of $25. 20 On the same day, Mr Raffoul and Mr Qushair executed the Loan Agreement. Mr Qushair agreed to pay Mr Raffoul $5,000 upon execution of the Loan Agreement and the remaining $135,000 within 39 months in accordance with a schedule which specified monthly payments (for the first six months) and weekly payments (thereafter). 21 On 16 January 2006, Christina's Trading Solutions Pty Ltd was registered as a proprietary company. On the following day, 17 January 2006, Mr Raffoul lodged with the Civil Aviation Authority a form seeking registration of Christina's Trading Solutions Pty Ltd as the owner of two aircraft. 22 On 2 February 2006, a Deed of Release was executed by Raffoul Aviation and Messrs Raffoul, Benedetto, Arva, Hallal, Qushair and Mansour. Under the Deed of Release, the parties other than Mr Raffoul agreed to release him from any current or future responsibilities, claims or other liabilities in respect to Raffoul Aviation. They also agreed to indemnify Mr Raffoul against any current or future claims that might arise in respect to Raffoul Aviation and not to make any claims against him personally. 23 On the same day, 2 February 2006, Mr Raffoul as Director, signed a "Letter of Indemnity" on Raffoul Aviation letterhead. This read as follows: "I Naji Raffoul Director of Company Raffoul Aviation PTY LTD. Trading as Proflite Australia Indemnify That the Company Raffoul Aviation PTY LTD. Trading as Profile, has no outstanding loans or any incumbered asset or liabilities beside normal liabilities attributed to the normal day today running and expenses of the Company Raffoul Aviation PTY LTD. Trading as Proflite, including student fees which in some case [sic] have been payed [sic] upfront by student. The Company Raffoul Aviation PTY LTD. Trading as Proflite, acknowledges that some upfront student fees have been used by the Company Raffoul Aviation PTY LTD. Trading as Proflite, for payment of running cost". 24 Mr Qushair gave evidence that he made regular payments to Mr Raffoul in reduction of the amount due under the Loan Agreement, but ceased making payments in May 2006. At that time, so Mr Qushair said, he became aware for the first time that Mr Raffoul had failed to disclose that the title to two aircraft used by Raffoul Aviation had been transferred to a company controlled by Mr Raffoul. Mr Qushair claimed that he had complained to Mr Raffoul about the transfer of title to the aircraft and also about the use of deposits paid by students to meet running expenses incurred by Raffoul Aviation. According to Mr Qushair, Mr Raffoul agreed that he should make no further payments under the Loan Agreement until the problems were fixed. 25 The balance sheet of Raffoul Aviation as at 30 June 2005 recorded that non-current assets included plant and equipment at cost, less depreciation, of $97,114.73. The 30 June 2006 balance sheet recorded plant and equipment (other than office equipment, which had not appeared in the 2005 balance sheet) at cost, less depreciation, of only $5,455.00.

PLEADINGS 26 Mr Raffoul's case was pleaded in a statement of claim which alleged the making of the Loan Agreement and the Share Transfer Agreement and Mr Qushair's failure to pay any amounts under the Loan Agreement. The transcript of the first day of the four day hearing records that counsel for Mr Raffoul proposed to amend the statement of claim to add a paragraph to the effect that Mr Raffoul also relied on the terms of the Deed of Release. It appears, however, that no amended statement of claim was actually filed. 27 Mr Qushair filed an amended cross-claim ("ACC") on the first day of the four day trial. In addition to claiming relief in relation to the Share Transfer and Loan Agreements, the ACC included a prayer for an order declaring void or refusing to enforce the Deed of Release. 28 The representations alleged to have been made by Mr Raffoul and Mr Qushair's reliance on those representations and their falsity, were pleaded in the ACC as follows: "3. Prior to [Mr Qushair] executing the Share Transfer Agreement and the Loan Agreement and the Deed … [Mr Raffoul] represented to him that Raffoul Aviation Pty Ltd ('the Company') was making a lot of profit, the Company was in good condition financially with no debts or loans or outstanding liabilities and there was a good future for the Company. PARTICULARS All the representations were made expressly by [Mr Raffoul] during a series of conversations with [Mr Qushair] on or about December and January. 3a. Further or alternatively prior to [Mr Qushair] executing the Deed … [Mr Raffoul] represented to him that [the Company] was making a lot of profit, the Company was in good condition financially with no debts or loans or outstanding liabilities and there was a good future for the Company. PARTICULARS The representations were made expressly in a letter of indemnity dated 2 February 2006 executed by [Mr Raffoul] and by silence. 4. Acting in reliance upon the representations and induced thereby entered into the Share Transfer Agreement and the Loan Agreement and the Deed … 5. The said representations were untrue or incorrect. PARTICULARS (i) The company was not making a lot of profit. (ii) The Company was not in good condition financially. (iii) The company did not have a good future". 29 The ACC also invoked s 41 of the FT Act by pleading that, to the extent that the representations were as to future matters, Mr Raffoul did not have reasonable grounds for making them. The ACC did not identify the representation as to a future matter to which s 41 was said to apply.

