Australian Competition & Consumer Commission v IMB Group Pty Ltd

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

REASONS FOR JUDGMENT 1 These two appeals and the cross-appeal arise out of the same proceeding and were heard together. The Commission had originally commenced two proceedings, which were consolidated. A Consolidated Application of 30 June 1999 and a Further Amended Statement of Claim of 5 October 1999 ("the Statement of Claim") represented the final pleadings in the proceeding, as consolidated. 2 In the proceeding, as consolidated, the Australian Competition & Consumer Commission ("the Commission") claimed relief under the Trade Practices Act 1974 (Cth) ("the Act") against a number of parties, including The IMB Group Pty Ltd ("IMB"), Logan Lions Ltd ("LLL") and nine individuals. Apart from IMB and LLL, the Respondents included the following individuals, all of whom are parties to the second appeal ("the Respondents"):

3 By its Consolidated Application the Commission claimed: · injunctions restraining the Respondents from engaging in conduct in contravention of the Act; · injunctions restraining the Respondents from soliciting investment in "Umbrella Financial Plans" or "Lifestyle Protection Plans" ("the Insurance Policies") whereby persons may acquire participation interests in LLL or an interest in a proposed sporting club; · orders pursuant to s 80A(1) of the Act requiring the Respondents to disclose to the persons who have invested in the Insurance Policies, and to publish advertisements stating, the respects in which certain representations alleged to have been made by them were made in contravention of Pt V of the Act; · an order under s 76 of the Act that the Respondents pay pecuniary penalties in respect of any contravention of s 47 of the Act that may be established; · declarations that the Respondents have contravened the Act in the respects alleged in the statement of claim filed by the Commission.

4 On 5 April 2002, for reasons published on that day, the primary judge made: · declarations that the Respondents had engaged in certain conduct as alleged by the Commission in contravention of s 52 of the Act; · declarations that the Respondents had not engaged in certain conduct alleged by the Commission; · declaration that certain conduct engaged in by the Respondents did not contravene s 52 of the Act; · declarations that the conduct of the Respondents did not constitute a contravention of s 47 of the Act.

On 16 July 2002, for reasons then published, the primary judge made orders for costs in respect of the proceeding. Since his Honour found no contravention of s 47 of the Act, no question of a pecuniary penalty arose. The parties have treated the declarations and orders made as completely disposing of the proceeding as consolidated. It appears that the Commission did not press its claim for injunctions in relation to the Insurance Policies. 5 The Commission now appeals from the orders of the primary judge whereby his Honour: · declared that the Respondents did not engage in exclusive dealing in contravention of s 47 of the Act; · declared that, in so far as the Respondents engaged in certain other conduct as alleged by the Commission, they did not thereby engage in conduct that contravened s 52 of the Act; · ordered that the Commission recover its costs of litigating the issues in respect of which declarations of contravention of s 52 of the Act were made, and · ordered that the Respondents recover their costs of and incidental to the proceeding other than those costs.

The Commission also appeals in respect of the failure by the primary judge to find that, by engaging in the conduct alleged to constitute contravention of s 47 of the Act, the Respondents contravened s 52 of the Act. 6 Messrs Backo, David Ivers, Luke Ivers, John Ivers, Stone, McLean and Glenn Ivers also appeal, by way of cross-appeal, from the orders made by the primary judge whereby his Honour declared that they engaged in certain conduct in contravention of s 52 of the Act. By separate notice of appeal, Mr Musgrave also appeals from the orders of the primary judge whereby his Honour made declarations that Mr Musgrave engaged in conduct that contravened s 52 of the Act. 7 There was no basis in the findings made by the primary judge for declarations that LLL or the individual respondents had contravened s 52 of the Act. However, his Honour made findings that the individual respondents were knowingly concerned in or party to contraventions of s 52 by IMB. The appeal was conducted on the basis that the questions of accessorial responsibility of the respondents had been determined by the primary judge favourably to the Commission and, accordingly, the Commission sought, during the course of the hearing of the appeal, to amend its notice of appeal to seek declarations that the individual respondents were knowingly concerned in or a party to the contraventions of s 52. The Court reserved the question of whether such leave should be given. 8 IMB and LLL are both in liquidation. It appears that the liquidator of both companies consented to Mr Ivers representing those companies on the hearing of the Commission's appeal and on the cross-appeal filed on behalf of all of the Respondents other than Messrs Cowley and Musgrave. Mr Ivers advanced arguments on behalf of both IMB and LLL without objection from the Commission. In the circumstances, it is appropriate that leave be given to the Commission pursuant to s 471B of the Corporations Act 2001 (Cth) to prosecute the appeal against IMB and LLL. It is also appropriate that leave be given to IMB and LLL pursuant to O 4 r 14(2) and O 9 r 1 of the Federal Court Rules for those companies to resist the Commission's appeal and to commence and prosecute the cross-appeal otherwise than through a solicitor and that Mr Glenn Ivers be given leave to appear for both companies in relation to the Commission's appeal and the cross-appeal. 9 Whilst Mr Musgrave was represented by counsel on the hearing of the appeals, none of the other respondents to the Commission's appeal was legally represented. However, Mr Glenn Ivers appeared for the other individual Respondents to the appeal, including himself. No objection was taken to that course by the Commission and it is appropriate that he be given leave nunc pro tunc to appear for the individual Respondents.

