F THE CASE AGAINST THE DIRECTORS
87 As Senior Counsel for the appellants accepted (T 38), success on Ground 1 was critical for the appellants' case as it "pivots everything". Despite this, something should be said of what remains of Grounds 2 to 4 (that is, those grounds which allege error in the primary judge rejecting the case against the Directors other than the stand-alone Ibex Letter case, which was not dependent upon the Bank's reliance and which was not pressed by the time of the oral hearing of the appeal).
88 It is worth commencing by making reference to the pleading. Those parts of the SOC which advance the direct and accessorial liability case against the Directors contain aspects which are no longer pressed and the case is put in a variety of ways. Despite a far from pellucid pleading, what is apparent, is that SOC [51] pleads a case that during the period "in or about May 2008 to in or about November 2008" the Ibex companies provided "instructions and/or information" to Egan Valuers to enable Egan Valuers to make representations which (among many abandoned representations) included the representation as to the "As If Complete" value. It is then said at SOC [52] that these "instructions and/or information" were or was misleading or deceptive or likely to mislead or deceive because of a number of matters (some of which are irrelevant) but which include, in effect, that there were no presale contracts: see SOC [41(b)-(d)]. The SOC at [55] and [56] then pleads out the direct and accessorial contraventions of the Directors in relation to the conduct of providing the "instructions and/or information".
89 The primary judge at [242]-[243] noted that the case was advanced as to price lists before him had two aspects, being contentions that: (a) the June Price Schedule was misleading or deceptive; and (b) the October Price Schedule was misleading or deceptive.
90 The "essence" of the case (see [245]) was that providing the price lists was contravening conduct because of the use of the words "Sold" and "Available" when there were no presale contracts. There was also, however, a third aspect of the case against the Directors, being a primary liability case based on non-disclosure, where there has been an express representation which undisclosed information as to the non-existence of the presale contracts would have shown to be false (in the sense explained by French CJ and Kiefel J in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357 at 371 [23]).
91 The accessorial liability case failed because his Honour found that the provision of price lists by Ibex Capital was not, in the circumstances, misleading or deceptive. The Directors could not be involved in a non-existent contravention. In reaching the conclusion that there was no contravening conduct, the primary judge did not distinguish between the provision of the June Price Schedule (which preceded the First Valuation) and the October Price Schedule (which preceded the Later Valuation). The primary judge held at [257]-[258]:
While I have found…that Mr Smith was of the mistaken belief at material times that there were, or were to be, contracts of sale between the developers and the investors, and that this mistake materially contributed to the value he placed on the resort, Mr Smith and Egan Valuers must be taken to have understood that there was a syndicate of investors. This is not contested by Mr Smith, and nor could it be on the evidence referred to. Both for the June and the October valuations, the existence of a "syndicate" was brought to Mr Smith's attention. What Mr Smith says, however, is that he did not consider it necessary to call for any of the syndicate agreements or to understand in any more detail what the nature of the arrangements was between the syndicate members and the Ibex companies, because he was simply providing the Bank with a valuation which would indicate, for its security purposes, what the value of the development property was.
I consider that in circumstances where Mr Smith knew that investors were part of a "syndicate" the use of the word "Sold" on the price list was capable of bearing more than one meaning and did not necessarily convey the presale representation pleaded by the applicants or the understanding that Mr Smith took from it. In those factual circumstances, it is not reasonable to conclude that the identification of the relevant investor lots on the price list as "Sold" was misleading or deceptive. In that context, it was not.
(Emphasis in original)
92 This reasoning, with respect, appreciates that there is some apparent tension between these findings, premised as they are on Mr Smith's understanding of the Syndicate, and the other findings of his Honour that it was obvious that Mr Smith (and through him) Egan Valuers "laboured under some misapprehension" as to "the legal nature of the syndicate and the interests held" by the investors and that Mr Smith "plainly treated [the investor lots] as being the subject of concluded (or to be concluded) presale contracts" (at [227]).
