Caple v All Fasteners

Federal Court of Australia|2005-11-04|Before: Nicholson J

REASONS FOR JUDGMENT 1 This is an appeal from a judgment of a Federal Magistrate given on 10 December 2004. His Honour gave judgment for the respondent ('All Fasteners') against the appellant and dismissed a counter-claim by the appellant. Issues of loss and damage including any amount of set-off were referred for further mediation or, failing that, for re-listing. 2 On 8 March 2005 the Chief Justice made a determination pursuant to s 25(1A) of the Federal Court Act 1976 (Cth) that the appeal be heard by a single judge. 3 The amended application relied upon ss 52, 75B, 82 and 87 of the Trade Practices Act 1974 (Cth) ('the Act'). The claim for damages pursuant to s 82 of the Act was in respect of conduct of respondents (of whom the appellant was the fifth respondent) said to be in breach of s 52 of the Act. Further and alternatively, a declaration was sought by All Fasteners that the lease between it as lessee and Mr Grant Caple (the then second respondent) and the appellant as lessor in relation to Lot 4 on a strata plan was void. The amended application had been preceded by an application filed on 20 December 2002 in which the appellant was not a respondent. However orders were made on 30 September 2003 granting leave to join her as a respondent: All Fasteners (WA) v Grant Caple Pty Ltd & Ors [2003] FMCA 430. 4 On 4 February 2003 the Court stayed the action against Grant Caple Pty Ltd (the then first respondent) and/or its administrator until further order. On 19 March 2003 orders were made that judgment be entered for All Fasteners against Mr Caple. On 17 April 2003 consent orders were made dismissing the claim against Grant Caple Pty Ltd. The result was that the claim was pursued only as against the appellant.

liability under s 75B 17 The submissions for the appellant set out propositions in relation to s 75B of the Act. Relevantly that provision provides: '(1) A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA, IVB, V or VC, or of section 75AU or 75AYA, shall be read as a reference to a person who: (a) has aided, abetted, counselled or procured the contravention; (b) …; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) ...' 18 The principles are as follows. 19 Section 75B imports the requirements of the criminal law. Notwithstanding that s 75B operates as an adjunct to the imposition of civil liberty, its derivation is to be found in the criminal law and accordingly mens reain the form of intention is required. See Yorke v Lucas (1985) 158 CLR 661 at 667 and 669. 20 As stated by the Full Court (Heerey, Sundberg and Dowsett JJ) in Quinlivan v Australian Competition & Consumer Commission [2004] FCAFC 175 at [9] and [10]: 'In Yorke itself the alleged accessory, an employee of a corporate respondent, was held not to be liable because although he was aware of the representations made - indeed they were made by him - he had no knowledge of their falsity. Therefore he could not be said to have intentionally participated in the contravention: 158 CLR at 668. "Knowledge" means actual and not constructive knowledge: Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 5. What is said in Yorke about s 75B is applicable to s 80(1)(c), (d), (e) and (f). From the interaction of these provisions three conclusions emerge. First, s 51A does not detract from the Yorke principle that actual knowledge of the essential elements of the contravention is required if s 75B or s 80 is to apply. Where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge by the accessorial respondent of the falsity of the representation. This is an essential matter which must be alleged and proved: Su v Direct Flights International Pty Ltd [1999] FCA 78 at [38], Fernandez v Glev Pty Ltd [2000] FCA 1859 at [18].' 21 When accessorial liability is in issue in relation to a representation as to a future matter, as against the accessorial respondent the onus will be on the applicant to show the respondent had actual knowledge that: (a) the representation was made; and (b) it was misleading; or (c) the corporation had no reasonable grounds for making it. see Quinlivan at [15]. 22 A mere reckless indifference to the truth should not be equated with the requirement of knowledge of the essential facts of the contravention. See Doney & Anor v Palmview Sawmill Pty Ltd & Ors [2005] QSC 62 at [42] and the authorities referred to therein.

