Trade practices - Misleading or deceptive conduct - Issue of shares in public company prior to listing - Representations by promoter as to timing of listing, total capital to be raised, shareholdings following listing, and ownership of mining tenements held by company - Whether representations misleading or deceptive conduct

Trade practices - Misleading or deceptive conduct - Damages - Acquisition of shares in reliance upon misrepresentations - Difficulties in proving real value of shares at date of acquisition - Causation of subsequent events which contributed to loss - Whether award of damages or alternatively, statutory relief, appropriate

Fair Trading Act 1987 (WA), s 9, s 10, s 77, s 79

Orders made under s 77

Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25

Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31

Grainger v Williams [2009] WASCA 60

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

Kenny and Good Pty Ltd v MGICA [1999] HCA 25; (1999) 199 CLR 413

Kisbeau Pty Ltd v WG and B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281

Marks v GIO [1998] HCA 69; (1998) 196 CLR 494

PE Kafka Pty Ltd v The Hermitage Motel Pty Ltd [2009] FCAFC 94

Rhone-Poulenc Agrochimie SA v UIN Chemical Services Pty Ltd (1986) 12 FCR 477

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; [1997] AC 254

1 BLAXELL J: Henry James Adams and Julian Fletcher Grill each claim damages for the alleged misleading or deceptive conduct of Ron Morellini. They say they suffered loss when, in reliance upon misrepresentations by Mr Morellini as to the circumstances surrounding the proposed public float of a mining company (Meridian Mining Ltd), they invested in Meridian's shares. They also claim that the shares that they acquired were worthless, and that the loss that each of them sustained was a direct result of Morellini's conduct.

2 Mr Morellini admits making some of the claimed representations but denies others. He also denies that any of the alleged representations amounted to misleading or deceptive conduct. He further denies that the plaintiffs relied on the representations when applying for the shares, or that they have suffered any loss.

3 Mr Morellini is 66 years of age and a former real estate agent of long standing. He is also an experienced company director with past involvement in the mining and resources sector in Western Australia.

4 In 2001 Morellini was interested in acquiring certain mining tenements prospective for gold, then held by a company called IPT Systems Ltd, later known as Synergy Equities Group Ltd (Synergy). The tenements were mining leases 70/815 and 70/8116 (together known as the 'Tampia tenements') and mining lease 15/621 (known as the 'Geko tenement'). Mr Morellini attempted to acquire the tenements by way of negotiations with Synergy, but was unsuccessful in these endeavours.

5 When the negotiations failed, Mr Morellini commenced proceedings in the Warden's Court seeking forfeiture of the tenements for non-compliance with the expenditure conditions imposed by the Mining Act 1978. His primary objective was to secure a settlement with Synergy so that the tenements could be transferred to a public company which he intended to incorporate for that purpose. On 26 September 2001, Mr Morellini issued plaints in respect of the Tampia tenements. Before doing so he sought advice from Mr George Lee, who was an experienced tenement administrator and a former mining registrar. Mr Lee expressed interest in becoming involved in the plaints against Synergy, and the two men agreed that they would share the costs and benefits of the proceedings. To this end, Mr Morellini executed a declaration of trust dated 26 September 2001 confirming that any interest he acquired in the Tampia tenements would be shared equally with Mr Lee (tb 20).

6 On 24 October 2001 Mr Morellini issued a plaint against Synergy seeking forfeiture of the Geko tenement. Before doing so he came to a similar agreement with Mr Lee for the two men to share the costs and benefits of those proceedings.

7 On 17 January 2002, Mr Morellini gave evidence on oath at a hearing of his plaints in the Warden's Court. He was cross-examined as to whether he was 'plainting this company on behalf of someone else' and on behalf of Mr Lee in particular. Mr Morellini vigorously denied any involvement with Mr Lee and testified to the effect that the plaints were being pursued 'solely and absolutely and entirely on my behalf'. During cross-examination in the present proceedings, Mr Morellini has acknowledged that he gave that evidence in the Warden's Court knowing it to be false (ts 342 - 345).

8 In September 2002, Mr Lee introduced Mr Morellini to Mr Gregory Howlett, who also expressed interest in the Tampia and Geko tenements. Following discussions, Mr Howlett agreed that he would pay all future costs of the existing plaints. The three men also agreed that they would equally share any benefits derived from the prosecution of those plaints. On 27 September 2002 these arrangements were formalised by two written agreements (tb 21 and 1215) under which Morellini was to hold any tenement he acquired from Synergy on trust for Lee, Howlett and Prime Holdings Pty Ltd (a company controlled by Morellini) in equal shares.

9 On 8 September 2004, Mr Morellini incorporated Meridian Mining Ltd with the intent that that company would ultimately hold the Tampia and Geko tenements. Mr Morellini was a director and the sole shareholder of Meridian. The other directors were his long-time friend Clannan Richard Marr, and his partner Carol Ann McLoughlin.

10 At that time, the Mr Morellini's plaints were still to be finally determined, but he was negotiating with Synergy with a view to settlement. Morellini told Lee and Howlett that he was negotiating a settlement with Synergy but did not inform them that he had incorporated Meridian.

11 On about 18 January 2005 Mr Morellini received a letter from Mr Lee proposing terms for an unnamed, unlisted public company to acquire the Tampia and Geko tenements in the event of a settlement with Synergy (ts 1198). Morellini was unhappy with this proposal and by letter dated 21 January 2005 to Howlett and Lee outlined a counter proposal on more favourable terms (ts 41). That letter stated that Morellini had an offer from an unlisted public company 'that intends to list within 180 days from today's date'. The broad terms of the offer were that the 'vendors' (ie the three men plus Synergy) would receive the following:

- $150,000 cash within 30 days of acceptance of the offer.

- Four million shares and four million options in the initial public offering (IPO) to be issued at the time of final settlement (ie 180 days from acceptance of the offer).

12 Morellini's letter also stated that the offer was for 100% of the properties, and that the amounts payable were to be divided between Synergy and the 'plaintiff on a basis that is acceptable to both parties'. The letter of 21 January 2005 further stated that:

Ron Morellini is associated with the unlisted public company and in consideration of him providing a financial guarantee to the defendant he may receive a benefit from the company.

13 The 'unlisted public company' referred to in the letter was Meridian. Although Lee and Howlett asked Morellini to identify the company (tb 1217 and 1220), he did not tell them because he did not want them to have that information at that time (ts 354).

14 The terms of Morellini's letter of 21 January 2005 were accepted by Lee and Howlett at a meeting between the three men on the same day. At that meeting they also agreed to vary the previous arrangements for sharing the proceeds of any settlement with Synergy. It was orally agreed that the moneys, shares and options (referred to in the letter of 21 January) would be shared with Synergy on a basis to be negotiated on their behalf by Morellini. The balance then remaining would be distributed on the basis that Morellini would receive 40%, and Lee and Howlett would each receive 30%. Any shares and options in the public company that issued to Morellini would be held on trust in accordance with that distribution.

15 The Warden's Court proceedings were ultimately resolved by a deed of settlement dated 12 April 2005 between Morellini, Meridian and Synergy (tb 52). By that deed, Synergy agreed to transfer the Geko and Tampia tenements to Morellini who would then transfer them to Meridian. In return, Synergy was to receive $250,000 in cash from Morellini ($150,000 of which was payable upon execution of the deed), as well as the issue of 'fully paid ordinary shares to the value of $250,000' and the same number of options in Meridian upon listing on the Australian Stock Exchange (ASX).

16 Prior to executing the deed of settlement, Morellini and Meridian entered into a deed of trust dated 11 April 2005 (tb 48). In this earlier deed, Morellini declared that he would hold the Tampia and Geko tenements on trust for Meridian. The deed also acknowledged that Meridian would pay the $250,000 cash due to Synergy under the settlement. Morellini did not inform Synergy that these payments were being funded by Meridian and not himself (ts 374).

17 After allowing for the $250,000 payable to Synergy, a balance of $300,000 was due to Morellini, Lee and Howlett (in the proportions of 40%, 30% and 30% respectively) under their oral and written agreement of 21 January 2005. The 'fully paid ordinary shares to the value of $250,000' and the similar number of options to be issued to Synergy were obviously a minor proportion of the four million shares and four million options referred to in the letter of 21 January 2005. However, the precise balance to be distributed to the three men would depend upon the ultimate issue price of the shares in the IPO.

18 The Tampia and Geko tenements were transferred from Synergy to Morellini on 23 December 2005. He transferred the Tampia tenements to Meridian on the same day, but delayed the transfer of the Geko tenement until 29 June 2006. Once Morellini had secured the tenements for Meridian, he set about finding some 'strategic investors' who would be willing to invest a total of at least $2 million seed capital ahead of the IPO in return for the issue of shares on favourable terms. It was in this context that he approached Adams and Grill.

19 Morellini and Adams first met in July 2005 when they were introduced by their mutual acquaintance, Chad Everett (who was later to become a director of Meridian). Adams was a recently retired mining executive and former geologist who had substantial funds to invest. When Morellini explained his plans for Meridian, Adams was very interested in investing and also having a more hands-on role with the company.

20 Soon afterwards Adams introduced Morellini to a geologist, Stephen Denn, and suggested that Mr Denn be considered for a future position with Meridian. Morellini then agreed that Denn would carry out geological work for the purposes of the IPO, in return for future employment and appointment to the board of Meridian, as well as the opportunity to acquire shares on preferential terms.

21 During late 2005, Adams assisted Morellini, Marr, Everett and Denn to progress the proposed listing of Meridian on the ASX. He provided this assistance voluntarily in anticipation of becoming a strategic investor in, and possibly a director of Meridian.

22 Throughout this period, it was Adams' habit to record all discussions held at the relevant meetings in emails which he sent to the other parties involved. It was agreed that these emails would not be sent directly to Morellini because he was not well versed in electronic communication. The emails to Morellini were instead sent to Mr Marr with whom he usually met each day (ts 384). It is relevant to note that there was rarely a written or electronic response from Morellini to any of these emails. It is against this background that there are issues as to the particular matters discussed between Morellini and Adams at various times.

23 On 29 September 2005, Morellini, Adams, Everett and Denn met to discuss Meridian. They agreed on a draft IPO schedule under which Meridian would be listed on the ASX by 3 March 2006. It was also agreed that Adams would take on the roles of circulating the schedule, and making contact with a possible commercial legal counsel for Meridian.

24 During October 2005, Morellini prepared a 'confidential discussion document' (tb 155) which was circulated to Adams, Marr, Everett and Denn. This document referred to a 2% royalty on the sale price of gold and other minerals. It is Adams' evidence that he queried this royalty with Morellini, and was told that it was a 'possible historic royalty' payable to a former owner of the Geko and Tampia tenements. According to Morellini, he did inform Adams of a possible historic royalty, but also said that the 2% royalty in the confidential discussion document was one that would be payable to himself.

25 It is not in issue that Adams later requested more detailed information on the royalty for the purposes of an information memorandum that he was drafting. It is Adams' evidence that Morellini at first said that 'he was unable to recall the details of the royalty', but later stated that the royalty was in fact only 1%. Adams amended the draft information memorandum accordingly.

26 Morellini's evidence is that when queried about the royalty details, he told Adams that he 'hadn't finally decided about the royalty and would deal with it later'. At a later stage he told Adams to reduce the royalty to 1%. It is common ground that Morellini ultimately told Adams that no royalty was payable at all. The draft information memorandum was then further amended to reflect this fact.

27 During October 2005, Morellini prepared another confidential discussion document (tb 160) setting out the proposed capital structure of Meridian. This document proposed the raising of $3,802,200 capital by the issue of 35 million shares, of which 19,250,000 were to be issued to 'promoters and vendors', 10,750,000 were to be 'pre-IPO' issued at 20 cents to 'a select group of 15 shareholders', and the balance of five million shares were to be 'broker IPO' issued at 30 cents. Accordingly, Morellini was indicating by this document that the '15 select investors' would not include himself (ts 388).