The Trial 30 At the trial Mr Raffoul and Mr Qushair gave evidence on affidavit and were cross-examined. None of the other shareholders in Raffoul Aviation gave evidence in the proceedings. 31 The documentary evidence included financial statements for Raffoul Aviation in respect of the financial years ended 30 June 2004, 30 June 2005 and 30 June 2006. Mr Qushair's counsel also read an affidavit prepared by a valuer which annexed a "Business Valuation of Proflite Australia" ("Valuation Report"). The purpose of the valuation, prepared on Mr Benedetto's instructions, was said to be: "To assist Gino Benedetto and Naser Qushair in negotiating the purchase of a 50% share of the business from Frank Arva (25% shareholder) and Mohd Mansour (25% shareholder) and to permit the assessment of stamp duty payable on the transfer of the 50% share of the business between the existing shareholders".

The Valuation Report was based on an inspection of the business on 9 August 2007 and an examination of Raffoul Aviation's books of account as at January 2006. The Valuation Report valued the business, as at 9 August 2007, at $30,000. 32 The valuer also annexed to her affidavit a short letter, prepared by her, addressed to Mr Benedetto, expressing the opinion that the estimated future maintainable earnings of the business "were negative as at January 2006". The letter further expressed the opinion that the value of the business as at January 2006 was: "limited to the value of the plant and equipment and the accreditations it possessed at that time which would not exceed $30,000".

The valuer was not cross-examined. 33 Two matters relating to the trial should be noted. The first is that, as the Valuation Report suggests, Mr Qushair maintained his claim for an order declaring the Share Transfer Agreement void, notwithstanding that in August 2007 he apparently intended to acquire a further parcel of shares in Raffoul Aviation, albeit at a lower price than he had agreed to pay Mr Raffoul. 34 The second is that a great deal of time was taken up at the hearing exploring an issue that was never pleaded. Mr Qushair's case, as presented at trial, included a claim that Mr Raffoul had misled him by failing to disclose before the execution of the Share Transfer and Loan Agreements that he (Mr Raffoul) had caused the title to two aircraft registered in the name of Raffoul Aviation to be transferred to a company controlled by Mr Raffoul. The evidence showed that the two aircraft had been included in Raffoul Aviation's 30 June 2005 balance sheet, but had been subsequently transferred to Mr Raffoul's company, Christina's Trading Solutions Pty Ltd, apparently without any payment being made to Raffoul Aviation. Mr Qushair seems to have claimed that Mr Raffoul's failure to disclose the transfer of title was deliberate and, in any event, constituted misleading or deceptive conduct. No reference to any such claim appears in the ACC and no application was made at the trial to amend the ACC to plead that the failure to disclose the transfer of title to the aircraft constituted misleading or deceptive conduct.

Primary Judgment 35 The primary Judge identified (at [3]) five agreed issues for decision, as follows: "a. Whether Mr Qushair has paid any amounts to Mr Raffoul in satisfaction or part satisfaction of the loan agreement; b. What representations, if any, were made by Mr Raffoul to Mr Qushair with respect to the agreements; c. If any representations were made by Mr Raffoul, were they incorrect or untrue so as to amount in law to be misleading or deceptive; d. If such representations were made, do they constitute deceit or contravene the Fair Trading Act, 1987, s 42; e. If the representations were made and were deceitful or contrary to statute, to what extent if any is the loan agreement enforceable". 36 His Honour did not deal with the issues in the order identified by the parties. After dealing with the factual background, his Honour first addressed Raffoul Aviation's financial position. He said that the 2003-2004 and 2004-2005 financial statements showed that the company had made a "slight loss", while the 2005-2006 financial statements showed that "the company's business increased and that the company made a profit". According to his Honour, there was evidence that "during this year the company made arrangements that were likely to attract numbers of foreign students". 37 The primary Judge noted the existence of the Valuation Report prepared in August 2007 for Mr Benedetto and Mr Qushair, but said (at [12]) that it was of "limited, if any, relevance in ascertaining whether the statements allegedly made by Mr Raffoul were misleading or deceptive".