Magistrate's findings and reasoning 23 After setting out the contentions made before him, his Honour made the following findings: (1) The appellant was a director of Grant Caple Pty Ltd; (2) The business of All Fasteners was started by Mr Caple in 1992; (3) The role of the appellant in the conduct of the business was primarily that of reconciling accounts and paying creditors, having authority to sign business cheques on behalf of the business; (4) The appellant's marriage to Mr Caple broke down on 4 February 2002 and he moved to Thailand; (5) The appellant had been a joint proprietor of the premises and business had been conducted and from the premises. The appellant was a shareholder of Grant Caple Pty Ltd from 22 December 1992 and a director from 1 March 1993; (6) Grant Caple Pty Ltd had previously been known as All Fasteners (WA) Pty Ltd. It was referred to as such in the Business Report and the Purchase Agreement; (7) There were three significant representations made prior to the date of the Purchase Agreement. His Honour said: 'The first concerns the retirement of McCaughan as sales representative of the business, the second relates to nails imported from Thailand claimed to be of no less quality than those of other suppliers which would provide substantial profit margins and the third that the vendors were not aware of any circumstances like [sic] to adversely affect the trading position of the business.' (8) In relation to the McCaughan representation, the Business Report stated: 'The current Sales Representative has indicated his intention to terminate employment on June 28, 2002. This will necessitate the recruitment of a replacement.' His Honour was satisfied that a representation had been made of the kind pleaded. He based this on a combination of consideration of the Business Report, an affidavit of Mr Hall and the background to the matter as set out in the Business Report. (9) In relation to the Thai nails representation, it had been represented in the Business Report: 'The vendors acquisition of the agency for nails and staples imported from Thailand is only recent but hold prospects of replacing some existing suppliers with a product that provides substantially better margins of profit. Early evidence is that the imported product is no less of quality than other suppliers. New owners will be able to source these from either the vendor or other parties to be named.' His Honour found that when that statement was made it was known that there were problems with the stock from Thailand and that stock was then unable to be sold or had been returned for credit or replacement. (10) Had All Fasteners known that Mr McCaughan was going to work for another competitor and not retire and/or that there were problems with the Thailand stock, the applicant would not have entered into the Purchase Agreement. Consequently the making of the representations and reliance upon them had occasioned loss suffered. (11) In relation to the liability of the appellant, his Honour's reasons read in part: '85. The evidence of the fifth respondent in my view provides some basis upon which it could be concluded that she had actual knowledge in relation to the Thailand stock. It is clear from the affidavit evidence that she had been told that the product from Thailand was "rubbish" by McCaughan (paragraph 22.2 Exhibit R2). Further she had been told again by McCaughan that he was dissatisfied with the product bought in from Thailand. McCaughan also confirmed she [sic] had told the fifth respondent that the second respondent should get a credit note for the product from Thailand. I note and accept that the product from Thailand had remained in the factory for months until McCaughan left and I conclude that this would have been a matter known to the fifth respondent prior to the execution of the agreement or preparation of the business profile. As a director of the vendor company responsible for producing the profile, it is my conclusion that the fifth respondent had actual knowledge of this representation which as I have indicated I find was misleading and deceptive and provides a basis for contravention of s.52 of the TPA. 86. In this case I am satisfied that the fifth respondent had attended at least three meetings where the issues of the Thailand stock and the retirement of McCaughan had been discussed. Despite her lack of recollection and issues raised as to the actual age of McCaughan, I am satisfied that at all material times she was aware that McCaughan was retiring and was going to commence employment with a competitor namely Trade Power. The fifth respondent in my view was keen to ensure that the sale of the business occurred in the most beneficial manner and it was in her interests to ensure that it proceeded successfully. 87. Although the fifth respondent did not have the same active role in the business as the second respondent, I am satisfied that her duties in relation to the stock report, her knowledge of the Thailand nails and the retirement of McCaughan were sufficient to provide a basis of actual knowledge of a kind which would invoke the operation the [sic] s.75B of the TPA. The fifth respondent as with the second respondent did not disclose to Hall during discussions about the business the problems with the Thailand nails and otherwise remained silent in relation to the future of McCaughan. It would be reasonable to expect therefore that Hall may in the business profile provide material which as I have found would be misleading and deceptive in contravention of s.52 of the TPA.' At [88], his Honour said: 'In any event in this case whilst the representations were not made directly by the fifth respondent to the applicant, it is clear that as found earlier she was involved in initiating the appointment of the agent and providing information to the agent including either communicating certain information or remaining silent about other information which she would know or would reasonably have known could result in potential purchasers being misled or deceived in relation to at least the three matters identified namely the McCaughan retirement, the Thailand product and whether or not the report could properly represent that the vendors were not aware of any circumstances likely to adversely affect the trading position of the business.' Accordingly, he found the appellant liable in relation to the representations. (12) As to the counter-claim, his Honour said that the amount claimed for rent, if any, should be properly taken into account by way of set-off in an assessment of loss. Accordingly, the counter-claim was dismissed with judgment for All Fasteners against the appellant.

grounds of appeal 24 By her re-amended notice of appeal the appellant broadly attacks the reasoning of the Federal Magistrate on three alternate bases:

A breach of the rule in Browne v Dunn (1893) 6 R 67 (grounds 4, 8 and 10(c));
A lack of a causal connection in relation to the McCaughan representation (ground 11); and
A lack of evidence or material findings (grounds 2, 3, 5, 6, 9, 10(a), 10(b) and 10(d)). It is convenient to address these in that order.

