Appellant v Respondent

EQUITY - Whether fiduciary relationship existed - Whether there was a breach of fiduciary duty - Equitable damages - Constructive trust.

1 Each of these proceedings is an appeal by SE Vineyard Finance Pty Ltd (Receivers and Managers Appointed) ("SEVF") from orders made by his Honour Mr Smith M in the Magistrates' Court of Victoria at Melbourne on 22 December 2009 in complaints brought by it respectively against Chris Casey and against Alan and Helen Rose, and an appeal from a further order made by his Honour on 28 April 2010 in each complaint.

2 Mr Casey and Mr and Mrs Rose were investors in the Coonawarra Wine Grape Project ("the Project"), which involved the establishment and operation of a vineyard in the Coonawarra area in South Australia. A prospectus dated 3 March 1998 was issued by South East Vineyards Limited ("SEVL"). Between them, 212 investors purchased 469 "Interests" in the Project. In June 1998 Mr Casey applied for three Interests and Mr and Mrs Rose jointly applied for one Interest. Each Interest entitled the holder to lease 0.4 acres (0.16194 hectares) of land to be planted to vines. The land was leased from the owner, Schoolhouse Projects Pty Ltd ("Schoolhouse"), under a 16 year lease. The initial annual rental payable was $500 per unit. The prospectus contained a letter from a firm of accountants giving an opinion about the potential taxation benefits of investment in the Project, in particular if investors took advantage of loan funding to pay management fees.

3 The Project was managed by SEVL. That company had three directors, including Mr Stephen Wilkins. Investors entered into a Vineyard Management Agreement with SEVL. An initial management fee of $13,000 per Interest for the financial year 1 July 1998 to 30 June 1999 was payable by 30 June 1998. The prospectus contained the following information under the heading "Forecast Expenditure":

Forecasted expenditure to 31 July 1999 per .4 acre assuming 200 acres planted:

Vineyard Management and Development 1474 (1214)

Vines 384 ( 64)

Vineyard Infrastructure 3400 (2760)

Legal Accounting & Trustee 750 ( 400)

Margin for sundry costs and

unanticipated cost imposts 1200 ( 960)

Promotion expenses 1500 (1500)

Administration and Management 475 ( 215)

Manager's Surplus 3867

Total 13000 (7113)

The bracketed figures represent the amounts forecast to be paid to parties independent of the Manager or its associates.

"Manager's Surplus" is to the account of the Manager.

4 Sandhurst Trustees Limited ("Sandhurst") was Trustee of the Project pursuant to a Deed dated 27 February 1998. Part of the prospectus was headed "Role of the Trustee". Its first paragraph read:

Sandhurst Trustees Ltd will assist in protecting the rights and interests of Growers pursuant to a Trust Deed dated 27 February 1998 between the Manager and the Trustee. Specifically the Trustee will monitor the vineyard development and ensure that the Manager acts diligently. Grower lease interests will be protected by encumbrances lodged over the land to be developed.

The first year's fees were to be lodged with the Trustee at the time of application. It was stated in the prospectus that:

The Year 1 fees will not be released by the Trustee to the Manager until caveats are lodged over the land in a form satisfactory to the Trustee securing the lease interests of Growers for the lease period. This right is embodied in clause 12 of the Lease Agreement.

5 SEVF offered to lend the investors the amount of the management fees. According to the prospectus:

Growers may take advantage of loan funding of $13,000 to meet the first year's management fee, $3,500 to meet the management fee in year 2, $3,500 to meet the management fee in year 3, $800 to meet the management fee in year 4 and the management fee in year 5 (expected to be approximately $824).

The interest rate will be 7% fixed to 30 June 2002 and 5% fixed thereafter.

Mr Wilkins was the sole director, secretary and shareholder of SEVF.

6 Mr and Mrs Rose entered into a loan agreement with SEVF on 8 June 1998 to borrow $13,000 on 30 June 1998. Mr Casey also entered into a loan agreement with SEVF on 29 June 1998 to borrow $39,000 on the following day. These loan agreements were later replaced by new agreements made in late June 1999. The learned Magistrate found that, although the director of SEVF indicated to the borrowers that such a step was necessary to correct a "typographical error", in essence "the purpose was to ensure that the loans were of a full recourse nature as opposed to a non-recourse nature as may have been concluded or implied on the wording of the primary agreement". His Honour further held that otherwise, "there were no further or differing obligations created between the parties in the revamped agreement". He referred to the wording of the 1999 agreements which, as summarised by him, provided that from the date of such agreement:

The initial advance provided by the lender to the borrower under the 1998 loan agreement and still outstanding is governed by this agreement and the initial advances are deemed to have been advanced under this agreement; and the terms and conditions of the 1998 agreement are merged with this agreement, provided that the terms of this agreement prevail to the extent of any inconsistency.

7 There was no challenge to his Honour's conclusion that, although the plaintiff sued upon the 1999 or merged agreements, the defendants could raise any defence, set off or counterclaim relevant to the 1998 agreement.

8 The vineyard was established and planted by SEVL and in due course grapes were harvested. Just how the development was funded was not clear on the evidence. What was clear was what happened on 30 June 1998 with respect to the management fees paid by the investors who borrowed the initial management fee of $13,000 per Interest from SEVF. The following steps all took place on that day:

(a) SEVF borrowed the sum of $6.045 million from the ANZ Bank;

(b) that sum, being the amount SEVF was lending to borrowers in respect of 465 Interests, was paid by the ANZ Bank to Sandhurst;

(c) Sandhurst paid the sum of $6.045 million, being the first year's management fees in respect of 465 Interests, to SEVL;

(d) SEVL lent the sum of $6.045 million to SEVF interest free and repayable on demand; and

(e) SEVF paid the ANZ Bank the sum of $6.045 million in reduction of its borrowing from the ANZ Bank.

9 In a letter to the ANZ Bank dated 25 May 1998 explaining the proposed transaction, Mr Wilkins said that all of the electronic transfers would have been "previously unconditionally authorised by all of the parties". However, in a letter to Sandhurst dated 23 June 1998 confirming the details of the transaction, no mention was made of the final two steps. Instead, the explanation stopped with Sandhurst crediting SEVL's account with the amount of the management fees borrowed by the investors from SEVF.

10 The debt of over $6 million appeared in the books of both SEVL and SEVF as an at call loan from SEVL to SEVF. SEVL had only been incorporated on 24 February 1998 with an initial capital of $100. As a result of the round robin transaction on 30 June 1998, it was left owing the ANZ Bank $1204 for government duty and tax. SEVF had a similar liability. It had been incorporated on 19 December 1997 with an initial capital of $2. It was therefore in no position to pay SEVL the debt of over $6 million should the loan be called up.

11 Essentially similar round robin transactions occurred in 1999 and 2000 in respect of the loans made by SEVF to investors to finance the management fees payable to SEVL in those years.

12 On 15 September 2000, the Australian Taxation Office ("the ATO") advised the investors that following an investigation the ATO proposed to disallow the tax deductions claimed by them. The ATO forwarded a position paper and detailed report to the investors. In the position paper, it was said that:

The loan provided by SEVF involved a round robin arrangement which left none of the project entities with any increase in funds.

The loan arrangements involved artificial, blatant and contrived round robin transactions, with no real provision of funds. These were included as steps in the project only for tax reasons.

13 In his decision, the learned Magistrate referred to the following statement from the ATO's Review Report:

Of the $6.1 million of Management fees charged to the Growers for the first year, only approximately $1.5 million was accessed by the Manager up until 30 June 1999.

On the available evidence, it is proper to conclude that the work done by the Manager in establishing the vineyard through the financial year 1998/1999 and indeed subsequently, was actually financed not from any upfront payment of $6.1 million by the Investors, but from the repayments of capital and interest from time to time by the Investors as required in the loan agreements.

14 Following a protracted dispute between the ATO, the investors, Mr Wilkins as a director of both SEVF and SEVL, and others, a settlement was reached in mid 2002. This resulted in the investors being able to retain the deductions in respect of amounts paid by them and actually used in operating the vineyard. Effectively, this meant that the investors retained less than half of the taxation deductions which they had originally claimed.

15 After September 2000, Mr Casey and Mr and Mrs Rose continued to make payments of lease fees to Schoolhouse, management fees to SEVL and principal and interest to SEVF. Mr Casey made his last payment (of interest) to SEVF in November 2004. Mr and Mrs Rose made their last payment (also of interest) to SEVF in November 2005.

16 In June 2003, receivers and managers were appointed to SEVF and Schoolhouse by a secured creditor, HG & R Finance Limited, pursuant to debenture charges over each company, both dated 4 March 2002. Nevertheless, the Project continued to operate.

17 On 14 September 2004, the Interestholders resolved to appoint Sandhurst as the manager of the vineyard and the Project in place of SEVL. At a meeting of the Interestholders on 28 November 2005, Sandhurst presented a report from a management consultant which concluded that the Project was no longer commercially viable based on the contributions the investors were contractually bound to make. The Interestholders resolved to terminate the Project. As a result, pursuant to the terms of the loan agreements, all amounts owing to SEVF became payable in full.

18 SEVF's claim against Mr Casey was based on a default by him in October 2005 to pay the interest due and on his failure to pay the total amount owing after the termination of the Project. The Roses' failure to pay the total amount outstanding after the termination of the Project was the sole basis for SEVF's claim against them.

19 Grapes continued to be harvested from the vineyard by others after the termination of the Project in November 2005.

20 SEVF commenced proceedings in the Magistrates' Court against Mr Casey in June 2006, and against Mr and Mrs Rose in January 2007. Proceedings were also issued against about 45 other investors seeking repayment of the loans. A defence and counterclaim was filed by Mr Casey in September 2006 and by Mr and Mrs Rose in February 2007, both of which raised many issues for determination. However, the defendants did not seek to recover sums paid by them to SEVF (as opposed to merely seeking to resist liability for SEVF's claims) until amendments were filed in April 2008. And it was not until October 2009 that their counterclaims were amended to include a claim for a constructive trust.

21 In his decision given on 16 December 2009, the learned Magistrate considered that SEVF's claims against Mr Casey and against Mr and Mrs Rose were made out, subject to their defences and counterclaims. However, his Honour held that eight alternative defences and/or counterclaims raised by the defendants were made out. They were as follows:

(a) misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA");

(b) knowing involvement by the appellant in a contravention of s 52 of the TPA by SEVL;

(c) misleading and deceptive conduct in contravention of s 995 of the Corporations Law (or s 728 or 729 of the Corporations Act 2011 (Cth) ("the Corporations Act"));

(d) knowing involvement in a contravention of ss 995 or 996 of the Corporations Law (or s 728 or 729 of the Corporations Act) by SEVL;

(e) a claim under s 73 of the TPA that the respondents can set off the liability of SEVF against SEVF's claim against them;

(h) knowing assistance in a breach of fiduciary duty by SEVL.