93 The primary judge dealt with each aspect of the accessorial liability case together, not drawing a distinction between the provision by Ibex Capital of the June Price Schedule (which preceded the First Valuation) and the October Price Schedule (which preceded the Later Valuation). This was not surprising, given the way the case was presented below, but this course may have obscured some differences between the contexts of the two communications and also had the potential of nubilating the differing levels of involvement that each of the Directors may have had at different times.
94 Be that as it may, dealing first with the alleged contravention with regard to the June Price Schedule, as noted above, this was rejected by the primary judge as, in context, identification of the investor lots on the June Price Schedule as "Sold" was not misleading or deceptive. In June, those directing the affairs as to Ibex Capital were unaware that Mr Smith, in later completing his First Valuation, would labour under the misapprehension, in giving his opinion as to value, that there were presale contracts. Additionally, at the time the June Price Schedule was provided, it was accompanied by another document (see [5] above) with the file name "AQUA.Third-party Sale Schedule" (which implicitly drew a distinction between third-party sales and 'sales', the latter having a different character). His Honour specifically accepted the evidence of Mr Robertson that the June Price Schedule had been prepared "in the context of materials that were provided to the sales agents" and in this context "Sold" meant the same as "Unavailable for sale" (see [247]-[248]).
95 No error has been shown in his Honour's conclusion that the identification of the investor lots on the price list as "Sold" was not, in the circumstances as they existed prior to the completion of the First Valuation, misleading or deceptive.
96 It seems to us, however, that the position is different when it comes to October 2008. At the time of this later communication there were significant contextual differences.
97 First, Schedule B to these reasons, being the October Price Schedule, like the June Price Schedule identified, with regard to every villa lot, a figure said to represent "10% Deposit - Due at formal acceptance of Contract"; referred to "Settlement on Land - Approx Dec 2008"; and had a "Status" column noting whether the villa lot was "Sold". Although it is in similar terms to the June Price Schedule, it was sent without the accompanying document sent in June, bearing the file name "AQUA.Third-party Sale Schedule".
98 Secondly, at least Mr Robertson at Ibex Capital knew in October 2008 that Mr Smith had used the information as to the presales in the June Price Schedule for the purposes of the First Valuation. He had read the First Valuation and indeed used it for the purposes of the Ibex Letter (for the preparation of which he was responsible). He knew the information provided to Mr Smith by the June Price Schedule was incorrect. As he accepted in cross-examination (AB Tab 64, T 794):
in relation to, say, unit 4, there was no sale at the list price, was there?---No.
And there was no 10 per cent deposit, was there?---No.
And there was to be no settlement on land as indicated there?---No.
Or settlement of the building contract as indicated there?---No.
And that was the same in relation to each of the syndicate members' villas?---That's right.
99 He gave evidence (AB Tab 64, T 801) that he did not recall reading the October Price Schedule at the time, but he knew the contents of the schedule and hence knew it contained the same incorrect information. Notwithstanding this, he "directed" that it be provided to Mr Smith for the purposes of the updated valuation (AB Tab 64, T 802). This was, of course, in the context of knowing how Mr Smith had deployed that incorrect information in preparing the First Valuation.
100 Thirdly, as detailed at [39]-[40] above, the October Price Schedule was sent following Ibex Capital being given a copy of Ms Gilbey's email to Mr Smith which had specifically requested, in the context of procuring a valuation, that Mr Smith "confirm the current level of presales" and where Ms Gilbey had said she was going to ask Mr Robertson "to confirm the current level of presales to [Mr Smith] separately". It was in response to this that Mr Sheldrick of Ibex Capital sent the October Price Schedule, noting he was aware the Bank "requires confirmation of the current level of pre-sales".
101 Fourthly, Mr Smith's evidence was that given the Bank was asking Ibex Capital to confirm the level of presales, his understanding was that the Bank did not require him to verify personally the presales information to be provided by Ibex Capital. As his Honour, with respect correctly, found (at [71]), this interpretation of the communication from the Bank was "not unreasonable". Consistently with this finding, there seems little doubt that others involved in the communications would regard it as likely that the valuation that Mr Smith was to undertake would be completed on the basis of information as to presales provided by Ibex Capital to Mr Smith and without independent verification from the valuer. This was different from the time that the June Price Schedule was provided. Indeed, Mr Smith, in the context of preparing the First Valuation, had asked for copies of the presale contracts to verify them independently but, in the events that happened, these had not been provided to him at the time it was prepared (AB Tab 65, T 814).