rule in Browne v Dunn 25 The rule in Brown v Dunn is formulated as follows by Hunt J in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1 at 16: 'It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn.' 26 The rule does not apply where the witness is on notice that the witness's version is in contest. The notice may come from the pleadings. In Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 181, Toohey J declined to consider the operation of the rule in Browne v Dunn any further because he was quite satisfied that Mobil's legal advisers were fully alerted before the hearing and during the hearing to the allegations made against the company and the evidence upon which the Commission relied. 27 The appellant asserts that the mere allegation in the terms of s 75B of the Act will not be an adequate pleading of a claim of involvement in misleading or deceptive conduct. It is submitted that a defendant is 'entitled to have the details of his alleged involvement, amounting as it does to something akin to fraudulent conduct, spelt out': Sutton v A J Thompson Pty Ltd (in liq) & Ors (1987) 73 ALR 233 at 242 per Forster, Woodward and Wilcox JJ. That was a case in which their Honours said in the same paragraph that no material facts concerning Mr Sutton's being 'knowingly concerned' in the contravention were there pleaded and the allegation was simply made in terms of the section. In any event, the point of the appellant's submission was not one relied upon in that case. 28 The appellant relies on Rinbridge Marketing Pty Ltd v Walsh [2000] FCA 1738 for the proposition that it is incumbent on an applicant wishing to establish accessorial liability pursuant to s 75B of the Act, to put to the accessory in cross-examination that he or she knew of the falsity of the representations in the making of which the accessory is said to have been 'concerned'. What the Full Court in Rinbridge said at [26] was that there was no dispute about certain propositions, one of which was: 'It was incumbent on Rinbridge Marketing, if it wished to establish the accessory liability of Mr Walsh, to put to him in cross-examination that he knew of the falsity of the representations in the making of which he is said to have been "concerned": cf Browne v Dunn (1893) 6 R 67 (HL); Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362 at 370; Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 (Hunt J) at 16 (senior counsel for Rinbridge Marketing submitted that this was put to Mr Walsh in cross-examination).' The reference to the citation of Hunt J in Allied Pastoral Holdings returns us to the context of the statement previously set out. 29 Rinbridge was a case in which the Full Court (Lindgren, North and Hely JJ) found that there was a failure to put to Mr Walsh directly that he acquiesced in the making by another of any particular statement he knew to be false. The absence of dispute concerning the proposition just referred to and the absence from the reasons of the Full Court of any discussion as to whether the pleadings had provided adequate notice of the point, indicates that the Full Court was not concerned in Rinbridge with the issues of notice raised in the submissions here for the appellant. 30 The respondent submits that this is a case where the appellant was on notice that the respondent's case was '[T]hat actual knowledge may be inferred from the circumstances' and that '[T]he sales report, it was submitted, is included as part of the representations which are said to have constituted the alleged breach of section 52' in relation to 'problems with stock from Thailand and the position in relation to the sales representatives' from at least 4 June 2003 and that the case was at least arguable from 30 September 2003. These quotations appeared in the course of his Honour's reasons in All Fasteners (WA) v Grant Caple Pty Ltd & Ors at [18] and [19]. Additionally, the respondent submits that the appellant was further on notice of its case on receipt of the re-amended statement of claim dated 26 February 2004, upon receipt of the respondent's affidavit evidence (the latest affidavit being sworn on 30 April 2004) and when the respondent's counsel expressly adopted the earlier submissions in opening on 4 May 2004 (the first date of the hearing before the Federal Magistrate), on the basis that there was not 'anything there by way of law or surprise'. Additionally, the appellant did not lead evidence or assert that she was not aware of the contents of the Business Report nor on any of the three opportunities that the appellant availed herself of did she deny that she was aware the representations were made: see the appellant's affidavit sworn on 19 May 2003, the defence and counter-claim dated 22 December 2003 and the appellant's affidavit sworn 14 April 2004. 31 In my opinion the submissions for the respondent on the Browne v Dunn grounds are correct. This is a case where the pleadings and associated matters referred to in the respondent's submissions were made more than adequately clear to the accessory that the case against her was that she knew of the falsity of the representations in the making of which she is said to have been 'concerned'. Consequently, I do not consider that the appeal can succeed on these grounds.