BACKGROUND 10 The proceeding arises out of a scheme for the development of a sporting and entertainment centre to be established in Logan City, near Brisbane. In 1990, Glenn and David Ivers put a proposal to a rugby league club in Logan City, which was in financial difficulties. The proposal involved selling investment policies to club members and paying to the club a proportion of the commissions received by the Messrs Ivers in respect of the sale of those policies. In the course of discussions about that proposal, the Messrs Ivers conceived the idea of entering, in a national rugby league competition, a team based on Logan City and developing a sporting and entertainment centre around that team. They therefore set about devising a scheme to achieve that end. 11 The scheme involved entering a rugby league team from Logan City in the national rugby leave competition that was expected to evolve during the 1990s. The rugby league team was to be called "the Logan Lions". In conjunction with the Logan Lions, a sporting and entertainment centre was to be constructed by a company to be formed. LLL became that company. The construction of the centre was to be funded by subscriptions for shares in LLL by participants in the scheme. 12 Participants in the scheme were to acquire the Insurance Policies by weekly payments of premiums. Participants were then to borrow against the capital value of those policies and apply the proceeds in payment for shares in LLL. The proceeds of subscriptions were then to be applied by LLL in the construction of the proposed centre. The rugby league team was to be funded by LLL, which would be responsible for the management of the centre and the sporting club to be developed around the Logan Lions. 13 In late 1990 the Messrs Ivers acquired shares in IMB and in early 1991 arranged for it to enter into an agency agreement with the National Mutual Life Association of Australasia ("National Mutual"). Subsequently IMB entered into an agency agreement with Legal and General Life of Australia Limited ("Legal & General"). Pursuant to those agreements, IMB was to solicit investment in Insurance Policies to be issued by National Mutual and Legal & General. LLL was incorporated in June 1993. 14 The success of the scheme depended upon the sale of sufficient policies to generate the funds necessary to implement the scheme. While the original idea was that the Insurance Policies would be able to generate sufficient finance, it became apparent that this was unrealistic. It appears that the capital value of policies then came to be seen as a means of raising finance from external lenders. The capital value of the policies, together with the proposed centre, would be security for such external borrowing. 15 In the original concept, there was a target of 5,000 members of a "syndicate". Once complete, the syndicate was to elect its own management committee and IMB was to provide, at no cost, all information, including a feasibility study, in relation to the development concept. It was proposed that the management committee would formalise the legal entity that was to carry out the development. It was expected that a full prospectus would then be issued, containing all details of feasibility, the proposed first stage of the development, financial details and relevant legal opinions. In a document, apparently produced by IMB in about November 1991 or shortly thereafter, it was emphasised that members of the proposed syndicate were not obliged to participate in the development and that a decision to participate was required only when a prospectus was issued. What was actually developed was to be determined by the members of the "syndicate" themselves at that time. 16 About 3,200 Insurance Policies were sold by IMB in the period between March 1991 and September 1993. Of these, 456 were National Mutual policies and the balance were Legal & General policies. Most of the Insurance Policies were sold as a result of people attending seminars conducted by IMB at IMB's premises from early 1991 to September 1993. Some Insurance Policies were also sold as a result of door-to-door canvassing and marketing campaigns on television. Towards the end of that period, IMB had over one hundred full-time employees and the seminars were attracting up to 800 people per week. 17 Much was made, on behalf of the Respondents, of the circumstances surrounding the cesser of operations by IMB and LLL and the conduct of the Commission in that regard. It is appropriate to summarise those circumstances. 18 On 28 July 1993, the Commission wrote to both Legal & General and IMB saying: "An allegation has been raised with this office regarding the requirement placed on people who wished to purchase options to buy shares in [LLL], to join an Umbrella Financial Savings Plan with Legal & General." 19 The letters went on to say: "If this allegation is capable of substantiation, this office is concerned the conduct is at risk of breaching section 47(6) of the [Act], which provides for exclusive dealing arrangements, and section 52 … of the Act which provides for misleading and deceptive conduct and false and misleading representations…." 20 On 4 August 1993, Legal & General responded through its group legal adviser, saying that Legal & General did not consider that Legal & General, IMB or their employees had breached any of the provisions of the sections referred to by the Commission. On 6 August 1993, David Ivers and representatives of IMB's solicitors met with officers of the Commission and were informed of the Commission's opinion that IMB was acting in breach of s 47(6) of the Act. 21 On 10 August 1993, IMB's solicitors wrote to the Commission and, after referring to the discussions that had taken place, said: "An immediate, albeit temporary, change has been made to the form of the presentation to ensure that members of the public are fully aware that 'options' to purchase shares in [LLL] are available to persons who should decide to accumulate the funds by methods other than obtaining a Legal & General Umbrella Financial Savings Plan." 22 On 17 August 1993, the Commission wrote to IMB's solicitors setting out "a non-exhaustive list of representations allegedly made by IMB representatives…". 23 On 30 August 1993, the Commission wrote to the Australian Securities Commission ("ASC") saying that the Commission was contemplating the instigation of proceedings against IMB and others for alleged breaches of the Act. The letter stated that its purpose was to seek the view of ASC in relation to the conduct of IMB generally and to apprise ASC of certain conduct that the Commission believed might fall within "the purview of your legislation". However, the ASC apparently took the view that no action was required on its part against IMB. 24 On 15 September 1993, the day on which IMB proposed to make a public announcement concerning the scheme, the Commission wrote to IMB saying that it had, on that day, determined to commence legal proceedings against IMB and others for alleged contraventions of the Act arising out of the promotion of the options to purchase and the sale of Insurance Policies with Legal & General. The letter ended by saying: "It is understood that a launch promoting the Logan Lions Club is to be held today. The Commission has asked me to inform you of the decision it has taken today so that you might have the benefit of the knowledge of it prior to the launch." It is difficult to conceive of a communication calculated to cause more concern to IMB and its officers at the time of its proposed launch than a letter in those terms. 25 The scheme was launched, with considerable publicity, at a function held on 15 September 1993. The compere of the function was a well-known television personality and the function was attended by a representative of Logan City Council. It was also attended by the Deputy Chairman of the Australian Rugby Football League. 26 Another significant person in attendance was Mr Peter Agathonoff, who was introduced as a representative of the IFR Group of Melbourne. Mr Cowley is recorded as saying: "You can't do anything without money and for the last seven weeks I have been overseas talking to banks and to other institutions putting in place guarantees because we had the funding here in Australia for Stage 1 through a private placement of $20 million from the IFR Group out of Melbourne subject to the appropriate supporting bank guarantees. We've put that in place. First Collateral Assurety Corporation, who specialise in underwriting projects like this, have put the guarantees in place and subject to the transactional documentation now that's been prepared, IFR Group will fund the initial Stage 1 through this private placement and I would just like to welcome to the platform - would you help me welcome Peter Agathonoff representing the IFR Group." 27 Mr Agathonoff then said: "It is our intention to fund the first stage of the $20 million of the Logan Lions because we believe it is worthwhile project to the community and subject to the necessary documentation we will fund Stage 1." 28 On 16 September 1993, the Commission wrote again to IMB's solicitors acknowledging that the solicitors had indicated to the Commission that IMB may wish "to further address matters of concern to the Commission arising out of allegations about the promotion of options to purchase shares in the [LLL]". The letter continued: "I confirm I advised that, while action to implement the Commission's decision to take legal proceedings against your client would continue, I would arrange for any matters which your client might wish to raise to be drawn to the Commissions' attention." On the same day, the Commission wrote to Legal & General's legal adviser in similar terms. 29 Later on 16 September 1993, Legal & General wrote to the Commission responding to some nineteen questions that had been included in the Commission's letters of 16 September 1993. The letter ended by saying that Legal & General would be pleased to discuss with the Commission any of the matters set out in the letter or any other matter that the Commission wished to raise. 30 On 17 September 1993, Mr John Broome, the Deputy Chairman of the Commission, spoke to Mr Trevor Matthews, the General Manager of Legal & General, concerning the alleged breaches of the Act by Legal & General. Mr Matthews was informed that the Commission would be taking whatever action it believed necessary to ensure appropriate injunctions were obtained to prevent further conduct that would breach the Act and, in the light of the immediate response by Legal & General and IMB, to consider the institution of penalty proceedings. 31 On the same day, the Commission commenced a proceeding in the Federal Court. While the initiating process was not served and it was discontinued three days later, on 20 September 1993, the filing of it was apparently made known to the media, since a report of the commencement of the proceeding appeared in the "Sunday Mail" newspaper on 19 September 1993. 32 The conversation between the Commission and Mr Matthews appears to have had the effect desired by the Commission. On 20 September 1993, Legal & General wrote to IMB confirming an oral instruction "that you and all other employees and agents of [IMB] are to cease immediately selling any Legal & General life policies at or immediately after the seminars you have been holding to promote the Logan Lions Football Club". That direction was given press publicity in Brisbane and Logan City. The scheme that was being promoted by IMB came to an end.

THE COMMISSION'S CLAIMS AND THE DETERMINATIONS OF THE PRIMARY JUDGE 33 The Commission's claims involved both s 47 of the Act, which deals with exclusive dealing, and s 52 of the Act, which deals with misleading and deceptive conduct in trade or commerce. It is convenient to deal with each claim separately.

EXCLUSIVE DEALING 34 The Commission alleged that, in selling Insurance Policies of National Mutual, IMB and Messrs Backo, David Ivers, Stone, Musgrave and Glenn Ivers ("the National Mutual Agents"), and that, in selling Insurance Policies of Legal & General, all of the Respondents ("the Legal & General Agents"), engaged in conduct that contravened s 47(1) of the Act by reason of s 47(6) and s 47(7) of the Act. Sections 47(1), 47(6) and 47(7) relevantly provide as follows: "(1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing. … (6) A corporation also engages in the practice of exclusive dealing if the corporation:

(a) supplies, or offers to supply … services; (b) supplies, or offers to supply … services at a particular price; or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of … services by the corporation; on the condition that the person to whom the corporation supplies or offers or proposes to supply the … services or, if that person is a body corporate, a body corporate related to that body corporate will acquire, … services of a particular kind or description directly or indirectly from another person. (7) A corporation also engages in the practice of exclusive dealing if the corporation refuses:

(a) to supply … services to a person; (b) to supply … services at a particular price to a person, or (c) to give or allow a discount, allowance, rebate or credit in relation to the supply of … services to a person; for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate has not acquired, or has not agreed to acquire, … services of a particular kind or description directly or indirectly from another person." 35 The Commission alleged that, from 1991 to January 1992, the National Mutual Agents and, from January 1992 to September 1993, the Legal & General Agents, offered to supply, to persons attending the public seminars conducted during those periods, services, namely the benefit or privilege of an opportunity or option to acquire shares in a company (which became LLL) and an opportunity to become a foundation life member of a club with the benefits and privileges attaching to such membership, on the condition that those persons acquired services, namely, rights and benefits under either a Lifestyle Protection Plan issued by National Mutual or an Umbrella Financial Plan issued by Legal & General policy (according to the period during which the offers were made). 36 The primary judge found that: · in so far as any offer was made in respect of membership of a club, it was an offer by IMB, and perhaps also by LLL after its incorporation, to use best endeavours to ensure that persons purchasing an Insurance Policy would be given life membership in a club yet to be formed; and · in so far as prospective participants were offered the opportunity of acquiring shares in a proposed publicly listed company, any suggested advantage was illusory.