28 Not long afterwards there was a falling out between Adams and Morellini. According to Adams, Morellini refused to provide him with necessary details for the information memorandum he was still drafting. According to Morellini, he had decided not to proceed with the information memorandum. On 22 November 2005, Adams sent an email to Morellini in the following terms:

[W]ith the passage of time I am becoming increasingly more uncomfortable & frustrated with the lack of written disclosure by the company & its existing directors as to the company's corporate structure, both current & proposed, its financial position & the associated underlying strategic planning.

I am not familiar with, or able to work within, an environment where numerous verbal discussions take place, but where very little is committed to in writing. It is my belief that a company cannot effectively operate under such circumstances. (tb 174)

29 The email went on to request particular items of information concerning the financial position and proposed share structure of Meridian. At a meeting soon afterwards, Adams said to Morellini that he no longer wished to assist in progressing Meridian to listing on the ASX. Morellini responded that he also no longer wished to work with him. Adams informed Everett and Denn of this situation by email the following day (tb 293).

30 Although Adams then ceased to have any active involvement with Meridian, he continued to take an interest in its affairs, and Denn and Everett occasionally informed him of the progress towards listing.

31 Sometime prior to June 2006, Adams spoke to Morellini once again and was told that Denn and Everett were to become independent directors of Meridian. The prospect of this change in the board, combined with Adams' belief that Meridian's tenements were good assets revived his interest in becoming a shareholder. Accordingly, Morellini invited Adams to a Meridian investor presentation on 3 June 2006.

32 At that presentation, Morellini outlined a new proposal for the raising of $7,400,000 capital by the issue of 48 million shares of which 24 million were to be issued to 'promoter seed and vendors' at one cent, 16 million to 'strategic investors pre-IPO at 30 cents', and eight million to 'public IPO at 30 cents'. (Prior to listing, promoters and strategic investors were also to receive one free option for every four shares held (tb 452)). It is Adams' evidence that Morellini also made statements to the effect that:

- Morellini and his related interests would own no more than 15% of the issued capital of Meridian upon listing on the ASX.

- The Tampia and Geko tenements were wholly owned by Meridian and were unencumbered.

- Meridian would be listed on the ASX by August 2006.

It is Morellini's evidence that he cannot recall talking about the percentage of shares in Meridian that he and associated entities would hold following listing. If he did mention August 2006 as the date for listing, then that would have been in the context of it being only a target date.

33 On 13 July 2006 there was an approximate two hour meeting between Adams and Morellini. By email the same day, Adams set out what he described as 'personal undertakings' that Morellini had given including that the listing of Meridian would occur by September 2006 or October 2006 at the latest (tb 519). The email went on to state that on this basis, Adams had completed and submitted applications for shares in Meridian accompanied by cheques totalling $512,000. The email recorded their understanding that, with the exception of one bank cheque, Morellini would provide Adams with seven to 10 days' notice before processing any of the cheques.

34 By late August 2006 it was clear that the listing of Meridian would be delayed. In emails dated 27 and 31 August 2006, Adams expressed increasing concern about this situation, and he ultimately met with Morellini on 22 September 2006. When told by Morellini that the listing would not occur until March 2007, Adams requested the return of his undeposited cheques totalling $460,000. Morellini then agreed to return a cheque for $310,000 but said that he could not return another cheque for $150,000 because it had been deposited into Meridian's bank account.

35 In an email dated 23 September 2006, Adams detailed the matters discussed with Morellini the previous day. The email stated that Adams 'would review these matters' and meet again with Morellini in approximately two weeks' time.

36 Adams and Morellini next met on 10 October 2006, and as per his usual habit, the former recorded the matters discussed in an email (to Morellini and Marr) the following day (tb 557). The email referred to statements by Morellini to the effect that 'all major matters relating to the pending ASX float of Meridian ... are now being progressed in parallel' and that the 'listing would definitely occur no longer than March 2007 and possibly earlier'. The email further stated:

I confirm, subject to Ron's verbal commitment to me at our meeting of the 10th October that I will continue with my investment in Meridian. As you are both aware of from our discussions & correspondence I have become increasingly disenchanted with Meridian as a personal investment choice primarily because of 1) repeated time delays in a) developing the company with an associated lack of commitment to the execution of a published business plan, b) its ASX float & public listing, & 2) the premature & unauthorised drawdown of $150,000 from my superannuation fund by Meridian.

In essence this verbal commitment from Ron was that before the end of the first week in November, all of the above matters would be resolved & included within a written business plan that Ron & Meridian would commit to warrant in writing.

...

We still have not resolved the matter of the premature & unauthorised drawdown of $150,000 from my superannuation fund by Meridian,, but I believe that we can resolve this within the same timing & I look forward to receiving your proposal to this effect. (tb 557 - 558)

37 Adams never received the 'written business plan' referred to in his email, and he met again with Morellini on 10 November 2006. At that meeting, Morellini gave Adams a cheque for $150,000 in repayment of the unauthorised deposit into Meridian's bank account. He also provided Adams with details of a revised corporate shareholding structure (tb 601). Under this new proposal, the total capital to be raised was reduced to $4,600,000. This was to be achieved by the issue of 40 million shares, of which four million shares had already been issued to Morellini for no consideration, 20 million shares were to be issued to 'promoter, seed and vendors' at one cent, eight million were to be issued to strategic investors 'pre-IPO at 25 cents', and eight million shares were to be 'public IPO at 30 cents'.

38 At the meeting on 10 November 2006, Morellini also said that he was still committed to a listing by March 2007 at the very latest. Morellini further advised that Meridian's board of directors would be reshuffled in December 2006 so that there would be five directors comprising Morellini, Denn, Everett, Ashok Parekh and one other, and that Denn would become a fulltime executive director. Adams felt reassured by these developments, and it was a 'big relief that after all this time that it was going forward and there would be people in control of Meridian that would run the company properly' (ts 185). Adams then offered his own services as a director of Meridian if Morellini saw fit (see email 14 November 2006 - tb 603).

39 It is Adams' evidence that in 'about November 2006' Morellini told him that Meridian 'would own a wholly owned subsidiary for uranium, for the exploration of uranium'. Adams told Morellini that he 'didn't believe that that was a good idea' because it was extremely speculative, was 'a distraction', and that when 'we had good tenements with good exploration work on them; we should focus on gold'. Morellini indicated that he nevertheless 'intended to go through with it' (ts 126 - 127).

40 Morellini and Adams next met on 10 January 2007. Morellini brought with him substantially completed application forms (backdated to 26 December 2006) for Adams to sign. The applications were for shares in Meridian, being two million shares at 25 cents and 500,000 shares at 1 cent each. Morellini also gave Adams a written 'Meridian IPO timeline' which provided for a listing by 30 April 2007.

41 Adams signed the application forms but said that his agreement to subscribe for shares was conditional upon him having a meeting with Morellini and the new directors. Accordingly, on 16 January 2007, Morellini emailed Adams, Parekh and Denn giving notice of an informal meeting on 17 January 2007. Attached to the email was a revised 'Meridian IPO timeline' as well as a 'financial overview' of Meridian (tb 648).

42 It is important to note that a first draft of the 'financial overview' sent by Morellini to Denn on 12 January 2007 (tb 648) contained the following paragraph:

Meridian has no further liabilities in respect of the mining tenement acquisitions. Meridian is the holder of 100% of all tenements and applications save for the Maher mining agreement.

43 The second version of that document as circulated by Morellini on 16 January 2007 had the following substituted paragraph:

Meridian has no further liabilities in respect of the mining tenement acquisitions save for the 2% royalty on existing granted Geko and Tampia tenements only. Meridian is the holder of 100% of all tenements and applications save for the Maher mining agreement.

44 It is Adams' evidence that after Morellini had told him in 2005 that there was no royalty on the tenements, there was never any further discussion on that topic. It is also his evidence that he did not notice the reference to a 2% royalty in the 'financial overview' circulated on 16 January 2007. It is common ground that there was no discussion about any 2% royalty at the meeting on 17 January 2007. (Although it is Morellini's evidence that he read out the 'financial overview' verbatim and thus referred to it in the above quoted paragraph).

45 It is also important to note that the 'financial overview' circulated on 16 January 2007 stated that Meridian was yet to satisfy a payment of $300,000 'to complete purchase of tenements and geological data'. The first draft of the document (tb 648) had stated that this item also included 'minimum expenditure on tenements of $325,000 for current year'. Not withstanding these assertions, I understand Morellini to have conceded during cross-examination, that the item was in fact the balance of $300,000 due to Lee, Howlett and himself under their agreement dated 21 January 2005 (ts 467 - 472).

46 It is also relevant to note that although the 'financial overview' stated that the payment of $300,000 was 'yet to be satisfied', it already had been paid. In this regard, Morellini had previously rendered five invoices totalling $71,159, and Prime two invoices totalling $228,841.51. Meridian had paid these invoices (totalling $300,000.51) by crediting the loan accounts of Morellini and Prime, at various times between 10 July 2006 and 11 January 2007 (tb 897 and ts 463 - 465). Although Lee and Howlett were entitled to 60% of these payments, at all material times they remained unpaid (ts 460).

47 There is conflicting evidence from Morellini, Adams and Denn as to the discussions that took place at the meeting on 17 January 2007. In the end, the essential issues are whether (as contended by Adams) Morellini made statements to the effect that:

- Meridian's interests in the tenements were unencumbered save for an agreement with Maher Mining.

- Meridian would list on the ASX by 30 April 2007 and possibly up to three weeks earlier than that.

- All documents necessary to effect the listing including the prospectus, were very near to completion.

- The payment of $300,000 that Meridian was 'yet to satisfy' related to current minimum expenditure requirements on granted tenements, application costs for new tenements, and geological data.

48 Although Adams has testified that 'at all stages' Morellini said that he and his related interests would have no more than 15% of the issued share capital upon Meridian's listing on the ASX, he cannot recall any specific discussion about this after June 2006 (ts 138). However, it is Morellini's evidence that at the meeting on 17 January 2007:

1. I can recall Mr Adams asking me what percentage of Meridian the Syndicate and I would hold. I can't recall whether he said he was talking about after the IPO or not. He certainly didn't use the words 'related parties' - he just asked about me and the Syndicate. As stated above, his reference to 'syndicate' was the term that I used to refer to myself, Mr Lee and Mr Howlett. Mr Adams had been informed by me in previous discussions that the Syndicate was entitled to be issued with shares in Meridian in relation to the acquisition of the Tampia and Geko tenements.
2. To the best of my recollection, I did say something like 'around 15%'. That figure of 15% was based on the 2.2 million shares that were to be issued to the Syndicate, plus the additional 50,000 shares that the Syndicate was going to take at 25 cents, plus the 3 million I already held, plus the 810,000 that I intended would be issued to me at the same time as the company issued shares to all seed capitalists. This was a total of 6.51 million shares post-IPO, which is a little over 15% (exhibit 18).

49 It is also Denn's evidence that Morellini said at several investor presentations that he and his associates would hold no more than 15% of the issued capital of Meridian (exhibit 11, par 10).

50 Following the discussions on 17 January 2007, Adams decided to proceed with his applications for shares in Meridian. On 23 January he made direct deposits into Meridian's bank account totalling $505,000 for the shares the subject of his applications signed on 10 January. The shares that Adams applied for were issued to him on 8 February 2007.

51 Morellini and Grill first met on 11 April 2005 when they were introduced to each other by Chad Everett. Everett had told Morellini that Grill would be very interested in the work being done in respect of the Tampia and Geko tenements, and that he was a potential seed capital investor.

52 It is common ground that the matters discussed at that first meeting included Meridian's imminent acquisition of the Tampia and Geko tenements under the settlement with Synergy; the proposed listing and ultimate share structure of Meridian; and Morellini's need for a further $50,000 to meet the settlement sum of $150,000 due to Synergy the following day. Morellini invited Grill to provide this $50,000 in return for 500,000 shares and options in Meridian (which shares were to be held in escrow for up to five years).