Causal connection 32 In ground 11 of the grounds of appeal the appellant contends that his Honour erred in finding that the appellant had any liability to the respondent arising out of any representation made about the retirement of Mr McCaughan, in circumstances where the respondent through Mr McKenzie came to know prior to settlement that Mr McCaughan was not retiring but was to join a competitor but nevertheless proceeded to settlement. 33 In support of this the appellant first of all relies upon portions of the third affidavit of Mr McKenzie sworn on 5 March 2004. During the weekend ending 21 June 2002 or the week ending 28 June 2002, a sales representative employed by Mr Caple to replace Mr McCaughan (Mr Tony Milton) told Mr McKenzie that he had spoken to a customer of All Fasteners and had been told that Mr McCaughan was working for a competitor and approaching All Fasteners' customers to buy their products from that competitor. Mr McKenzie said he asked Mr Caple what this meant and had been told that as finance had been approved 'we had to continue with the sale' but Mr McCaughan would not cause any problems as the customers did not like him and if anything it was a positive. Mr McKenzie stated he was shocked at the development and concerned that as finance approval and all of the other conditions had 'now occurred we could not get out of the contract anyway'. This evidence is in the context of the fact that the settlement of sale and purchase of business took place on 28 June 2002. 34 Additionally, the appellant relies upon the evidence of Mr Hall in his affidavit sworn on 2 May 2003. He there stated that in or about mid-December 2002, he received a telephone call from the appellant in relation to a letter of demand for Mr and Mrs McKenzie. His evidence was that he told the appellant he was very unhappy because of the non-disclosures that had occurred in relation to the sale of the business and none of which he had been informed of. His further evidence was that the appellant asked which non-disclosures he was talking about to which he replied that he was talking about the sales representative leaving and starting work for a competitor and also the problems in relation to the consignment stock. His evidence continued by stating that the appellant had then said 'we told Glenn McKenzie about the sales rep prior to settlement'. He said that he was certain they were the actual words of the appellant. 35 In the same affidavit, Mr Hall stated that during the first week of July (2002) he received a telephone call from Mr McKenzie who told him that the former sales representative was working for a competitor and he had been told that the representative had met with Mr Caple and Travers Caple prior to the sale of the business and told them he intended to start work for the other company. Mr Hall's evidence was that Mr McKenzie demanded to know what knowledge Mr Hall had in relation to the sales representative prior to his agreeing to buy the business. Mr Hall's evidence was that he had told Mr McKenzie that Mr Caple, the appellant or Travers Caple had not at any time told him anything in relation to the sales representative other than he was retiring. 36 In an affidavit sworn on 19 May 2003 the appellant responded to the affidavit of Mr Hall sworn on 2 May 2003. The appellant's evidence was that she had no recollection of Mr Hall being told that Mr McCaughan was retiring and this was not said to Mr Hall in her presence. She also deposed that in March 2002 Mr McCaughan had told Mr Caple that he was going to work at a competitor of the business and that he was initially going to leave in April but agreed to stay on until the end of June. She continued by stating that in early June, Mr Caple had discovered that Mr McCaughan was going to customers and attempting to induce them to purchase from his prospective employer. She stated that several of their customers advised Mr Caple that Mr McCaughan was approaching them with lower prices for product from his prospective employer. She continued by stating that these customers spoke to Mr Caple in Mr McKenzie's presence because during June Mr McKenzie was working with Mr Caple to familiarise himself with the business prior to settlement. She stated also that when Mr Caple discovered what Mr McCaughan was doing, he was asked to leave immediately and was paid his entitlements to the end of June 2002. 37 In the context of this evidence the appellant submits that upon discovery by Mr McKenzie of the falsity of the McCaughan representation, which occurred prior to settlement, that representation could no longer have been an operative inducement inducing the respondent to pay the balance of the purchase price of $149 000 to the vendor. The submission is that by then the causal connection between that representation and the decision to pay that sum had ceased: cf Henville v Walker (2001) 206 CLR 459 at 469, at [14] and at 495, at [111]. The focus of the appellant's submission is that the operative inducement in the McCaughan representation ceased to have effect. 38 The respondent submits that the effect of the evidence is that Mr McKenzie learnt that Mr McCaughan was working for a competitor after the contract to purchase the business had become unconditional. The evidence also shows that Mr McKenzie believed at that time that there was no option but to continue to settlement. In those circumstances it is said that the representation remained operative until the respondent was no longer in a position to terminate the agreement for the purchase of the business. Consequently, it is said that the causal connection between the representation and the payment of the purchase price was maintained. 39 In any event, the respondent submits that even if this ground could be made out it leaves untouched the proposition that the Thai nails representation remained operative until settlement. In those circumstances there was support therefore for the finding of his Honour that 'the finding in relation to one or more of the representations as indicated is sufficient for the applicant to succeed'. 40 It does not appear from the submissions or from other materials that the issue of causal connection was argued before his Honour. In circumstances where this Court on appeal would face making findings of fact, it is preferable for the ground of causal connection to remain unresolved if it is not necessary for it to be resolved. As appears from reasons which follow, I do not consider there is any need to further consider this ground.

inference of actual knowledge 41 The appellant submits that in relation to any of the three representations in issue there was no evidence that the appellant had actual knowledge of the falsity of the representations. The respondent submits that on the evidence, his Honour was entitled to find actual knowledge on the part of the appellant of the representations made and of their falsity. It is necessary to examine each of the representations in turn in respect of these submissions. 42 In describing the relevant law his Honour stated at [8] that he accepted 'for the present purposes that it is not necessary for the applicant to prove that directors had actual or constructive knowledge of the essential facts that gave rise to the contraventions as alleged'. That statement was preceded by a statement by his Honour that Yorke v Lucas required the applicant before him to prove the appellant was aware or should have been aware of the essential facts which gave rise to the alleged contravention of the Act. Whatever the difficulties in the construction of [8], I am not satisfied the formulations themselves show a misapprehension of the appropriate test and I proceed to consider the grounds in relation to the wider reasoning of his Honour.