37 There was no suggestion that participants would be given shares in LLL as it then existed. The idea was that they would obtain shares in a publicly listed company, if and when a prospectus was issued. There was no club in existence and the formation of a club in which participants would be given life membership was also for the future and depended upon success in obtaining approval from Logan City Council and acceptance by the Australian Rugby Football League of the Logan Lions in a national competition, which, at that stage, was no more than a proposal. His Honour concluded, therefore, that whatever was being offered, by way of an opportunity to acquire shares or become a foundation life member of a club, did not constitute an offer to provide services within the meaning of s 47(6) or s 47(7), since there was no offer of a privilege or benefit within the meaning of the definition of "services" in s 4 of the Act. 38 Further, the primary judge concluded that it was not accurate to describe IMB's conduct as comprising an offer of the opportunity to acquire shares and the offer of life membership on condition that persons to whom such offers were made were to acquire an Insurance Policy from National Mutual or Legal & General. His Honour observed that, in order to establish contravention of the relevant provisions of s 47 of the Act, there must be two discrete products or services, with the supply of the first being conditional on the acquirer acquiring another product or service directly or indirectly from a third person. His Honour considered the provision did not apply where a single package of services is supplied, even though different, unrelated organisations produce the various services making up the package. 39 Further his Honour found that it was a critical element of the arrangement that prospective participants would not just acquire an Insurance Policy from National Mutual or Legal & General but that they would acquire it through IMB, the entity that was also alleged to be offering the opportunity to acquire shares and life membership in the future. The condition insisted upon by IMB was that persons to whom IMB offered the opportunity had to acquire a policy through IMB. 40 The purpose of requiring Insurance Policies to be acquired through IMB was not just to ensure that IMB would get the commissions involved, but to ensure that IMB would be in a position, in the future, to offer the opportunities in question. The commissions were necessary to enable IMB to advance the scheme to the stage where holders of Insurance Policies would be able to realise the opportunities that were being offered. His Honour considered that to say that, because IMB was the agent of National Mutual or Legal & General in relation to Insurance Policies, participants acquired the Insurance Policies "indirectly" from National Mutual or Legal & General, within the meaning of that term in s 47(6) and s 47(7), ignored a critical element of the scheme, namely, that the ability of IMB to provide the opportunities of shares and life membership was dependent upon it, and it alone, supplying the Insurance Policies to the participants. 41 His Honour concluded that IMB was offering "a single package deal" and that the fact that the Insurance Policies were to be issued by National Mutual or Legal & General did not stand in the way of IMB's offer, if it is so characterised, being an offer by IMB of a package deal. His Honour considered that the services to be supplied by National Mutual or Legal & General accompanied the supply of the different services offered by IMB in such a way as to constitute a single transaction, properly described as the supply of services by IMB. IMB had nothing to give participants other than the opportunity of getting something of value from the proposals, namely shares and life membership, if the participants together provided IMB, not National Mutual or Legal & General, with the means of raising the funding required to implement the scheme. 42 His Honour also considered that, even though IMB sold the Insurance Policies as agent for National Mutual and Legal & General, the need for persons to acquire those Insurance Policies from IMB, in order for IMB to be able to advance the scheme, justified the conclusion that the participants acquired their Insurance Policies directly from IMB for the purposes of s 47(6) and s 47(7). For that reason, his Honour held that s 47(1) was not infringed in the present circumstances.

misleading and deceptive conduct 43 The Commission alleged contravention of s 52 of the Act in several different respects. The conduct that was alleged to be misleading and deceptive may be summarised as follows: (1) the conduct alleged to constitute contravention of s 47; (2) representations made by the Respondents concerning the expected value after ten years of the Insurance Policies; (3) representations made by the Respondents to the effect that finance had been approved for the sporting club development; (4) representations made by the Respondents as to the commencement and completion of the sporting club development; (5) representations made by the Respondents that the completed sporting club development would have certain attributes; (6) representations made by the Respondents as to the worth of the completed sporting club development; (7) representations made by the Respondents between July 1992 and September 1993 with respect to shares to be issued in a public company to be formed, or in LLL. 44 The primary judge rejected the Commission's contentions in relation to the second matter, but accepted the Commission's contentions that, in relation to the third, fourth, fifth, sixth and seventh matters, IMB had engaged in conduct in contravention of s 52. However, under an apparent misapprehension that the Commission did not press its contention that the conduct alleged to constitute contravention of s 47 also contravened s 52, his Honour made no determination in relation to the first matter. 45 Having found that IMB had contravened s 52 in relation to the third to seventh matters inclusive, his Honour went on to consider whether the individual Respondents were knowingly concerned or involved in the contravention and concluded that they were. However, his Honour then made declarations that all of the Respondents, including LLL and the individual Respondents, had contravened s 52 of the Act in relation to those five matters, notwithstanding that his Honour had made no finding of contravention on the part of LLL or any of the individual respondents. 46 It is convenient to deal separately with each of the five alleged contraventions of s 52 and the question of accessorial responsibility under s 75B(1)(c) of the Act.

Offer of Opportunity of Shares and Life Membership 47 The Statement of Claim alleges that the National Mutual Agents, during the period February 1991 to January 1992 and the Legal & General Agents, during the period January 1992 to September 1993, at the seminars conducted by IMB, offered to supply, to persons attending the seminars, services, namely the benefit or privilege of: (a) an opportunity or options to acquire shares in a company (which became LLL) or alternatively, to acquire such shares upon terms more favourable than might be available to members of the public; and (b) an opportunity to become a foundation member of a club with the benefits and privileges attaching to such membership;

on the condition that those persons acquired services, namely from National Mutual the rights and benefits under a Lifestyle Protection Plan or from Legal & General the rights and benefits under an Umbrella Financial Plan. The Commission claimed that this conduct was misleading and deceptive or likely to mislead or deceive. 48 His Honour made no finding on this question, because his Honour understood that the Commission did not seek to make good its claim based on s 52. The Commission appeals from the failure to do so, although there does not appear to have been any order in that regard from which an appeal could be brought.

Future Value of Policies 49 In the Statement of Claim, the Commission made the following allegations; (1) In the period from, in or about March 1991 to, in or about December 1991, the National Mutual Agents represented to the effect that: · a Lifestyle Protection Plan would accumulate sufficient money over a period of ten years to enable a policyholder to acquire 25,000 $1 shares in a company (later LLL); · a loan back facility attached to a Lifestyle Protection Plan would allow the policy holder to borrow $2,000 in 1994, $5,000 in 1997 and a further $18,000 in 2001.

(2) In the period from, in or about January 1992 to, in or about September 1993, all of the Legal & General Agents represented to the effect that an Umbrella Financial Plan would accumulate sufficient money over a period of ten years to enable a policyholder to acquire 25,000 $1 shares in LLL.

50 His Honour considered that the overwhelming weight of evidence, from a very large pool of witnesses who attended seminars, indicated that prospective participants generally understood that there could be no assurance that the $25,000 figure, which was mentioned by the representatives of IMB as the value of the Insurance Policies in ten year's time, was assured. Accordingly, his Honour was not prepared to find that the unqualified statements about performance of Insurance Policies, in promotional material of various kinds, should be accepted as amounting to misleading conduct. His Honour also, for the same reason, decided that what was said by Glenn Ivers to a similar effect at a seminar on 8 September 1993 should be treated as not involving misleading conduct.

Approval of Finance 51 The Statement of Claim alleges that, in the period from, in or about March 1992 to, in or about September 1993, all of the Respondents represented to the effect that finance had been approved for the development of the sporting centre. His Honour did not accept that the evidence established that during the period between June 1993 and September 1993, IMB, or anyone acting for it, made representations to the effect that finance of $20,000,000 had been obtained for the project. 52 However, his Honour found that a representation in those terms was made on 16 September 1993 by Mr Glenn Ivers in the presence of Mr Backo on behalf of IMB and LLL. His Honour also accepted that a similar representation was made by Mr Glenn Ivers in the presence of Mr David Ivers at a seminar conducted on 8 September 1993. His Honour found that such representations were false because there was, at that time, no firm arrangement in place for financing of any part of the development. In reaching that conclusion, his Honour accepted the evidence of Mr Brian Stokes and Ms Sharon Webster. 53 Mr Glenn Ivers denied that he had made representations as alleged in the Statement of Claim. Further, there was no evidence of any express representation having been made at the seminars of 8 and 16 September 1993 in the terms alleged. 54 However, a handwritten statement by Mr Stokes, which was admitted as his evidence-in-chief, said as follows: "At the seminar the speaker, whose name I do not recall, and Sam Backo, gave me the impression that IMB had secured a $20 million bank assurance. The speaker said that it was announced at the launch at the Beenleigh Rum Distillery on 15 September 1993. The speaker said the first stage is going O.K." His Honour also found that at the launch on 15 September 1993, Messrs Cowley and Agathonoff had made unqualified statements to the effect that finance in an amount of $20,000,000 had been obtained. 55 Ms Webster's evidence-in-chief in relation to the seminar of 8 September 1993 consisted of a typed statement saying: "At the seminar the speaker whose name I do not recall made a statement to the following effect: 'We had a certain amount (I cannot recall the amount) of capital to construct the first stage.' At the seminar the speaker also made a statement to the following effect: 'We have council approval'. 56 A video recording of the seminar of 8 September 1993 was in evidence, together with a transcription of what was said. Mr Glenn Ivers is recorded as saying, amongst much other things, the following: "…I just want to talk a little bit about funding, because as you can see there. [sic] It's intended in time that Logan Lions Limited, the public company that will building this facility, it's intended that that company will eventually be floated on the stock market. So ultimately, flotation is intended. The process there is the preparation of a prospectus which will be presented to the Australian Securities Commission for approval and if and when that approval happens, we'll then seek permission from the Australian Stock Exchange to have those shares listed on the Australian Stock Exchange. That being the case, then, investors from all around the world, Tokyo, New York, Sydney, whatever, will be able at that point to come in and purchase shares in that facility. So there's an opportunity for these 3,000 families prior to that happening. The funding as it says, $100 million for a flotation. The first $20 million dollars for Stage 1 of the club is being raised through a private placement to enable it to get under way much quicker. The remaining $100 million dollars as it says on the slide, will eventually- it's intended that will be raised through that flotation. There's also other methods of raising that capital, simply by taking loans against the projections and the result of profits from your poker machines. But the point is, the first $20 million is a private placement from there."