His Honour took this view because of the purpose for which the Valuation Report was prepared and the fact that it related to the position some 18 months after execution of the Share Transfer and Loan Agreements. 38 The primary Judge concluded this section of the judgment as follows (at [13]): "At the time the alleged representations made [sic], that is, late in 2005 or early in 2006, the company was making a profit and had good prospects. In the circumstances of the commercial transaction, where it was possible for Mr Qushair to have access to the financial records of the company and to make enquiries of the company's accountant, I cannot find that these statements were in any sense misleading or deceptive". 39 The primary Judge then dealt with Mr Qushair's credit: "14 The only evidence that Mr Raffoul made statements as alleged is the evidence of Mr Qushair himself. He says that before the agreements were entered into Mr Raffoul told him that the company was making lots of profit and that its prospects were good. Mr Raffoul denies ever having made such statements . I find, on the balance of probabilities, that Mr Raffoul did not make the statements attributed to him by Mr Qushair. 15 I find that Mr Qushair was, in most respects, an entirely unbelievable witness. He was unable to produce any documentary or other corroborative evidence to support his assertions that he had carried out a number of important commercial transactions, most particularly the making of regular monthly payments to Mr Raffoul pursuant to the loan agreement. He did not obtain receipts, and he says that he paid the money in cash, so that his bank records, with some minor exceptions, do not show any record of these transactions. When he was cross-examined, he was evasive in many of his answers, and I formed the impression that much of his evidence was fabricated to enable him to escape his obligation to repay the loan. Where there is a difference between the evidence of Mr Qushair and that of Mr Raffoul, I therefore prefer Mr Raffoul's evidence". (Emphasis added.) 40 The primary Judge next posed the question "Did Mr Raffoul act in ways that were misleading and deceptive?" In this section of the judgment, his Honour addressed the unpleaded allegation that Mr Raffoul failed to disclose to Mr Qushair that aircraft used in the flying school were no longer registered in the name of Raffoul Aviation. He also considered the allegation that the company was obliged to refund tuition fees paid in advance by potential students who did not in fact enrol, for example because they were refused visas. 41 His Honour rejected Mr Qushair's claim that Mr Raffoul had acted dishonestly in relation to the transfer of the aircraft. Mr Raffoul's unchallenged evidence was that the Civil Aviation Authority would not permit the transfer of an aircraft otherwise than to an Australian citizen or to a corporation. It was for that reason that Mr Raffoul had incorporated a company, Christine's Trading Solutions Pty Ltd, the day after the Share Transfer Agreement was executed. Prior to Mr Qushair's arrival in Australia, Mr Raffoul had secured acknowledgements from all the other shareholders in Raffoul Aviation that the aircraft were to be transferred out of that company to a company controlled by Mr Raffoul. His Honour continued (at [17]): "For this reason … it cannot be suggested that there was any fraud or attempt to misappropriate the property of the company. I cannot identify any evidence of any representation by Mr Raffoul to Mr Qushair that the aircraft belonged to Raffoul Aviation Pty Ltd, and Mr Qushair adduced no evidence that he had searched on any register to ascertain the ownership of the aircraft, or whether, and if so to what extent, the aircraft were encumbered". 42 The primary Judge then referred to the "letter of indemnity" of 2 February 2006, in which Mr Raffoul stated that Raffoul Aviation had no outstanding debts or liabilities. The letter of indemnity specifically stated that some fees received from foreign students had been applied to running expenses and there was no statement that the company was obliged to refund any of these fees. Accordingly, his Honour (at [19]): "could not find on the balance of probabilities that the company, Mr Raffoul or Mr Qushair knew that there would be any obligation to refund any student fees at any time". 43 The primary Judge accepted that at one stage Raffoul Aviation owed Mr Raffoul a large amount of money. However, his evidence was that by 2 February 2006, no such moneys were owing to him. His Honour considered that the fact that Raffoul Aviation's balance sheet at 30 June 2006 showed loans of $112,719.30 due to unnamed persons was not evidence that five months earlier any such liability had existed. 44 The primary Judge noted that Mr Qushair had relied on s 41 of the FT Act. However, in this case (at [22]): "because the financial statements of the company showed that it had made a profit in the financial year 2005 - 2006, and because Mr Raffoul was in contact with the company's accountant, it was not misleading or deceptive for him to say that the company was making a profit or even lots of profit. At the time, that appears to have been true, though a year earlier it would not have been. It could not be construed that he was making a representation about the future. What he said was insufficiently specific to amount to a misrepresentation or conduct that was misleading or deceptive. Events have shown that the company did attract a significant number of overseas students. The part of the company's web page, which was in evidence, shows that a significant number of overseas students successfully completed training with the company. It was not misleading or deceptive for anybody to represent that the company's prospects were good. The statement was, in fact, true. Section 41 has no application to the facts of this case". 45 His Honour then observed that the proceedings arose out of a commercial transaction the parties to which were "educated and skilled adults" (at [23]-[24]): "Both Mr Raffoul and Mr Qushair were trained commercial pilots. At the time of the transaction Mr Qushair had only been in Australia a short time, but it was to be expected that in a commercial transaction, he would take steps that a reasonably prudent business person in his position would have taken. A reasonably prudent person would have obtained independent advice, would have made enquiries about the ownership of the aircraft used by the flying school, if that was a matter of concern, might well have investigated the position of the lease of the company's premises, and might well have had an independent financial advisor look at the financial position of the company. Mr Qushair did none of these things. Mr Raffoul cannot be held responsible for those omissions. I have found in this case that nothing done by Mr Raffoul falls within the category of conduct that is misleading or deceptive or likely to mislead or deceive. A reasonable person in the position of Mr Qushair would have made his or her own enquiries and would not have been misled or deceived about any matter on which Mr Qushair says he was misled". 46 For these reasons, his Honour considered that there was no basis for Mr Qushair's defence or cross-claim. 47 Although the parties identified the issue of whether Mr Qushair had repaid any moneys under the Loan Agreement as the first question to be addressed, his Honour dealt with it towards the end of his judgment. Mr Qushair's evidence was that in addition to the initial payment of $5,000 he made regular payments in cash to Mr Raffoul, totalling $24,800, until he ceased making payments in May 2006. At that time (so Mr Qushair said) he became aware for the first time that title to the aircraft had been transferred to Mr Raffoul's own company. 48 The primary Judge referred to documentary evidence adduced by Mr Qushair which showed that a total of $5,300, in five instalments, had been transferred from his bank account to Mr Raffoul's account. Mr Qushair said that these transfers were in reduction of the debt due under the Loan Agreement. Mr Raffoul's version was that the transfers were repayments of amounts he had lent to Mr Qushair, through the latter's wife, for purposes unrelated to the Loan Agreement. 49 His Honour dealt with the conflict of evidence as follows (at [29]): "Mr Raffoul also did not produce any documentary evidence, and Mr Raffoul bears the evidentiary burden of establishing what he asserts. In the case of the loan agreement, it is sufficient for him to produce the agreement and to give evidence that no payment has been made pursuant to it to establish his assertion. As Mr Qushair has produced evidence to show payment of $5,300, I can be satisfied on the balance of probabilities that this amount was paid in reduction of the loan. Mr Raffoul has not discharged the onus on him to show that the repayments related to other loans he had made to Mr Qushair or his wife. I cannot find, on the same standard of proof, that Mr Qushair has made any other payment in reduction of the loan, including the payment of $5,000, which, on the face of the loan agreement, was to be paid on execution of the loan. I therefore find that a total of $134,700 remains outstanding under the loan agreement".

