Supreme Court of WA|2010-03-26|Before: Blaxell J

ADAMS -v- MORELLINI [2010] WASC 61 (26 March 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : ADAMS -v- MORELLINI [2010] WASC 61

HEARD : 28-30 JULY, 18-19 AUGUST & 18 SEPTEMBER 2009

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

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

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

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:

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.
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.

ADAMS -v- MORELLINI [2010] WASC 61 (26 March 2010)

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Judgment (334 paragraphs)

ADAMS -v- MORELLINI [2010] WASC 61 (26 March 2010)

Legislation Cited (2)

Cases Cited (11)