Commencement and Completion of the Development 57 In the Statement of Claim, the Commission alleges that, in the period from, in or about March 1991 until, in or about August 1993, the Respondents made representations as to the dates for commencement and completion of the development. No allegation was made as to the actual terms of the alleged representations. However, his Honour found that representations as to the date for commencement of the construction "changed from initially 1994, to mid then late 1993, to mid 1995". 58 His Honour found that the Respondents never had any reasonable ground for thinking that funding might be available to be arranged to enable construction to commence at any particular time or to enable the project ever to be brought to fruition. His Honour concluded that from mid-1992 at the latest, the Respondents could never have had any belief that the necessary funding would be able to be raised. His Honour found that it was misleading to make representations about projected dates for commencement and completion of the development in circumstances where the Respondents failed to disclose the true extent of the risk of the representations not being fulfilled because they had no reason to think that the necessary funding could be obtained. 59 His Honour found that, by the end of 1991, only 450 Insurance Policies had been sold. By November 1992, a total of only about 1,200 Insurance Policies had been sold. By near the end of the third year, that number had risen to only about 3,200. His Honour found that there was such a disparity, between the envisaged sale of 5,000 Insurance Policies and IMB's actual sales performance, as to justify the conclusion that the original notion of the funding of construction by selling Insurance Policies was never realistic. His Honour concluded that the simple assumption that had been made that 5,000 Insurance Policies could be sold in about eighteen months was not a reasonable basis for believing that the development could be funded, as represented through 1991 into 1992. 60 His Honour found that, though a decision was made in mid-1992 to change the method of funding from borrowing against the Insurance Policies to funding the development with external loan finance, there was nothing in the evidence to suggest that a potential bona fide lender was ever identified before IMB ceased operations in September 1993. His Honour found that there was no evidence that any of the Respondents gave any consideration at all to the possibility of resurrecting the idea of funding the development with loans from holders of Insurance Policies at any time after that idea was abandoned in mid-1992 in favour of seeking external loan finance. 61 His Honour concluded that the Respondents had no reasonable grounds, in September 1993, to think that they might be able to fund the development by reverting to the original idea of persuading holders of Insurance Policies to take up loans against their Insurance Policies and pay over the loan monies to IMB. That course would have required the issue of a prospectus, an action never undertaken. 62 His Honour recorded in his reasons that the Respondents accepted that the development was such that representations made in connection with the marketing of the scheme needed to be qualified. The Respondents also accepted that it was appropriate, in the circumstances, that the possibility of non-fulfilment should also be disclosed. His Honour found that, whatever may have been the prospects, in early 1991, of funding the scheme as originally envisaged, by raising funds over ten years from loans against Insurance Policies, it should quickly have become apparent that the Respondents original plan to fund the development from the sale of 5,000 Insurance Policies was not going to succeed. His Honour concluded that the Respondents never had any reasonable ground for thinking that funding might be able to be arranged to enable construction of Stage 1 of the Centre to commence in 1993 or 1994 or at any time thereafter. Nor did his Honour consider that the Respondents ever had any reasonable ground for thinking that funding might be able to be arranged to enable the grandiose scheme about which the Respondents spoke ever to be brought to fruition. 63 His Honour found that all statements about commencement of construction and opening of the Club were unqualified, except to a limited extent, in the sense that the statements were accompanied by other statements identifying the possibility that the predicted commencement may not happen either at the times represented or, more importantly, at all. His Honour concluded, in effect, that all representations about when the construction of the development would commence were misleading because they were not sufficiently qualified by statements identifying the possibility that the predicted commencement may not happen either at the times represented or, more importantly, at all.

Attributes of the Development 64 In the Statement of Claim, the Commission alleges that in the period from, in or about March 1991 until, in or about August 1993, the Respondents made representations that the club, stadium and associated facilities would have the attributes described in: · a promotional video distributed at seminars in late 1991; · a series of slides shown at seminars. 65 No other particulars of the attributes were furnished in the Statement of Claim. However, his Honour found that, at a seminar held in March 1993, a representative of IMB described the development in the following terms: "Stage one, a planned 15,000 member capacity Leagues Club, Rugby League stadium etc expanding out between '95 and '98 to a 50,000 member club and later, in between then and 2003 into a 100,000 member club. … What you have here is a club, a community centre and a football stadium. But we are not just talking about Rugby League, we're talking about all sports." 66 His Honour also found that at a seminar held on 8 September 1993, Mr Glenn Ivers described the development in the following terms: "We're building a club that can cater eventually for 100,000 members. … when the doors of that open, they'll be wired with provision for 960 poker-machines. … On the site also, there's a 200 room hotel, a 3 star hotel facility. … that's actually an indoor sports stadium, that's for things like, hopefully national basketball league one day; tennis tournaments … ice skating spectaculars, gymnastics, aerobics, martial arts. All sports that can be played indoors will be accommodated for here … … But you can see, the leagues club actually goes into the main grandstand. There'll be lifts coming up through this dome-area… straight across into the main grandstand so life members will simply be able to walk into the club. … That stadium will have 3,000 spectator capacity at Stage 1. …In the first area, there's 480 poker machines on this floor. … This is a garden atrium … that goes up to the dome with the elevators and the lifts. There's a shop here above the bar area, smorgasbord restaurant … There's a movie theatre … There's a concert auditorium. That's for indoor entertainment. Going through the main bar and another bar, … lounge bar, bottle shop, TAB and a retail shop, that's your sporting equipment shop, cricket bats, or your Broncos jerseys, Lions blazer or whatever. And heading upstairs provision for another 480 machines. Bistro bar if you want to spend a few more dollars from downstairs." "We're talking about $120 million development, $120 million in today's dollars." 67 As indicated above, when dealing with the alleged representation concerning commencement and completion of the development, his Honour found that the Respondents did not ever have any reasonable ground for thinking that funding might be able to be arranged to enable the scheme to be brought to fruition. His Honour concluded, therefore, that any representation about the attributes of the proposed development was misleading in the absence of disclosure of the true risk of the representation not being fulfilled because there was no realistic prospect of obtaining funding for the project. 68 His Honour found that it was misleading to make such statements about the development in circumstances where the Respondents, as his Honour found, never had any reasonable ground for thinking that funding might be able to be arranged to enable construction of stage 1 to commence in 1993 or 1994 or at any time thereafter. His Honour considered that, from mid-1992 at the latest, the Respondents could never have had any belief that the necessary funding would be able to be raised. Thus, his Honour found that the statements about the attributes of the proposed development were misleading, not because that was not what was proposed, but because there was no adequate qualification of the statements to indicate that, because of the absence of any certainty of funding, there was no certainty that the development would proceed.

Value of the Development 69 In the Statement of Claim, the Commission alleges that, in the period from, in or about March 1992 to, in or about September 1993, the Respondents represented to the effect that the club, stadium and associated facilities would be worth $100,000,000. 70 His Honour referred to documents that were circulated by IMB at various times in which estimates of costs were made. Statements were made to the effect that the cost of the proposed development would be in the vicinity of $100,000,000. However, his Honour referred to no statements dealing with the worth of the completed development and there was no evidence of any statement dealing with the worth of the completed development. 71 The primary judge dealt with the alleged representation in the same way as his Honour dealt with the alleged representations concerning the commencement of the development and the attributes of the development. That is to say, his Honour concluded that any representation about the worth of the proposed development was misleading in the absence of a disclosure of the true risk of the representation not being fulfilled because there was no realistic prospect of obtaining funding for the project.