Essentially, they all revolved around the question of whether there was some sort of legal obligation to disclose the intended round robin transaction.

22 Accordingly, the following orders were made by his Honour on 22 December 2009:

1. That pursuant to s 73 of the Trade Practices Act the defendants be entitled to set off against the claim of the plaintiff the sum of $45,081.23 in the matter of Casey and $15,589.95 in the matter of Rose.
2. That pursuant to s 73 of the Trade Practices Act the defendants may set off any further liability pursuant to the loan agreements to the extent of the plaintiffs claim.
3. The plaintiff make equitable compensation to the defendants to the amount of the sums in order (1) and to the extent of any monies claimed by the plaintiff as further payable in respect of the loan agreements.
4. Pursuant to s 52 and s 82 of the Trade Practices Act the defendants as plaintiffs by counterclaim have judgment of $45,081.23 in the matter of Casey and $15,689.95 in the matter of Rose.
5. Orders in both cases pursuant to s 87(2)(ba) of the Trade Practices Act that any term of the loan agreements requiring payment by the defendants upon the agreements be not enforceable.
6. The plaintiffs claim for relief being consequently extinguished, the complaints be dismissed.

23 His Honour also adjourned the hearing to allow for further submissions on the claim for the imposition of a remedial constructive trust in favour of the defendants. That issue was determined by the learned Magistrate in reasons given on 28 April 2010. The order made on this occasion was a declaration that:

monies received by the plaintiff from the defendants [Mr Casey and Mr and Mrs Rose] as payment of capital and interest on the respective loan agreements were received by the plaintiff as constructive trustee for the defendants.

24 The appellant's first Notice of Appeal in the Casey proceeding was filed on 21 January 2010 ("the Casey Notice of Appeal"). It contained 32 questions and 37 grounds, but three questions and three grounds were abandoned at the hearing without oral argument. The appellant's second Notice of Appeal in the Casey proceeding was filed on 28 May 2010 ("the second Casey Notice of Appeal"). It contained one question and three grounds.

25 The appellant's first Notice of Appeal in the Rose proceeding was also filed on 21 January 2010 ("the Rose Notice of Appeal"). It contained 31 questions and 36 grounds, and again three questions and three grounds were abandoned at the hearing without oral argument. The appellant's second Notice of Appeal in the Rose proceeding was also filed on 28 May 2010 ("the second Rose Notice of Appeal"). It also contained one question and three grounds.

26 As the questions and grounds relied on in the Casey Notices of Appeal were, with two exceptions, the same as those relied on in the Rose Notices of Appeal, apart from the occasional reference in the latter to "respondents" or "defendants" instead of "respondent" or "defendant", I propose to deal with the issues raised in the two appeals together. The exceptions will be noted and dealt with separately when they arise.

27 The appeals by SEVF were brought under s 109 of the Magistrates' Court Act 1989 which provides for an appeal on a question of law only. Because the respondents submitted that many of the questions relied on by the appellant were not questions of law, it is helpful at the outset to consider what is involved in that concept.

28 In S v Crimes Compensation Tribunal,[1] Phillips JA set out three propositions which could be employed in seeking to distinguish between a question of law and a question of fact. The propositions, with some further explanation by his Honour, were as follows:

1. What is the proper meaning, as a matter of construction, of the statutory description which is relevant to the claimant's success or failure is a question of law.

...

If the words are used with their natural and ordinary meaning, no further question of construction arises; for "[t]he common understanding of [the] words is not a question of law but of fact"[2]...

2. Once the task of construction is over, the question whether the claimant's particular circumstances fall within the relevant statutory description is essentially a question of fact.

...

It is in this context that it is sometimes said that where the question is one of degree, involving some element of value judgment, the question is one of fact, not law: Edwards (Inspector of Taxes) v Bairstow[3]...

3. Nevertheless if, in determining whether the particular circumstances of the claimant are such as to fall within the relevant statutory description, the fact-finding tribunal arrives at a conclusion which was simply not open to it, that is an error of law; and the question whether it arrived at a conclusion which was not open to it is a question of law.[4]

29 In Perkins v County Court of Victoria,[5] Buchanan JA considered whether a complaint about the adequacy of the reasons of the judicial officer from whose order the appeal is brought constituted a question of law. His Honour said:[6]

1. The degree of detailed reasoning required of a tribunal depends upon the nature of the determination, the complexity of the issues and whether the issues are ones of fact or of law or of mixed fact and law, and the function to be served by the giving of reasons. As to the last matter, reasons which are required to enable a right of appeal on questions of fact to be exercised might not be required if an appeal is limited to questions of law. In Soulemezis v Dudley (Holdings) Pty Ltd[7] the applicant appealed against the finding made in the Compensation Court of New South Wales that she was "fit for work" after a particular date, contending that the judge committed an error of law in failing to give any or sufficient reasons for that finding. The right of appeal was given only in respect of a question of law. It was held that the duty to give reasons for a decision in respect of a finding of fact from which no appeal lay was sufficiently satisfied by the giving of grounds for the finding without detailed reasoning in support of the findings. McHugh JA said:

While it is true that his Honour did not expressly give any reasons for the finding, his reasons for judgment show quite clearly in my opinion that he held that the applicant was fit for work because the CAT scan did not reveal any abnormality. It is not to the point that his Honour's finding was erroneous or, as counsel for the applicant claimed, perverse. An erroneous or perverse finding of fact raises no question of law and cannot be challenged by way of appeal. What is decisive is that his Honour's judgment reveals the ground for, although not the detailed reasoning in support of, his finding of fact. But that is enough in a case where no appeal lies against the finding of fact.[8] [Footnote omitted]

30 In State of Victoria v Subramanian,[9] Cavanough J made a number of helpful observations about the nature of an appeal on a question of law. First, in following Perkins, his Honour held that it was an error of law if it was not possible from a lower court's reasons to ascertain the basis for its findings.[10]

31 Secondly, his Honour held in respect of a question alleging a failure to consider relevant matters that the appellant needed to show two things: first, that the magistrate did in truth fail to consider some particular matter; and, second, that that matter was something that the magistrate was bound to consider.[11]

32 Thirdly, Cavanough J stated after considering numerous authorities on the "no evidence" ground of appeal:

In any event it seems to me that there is no significant difference between the Cehner/Spurling approach and the Hoffman/S approach for the purposes of the present case. On the Cehner/Spurling approach, the question is whether there was "any evidence upon which the magistrate might, as a reasonable man, come to the conclusion to which he did" (emphasis added). I would understand this as referring not to ordinary appeals from juries (or from trial judges) in which a new trial is sought, but rather to cases where the question is whether, as a matter of law, there is or was any evidence or other material upon which a verdict in favour of the relevant party could be given. In cases of the latter kind (like the present) grounds such as that evidence was wrongly admitted or rejected, misdirection by the trial judge or that the verdict was unreasonable or perverse or against the evidence or the weight of the evidence have no place ...[12] [Footnotes omitted]

33 Finally, his Honour concluded that causation was "a question of fact".[13]

34 Questions 1 and 2 in both the Casey Notice of Appeal and the Rose Notice of Appeal were as follows:

1. Did the learned Magistrate err in law in finding that the prospectus was misleading and deceptive:

(a) in failing to disclose the existence, nature and effect of the round robin transactions; and

(b) in otherwise failing to disclose the correct situation both as to the funding of the Manager's obligations in the initial year of operation and subsequently?

1. Did the learned Magistrate err in law in finding that the prospectus was misleading and deceptive insofar as it contained the prospectus representations (expressly or impliedly)?

35 A preliminary issue raised by the appellant was whether the learned Magistrate had expressly found that the "prospectus representations" had been made or whether his finding had been limited to the "prospectus omission", namely the lack of any reference to the existence of the round robin transaction. Mr Bigmore QC, who appeared with Mr McNamara of counsel for the appellant, submitted that the latter situation was the correct analysis. It was acknowledged that if the learned Magistrate had not made the finding about the "prospectus representations", then question 2 was superfluous.

36 The two "prospectus representations" pleaded by the defendants were that:

(a) the money borrowed by investors from SEVF to meet their obligations to pay management fees to SEVL would be used, or available to be used, to provide working capital for the establishment and management of a vineyard on land to be leased by each investor from Schoolhouse Projects; and

(b) substantially all of the funds borrowed from SEVF by investors would be expended by SEVL prior to 31 July 1999 on works necessary to establish and manage a vineyard on land to be leased by each investor from Schoolhouse Projects.

The particulars of the "prospectus representations" were that they were:

(a) partly in writing, being constituted by the details of Forecast Expenditure referred to in paragraph 3 above; and

(b) implied from the fact that the prospectus did not disclose that money borrowed by investors from SEVF would be used for the purposes of the round robin transactions.

37 The "prospectus omission" pleaded by the defendants was that it did not disclose the fact that the money borrowed by investors from SEVF was not to be expended by SEVL on the establishment and operation of the vineyard but was to be used in the series of round robin transactions.

38 The relevant passage is his Honour's decision is as follows:

There is no doubt that representations made by corporate entities in the prospectus are representations made in the course of trade or commerce. I also find that in failing to disclose the existence, nature and effect of the round robin transactions and in otherwise failing to disclose the correct situation both as to the funding of the Manager's obligations and in the initial year of operation and subsequently, the prospectus was misleading and deceptive.

It cannot be tenably asserted that the situation which actually obtained, that there would appear in the books of SEVF and SEVL an at call, both otherwise, it appears, unconditional loan obligation of some $6,000,000 owed by SEVF to SEVL; that the funds for the first year of operation wherein the vineyard establishment was to commence, were to be principally met by repayments of capital and interest, was in no material aspect different from what the prospectus represented.

39 I consider that his Honour did make the finding in question. Whilst different wording may have been used on occasions in his reasons, it seems to me that his Honour clearly found that there were statements in the prospectus about the proposed expenditure in the 13 months to 31 July 1999 which were misleading and deceptive. I refer to the following statements by his Honour by way of example:

(a) Mr Casey and Mr and Mrs Rose "placed reliance upon those matters in the prospectus specifically covering the financing of the Project";

(b) "the representations of SEVL as to how the moneys loaned by SEVF would in fact be treated in accordance with relevant statements in the prospectus";

(c) "I am satisfied that SEVF ... was knowingly concerned in the prospectus misrepresentations, and consequent contravention of s 52, by SEVL".

