The Sales Representations
145 The starting point is the appellant's case as to the representations conveyed by the information in the spreadsheet. The appellant's pleaded case and case at trial was that the spreadsheet conveyed the following false representations:
2007 Financial Year (Budget)
1. Sales would be $45,512,163 and they were in fact $40,926,448.
2. Taking account of costs, selling expenses and other items, the operating income (before interest, tax and depreciation) (EBITDA) would be $4,068,809 and it was in fact no more than negative $306,000.
2008 Financial Year (Forecast)
1. Forecast sales were $48,400,000 and they were in fact $40,245,091.
2. Forecast international royalties received by Vegas were $3,290,000 and they were in fact $1,895,616.
3. Allowing for the costs of sales and receipt of royalties, the EBITDA would be $9,324,200 and in fact it was significantly less than that figure.
146 Mr Backshall gave evidence that the revenue earned by Vegas from the sale of goods for the 2007 financial year was $42,910,741 ($260,422 below budget) and for the 2008 financial year was $42,329,571 ($6,070,429 below forecast). The trial judge proceeded on the basis that the budgeted and forecast figures in the spreadsheet were not achieved.
147 The trial judge approached this aspect of the appellant's case by considering whether the appellant relied on the representations and if he did whether, as the representations were representations as to future matters, there were reasonable grounds for them to be made. There was a suggestion by the appellant on the appeal that the representations as to the 2007 financial year were representations as to actual sales and were false because there was evidence that the actual sales for the early months of the financial year were well below budget. That is not a contention dealt with by the trial judge and, in any event, must be rejected. The figures in the spreadsheet for the 2007 financial year were for the whole year and did not include figures for each month. There was a faint suggestion by the respondents that the representation as to the 2007 financial year was no more than a representation that it was Vegas' budget and that it has not been shown that it was not Vegas' budget. I reject that submission. A budgeted sales figure like a forecast sales figure involves a prediction. In fact, a budgeted sales figure implies a greater degree of confidence in a forecast because it has been adopted as the sales figure the company reasonably expects to achieve.
148 There was a dispute at trial as to which party bore the onus of either proving or disproving that the respondents had reasonable grounds for making the representation. The principal claim against Messrs Hart and Backshall was made under the FTA and here the position was clear. They needed to establish that they had reasonable grounds for making the representations. The principal claim against Vegas was made under the TPA or the Corporations Act. Under the TPA Vegas bore the onus whereas the trial judge held, following Australian Securities and Investments Commission (ASIC) v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 71 ACSR 1, that under the Corporations Act the appellant bore the onus of establishing that the respondents did not have reasonable grounds. As I have said, the appellant does not challenge the trial judge's conclusion that, in the case of Vegas, the relevant Act is the Corporations Act. Nor is there any challenge to his Honour's conclusion that the appellant bore the onus under that Act.
149 To succeed with respect to the sales representations the appellant must show that the trial judge erred in not accepting his evidence that he relied on information in the spreadsheet in deciding to enter into the share transactions and that the trial judge could not be satisfied on all the evidence that the appellant relied on the pleaded sales representations. He must also show that the trial judge erred in concluding that Mr Backshall, and therefore the other respondents, had reasonable grounds for making the representations conveyed by the spreadsheet.
150 Before examining the challenges to the trial judge's findings with respect to reliance it is convenient to note some well-established propositions about reliance in the context of a misleading or deceptive conduct claim.
151 The appellant was not required to establish that the information in the spreadsheet was 'the' cause of his decision to enter into the share transactions; it was sufficient for him to establish that it was 'a' cause (Henville v Walker (2001) 206 CLR 459 ('Henville v Walker') at 469 [14] per Gleeson CJ; at 480-481 [62] per Gaudron J; at 490 [97] per McHugh J; at 509 [163] per Hayne J). Furthermore, had the appellant been able to establish that the statements in the spreadsheet were intended by the respondents to cause the appellant to act on them and were of a nature that the appellant was likely to act on them then he may have done enough to shift an evidentiary onus onto the respondents to negate inducement or reliance (Gould v Vaggelas (1985) 157 CLR 215). On the other hand, evidence of reliance after the event and after the transaction has failed to meet expectations or evidence of what a party would have done had he or she known the true position is to be scrutinised with care (Campbell v Backoffice Investments (2009) 238 CLR 304 at 353 [146] per Gummow, Hayne, Heydon and Kiefel JJ).