Future Value of Shares 72 The Commission alleges in the Statement of Claim that the Respondents represented to the effect that: · shares in LLL would increase in value; · it would be profitable to be a shareholder in LLL and a foundation life member of the club; · notwithstanding the share would have increased in value over ten years, a holder of an Insurance Policy would be able purchase the shares at $1 "par" or at a "ground level price"; · there was an expectation that 25,000 shares in LLL would be worth $100,000 in ten years. 73 His Honour found that the presentations given on behalf of IMB at seminars were pitched in a way that was very likely to leave people with the impression that, though there could be no guarantee, the features of the scheme were such that the shares, which would be available in ten years' time, would very likely be worth a lot more than the $1 price that people to whom the presentation was made could secure. 74 While his Honour accepted that words of qualification were used from time to time by presenters at the various seminars on behalf of IMB, in the context of talking about the potential of the development and the future value of the shares in LLL, his Honour considered that the qualifications had limited effect. His Honour found that a substantial majority of people attending the seminars gained the impression, created by the representations made on behalf of IMB, that the shares would probably increase substantially in value, even though many were aware that there was no guarantee of that. His Honour recorded that there was no dispute that there could be no reasonable grounds for representing that shares would increase in value in the future, particularly over as long a period as ten years. His Honour considered that this was simply a consequence of the unpredictable nature of the share market. 75 However, his Honour considered that there were numerous other considerations that showed the absence of any reasonable grounds for IMB making any representations to the effect that the shares in LLL proposed to be issued in ten years' time would increase in value above the proposed $1 issue price. The legislative limitations on the number of poker machines that could be operated in connection with the scheme falsified IMB's optimism about future share values, which was expressed to be based, in large part, on the profits likely to come from a very large number of poker machines. His Honour considered that the relationship between the proposed club and LLL, as the public company in which the shares would be issued, was such as to cast doubt on whether those shares would ultimately be seen as a valuable commodity, even if the club came into existence and operated successfully. 76 His Honour considered that it was misleading, from October 1992 at the latest, to make statements about the future value of shares in the company that was to be formed. His Honour considered that it was misleading, after that time, to make statements suggesting that the shares could turn out to be worth more than the $1 proposed issue price, while warning that they might turn out to be less than that, without going on to inform people of the true position in relation to the obtaining of finance. His Honour considered that it was not enough to tell people that share values could not be predicted. 77 His Honour considered that the absence of any prospect of obtaining finance was a matter that, at least from October 1992, also needed to be drawn to the attention of people whom the Respondents were trying to persuade to participate in the scheme, in order to ensure that the qualified marketing statements about further share values were not to be misleading. His Honour found that the risk that the shares, whose possible future values were the subject of representations, albeit qualified, might never become available, because of lack of finance, was such a serious risk that its disclosure was necessary in order to prevent what was said about future share values being misleading.

Accessorial Liability 78 Section 75B(1)(c) of the Act relevantly provided as follows: "A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA, IVB or V, or of section 75AU or 75AYA, shall be read as a reference to a person who … has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention …." 79 In the Statement of Claim, the Commission baldly asserts that each of Messrs Backo, David Ivers, Luke Ivers, John Ivers, Stone, Maclean, Musgrave and Glenn Ivers attended the seminars conducted by the National Mutual Agents and the Legal & General Agents and was involved in making the representations referred to above, within the meaning of s 75B of the Act. Despite the seriousness of the allegations of involvement on the part of the individual Respondents, the Statement of Claim did not furnish any particulars going to the question of their involvement. 80 The Respondents conceded that, with the exception of Mr MacLean, each of the individual Respondents was employed by IMB and was involved in the promotion and marketing of the scheme. Each of the individual Respondents, apart from Mr MacLean, was paid a salary each week for the duties he performed for IMB. 81 His Honour found that Mr David Ivers was a director of IMB and was closely involved throughout in promoting its activities, which include participation in the selling of Insurance Policies. Mr Glenn Ivers, though not an officer of IMB, was, throughout the period, also closely involved in promoting the activities of IMB. Mr Backo, from the outset, was also closely involved in promoting IMB's activities, including the sale of Insurance Policies. 82 The other Respondents, as well as Mr Backo, were all directors of LLL. Prior to that, they all took part in promoting or participating in IMB's activities centred on selling Insurance Policies. His Honour found that Mr Backo, Luke Ivers, John Ivers, Stone, MacLean and Musgrave, as directors of LLL, caused, or at least allowed, LLL to be associated with IMB's promotion of the scheme from June 1993 to the end of that year. His Honour considered that, because of their actions as directors of LLL in allowing LLL to be associated with IMB in IMB's holding out of LLL as the company in which the shares the subject of the scheme were to be issued, each of the directors of LLL came within s 75B(1)(c) of the Act in respect of each of the contraventions that his Honour found had been engaged in by IMB. 83 His Honour found that Mr MacLean played a role in advancing IMB's business, in that he had attended meetings with other representatives of IMB. He also attended three meetings of the directors of IMB or meetings of senior management of IMB to discuss general matters of IMB's business. Mr MacLean also took part, with senior IMB representatives, including Mr Glenn Ivers, in the interview with Mr Robert Cowley, that led to IMB engaging Mr Cowley. His Honour concluded that Mr MacLean's participation in those management activities of IMB was sufficient to bring him within s 75B(1)(c) in respect of the contraventions that his Honour found against IMB. His Honour also considered that Mr MacLean's role, as a director of LLL, was, of itself, sufficient to produce that result.

RESOLUTION OF THE QUESTIONS RAISED ON APPEAL 84 It is necessary to deal separately with the questions raised by the Commission's appeal, the cross-appeal by Messrs Backo, David Ivers, Luke Ivers, John Ivers, Stone, MacLean and Glenn Ivers and the appeal by Mr Musgrave. In relation to the question of contravention of s 47 of the Act, the issues raised are, on the whole, legal questions. However, in relation to the issues concerning contravention of s 52 of the Act, the questions are essentially matters of fact. The primary Judge did not base his findings on an assessment of witnesses who gave evidence before him. The Full Court, therefore, is in as good a position as his Honour to determine whether the conduct on the part of IMB contravened s 52 of the Act. 85 The questions concerning accessorial liability also appear to raise factual matters that are not dependent upon assessments by the primary judge. The principal attack on his Honour's findings in relation to s 75B of the Act centres on the absence of findings necessary for the establishment of accessorial responsibility under s 75B.

EXCLUSIVE DEALING 86 It is quite clear that at no time were any of the Respondents offering to provide an opportunity or option to acquire shares in LLL or in any other company. Neither IMB nor any of the individual Respondents was in a position to provide any opportunity or option. LLL did not exist until June 1994. It was not offering any options to take up shares or an opportunity to take up shares in its capital. The most that could be said is that the Respondents were endeavouring to establish a framework under which it would be possible for intending participants to acquire shares in a company to be formed. In due course, LLL became that company. 87 It may be that it is possible to construe the actions of the respondents as an offer to use their best endeavours to bring about a situation whereby participants in the proposed scheme would have the opportunity or the option to acquire shares in LLL. However, that is not the allegation made by the Commission. That is to say, there was no allegation by the Commission that the Respondents were offering to provide a benefit or privilege being the use of their best endeavours to bring about the framework that would give rise to an opportunity or option. 88 The same reasoning applies to the so-called benefit or privilege of membership of a club. There was no club in existence. None of the Respondents was in a position to provide any opportunity to become a member of any club. That opportunity could only be provided by the club, if and when it was formed, in accordance with its constitution. Once again, it may be possible to construe the actions of the Respondents as an offer to use their respective best endeavours to bring about a framework whereby an entity would be formed that might offer such membership. However, as with the alleged benefit or privilege of an option or opting to take up shares in LLL, there was no allegation by the Commission of an offer by the Respondents to provide services in the form of using their respective best endeavours to bring about the framework under which membership of a club might be available. 89 It is a fair conclusion to draw from the evidence that whatever it was that was being offered by the Respondents was conditional upon taking out Insurance Policies with either National Mutual or Legal & General as the case may be. However, it was of no interest to any of the Respondents for participants to take out policies otherwise than through the agency of either the Legal & General agents or the National Mutual agents. That is to say, the condition upon which any benefit or privilege was offered by the Respondents was not that the prospective participants acquire services from Legal & General or National Mutual. The condition, if there was one, was that prospective participants acquire insurance policies through the agency of IMB, thereby generating commission that would fund the proposals. Thus, the evidence does not support a conclusion that any relevant benefit or privilege was being offered on the condition that prospective participants acquire services directly or indirectly from another person. The condition, if there was one, was that they acquire services from IMB. 90 Section 47(7) does not take the question any further. If there was a refusal to supply a relevant benefit or privilege to any prospective participant in the scheme, it was because the prospective participant would not acquire Insurance Policies through the agency of IMB. 91 The conclusions of the primary Judge concerning the application of s 47 to the circumstances under consideration were correct, essentially for the reasons provided by his Honour.