(d) "I am satisfied that misleading representations were made by SEVL" about funding; and

(e) "the relevant representations as to the funding found to be misleading and deceptive ...".

40 Turning then to the questions themselves, Mr Caleo SC, who appeared with Mr Strahan of counsel for the respondent, submitted that neither of these questions articulated a question of law. On the contrary, it was submitted, the finding that the failure to disclose the round robin transaction, "the prospectus omission", was misleading and deceptive (question 1) and the finding that the "prospectus representations" were misleading and deceptive (question 2) were both findings of fact. I agree. In my opinion, the two findings fell squarely within the first and second propositions outlined by Phillips JA in S v Crimes Compensation Tribunal. The words "misleading and deceptive conduct" were used in their natural and ordinary meaning and the questions of whether they applied to what was represented by, or not stated in, the prospectus were questions of fact. As McHugh J said in Butcher v Lachlan Elder Realty Pty Ltd:[14]

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.

41 With respect to question 2, counsel for the appellant submitted that a question of law did arise because there was no evidence before the Magistrates' Court on which the learned Magistrate could have based his finding about the "prospectus representations". It was submitted that the prospectus contained no statement or representation as to how money borrowed from SEVF would be used, nor any statement or representation as to how management fees paid by investors (whether from loan advances or otherwise) would be applied, nor as to how the expenditure forecast in the prospectus would be met. However, Mr Bigmore frankly conceded in argument that "had his Honour expressly found that there was an implied representation that the money would be applied in a certain way, we would have some difficulties with that because there's some evidence there that might support it". As I have concluded that the learned Magistrate did make such a finding, question 2 and ground II in both the Casey Notice of Appeal and the Rose Notice of Appeal fail.

42 With respect to question 1, counsel for the appellant submitted that the omissions found by the learned Magistrate were not matters that ought to have been disclosed. However, his Honour held as a matter of fact that the existence of the round robin transaction was a material non-disclosure in the prospectus. It could not be said, in my opinion, that there was no evidence on which his Honour could have based that finding.

43 Counsel for the appellant also submitted that the learned Magistrate misdirected himself about the law applicable to silence or omission constituting misleading or deceptive conduct. Reference was made to the summary by Robson AJA of the relevant principles in BMW Australia Finance Limited v Miller & Associates Insurance Broking Pty Ltd.[15] It was submitted that the learned Magistrate erred by not considering three matters identified by Robson AJA as important, namely he failed to have regard to "all the relevant circumstances", he did not identify relevant "other factors" apart from silence and he did not explain why the defendants might have had a "reasonable expectation" that the intention to employ a round robin would be disclosed in the prospectus.

44 The Court of Appeal's decision in BMW has since been overturned by the High Court of Australia.[16] However, that case was concerned with the failure by a party to commercial negotiations to volunteer information about an insurance policy, a copy of which had been handed to the other party. In the joint judgment of French CJ and Kiefel J, reference was made to the decision of the Full Court of the Federal Court in Demagogue Pty Ltd v Ramensky,[17] in which the leading judgment was written by Gummow J. French CJ and Kiefel J stated:

Silence, as Black CJ said in his concurring judgment, was to be assessed as a circumstance like any other:[18]

the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.

Their Honours also quoted with approval the following passage from the judgment of Gummow J:

Unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.[19]

Their Honours then drew a distinction in approach on the question of reasonable expectation between a situation involving entities in commercial negotiations as in the appeal before them and conduct said to be misleading or deceptive to members of the public such as the non-disclosure of material facts in a prospectus.[20]

45 I do not consider that the appellant has shown that the learned Magistrate misdirected himself as to the relevant considerations to be taken into account in finding that the "prospectus omission was material". In my opinion, it is plain from the reasons when read as a whole that the learned Magistrate did have regard to all the relevant circumstances, including the silence about the round robin transaction, and that it was open to him to conclude, in the circumstances of a prospectus to members of the public, that it was a reasonable expectation that if there were to be a round robin involving the management fees, that would be disclosed in the prospectus. Thus, the finding that this constituted misleading and deceptive conduct is a finding of fact untainted by any error of law. Therefore, question 1 and ground 1 in both the Casey Notice of Appeal and the Rose Notice of Appeal fail.

46 Question 3 in both the Casey Notice of Appeal and the Rose Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that the misrepresentations made by SEVL in the prospectus were, in terms of s 73 of the Trade Practices Act 1974 (Cth), made "in relation to the [vineyard management agreement]"?

47 The relevant wording of s 73 of the TPA in June 1998 was as follows:

(1) Where:

(a) ...

(b) a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier) for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer.

and the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction.

48 The learned Magistrate held that "SEVF as a credit provider was a linked credit provider to SEVL and that SEVL for the purposes of s 73 is a 'supplier ' in respect of a tied loan contract." He went on to hold that:

While it is usually the case, a misrepresentation on the part of the supplier, "in relation to the contract" is not confined to misrepresentations as to the nature or quality of the goods or services to be supplied. The section is expressed in wide terms. A misrepresentation might be made by the supplier as to the manner in which the financing [of] the services in question, was to be secured and/or effected. Such in my opinion was the case in the present proceedings where the supplier of the services, SEVL, made such misrepresentations in the prospectus.

The position of the "purchasers" is that, while making no complaint as to the actual quality of the vineyard establishment services provided by the supplier, SEVL, [they] state that nonetheless, they would not have "purchased" those services had they known that relevant matters in the prospectus were misleading and deceptive, or had true representations been made in the prospectus as to the means and method by which the services were to be provided to them upon their "purchase" through the loan agreements.

(It follows also that the Investors would not have entered into, and incurred the cost of the Lease Agreements entered in to as a necessary part of their interest).

49 I put to one side the submission by the appellant that s 73 did not apply based on a ground that had already been decided against the appellant, namely, that there were no "prospectus representations" and no "prospectus omission".

50 I also reject the alternative submission that s 73 did not apply because the "prospectus omission" was not a "misrepresentation". In my opinion, such a construction would be an unduly restrictive interpretation of the concept of a "misrepresentation". In any event, "misrepresentation" clearly encompasses the "prospectus representations".

51 The learned Magistrate's reference to the phrase "in relation to the contract" and the wording of the appellant's written submissions led to some confusion as to whether the appellant was submitting that the misrepresentation had to be "in relation to the contract". Mr Bigmore clarified in argument that this was not the appellant's submission. Thus, it was common ground that the phrase "in relation to the contract" referred to the words "a failure of consideration" and did not qualify the earlier objects of the clause such as "misrepresentation". This meant that paragraph 1 of Mr Casey's Notice of Contention was no longer relevant.

52 The appellant's main submission about the construction of s 73 was that the learned Magistrate's finding that a misrepresentation was made by SEVL "as to the manner in which the financing [of] the services in question, was to be secured and/or effected", was a misrepresentation as to the provision of finance, not a misrepresentation about the goods or services purchased under the Vineyard Management Agreement.

53 Counsel for the appellant relied on what was said by his Honour Judge Smith of the District Court of South Australia in New Holland Credit Aust Pty Ltd v Vaudeleur.[21]

The meaning of the above provision is obvious. It imposes a statutory joint and several liability on a linked credit provider for breaches by the supplier of goods or services. The section does not require, as a precondition to the liability of the credit provider, that there be a breach of the credit contract. Rather, the breaches which enliven the joint and several liability are breaches of the contract for the supply of goods or services. The joint and several liability of the credit provider is imposed by the statute.

The purpose and object of s 73 is clear. It is a perfectly straightforward and intelligible consumer measure, which protects the purchaser in a case where the supplier of goods or services is associated with the provider of finance. It prevents a financier who is associated, in the requisite way, with the goods supplier, sheltering behind the principle of privity of contract and enforcing the terms of the credit contract when there is a problem with the goods, the purchase of which, he has financed.

54 Mr Caleo pointed out during argument that the decision by Judge Smith was about the adequacy of the defendant's pleading and that therefore all that his Honour really decided was that the matters sought to be pleaded were arguable under s 73. His Honour specifically stated that he was not finally deciding on the meaning of s 73.[22]

55 I agree with the submission by counsel for the respondents that, properly construed, s 73 applied whenever a consumer suffered loss as a result of a misrepresentation, whether or not the contract referred to was for the provision of credit or for the supply of goods and services.

56 In my opinion, the learned Magistrate was correct in holding that s 73 applied to a situation such as this where the complaint was not that the supplier did not perform the obligations to provide goods and services but that the agreement with the supplier (the Vineyard Management Agreement) would not have been entered into at all if there had not been the misrepresentations. Accordingly, question 3 and ground III in both the Casey Notice of Appeal and the Rose Notice of Appeal fail.

57 The next question relied on in the Casey Notice of Appeal was question 5. It read as follows:

1. Did the learned Magistrate err in law in finding that the respondent was a "consumer" within the meaning of s 4B of the Trade Practices Act 1974?

There was no equivalent question in the Rose Notice of Appeal as it was accepted that the Roses were consumers.

58 It was submitted on behalf of Mr Casey that the question did not give rise to a question of law, but that in any event it was correct on the facts. There was no question of law, it was submitted, because it was not alleged by the appellant that the learned Magistrate misconstrued the relevant legislation. Rather the complaint was merely as to the application of the legislation as construed to the particular facts.

59 Section 4B(1) of the TPA relevantly provided that for the purposes of the TPA, unless the contrary intention appeared, a person shall be taken to have acquired particular goods or services as a consumer if, and only if, the price of the goods or services did not exceed the prescribed amount. The TPA further provided that the prescribed amount was $40,000 (s 4B(2)(a)) and that the price of the goods or services purchased by a person shall be taken to have been "the amount paid or payable by the person for the goods or services" (s 4B(2)(b)). Thus, the question was whether the price of the services purchased by Mr Casey exceeded $40,000.

60 Counsel for the appellant submitted that the price payable by Mr Casey under the Vineyard Management Agreement for management fees exceeded $40,000 because $39,000 was payable by 30 June 1998 and $10,500 was payable by 30 June 1999 and other sums were payable thereafter. However, if the price in question was the amount of credit provided in respect of the supply of services, then counsel for the appellant submitted that the limit of $40,000 was again exceeded because Mr Casey borrowed $39,000 in June 1998 and $10,500 in June 1999 and other sums thereafter.

