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.