Offer of Opportunity of Shares and Club Membership 92 The same conduct, on the part of IMB and those persons associated with it, which was alleged to constitute an exclusive dealing, namely the offer of benefits upon condition that a policy be purchased, was also alleged by the Commission to amount to a contravention of s 52. No further particulars were given as to how it was said to be misleading and deceptive. The primary aspect of the Commission's case at trial was upon the allegation of an exclusive dealing. A review of the submissions made to his Honour discloses that the alternative argument based upon s 52 was not entirely abandoned, although it is understandable that his Honour did not consider that it was seriously pressed. The only reference by the Commission in submissions to his Honour to which this Court was taken was a submission that "The fact that the statements made by the first respondents were also misleading or deceptive does not have the consequence that the conduct is not also a contravention of s 47. The Further Amended Statement of Claim alleges that the conduct of the first respondent in this regard was both a contravention of s 47 and misleading or deceptive …." 93 What was not raised before his Honour was how that conduct was to be seen as misleading or deceptive. It is not apparent from the pleading. On the appeal it was submitted that what was offered was something that they could not supply. It was not within IMB's power to guarantee a share subscription or membership of the proposed rugby league club. Reliance was placed upon observations of his Honour that the offers might be seen as 'illusory', but this was in connexion with their characterisation for the purposes of s 47. 94 His Honour was never asked to make the findings which are now sought and we do not understand the Respondents to have addressed the matter. Moreover what is now pursued was not the subject of the Commission's pleading. We do not consider it proper to permit the Commission to raise these matters for the first time.

Future Value of Insurance Policies 95 The cash values of the Insurance Policies three, seven and ten years after they had been sold, which were referred to by the IMB representatives, were derived from estimates in a model prepared by National Mutual for the Ivers in connexion with the scheme. The key assumption in the model, his Honour observed, was the rate of investment return. The evidence showed that the assumed rate was one approved by the Insurance Commission as an indicative rate of return for the use of insurance offices in marketing their products. Both National Mutual and Legal & General were prepared to lend to the policy holder up to 90 per cent of the cash value of the policy at the time of the loan, subject to the policy having been in force for at least two years. The amounts of the loan-backs in 1994 and 1997, referred to in an IMB document of 22 July 1991, were within 90 per cent of the cash value. The policies would have had to be in place for two years for them to have any prospect of having a loan value of $2,000. 96 His Honour found that in written material distributed to members of the public, and statements made by IMB representatives at sales seminars, representations were made, in the period March to December 1991, to the effect that in ten years a policy would be worth $25,000 and also that a policy would accumulate sufficient value to enable policy holders to borrow through the loan-back facility $2,000 in 1994, $5,000 in 1997 and $18,000 in 2001. Similar representations were made during the period from about January 1992 to September 1993. IMB distributed widely a document entitled "National Mutual cash value print out" which showed the cash value of the policy at the end of each year of the twenty year life of the policy, his Honour found. It contained the note "These figures represent illustrations only, future values cannot be guaranteed". Notwithstanding that qualification, his Honour considered that the document would likely have had the effect of reinforcing the representations made. If there were no other evidence his Honour acknowledged that there would have been substance in the Commission's argument. 97 Before his Honour the Commission argued that there could be no reasonable grounds for making the representations. There were so many variables that it was impossible to predict what the cash values would be. However, there was a "mass of testimony", his Honour found, that established that IMB's presentations left people with the clear understanding that the suggested policy values were indicative only, and could not be guaranteed because actual values depended upon a range of market influences. One of the Commission's own witnesses had been given a document that advised that the figures were estimates only and based upon rates that may not be material. She had received similar oral advice from an IMB representative. 98 In mid to late July 1991, IMB had used two documents as marketing aids. They contained unqualified statements about the National Mutual policy accumulating sufficient value to support the three loans. His Honour considered the Commission's contention, that mere distribution of the document was sufficient to amount to conduct in contravention of s 52, but was of the view that it was necessary to have regard to the evidence of the information subsequently provided to people in face-to-face interviews or policy seminars, namely that policy performance was not guaranteed. 99 In relation to the performance of the Legal & General policies the Commission relied upon statements in a document headed "2001 Rugby League Syndicate - Members Information Portfolio", which was distributed by IMB in the first half of 1992. The document, his Honour found, however, was likely to convey that there was no assurance. A video presentation prepared by Mr Cowley in March 1993 did not advance the Commission's case. The statements there made about the performance of the policy were immediately qualified. 100 His Honour did not accept the evidence of three of the four witnesses relied upon by the Commission. As to the fourth, his Honour considered that it was necessary to consider what was alleged to have been said by Mr Cowley about the Legal & General policy with other evidence. There were two other occasions in which unqualified statements were made and which might constitute conduct contravening s 52. Mr Glenn Ivers had made statements to the effect that the policy would produce $25,000 in ten years' time. A script prepared for seminar presentations contained a statement that the payment of $25 a week into a capital guaranteed investment fund held by Legal & General would guarantee investor options on 25,000 $1 shares in 2001. His Honour did not, however, consider that they could be viewed in isolation from the "mass of evidence" called by the Respondents and which his Honour considered presented "a pretty comprehensive picture of how the Respondents marketed both the National Mutual and the Legal & General policies". 101 This evidence was provided by thirty-three witnesses, from a group of 439 witnesses who had provided statements, whom his Honour described as "Category J". They had attended the seminars and ultimately purchased policies. Their evidence generally disclosed a range of views and they did not appear to his Honour to be blind supporters of IMB. Of those witnesses whose evidence was useful, the majority gave evidence that they understood that there was no assurance that the policies would yield the $25,000 figure mentioned at the seminar they attended. Some clearly understood that the figure was governed by interest rates, and others understood there to be uncertainty as to whether the figure could be achieved. 102 His Honour regarded the evidence of these witnesses as reflecting the evidence that the larger body of Category J witnesses would have given. The parties had agreed that this approach could be taken when the sample witnesses were chosen. It was supported by the evidence of other Category J witnesses, not from the sample but called by the Respondents. The evidence suggested to his Honour that most people attending seminars left with an understanding that what was said about future policy values was qualified. His Honour did not accept, therefore, that the unqualified statements about policy performance should be regarded as amounting to misleading conduct. What was said by Glenn Ivers on 8 September 1993 was to be viewed in the same way. The evidence of a few witnesses who believed the figure to be an unqualified, firm, figure should be discounted as not representative, his Honour held. 103 The Commission also submitted, before his Honour, that the National Mutual document showed the ten year value of its policies at $24,369 not the figure of $25,000 as had been represented. His Honour dealt with the argument, although it would not appear to have been raised on the Commission's pleading. His Honour did not consider the representation to be misleading. To state the precise value was more likely to mislead, his Honour observed. 104 The Commission submitted that with respect to those persons who were misled by an initial representation, but did not subsequently attend seminars, the misrepresentation would not have been corrected. The witnesses who were called were not representative of such people. All the Category J witnesses were persons who later attended seminars and purchased policies. A representation does not cease to be misleading because it is subsequently corrected, it was submitted. It was further submitted that the evidence of the Category J witnesses was inherently unreliable and should not have been afforded weight. The evidence of one of the witnesses, who did believe the policies would be worth $25,000, should not have been discounted. In relation to the second basis it was contended that rounding up of the figure is inherently misleading. 105 His Honour did not find that the initial representations were misleading and then proceed to determine whether they were later corrected, as the Commission contended. Rather, his Honour considered that the conduct of the Respondents needed to be viewed overall to ascertain what was conveyed before determining whether it was misleading or likely to mislead. Purchasers were, after all, exposed to a course of conduct. In so doing his Honour did not hold that it was necessary to have regard to the point of contact. His Honour referred to SAP Australia Pty Ltd v Sapient Australia Pty Ltd (1999) 169 ALR 1 at 14, and the observation there made, that conduct that is misleading or deceptive is not limited to conduct that involves or is likely to induce entry into a transaction. His Honour considered the earlier representations to have been a "temporary error", which had no relevant effect upon any person. We take his Honour to say that no one in fact was misled. 106 The conclusion reached by his Honour was clearly open on the evidence, in our view. This was a case where the evidence was able to show whether persons who had heard an initial, unqualified, statement about the value of the policies were affected by it. If the statements had been influential, one would have expected to find those persons amongst those who attended the later seminars. The Category J witnesses were representative of those attendees. And it was appropriate, in the circumstances of this case, for his Honour to view the conduct of IMB and its representatives as a whole. It was not suggested that IMB was attempting to sell policies at the outset. What it engaged in, with potential purchasers, was a course of conduct. It is the effect of all of that conduct that was appropriate to be considered. To refer only to what was said at one point of the communications would be similar to selecting parts of a conversation and assessing whether those words were capable of misleading. It would fail to put them in context (see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199). 107 The principal submission of the Commission on the appeal related to his Honour's acceptance of the Category J witnesses. It was submitted that their evidence was coloured by the fact that they were committed to the proposal. We do not understand why their evidence was to be regarded as unreliable. They were apparently quite sensible people who were able to give an account of what they had been told. Their evidence did not suggest them to be IMB supporters and there was no reason that they should be. Although they had been repaid their premiums, they had purchased policies in a scheme that did not proceed. They were cross-examined and found to be credible. 108 The Commission pointed to the finding in connexion with the witness Ms Colbran. His Honour did accept that she had been told by the IMB representative Mr Livesey, and she believed, that in ten years her policy would be worth $12,500. His Honour did not, however, make a finding of misleading conduct. The Commission submits that the fact that the statement made did not reflect IMB's usual practice of qualifying the statements, or that it was made on only one occasion, does not render the conduct any less a contravention. The submission overlooks the orders sought by the Commission and the case it had pleaded, which were much wider. This is the context in which his Honour spoke. A finding of one misleading statement to one person would not justify the orders sought. We add that it would not appear that the Commission sought the specific order. 109 His Honour's finding, that the conduct of the IMB representative did not convey certainty about future values, also disposes of the Commission's argument concerning the misrepresentation of the National Mutual document. Inherent in the finding is an acceptance that rounded-off figures are less likely to convey certainty, as his Honour pointed out. If the exact figure had been used there would have been a greater potential for people to be misled because it would convey that the figure is reliable.