102 Reference has already been made at [46] above to the fact that the communications on 3 and 4 November 2008 were the culmination or final point of the relevant dealings. This is no less true of the impugned conduct of the Directors. Irrespective of whether any earlier conduct of the Ibex companies or the Directors misled Mr Smith prior to the First Valuation, the aspect of the conduct in providing "instructions and/or information" that is most troubling is that which is most proximate to when there was a culmination of the dealings between the Bank and Egan Valuers.
103 As described in Section C.4 above, the October Price Schedule was provided in circumstances where the Bank had informed Ibex Capital that a further valuation was being obtained, had given the Ibex companies a copy of the communication that passed between the Bank and Mr Smith and knew that "item 3" of that communication required confirmation of the current level of presales. The Ibex companies were, at the time, obviously keen to have the Bank approve the Facility. The email from Mr Paganin noting to Mr Robertson that he "need[ed] to manage this process with [Mr Smith] to get it over the line" reflects this desire.
104 Given the requirement to have regard to all the circumstances, the terms of the October Price Schedule were apt to mislead or were likely to mislead Mr Smith. It was a document which reflected a state of affairs which was not true. It was not likely to be checked independently. Viewed objectively, it was likely to reinforce and confirm the misapprehensions of Mr Smith, who believed that the presale contracts existed (see [229]) and who "plainly treated" the investor villas as being the subject of concluded (or to be concluded) presale contracts (see [227]). Indeed, it is difficult to read the October Price Schedule as conveying anything other than an incorrect impression of the status of the investor villa contracts.
105 With respect to his Honour, the conduct of Ibex Capital in providing the October Price Schedule (which forms part of the pleaded "instructions and/or information") was misleading or likely to mislead as it induced or was capable of inducing error in Egan Valuers and Mr Smith: Parkdale at 198 per Gibbs CJ; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at 651-652 [39] per French CJ, Crennan, Bell and Keane JJ.
106 But this aspect of the case is one of accessorial liability, and the fact that Mr Sheldrick sent the October Price Schedule is insufficient to visit liability on the Directors.
107 Again, by reason of the way the case was pleaded and presented below, the submissions made as to the accessorial liability and personal conduct of each of the Directors were couched at a very high level of generality and focused significantly on the separate conduct of sending the Ibex Letter.
108 The submissions made by Mr Paganin below were that although he was a director of the Ibex companies, he was not always copied into emails sent by Mr Robertson or Mr Sheldrick in relation to the Resort project. More particularly, he asserted that the evidence adduced below was insufficient to establish that he was responsible for the provision of instructions and/or information by the Ibex companies to Egan Valuers because he did not have responsibility for managing and did not in fact manage the process of instructing the Egan Valuers and procuring the Valuations (see [300]). These submissions were accepted, and his Honour in particular accepted the characterisation of the evidence of Mr Paganin that he was not responsible for providing instructions or information to Egan Valuers (see [301]).
109 As to the particular conduct surrounding the sending of the October Price Schedule, Mr Paganin's evidence was that he did not recall seeing it (AB Tab 62, T 733), although it was copied to him. The submission was made below that he should be disbelieved on this evidence, but this submission was not accepted by the primary judge.