53 There is nevertheless a conflict between the two men as to some of the matters discussed. In this regard, the essential question is whether Grill is correct his assertion that Morellini made statements to the following effect:

- After the settlement with Synergy, Meridian would wholly own the tenements on an unencumbered basis.

- Following the listing, Morellini and his associates who had funded Meridian and the plaints, would hold a total of 3,850,000 shares in the company.

54 Grill regarded the escrow requirement as a 'significant disincentive' and told Morellini that it was important to him that he be able to deal in Meridian's shares shortly after acquiring them.

55 Although Mr Grill was unwilling to acquire shares in Meridian at that time, he continued to take an interest in the company. During the period up until late 2006 he had several telephone conversations and meetings with Morellini. From time to time Morellini also provided Grill with various materials including a presentation style document entitled 'Meridian Mining Ltd' (tb 420), a confidential memorandum on the proposed share structure (which would raise $4,660,300 capital by the issue of 38 million shares, including a 'pre-IPO issue to a select group of 16 shareholders' - tb 277), and a detailed 'information memorandum' (tb 280).

56 Morellini gave this last document to Grill on 1 December 2005 and it confirmed that 'Meridian Mining owns 100% of two advanced gold projects, "Tampia" and "Geko" ...' Mr Grill later received two revised versions of the 'information memorandum' (dated December 2005 and March 2006 respectively) which reiterated that Meridian had 100% ownership of 'Tampia' and 'Geko'.

57 At a meeting on 22 April 2006, Morellini gave Grill another confidential memorandum setting out a revised proposed capital structure for Meridian (tb 414). Under this new proposal, 48 million shares were to be issued to raise $7,400,00 in capital, including $4,800,000 from the issue of 16 million shares to strategic investors.

58 On 20 November 2006, Morellini gave Grill a further revision of the proposed share structure (tb 614). This provided for $4,600,000 capital to be raised by the issue of 40 million shares, of which only $2 million would be from the issue of 'pre-IPO' shares to strategic investors.

59 On 16 January 2007, there was a chance meeting between Morellini and Grill at a cafe in Subiaco. Morellini said words to the effect (either) that Meridian would list on the ASX 'imminently', or that the listing was 'now very close'. It is Grill's evidence that Morellini also said that 'the only matter holding up listing was the obtaining of sufficient seed capital', that 'he had nearly enough subscribers', and that Meridian was 'otherwise ready to be listed'. According to Morellini, he said to Grill that he 'just had to finalise the seed capital [and] tidy up the loan accounts'.

60 It is also Grill's evidence that 'at sometime prior to late January 2007' (he cannot recall precisely when), Morellini told him that 'on listing, he and his associates would hold no more than about 15% of Meridian's issued capital'.

61 On 22 January 2007, Grill received a facsimile from Morellini being a further copy of the revised proposed capital structure of Meridian following listing (tb 690). It is Grill's evidence that at that time he had not decided whether to acquire shares in Meridian.

62 On 23 January 2007, Morellini and Grill met at the latter's home. It is common ground that they discussed whether or not Grill would invest approximately $100,000 in Meridian. By the end of the meeting, Grill had decided to proceed with the investment. He completed application forms for 100,000 one cent shares and 400,000 25 cent shares, and also gave Morellini a cheque for $101,000.

63 There is a conflict between Morellini and Grill as to exactly what Morellini said in the course of their discussions on 23 January 2007. In that regard, the essential question is whether or not Morellini said words to the effect that:

- If Grill invested $100,000 that would complete the $2 million capital raising. (According to Morellini, he said that with a further $101,000 Meridian would have commitments for 'almost all' of the required $2 million).

- That the various consultants' reports were 'near completion' and would not delay the listing of Meridian on the ASX 'within a matter of weeks'.

- (In response to Grill's concern whether $2 million capital was enough) that $2 million would be sufficient to pay all listing costs and leave sufficient cash reserves to fund Meridian's future operations for a substantial period of time.

- That Meridian would have two subsidiary companies, one of which would be involved in the uranium industry.

64 The shares that Grill applied for were issued by Meridian on 8 February 2007.

65 On 15 March 2006, Morellini and Kalgoorlie Boulder Mining Pty Ltd (KBM) executed a declaration of trust (tb 342) in favour of Morellini as trustee of the Morellini Development Trust (MDT). The document recited that MDT had negotiated the grant of a mining tenement royalty, which was the subject of a deed between Meridian and KBM dated 17 March 2006. KBM declared that it held that royalty on trust for MDT.

66 By the royalty deed dated 17 March 2006, Meridian agreed to pay KBM a royalty of 2% on the gross sale price of all minerals mined from the Geko and Tampia tenements (tb 351). Although the directors of Meridian resolved on the same date to execute the deed (tb 349) it was essentially Morellini's decision that this should occur (ts 359). Furthermore, it was Morellini's intention in arranging the declaration of trust to hide his personal interest in the royalty (ts 397). According to Morellini, the benefit to Meridian in conferring the royalty was:

My involvement in the finding of the original tenements the subject of this royalty, my dealing with all of the matters in relation to those tenements, and my continuing involvement in the company. (ts 400)

67 After 17 March 2006, Morellini did not disclose the existence of the royalty in any of the documents provided to potential investors up until the 'financial overview' of 16 January 2007 (tb 656). This was so even though he knew that 'investors would want to know that he was an ultimate beneficiary of the royalty' (ts 403). He did not tell Adams because 'the question was not asked' (ts 404).

68 Although not directly put to Morellini, it would seem that the arrangements made in respect of the royalty took no account of any entitlement that Lee and Howlett might have had to a share of the same. In this regard, the royalty was obviously a benefit that Morellini obtained as a result of acquiring the tenements the subject of the settlement with Synergy.

69 During 2006, Meridian acquired an interest in additional tenements known as the 'Mount Dimer gold project'. It is common ground that these tenements were not as valuable as the Tampia and Geko prospects.

70 On about 1 December 2006, a geologist preparing Meridian's independent geological report, told Morellini that there were 'uranium anomalies' (indicative of uranium deposits) in an area partially within and partially outside the northern boundary of one of the Tampia tenements. Morellini considered that these uranium anomalies were irrelevant to the IPO because the shares in Meridian would be offered on the basis that it was a gold explorer. He also believed that any reference to the uranium in the independent geological report it would slow the process of listing. When he told the other directors of Meridian (Marr and McLoughlin) of the situation, they agreed that the company should not apply for any exploration licences for uranium.

71 On 5 December 2006, Morellini incorporated National Uranium Ltd with himself as the sole shareholder. He appointed Marr, Denn and himself as directors. On 6 December 2006, National Uranium filed applications for two exploration licences abutting Meridian's northern Tampia tenements. These applications were funded by a payment of $10,092 from Meridian which was debited to a loan account in the name of National Uranium (ts 427 - 430). At that time, Meridian had received applications from investors for a total of 1,050,000 25 cent shares accompanied by $262,500 in application moneys which had been deposited in Meridian's bank account.

72 As already noted, the details of the proposed share structure and capital fundraising by Meridian varied significantly from time to time. Between April and June 2006, the proposal that Morellini was putting to potential investors (including Adams and Grill) involved the issue of 48 million shares raising a total of $7,400,000 capital (tb 414, 467). By January 2007, the proposed capital structure had changed to the issue of 40 million shares raising a total of $4,600,000 (tb 666). The differences in these proposals were largely attributable to a drop in the funds that Morellini proposed to raise from 'strategic investors'.

73 Up until 8 February 2007, Morellini was the sole shareholder of Meridian. On 8 February, Meridian issued eight million shares at 25 cents and 21 million shares at one cent. The 25 cent shares issued included the following:

- One million shares to Synergy (for no cash consideration).

- 240,000 shares to Morellini's children (paid for by himself - ts 474 - 475).

- 72,000 shares to McLoughlin's son (paid for by Prime - ts 476).

The one cent shares that were issued included the following:

- 3,800,000 shares to the trustee of Morellini's superannuation fund (ts 475).

74 The one million 25 cent shares issued to Synergy had a value of $250,000 (consistent with the deed of settlement of 12 April 2005), but issued prematurely in that cl 12 of the deed provided for their issue 'upon listing'. The deed had also provided that the shares would be listed within 12 months (ie by 12 April 2006). Although there is no direct evidence from Morellini on the point, I assume that pre-IPO shares were issued to Synergy because of the delay in listing.

75 Accordingly, under the agreement Morellini had made with Lee and Howlett on 21 January 2005, a balance of three million shares were required to be issued to them in the proportions of 40%, 30%, and 30% respectively. As Lee and Howlett were not issued with any shares on 8 February 2007, this meant that they were beneficially entitled to a total of 1,800,000 of the shares then held by Morellini and/or Prime. Arguably they were also entitled to similar proportions (or alternatively one third shares) of the remaining 'promoter seed and vendor' shares held by Morellini and Prime (to the extent that these were benefits arising from the acquisition of the Tampia and Geko tenements).

76 Morellini admits in par 33 of his defence, that as from 8 February 2007 he either held or was beneficially entitled to a total of 11,690,000 of the shares that had then issued. This amounted to 29.2% of the total of 40 million shares to be ultimately issued, and did not take account of other shares that had issued to 'related parties'.

77 The issue of the 21 million shares at one cent and the eight million 'pre-IPO' shares at 25 cents raised only $1,543,800 in cash out of the $2,210,000 capital raising. The reasons for this were that:

- 10,120,000 of the one cent shares were paid for by debiting the loan accounts of Morellini, Prime and Marr with Meridian;

- the shares valued at $250,000 that issued to Synergy for no consideration were 25 cent shares;

- 240,000 of Morellini's 25 cent shares were paid for by debiting $60,000 from his loan account with Meridian;

- 572,000 of the 25 cent shares issued to Prime were paid for by debiting $143,000 from its loan account;

- 250,000 shares issued to CRM Holdings Pty Ltd (a company associated with Marr) were paid for by debiting $62,500 from its loan account with Meridian.

78 Between 29 January and 21 March 2007, some of the share capital raised was used to make payments to Morellini and Prime in reduction of their respective loan accounts. A total of $115,759 was paid to Morellini, and $284,567 to Prime (an overall total of $400,326).

79 At a meeting of Meridian's shareholders on 8 February 2007, Denn was elected managing director, and Everett and Parekh were elected as non-executive directors. The retirement of Morellini as company secretary was accepted and a professional secretary (Bruce Waddell) was appointed in his stead. The resignations of McLoughlin and Marr as directors took effect on 22 March 2007.

80 Meetings of the new board of directors took place on 22 March, 18 April, 2 May, and 9 May 2007. At the first and second of those meetings, appropriate steps were taken to expedite the listing of Meridian on the ASX. Even so, Waddell informed the directors to the effect that the target date would have to be 1 June. The timing of the IPO then got even further behind schedule (tb 875) and in a letter to shareholders on 8 May 2007 (tb 1213) Morellini advised that 'circumstances beyond my control have delayed the completion of the prospectus'.

81 At the directors' meetings in May 2007 there were 'animated discussions' amongst the directors about particular issues including:

- The reasons why Prime had been paid $97,113 for legal costs and $147,000 for consulting costs (as well as Morellini's failure to provide Meridian's auditors with adequate documentation in support of those payments).

- The circumstances surrounding the applications by National Uranium for uranium tenements, and the potential for a conflict of interest.

- Clarification of where the capital raised by Meridian had been spent (as at 2 May 2007, Meridian had only $762,000 in cash).

- The existence of the 2% royalty (of which Parekh, Denn and Everett said they were previously unaware).

- Morellini's failure to provide information to, and answer the queries of, his fellow directors.

82 These issues were never satisfactorily resolved amongst the directors. A directors meeting called by Denn for 14 May was adjourned until 15 May at Morellini's request. On 15 May, Morellini sent a circular letter to shareholders convening a shareholders' meeting on 18 June 2007. The agenda for that meeting was to consider, and if thought fit, to pass resolutions removing Denn, Parekh and Everett as directors of Meridian (tb 911).