Business Report 43 It will be recalled from the above examination of the pleadings that the Thai nails representation in 6.9 was particularised as being contained in the Business Report. The only relevant representation in the Business Report was that appearing under item 24 'Details of Suppliers' where it was stated: 'The vendor has acquired a source of nails and staples from Thailand and currently holds stock. This import offers significantly better profit margins than from the above suppliers, and can be used to either replace existing suppliers or development new markets. The vendor will retain the agency rights and will be prepared to continue supplying Allfasteners (WA) Pty Ltd.' There was no evidence that the appellant was aware of that wording or had seen the Business Report.

Appellant's affidavit evidence 44 In his reasons at [85] his Honour said it was clear from the affidavit evidence of the appellant that she had been told that the product from Thailand was 'rubbish' by Mr McCaughan. That was sourced as being a reference to par 22.2 of the appellant's affidavit sworn 19 May 2003 where the appellant referred to the affidavit of Mr McCaughan sworn 20 February 2003 and stated: '22.2 Ron McCaughan did, on at least one occasion tell me that he thought that some of the product from Thailand was rubbish. I do not recall speaking to the Second Respondent about it. I believe from discussions with the Second Respondent and with our son Travers, that Travers spoke to the Second Respondent about the product from Thailand, and that the Second Respondent told Travers that the product would work in all new nail guns although not in some of the old nail guns.' I agree with the submission for the appellant that this evidence does not itself provide a foundation for the Thai nails representation in 6.9 nor does it establish that the appellant had actual knowledge of such representation having been made and actual knowledge of its falsity.

Dissatisfaction with the product 45 The appellant's evidence in her affidavit in response to Mr McCaughan's affidavit was also that she believed from speaking to Mr Caple that on many occasions Mr McCaughan expressed his dissatisfaction about the product which was brought in from Thailand. Her evidence does not contain any evidence concerning the date on which Mr Caple had spoken to her nor evidence of actual knowledge of the making of the representation and its falsity.

Credit note 46 The next aspect relied upon by his Honour was that Mr McCaughan confirmed he had told the appellant that Mr Caple should get a credit note for the product from Thailand. This was a reference to par 10 of the affidavit of Mr McCaughan sworn on 20 February 2003 in which he said: 'In either late 2001 to early 2002, product from Thailand arrived at All Fasteners' Midvale factory. When I saw the product it appeared some of the nails were ok, but the other product was rubbish. I told [the appellant] she should call Grant in Thailand to get a credit note for it.' 47 The appellant's statement at par 22.2 of her affidavit previously quoted was her response to this evidence of Mr McCaughan. Again, it is not a foundation of her actual knowledge of the making of the representation in 6.9 nor necessarily of its falsity.