110 As to Mr Robertson, reference has already been made at [98] above as to his knowledge. His Honour's findings demonstrate the different levels of involvement of each of the Directors. The primary judge found Mr Robertson was "primarily responsible" for generating the price list materials (at [305]). It was Mr Robertson (and Mr Sheldrick) who was "relied upon to perform key functions in carrying the project forward" (at [302]). At [306]-[307], the primary judge accepted that the "getting over the line" email amounted to Mr Paganin asking Mr Robertson to "manage this process" and that he wanted to communicate to Mr Robertson that he expected "he will take personal responsibility" for providing Egan Valuers and Mr Smith with all documents and information required so that the Bank could get the updated valuation, and that Mr Robertson would not delegate that responsibility to somebody else. At [310] and [311], his Honour found that Mr Robertson knew that Mr Paganin "was effectively impressing upon me the urgency to get this sorted out" and, more generally, that Mr Robertson "was plainly directly engaged in the implementation" of the Resort project. Additionally, as noted above, Mr Robertson gave evidence in cross-examination that he "directed" Mr Sheldrick to provide the October Price Schedule (AB Tab 65, T 802).
111 The question of whether Mr Paganin and/or Mr Robertson were sufficiently involved in the provision of the October Price Schedule within the meaning of s 75B of the TPA did not receive direct attention below. In the case of Mr Paganin, it was unnecessary to do so because at [305], his Honour made a general finding in relation to "what might be considered documents like price lists", that Mr Paganin did not involve himself in the process to the extent that suggests "he was knowingly involved in those particular activities performed on behalf of the Ibex companies". Obviously enough, this amounts to a finding that Mr Paganin did not have knowledge of the essential facts constituting the contravention in the sense of having knowledge of the essential elements of the contravention: see Yorke v Lucas (1985) 158 CLR 661 at 670 per Mason ACJ, Wilson, Deane and Dawson JJ. This finding has not been shown to be erroneous.
112 As to Mr Robertson's liability, the primary judge dealt with the claim against him at [311] as follows:
So far as Mr Robertson is concerned, while he was plainly directly engaged in the implementation of the resort project, having found that the actions of the Ibex companies complained of in relation to the price lists were not misleading or deceptive, the case based on his involvement in that conduct, or other alleged misleading or deceptive conduct, necessarily fails.
113 With respect to the primary judge, there are two difficulties with the dismissal of the case against Mr Robertson on this basis. First, just because the actions of the Ibex companies in relation to the price lists were not misleading or deceptive is not determinative of the separate case of primary liability brought against Mr Roberson for his failure to disclose the non-existence of the presale contracts (see [116] below). Secondly, contrary to his Honour's conclusion, as explained above, there was some conduct of the Ibex companies that was misleading and deceptive.
114 For our part, Mr Robertson's conduct must be seen in the context of the known misapprehension of Mr Smith as to the existence of the presale contracts and the findings that he was charged with the responsibility of getting this valuation "over the line". This included Ibex Capital providing the information as to presales that was to be relied upon by Mr Smith. Put another way, his role within the organisation was to procure the provision of information in order to assist Mr Smith to prepare the Valuations, including by reference to the information as to presales contained in the October Price Schedule. He was involved, in the relevant sense, in the conduct.
115 Lastly, it is appropriate to say something shortly about the primary liability being the contraventions of the Directors in relation to the conduct of providing the "instructions and/or information", being express representations which were misleading because of the undisclosed information as to the non-existence of the presale contracts.
116 As against Mr Paganin, the general finding referred to at [110] above that Mr Paganin did not involve himself in the process of providing this information is not shown to be erroneous and the case against him fails as a consequence. As to the case against Mr Robertson, for the same reasons as to why Ibex Capital engaged in contravening conduct in relation to the provision of the October Price Schedule, Mr Robertson, who directed the provision of incorrect information he knew was likely to be acted upon by Mr Smith in preparing the updated valuation (which became the Later Valuation), engaged in conduct which was likely to induce error and hence acted in contravention of s 10(1) of the FTA.
117 It follows from the above, that with respect to the primary judge, we consider that error is established in that there was some contravening conduct. However, in circumstances where the response of Mr Smith was to provide the Later Valuation, which did not mislead or deceive the Bank, the appellants accepted on appeal that this contravening conduct does not result in causally connected loss, nor is it relevant in a proportionate liability sense, in identifying the quantum of statutory compensation that should be awarded against Mr Smith, Egan Valuers and Mr Robertson.