61 Counsel for Mr Casey submitted that the proper construction was that the price in question was the price of the services in respect of which credit was being obtained from the linked credit provider. However, it was not correct, it was submitted, to do as the appellant had done and add up all of the management fees paid or payable by Mr Casey or all of the credit obtained by Mr Casey. This was the case for either of two reasons. First, the 1998 loan agreement, which provided the largest amount of credit to Mr Casey, contained no option to borrow funds from SEVF in future years. The credit supplied related to the first year only of the management agreement. Therefore, the price paid by Mr Casey under that agreement was only $39,000, which was under the $40,000 prescribed amount.

62 However, his Honour focused on the wording of the 1999 loan agreement. Under that agreement, the credit available was in respect of:

an amount equal to the management fee payable by the Borrower under the Vineyard Management Agreement for the next financial year respectively.

It was clear from the evidence that Mr Casey had the option each year to decide whether or not to borrow the money to pay that year's management fees. The credit provided for management fees for the year ended 30 June 1999 alone was less than $40,000 and each of the subsequent years was the same or smaller, to the extent that it could be calculated. Even if one added together all of the management fees for the year ended 30 June 1999 and the subsequent 14 years of the Vineyard Management Agreement, it could not be shown that they exceeded $40,000 because the amount became subject to a formula which could not be calculated in advance. According to the calculation in the appellant's written submissions they totalled approximately $32,200.

63 His Honour held that, in the circumstances, Mr Casey was a consumer:

It is clear that the "Initial advance" referred to in the "Revamped" loan agreement of June 1999 referred to a loan of $39,000 to meet the Management fees for the first year of operation. The "Additional advances" referred to in the revamped agreement refer to the option which the agreement extended to Mr Casey to draw down further loan moneys to meet Management fee payments payable from time to time, beyond the end of the financial year 1998/1999. On each occasion that Mr Casey took advantage of the facility offered, the price or value of the management services that he was purchasing from SEVL was less than $40,000. For the purposes of determining whether a person is a consumer for the application of s 73, the critical issue is the value of the goods or services that he acquires by any tied loan contract, and not the cost of that loan. In these circumstances, I am satisfied that Mr Casey was on every occasion that he took on an option to borrow, a "consumer" within the meaning of the relevant provision of the Act ...

64 In my opinion, the appellant has not shown that the learned Magistrate erred in law in finding that Mr Casey was a "consumer". Therefore, question 5 and ground V in the Casey Notice of Appeal fail.

65 The next questions relied on were questions 7 and 8 in the Casey Notice of Appeal and questions 6 and 7 in the Rose Notice of Appeal. They read as follows:

1. Did the learned Magistrate err in law in finding that the appellant was knowingly concerned in the representations, and consequent contravention of s 52 of the Trade Practices Act 1974 by SEVL?
2. Did the learned Magistrate err in law in finding that the representations were made by SEVL with the knowledge and collusion of the appellant?

The defendants rely upon the contravention of ss 52, and the provisions of 82 of the Trade Practices Act to raise a defence/set off, and counterclaim, against the plaintiff. While it is SEVL which in terms authorised and caused the issue of the prospectus, the defendants say that SEVF as lender allowed and authorised its pro forma loan agreement to appear in the prospectus, and in so doing either expressly or by necessary implication adopted the representations of SEVL as to how moneys loaned by SEVF would in fact be treated in accordance with relevant statements in the prospectus. The defendants say firstly that in doing so, SEVL were engaged in conduct on behalf of SEVF within the provisions of s 84(2)(b) of the Trade Practices Act. In the alternative, the defendants say that SEVF were knowingly concerned in the contravention of s 52 by SEVL, to the extent necessary to make them liable in damages, in accordance with s 75B(1) of the Act. In all the circumstances, I am satisfied that SEVF, being one of the entities involved in the round robin transactions, taken with the role and conduct of Mr Wilkins, was knowingly concerned in the prospectus misrepresentations, and consequent contravention of s 52 by SEVL.

I have some doubt that the defendants' reliance upon s 84(2) of the Act can be maintained. While I am satisfied that the misleading representations were made by SEVL with the knowledge of SEVF, indeed with the collusion of SEVF, the relevant representations as to the funding found to be misleading and deceptive were in fact made principally by SEVL, in its own interest. Whether a relationship of principal and agent as opposed to common purpose, between SEVL and SEVL can be construed, I think is open to question. In any event, as I am satisfied that what is essentially accessorial liability attaches to the plaintiff, it is not necessary to consider that particular issue further.

67 The only question of law raised by these questions was whether the learned Magistrate gave no reasons, or no sufficient reasons, for his conclusions.

68 In both their written and oral submissions counsel for the appellant subjected his Honour's reasons to detailed criticism. It was then submitted that the basis of the finding of accessorial liability was simply not explained and that an appeal court could not ascertain the reasoning on which the decision is based. It was submitted that these were cases calling for clear and detailed reasons as they involved serious allegations and the result affected not only Mr Casey and Mr and Mrs Rose but "in addition 45 other cases where the amount in dispute exceeded $2M".

69 I reject this criticism of the learned Magistrate's reasons. Reference has already been made to the statement by the Court of Appeal in Perkins that, where the appeal from a decision is limited to a question of law, what is required to meet the adequate standard is more limited than in circumstances where more broadly cast rights of appeal exist.

70 In Franklin v Ubaldi Foods Pty Ltd[23] the general test for adequacy of reasons was stated as follows:

Reasons must be such as reveal - although in a particular case it may be by necessary inference - the path of reasoning which leads to the ultimate conclusion. If reasons fail in that respect, they will not enable the losing party to know why the case was lost, they will tend to frustrate a right of appeal, and their inadequacy will in such circumstances constitute an error of law.[24]

71 When the adequacy of a Magistrate's reasons is being considered the "reasons have to be read fairly and in context, not trying to find error" and should be considered in the context of the evidence and the submissions made.[25]

72 In Yorke v Lucas,[26] it was held that in order to be liable under s 75B(1)(c) of the TPA a party must be an intentional participant in the contravening conduct, the necessary intent being based upon knowledge of the essential elements of the contravention. In their written submissions to the learned Magistrate, the defendants submitted that Mr Wilkins knew of the essential facts constituting the contravention of s 52 by SEVL because he knew that there would be the round robin of transactions, that the prospectus did not disclose the round robin of transactions and that the prospectus contained the representations. With this in mind, it seems to me that his Honour's path of reasoning leading to his conclusion that SEVF was knowingly concerned in the contravention of s 52 is adequately explained.

73 This conclusion means that questions 7 and 8 and grounds VII and VIII in the Casey Notice of Appeal and questions 6 and 7 and grounds VI and VII in the Rose Notice of Appeal fail.

74 Paragraph 2 of Mr Casey's Notice of Contention pursued the argument, doubted but not decided by his Honour, that s 84(2) of the TPA deemed SEVF to have engaged in the contravening conduct. Given the above conclusion, it is unnecessary to consider the alternative argument.

75 Question 9 in the Casey Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that:

(a) the respondent's loss crystallised, and his causes of action accrued, in respect of s 82 of the Trade Practices Act 1974 and ss 995 and 996 of the Corporations Law, in November 2005 when the project was terminated;

(b) the limitation period relevant to the respondent's claim pursuant to s 82 of the Trade Practices Act 1974 and ss 995 and 996 of the Corporations Law runs for a period of 6 years from 28 November 2005; and

the claims by the respondent, in his counterclaim and by way of set off, pursuant to the Trade Practices Act 1974 and ss 995 and 996 of the Corporations Law are not statute barred.

Question 8 in the Rose Notice of Appeal was the same, except for the reference to "respondents" in the plural.

the law is that a cause of action under s 82 accrues not when there is a breach or contravention of s 52 but when loss or damage arises as a consequence of such breach. The claim of a party to damages does not arise when there is but a potential for loss or damage, but only when that such [sic] loss or damage actually crystallises or occurs. It may in some cases be possible on the particular facts for both the contravention and the occurrence of loss or damage to coincide, but I am satisfied that such is not the case in these proceedings. As to the relevant authorities, I refer in particular to Wardley Australia Ltd v Western Australia.[27]

After referring to the fact that there was considerable evidence of, and much focus upon, the actions of and dealings with the ATO, and pointing out that the ultimate consequences of the ATO's action was not offered as the measure of the defendants' loss, his Honour concluded:

In my opinion, the defendants' loss crystallised, and their cause of action accrued in respect of s 82, in November 2005 when the project was terminated. This ended any prospect of returns which had been projected to flow from the fruition of the enterprise.

He also held that, because of the amendment in July 2001 to s 82 of the TPA, the relevant limitation period was six years from 28 November 2005.

77 Counsel for the appellant submitted that as the respondents contended that they would not have been involved in the Project but for the misleading and deceptive conduct, and they sought to recover all amounts paid by them, they must have suffered loss as soon as they entered into the agreements and prepaid interest on or before 30 June 1998, and certainly not later than when they made repayments of principal on about 30 September 1998. It was submitted, therefore, that the respondents' causes of action accrued when they paid some interest and then some principal in 1998. This was the case whatever the nature of the cause of action. Mr Bigmore submitted that this was not a situation where you had to wait and see whether any loss or damage was going to be suffered.

78 Mr Bigmore placed great reliance on the decision of the Full Court of the Federal Court of Australia in Jobbins v Capel Court Corporation Limited.[28] In that case, the applicant pleaded that he had invested $60,000 in the production of a film relying on misleading and deceptive representations by the respondents. The question arose as to whether his proceeding was issued out of time. The Court held that:

the applicant suffered damage immediately upon his entry into the agreement and the making of the payment thereunder, both of which occurred outside the three year period.[29]

79 Mr Bigmore submitted that the conclusion in Jobbins with respect to the making of the payment was still good law notwithstanding the decision of the High Court of Australia in Wardley Australia Limited v Western Australia.[30] In that case, the State claimed that it had suffered loss as a result of misleading and deceptive conduct by Wardley which led the State to grant an indemnity to National Australia Bank Ltd against a facility granted by the Bank to Rothwells Ltd. The Court held that the State suffered no loss until the contingency was fulfilled and that accordingly time did not begin to run under s 82(2) of the TPA until that event occurred. It was said in the judgment of Mason CJ, Dawson, Gaudron and McHugh JJ that:

If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred.[31]

80 With respect to the decision in Jobbins, the plurality said this:

The decision itself may be supported by reference to the payment alone. What is more, the applicant's loss and damage, as pleaded in the statement of claim, consisted in the payment of $60,000 on 9 April 1986. But we have difficulty in accepting that the applicant suffered loss or damage on entry into the agreement merely because the investment was alleged to lack the represented qualities. On this aspect of the case, the question was whether the investment was worth less than the applicant contracted to pay for it and, if so, when the applicant first sustained loss or damage. How that question could be answered in the absence of evidence is not evident to us. Although the investment lacked the represented qualities, it may have been worth no less than the consideration provided by the applicant.[32]

81 However, counsel for the respondent submitted that the investors' cause of action accrued not when the contravention occurred, but when loss or damage was suffered as a result of the contravention. That did not occur until the termination of the Project in November 2005, when it became clear that the investors had lost money and that they would not be receiving from the Project a return on their investment.