Involvement in the business 48 The remaining two limbs on which his Honour based his reasoning at [85] of his reasons were that the product from Thailand had remained in the factory for months and that as a director of the vendor company responsible for producing the profile (Business Report) the appellant had actual knowledge of the representation. 49 It has already been seen above that there is no evidence that the appellant was aware of the wording in the Business Report or even had seen the Business Report. The respondent submits that there was no evidence from the appellant to suggest she was not aware of the contents of the Business Report at all material times. However, I consider that the onus was not on her in that respect. Rather, it was on the respondent to put to her questions that would elucidate whether she had actual knowledge of the representation and actual knowledge of its falsity. 50 The reasoning of his Honour in relation to the appellant's involvement in the business of the company was also supported by reference to the fact that she had attended at least three meetings where the issues of the Thai nails (and the retirement of Mr McCaughan) had been discussed. Evidence of these three meetings with Mr Hall was before his Honour. 51 Mr Hall's evidence from his affidavit sworn 2 May 2003 was that the first meeting occurred on 12 February 2002. They discussed the nature of the company's business, the profit it generated, the equipment leased by the company and the amount of stock it held. He had explained the approach to producing the Business Report and that it would be based on information provided to him by the company and its accountant. He also stated that once the Report was prepared the directors would need to agree its contents before the business was ready to be marketed. He stated that on that occasion the appellant had given him a copy of a stock sheet printed off the company's computer and told him she would arrange for the accountant to forward the relevant financials. 52 Mr Hall's evidence also stated that the second meeting occurred on 14 March 2002. The process of preparing the Business Report was again discussed. He requested certain financial information. 53 Mr Hall's further evidence was that the third meeting took place on 4 April 2002 and had also included Mr Caple. He stated that they discussed the contents of the Business Report and he provided Mr Caple with a copy of the pro forma to be filled out for the Business Report. 54 In her affidavit in response the appellant deposed that at the first meeting she had not given Mr Hall stock figures and did not recall him saying anything about the Business Report. She believed that it was at the second meeting she had provided the stock figures. 55 There is no evidence of any involvement by the appellant after the date of the final meeting with Mr Hall. There is no evidence that as a director she participated in the completion of the pro forma Business Report referred to in the affidavit of Mr Hall or approved its draft said to have been signed by Mr Caple for the company on or about 23 April 2002. There is, therefore, no foundation for drawing an inference from her position as director or her involvement in management of the company that she had actual knowledge of the representations. 56 The respondent contended that the evidence of the appellant alone was sufficient to support an inference that she had knowledge of misleading or deceptive representations contained within the documents that affected the sale of the business, namely, the Business Report and the Purchase Agreement. Therefore, the respondent submitted, that was sufficient for the rule in Jones v Dunkel (1959) 101 CLR 298 to apply. The appellant's evidence was that she had made the definite decision to sell the business, had initiated the appointment of the business broker to sell the business, provided the broker with information to be used in the process, recalls a meeting with Mr Hall where he discussed the contents of the Business Report, was regularly involved in the business of reconciling accounts and paying creditors, usually attended the premises of the business to collect information and, between January and March 2002 was attending the business premises almost every day and daily for a period of three weeks. However, as has been seen, none of that evidence disclosed any basis of actual knowledge of the representations in the Business Report or the Purchase Agreement or of their falsity. The evidence simply did not extend so far as to lead to an inference which called upon the appellant, in accordance with Jones v Dunkel, to lead evidence to assist her case. The rule cannot be employed to fill gaps in the evidence or to convert conjecture and suspicion into inference: Jones v Dunkel at 308, 312 and 320 - 321. 57 The respondent sought to support the submissions on Jones v Dunkel by reliance upon Commercial Union Assurance Company of Australia Ltd v Ferrcom (1991) 22 NSWLR 389. It was contended this was authority for the proposition that the rule in Jones v Dunkel extended to cover matters not covered in a witness' examination-in-chief (the appellant's examination-in-chief being here confined to the matters she deposed to). That submission is based on the reasoning of Handley JA at 418 to the effect that the Court should not draw inferences on a relevant issue favourable to a party whose counsel refrains from asking crucial questions of a witness who could have answered them. Contrary to the headnote, Kirby P did not express agreement with this statement and Priestley JA did not decide the issue. In any event, the circumstances here are distinguishable from those in Commercial Union Company. Here the onus was on the respondent to prove that the appellant had actual knowledge that each representation relied upon was in fact made: Quinlivan at [9], [10] and [15]. 58 The respondent also relied on Micarone v Perpetual Trustees [1999] SASC 265 to support the submission that if 'a wife has deferred to the wishes of her husband, the wife must accept the consequences of relying on her husband in that way': at 591. The respondent submitted that there was evidence that the appellant was told the Business Report was crucial to the sale of the business and that, once it was prepared, she would need to agree its contents. Micarone was a case which involved the application of equitable principles in the context of unconscionability in equity. I agree with the appellant that it has no relevance to claims under the Act as these are based on a statutory cause of action. It does not extend, in any event, to imputing fraudulent conduct on the part of a husband to a wife in dealing with a third party. Its application would invoke the appropriateness of constructive knowledge which, on the authorities earlier referred to, is not sufficient to invoke the operation of s 75B of the Act: Yorke v Lucas at 667 and 669. 59 The respondent also sought to rely on the inference of actual knowledge on the basis that the appellant was a director who ought to have knowledge of the company's affairs. That submission cannot be sustained in the face of the requirements of Yorke v Lucas for evidence of actual knowledge and the absence of any evidence that the appellant knew or had read the contents of the Business Report or the Purchase Agreement or had knowledge of the falsity of their statements.

Representation 6.17 60 As a consequence of par 6A.3 of the re-amended statement of claim, the representation in par 6.17 of the statement of claim is said to have been made by Mr Caple and Mr Hall in meetings with Mr McKenzie of the appellant during May and June 2002. As has been seen there is no evidence of the appellant having been present at or having knowledge of what transpired at such meetings.

Conclusion on these representations 61 It follows that there was no foundation from which the inferences made by his Honour at [85] - [87] of his reasons in relation to the Thai nails representations. The grounds of appeal directed to that issue therefore succeed.