83 It is relevant to note that Adams and Grill were each unaware of these developments at the time that they occurred. Adams was out of Australia visiting his sick mother in the United Kingdom for approximately a month (up until 25 May 2007) and was not informed of the breakdown in relationships on the board until after he returned. He was then 'inundated with lots of allegations' and was 'just totally astounded and extremely distressed' at what had occurred (ts 165). Grill also was away overseas for a period up until 15 May 2007, and prior to his return 'did not have any hint' of a dispute on the board (ts 254).

84 At the general meeting on 18 June 2007, a resolution to adjourn the meeting was put to a show of hands with five votes for and five votes against. Morellini then called for a poll and the motion was lost with Morellini using the votes he controlled to defeat it (ts 495 - 500). The meeting then proceeded to consider the resolutions the subject of the notice of meeting. (However, a vote on the resolution concerning Parekh was not required as he had tendered his resignation earlier that day). Morellini then used the votes he controlled to pass the motions removing Denn and Everett as directors (ts 498 - 500).

85 On 15 June 2007, Lee and Howlett commenced Supreme Court proceedings against Morellini, Prime and Meridian. The relief sought included a declaration that Meridian held one-third of its interests in Tampia and Geko on trust for each of the plaintiffs, an order that Meridian transfer one-third of each tenement to each of Lee and Howlett, and an account of profits. Lee and Howlett also issued plaints in the Warden's Court seeking forfeiture of the Tampia and Geko tenements for noncompliance with expenditure conditions.

86 On 11 December 2007, other plaintiffs by the name of Brosnan, issued a similar plaint seeking forfeiture of one of the Tampia tenements. On 2 January 2008, yet another plaintiff by the name of Stewart lodged plaints against all of the Tampia and Geko tenements.

87 There were yet further proceedings against Meridian during 2008. Everett and Denn commenced separate actions claiming $72,430 and $25,000 respectively for services rendered. Adams and Grill also obtained leave from the Supreme Court to commence derivative proceedings in Meridian's name against Morellini, Marr and McLoughlin.

88 Ultimately, all of the proceedings commenced by Lee and Howlett (including the plaints against the tenements) were settled by a deed of settlement on 23 June 2008. Under that deed Morellini, Prime and Meridian agreed to pay Lee and Howlett the sum of $400,000 (tb 1077). As at the date of trial, the plaints commenced by the Brosnans and by Stewart were still unresolved. Quite obviously, these continuing threats to the titles for the tenements have prevented Meridian from listing, even if it had been otherwise in the position to do so.

89 There is conflicting evidence from Adams and Grill as to whether or not they were in some way involved in the plainting of Meridian's tenements. At the general meeting of 18 June 2007, Adams and Grill had both argued strongly in favour of a negotiated resolution of the disputes within the company. When this did not occur, they joined a loose group of shareholders (formed around Everett and Denn) which intended to issue proceedings to put 'pressure' on Morellini (ts 176, 255, and exhibit 4). Adams and Grill both say that they took this step in order to protect the interests of Meridian.

90 It is Grill's evidence that 'as part of protecting the interests of the company' the shareholders group considered the question of plainting the tenements, and 'saw lawyers to bring that about' (ts 257 - 260). However, Adams adamantly denies that he was in any way involved in any discussion or decision to plaint Meridian's tenements (ts 145 - 146).

91 During cross-examination, Denn initially denied any knowledge of steps taken by persons associated with Everett to plaint the tenements. However, when pressed with the proposition that he, Grill and Everett decided to plaint the tenements, his evidence was that 'when they were talking about things like that I clearly said I would have nothing to do with any plaints' (ts 274).

92 On 20 June 2008, Morellini and Prime together sold 5.5 million shares and 2.2 million options in Meridian to Carl Joseph Hribar for $550,000 (exhibit 16) (ts 517 - 518). Hribar was a third party at arms length from Morellini (ts 517), and the price paid represented 10 cents per share.

93 By a circular letter to Meridian's shareholders dated 29 June 2009, Morellini advised each shareholder of a right to apply for the same number of shares then held at a price of one cent per share (tb 1107). As at the date of trial, no shareholder had applied for additional shares (ts 518).

94 Meridian has not listed on the ASX and as at 19 November 2008, the company had a cash surplus of only $25,000 (tb 1236). At the date of trial Morellini was actively seeking third parties with whom to consummate some form of transaction in respect of the company and/or its tenements (ts 519 - 520).

95 Adams and Grill acted independently of each other when dealing with Morellini in deciding to acquire shares in Meridian. They each say that in deciding to apply for shares they relied on particular representations by Morellini. Although the representations allegedly made to each of Adams and Grill differ slightly, they are broadly to the same effect. In this regard, Adams pleads (in par 19 of the statement of claim) that Morellini made the following representations:

(a) no party other than Meridian had any interest in the Tenements or any minerals to be mined from the Tenements;

(b) Morellini knew of no facts by which a third party may lay claim to an interest in the Tenements or any minerals to be mined from the Tenements;

(c) Meridian would list on the ASX by 30 April 2007; and

(d) upon listing on the ASX:

(1) Morellini, and any related party of his, would hold no more than in the order of 15% of Meridian's issued capital; and

(2) ...

...

(f) the total moneys Meridian would receive from the intended capital raising would be $1,950,000 (being the $200,000 'Promoter Seed and Vendors' shares and the $2 million 'Strategic Investors pre IPO @ 25 cents' shares less the 1 million of such 25 cent shares that were to be issued to the former owner of the Tenements for no cash consideration);

(g) the $1,750,000 raised by the issue of shares at 25 cents would be from the issue of shares to 'Strategic Investors' and not to Morellini or Morellini related parties.

96 Grill claims in par 20 of the statement of claim that the representations made to him by Morellini were as follows:

(a) no party other than Meridian had any interest in the Tenements or any minerals to be mined from the Tenements;

(b) Morellini knew of no facts by which a third party may lay claim to an interest in the Tenements or any minerals to be mined from the Tenements;

(c) subject to successful completion of the capital raising that was being undertaken Meridian was ready for listing on the ASX;

(d) Meridian would list within a short [time] after successful completion of the capital raising that was being undertaken;

(e) upon listing on the ASX

(i) Morellini would have a direct or indirect interest in no more than in the order of 3.85 million shares in, or 15% of the issued capital of Meridian;

(ii) Meridian would have a wholly-owed subsidiary involved in the uranium industry; and

...

(g) the total moneys Meridian would receive from the intended capital raising would be $2,200,000;

(h) the $2,000,000 raised by the issue of shares at 25 cents would be from the issue of shares to 'Strategic Investors' and not to Morellini or Morellini related parties.

(It should be noted that in the course of the trial the plaintiffs abandoned their claims in respect of the representations pleaded in par 19(a), 19(d)(2) and 20(f) of the statement of claim).

97 Adams and Grill each claim that Morellini's representations were contraventions of s 10 of the Fair Trading Act 1987 (WA) (FTA) and s 1041H of the Corporations Act 2001 (Cth). The relief that each claims is damages (pursuant to s 79 and s 1041I respectively of those Acts) and/or such other orders as may be appropriate pursuant to s 77 and s 1325 respectively. Alternatively, damages are claimed for negligence at common law.

98 The relevant provisions of the Fair Trading Act and the Corporations Act are effectively the same. Section 10 of the FTA provides that:

A person shall not in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Pursuant to s 9, where a person makes a representation with respect to a future matter and does not have reasonable grounds for making that representation, it is taken to be misleading. The onus of establishing that there were reasonable grounds is on the person making the representation.

99 Pursuant to s 5(4) of the FTA, the reference to 'engage in conduct' in s 10 includes the refraining (otherwise than inadvertently) from doing an act. In this regard, it is well established that a failure to speak may be misleading and deceptive if there is a general law duty of disclosure (Rhone-Poulenc Agrochimie SA v UIN Chemical Services Pty Ltd (1986) 12 FCR 477). Even when there is no general law duty, silence may still amount to misleading or deceptive conduct. It amounts to such conduct when all of the circumstances raise a reasonable expectation that if some relevant fact exists, it would be disclosed (Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31, 41).

100 When considering whether conduct is misleading or deceptive, the particular conduct to be characterised needs to be clearly identified. That conduct will then be characterised as misleading or deceptive if when viewed as a whole, it has a tendency to lead a person into error. This involves an objective test as to the 'notional cause and effect relationship between the conduct and the state of mind of the relevant person' (Campbell v Backoffice Investments Pty Ltd [2009] HCA 25 [25]).

101 If the conduct is said to be an oral or written statement, the first question is what kind of statement was made. Was it a statement of historic or present fact made on the basis that its truth was known to its maker, or was it a statement of opinion? Opinions may carry with them one or more implied representations according to the circumstances of the case. There will ordinarily be an implied representation that the person offering the opinion actually holds it. Another implied representation may be that the opinion is based upon reasonable grounds (Campbell v Backoffice [32] - [33]).

102 A plaintiff who suffers loss or damage by misleading or deceptive conduct may recover the amount of that loss or damage by action under s 79 of the FTA. The plaintiff may also seek discretionary relief by way of 'appropriate' orders under s 77. Whether the claim is made under s 77 or s 79, the plaintiff must establish a causal link between the contravening conduct and the loss allegedly suffered.

103 The relevant contravention does not have to be the exclusive or dominant cause of the loss; it is sufficient that the breach materially contributed to the harm suffered (Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 [106]; Grainger v Williams [2009] WASCA 60 [162]). In that regard, two or more causes may jointly influence a person to undertake a course of conduct. If a representation plays some part, even only a minor part, in contributing to the course of action taken, then a causal connection will exist (Henville v Walker [107]). When the claimed causal link is complicated by an intervening act or decision of the plaintiff or a third party which might be regarded as the more immediate cause of the loss:

The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision. (McHugh J in Henville [108] quoting Deane, Dawson, Toohey and Gaudron JJ in Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1, 6 - 7)

104 Furthermore, the subsequent event which contributed to the loss may have arisen from a defect inherent in the thing purchased itself. In HTW Valuers [40] it was held that:

... although the court is entitled to take into account events after the date of acquisition, it must distinguish among possible causes of the decline in value of what has been bought. 'If the cause is inherent in the thing itself, then its existence should be taken into account in arriving at the real value of the shares or other things at the time of the purchase. If the cause be "independent", "extrinsic", "supervening" or "accidental", then the additional loss is not the consequence of the inducement.' (Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at 298)

105 The amount recoverable under s 79, and the orders that may be made under s 77, are not limited by any analogy with the law of contract, tort or equitable remedies (Marks v GIO [1998] HCA 69; (1998) 196 CLR 494 [38], [102] - [103]). Rather, the task is simply to identify the loss or damage suffered or likely to be suffered, and then to make orders for recovery of that amount under s 79 or to compensate, prevent or reduce that loss or damage under s 77 of the FTA (Gaudron J in Marks [15].)

106 Very often, the correct approach to assessing damages under s 79 will be the same as that used in the common law action of deceit (Marks [41], HTW Valuers [35].) When this approach is adopted, a plaintiff who was induced by misrepresentation to buy an article is entitled to only the difference between the value as represented and the real value at the time the article was bought (PE Kafka Pty Ltd v The Hermitage Motel Pty Ltd [2009] FCAFC 94 [14 - 17].

107 However, even with claims of a type where this approach to assessment is commonly applied, the rule is not universal, inflexible or rigid (HTW Valuers [35], Kenny and Good Pty Ltd v MGICA [1999] HCA 25; (1999) 199 CLR 413 [123]). The deduction of the true value at the acquisition date from the price is no more than a guide to the assessment of damages under s 79. Section 79 (TPA s 82) does not, in terms, refer to that particular method, and the width of the provision permits other approaches to assessment so long as they work no injustice (HTW Valuers [65]). In this regard, the general rule is not normally applied when the assets acquired cannot be readily marketed, and the plaintiff is 'locked in' to the property. In such circumstances it may be appropriate to award the plaintiff the purchase price less whatever is 'left in its hands' (Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; [1997] AC 254, 266; HTW Valuers [64] - [67]).