SUBMISSIONS 50 Mr Qushair made numerous complaints about the findings made by the primary Judge and his Honour's reasoning process. They included the following: (i) The primary Judge failed to provide adequate reasons for regarding Mr Qushair as " an entirely unbelievable witness " and for rejecting his evidence that Mr Raffoul had made the representations alleged in the ACC.

(ii) Similarly, his Honour failed to give adequate reasons for finding that any statements made by Mr Raffoul were not " in any sense misleading or deceptive ".

(iii) In any event, this was one of those relatively rare cases in which an appellate court should overturn the primary Judge's demeanour-based findings as involving fundamental errors in the reasoning process.

(iv) The finding that the representations that Raffoul Aviation was making a " lot of profit " and " had a good future " were " true " was contrary to the evidence.

(v) The finding that Mr Raffoul had not engaged in misleading or deceptive conduct by silence failed to grapple with the evidence that the aircraft had been transferred out of Raffoul Aviation's ownership and that, whatever the knowledge of the other shareholders, Mr Qushair was unaware of the transfer until May 2006.

(vi) The primary Judge's reasoning was incorrectly influenced by his view that a party who relies on false representations, but does not undertake his or her own investigations to ascertain their truth or falsity, cannot obtain relief under the FT Act by reason of the representator's misleading or deceptive conduct. 51 The submissions made on behalf of Mr Raffoul canvassed the evidence adduced at the trial in some detail, with a view to demonstrating that there were grounds for the primary Judge finding that Mr Qushair's evidence lacked credibility and that there was material supporting each of the contested findings. It is fair to say, however, that Mr White, who appeared for Mr Raffoul, did not advance detailed submissions countering the argument that the primary Judge had not given adequate reasons for making his factual findings.

Principles 52 The principles relating to the obligation of a trial judge to give adequate reasons for making findings of fact, including findings said to be demeanour based, were summarised by McColl JA (with whom Ipp JA and Bryson AJA agreed) in Pollard v RRR Corporation Pty Ltd [2009] NSWCA 110. Her Honour's statement of the principles was accompanied by detailed citation of authority. The following is a summary, with reference only to some of the leading authorities: (i) The giving of adequate reasons lies at the heart of the judicial process, since a failure to provide sufficient reasons can lead to a real sense of grievance because the losing party cannot understand why he or she lost (at [57]): see Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430, at 442, per Meagher JA.

(ii) While lengthy and elaborate reasons are not required, at a minimum the trial judge's reasons should be adequate for the exercise of a facility of appeal, where that facility is available (at [56]): see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, at 260, per Kirby P; at 269, per Mahoney JA.