152 In a case where A provides financial information to B prior to a transaction and a question arises as to whether B relied on the information in entering into the transaction a court may examine a number of matters including the following:
1. The credibility and reliability of B's evidence of reliance or inducement.
2. The nature of the information.
3. The knowledge of A and B respectively as to the matters which are the subject of the information and of other matters relevant to the transaction entered into.
4. The circumstances in which the information was provided to B. In many cases, those circumstances will be clear; the information will have been provided by A to B for, or in the context of, the proposed transaction. This case is perhaps unusual on the trial judge's findings; the trial judge found that the information was provided to the appellant in a different context.
5. Any requests by B for information of a similar nature. This is not to suggest that there is an obligation on B to request information. It is simply to make the obvious point that if B does seek similar information then that may suggest that the information was important to him.
6. Evidence of other matters which might have influenced B to enter into the transaction and the relative significance of those matters.
7. The actions of B upon learning that the information given to him by A is incorrect or may be incorrect.
153 In his written Reply to Vegas' Outline of Responsive Submissions the appellant dealt with (among other matters) submissions concerning the trial judge's findings about reliance and the appellant's credibility. He wrote that he:
… relies on the findings of the Trial Court and unchallenged evidence consistent with contemporary documentary evidence, so does not need to overturn any credibility findings;
154 As I understood the submission it was that the trial judge did not reject the appellant's evidence on reliance. The most he did was to reject the appellant's 'assertions' to the effect that he relied on information in the spreadsheet.
155 For reasons I will give, I do not accept that submission and it seems to me that in order to succeed with respect to the issue of reliance, the appellant must show that the trial judge erred in not accepting his evidence with respect to reliance.
156 The appellant made two major submissions. First, he submitted that his evidence that he relied on the representations conveyed by the spreadsheet should have been accepted by the trial judge because it was not challenged by the respondents. In the context of that submission the Court was taken to the appellant's written statement dated 19 October 2009 which was part of his evidence-in-chief and to various passages in the statement which were relevant to reliance. It was submitted that those passages were not challenged by the respondents in cross-examination. The lack of challenge was not only a failure to comply with the rule in Browne v Dunn (1894) 6 R 67, but it meant that the trial judge should have accepted the appellant's evidence.
157 Secondly, the appellant submitted that the trial judge made a number of particular errors, some or all of which together mean that the trial judge erred in his approach to reliance. Those errors were as follows.
158 First, the appellant submits that the trial judge erred in failing to be satisfied of reliance in circumstances where he did not at any point say in his reasons that he disbelieved the appellant.
159 Secondly, the appellant submits that the trial judge erred in failing to place sufficient weight on his conclusion that the appellant was 'entitled' to rely on the information in the spreadsheet. The respondents had argued that the spreadsheet was a confidential document provided to the appellant in his capacity as Vegas' legal adviser in connection with discussion about funding the possible acquisition of the master licence and C&C's shares in Rdot. Although the trial judge found that this was so he rejected the submission by the respondents that the appellant was therefore not entitled to rely on the spreadsheet in connection with the share acquisition in Vegas. He held that in the circumstances he identified the appellant was entitled to rely on the information in the spreadsheet because 'it may be assumed the spreadsheet document was of general interest to him and that Mr Backshall understood this to be so'. The appellant submits that the trial judge subsequently erred in not recognising the force of this finding when drawing his conclusions as to reliance.
160 Thirdly, the appellant submits that the trial judge erred in 'doubting' whether the appellant's adviser, Mr Boyce, had access to the spreadsheet at the time he gave advice to the appellant. The appellant contended that at least as far as the second and third respondents were concerned there was an admission in their pleadings that the appellant had given the spreadsheet to Mr Boyce.