108 Accordingly, the question presented by s 79 is not what damages are assessable in deceit, but what loss or damage has been caused by the conduct contravening the Act. This requires a comparison between the position which the plaintiff is in, and the position that party would have been in but for the contravening conduct. And even this inquiry may not conclude the question (Marks [41], [42] and [53]).

109 There must be a proper evidentiary basis for any award of damages under s 79. As stated in Grainger at [168] - [170]:

A plaintiff has the onus of establishing both the fact and the amount of the loss suffered: Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 80. Generally, mere difficulty does not relieve a court from estimating damages as best it can (see the review of authorities in JLW (Vic) Pty Ltd v Tsiloglou [1994] VicRp 16; [1994] 1 VR 237, 241 - 242).

However, a plaintiff must prove the amount of the loss it sustained on the balance of probabilities and with as much precision as the subject matter reasonably permits: Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 [37]. Hayne J said:

It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind [38].

Where damages are uncertain for lack of evidence, difficulties of assessment are in general resolved against the party who could or should have provided the evidence: LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 [12]

110 Section 77 of the FTA (TPA s 87) confers a wide discretionary power on the court to make remedial orders which will ensure a fair result (Kisbeau Pty Ltd v WG and B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, 289). The gateway to those remedies is proof of (actual or potential) loss or damage, and orders can be made only to the extent that they compensate, prevent or reduce the loss or damage that is identified (Marks [43]).

111 Unlike s 79, s 77 is not concerned with recovery of the 'amount' of the loss or damage suffered by conduct in contravention of the Act. Section 77 is concerned with compensation (whether in whole or in part) for loss or damage, the reduction of loss or damage, and the prevention of loss or damage which is likely to be suffered (Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31, 46 - 47).

112 The decision whether or not to make orders under s 77 may require consideration of a range of arguably appropriate remedies. When there are findings of reliance by the innocent party upon misleading or deceptive conduct, and clear evidence of loss or damage, the trial judge should scan the range of available remedies, recognising that s 77 may allow for the defendant's as well as the plaintiff's interests to be taken into account in moulding a just response (Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353, 367, 368).

113 Many of the factual issues can be determined by reference to the contemporaneous documents which are the subject of more than 1,400 pages of exhibits. However, the findings as to other issues must turn upon the credibility of the witnesses, namely, Adams, Grill, Denn, and Morellini. Accordingly, I will now set out my general observations as to the credibility of each of these witnesses.

114 Mr Adams impressed me as an honest witness who had been fairly meticulous in his attention to matters of detail when dealing with Morellini. For this reason much of his evidence is corroborated by the contemporaneous email record which he created and circulated to others. Nevertheless, there are some flaws in his evidence which may impact on its reliability.

115 Firstly, there was his failure to observe the reference to the 2% royalty in the 'financial overview' (tb 656) that he received from Morellini on 16 January 2007. It was only a two page document, and Adams had ample opportunity to peruse the contents, not only at the meeting on 17 January, but also over the following four days when he was deciding whether or not to invest in Meridian (ts 125, 147). It is difficult to accept that he simply failed to notice the reference to the 2% royalty.

116 The second flaw in Adams' evidence arises from a letter of demand sent by the plaintiffs' solicitors to Morellini's solicitors on 18 July 2007 (tb 999). Mr Adams gave instructions for this letter and he approved it before it was sent (ts 166). Therefore, it is significant that the letter sets out representations by Morellini which differ from those presently claimed, namely, that:

- upon such listing, Morellini and any related party would hold no more than 12 to 15% of Meridian's issued capital.

117 It is Mr Adams' evidence that when he proofed the letter, he 'just didn't pick it up as being incorrect'. However, this is a fairly lame explanation given that the letter listed only five representations by Morellini.

118 There is also the potential impact on Adams' credibility arising from his denial of Grill's evidence that the two of them were in some way involved with the plaints lodged against Meridian's tenements. In dealing with that issue, I also need to consider the credibility of each of Grill and Denn.

119 Mr Grill was a relatively forthright witness who tended to answer questions directly and unhesitatingly. He readily made concessions against his own interest, and was remarkably frank when answering some of the more difficult questions during cross-examination. Although I consider that Mr Grill testified to the best of his ability, it was clear at times that he was labouring under the impediment of a fairly poor memory (particularly as to the timing of some events). Accordingly, in giving his account of what occurred, he was heavily reliant on the contents of the documents that he had accumulated in the course of his dealings with Morellini. In my view, I need to be careful before accepting any aspect of his evidence which is not supported by the relevant documentation.

120 Mr Denn seemed at first to be a reasonably straightforward witness, but his cross-examination revealed some surprising anomalies. In this regard, during mid-2007, Denn as managing director of Meridian joined with other newly appointed directors in expressing concerns about the past conduct of Morellini. In a memo to Grill dated 11 June 2007, Denn referred to particular matters of concern which 'became apparent on review of the company invoices and other information not previously seen by the directors'. These included:

The presence of a number of loan accounts between Morellini, Prime Holdings and Meridian, that the rest of the Board had not been informed of ...

The use of the loan accounts to acquire shares in Meridian, by way of retiring debt against the company for the issue of shares.

121 Notwithstanding the very firm stance that Denn took on those issues at the time, he conceded during cross-examination that he was one of those who had benefited from the allotment of shares by way of debiting loan accounts. In that regard, Morellini had paid for the issue of shares to Denn and his wife on 8 February 2007 by debiting the loan account of Prime Holdings with Meridian. (Denn ultimately reimbursed Prime Holdings for those shares sometime after May 2007 - ts 273 - 274).

122 Denn has also given unsatisfactory evidence concerning National Uranium Ltd. Denn was appointed a director of National Uranium upon its incorporation in December 2006, but it is his evidence that he gave a backdated consent to act as a director in March 2007. As to the circumstances surrounding the incorporation of National Uranium, it is Denn's evidence-in-chief that:

I was unaware that National Uranium was a separate company from Meridian until 2 May 2007 when, at a Meridian board meeting, Mr Morellini said that National Uranium was not a subsidiary of Meridian (exhibit 12, par 6).

123 During cross-examination, Denn also said that he did not recall that the reason why National Uranium held uranium interests separately from Meridian was to avoid any delay in listing or any change in focus from goldmining (ts 285). However, on 7 May 2007, Denn sent a circular resolution (tb 885) to the other directors of National Uranium detailing the circumstances of its incorporation including the following:

The Chairman then formed National uranium with the express purpose of acquiring ground adjacent to the Meridian tenements to protect the interest of Meridian and also to enable the progress of the Meridian float without any delays.

The Managing Director of Meridian (S Denn) was informed of the action and at the same time joined National Uranium as a director along with R Marr. All activities were funded personally by R Morellini. To protect his investment he was the only party to be issued shares in National Uranium.

124 It was Denn's evidence during re-examination that the circular resolution of 7 May 2007 lacked 'some details'. When asked if what he had included was 'true and correct' there was an extraordinarily long silence, in the course of which he was invited to read the document. After a further pause, Denn finally (and seemingly reluctantly) answered, 'Yes' (ts 291).

125 As already noted, Mr Denn has given conflicting evidence as to his knowledge of the plainting of the tenements after May 2007. When the matter was first put to him in cross-examination, he denied that he was aware of any 'steps taken by persons associated with Everett to plaint the tenements'. However he then contradicted himself in the following passage of cross-examination:

You were aware because Everett told you, didn't he?---No, he did not.

Mr Grill told us how he, Everett, yourself decided they should plaint the tenements to protect them for the company?---I said that at - when they were talking about things like that I clearly said I would have nothing to do with any plaints.

So you knew there was an intention to plaint?---There was some discussion from parties and I would have nothing to do with plainting.

You knew that plainting the tenements would effectively stall any attempt to list Meridian, didn't you?---Well, that would have happened, yes.

126 In light of all of these anomalies, I have come to the inevitable conclusion that I cannot accept Mr Denn's evidence as being reliable.

127 I turn now to the question whether Adams was in some way involved with Grill and others in the plainting of Meridian's tenements. Certainly, by early July 2007, Adams had joined with Everett, Grill and Denn in discussing the possibility of 'shareholder class actions' to resolve the dispute between Morellini and the former members of the board (exhibit 4). They were negotiating with Morellini to obtain a 'reasonable commercial solution' to the dispute, and to this end thought that the proposed proceedings might put 'pressure' on him (ts 175 - 179, 258). It is against this background that Grill says that the shareholders' group also arranged for a plaint for forfeiture to be lodged.

128 It is clear that the plaint (or plaints) in question was not one of those that had been lodged on 19 June 2007 by Jackson McDonald & Co on behalf of Lee and Howlett (tb 959). It is Grill's evidence that the lawyers who were consulted with a view to lodging the plaint were Phillips Fox (ts 257) and that the shareholder group's reason for taking this step was:

A feeling that there might be a settlement between Lee and Howlett and Mr Morellini and what you might find further down the track is that the company has no value because it doesn't have the tenement. So the plaint, I think, was contemplated on the basis that that would prevent that from happening. (ts 260)

Although I am satisfied that Grill testified on this matter to the best of his ability, his evidence (at ts 257 - 258) was a little confusing. Nevertheless, he was clearly identifying the plaint in question as the one lodged by Stewart, and he was doing so on the basis of what he 'believe(s) was the case'.

129 Somewhat curiously, Grill was able to remember the address of the lawyers he visited with the shareholders' group (44 St George's Terrace) but could not remember the name of the firm. When prompted with the name Phillips Fox, his answer was:

Grill was not asked to identify the shareholders who went with him to the lawyers' office and in his previous evidence he was fairly vague about the membership of the group generally (ts 255). It is also relevant to note that the Stewart plaint was not lodged until January 2008 (exhibit 18, par 168) which was some six months after the shareholders' group first formed, and that not long afterwards there was a falling out between Everett and Adams (ts 146)..

130 To the extent that Grill's evidence implicates Adams as being involved in the Stewart plaint, I do not consider it to be reliable. As against this, I found Adams' evidence as to his activities with the shareholders' group (ts 142 - 146, 165) to be very credible. I am satisfied that Adams was telling the truth when he denied that he had any involvement in or any prior knowledge of the plaint issued by Stewart.

131 Mr Morellini's admission that he deliberately lied on oath in the Warden's Court necessarily impacts on his credibility. Furthermore, there is ample evidence to show that he was devious and dishonest in many of the dealings the subject of the evidence. In this regard:

- He did not disclose to Lee and Howlett his true interest in the offer dated 21 January 2005 (ts 356). He allowed them to believe that other people were involved in the unlisted company, when in fact the only other person was his friend Marr (ts 363).

- He did not disclose to Synergy that Meridian and not him would be paying the cash due under the deed of settlement dated 12 April 2005, notwithstanding that as part of that settlement Synergy was to receive shares in Meridian (ts 374).

- Morellini arranged for the royalty to be granted to KBM, and for the deed of trust dated 17 March 2006 in favour of MDT, so that investors in Meridian would be unaware that he was the ultimate beneficiary (ts 397).

- Between March 2006 and January 2007, Morellini did not disclose the existence of the royalty to any of the potential investors from whom he was seeking funds.

- Morellini similarly failed to disclose that a $300,000 debt was owed by Meridian under the agreement he had made with Lee and Howlett on 21 January 2005.

- Morellini failed to account to Lee and Howlett for the $300,000 as and when he and Prime received part payments from Meridian.

- He arranged for Meridian to make part payments of the $300,000 to himself and Prime on the pretext that they were $81,841.51 in reimbursement of legal fees incurred in connection with the Synergy settlement (tb 517) and $147,000 'in consideration of funding those fees' (tb 516 and 897). (It was Howlett and not Prime who had paid all of the legal fees. Howlett had done so as consideration for the one-third interest in the plaints initiated by Morellini, and he was not entitled to any reimbursement).