(iii) The extent and content of the reasons will depend on the particular case and the issues under consideration, but it is essential to expose the reasoning on a point critical to the contest between the parties (at [58]): see Soulemezis v Dudley , at 259, per Kirby P; at 280, per McHugh JA. This may require the judge to refer to evidence which is critical to the proper determination of the issue in dispute (at [62]): Beale v GIO , at 443, per Meagher JA.

(iv) Where credit issues are involved, it is necessary to explain why one witness is preferred to another. Consequently, bald findings on credit, where substantial factual issues have to be addressed, may not comply with the common law duty to give reasons (at [65]): Palmer v Clarke (1989) 19 NSWLR 158, at 170, per Kirby P (with whom Samuels JA agreed).

(v) Where an appellate court concludes that the trial judge has failed to give adequate reasons, the court has a discretion whether or not to direct a new trial. If, despite the inadequate reasons, only one conclusion is available, a new trial may not be necessary (at [67]). 53 In support of the fourth proposition, McColl JA quoted with approval (at [63]) a passage from the judgment of Ipp JA (with whom Mason P and Tobias JA agreed) in Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; 66 NSWLR 186, at 191-192 [28]. In that passage and the following paragraph, Ipp JA said this: "28 It is not appropriate for a trial judge merely to set out the evidence adduced by one side, then the evidence adduced by another, and then assert that having seen and heard the witnesses he or she prefers or believes the evidence of the one and not the other. If that were to be the law, many cases could be resolved at the end of the evidence simply by the judge saying: 'I believe Mr X but not Mr Y and judgment follows accordingly'. That is not the way in which our legal system operates. … 29 Often important issues of credibility involve sub-issues. Often, objective facts, or facts that are probable, are capable to having significant bearing on the sub-issues. In cases of this kind, it is incumbent upon trial judges to resolve the sub-issues and to explain, by reference to the relevant facts, the conclusions to which they have come. This having been done, they should then turn to the ultimate facts in issue and explain how their decisions on the sub-issues have assisted them in forming a conclusion on the ultimate issue. It is only when adequate reasons of this kind are given that an unsuccessful party will be able to understand why the judge has believed his or her successful opponent". 54 There perhaps is some tension between Ipp JA's statement of principle and the observation of McHugh JA in Soulemezis v Dudley (at 280) that: "where the resolution of the case depends entirely on credibility, it is probably enough that the judge has said that he believed one witness in preference to another; it is not necessary 'for him to go further and say, for example, that the reason was based on demeanour'". (Emphasis in original.)

However, any tension may well be resolved if proper attention is given to the word " entirely " in this passage.