161 Fourthly, the appellant submits that in considering reliance the trial judge erred in not placing weight or sufficient weight on the reference in the appellant's letter dated 26 October 2006 to his 'focus on use to be made of the funds, revenues, expenditures and the history of dividend payments to shareholders' (emphasis added).
162 Fifthly, the appellant submits that the trial judge erred in drawing any adverse inference from the appellant's 'failure' to call Mr Boyce.
163 Finally, the appellant submits that the trial judge failed to recognise or recognise sufficiently that the spreadsheet was the only document which could have been the basis of the appellant's projected income calculations as referred to in his letter dated 29 November 2006 and his written statement and that in itself, or with other matters, established that he relied on the information in the spreadsheet.
164 I reject the appellant's submissions. The trial judge did not err in concluding that he could not be satisfied that in deciding to enter into the share transactions the appellant relied on the pleaded sales representations in the spreadsheet.
165 I reject the contention that there was no challenge to the appellant's evidence that he relied on the information in the spreadsheet. The appellant was cross-examined for nearly six days. The respondents referred to a number of passages in the appellant's cross-examination where his evidence that he relied on the information in the spreadsheet in entering into the share transactions was challenged. It is necessary for me to refer to some of those passages.
166 First, the appellant was cross-examined by counsel for the second and third respondents about his letter dated 29 November 2006 and the occasion and circumstances in which Mr Backshall gave him the spreadsheet. In the course of that cross-examination the following exchange took place:
And you write to Vegas, and you say, in the fourth paragraph:
In due diligence, you have provided me with substantial information relating to the last three years' operation of Vegas.
?---Yes.
No mention of a spreadsheet with forecast information in it, Mr Clifford?---It's not written in there.
No, and that's because you were not given a spreadsheet for due diligence purposes, were you?---That's not correct.
If you had, and if you had relied upon it, you would have mentioned it, wouldn't you?---No, not necessarily.
You have made up, yet again, because it's expedient to do so, the assertion---?---That's not correct.
Let me finish, please. You have made up evidence that you were given the spreadsheet in the was in which you have described, simply because you think it helps you, not because it's true?---That is not correct.
You say, in the next paragraph:
I have discussed this information.
You see that?---Yes.
That is the information relating to the last three years' operation of Vegas, and the reasonable historical knowledge you have of the company, having been a provider of legal services for the past 15 plus years?---Yes.
This is quite clearly demonstrating, in writing, what you relied upon, Mr Clifford - historical information?---Yes.
Nothing forecast, never a spreadsheet - that's the case, isn't it?---That's not correct.
I suggest to you that the spreadsheet was in exactly the same position as the 2004 proposal. It was a confidential and privileged document that you had no permission to use, in any way, shape, or form, for your own purposes. That is why it is not mentioned in the 29 November '06 letter?---That is not correct.
167 Secondly, the appellant was cross-examined about an affidavit he had sworn in the proceeding between himself and his former wife in the Family Court of Western Australia. Among other things that affidavit addressed his acquisition of shares in Vegas in December 2006. He described the due diligence he undertook and he referred to a valuation of Vegas undertaken by Sheppard Mullin in 2006 and its valuation of a minimum USD26.666 million. The suggestion was put to the appellant that in undertaking the share acquisition he had relied on the Sheppard Mullin valuation among other matters. During cross-examination the following exchanges took place:
The 2nd and 3rd respondents, Messrs Hart and Backshall make some positive allegations in (c) of paragraph 17 of what you actually relied on for the purposes of the acquisition by Sheraz of the shares?---Yes.
And (iv) they say positively that you relied upon a confidential valuation of Vegas provided by Sheppard Mullin?---Yes.
In the context of the acquisition we were just discussing?---Yes.
Now, at paragraph 17 of your reply which is at page 87?---Yes.
See 17.6 on 88?---Yes.
You join issue with that paragraph?---Yes.
At 17.1 on 87 you repeat paragraph 11.2.2 of your reply?---Yes.