- Morellini continued these deceptions when the payments to Prime and himself were queried by Meridian's auditors (ts 490 - 491).

It is also relevant that when cross-examined about these matters, Morellini tended to hedge his answers and was reluctant to concede obvious facts (eg ts 467 - 469, ts 473 - 474).

132 All of these considerations inevitably lead to the conclusion that Morellini is an unreliable witness. In my view I need to be very careful before accepting any of his evidence which is not corroborated by other witnesses or by contemporaneous documents.

Whether there was misleading or deceptive conduct towards Adams

133 The representations pleaded in pars 19(a) and (b) of the statement of claim (namely that no party other than Meridian had any interest in the tenements or minerals, and that Morellini knew of no facts by which any third party may lay claim to an interest in the same) can be considered together.

134 The evidence clearly establishes that between late 2005 and January 2007, Morellini repeatedly represented to Adams that Meridian held 100% of the Tampia and Geko tenements. Morellini did not at any time inform Adams of the agreements in relation to those tenements that he had entered into with Lee and Howlett on 27 September 2002 and 21 January 2005.

135 In October 2005, Morellini did tell Adams that there was a 2% royalty on the sale price of gold and other minerals from the Tampia and Geko tenements. I accept Adams' evidence that when he queried this royalty, Morellini told him that it was a 'possible historic royalty' and did not disclose that it was a royalty that Morellini intended to claim himself.

136 It is common ground that Morellini later told Adams that the royalty was only 1%, and that by December 2005 he also said that no royalty was payable at all. Thereafter, and up until 16 January 2007, Morellini made no further reference to any royalty. During that period Morellini and Adams had many discussions about the latter's proposed investment in Meridian, and on 10 January 2007, Adams also signed applications for shares.

137 However, in March 2006, Morellini had arranged for Meridian to confer a 2% royalty for the ultimate benefit of himself, and for there to be an intervening trust to hide the fact that he was its recipient. Morellini admits that investors including Adams would have wanted to know that he was the recipient of a royalty, and I find that in all of the circumstances there was a reasonable expectation that the existence of such a fact would have been disclosed.

138 It follows that on 10 January 2007, Morellini engaged in misleading or deceptive conduct in having Adams sign the share applications without disclosing the existence of the royalty. However, Adams made his applications conditional upon the meeting that took place on 17 January, and prior to then Morellini disclosed the existence of the royalty in the 'financial overview' circulated on 16 January 2007.

139 Notwithstanding Morellini's deceptive conduct up until 10 January 2007, it is his overall conduct up until the time of the event said to give rise to Adams' loss and damage that needs to be characterised. That event was the payment of $505,000 to Meridian on 23 January when the applications for shares became unconditional.

140 As at 23 January 2007, Morellini had in fact disclosed to Adams the existence of the 2% royalty. Adams' failure to note the reference to the royalty in the 'financial overview' does not alter that fact. For this reason, I consider that Morellini's overall conduct in respect of the royalty cannot be characterised as misleading or deceptive.

141 With regard to the interest in the tenements claimed by Lee and Howlett, it is common ground in the present proceedings that the agreement they made with Morellini on 27 September 2002 was varied (orally and in writing) on 21 January 2005. Prior to 21 January 2005, Lee and Howlett were each beneficially entitled to a one-third interest in the tenements that Morellini stood to acquire from Synergy. After 21 January 2005, that interest had been converted into a 30% interest in the cash and shares that Morellini was to receive in return for transferring the tenements to the 'unlisted public company'.

142 In their Supreme Court action commenced on 15 June 2007, Lee and Howlett claimed a declaration that Meridian held one-third of its interests in the tenements on trust for each of the plaintiffs. Their statement of claim (tb 1020) alleged that the agreement of 21 January 2005 had been induced by misleading or deceptive conduct by Morellini. Apart from the declaration, the relief claimed included orders that the court considered appropriate under s 77 of the FTA. Obviously, it is not possible in the present proceedings to determine the validity of Lee and Howlett's claims. Nor does the fact that those claims were later settled (for a sum substantially in excess of Lee and Howlett's cash entitlements under the 21 January 2005 agreement) support any finding as to that issue.

143 For present purposes, all that matters is that the agreement of 21 January 2005 remained on foot at all material times. It necessarily follows that at all times while Morellini was dealing with Adams, Lee and Howlett did not have any valid interest in the Tampia and Geko tenements. Each instead had a 30% entitlement to the cash and shares that Morellini either had, or was to receive, under the agreement of 21 January 2005.

144 For all of the above reasons, I find that the representation by Morellini as alleged in par 19(a) of the statement of claim did not constitute misleading or deceptive conduct.

145 As to the representation alleged in par 19(b) of the statement of claim, Morellini was necessarily aware that he was in breach of his agreement with Lee and Howlett (at least to the extent of failing to account to them for the cash payments he and Prime had received from Meridian). As to the circumstances surrounding the agreement of 21 January 2005, Morellini admits that he intentionally withheld from Lee and Howlett information about Meridian, and that did not disclose his 'true interest in the offer' (ts 356). However, in my view, there is insufficient evidence to prove that Morellini knew of facts by which Lee and Howlett might have laid claim to an interest in the tenements or any minerals to be mined from the tenements. Accordingly, I find that there was no misleading or deceptive conduct by Morellini as alleged in par 19(b) of the statement of claim.

146 The 'Meridian IPO timeline' (tb 659) sent by Morellini to Adams on 16 January 2007, provided for Meridian to commence trading on the ASX by 30 April 2007. The same document contained a footnote in bold print that:

This timeline may be reduced by three weeks as extended period(s) have been included in the above dates in order to achieve the various requirements.

147 These words speak for themselves, and were an expression of opinion as to a future matter which carried the implication that Morellini knew of facts to justify that opinion. Accordingly Morellini bears the onus of establishing that this representation was made on reasonable grounds (s 9 FTA).

148 The representation should be viewed against the background of the previous occasions when Morellini had provided Adams with deadlines for listing which were not met. On each of those occasions Morellini had said that listing would occur within the same approximate three month period that he once again represented on 16 January 2007.

149 The representations should also be viewed in the context of Morellini's awareness that the timing of the float was very important to Adams. Morellini knew that Adams always 'wanted it done tomorrow', and 'if it wasn't going to be done tomorrow, he didn't want to invest' (ts 459).

150 Furthermore, Adams had previously demonstrated his unwillingness to invest if listing was to be delayed. On 22 September 2006 he had demanded the return of the cheques which had accompanied his previous application for shares when he was told by Morellini that listing would not occur until March 2007.

151 Against this background, it is significant that Adams only became interested in investing in Meridian once again when told by Morellini on 10 October 2006 that 'all major matters relating to the pending ASX float ... are now being progressed in parallel' and that the listing would definitely occur no later than March 2007 (tb 557). Accordingly, Morellini must have been aware that Adams would attach great importance to his representation in January 2007, that listing would occur no later than 30 April 2007 and possibly three weeks earlier.

152 Morellini has not called any evidence to justify the timeline provided to Adams on 16 January 2007. He arrived at the format for the timeline by simply adopting a precedent supplied by Waddell (ts 503). Apart from the appointment of solicitors and auditors, and substantial progress being made with the independent geological report, very little had been done towards preparation for listing. It would have been readily apparent to Morellini that many of the deadlines in the timeline could not be met (eg the board meeting, solicitor's report and auditor's report all due on 25 January).

153 At the meeting on 17 January 2007, those present went through the timeline item by item and believed it to be realistic. However, I accept Adams's evidence that the meeting came to that conclusion after being told by Morellini that 'all of the information required for the IPO was substantially completed, that no delays were expected and that indeed the listing might well be achieved in early April' (exhibit 1, par 17, ts 138).

154 I find that Morellini did not have reasonable grounds for making the representation that listing would occur by 30 April 2007. Accordingly, and as a matter of law, the representation is taken to be misleading.

155 I accept Adams' evidence that at the investor presentation on 3 June 2006, Morellini said that he and his related interests would hold no more than 15% of the issued capital of Meridian upon listing on the ASX. At that time, the particular capital structure being proposed for Meridian involved the issue of 24 million 'promoter, seed and vendors'' shares, 16 million strategic investors' shares, and 8 million public IPO shares to raise a total of $7,400,000.

156 By January 2007 there had been significant changes in the capital structure proposed for Meridian. There were still to be 24 million 'promoter, seed and vendors'' shares and eight million public IPO shares, but it was proposed to reduce the strategic investors' shares to eight million (at 25 cents instead of 30 cents) thus raising a total of only $4,600,000 capital. Accordingly, the shares to be issued to strategic investors had halved, but the shares to be issued to 'promoters, seed and vendors' remained the same.

157 Although these changes would suggest that there was to be an increase in Morellini's proportionate shareholding, it is Adams' evidence that 'at all stages' Morellini said that he and his related interests would have no more than 15% of the issued share capital of Meridian upon listing. Notwithstanding this assertion, Adams is unable to recall any specific discussion with Morellini on this topic after June 2006 (ts 138).

158 However, these deficiencies in Adams' case are overcome by Morellini's own evidence as to what he said on this subject at the 17 January 2007 meeting. According to Morellini, he told Adams that he and the 'syndicate' (viz: Lee and Howlett) would hold 'around 15%' of the shares in Meridian following listing.

159 Morellini also admits in his defence that as from 8 February 2007, he either held or was beneficially entitled to a total of 11,690,000 of the shares then issued. With the IPO, there would be a total of 40,000,000 shares issued which meant that Morellini alone would hold or be beneficially entitled to 29.2% of that total shareholding.

160 I am satisfied that at the meeting on 17 January 2007, Morellini was aware of what shares he intended that Meridian would issue to himself and his related interests. I find that by representing that that shareholding would be 'around 15%' he engaged in misleading or deceptive conduct.

161 The final two misrepresentations claimed by Adams can be considered together. They are that Meridian would receive moneys totalling $1,950,000 from the pre-IPO capital raising, and that $1,750,000 of this sum would come from 'strategic investors', and not from Morellini or related parties.

162 There is very little evidence from Adams in respect of these claims, and I understand them to be based on the contents of the particular documents he received from Morellini prior to the January 2007 meeting, namely the revised corporate shareholding structure (tb 601) and the 'financial overview' (tb 656).

163 The first document drew a distinction between 'promoter, seed and vendors'' shares and 'strategic investor' shares and when viewed in conjunction with the second document, revealed that a total of $1,950,000 would be raised from those two categories of shareholders. It is also Adams' evidence that:

At no stage did Mr Morellini say to me that strategic investor shares would be issued to him or any of his related parties. Nor did he ever say to me that any shares that were to be issued at 25 cents per share would not be paid for in cash, but would be paid for by debiting Meridian loan accounts. Had I known any of this, I would not have invested. (exhibit 2, par 11)

164 Accordingly, the substance of the claim in respect of these representations is that the pre-IPO capital raising did not produce the full quantum of cash as represented in the two documents. The validity of this claim is undermined by the fact that the second document (tb 656) indicated that the total capital raising of $4,600,000 would be reduced by $1,370,000 to 'net cash' of $3,230,000 after allowing for $700,000 in liabilities that Meridian had already paid, and a further $670,000 that it was 'yet to satisfy'. It necessarily followed from this that the 'net cash' after deducting the $2,400,000 to be raised by the IPO would be only $830,000 (after allowing for the discharge of the $1,370,000 in liabilities).

165 It is important to note that the two documents (when read together) did not represent that the pre-IPO capital raising would produce $1,950,000 in 'moneys'. In this regard, the first document (tb 601) referred only to the 'value' of the shares to be issued. Furthermore, the fact that $700,000 in liabilities had already been met without any capital being raised begged the question of where that money had come from. For a person in Mr Adams' position, the obvious answer to that question was that the liabilities had been met by Meridian's promoters and/or members of the 'syndicate' (see exhibit 2, par 10), and that those persons would have to be reimbursed out of the funds raised by the share issue. (In this regard, the issue of the one cent shares had a 'value' of only $200,000 which did not cover the liabilities already met).