Making of the Representations 55 Logically, the first issue that arose in the present case, in relation to Mr Qushair's claim based on misleading and deceptive conduct in contravention of the FT Act, was whether Mr Raffoul made the representations attributed to him by Mr Qushair. Insofar as the ACC alleged that Mr Raffoul represented that Raffoul Aviation was "in good condition financially", there was no evidence that Mr Raffoul made any such representation. On Mr Qushair's own evidence, a representation to that effect was made by the accountant, but not by Mr Raffoul himself. It may therefore be put to one side. Nonetheless, Mr Qushair's evidence was that Mr Raffoul had made the other alleged representations, namely that Raffoul Aviation was making "a lot of profit", that the company had no debts or outstanding liabilities and that it had a "good future". 56 His Honour rejected Mr Qushair's evidence as "unbelievable" and took into account that he was "evasive in his answers" and that much of his evidence created the impression that it had been "fabricated to enable him to escape his obligation to repay the loan". Where the evidence of Mr Qushair and Mr Raffoul differed, his Honour preferred the evidence of Mr Raffoul. 57 It was fundamental to the primary Judge's analysis that Mr Raffoul denied ever making the representations attributed to him ([14] of the judgment, reproduced at [39] above). In fact, neither in his affidavits nor his oral evidence did Mr Raffoul deny making the representations. Indeed, his defence to cross-claim merely denied in general terms the allegations in the cross-claim and did not specifically deny that he made the pleaded representations. In his second affidavit, Mr Raffoul expressly denied that he had represented to Mr Qushair that any aeroplanes were included in the Share Transfer Agreement or that he had ever used pre-paid student fees for day-to-day costs of running the company, but made no mention of the pleaded representations. However, while Mr Raffoul's version of the conversations was in some respects at odds with the account given by Mr Qushair, Mr Raffoul did not expressly advert to the claim that he had told Mr Qushair that Raffoul Aviation was making a lot of profit and had a good future. 58 At the trial, Mr Raffoul's counsel challenged Mr Qushair's evidence on a number of points, in particular his claim that he did not know about the transfer of title to the aircraft until May 2006. However, it was never put to Mr Qushair that Mr Raffoul had not made the pleaded representations. Indeed, a reading of the transcript of the trial makes it difficult to avoid the impression that the omission was a deliberate forensic decision. This impression is created most strongly by the following passage in the cross-examination (Combined Appeal Book, 99): "Q. In your cross claim you say that Mr Raffoul made some representations to you? A. Yes. Q. Those representations were that the company was making a lot of profit? A. That's what he said. Q. And that the company was in good condition financially with no debts or loans? A. Yes. Q. And that there was a good future for the company? A. Yes. Q. Nothing in there about aeroplanes, is there? A. No, he showed me the aeroplanes, he showed me the simulator, he showed all the school inside, even the simulators not working to. Q. Nothing in the representations that you rely upon in your cross claim, is there any representation about aeroplanes, is there? A. He showed me the aeroplanes". 59 Despite expressly adverting in this passage to the pleaded representations, Mr Raffoul's counsel suggested to Mr Qushair only that Mr Raffoul had not made any representations concerning the aircraft and refrained from putting to Mr Qushair that his evidence about the pleaded representations was incorrect. The absence of any challenge to Mr Qushair on this point is likely to have reflected a decision to defend the claims made by Mr Qushair, not on the basis that the representations were never made, but on the ground that they were not misleading or deceptive. 60 I should add that Mr Qushair's counsel did not put expressly to Mr Raffoul that he had made the alleged representations. However, as Mr Coles pointed out, this may be explained on the basis that, in the absence of a denial from Mr Raffoul, there was no necessity to put the representations to him. 61 There are other difficulties with his Honour's finding that Mr Raffoul did not make the alleged representations. The finding rested on his Honour's preference for the evidence of Mr Raffoul over that of Mr Qushair and on Mr Qushair's inability to produce documentary records or other corroborative evidence to support his claim to have made repayments of part of the moneys due under the Loan Agreement. Yet faced with documentary evidence that Mr Qushair had transferred $5,300 from his bank account to that of Mr Raffoul, his Honour accepted Mr Qushair's evidence that the payment related to the Loan Agreement, in preference to Mr Raffoul's assertion that payment of the sum of $5,300 related to different transactions. 62 Nowhere does his Honour explain why, in the face of his characterisation of Mr Qushair's evidence in most respects as entirely unbelievable, he preferred Mr Qushair's account on this issue. Nor does his Honour explain why Mr Qushair's evidence was plausible on this issue, but not on others. The explanation cannot be that there was documentary evidence to support Mr Qushair's claim to have paid the sum of $5,300, since the issue was not the fact of the payments, but the purpose for which the payments were made. 63 In the circumstances I have outlined, it was not sufficient for his Honour to have based his finding that Mr Raffoul did not make the alleged representations on his impression of Mr Qushair's credibility. To meet the minimum standards required for adequate reasons, his Honour needed to explain why: he was not prepared to accept Mr Qushair's evidence on the issue when Mr Raffoul had not denied Mr Qushair's account and Mr Raffoul's counsel had not challenged Mr Qushair's evidence on that issue; and

he was prepared to characterise Mr Qushair's evidence as unbelievable, notwithstanding that his Honour preferred Mr Qushair's evidence over that of Mr Raffoul to the purpose of the payments totalling $5,300.

In the absence of an explanation of these matters, it is extremely difficult for an appellate court to assess the soundness of the critical finding of fact or for Mr Qushair, the unsuccessful litigant, to understand the reasons his account was rejected.