the Mccaughan representation 62 In the reasons of his Honour at [75] he said that the McCaughan representation was arrived at by a combination of the Business Report, the affidavit of Mr Hall sworn on 2 May 2003 and the background to which he had referred. 63 In relation to the Business Report, as has been seen, there is no evidence that the appellant actually knew of the contents of the representations made in it nor actually knew of their falsity. 64 The relevant portion of Mr Hall's affidavit appears in par 15(e). There, Mr Hall stated that when he had met with the appellant and Mr Caple on 4 April 2002 he was told that the company's current sales representative was in his 60s and retiring on 30 June 2002. At par 34 of the same affidavit he stated that he had passed on information which he had received from the company either through Mr Caple, the appellant, Travers Caple or the company's accountants, including that the sales representative would be leaving the business to retire and would not be continuing in an active sales position in the industry or otherwise. At par 46 he said that the appellant had stated that 'we told Glenn McKenzie about the sales rep prior to settlement' and that he was certain these were her actual words. 65 In her affidavit sworn on 19 May 2003 the appellant stated that it had not been said that the company's then current sales representative (Mr McCaughan) was in his 60s as he was at that time still in his 50s. She also stated that she had no recollection of Mr Hall being told that Mr McCaughan was retiring and this was not said to Mr Hall in her presence. 66 Under cross-examination Mr Hall stated that Mr Caple stated those things to him at the meeting on 4 April 2002. 67 There is no evidence that at the date of the meeting on 4 April 2002 the appellant had been told that Mr McCaughan was to join a competitor. In cross-examination she had no recollection of Mr Hall being told that Mr McCaughan was retiring. The evidence simply does not disclose whether before the meeting on 4 April 2002 the appellant had become aware of Mr McCaughan's intention to leave Grant Caple Pty Ltd and join a competitor. Mr McCaughan's evidence was that he communicated his alleged intention to Mr Caple and Travers Caple early in April 2002. There was no evidence that he communicated his intention to the appellant. He alleged he met them to give one month's notice to enable him to commence work for another company on the first Monday in May 2002. The first Monday in that month was 6 May 2002, one month prior thereto being 5 April 2002. The meeting took place on 4 April 2002. 68 There is therefore no evidence to suggest that as at 4 April 2002 the appellant was in fact aware that Mr McCaughan was to leave his employ with Grant Caple Pty Ltd but if that in fact occurred there exists no evidence to suggest she was told as of that date that Mr McCaughan was to join a competitor. She was not cross-examined in relation to this aspect of the matter. 69 It was the appellant's evidence that in March 2002 Mr McCaughan told Mr Caple that he was going to work at the competitor and that he was initially going to leave in April 2002 but agreed to stay on until the end of June 2002. However, there was no evidence to shed light on when the appellant herself learnt of that matter. 70 I agree with the submission for the appellant that on the available evidence and in the absence of cross-examination on the matter, it was not open to his Honour to make a finding that the appellant's silence during the course of discussions with Mr Hall in relation to the future of Mr McCaughan invoked the operation of s 75B of the Act. In order for him to take that step, his Honour would have been required to make findings on the available evidence that the appellant deliberately remained silent with intent to mislead knowing the McCaughan representation was to be made and was misleading or deceptive. The failure to cross-examine on this crucial issue cannot permit adverse inferences to be made in relation to the appellant's state of mind. The result is that the available evidence did not objectively support such a probability. 71 Accordingly, I consider that the grounds of appeal against the McCaughan representation should also succeed.

the trading position representation 72 At [77] of his reasons, his Honour said that the trading position representation was clearly misleading and deceptive having regard at least to the issue of the Thai nails representation and the McCaughan representation. The trading position representation had arisen from vendor's warranty in Condition 6 of the 'Special Conditions of Sale Addenda' annexed to the Purchase Agreement which stated '[T]he vendor acknowledges he is not aware of any circumstances that are likely to adversely affect the trading position of the business'. 73 His Honour's findings in [88] have been set out above. 74 Given that the finding of the misleading or deceptive character of this representation is founded on the Thai nails representation and the McCaughan representation and the findings in relation to those representations, there remains no foundation in his Honour's reasons to support this third representation. 75 Furthermore, the Purchase Agreement was not signed by the appellant. There is no evidence that she saw the Purchase Agreement or was aware of Condition 6 of the special conditions. There was therefore no evidence of actual knowledge and of falsity of the representation. 76 It follows that I consider that the ground of appeal directed to the finding in relation to the trading position representation also succeeds.