166 With regard to the misrepresentation pleaded in par 19(g) of the statement of claim, the various share structure proposals given to Adams (including the last such document at tb 601) drew a distinction between the shares to be issued to 'promoters, seed and vendors'', and those to be issued to 'strategic investors'. These materials also indicated that the shares to be issued to 'strategic investors' were reserved for 'a select group of 15 shareholders'.

167 At all material times Adams was aware that Morellini was seeking out investors willing to become part of that select group of shareholders. However, those shareholders (including himself) were being offered limited quantities of the 'promoter, seed and vendors'' shares as well as those to be issued to strategic investors. In these circumstances, it is difficult to construe the share structure proposals as containing a representation that shareholders in the first category could not also obtain 'strategic investor' shares.

168 For these reasons, I find there were no representations by Morellini as pleaded in par 19(f) and (g) of the statement of claim.

Whether there was misleading or deceptive conduct towards Grill

169 The first two misrepresentations claimed by Grill can be dealt with together. These are the alleged misrepresentations that no party other than Meridian had an interest in the tenements or in the minerals to be mined from the tenements, and that Morellini knew of no facts by which a third party may lay claim to any interest in the same.

170 Unlike Adams, Grill did not have any involvement in Meridian at any material time and his dealings with Morellini were less frequent. It is common ground that when Grill and Morellini first met on 11 April 2005, the latter said words to the effect that after the settlement with Synergy, Meridian would 'wholly own', or 'have a 100% interest' in the Tampia and Geko tenements (exhibit 18, par 46). I also accept Grill's evidence that during their conversation Morellini also said that the tenements would be held on an unencumbered basis. Although 'unencumbered' was not a word within Morellini's normal vocabulary, it was one that Grill, as a lawyer, habitually used. I am satisfied that in answer to Grill's queries, Morellini informed him to that effect.

171 Thereafter, during 2005 and 2006, Morellini supplied Grill with information memoranda which confirmed that Meridian owned 100% of the Tampia and Geko tenements. They met again on about 20 November 2006, by which time Morellini had executed the deeds which established the 2% royalty. Morellini did not inform Grill about the royalty even though he was aware that prospective investors would want to know about it (ts 403).

172 Although Morellini later sent further information on Meridian to Grill, he did not provide him with the 'financial overview' (tb 656) which contained the only disclosure that was ever made about the royalty. Morellini made no mention of the royalty at his final meeting with Grill on 23 January 2007, and the latter was completely unaware of its existence.

173 The royalty was a significant encumbrance on the tenements, as it required payment of 2% of the gross sale price and not of the profits of mining the gold and other minerals. Morellini has acknowledged in evidence that any potential investor would have wanted to know about the royalty, and in all of the circumstances I find that there was a reasonable expectation that its existence would have been disclosed to Grill. I therefore make the further finding that Morellini, by his silence on the subject of the royalty, engaged in misleading or deceptive conduct in making the representation pleaded in par 20(a) of the statement of claim.

174 As with Adams, Morellini failed to disclose to Grill the agreements he had made with Lee and Howlett. However, for the same reasons I have expressed in respect of Adams' claims, I find that this failure did not constitute a misrepresentation as pleaded in par 20(b) of the statement of claim.

175 The misrepresentations pleaded in pars 20(c) and (d) can also be considered together. They are that Meridian was ready for listing subject to successful completion of the capital raising, and that it would be listed within a short time afterwards.

176 I accept Grill's evidence that at the meeting on 16 January 2007, Morellini said that the listing of Meridian was imminent and that the only matter holding it up was the obtaining of sufficient seed capital. I also accept Grill's evidence that at the final meeting on 23 January 2007, Morellini told him that if he invested $100,000 that would complete the $2 million capital raising. I further accept that Morellini told Grill that the various consultants' reports were 'near completion' and would not delay the listing of Meridian 'within a matter of weeks'. (These last statements are consistent with what Morellini told Adams on 17 January 2007).

177 For the same reasons that I have expressed in respect of the similar misrepresentation pleaded by Adams (in par 19(c) of the statement of claim) I find that Morellini did not have reasonable grounds for making those representations to Grill. It follows that the representations are to be taken to be misleading.

178 It is common ground that when Grill and Morellini first met on 11 April 2005, the latter outlined his proposals for the listing of Meridian. I accept Grill's evidence (as corroborated by his contemporaneous notes - tb 43) that Morellini said that upon listing, three million shares would be held by Morellini and his associates, and that he personally would have a further 850,000 shares in Meridian. The total of 3,850,000 shares was in the order of 15% of Meridian's then proposed share capital.

179 Following that meeting, Morellini kept Grill informed of his various revisions of the share structure proposed for Meridian. The documents forwarded to Grill included Morellini's proposal as at 22 April 2006 (tb 414) that 48 million shares be issued to raise a total of $7,400,000.

180 At the date that Grill decided to invest in Meridian, the proposed share structure had changed once again. Grill made his decision to invest at a time when it was proposed that there would be 40 million shares issued to raise a total of only $4,600,000. Of those shares, 24 million would issue to 'promoter, seed and vendors'' (including 100,000 shares to himself). Eight million of the shares would issue to 'strategic investors' including himself.

181 It is also Grill's evidence that 'at some time prior to late January 2007 - I cannot recall precisely when' Morellini said that on listing, he and his associates would hold no more than about 15% of Meridian's issued capital (exhibit 5, par 22).

182 During cross-examination, Grill modified this evidence to say that the figure quoted by Morellini was 'roughly 15%'. Although Grill's evidence as to this can be reasonably described as fairly vague, it is corroborated by what Morellini admits telling Adams at about the same time.

183 In this regard, Morellini told Adams that 'around 15%' of the shareholding would be held by the 'syndicate' and himself. The syndicate were Lee and Howlett, and under the agreement of 21 January 2005, their entitlements to shares in Meridian were to be held in trust by Morellini.

184 Accordingly, the representation alleged by Grill is entirely consistent with what Morellini told Adams. I find that Morellini did engage in misleading or deceptive conduct by representing to Grill that he would have a direct or indirect interest in no more than in the order of 15% of the issued capital of Meridian.

185 I accept Grill's evidence (corroborated by his note at the time - tb 691) that at the meeting on 23 January 2007, Morellini told him that Meridian would have two subsidiary companies, one of which would be involved in the uranium industry. Morellini did not go into any detail about the uranium subsidiary but indicated that it would be a 'spin off' in the future (ts 240).

186 Although National Uranium Ltd had already been incorporated, Morellini's representation was that Meridian 'would have' (and not that it 'had') a uranium subsidiary. Accordingly, the representation was in respect of a future matter, and Morellini must show that he had reasonable grounds for making the same.

187 By par 40 of his defence, Morellini admits that he did not intend National Uranium Ltd, or any other company involved in the uranium industry, to be a subsidiary of Meridian. Morellini's stance in this respect is confirmed by the terms of a letter that his solicitors sent to the plaintiffs' solicitors on 16 August 2007 (tb 1376). I find that Morellini did not have reasonable grounds for the representation he made to Grill concerning the uranium subsidiary. It follows that that misrepresentation was misleading conduct.

188 The final two representations relied on by Grill (in pars 20(g) and (h) of the statement of claim) can be considered together. They are, Morellini's alleged representations that Meridian would receive $2,200,000 from the capital raising, of which $2 million would come from 'strategic investors' and not from Morellini or his related parties.

189 In alleging these misrepresentations, Grill relies upon the contents of the final share structure proposal (tb 690) combined with some of his earlier conversations with Morellini. It is important to note that Grill was never provided with all of the information that Adams received, and in particular the 'financial overview' setting out the ultimate 'net cash' position of Meridian (tb 656). It is also important to note that Grill never knew about the agreements with Lee and Howlett, and that he was given to understand by Morellini that the vendor of the tenements was Synergy (defence par 53). Furthermore, Grill was never told that Synergy would receive 'strategic investor' shares to the value of $250,000 for no consideration (ts 509).

190 In all of these circumstances, Grill was entitled to rely upon the share structure proposal (tb 690) as a representation of the pre-IPO share capital being raised. That document showed that $2,200,000 was being raised and I accept that at the meeting on 23 January 2007, Grill expressed concern as to whether that would be sufficient for Meridian's purposes. Grill said to Morellini that from his experience, $2 million was the minimum amount that a company such as Meridian would need (exhibit 15, par 27 and see also exhibit 18 par 133).

191 I accept Grill's evidence that Morellini said in response to this concern that $2 million would be sufficient to pay all listing costs and leave sufficient cash reserves to fund Meridian's future operations for a substantial period of time. In other words, the $2 million was being discussed between them in terms of it being cash.

192 Given that the share structure document (tb 690) indicated that the one cent shares were being issued to 'promoter, seed and vendors'', Grill believed this category to include Synergy. Accordingly, he was not aware that the shares to be received by Synergy would be 25 cent shares issued for no consideration thus reducing the capital raised by $250,000. He was also unaware that the moneys to be raised would be further reduced by approximately $203,000 as a result of strategic investor shares being issued to Morellini and Prime, and being paid for by way of debits to their loan accounts.

193 In all these circumstances, I find that Morellini engaged in misleading in deceptive conduct by representing to Grill that the total moneys to be received by Meridian from the intended capital raising were $2,200,000 when he knew that those moneys in fact would be significantly less.

194 I am not satisfied that there was a misrepresentation by Morellini in the terms as pleaded in par 20(h) of the statement of claim. In that regard, I reiterate the reasons I have expressed in respect of the misrepresentation alleged in par 20(e)(i).

Whether Adams and Grill relied upon the misrepresentations as found

195 In summary, in respect of Adams, I have found that the misleading or deceptive conduct by Morellini was limited to his misrepresentations that Meridian would list on the ASX by 30 April 2007, and that he (and any related party of his) would hold no more than in the order of 15% of Meridian's issued capital.

196 The evidence shows that the first of these representations on its own was a major factor in Adams' decision to invest in Meridian in January 2007. Morellini himself acknowledges that Adams always wanted the listing 'done tomorrow', and that if 'it wasn't going to be done tomorrow, he didn't want to invest' (ts 450). This was consistent with Adams' decision to withdraw his previous investment in November 2006 when the listing was delayed until March 2007.

197 With regard to the second misrepresentation as found, it is fair to describe Adams' evidence of his discussions with Morellini on this subject (ts 110, 167) as somewhat vague. Adams neither referred to this particular representation in his emails, nor made a note of it. He also gave a different version of the representation when instructing his solicitors (tb 999). Furthermore, and even though Adams' reasons can be readily guessed at, he has not explained why the representation was important to him. In light of all of these circumstances, I am not satisfied that Adams relied upon the misrepresentation as to the 15% shareholding when deciding to invest in Meridian.

198 There were factors other than Morellini's misrepresentations which influenced Adams' decision to apply for shares in January 2007, including his confidence in the proposed new directors Denn, Everett and Parekh with whom he had had previous associations. Adams also drew comfort from the meeting that he held with those new directors and Morellini on 17 January when he was reassured that they were 'talking from the same book' (ts 88, 97 - 98).

199 Nevertheless, I am satisfied that Morellini's misrepresentation as to the timing of the listing played a major part in Adams' decision to reinvest in Meridian, and that he relied upon that representation in doing so.

200 In summary, I have found that Morellini's misleading or deceptive conduct towards Grill arose from his misrepresentations to the following effect:

- no party other than Meridian had any interest in the tenements or any minerals to be mined from the tenements;

- Meridian was ready for listing on the ASX subject to successful completion of the pre-IPO capital raising, and would do so within a short time afterwards;

- Morellini would have an interest in no more than in the order of 15% of Meridian's issued share capital;

- upon listing on the ASX, Meridian would have a wholly owned subsidiary involved in the uranium industry; and

- the total moneys Meridian would receive from the pre-IPO capital raising would be $2,200,000.