Misleading or Deceptive Conduct 64 As I have pointed out, his Honour considered whether the representations allegedly made by Mr Raffoul were misleading or deceptive before making findings as to what representations, if any, Mr Raffoul actually made. Perhaps for this reason, his Honour dealt with the question (at [13] of the judgment, [38] above) very briefly, although he returned to it in the context of considering the possible application of s 41 of the FT Act (at [22] of the judgment, [44] above). 65 When first dealing with the question of whether Mr Raffoul's conduct was misleading or deceptive, his Honour stated that the alleged representations were that the company was making "a profit and had good prospects". In fact, the pleaded allegation, supported by Mr Qushair's evidence, was to the effect that Raffoul Aviation was making "a lot of profit", had no debts or liabilities and had a "good future". 66 His Honour thought it significant that at the time of the transaction Mr Qushair had access to the financial records of Raffoul Aviation and the opportunity to make inquiries of the company's accountant. These matters were sufficient, in his Honour's view, to prevent the representations being misleading or deceptive. Later in the judgment he found (at [22]) that it was not misleading to say that the company "was making a profit or even lots of profit" since his Honour thought that the statement appeared to be true in February 2006. Nor was it misleading to say that the company's prospects were good, as a representation to that effect would also have been true. 67 The primary Judge did not say that he was addressing the question of misleading and deceptive conduct in order to take account of the possibility that he was wrong in finding that the alleged representations had not been made. However, this is presumably what his Honour intended. I shall therefore approach his reasoning on the basis that his conclusions on misleading or deceptive conduct were intended to be an alternative ground for dismissing Mr Qushair's cross-claim. 68 One difficulty in dealing with the misleading or deceptive character of representations found not in fact to have been made is that the hypothesis on which the court is proceeding may not be stated with the same precision as findings that representations were actually made. In this case, it is not entirely clear what representations his Honour assumed that Mr Raffoul had made to Mr Qushair, for the purpose of analysing whether the former's conduct was misleading or deceptive. At various points in the judgment he described the alleged representations in different language. Moreover, his Honour made no findings as to the circumstances in which the hypothetical representations had been conveyed to Mr Qushair. Nor did he make findings as to what Mr Qushair would have understood, or should reasonably be taken to have understood, the hypothetical representations to have conveyed concerning the profitability or prospects of Raffoul Aviation. 69 It is necessary, in determining whether conduct contravenes s 42 of the FT Act to identify the conduct and to make a finding as to whether that conduct is misleading or deceptive. McHugh J in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, at 625 [109], in a passage approved in relation to s 42 of the FT Act in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 257 ALR 610, at 639 [102], per Gummow, Hayne, Heydon and Kiefel JJ, observed that: "The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document". (Citations omitted.) 70 It is also necessary to bear in mind that, where misrepresentations are alleged to have been made to a particular individual, the nature of the conduct is analysed "quite apart from any class into which [the representee] fall[s]": Butcher v Lachlan Elder, at 604 [36], per Gleeson CJ, Hayne and Heydon JJ. The character of the conduct must be assessed by reference to what the representor and representee knew, or should be taken to have known, about each other as the result of their dealings or conversations: Butcher v Lachlan Elder, at 604-605 [37]; see also Campbell v Backoffice, at 620-621 [25]-[26], per French CJ. 71 In order to determine whether the representations hypothetically made by Mr Raffoul constituted misleading or deceptive conduct, it would be necessary to make findings as to what the representations would have conveyed to a reasonable person in Mr Qushair's position. Did the representation as to "a lot of profit" (assuming it to have been made) convey as at January 2006 that Raffoul Aviation had made a profit (and, if so, how much profit) during the financial year that had commenced on 1 July 2005? Or did it convey that Raffoul Aviation had been profitable for some shorter period? Did the concept of "profit" as conveyed by Mr Raffoul (on the assumed facts) mean a profit before or after allowing for the notional wages of the active directors? (As the author of the Valuation Report pointed out, Raffoul Aviation's financial statements made no allowance for such notional wages.) 72 Did the (assumed) representation that Raffoul Aviation had a good future constitute a representation as to a present fact or a representation "with respect to any future matter" within the meaning of s 41(1) of the FT Act? His Honour appeared to think it was the former, although he did not explain why. A statement that a business has a good future, unless qualified in some way, would seem to be a representation as to a future matter, namely that the company would be viable and earn profits that matched appropriate standards in the future. If the representation alleged by Mr Qushair was indeed with respect to a future matter, the issue would not be the truth of the representation as a matter of fact, but whether Mr Raffoul had reasonable grounds for making it: FT Act, s 41(1). 73 Once findings were made as to what the hypothetical representations conveyed to Mr Qushair, the next step would be to determine whether they constituted misleading or deceptive conduct. His Honour appears to have found that a representation made in January 2006 that Raffoul Aviation was making a lot of profit, would have been true because the accounts for the 2005-2006 year showed a profit. However, his Honour did not examine the financial statements in any detail. Nor did he take account of the analysis in the Valuation Report which made the cogent point that the financial accounts for the relevant period made no allowance for wages. (The fact that the Valuation Report was produced for the purpose of a proposed purchase of shares in Raffoul Aviation does not necessarily negate the validity of the Report's analysis of the company's accounts.) 74 The Profit and Loss Statement for the year ended 30 June 2005 showed a loss of $35,513.29. However, the Valuation Report suggested, by no means implausibly, that an amount of over $140,000 for wages should have been allowed in calculating true profit for the year ended 30 June 2006. If the valuer's analysis was applied to the Profit and Loss Statement for that year, an apparent profit of $37,746.41 would have been converted into a loss in the order of $100,000. Even an allowance for wages substantially less than $140,000 would have resulted in a loss for the year. 75 None of this is intended to demonstrate that the primary Judge necessarily should have found that the representation that Raffoul Aviation was making a lot of profit, if made, was misleading or deceptive. The point is that in order to give adequate reasons for his conclusion his Honour should have addressed more closely the evidence supporting that conclusion and explained why he did not consider it persuasive. 76 A further difficulty with his Honour's approach is that he appears to have found that, as Mr Qushair had failed to take the steps a reasonably prudent person in his position would have taken, he could not have been misled or deceived by any representations made by Mr Raffoul. It is not entirely clear from his Honour's reasoning whether he considered that Mr Qushair's failure to take reasonable precautions meant that Mr Raffoul's conduct could not be described as misleading or deceptive (or likely to mislead or deceive), or whether Mr Qushair's carelessness meant that he could not establish that he had suffered any loss or damage "by" Mr Raffoul's conduct, or perhaps both: cf FT Act, ss 68, 72(1). The approach taken in par [13] of the judgment (reproduced at [….] above) suggests that his Honour considered that Mr Qushair's failure to take reasonable precautions to ascertain the true position was fatal to his claim that Mr Raffoul had engaged in misleading or deceptive conduct. 77 The fact that Mr Qushair could have made inquiries in January 2006 that would or might have revealed the true position concerning Raffoul Aviation's profitability or its existing or future prospects could not, of itself, preclude a finding that Mr Qushair had engaged in misleading or deceptive conduct in contravention of s 42 of the FT Act. The question is what the representations conveyed to a reasonable person in the representee's position and whether the representation so conveyed was misleading or deceptive. 78 Similarly, the failure to make inquiries, of itself, would not prevent Mr Qushair establishing that he had suffered loss or damage by Mr Raffoul's conduct and that he was entitled to damages under s 68(1) of the FT Act. So much was decided, in the context of a claim for damages under s 82(1) of the Trade Practices Act 1974 (Cth) (equivalent to s 68(1) of the FT Act), by the High Court in I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109. It follows that if his Honour intended to hold that Mr Qushair was precluded from claiming damages under s 68(1) of the FT Act for loss or damage sustained by Mr Raffoul's misleading or deceptive conduct simply because he failed to take reasonable care to protect his own interests, the holding was in error. 79 I have approached his Honour's judgment on the basis that he intended to find, as an alternative ground for dismissing the ACC, that the alleged representations, had they been made, would not have been misleading or deceptive or likely to mislead or deceive. In my view, his Honour did not give adequate reasons to support such a finding.