82 More importantly, however, counsel for the respondent submitted that no question of construction of the relevant statutory provisions concerning limitation periods arose in this case. The causes of action all occurred when loss or damage was suffered and when that occurred was a question of fact. Thus, the appellant's challenge to the learned Magistrate's finding as to when loss and damage was relevantly suffered did not give rise to a question of law.

83 I agree that the question of when loss or damage was suffered is a question of fact. In Karedis Enterprises Pty Ltd v Antoniou,[33] Burchett and Hill JJ stated as follows:

The High Court in Wardley Australia Ltd v Western Australia considered the question of when loss or damage was sustained in the context of an indemnity induced by misleading or deceptive conduct. The judgment makes it clear that loss or damage will not necessarily be suffered at the time a contract is entered into on the faith of misrepresentations made by a respondent. The question will be one of fact. In a simple case where a plaintiff purchases an asset on the faith of a misrepresentation and that asset is shown by evidence to have been worth less than it was represented to be, the loss or damage has generally been held to have been suffered at the time the contract was entered into or perhaps at the time when the purchase money under the contract is paid. ...

However, the High Court in Wardley made it clear that in other cases the disadvantageous character or effect of an agreement entered into on the faith of a misrepresentation might not be ascertained until a future date.

...

Deane J in Wardley emphasised that the question when loss was incurred was one the answer to which would vary in accordance with the facts of a particular case, a view consistent with the other judgments delivered by the Court.[34]

84 Sackville J, the third member of the Full Court in Karedis, expressed a similar view about what had been decided in Wardley:

The reasoning of the Court does, however, support the proposition that, at least in the case where the disadvantageous character of a transaction cannot be ascertained at the outset, a loss is not sustained until the plaintiff or applicant ascertains, or has the means available to ascertain, that he or she has been prejudiced by entry into the transaction. Potential loss is not enough.[35]

85 Accordingly, there is no question of law arising out of these questions. This conclusion means that question 9 and grounds IX, X and XI in the Casey Notice of Appeal and question 8 and grounds VIII, IX and X in the Rose Notice of Appeal fail.

86 Paragraph 3 of Mr Casey's Notice of Contention challenged the learned Magistrate's rejection of the submission that the amendments to Mr Casey's counterclaim related back to the original date of the filing of his defence and counterclaim. Given the above conclusion, it is unnecessary to consider the argument and the criticism of his Honour's reasoning, other than to refer to the learned consideration of this issue by Ormiston JA in Agtrack (NT) Pty Ltd v Hatfield.[36]

87 Questions 10 and 11 in the Casey Notice of Appeal were as follows:

1. Did the learned Magistrate err in law in finding that a defence under s 52 of the Trade Practices Act 1974 is not an action within s 82 of that Act and so the time bar in s 82(2) was not applicable?
2. Did the learned Magistrate err in law in finding that the respondent may raise loss and damage consequent upon the contravention of s 52 of the Trade Practices Act 1974 by the appellant as an equitable set off to the appellant's claim?

Questions 9 and 10 in the Rose Notice of Appeal were the same, except that question 10 referred to "respondents".

88 After referring to the decision of Rogers J in Australian Mutual Providence Society v Specialists Funding Consultants[37] that s 52 could be used as a defence outside the limitation period, the learned Magistrate said that he would respectfully adopt those conclusions. He therefore held that if he were wrong about the applicable limitation period:

the defendants may in any event raise loss and damage consequent upon the contravention of s 52 by SEVF as an equitable set off to the plaintiff's claim.

89 Counsel for the appellant referred to, and relied upon, the contrary view taken by Cole J[38] at first instance and by Kirby P in the New South Wales Court of Appeal[39] in Spedley Securities Ltd (in liq) v Bank of New Zealand. They pointed out the learned Magistrate had made no reference to these judgments.

90 However, counsel for the respondents referred to, and relied upon, the more recent decision of the New South Wales Court of Appeal in Bitannia Pty Ltd v Parkline Constructions Pty Ltd[40] where it was held that s 52 could be raised as a defence alone or as an equitable set-off.[41] In particular, Basten JA specifically declined to follow the reasoning of Kirby P in Spedley.[42] Thus, counsel for the respondents submitted that the authorities currently provide that an allegation of contravention of s 52 may be pleaded as a defence, that an allegation of contravention of s 52 may give rise to a set-off and that such allegations are not subject to the time limitations in s 82(2).

91 In argument, Mr Bigmore accepted that it was likely that I would follow the latest statement of the New South Wales Court of Appeal unless satisfied that it was plainly wrong. He formally made the submission that Bitannia should not be followed.

92 In my respectful opinion, the analysis in Bitannia was correct. Accordingly, the appellant has not shown that the learned Magistrate made any relevant error in law. This conclusion means that questions 10 and 11 and grounds XII and XIII in the Casey Notice of Appeal and questions 9 and 10 and grounds XI and XII in the Rose Notice of Appeal fail.

93 Questions 12 and 13 in the Casey Notice of Appeal were as follows:

(a) placed reliance upon those matters in the prospectus specifically concerning the financing of the project in making his investment; and

(b) would not have applied for and taken up an interest in the project had he been aware of the round robin transactions -

findings upon the evidence which a reasonable Magistrate could make; and/or were they, as a matter of law, findings that there was reliance upon a misrepresentation?

1. Were the reasons of the learned Magistrate sufficient to justify these findings?

Questions 11 and 12 in the Rose Notice of Appeal were the same, except that question 11 referred only to the second respondent, Mrs Rose. That is, no challenge was made to the learned Magistrate's findings about Mr Rose.

94 The relevant findings of the learned Magistrate were as follows:

Mr Casey impressed as a man who was essentially conservative when it came to investment and was concerned at the time of entering the project with its financial soundness. Mr Casey did appreciate and understand the commercial risks of entering into the project ... He was adamant however that had he known of the round robin transactions he would not have entered the project. His understanding was that upon the applications being accepted by the Manager, there would be an immediate fund of some $6m provided either by the Investors from their personal resources or by the drawing down of the loans with Finance; these funds would be paid to the Trustee and thereafter released under the general prudential supervision of the Trustee to the Manager in order to carry out the works required in accordance with the Management Agreement and in accordance with the forecast expenditure as appearing ... [in] the prospectus. Mr Casey did not accept that the ultimate effect of the round robin which was a liability on the books of Finance to pay Management some $6m was essentially no different to the situation as represented in the prospectus. Mr Casey's evidence was that he relied upon, and was assured by, the apparent fact that there would be an actual corpus of moneys specifically directed to the establishment and development of the vineyard in accordance with the Management Agreement. He denied, and I accept his denial, that such a concern was a recent invention.

Mr Rose was an Investor who had enjoyed a long career as a senior Commonwealth public servant. He was also a qualified lawyer. Both Mr Rose and his wife had an interest in the colloquial sense, in the wine industry. Mr Rose was initially concerned with the quality of the project. That is to say that it was a venture designed to produce returns from a good product. ... Mr Rose also appreciated and understood the risks referred to in the prospectus; he also understood that certain tax advantages, if legitimate, might flow from the structure of the venture as indicated in the Landy opinion. These tax advantages were not however a primary or indeed significant reason why he entered the project. Mr Rose gave evidence that on account of his professional background and career, as well as his personal principles, the idea of entering in to any venture that in any way suggested or smacked of chicanery or tax evasion was repugnant to him. He had a particular aversion to the employment of round robin transactions, and had he known of the existence of these matters, he would not have invested in the project.

The investment of Mr and Mrs Rose was a joint investment and the evidence of Mrs Rose was that she would have followed and heeded the concerns of Mr Rose and would have agreed with his decision not to invest had the facts been known to them both.

I accept the evidence of Mr Casey and Mr and Mrs Rose that they placed reliance upon those matters in the prospectus specifically concerning the financing of the project, in making their investments, but until alerted by the ATO they were unaware of the existence, nature and effect of the round robin transactions; and that they had done so [sic], they would not have applied for and taken up an interest in the project.

95 Counsel for the appellant listed a number of matters which they relied on in support of the submission that no reasonable Magistrate could have made the finding in respect of Mr Casey. However, those were all factual matters which the learned Magistrate could give weight to or not. As McHugh JA said in Soulemezis in the passage quoted in paragraph 29 above:

An erroneous or perverse finding of fact raises no question of law and cannot be challenged by way of appeal.[43]

96 With respect to Mrs Rose, counsel for the appellant pointed out that she did not nominate the forecast expenditure as a matter in the prospectus which she considered important at the time she read it. Her evidence simply was that she would not have invested if Mr Rose had wished not to do so. Counsel for the appellant submitted that this meant that there was no reliance by Mrs Rose upon any misrepresentation. But her investment was a joint one with her husband and he was misled.

97 Whatever the strengths of the points made by the appellant, the fact is that the learned Magistrate saw and heard the witnesses give their evidence, heard the submissions and concluded that he believed Mr Casey and Mr Rose when each of them said that he would not have invested in the Project, had he known about the round robin transactions. The learned Magistrate also accepted the evidence of Mrs Rose that she would have followed whatever her husband decided. In the circumstances, it cannot be said that there was no evidence for the learned Magistrate's conclusion. Therefore, the challenge to his factual findings does not raise any question of law.

98 The second of the above questions raised the issue of the adequacy of the learned Magistrate's reasons relating to reliance and causation. Counsel for the appellant submitted that the learned Magistrate should have given his reasons for rejecting the appellant's submissions based on the particular evidentiary points.

99 Counsel for the respondent submitted that the appellant had neither suggested nor demonstrated that his Honour relied on any erroneous principle of law in reaching his conclusion. Nor was it suggested that by reason of the alleged inadequacy of the reasons, it was not possible for this Court to understand whether the learned Magistrate acted on a wrong principle of law.

100 In my opinion, the reasons of the learned Magistrate were adequate. I do not consider that it was necessary for him to set out all of the particular matters put to Mr Casey in support of the suggestion of recent invention. Obviously he was aware of them because he referred to the suggestion and said that he accepted Mr Casey's denial. As far as Mrs Rose is concerned, I do not see what else his Honour could have said about his finding in respect of her. As I have said, he accepted that she would follow her husband and the learned Magistrate's reasons for finding that Mr Rose would not have invested had he known about the round robin transactions were not challenged by the appellant.