201 There is ample evidence to show that Grill relied upon these representations (with the possible exception of the representation as to the uranium subsidiary) in deciding to invest in Meridian. He had been hesitant to make that investment right up until his last meeting with Morellini on 23 January 2007. He made the decision to invest only when reassured by Morellini that his proposed investment of $100,000 would complete the pre-IPO capital raising, that $2 million would be sufficient to meet listing costs and fund future operations for a substantial period, that the consultants' reports were nearly complete and that listing would occur within a matter of weeks. Furthermore, he had established to his own satisfaction that Morellini's proportionate shareholding would not confer too much control over the company.

202 In deciding to invest, Grill also acted on the assumption that Morellini's earlier representation that the tenements were unencumbered was correct. It is clear from Grill's evidence that that representation was very important to him.

203 With regard to the representation as to the uranium subsidiary, I do not accept that that was one of the factors which was 'critical' to Grill's decision to invest (exhibit 5, par 36). Nevertheless, he was 'excited' at the prospect of a 'spin off' uranium float (ts 239), and I am satisfied that it played a minor part in his decision.

204 There were factors other than Morellini's misrepresentations which influenced Grill's decision to invest in Meridian. Like Adams, Grill drew considerable comfort from the prospective appointment of Everett, Denn and Parekh as independent directors. He had also made inquiries of a geologist at Newmont (a former holder of the Tampia tenements) and had satisfied himself that they were highly prospective for gold. Nevertheless, these other factors did not detract from the high degree of reliance that Grill placed upon Morellini's representations when deciding to invest.

205 I am satisfied that, but for the representations as found, Adams and Grill would not have entered into the transaction by which they each acquired shares in Meridian. It follows that in respect of both plaintiffs, this is a 'no transaction' case. To recover damages, Adams and Grill must each prove the amount of the loss he sustained on the balance of probabilities and with as much precision as the subject matter reasonably permits. However, they have not called any evidence which would allow a precise determination of the real value of their shares at the date of acquisition (or at the date of trial), and the defence contends that this omission is fatal to their claims.

206 The plaintiffs respond that in the particular circumstances of the present case, the normal rule as to assessment of damages does not apply. For this reason, they have not called evidence from an expert valuer, and have made no attempt to quantify the difference between the price paid for the shares and the true value at the date of acquisition. (Furthermore, there is no expert evidence as to the value of the shares at the date of trial)

207 The plaintiffs also say that at all material times the shares were not readily marketable and that they have been 'locked in' to the transaction. Subsequent events, including the failure of Meridian's pro rata rights issue at 1 cent have shown that the shares are worthless. In these circumstances, it is said that the loss sustained is equal to the price paid, and that it would be a just remedy if Morellini is ordered to refund those moneys in return for a transfer to him of each of the plaintiff's shares.

208 In deciding whether or not to apply the normal rule as to damages, it is helpful to identify the various factors which influenced the value of the shares at the dates of the transactions. In this regard, the predominant factor affecting value was the value of the tenements held by Meridian, and the Tampia tenements in particular.

209 The Tampia tenements were the subject of considerable geological investigation by others who held the ground in the past, and it is not in issue that they are highly prospective for gold. It is also common ground that, at all material times, the Tampia tenements were the 'value driver' which supported the proposed listing of Meridian. Given that the Tampia tenements are still held by Meridian, the defence understandably contends that their value is still present in its shares.

210 However, with the benefit of hindsight, it is clear that at the date of acquisition there were a number of latent factors (known to Morellini, but not to Adams and Grill) which had the potential to negatively impact upon Meridian's shares. It was also fairly inevitable that some of these factors would come to light as a result of the due diligence and auditing procedures prior to listing. These negative factors included the following:

- The incorporation of National Uranium Ltd using funds paid by Meridian, but with Morellini as sole shareholder.

- National Uranium's applications for exploration licences abutting Meridian's tenements in respect of a uranium deposit which straddled the boundary.

- Meridian's liability to Lee and Howlett for their proportion ($180,000) of the balance of $300,000 due under the agreement of 21 January 2005.

- Meridian's previous payment of the $300,000 to Morellini and Prime (at Morellini's instruction) without there being any attempt to account to Lee and Howlett for the same.

- Morellini's use of fictitious invoices for the bulk of the $300,000 payments, which falsely claimed reimbursement of legal expenses and other amounts said to be owing in respect of those legal expenses.

- Meridian's conferral of a 2% royalty (in what can only be described as very dubious circumstances), combined with the failure to disclose the existence of that royalty to any pre IPO shareholders other than Adams.

211 Any reasonable observer, aware of the above facts in January 2007, would have realised that the auditors and prospective new directors would almost certainly raise queries about each of these matters. It was also likely that in the absence of satisfactory answers to those queries, there would be an adverse impact on the proposed listing and (ultimately) on public confidence in the company.

212 An expert valuation of the shares at the dates of acquisition by Adams and Grill would need to take account of all of the uncertainties resulting from these very nebulous and negative factors. To my mind, it is self-evident that any expert valuer would find it extremely difficult, if not impossible, to accomplish such a task.

213 Another hurdle which has stood in the way of a valuation at the date of acquisition is that, pending listing, the shares could not be sold on the open market and were not readily marketable. Furthermore, the shares were in a company controlled by Morellini, who was responsible for all of the negative factors which affected their value. In my view, it is highly unlikely that a hypothetical purchaser (aware of these matters and of their likely impact on the proposed listing) would have been willing to acquire the shares.

214 For these same reasons, I make the finding that Adams and Grill were, in fact, 'locked in' to their transactions once they purchased the shares in January 2007. Since then, other adverse events (such as the plaints for forfeiture) have further impacted on the value of Meridian's shares. In all of these circumstances, I consider that it would have been impractical and unrealistic for them to attempt to sell their shares.

215 In view of the above findings, it is clear that I should not adopt the normal rule for assessment of damages in trying to quantify the loss that Adams and Grill have each sustained. If either of them is to be granted any relief, it will have to an award of damages calculated on some other basis and/or appropriate orders under s 77 of the FTA.

216 The relief to be granted must have regard to the subsequent events which affected the value of Meridian's shares and contributed to the losses claimed. These events include the rift within Meridian's new board resulting in the steps taken by Morellini to remove the independent directors, the litigation commenced by various parties including Adams and Grill, and the plaints for forfeiture of the tenements.

217 In my view, the rift between Meridian's board members culminating in the removal of the independent directors necessarily impacted upon the prospective listing and on the value of its shares. Those events were largely precipitated by Morellini's earlier actions in respect of National Uranium, the payments of $300,000 to himself and Prime, and the royalty. Accordingly, the dysfunction within the company brought about by these events can be fairly attributed to Morellini. In this regard, his decision to remove the independent directors was particularly damaging, and I consider it to have been a major causal link to all of the woes that followed.

218 In the context of the present proceedings, it is also fair to regard Morellini as the cause of the Supreme Court proceedings commenced by Lee and Howlett. His lack of transparency and failure to account to Lee and Howlett made proceedings of some sort fairly inevitable. It is a matter of common experience that aggrieved plaintiffs tend to maximise their claims, and it is not surprising that Lee and Howlett (irrespective of the merits of the particular claim) sought to set aside the agreement of 21 April 2005.

219 The plaints for forfeiture of Meridian's tenements were also no surprise. Quite apart from the particular motivations that Lee and Howlett may have had, Meridian was in a dysfunctional and weakened state, and also running out of funds. In these circumstances, Meridian was very vulnerable, and it became an easy target for third parties interested in relieving it of its tenements.

220 It is also not surprising that, in all of these accumulating circumstances, other people who claimed to be owed money commenced civil proceedings against Meridian. Adams and Grill were responsible for an application to the Supreme Court by which they obtained leave to commence proceedings against Morellini and Prime in Meridian's name. There is nothing before me which indicates that they were not justified in taking that step.

221 In summary, and with the possible exception of the plaints for forfeiture commenced by Stewart, I find that Morellini's conduct was either a major cause, or at least a contributing cause, to all of the snowballing subsequent events which have impacted upon Meridian's share value.

222 On Grill's evidence, he and other shareholders encouraged the lodgement of the plaints for forfeiture by Stewart. They did this to forestall any settlement between Meridian, Morellini, Lee and Howlett, under which the company might lose its tenements. Although the logic of their reasoning is not entirely clear, I understand that they were using the Stewart plaints effectively as caveats to prevent any further dealing in the tenements.

223 Be that as it may, Grill's evidence does not explain why the Stewart plaints are still being pursued notwithstanding the deed of settlement between Morellini, Prime, Meridian, Lee and Howlett on 23 June 2008. Under that deed, all proceedings commenced by Lee and Howlett (including their plaints for forfeiture) were settled by payment of a cash sum, and Meridian's interest in the tenements was unaffected.

224 Turning now to the question of assessment of damages, I am satisfied that Morellini's contravening conduct has caused a loss in the value of the investment of each of Adams and Grill in Meridian. This is one of those cases where the plaintiffs have been unable to adduce precise evidence of what has been lost. Although I am satisfied that the loss in each instance is very substantial, the uncertainties surrounding the value of the shares makes any estimation of the damages sustained very difficult. In respect of Grill, there is also the peculiar difficulty that he shares causal responsibility for the Stewart plaints, which could conceivably result in the total loss of any residual share value.

225 In these circumstances, I consider that a just outcome is more likely to be achieved by appropriate orders under s 77, rather than by awards of damages under s 79. My discretionary powers under s 77 are very wide and, under subsection (3), include:

(d) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage.

226 I consider that I am in a position to make such orders in the present case because of Meridian's involvement in the contravention by Morellini. At all material times, Morellini was the sole shareholder and controlling director of Meridian. The contravening conduct was committed in order to have each plaintiff pay money to Meridian in return for the issue of shares in Meridian, and some of those funds were to be used to credit Morellini's and Prime's loan accounts. In reality, Morellini was selling part of his interest in Meridian to each of Adams and Grill.

227 Even if I am wrong in this analysis of the transactions, my powers under s 77 are wider than those specifically listed in subsection (3) and I consider that orders analogous to those contemplated by (3)(d) are appropriate to meet the justice of the case.

228 Accordingly, I intend to order that Morellini refund to Adams and Grill the moneys that each paid for their investment in Meridian. There also will be concurrent orders that Adams and Grill each transfer to Morellini (or his nominee) the shares that they acquired in Meridian. By means of these orders, the unquantifiable loss that Adams and Grill have each sustained will be transferred to Morellini who was the person responsible.

229 However, there is a significant impediment to the proposed orders in favour of Grill. The transfer of Grill's shares will result in unfairness to Morellini if the potential detriment to their value caused by the Stewart plaints is not removed. I do not know if Grill is in the position to control or influence the fate of the Stewart plaints, but as he encouraged their lodgement, he must accept responsibility for arranging their discontinuance before the proposed orders in his favour can be made. It is reasonable to allow Grill time for this purpose, but if the plaints cannot be discontinued, there is no basis on which damages can be assessed and his claims will have to be dismissed. (In these circumstances, there would be no way that any assessment could allow for the contingency that the Stewart plaints might result in the tenements being lost.)

230 Subject to further submissions from counsel limited to the question of the precise wording of the proposed orders, they will be as follows:

1. The defendant is ordered to pay to the plaintiff Adams the sum of $505,000 together with interest thereon pursuant to s 32 of the Supreme Court Act 1935 (WA) calculated from 23 January 2007 until the date of judgment.
2. The plaintiff Adams is to transfer to the defendant (or his nominee) all of the shares held by Adams in Meridian Mining Ltd.
3. Subject to the discontinuance within 90 days of all plaints commenced by one Stewart seeking forfeiture of mining tenements held by Meridian Mining Ltd, the defendant is to pay to the plaintiff Grill the sum of $101,000 together with interest thereon pursuant to s 32 of the Supreme Court Act calculated from 23 January 2007 until the date of judgment.
4. Upon receipt of that payment, Grill is to transfer to Morellini (or his nominee) all of the shares held by Grill in Meridian Mining Ltd.