notice of contention 77 In its notice of contention the respondent contends that in addition, or in the alternative, to the grounds for liability of the appellant contained in the reasons of his Honour, the appellant is liable to the respondent in relation to her breach of s 10 of the Fair Trading Act 1985 (WA) as pleaded in the respondent's re-amended statement of claim. 78 That pleading was as follows: '11A. In negotiating the lease of the Premises the Second Respondent and the Fifth Respondent were engaged in trade or commerce for the purposes of the Fair Trading Act 1985. 11B. The Agreement was subject to the Applicant entering into a lease of the Premises. 11C. The lease of the Premises was only necessary if the Applicant agreed to purchase the business of the First Respondent. 11D. It follows that: 11D.1 any representations that induced the Applicant to enter into the Agreement were necessary to induce the Applicant to enter into the lease of the Premises; and 11D.2 the First Respondent, its employees and agents, including the Second Respondent, were acting as agent for the Fifth Respondent, as a registered proprietor, in relation to the negotiation of the lease of the Premises.' 79 In her defence and counterclaim, the appellant admitted pars 11A, 11B, 11C and 11D.2 of the re-amended statement of claim. She denied par 11D.1. His Honour did not deal with this claim as it was not necessary to do so in light of his finding of liability on the basis of the primary submission. 80 Nevertheless the respondent submits that the lease of the premises from which the business was conducted and the sale of the business were one transaction. Therefore, it is submitted by the respondent that the appellant is liable for any representations of her agents in relation to the business that were made in contravention of s 10 of the Fair Trading Act 1985 (WA). 81 The appellant, firstly, contends that the notice of contention is confined in its terms to what is pleaded in the respondent's re-amended statement of claim. That pleading is confined to representations made on behalf of the appellant regarding negotiations in relation to the lease of the premises. Additionally the prayer for relief in the re-amended statement of claim is confined to obtaining a declaration against the appellant that the lease is void. The amended application is confined to relief in terms of such a declaration; no relief is sought there as against the appellant under the Fair Trading Act 1985 (WA). The admissions of the appellant were confined to that issue. 82 On that issue, the appellant submits there is no evidence of any representations made on behalf of the appellant during the course of negotiating the lease of the premises and no evidence at all in relation to any 'negotiations' pertaining to the lease of the premises. This, says the appellant, precludes the respondent from successfully asserting that representations going beyond the negotiation of the lease of the premises were made on the appellant's behalf. 83 Additionally the respondent submits that the allegedly impugned conduct relates to failure to inform the respondent as purchaser that Mr McCaughan was to join a competitor and to inform it that there existed a problem with the Thai nails. In the situation where misleading or deceptive conduct by remaining silent is relied upon, there must be evidence that the refraining was deliberately engaged in: s 5(4) of the Fair Trading Act 1985 (WA); Costa Vraca Pty Ltd v Derrigan Weed and Pest Control Pty Ltd (1998) 155 ALR 714 at 722. Again, there is no evidence that the appellant, the business agent or any other agent intentionally refrained from disclosing the matters pertaining to Mr McCaughan or the Thai nails. 84 During the course of the hearing and cross-examination it was neither pleaded nor put to the appellant that the scope of her authority granted to the persons referred to in par 11D.2 of the re-amended statement of claim went beyond the negotiation of the lease of the premises or that she deliberately remained silent in relation to the above matters nor that any agent acting on her behalf remained deliberately silent in that regard. It is not open to infer deliberate dishonest conduct without the witness having had the opportunity to deal with such evidence or the inference to be drawn from it. 85 The appellant also submits that the evidence is that the business agent appointed by the company was charged with selling the business not finding a lessee for the premises. The appointment was signed on 8 April 2002 by Mr Caple. As has been seen earlier, by that time the appellant's involvement with any third party had in practical terms ceased. Mr McKenzie's evidence acknowledged that he did not allege the appellant told him anything. 86 In relation to the respondent's submissions that the sale of the business and the negotiation of the lease were one inextricable transaction, the appellant submits that cannot mean that any representation made on behalf of the appellant in relation to the negotiation of the lease of the premises (if there were evidence of such) would translate into a representation made on behalf of the appellant in relation to the sale of the business. The appellant points to the absence of any causal connection between the alleged representations allegedly made on behalf of the appellant in respect of the lease and the loss or damage that was ultimately suffered. 87 The respondent sought to support its submissions by reliance on the decision in Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 at [13]. In Arktos a Mr Price made misleading pre-contractual representations on behalf of a company of which he was a director. It was held that such representations were made both on behalf of the company and in his individual capacity, thereby grounding his direct liability pursuant to s 10 of the Fair Trading Act 1985 (WA). 88 However, here the appellant, although a director of the company, did not make any representation nor was it pleaded or put to her that she had done so. Further, it was not pleaded or put to her that she had given any authority for any representation to be made on her behalf beyond negotiation of the lease of the premises. Nor was it pleaded or put to her that any agent who acted on her behalf exceeded the agent's actual ostensible authority in circumstances such as to bind her or render her personally liable. 89 I agree with the appellant's submissions. The notice of contention cannot be upheld.

counterclaim 90 In her counterclaim before his Honour, the appellant alleged that the respondent had failed to pay rental in the total sum of $14 633.30. His Honour found that the premises had been vacated by the respondent at the request of the appellant and did not accept that there were damages arising from the abandonment of the premises. Further, he stated that any amount the subject to proof or loss of rental may be taken into account by way of set-off against any damages to be decided at trial on the issue of loss. It was his view that the amount claimed for rent should be properly taken into account by way of set-off in an assessment of the loss following the decision which he made that the appellant was liable to the respondent for misleading and deceptive conduct. Accordingly, he dismissed the counterclaim with no order as to costs. 91 The appeal is against the whole of the judgment of his Honour. However, the appellant has advised the Court no orders are now sought in terms of the counterclaim. In those circumstances the appeal should be allowed save in respect of the dismissal of the counterclaim.

conclusion 92 For these reasons the appeal must be allowed.

I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson.

Fair Trading Act 1985(WA)ss 4, 10

Trade Practices Act 1974(Cth)ss 52, 75B, 82, 87

Federal Court Act 1976(Cth)

At a glance

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Judgment (21 paragraphs)

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Legislation Cited (4)

Cases Cited (17)