101 This means that questions 12 and 13 and grounds XIV to XVII in the Casey Notice of Appeal and questions 11 and 12 and grounds XIII to XVI in the Rose Notice of Appeal fail.

102 Question 14 in the Casey Notice of Appeal and question 13 in the Rose Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that as at 30 June 1998:

(a) there was a contravention of ss 995 and 996 of the Corporations Law by the appellant as a person "involved in the contravention"?; and

(b) the appellant was knowingly concerned in misleading representations in the prospectus, either by positive representations as to the nature of, and process in the funding of SEVL's obligations, or by omitting to state the true position?

103 The thrust of the appellant's submissions with respect to the question was that the learned Magistrate was incorrect in holding that ss 995 and 996 of the Corporations Law applied to the events occurring on and after 1 July 1998 rather than ss 728 and 729 of the Corporations Act and that his reasons did not explain why he had taken that view. However, as counsel for the respondents pointed out, nothing said in the appellant's submissions about this question suggested that anything turned on which statutory provisions were applicable as far as the outcome of the two Magistrates' Court proceedings and the appeals to this Court were concerned. In the circumstances, it seems to me that there is no point in considering complicated transitional provisions when the outcome is still the same regardless of which statutory provisions are applicable. The Court does not give advisory opinions.

104 This conclusion means that question 14 and ground XVIII in the Casey Notice of Appeal and question 13 and ground XVII in the Rose Notice of Appeal fail.

105 Questions 15 and 16 in the Casey Notice of Appeal were as follows:

1. Did the Learned Magistrate err in law in finding that there was a fiduciary relationship between SEVL and the respondent?
2. Did the learned Magistrate err in finding that SEVL was under a fiduciary duty to the respondent:

(a) to act with the utmost candour and honesty; and

(b) to carry out strictly the covenants under which it accepted the appointment as manager of the business of the trust?

Questions 14 and 15 in the Rose Notice of Appeal were the same, except for the references to "respondents".

106 Counsel for the appellant submitted that his Honour's finding of a fiduciary relationship appeared to have hinged on a submission by the respondents' counsel that the law has long recognised that those who promote business ventures and seek to raise money from the public owe fiduciary duties to those who invest with them. However, they did not dispute the correctness of the submission by the respondents' counsel. Rather, counsel for the appellant submitted that the learned Magistrate paid insufficient attention to his observation that the authorities caution against attempts to add fiduciary obligations to obligations that are otherwise only contractual or statutory in nature. Therefore, it was submitted that his Honour's conclusion about a fiduciary relationship was contrary to authority and wrong.

107 Counsel for the respondents submitted that the appellant did not point to any principle which it said the learned Magistrate had applied in error nor did it submit that there was no evidence capable of supporting the finding. Counsel therefore submitted that absent an error of that type, the finding that, on the facts before the Court, a fiduciary relationship existed was unimpeachable on an appeal under s 109.

108 In my opinion, the factual finding by the learned Magistrate that there was a fiduciary relationship between SEVL and the Interestholders was one that was open on the evidence. Over the course of some four pages in his reasons, his Honour carefully considered what was involved in a fiduciary relationship, how this relationship would not fall within the categories of "traditional" fiduciary relationships, that fiduciary relationships were of different types and the categories were not closed, the fact that SEVL was a "promoter" of the Project, that those who promote business ventures and seek to raise money from the public owe fiduciary duties to those who invest with them and that fiduciary relationships had been held to exist in analogous factual situations. Furthermore, his Honour followed the analysis of a similar situation by Finkelstein J in Fitzwood Pty Ltd v Unique Goal Pty Ltd.[44] The appellant made no criticism of Finkelstein J's reasoning.

109 It seems to me, therefore, that the appellant has not shown that the learned Magistrate erred in law in finding that there was a fiduciary relationship between SEVL and the respondents.

110 Counsel for the appellant further submitted that even if the relationship between SEVL and the respondents was a fiduciary relationship, it did not give rise to the duties found by the learned Magistrate. Fiduciary duties are proscriptive not prescriptive, yet, it was submitted, the duties found by his Honour were at odds with this principle. Counsel for the respondent conceded that the duty referred to in sub-paragraph (b) was neither pleaded nor properly found. To that extent, the answer to the second of the above questions is that the learned Magistrate did err in law in so finding. But this does not avail the appellant unless it can succeed in respect of sub-paragraph (a).

111 In dealing with the proscriptive/prescriptive issue and in concluding that "SEVL was under an obligation to act with utmost honesty and candour in respect of matters appearing in the prospectus", the learned Magistrate correctly applied the analysis of Finkelstein J in Fitzwood.[45] In that case, Finkelstein J held that there was a duty on a fiduciary/promoter to act with the utmost honesty and candour by disclosing material information, that is "information that will influence a prospective participant in the venture to decide whether or not to become an actual participant".[46] I find no error of law in the learned Magistrate's conclusion.

112 This means that questions 15 and 16 and grounds XIX and XX in the Casey Notice of Appeal and questions 14 and 15 and grounds XVIII and XIX in the Rose Notice of Appeal fail, apart from the second fiduciary duty erroneously found by the earned Magistrate which does not affect the outcome of these appeals.

113 Question 17 in the Casey Notice of Appeal and question 16 in the Rose Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that SEVL breached such duties?

114 Counsel for the appellant submitted that save for the fact that it was common ground that certain round robin transactions took place, there was no evidence of the breach of the duty to act with the utmost candour and honesty.

115 But as counsel for the respondents submitted, it is clear from a fair reading of the learned Magistrate's reasons that he found that SEVL breached the duty of candour by not disclosing the material facts, constituted by the round robin transaction, in the prospectus. No question of law therefore arises.

There is no issue that SEVL, (and arguably SEVF) were the promoters of the Coonawarra project. There is also in my mind no doubt that the nondisclosure of relevant and honest information concerning the funding was a failure to disclose material information. In that respect SEVL, and arguably SEVF, did not fulfil their obligation to act with the utmost candour and honesty.

In my opinion, the conduct of SEVL and SEVF, as a promoter can properly be characterised as dishonest and fraudulent, in that it fell well short of the standards of honesty and candour that was owed to the investors, in the circumstances of the fiduciary relationship which arose.

117 This means that question 17 and ground XXI in the Casey Notice of Appeal and question 16 and ground XX in the Rose Notice of Appeal fail.

118 Questions 18 and 19 in the Casey Notice of Appeal were as follows:

1. Did the learned Magistrate err in law in finding that there was a fiduciary relationship between the appellant and the respondent?
2. Did the learned Magistrate err in law in finding that the appellant was under a fiduciary duty to the respondent to act with the utmost candour and honesty; and that the fiduciary duties and obligations upon it were identical to those imposed upon SEVL?

Questions 17 and 18 in the Rose Notice of Appeal were the same, except for the reference to "respondents".

119 The relevant finding of the learned Magistrate was as follows:

In the promotion and establishment of the project the role of SEVF cannot be in any practical sense separated, disentangled, or placed at arm's length from the role of SEVL. The provision of finance, the terms upon which finance was to be provided to the Investors, and the employment of the funds to be loaned to Investors was integral to the project. It would be idle to suppose and contrary to common sense to assume, that the knowledge of SEVF and the knowledge of SEVL on all material matters was not identical. The round robin transactions, and the treatment of loan funds of the Investors in the books of the respective companies clearly established differing roles in what was a common purpose. I consider SEVF to be a promoter and therefore it likewise owed the same obligation of utmost honesty and candour to those who entered into loan agreements with it for the purpose of investments in the project. In my opinion, the fiduciary obligations and duty cast upon SEVF were identical to those cast upon SEVL.

120 Counsel for the appellant submitted that there were several errors and contradictions in this passage. However, I do not accept these criticisms. They misconstrue the findings made by the learned Magistrate. As counsel for the respondents submitted, the appellant's submissions established a "straw man" that it then knocked down.

121 I have already held that the learned Magistrate's finding that there was a fiduciary relationship between SEVL and the respondents was not open to challenge. Here, the issue is whether the same finding applies to SEVF. It is apparent from a fair reading of the reasons that the learned Magistrate applied the approach of Rogers J in Catt v Marac Australia Ltd[47] to the facts before him. In that case, an independent financier was found to owe fiduciary duties as a "promoter" because the financier's arm was "firmly linked" with the arm of the principal promoters. Counsel for the appellant submitted that the decision in Catt could be distinguished on the basis that the finding involved the factual difference that Marac insisted on dealing with one person, who was anxious to earn his commission, which the partners did not know. However, I do not consider that this difference renders the approach taken in Catt inapposite for this case.

122 In my opinion, the appellant was not shown that the learned Magistrate erred in law in finding that SEVF acted as a promoter and owed fiduciary duties to the respondents. This means that questions 18 and 19 and grounds XXII and XXIII in the Casey Notice of Appeal and questions 17 and 18 and grounds XXI and XXII in the Rose Notice of Appeal fail.

123 Question 20 in the Casey Notice of Appeal and question 19 in the Rose Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that the appellant breached its fiduciary duties?

124 Counsel for the appellant submitted that there was no clear finding to the effect that SEVF breached its fiduciary duty. Reference was made to the passage in the reasons, quoted in paragraph 116 above, where the learned Magistrate said that SEVF had "arguably" not fulfilled its obligation to act with the utmost candour and honesty. The appellant otherwise relied on its earlier submissions concerning breach of fiduciary duty by SEVL.

125 In my opinion, the learned Magistrate used the word "arguably" because at that stage he had not fully considered SEVL's position. Once he did so, his conclusion was clear, as can be seen in the second passage quoted in paragraph 116 above.

126 This question raises no question of law for the reasons previously given in respect of the question concerning breach of fiduciary duty by SEVL. This means that question 20 and ground XXIV in the Casey Notice of Appeal and question 19 and ground XXIII in the Rose Notice of Appeal fail.

127 Questions 21 to 23 of the Casey Notice of Appeal and questions 20 to 22 in the Rose Notice of Appeal were as follows:

1. Did the learned Magistrate err in law in finding that there was a dishonest and fraudulent design by SEVL?
2. Was the finding of the learned Magistrate that the acts and omissions of SEVL and the appellant can properly be characterised as dishonest and fraudulent a finding upon the evidence which a reasonable Magistrate could make?
3. Were the reasons of the learned Magistrate sufficient to justify this finding?

