CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232

CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 - VSCA 2004 case summary — Zoe

[29]

"130. ...There is no doubt in my mind that the commercial purpose of the Licence Agreement was to have the airship available to be flown over Sydney during the Olympics. Right from the earliest of the communications between Palmer and Olma [of US-LTA, the airship manufacturers] this was expressed to be the aim of CCP because of the opportunity it provided to attract an advertiser. Such a use was highlighted in Palmer's initial approach to Primus in June 1999 and was repeated by Stefanou in his discussions in January 2000. Further, Primus' interest in the proposal was squarely based on the prospect of flying the airship over Sydney during the Olympics. That is clear from the evidence of Barbagallo and Nicholls referred to above. Thus, the genesis of the transaction, the background, the context and the market in which the parties were operating all point to the fact that having the airship available to be flown over Sydney during the Olympics was the clear commercial purpose of the Licence Agreement. 131. Indeed, this proposition was not really disputed by the defendants. As has been seen, much of their case was devoted to establishing that the Primus representatives were told two things. First, that they were told that the timeframe was tight, which can only mean the timeframe for delivery by the Olympic Games was tight, and I refer in that context to Cahill's letter to Primus of 1 March 2000. Second, that they were told that whilst CCP would use its best endeavours to have the airship delivered in time for the Olympic Games, there was no guarantee that this would be achieved. 132. The central role of the availability of the airship for use during the Olympics is also to be found in references, in the Licence Agreement itself, to the airship flying at the Olympics. Clause 3.3, one of the 'conditions of this agreement', was expressed as follows: 'During the months September and October 2000 prior to and after the Olympic and Para Olympic games it is proposed to fly in Sydney.' This partly explains why clause 3.2 of the Licence Agreement contemplated greater flying time in the months of August, September and October 2000. See also the reference in clause 8.3 to the possibility of carrying SOCOG security staff 'during the Sydney 2000 Olympic Games'. 133. I have, therefore, concluded that clause 3.1 should not be read as indicating that the parties placed no importance on the specified start date of 1 September 2000 and that it meant that the airship could be delivered months later. Rather, my reading of clauses 3.0 and 3.1 is that they were making time of the essence in the sense that it was critical to have the airship available to be flown in Sydney during the Olympics. If, however, there was a slight delay in delivery so that the airship had not completed its two week testing period before 1 September 2000 and therefore that its actual operations did not commence until, say, 8 September 2000, then this delay period of one week could be added on at the end of the 12 month licence period. Thus, clause 3.1 is only concerned with short delays in the period leading up to the Olympic Games. Any longer delay in making the airship available, beyond the time of the Olympic Games, was dealt with by clause 7 and could lead to termination of the Licence Agreement by Primus. ... Causation 200. CCP pleaded that even if the representations were made or the conduct was engaged in, it denied that Primus relied on the representations or conduct, or that it was reasonable for Primus to do so, in entering into the Licence Agreement and paying the $400,000 deposit. CCP further pleaded that Primus entered into the Licence Agreement and paid the deposit in reliance on its own advisers, after making its own inquiries and for its own commercial purpose. Alternatively, Primus entered into the Licence Agreement and paid the deposit without taking reasonable care to look after its own interests. 201. It seems to me to be obvious that Primus relied upon the representations by CCP that the airship would be available for the Olympic Games and that it assumed from CCP's silence on the issue that CCP had the necessary funds or the ability immediately to raise the funds to pay for the construction of the airship. Without the representations and the conduct, Primus would have walked away from the negotiations. In the light of my findings on the facts, I consider that it was reasonable for Primus to rely on the representations and the conduct."

[32]