Conclusion 80 I therefore conclude that the primary Judge failed to give adequate reasons to support his findings that the representations alleged in the ACC (other than the representation that Raffoul Aviation was in a good condition financially) were never made and that, if they were made, they did not constitute misleading and deceptive conduct in contravention of s 42 of the FT Act. These were the critical findings that led his Honour to dismiss Mr Qushair's cross-claims. 81 As I have noted, a failure to give adequate reasons for factual findings does not necessarily have the consequence that a new trial should be directed. A new trial on disputed factual issues is a regrettable result but it is sometimes necessary in the interests of justice. In my view, this is such a case. 82 The primary Judge's findings on the critical issues were not only unsupported by adequate reasons, but were also affected by errors. The finding that the pleaded representations had not been made was based on the misapprehension that Mr Raffoul had denied making the representations. The finding that if the representations had been made they did not constitute misleading or deceptive conduct appears to have been influenced by attributing significance to Mr Qushair's failure to make inquiries that were available to him. Moreover, this is not a case in which it can be said that a new trial will necessarily produce the same findings as the primary Judge reached. Mr White's analysis of the evidence demonstrates that there will be a number of factual issues to be resolved at a new trial and that Mr Qushair may face significant evidentiary difficulties in establishing all elements of his case. Nonetheless, he should have the opportunity to do so at a new trial.

OTHER GROUNDS OF APPEAL 83 In dealing with the adequacy of the primary Judge's reasons, I have identified important errors in his Honour's process of fact finding on the critical factual issues. I have also identified evidence, such as the valuer's analysis of the profitability of Raffoul Aviation, that appear not to have been given appropriate consideration. In view of the conclusion I have reached it is not necessary to consider these matters would independently justify setting aside any credit-based findings made by the primary Judge: cf Goodrich Aerospace Pty Ltd v Arsic, at [118], per Ipp JA. 84 Nor is it necessary to address Mr Qushair's complaints about the primary Judge's treatment of the unpleaded allegation that Mr Raffoul engaged in misleading and deceptive conduct by failing to disclose the transfer of title to the two aircraft. However, it should be noted that not only was the allegation unpleaded at trial, but no application was made on the appeal to amend the ACC to incorporate the allegation. This is not a mere technicality. Without pleadings, or even a precise statement in writing of the case made by Mr Qushair (including particulars of the circumstances which made the alleged omission misleading or deceptive) the nature of Mr Qushair's case is not clear. Is it alleged, for example, as his Honour appeared to think, that the omission was a deliberate attempt to deceive Mr Qushair? If the allegations are to be pursued at a retrial, proper pleadings will be essential. That, however, will be a matter for the District Court.

ORDERS 85 I propose the following orders: 1. Appeal allowed.

Orders made by the primary Judge on 21 November 2008 set aside.

Direct that the matter be remitted to the District court and that there be a new trial of the respondent's claim and the appellant's cross-claim.

The respondent pay the appellant's costs of the appeal.

The costs of the trial be reserved for determination by the District Court.

The respondent, if otherwise qualified, to have a certificate under the Suitors Fund Act 1951 (NSW).

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