Which is the paragraph I'm about to take you to at paragraph 84?---Yes.
You make a positive allegation there at 11.2.2 that the valuation was based on representations set out there at (a) through to (e)?---Yes.
Which you had no basis for asserting, did you?---I did have a basis for asserting that.
No, you just told me what you understood to be the basis of the valuation?---Yes.
In no way, shape or form did you suggest that the valuation was based on certain representations?---In answer to your question, I said the valuation itself was on a one-time sales.
I suggest to you, Mr Clifford, that yet again you have just inserted there at 11.2.2 something that is expedient in the circumstances but not truthful?---That is not correct.
The reason, I suggest, that you thought it was expedient was because you want to now distance yourself from the Sheppard Mullin valuation because the respondents are relying upon it?---That's not correct.
And:
Yes; then 137 is the same as (u) on page 19?---Yes.
You omit paragraph 133 from your witness statement?---A hundred and thirty-three?
Yes?---Yes.
You did that deliberately, didn't you?---Well, it would have been a deliberate decision to leave it out of that part of my witness statement.
Because it didn't suit your purposes in these proceedings?---No.
Well, yes, Mr Clifford, because (r) - I'm sorry, I take that back - (u) brings all of the material that goes before, in paragraph 40, into account in terms of your assessment of the purchase of the shares just as 137 does in the Family Court affidavit but it omits to refer to any reliance upon the Sheppard Mullin valuation. That was deliberate, wasn't it?---No.
You did that in order to attempt to rebut the allegation that you had relied on the Sheppard Mullin valuation?---No.
You swore in this court, when you attested to the truth of this witness statement of 19 October 2008, that it reflected the whole truth?---Yes.
That's just not so, is it?---That's not correct.
You have deliberately taken out of the Family Court affidavit - you have deliberately refrained from referring to a matter which you swore on oath in the Family Court was true, which was that you took into account the Sheppard Mullin valuation?---That's not correct.
This is yet another example, Mr Clifford, of how you are reckless with the truth; you refrain from telling the whole truth when it does not suit your purposes. Isn't that the case?---That is not correct.
168 Thirdly, the appellant was cross-examined about an expert's report he had obtained for the purpose of the proceeding in the Family Court. He agreed that he was seeking to show in that proceeding that his purchase of the shares in Vegas was not reckless. The expert's report was prepared by a Mr Harvey Pickup. During the cross-examination the following exchange took place:
Thank you, and the same goes in respect of any meetings that you had, both correspondence and meetings that you had with Mr Backshall or Mr Hart, either together or singularly. You never raised specifically with them the misrepresentations that are the subject of these proceedings, through 2008?---The misleading conduct and not - that is right.
Thank you. Now, I also want to put it to you that you didn't raise those matters with Mr Pickup when obtaining obstructions, or giving instructions to him, for the Family Court?---Well, I don't know. I didn't give him the instructions.
169 In addition to these passages it is clear that the appellant's credit in a number of other areas was strongly challenged by the respondents in the course of cross-examination either on the basis that it was in conflict with the evidence of one of the respondents' witnesses or for other reasons. I have no hesitation in rejecting the submission that the appellant's evidence that he relied on the information in the spreadsheet was not challenged.
170 I also reject the more limited submission made by the appellant that he was not challenged on his evidence that he gave the spreadsheet to Mr Boyce. I do not think, as was submitted by the appellant, that the second and third respondents' Further Amended Substituted Defence contains a clear admission that the appellant provided the spreadsheet to Mr Boyce. Nor do I think that the appellant would have had any doubt that his evidence was under challenge when it is borne in mind that his evidence about the circumstances in which Mr Backshall gave him the spreadsheet was under strong challenge (and ultimately rejected by his Honour) and that there was a challenge to his evidence on reliance. During cross-examination of the appellant the following exchanges took place:
Now, what you're putting here is just - what you have set out here is just not correct, is it? You're suggesting that Mr Backshall gave you audited accounts and a spreadsheet, together, in the one meeting. That never happened, did it?---That did happen.
No, Mr Backshall never provided you with the audited accounts, did he?---Yes, he did.