Approval of Finance 110 His Honour's findings in this regard, of contraventions of s 52, are the subject of cross appeals. 111 In our respectful view the evidence of each of Mr Stokes and Ms Webster do not provide a sufficient basis for a finding that the representation alleged was made. The representation was pleaded as one of fact, that finance of $20,000,000 had been obtained for the project. The evidence of Mr Stokes was vague. He said that he had been given the impression by the speaker at the seminar and Sam Backo that IMB had secured a $20,000,000 bank assurance. Without more we do not consider that it establishes the making of the statement with the requisite degree of probability. The fact that the witness recalls being told that financing had been mentioned at the launch the previous day strengthens the possibility that the topic was mentioned to him. It does not however provide the content of what was said to him. There is no other evidence that might render more certain what was said at the seminar and which created the impression in Mr Stokes' mind. 112 The video recording of the seminar on 8 September 1993 discloses that, whilst the figure of $20,000,000 dollars was mentioned, it was said that it "is being raised through a private placement to enable it to get under way much quicker". This is what had been "indicated" to Ms Webster. Ms Webster also believed that Council approval had been given, when clearly it was approval in principle to which reference was likely to have been made. In any event the statement in fact falls short of a representation that finance had already been approved. 113 There is, however, no doubt that Messrs Cowley and Agathonoff made statements about finance, to an amount of $20,000,000, having been arranged when they spoke at the media launch on 15 September 1993. The statement is set out at an earlier point in these reasons (at [26]-[27]). Mr Cowley explained that he had been overseas talking to banks and other institutions about funding, and that the IFR Group had agreed to fund Stage 1. Mr Agathonoff, who was said to represent the IFR Group then confirmed that it was that Group's intention to fund the first stage of the project, subject to the necessary documentation. 114 His Honour observed that at this time Glenn Ivers began to suspect whether Mr Cowley was bona fide. On 17 September 1993 the local media reported statements by Mr Cowley about his being confident that the loan would go ahead. The reaction of Messrs McLean, Glen Ivers and John Ivers, his Honour said, was to speak with David Ivers about their suspicions as to whether they could have any confidence in Cowley's claims that funding had been arranged. No loan funds ever materialised. At the start of the trial, his Honour records, "the [R]espondents acknowledged that Cowley was a fraud and had never arranged on any basis, conditional or otherwise, any loan funding for the project." It followed, in his Honour's view, that the Respondents never at any time had any ground for representing or permitting a representation that funding was ever in place. 115 It was not necessary for his Honour to make a finding about whether the Respondents had a basis for making the representation. The representation alleged, and to which the evidence was led, was one as to an existing fact, that finance had been approved. The references to some of the Respondents' states of mind might be relevant to their liability as accessories, but it was not relevant on this issue. The only question to be considered was whether the statements made by Mr Cowley and Mr Agathonoff were misleading because they were untrue. The statements themselves do not establish that. Were there nothing more the matter would simply not be proved. 116 There was a concession made by Senior Counsel who appeared for the Respondents for part of the trial. It is to this concession that we take his Honour to refer. In opening the Respondents' case it was said that the Respondents accepted that there was a "fraudulent piece of documentation" in connexion with the Vienna Merchant Bank, that Mr Cowley had generated. They disassociated themselves from it. They maintained the stance that the project had been considered to be viable, in the sense that it was able to be financed. 117 The document to which the concession referred appears from the trial record to be a letter dated 9 November 1993 on the letter heading of "Vienna Trust Company Limited", which was said to be the parent company of Vienna Merchant Bank Limited. It offered loan funds to $US100,000,000 to be drawn in three stages. It was accepted by the Respondents at trial that those companies did not exist and the letter was not genuine. The letter was thought to have been generated by Mr Cowley. It was not admitted that the Respondents knew that to be the case at the time, but rather that they found it to be so in 1994. 118 The admission as to Mr Cowley's later false assertions about finance was not said to extend to the earlier representations about finance by both Mr Cowley and Mr Agathonoff, for the IFR Group, at the launch of 15 September 1993. During the course of the trial Senior Counsel for the Commission raised the question whether the Respondents also admitted "that Mr Cowley was fraudulent in relation to his statement that a Mr Agathonoff was providing finance - a statement which was made in 1993 at a Beenleigh launch…", but this Court was not taken to any further admissions by the Respondents. None appears to have been made. 119 In our view the evidence does not permit a finding that finance was never arranged. The evidence was that Mr Agathonoff acted for the IFR Group, which was apparently a financier, and he said, that it intended to fund the project. It was not established that the entity did not exist or that there was no intention to finance. Mr Agathonoff was not called as a witness. The fact that Mr Glenn Ivers had some concerns at this point about Mr Cowley, and about the lack of documentation, does not make Mr Agathonoff's statements untrue. The fact that Mr Cowley was deceitful about other finance raises the possibility that others associated with him earlier might not have been reliable but a conclusion is not possible. 120 In our view there should not be a finding that the statements made on 15 September about finance were misleading or deceptive.