"187. What I find the Primus representatives were not told at the meeting on 16 February 200 was that the tight timeframe for constructing the airship and delivering it to Australia in time for the Olympic Games was almost certain not to be met because of CCP's lack of the required funds in hand or its inability to raise such funds within an appropriately short period of time. Olma [of US-LTA], the airship manufacturers] had advised Palmer on 8 February that US-LTA would not 'commit to the critical major components' until CCP had made its financial commitment 'in whole or in part' (paragraph 30 above). This meant that CCP had to come up with about US$3 million or a significant part of that amount in a short space of time if there was going to be any chance of having the airship available for the Olympics. Despite over a year's efforts, CCP had only managed to obtain one investment of $20,000 from a friend of Palmer. Yet nothing was said to Nicholls or Barbagallo [of Primus] to indicate that there were these considerable difficulties facing CCP and no qualification was put on the promise that the airship would be available for the Olympics. I have no doubt that if Nicholls and Barbagallo had been fully informed of these financial problems they would not have agreed to pay the $400,000 deposit. 188. Because the third representation related to a future event, the flying of the airship over Sydney during the Olympic Games, it is also taken to be misleading if CCP did not have reasonable grounds for making the representation (s.51A(1) of the TPA). The onus is on CCP to adduce evidence that it did have reasonable grounds (s.51A(2)). In my opinion, CCP has not discharged that onus. 189. The directors of CCP said that they relied on their brokers' assurances that the money could be raised, particularly if an advertising contract was secured with a company such as Primus. In the circumstances, I do not consider that the directors had reasonable grounds for believing that they could successfully raise the required funds or that they could do so as quickly as they were needed if the Olympics target was going to be met. I cannot accept the directors' evidence that because Jones and Messenger [the financial advisers] were positive and enthusiastic about the project and its funding, they considered that raising the money would not be a problem. The history of the attempts to date should have warned them of the difficulties. Apart from anything else, the directors should have understood that Primus had only indicated interest in a year's contract and had rejected any longer terms. This was a real flaw in the viability of the project. Thus, while Messenger said that he regarded the fact that CCP had obtained an advertising contract with Primus as a 'quantum leap' in the CCP's ability to raise finance for the project, he also said that an investor would want to see that the advertising contract was for 'at least a couple of years'. Further, he was unaware of Primus' prior rejection of a longer term commitment. Jones' positive view was clearly based on raising the funds by a public listing and as the directors should have known, if they were listening to his advice, this step was at least three and more likely six months down the track. Even three months would have made the Olympics an impossible achievement. 190. The faint hope that an investor would write a cheque for the required funds on the spot was also simply not credible. Apart from the time that an investor would want to investigate the project and its finances, there was also the critical and unresolved question of what equity the directors were prepared to offer in return for the investment. Various figures had been given in the business plans and there was clearly no fixed position. It would all be a matter for negotiation between the directors and the investor, which would also take time. Yet none of these problems were explained to Primus. The very real risk that the promise that the airship would be available for the Olympics would not be fulfilled because of CCP's lack of funds was not disclosed. I therefore find that the third representation was made by CCP and that it was misleading and deceptive because CCP did not have reasonable grounds for making representation. As Heerey, J. said in Bowler v. Hilda Pty Ltd:[18] 'It is the objective nature of the alleged contravener's conduct that is ultimately determinative of liability and not his or her state of mind ... '"

[46]

"191. The fourth representation is said by the plaintiff to be found in Cahill's letters of 1 and 6 March 2000. There is nothing to this effect in the second letter and I therefore put it to one side. The defendants submitted that no such representation could be spelt out form the contents of the first letter. What Cahill actually said was that unless certain events occurred by a specified date 'our client will not be able to guarantee the production of the airship for the Sydney Olympics'. Despite the defendants' argument, I consider that this negative statement contained a positive assertion as pleaded by Primus, namely, that if the events occurred by the specified date CCP was able to guarantee the delivery of the airship for the Sydney Olympics. Cahill was clearly acting on behalf of CCP when he made that representation. 192. The events in question were that the contract had to be 'unconditional', and the $400,000 deposit had to be paid, 'on or before 2.00 p.m. on Friday the 3rd of March' (not 8 March 2000 as pleaded in the Amended Statement of Claim). The contract could only become unconditional before the deadline of 2.00 p.m. on 3 March by the parties executing a new agreement without any cooling off clause or agreeing that it no longer applied. Neither of these events occurred before the deadline. Nor was the deposit paid before 2.00 p.m. on 3 March 2000. However, it seems to me that it is irrelevant that the events in question did not occur by the deadline. The issue is whether it was misleading and deceptive conduct for Cahill to say that if certain events occurred CCP was able to guarantee the delivery of the airship for the Sydney Olympics. As discussed above, because of the problems facing CCP in raising the funds to pay for the construction of the airship, I find that CCP did not have reasonable grounds to represent that it could have ever given that guarantee. Nor did it ever intend to. The fourth representation was, therefore, misleading and deceptive. 193. In my opinion, Primus did rely on the fourth representation, even though the events did not occur before the stated deadline. Shortly thereafter Primus did execute the Licence Agreement and pay the deposit, no doubt encouraged by this further representation that the airship would be available for the Sydney Olympics."

[54]