What he in fact did was provided you with the spreadsheet in the context of a solicitor/client meeting, didn't he?---He did not. He provided me the spreadsheet, but not in the context of a solicitor/client meeting.
Now, you say that, a day or so after he provided you with both the accounts and the spreadsheet - this is paragraph 37 of your witness statement - that you forwarded them on to your accountant, Mr Grant Boise [sic]?---Yes.
So, presumably, you forwarded them on as a bundle, spreadsheet and financial accounts?---Yes.
And Mr Boise [sic] would be the obvious person to tell us whether or not he actually ever received a bundle of spreadsheet and financial accounts, together, on or about that date, wouldn't he?---He could do.
He could tell us that, couldn't he?---Yes.
171 I also reject the appellant's submission that the trial judge should not have rejected the appellant's case on reliance in circumstances where he did not at any stage say that he disbelieved the appellant. That is not a fair summary of his Honour's findings and conclusions. Although the trial judge did not use the words that he disbelieved the appellant he found that the appellant's evidence was unsatisfactory in a number of areas and he rejected it. It seems to me clear enough that in the area of reliance, if not in other areas as well, the trial judge took the view that he would not accept the appellant's evidence unless it was corroborated by documentary or other cogent evidence.
172 The following are examples of areas in which the trial judge found that the appellant's evidence was unsatisfactory and rejected it.
173 First, in the context of whether the appellant received monthly board packages from about December 2006 to about mid 2008 the trial judge said (at [111]):
There is an issue whether this and other monthly 'board packages' were sent to Mr Clifford. Mr Backshall explained in his evidence, which I accept, that it was standard practice at Vegas for shareholders to collect their monthly shareholder packs containing management accounts from the offices of Vegas. To the best of his knowledge, from the time of Sheraz's investment in Vegas, until around early 2008, shareholders packs were made available to Mr Clifford. There is no suggestion, however, or evidence to ground the submission that prior to the Sheraz acquisition, Mr Clifford had ordinarily received the monthly board pack. Mr Clifford says that he only received the monthly shareholder packs from mid 2008. In the light of the evidence as a whole, I find Mr Clifford did not receive the monthly board packs at material times in the latter part of 2006 leading up to 19 December 2006. However, I am inclined to accept that after that into 2007, once Sheraz had become a shareholder, the board packages were made available to all shareholders including Mr Clifford (as representative of Sheraz) and that he did take advantage of this access. I find Mr Clifford's evidence to the contrary implausible in light of his overall diligence in relation to his oversight of his interests, through Sheraz, in the affairs of Vegas at material times.
174 Secondly, in the context of the appellant's early dealings with Mr Hart, the trial judge said (at [198]):
As to the evidence of the applicant concerning his early dealings with Mr Hart in September/October 2006, I have already found that I prefer the evidence of Mr Hart to that of Mr Clifford. I do not accept that Mr Clifford made the literal statements he says he made to Mr Hart, such as he wanted 'to look at things like the financials, sales, past and present and the use to be made of any investment monies'. What I have found was a much more important meeting on the evening of 24 October 2006, the substance of which was confirmed by an email on 25 October from Mr Backshall to Mr Clifford, which was followed in turn by Mr Clifford's letter accepting in a formal way the invitation to become an investor and raising, amongst other things, the question of his due diligence. At the meeting on 24 October, Mr Clifford was specifically advised to contact Mr Rayney, the CFO, for financial information.