128 The learned Magistrate began his consideration of this issue by identifying what Rogers J had set out in Catt were the necessary circumstances for a finding of knowing assistance to a breach of duty.[48] He then referred to cases such as Farah Constructions Pty Ltd v Say-Dee Pty Ltd[49] and Consul Development Pty Ltd v DPC Estates Pty Ltd[50] where the phrase "dishonest and fraudulent design" was analysed. His Honour continued:

The defendants' submission is that the dishonest design was constituted and carried out by the conduct of SEVL and SEVF in setting up the round robin structure for a purpose contrary to the representations in the prospectus.

The submissions of the defendants is that there is evidence that moneys were not expended in the first year of operation as indicated in the prospectus, the projects financing and progress being dependent upon an income stream derived from repayment by the interest holders of loans to SEVF and from whatever other resources the Manager might have had. It is also fairly open on the evidence of the tendered documents, contrary to the prospectus and management obligations, not all of the loan moneys were discharged and expended in the establishment and development of the project. In my opinion, the conduct of SEVL and SEVF, as a promoter can properly be characterised as dishonest and fraudulent, in that it fell well short of the standards of honesty and candour that was owed to the investors, in the circumstances of the fiduciary relationship which arose.

I should add that it is not to the point that there was no intention by SEVL to profit at the expense of the investors or that the manner in which the primary application fee was set and the round robin structured, was in good part intended to afford some tax benefit to those Investors.

129 As counsel for the respondent submitted, the relevant principles concerning dishonest and fraudulent design identified by counsel for the appellant in their submissions were not different to, and did not conflict with, the principles relied on by the learned Magistrate. Thus, the appellant has not demonstrated any error of law in his Honour's finding that there was a dishonest and fraudulent design by SEVL.

130 I agree with the submission by counsel for the respondent that the essence of the appellant's complaint was that, on the evidence, the learned Magistrate should not have been satisfied that SEVF was involved in a dishonest and fraudulent design. Disagreeing with factual findings is not a permissible ground in an appeal under s 109. The appellant did not submit that there was no evidence for the learned Magistrate's finding.

131 Very little argument was advanced by counsel for the appellant in support of the ground that the reasons of the learned Magistrate were insufficient to justify his finding that there was a dishonest and fraudulent design by SEVL. In my opinion, the passage from his Honour's reasons quoted above sufficiently indicates how he has reached this conclusion.

132 This means that questions 21 to 23 and grounds XXV to XXVII in the Casey Notice of Appeal and questions 20 to 22 and grounds XXIV to XXVI in the Rose Notice of Appeal fail.

133 Questions 24 to 26 in the Casey Notice of Appeal and questions 23 to 25 in the Rose Notice of Appeal were as follows:

1. Did the learned Magistrate err in law in finding that:

(a) the appellant assisted in such dishonest and fraudulent design; and

(b) the appellant had knowledge of such dishonest and fraudulent design?

1. Was the finding of the learned Magistrate that the appellant assisted in and had knowledge of the dishonest and fraudulent design a finding upon the evidence that a reasonable Magistrate could make?
2. Were the reasons of the Magistrate sufficient to justify this finding?

134 Even less argument was advanced by counsel for the appellant in support of these grounds. No error of principle was identified. The challenge was to factual findings by the learned Magistrate but it was not submitted that there was no evidence for such findings. Finally, no specific submissions were directed to the question of the insufficiency of the learned Magistrate's reasons.

135 Once again, these conclusions mean that questions 24 to 26 and grounds XXVIII to XXX in the Casey Notice of Appeal and questions 23 to 25 and grounds XXVII to XXIX in the Rose Notice of Appeal fail.

136 Question 27 in the Casey Notice of Appeal and question 26 in the Rose Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that the appellant failed to make proper disclosures and thereby engaged in unconscionable conduct within s 51AC of the Trade Practices Act 1974?

137 Section 51AC of the TPA commenced on 1 July 1998. His Honour therefore accepted that it could not "operate in respect of the publication of, and reliance by the Investors upon the prospectus". Nevertheless, he held that SEVF was "under a continuing obligation to disclose those matters of which the defendants complain" at the time the "revamped" loan agreements were entered into in 1999 and when any further drawdowns or credit was advanced to the investors. He held that it was "unconscionable" within the meaning of s 51AC for SEVF not to have disclosed at these later times that the round robin transactions "were contrary to the representations in the prospectus; (in particular the fact that there was no actual corpus of money representing drawdown loan funds to meet the obligations of the Manager in accordance with the Management Agreement and Trust deed)".

138 Counsel for the appellant submitted that s 51AC(3) set out a non-exhaustive list of factors a court might take into account in determining whether there had been a contravention of s 51AC(1). They submitted that it was necessary to look at all of the relevant circumstances and not just the impugned conduct. It was submitted that this included the conduct of Mr Casey following receipt of the ATO Position Paper, which the learned Magistrate did not take into account.

139 I am not persuaded that it is correct that the learned Magistrate did not take this conduct into account. He certainly referred in his reasons to the involvement of the ATO in September 2000 and to the subsequent settlement between the ATO and the investors following "a protracted period of dispute and discussion". More importantly, the learned Magistrate later referred in his reasons to Mr Casey's denial of recent invention, which denial he accepted. As the appellant's written submissions make clear, and the transcript of the hearing before the learned Magistrate confirms, the suggestion of recent invention was primarily based on Mr Casey's failure to make any complaint to SEVL or SEVF about the round robin transactions and his continued involvement with the Project, including receiving further advances and making further payments of principal and interest, following receipt of the ATO Position Paper. Thus, Mr Casey's conduct had to be in the forefront of his Honour's mind.

140 In my opinion, therefore, insofar as the appellant is challenging the finding that the conduct was unconscionable, which is not at all clear, there is no question of law because it was not suggested that there was no evidence of unconscionability.

141 Counsel for the appellant further submitted that in light of the fact that there could be no unconscionable conduct under s 51AC(1) prior to 1 July 1998, the learned Magistrate was in error in finding that the measure of the respondents' loss and damage ought be recovery of moneys paid as a consequence of entering into the project. Some of that money had been paid prior to 1 July 1998 and further money had been paid prior to acceptance of the 1999 loan agreement.

142 No point was taken that a challenge to the learned Magistrate's finding about the measure of the loss and damage was not within this question.

143 Counsel for the respondents submitted that the learned Magistrate held that the measure of loss and damage was the same as applied in respect of a contravention of s 52 of the TPA, and went on to identify the principles applicable to assessing that loss and damage and that the appellant made no complaint about the principles identified. I agree with the respondents' submission that the appellant's attack was, therefore, only on the application of those principles to the facts of this case, which does not give rise to any question of law.

144 I also agree with the respondents' submission that in any event, it was open to the learned Magistrate to conclude, as he evidently did, that the damage caused by the unconscionable conduct was the loss ultimately suffered by the respondents when the Project was wound up.

145 This means that question 27 and ground XXXI in the Casey Notice of Appeal and question 26 and ground XXX in the Rose Notice of Appeal fail.

146 Question 28 in the Casey Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in failing to consider the appellant's contention that the respondent did not commence an action to recover the loss and damage claimed as part of the unconscionable conduct allegations within the time limited by s 82(2) of the Trade Practices Act 1974?

Question 27 in the Rose Notice of Appeal was the same as question 28 in the Casey Notice of Appeal, except for the reference to "respondents".

147 The appellant's real complaint with this question was not an alleged failure by the learned Magistrate to deal with the limitation defence in respect of unconscionability, but that he was wrong in his conclusion about s 82(2) of the TPA. Counsel for the respondent submitted that although, in considering its contention under s 51AC, the learned Magistrate did not specifically refer to or repeat the substance of the analysis undertaken by him in determining whether the allegation of contravention under s 52 was time-barred, the analysis was the same in each case because the relevant time bar alleged by the appellant was s 82(2). I agree with the respondent's submission that the failure to refer to or repeat that analysis in relation to the claim for unconscionable conduct could not amount to error capable of vitiating the orders made. In any event, for the reasons given above, the unconscionable conduct allegation was not out of time.

148 This means that question 28 and ground XXXII in the Casey Notice of Appeal and question 27 and ground XXXI in the Rose Notice of Appeal fail.

149 Questions 29 and 30 in the Casey Notice of Appeal were as follows:

1. Did the learned Magistrate err in law in finding that, as far as ss 51AC and/or 52 of the Trade Practices Act 1974 are concerned, having misled persons into contracts and obligations they would not have otherwise entered into, it is no defence for the appellant to contend that there is no direct factual nexus between the content of the misrepresentations that contravened the Act and the matters relevant to the reasons why the project ultimately foundered?
2. Did the learned Magistrate err in law in finding that the matters in respect of which he found in favour of the respondent as to liability caused loss and damage to the respondent entitling the respondent to recovery of monies paid as a consequence of entering into the project?

Questions 28 and 29 in the Rose Notice of Appeal were the same, except for the reference to "respondents".

150 Counsel for the appellant submitted that the learned Magistrate erred in rejecting the appellant's submission that there was no causal link between the nondisclosure of the round robin transaction and the losses ultimately suffered by the respondents. Alternatively, it was submitted that no reasonable Magistrate could make such a finding based on the evidence.

151 Counsel for the appellant pointed out that, notwithstanding the prospectus representations and omissions, a vineyard was established and operated and the respondents received their Interests. Eventually, the continued operation of the vineyard became unviable under the then financial structure. But that was the sort of risk an investor knowingly took when investing in a project such as this.

152 I agree with the submission by counsel for the respondents that in his reasons the learned Magistrate had set out the principles on which he relied which accurately summarised the law and that the appellant has not identified any error in the learned Magistrate's approach. There was evidence on which he could reach the conclusion that he did. The causal link was that the respondents would not have entered into the investment if they had known about the round robin transaction. By continuing on until the Project became commercially non-viable, they were attempting to make the best of a bad lot in the hope that they would not suffer any loss. The appellant was simply impermissibly arguing about the facts. Causation is "a question of fact".[51]

153 This means that questions 29 and 30 and rounds XXXIII to XXXV in the Casey Notice of Appeal and questions 28 and 29 and grounds XXXII to XXXIV in the Rose Notice of Appeal fail.

154 The next question relied on in the Casey Notice of Appeal was question 32, which read as follows:

(a) failing to deal with the appellant's submission that the respondent's equitable claims were barred by the operation of s 21(2) of the Limitation of Actions Act 1958 and/or, because the equitable claims so closely resemble the statutory ones, equity follows the law in respect of limitation periods; and

(b) failing to find that the respondent's equitable claims were barred on either or both of these grounds.

Question 31 in the Rose Notice of Appeal was the same, except for the references to "respondents".