Commencement and Completion of the Development; Attributes of the Development; Value of the Development; Future Value of Shares 121 It is convenient to deal with each of these issues together. In each case representations as to these future matters were held to be misleading because his Honour found that the Respondents had no reasonable grounds for thinking that the necessary funding could be obtained. The Commission had presented its case in this way. It was then necessary for his Honour to determine whether the Respondents had any grounds for believing that they would be able to fund the project in the period 1991 to mid-September 1993, when the representations were made. 122 The evidence showed that it was reasonable to believe, in 1991, that there was an opportunity for the development of a major rugby league club in Logan City, and his Honour so found. The 5000 Insurance Policies necessary to be sold under the original funding proposal had cash values estimated by National Mutual. It was necessary that that number of Insurance Policies, or a large proportion of them, be sold by late 1992 if there were to be sufficient loan funds, raised against them, to fund Stage 1 construction in late 1994. By the end of November 1992, in fact only 1,200 Insurance Policies had been sold and, by the end of the third year, 3,200 were sold. His Honour considered that these figures justified a conclusion that the original notion of funding was never realistic. His Honour made other observations, as to the assumption made by IMB that the requisite number could be sold, but the declaration made by his Honour relates only to the period between July 1992 and September 1993. This is when the method of funding changed to an external loan provider who might use the Insurance Policies, in part, as security. The question that it was necessary for his Honour to address was whether the Respondents had reasonable grounds for believing that a financier would provide the necessary funds. 123 In May 1991, Kendalls KBM ("Kendalls"), chartered accountants, prepared a preliminary financial analysis for IMB. They were acknowledged by the Commission's expert witness to have expertise in the club and entertainment industry. They provided a projection for profit from trading from bars, restaurants and poker machines in the proposed club after the first full year and subsequently. Kendalls then recommended that IMB engage a specialist organisation to undertake a full feasibility study. International Feasibility Pty Ltd ("IFC") was engaged and a study obtained in January 1992. Another accounting firm, Einfeld Symons, was engaged to complete a cash flow analysis relying upon the IFC feasibility study. IMB launched its Rugby League Syndicate Proposal in late March 1992. A submission was made to the Australian Rugby League in relation to the admission of a Logan City team in the national competition and a reply had been received, in mid-May 1992, that the proposal would receive serious consideration. 124 In May or June 1992 Mr Cowley was appointed. Whilst an external financier was now thought to be necessary, he was involved at this point in sales of Insurance Policies, an area where he was shown to be effective. In October 1992 IMB submitted its "business plan" document to the Logan City Council for the purpose of seeking approval in principle to the lease of Meakin Park. Meetings with the Council followed and consultants were engaged to prepare town planning applications. In April 1993 the Council suggested Logan Park as the preferred site. This necessitated a revised application, which was lodged in June 1993. On 9 July 1993 the Council advised that it had approved the proposal for development of the park "in principle" and subject to further requirements and studies. IMB engaged consultants to deal with those requirements. An agreement to lease was later offered, but by this time the project had come to an end. 125 In July 1993 Mr Cowley went overseas to seek funding. IMB paid him over $110,000 in fees in the belief that he was actively pursuing funding. In early September 1993 IMB received letters from him advising that he was having some success in locating back-up loans. By the time of the launch he had returned to Australia. Mr Agathonoff said at the launch that IFR intended to finance the project. 126 In his Honour's view, whilst the Respondents may have hoped that they would be able to raise the necessary funding, from mid-1992 they could not have had any belief that it was able to be raised. This was apparent, his Honour reasoned, from a number of factors. They took no action for a year to seek an external funder, then all they did was to commission Mr Cowley to find a source of funding. From mid-1993 to September 1993, when some of the Respondents began to have doubts about Mr Cowley's bona fides, there is nothing to suggest that he did anything to entitle them to think that there was a likelihood, even a possibility, of the necessary funding being found. 127 In our view, the delay in seeking an external lender is understandable and does not provide a basis for a conclusion that the Respondents had some doubts that they could obtain it. The proposal was not a sham. IMB and those associated with it were clearly attempting to get the necessary approvals for the development. They had feasibility studies undertaken and had no reason to believe that they presented a difficulty or that the proposal would be unattractive to a lender. They were active in pursuing approval-in-principle from the Logan City Council, but encountered some delays when Council's preference for a location changed. It is not difficult to accept that without approval-in-principle a lender would not be likely to view the proposal seriously. At the least, it was reasonable to view it in that way. 128 His Honour referred to the evidence of Mr McDougall, an expert in the area of financing called by the Commission. Some of his evidence supports IMB's stated belief, that a commitment from the Council would be required by a lender. He also said that a financier might possibly have been found who would be prepared to lend against security if a club had a strong cash flow. The difficulty he foresaw was the disparity between the financial projections in the business plan prepared in July 1993 for submission to the Council and the more conservative projections in the feasibility study prepared in late 1991 or early 1992. There had not been any market research which might suggest that the forecasts could be achieved. Further, the figures were based upon a number of poker machines being licensed to the club. The evidence showed that the number of licences assumed for the cash flow projections could not have been obtained in 1999. 129 The requirement of s 51A is that there be reasonable grounds for a representation. The fact that the basis upon which a respondent was acting is later shown to contain erroneous assumptions does not necessarily mean that there were no reasonable grounds: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88. Information and advice provided by experts that may reasonably be relied upon may provide the necessary grounds: see Bateman v Slatyer (1987) 71 ALR 553 at 559. Whilst the accountants here had not obtained a market survey, they had prepared their cash flow projections by reference to other clubs. The figures were prepared by reference to a number of poker machines being licensed. In any event, Mr McDougall did not say that finance could not be obtained, rather he simply cast some doubt upon it. The evidence was that there was a financier prepared to fund the project in September 1993. In our view, that establishes that there were at relevant times reasonable grounds for believing that a financier would do so. To reach a contrary conclusion it would be necessary for the Commission to show that that evidence was not reliable. As we have earlier discussed, this was not shown.

ACCESSORIAL LIABILITY 130 Since we are of the view that no contravention of s 52 by IMB or those associated with it was established, it is strictly unnecessary to deal with the appeal by Mr Musgrave and by the other Respondents. Nevertheless, we make the following observations. 131 The collective findings made against Mr Musgrave and the other personal Respondents appear to reflect the way in which the matter was litigated by the Commission. It was alleged only in a very general way that they were knowingly concerned in any contravention. No particulars were provided of the individuals' actions and their knowledge. The Respondents had common representation and this may have added to a view of them as a collective. His Honour based the imposition of accessorial liability upon the Respondents either having a close involvement with IMB or because they were directors of LLC, which was incorporated in June 1993. 132 His Honour's orders are not supported by the necessary findings. The Commission sought leave to amend its case on appeal. With respect to Mr Musgrave it was sought to uphold the order on the basis that the evidence discloses that he was a promoter of the scheme. Particulars of the extent of his knowledge were not furnished. Had it been necessary to rule on the Commission's application, we would not have been inclined to grant it leave. It undertook litigation for the most part against litigants in person and the litigation extended over a lengthy period with intervals. It had not ever pleaded a proper case of accessorial liability and to permit it to do so now would be to do so for the first time and in circumstances where the Respondents were not alert to the case against them when they led their evidence. 133 For a person to be involved in a contravention within the meaning of s 75B(1)(c) of the Act, a person must be an intentional participant in the contravention, the necessary intent being based upon knowledge of the essential elements of the contravention: see Yorke v Lucas (1985) 158 CLR 661 at 670. Thus, while it is not necessary to establish that the individual Respondents had knowledge that there was a contravention of a provision of Pt V of the Act, it is necessary to demonstrate that each individual Respondent had knowledge of each of the essential elements of the contravention. 134 In order to establish whether any of the individual Respondents was involved in a contravention, it is necessary to examine the state of mind of each of them separately in relation to each alleged contravention. Here the Commission's pleading did not permit of such a course. It did not ever identify the contravention that the particular Respondent was said to be involved in. We do not understand any of the Respondents to have addressed any case specific to them. Rather, his Honour appears to have assumed that merely being a director of IMB and being involved in promoting its activities was sufficient to attract the operation of s 75B(1)(c) in relation to any contravention on the part of IMB that occurred during the time that the individual was involved in promoting IMB's activities. However, his Honour made no finding concerning the state of mind of any of the individual Respondents. Further, the Full Court was not invited by the Commission to make findings in that regard. Rather, the Commission sought to support the conclusions reached by the primary judge. 135 It is not necessary to establish any subjective element in relation to a contravention of Pt V of the Act. A contravention may be committed unintentionally. That is to say, a person may contravene a provision of Pt V even though that person does not have knowledge of all of the essential elements that constitute the contravention. However, before any accessorial liability will arise, it is necessary to establish the subjective element of knowledge of each of the essential elements of the contravention. That knowledge may be constructive in the sense that it may be possible to show wilful blindness in relation to the elements of a contravention. However, absent a finding of wilful blindness, it is necessary to establish actual knowledge on the part of a person to whom it is sought to sheet home accessorial liability in respect of a contravention of Pt V. 136 It is now common ground that, even if the Commission established accessorial liability on the part of the individual Respondents, that would be no warrant for the declarations made by the primary judge against the individual Respondents. That is to say, even if it were established that any of the individual Respondents was involved in a contravention of a provision of Pt V, that would not justify the declaration made by his Honour that the individual Respondents had themselves engaged in conduct in contravention of the Act. Hence the application by the Commission to amend the notice of appeal further to seek declarations that each of the individual Respondents was knowingly concerned in or a party to contraventions of s 52 by IMB and LLL. 137 The parties appear to have been involved in the preparation and conduct of the appeals on the basis that the issue is whether the primary judge should have made declarations that the individual Respondents were involved in contraventions by IMB. The Commission abandoned any contention that LLL engaged in conduct that contravened the Act or was involved in any contravention by IMB. In the circumstances, the Commission should have leave to file a further amended notice of appeal seeking orders that declarations 3, 6 and 7 made on 5 April 2002 be set aside and in lieu thereof declarations be made that IMB, by making the representations referred to in those declarations, engaged in conduct that contravened s 52 and declarations that each of the individual Respondents was knowingly concerned in or a party to such contraventions. 138 In the light of the absence of any findings by the primary judge of knowledge on the part of any of the individual Respondents of each of the essential elements of the contraventions alleged, the declarations should be set aside. However, no declarations should be made in lieu of them.

CONCLUSIONS 139 It follows from the above that the Commission's appeal should be dismissed, the appeal by Mr Musgrave should be upheld and the cross-appeal should also be upheld. In lieu of the orders made by the primary judge, there should be orders that the consolidated proceeding be dismissed with costs. The Commission should pay the costs of the appeals and the cross-appeal with any such costs limited to those incurred for legal services and associated expenses. I certify that the preceding one hundred and thirty nine (139) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Cooper, Kiefel & Emmett.

Counsel for the Appellants: Mr K Durney QC and Mr A Duffy

Solicitor for the Appellants: Australian Government Solicitor

For the Fourth and Tenth Respondents: Mr G Ivers and Mr D Ivers

Solicitor for the Ninth Respondent: Shand Taylor Lawyers

Date of Hearing: 12, 13, 14, 15 November 2002

Date of Judgment: 20 February 2003