175 Thirdly, in the context of whether the respondents ever took steps to prevent the appellant or to make it more difficult for the appellant to obtain financial information from Vegas through Mr Rayney, the trial judge said (at [333]):
At this point, I should also deal with an evidentiary matter that bears on the question whether the respondents ever took any steps, at material times, to prevent Mr Clifford or to make it more difficult for Mr Clifford to obtain financial information from Vegas through Mr Rayney, the CFO. In the course of cross-examination of the applicant by senior counsel for Vegas (transcript 431-433) Mr Clifford suggested that he had been told in January 2009 by Mr Rayney that he had been "dissuaded" from giving financial information to the applicant by Mr Backshall. However, there was no reference to any such advice in the applicant's witness statement. Nor in cross-examination of Mr Backshall did the applicant put such allegations to Mr Backshall. The allegations made by the applicant in the course of cross-examination were simply not corroborated by any other evidence. In my view they indeed run counter to the evidence and were made gratuitously. In fact, Mr Backshall expressly invited Mr Clifford in his email on 25 October 2006 to approach Mr Rayney. There is no evidence to support the allegations made by Mr Clifford in cross-examination that at some point Mr Rayney had been dissuaded by Mr Backshall from giving any financial information if it were requested by Mr Clifford. I discount Mr Clifford's evidence in this regard completely.
176 Fourthly, in the course of dealing with the important question of the conflict between the appellant and Mr Backshall as to the circumstances in which the latter provided the spreadsheet to the appellant, the trial judge said (at [223]):
Thirdly, I prefer Mr Backshall's evidence that the draft P&L or spreadsheet was discussed with Mr Clifford in the context of a discussion about Deloitte's assistance with capital raising. Mr Clifford was closely involved in matters to which the capital raising related - acquiring control of Rdot and paying out C&C. Fourthly, I am left with a concern, having considered Mr Clifford's evidence overall, that Mr Clifford at times displayed a heightened sense of the significance of parts of his evidence to the ultimate success of his case, and that this is one such example. The evidence of the applicant concerning being told that Mr Backshall had "dissuaded" Mr Rayney from providing financial information to the applicant at material times, which I deal with in detail later and totally discount, is another. It serves Mr Clifford's case immeasurably to contend that the spreadsheet information was given to him by Mr Backshall as part of the due diligence process. This leads me to approach Mr Clifford's testimony (both here and generally) with caution, particularly where his evidence is not corroborated by some documentary or other cogent evidence. In the end, I am not satisfied that the spreadsheet or draft P&L was given to Mr Clifford at the same time he received the company's accounts, or as part of his due diligence. Finally, the fact that Mr Clifford's accountant was not called to give evidence - as discussed below - fortifies my conclusion in this regard.
177 As can be seen from the passage in the previous paragraph the trial judge took the approach that he would not, or might not, accept the appellant's evidence where it was not corroborated by documentary or other cogent evidence. In my opinion, bearing in mind the trial judge's strong reservations about the appellant's evidence in a number of areas he was entitled to take that approach.
178 As to the appellant's submission that the trial judge failed to place sufficient weight on his own finding that the appellant was entitled to rely on the spreadsheet, it is important to have regard to the context in which that finding was made. The respondents submitted to the trial judge that if he accepted Mr Backshall's evidence as to the occasion and circumstances in which he provided the spreadsheet to the appellant in preference to that of the appellant (which he did and which finding is not challenged on appeal) then the appellant was not entitled to rely on it because it was a confidential and privileged document obtained in the context of providing legal assistance. The trial judge rejected the submission that the appellant was not entitled to have regard to the spreadsheet bearing in mind the appellant's letter dated 26 October 2006, the fact that he asked Mr Backshall if he could retain a copy of the spreadsheet and the fact that, as the trial judge put it, '[n]o immediate professional use of the document by [the appellant] in relation to capital raising issues [was] indicated by the evidence' (at [224]). However that is as far as the finding went and, as the trial judge observed, it still left open the question whether the appellant had in fact relied on the information in the spreadsheet. I reject the submission that the trial judge in some way failed to place sufficient weight on his conclusion that the appellant was entitled to rely on the information in the spreadsheet.
179 I turn now to consider the appellant's submission that the trial judge erred in drawing an adverse inference from the appellant's failure to call Mr Boyce and his submission that the trial judge failed to recognise or recognise sufficiently that the reference to 'projected income' in his letter dated 29 November 2006 could only have been based on the spreadsheet. It is convenient to deal with these submissions together.