The appellants further contend that the judge erred in holding that CCP engaged in misleading and deceptive conduct by deliberately refraining during the period between 16 February 2000 and 7 March 2000 from telling Primus that CCP did not have available funds to pay the deposit for, or otherwise to pay for the purchase price of, the airship and that CCP had no commitments in place or resources for any such funding as at 16 February 2000. The appellants accept as they must[25] that misleading and deceptive conduct may inhere in silence as much as in representation, but they submit that the authorities demonstrate a reluctance to impose liability for contravention of s.52 based solely on silence in pre-contractual negotiations. They argue that the general law has allowed parties to retain confidentiality in the absence of a fiduciary duty (which in effect was found not to exist in this case) and that the same sort of attitude carries through to and reflects in the approach which is to be taken to the application of a s.52 to pre-contractual negotiations. They rely in particular upon the observation of Burchett, J. in Poseidon Ltd v. Adelaide Petroleum NL[26], that it has never been suggested that s.52 strikes at the traditional secretiveness and obliquity of the bargaining process, and they refer also to coordinate dicta in Lam v. Ausintel Investments Australia Pty. Ltd. [27]; Halton Pty. Ltd. v. Stewart Bros Drilling Contractors Pty. Ltd.[28]; Diversified Mineral Resources NL v. CRA Exploration Pty. Ltd.[29]; Australian Competition & Consumer Commission v. CC (N.S.W.) Pty. Ltd. (No. 8)[30] and Leda Holdings Pty. Ltd. v. Oraka Pty. Ltd.[31]. On that basis they say that CCP had no duty to divulge to Primus its financial position during the course of pre-contractual negotiations. They add moreover that if Primus had really wanted that sort of information, Primus had every opportunity as part of the "due diligence process" to make the appropriate enquiries of CCP, and they say that the fact that Primus did not ask for the information and thus that CCP did not provide it demonstrates that this is not a case of active misrepresentation arising from a "half truth" in respect of CCP's financial position, but rather one in which CCP advanced no representation at all as to its financial position.

[55]

In the alternative, the appellants contend that the judge erred in the application of s.4(2) of the Trade Practices Act. Section 4(2)(b) provides that a reference to "conduct" when used as a noun shall be read as including a reference to refusing doing an act and paragraph 4(2)(c) provides that a reference to, "refusing to do an act", includes, "refraining (otherwise than inadvertently) from doing [an] act ...". On that basis the appellants contend that silence may not constitute actionable misleading and deceptive conduct unless it is intentional and that, even if CCP did remain silent about its financial position and the silence was such as to mislead Primus about CCP's financial position, the evidence fell well short of demonstrating that CCP knew as at 16 February 2000 or at any time in the lead up to the execution of the agreement on 7 March 2000 that CCP lacked or was likely to lack the financial capacity to carry the agreement into execution. Indeed, the appellants say, the evidence tends to show that CCP, its directors and financial advisers were of the belief that sufficient funding would be available, particularly given the significant change of circumstances with Primus about to come on board as the CCP customer. Particular emphasis is put upon the fact that as from about the middle of February 2000 CCP was able to present to financial markets with the possibility of CCP entering into an agreement with Primus as a significant prospect of a serious major high profile customer with consequent probability of a pre-determined income stream. This, it was said, was a dramatic new development for CCP and its prospects for funding, which the judge had failed to take into account. According to the appellants, his Honour should also have realised that in as much as this new development did not occur until mid February 2000 and there was therefore little or no time before 7 March 2000 to test the validity of the new position for CCP and its prospects for obtaining sufficient funding, it was simply not possible for the directors of CCP to arrive at a positive belief that CCP could not obtain the necessary funding, either on 16 February 2000 or at any time up to 7 March 2000.

[59]

"195. Although it is not strictly necessary in the light of my findings against CCP in respect of the third and fourth representations, I turn to consider the allegation that in order to induce Primus to enter into the Licence Agreement and to pay to CCP the $400,000 deposit, in the period between 16 February and 7 March 2000, CCP refrained from telling Primus that CCP did not have available funds to pay the deposit for, or otherwise to pay for the purchase price of, the airship and that CCP had no commitments in place or resources for any such funding. This involves examining the relationship between CCP and US-LTA during this period, the financial position of CCP at that time and the current prospects of CCP raising funds for payment of either the deposit or the whole purchase price of the airship. 196. By 7 March 2000, Palmer knew that CCP was contractually bound to pay US-LTA a US$1.6 million deposit or advance payment before the latter was 'required to commence any portion of the Agreement' (paragraph 60 above). He also knew that as late as 1 March, Olma had written advising that 'we cannot commit any work until deposit' and expressing concern that Primus may wrongly understand that its order was 'already active' (paragraph 68 above). I have also found that Palmer deliberately withheld from Primus the fact that Olma would not commit to CCP's order until the deposit was received and that Olma was concerned about CCP's ability to fund the balance of the purchase price. I do not accept Palmer's evidence that on the basis of his telephone conversations with Olma he believed that work would start on construction of the airship on payment by CCP of as little as US$150,000 without the need for further immediate payment as per the Purchase Agreement. For example, in his facsimile to Olma dated 3 March 2000, Palmer said: 'As soon as the Primus cheque is cleared we will forward a holding deposit of US$100,000 the balance will be forwarded to you shortly after.' [Emphasis added]. The US$100,000 was only holding CCP's place in the production line and Palmer acknowledged that the balance was required. I see no reason not to conclude, as Olma said he expected, that the balance referred to the remaining US$1.5 million of the US$1.6 million deposit.

At a glance

Court

Decision date

Before

Source

Judgment (108 paragraphs)

Parties

Cases Cited (13)