155 I have already decided that the appellant cannot succeed in its challenge to the learned Magistrate's finding that the respondents' causes of action accrued when the Project was terminated in November 2005. It seems clear to me that if his Honour had found that s 21(2) of the Limitation of Actions Act 1958 did apply or that the equitable claims so closely resembled the statutory ones that equity should follow the law in respect of this limitation period he would still have decided that the equitable claims were within time in that they were brought within six years of November 2005. Therefore, whilst the learned Magistrate did not specifically refer to or repeat the substance of his analysis about the accrual of causes of action, the orders he made would still have been the same. Thus, it is unnecessary to consider further the competing submissions about s 21(2) and time bars in respect of equitable claims.

156 For the above reasons, I consider that question 32 and ground XXXVII of the Casey Notice of Appeal and question 31 and ground XXXVI of the Rose Notice of Appeal do not succeed.

157 The only question in the second Casey Notice of Appeal was as follows:

1. Did the learned Magistrate err in law in finding that monies received by the appellant (plaintiff) from the respondent (defendant) as payment of capital and interest on the loan agreement were received by the plaintiff as constructive trustee for the respondent (defendant)?

The only question in the second Rose Notice of Appeal was the same except for the references to "respondents" and "defendants".

158 In my respectful opinion, the learned Magistrate did err in law in finding that the monies received by the appellant from the respondents as payment of capital and interest on the loan agreement were received by the appellant as constructive trustee for the respondents.

159 The first error was to have taken into account an irrelevant consideration, namely the state of the appellant's finances. The second error was in imposing a constructive trust in circumstances where having regard to the issues in the litigation there was an appropriate remedy which fell short of imposition of a constructive trust.

160 The learned Magistrate relevantly said in his reasons:

While it is true that an order for equitable compensation might be said to be in form at least, an adequate remedy in the present circumstances, the defendants' position is that such an order would be ineffective to compensate them given the present situation of the plaintiff company. It was unconscionable, say the defendants, for the plaintiff to have used and dispersed the moneys paid over to them in circumstances where the plaintiff was in breach of its fiduciary obligation, for its own purposes and interests and in the course of pursuing those interests to have created obligations to third parties such as the holders of the present charge.

161 As counsel for the appellant submitted, the purpose of a constructive trust remedy was not to give the defendants security for a judgment for equitable compensation, and to place them in a superior position to the secured creditor. Otherwise, a constructive trust remedy would invariably follow from a finding that a judgment sum for equitable compensation would not, or might not, be paid.

162 The question to be determined was whether the circumstances were such that the Court would construe a trust in order to provide the respondents with an appropriate remedy. That was done by the award of equitable compensation.[52] It was not relevant, in my opinion, whether the appellant would be able to meet that judgment. Were it otherwise, the Court would have to investigate the financial position of every party in the position of the appellant before deciding whether or not to impose a constructive trust. That decision cannot depend on the financial position of the defendant.

163 Thirdly, counsel for the appellant submitted that the learned Magistrate erred in law in failing to take into account the impact of a constructive trust upon third parties. They submitted that because HG & R Finance Pty Ltd took its security in March 2002 without notice of the defendants' claims, as at that time the defendants had made no complaint about the matters they ultimately raised when sued and were continuing to make payments to SEVF, it was appropriate to have regard to the adverse effect the imposition of a constructive trust would have on HG & R Finance.

164 Counsel for the respondents correctly pointed out that the learned Magistrate did refer to the impact of the constructive trust on the secured creditor. The learned Magistrate said:

While it is true that the construing of a trust may adversely affect the interests of other creditors and the charge holder of the plaintiff company, it must frequently be the case however that the construing of a trust in these or similar circumstances would be likely to affect the interests of other entities, who presumably took their interest bona fide.

It is a matter therefore of weighing up the proper and effective remedy to be given to the defendants against all relevant matters concerned in the history of this venture.

165 The position with respect to competition of priorities between parties such as the respondents and persons who dealt innocently with a party in the position of the appellant is unclear.[53] In Official Assignee of Collier v Creighton the New Zealand Court of Appeal said that "as with all equitable remedies", the constructive trust "will be subject to any competing or countervailing equities".[54] In my opinion, the correct legal analysis in this situation is that the innocent secured creditor's rights should take priority over those of the respondents.

166 An alternative solution to the problem of competing equities is suggested by the learned authors of Jacobs' Law of Trusts in Australia:

Another possibility is to treat the constructive trust not as an institution which arises when the facts calling for it take place, but as a remedy available only which may operate from the date of judgment or formal court order or from some other specified date as suggested by Deane J in Muschinski v Dodds[55]. A decree might then be drawn so as to accommodate the enquiry of the equitable charge.[56]

However, this fixing of the time from which the declaration operates does not accord with the decision of the Full Court of the Federal Court of Australia in Parsons v McBain.[57] Whatever approach is adopted, it must, in my opinion, protect the rights of the innocent secured creditor.

167 I disagree with the submission by counsel for the respondents that the declaration made by the learned Magistrate did not affect those rights because the monies the subject of the declaration never formed part of the property of the appellant and thus lay outside any charge granted. In my opinion, this is a circular argument which is based on the very issue which has to be determined.

168 Finally, I consider that there was a serious inconsistency in the learned Magistrate's reasons concerning the date from which the trust operated. His Honour said:

The trust existed from such time as the defendants suffered loss on account of the unconscionable conduct of the plaintiff. That is to say, at the time the moneys were paid over from time to time.

169 This statement contradicts his Honour's finding, discussed above, that the respondents did not suffer loss until after the Project was terminated in November 2005. (A trust existing from that time would not impact on the rights of the secured creditor). In my opinion, the inconsistency is such that the declaration cannot be allowed to stand.

170 Accordingly, the orders I would propose making are as follows: In each of the Casey and Rose appeals brought by notice filed on 21 January 2010, order that the appeal be dismissed. In each of the Casey and Rose appeals brought by notice filed on 28 May 2010, order that the appeal be allowed and that the declaration made by the Court on 28 April 2010 be set aside. I will hear from counsel concerning the precise wording of those orders or any further orders and on the question of costs.

[1] [1998] 1 VR 83.

[2] Federal Commissioner of Taxation v Broken Hill South Ltd [1941] HCA 33; (1941) 65 CLR 150, 155 (Starke J).

[3] [1955] UKHL 3; [1956] AC 14, 33 (Lord Radcliffe).

[4] [1998] 1 VR 83, 88-89.

[5] [2000] VSCA 171; (2000) 2 VR 246.

[6] [2000] VSCA 171; (2000) 2 VR 246, [64]. (Phillips and Charles JJA relevantly agreed with Buchanan JA).

[7] (1987) 10 NSWLR 247.

[8] (1987) 10 NSWLR 247, 282.

[9] [2008] VSC 9; (2008) 19 VR 335.

[10] [2008] VSC 9; (2008) 19 VR 335, [14].

[11] [2008] VSC 9; (2008) 19 VR 335, [15].

[12] [2008] VSC 9; (2008) 19 VR 335, [32].

[13] [2008] VSC 9; (2008) 19 VR 335, [36].

[14] [2004] HCA 60; (2004) 218 CLR 592, [109]. (McHugh J dissented, but not on this issue).

[15] [2009] VSCA 117, [145]-[146].

[16] Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] HCA 31; (2010) 84 ALJR 644.

[17] [1992] FCA 557; (1992) 39 FCR 31.

[18] [1992] FCA 557; (1992) 39 FCR 31, 32.

[19] [1992] FCA 557; (1992) 39 FCR 31, 41.

[20] [2010] HCA 31; (2010) 84 ALJR 644, [18]-[19].

[21] [2006] SADC 57, [17]-[18].

[22] [2006] SADC 57, [15].

[23] [2005] VSCA 317.

[24] [2005] VSCA 317, [38] (Ashley JA) (Warren CJ and Nettle JA agreed).

[25] Tower Australia Ltd v Fillippis [2007] VSC 236, [13] (Bell J).

[26] [1985] HCA 65; (1985) 158 CLR 661, 670. (Mason ACJ, Wilson, Deane and Dawson JJ).

[27] [1992] HCA 55; (1992) 175 CLR 514.

[28] [1989] FCA 538; (1989) 25 FCR 226.

[29] [1989] FCA 538; (1989) 25 FCR 226, 231 (Davies, Burchett and Hill JJ).

[30] [1992] HCA 55; (1992) 175 CLR 514.

[31] [1992] HCA 55; (1992) 175 CLR 514, 532.

[32] [1992] HCA 55; (1992) 175 CLR 514, 529.

[33] [1995] FCA 1356; (1995) 59 FCR 35.

[34] [1995] FCA 1356; (1995) 59 FCR 35, 40-41.

[35] [1995] FCA 1356; (1995) 59 FCR 35, 45. See also Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358, [107] (Nettle JA).

[36] [2003] VSCA 6; (2003) 7 VR 63, [25]-[52] (Chernov JA and O'Bryan AJA agreed).

[38] [1991] ATPR 41-143, 53,066-53,067,

[39] (1992) 27 NSWLR 91, 98-99.

[40] [2006] NSWCA 238; (2006) 67 NSWLR 9.

[41] [2006] NSWCA 238; (2006) 67 NSWLR 9, [7]-[11] (Hodgson JA), [17] (Tobias JA), [76]-[104] (Basten JA). See also Austruct Qld Pty Ltd v Independent Pub Group Pty Ltd [2009] QSC 1; [2009] 1 Qd R 505, [64]-[65] (Dutney J).

[42] [2006] NSWCA 238; (2006) 67 NSWLR 9, [102].

[43] (1987) 10 NSWLR 247, 282.

[44] [2001] FCA 1628; (2001) 188 ALR 566.

[45] [2001] FCA 1628; (2001) 188 ALR 566.

[46] [2001] FCA 1628; (2001) 188 ALR 566, [31].

[47] (1986) 9 NSWLR 639.

[48] (1986) 9 NSWLR 639, 655.

[49] [2007] HCA 22; (2007) 230 CLR 89.

[50] [1975] HCA 8; (1975) 132 CLR 373.

[51] State of Victoria v Subramanian [2008] VSC 9; (2008) 19 VR 335, [36] (Cavanough J).

[52] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101, [50] (Gleeson CJ, McHugh, Gummow and Callinan JJ).

[53] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101, [10] footnote 62 (Gleeson CJ, McHugh, Gummow and Callinan JJ). See Meagher Gummow and Lehane: "Equity Doctrines and Remedies", fourth edition 2002 [5-250].

[54] [1993] 2 NZLR 534, 541.

[55] [1985] HCA 78; (1985) 160 CLR 583, 615.

[57] [2001] FCA 376; (2001) 109 FCR 120 (Black CJ, Kiefel and Finkelstein JJ).