180 In circumstances where the trial judge said that he was not prepared to act on the appellant's evidence alone it was appropriate for him to examine whether there was any documentary evidence which supported the appellant's case. He examined the passage in the appellant's letter dated 29 November 2006 which referred to the advice given by Mr Boyce. He referred to the appellant's submission that the advice could only have been based on the spreadsheet, but he appears to have taken the view that this was not necessarily so and asked himself what inference should be drawn. It was in this context that he considered the fact that the appellant had not called Mr Boyce. Mr Boyce was the appellant's accountant and he had provided him with advice. The issue was, the trial judge put it, 'plain for all to see' (at [228]) and the appellant provided no explanation as to why Mr Boyce was not called. In the circumstances the trial judge was entitled to infer that Mr Boyce's evidence would not have been of assistance to the appellant's case. There was no misapplication of the process of reasoning identified in Jones v Dunkel (1959) 101 CLR 298 (see also Payne v Parker (1976) 1 NSWLR 191 at 200-202 per Glass JA). This is particularly so when it is borne in mind that the trial judge's ultimate conclusion was that he could not be satisfied that the appellant relied on information in the spreadsheet.
181 Finally, there was a reference by the appellant to the fact that the trial judge had said that he did not accept the appellant's assertions of reliance and that this may be a reference to something other than the appellant's evidence. However, I think the context is clear and that in referring to 'assertions' the trial judge meant the appellant's evidence of reliance.
182 I reject the appellant's challenge to the trial judge's conclusion that he could not be satisfied that the appellant had relied on the sales representations conveyed by the spreadsheet.
183 This conclusion is sufficient to dispose of the aspect of the appellant's appeal which relates to the sales representations. However, in case there is a further appeal I will also deal with the appellant's challenge to the trial judge's conclusion that even if the appellant relied on the sales representations conveyed by the spreadsheet, nevertheless the respondents had reasonable grounds for making them.
184 The appellant submits that whether there were reasonable grounds for making the representations conveyed by the spreadsheet was to be assessed either at the time of its preparation on 30 October 2006, or at the time it was given to him. The trial judge found that Mr Backshall gave the spreadsheet to the appellant 'probably mid November'. Earlier in his reasons he had said he estimated it to be 'early to mid November'. Either way the appellant submits that Mr Backshall could not have had reasonable grounds for making the representations conveyed by the spreadsheet at either 30 October 2006 or early to mid November 2006 because he knew (and the appellant did not) that:
1. For the three-month period from 1 July 2006 - 30 September 2006, Vegas' actual sales were about $1,171,000 below budget. Messrs Backshall and Hart knew this because the information was in the monthly board package they received on or about 10 October 2006; and
2. Although on or around 16 October 2006, forward orders received by Vegas for the period from January to April 2007 were up 7.8% from the orders received for the same period in 2006 the budgeted increase for this period was about $1,227,012.21 above this figure.
185 The appellant submits that it followed from these facts that at the time Mr Backshall prepared the spreadsheet he knew that the sales figures for seven of the twelve months of the 2007 financial year were almost $2.4 million ($2,398,012.21) below budget. In those circumstances he submits that it cannot be said that Mr Backshall had reasonable grounds for the representations as to future matters conveyed by the spreadsheet.
186 I would not place any weight on the forward orders for the period from January to April 2007 as negating reasonable grounds. The trial judge did not refer to any evidence and this Court was not referred to any evidence which suggested that the forward orders for a period meant that budget could not be achieved for the same period. What seems to have been a sudden 'spike' in sales between late October 2006 and early December 2006 suggests otherwise.
187 In considering whether knowledge of the actual sales figures for the period from July to September 2006 should have negated a finding of reasonable grounds, the following circumstances are relevant.
188 Mr Backshall swore a witness statement consisting of 211 paragraphs. It constituted his evidence-in-chief at the trial. In his statement Mr Backshall dealt with the grounds upon which he formulated the budget and forecast figures in the spreadsheet and his opinion as to the reasons Vegas did not achieve the figures he had forecast or predicted. He said that at the time he prepared the spreadsheet, 'sales were consistent with the 06-07 budget'. In essence, the trial judge accepted that evidence.
189 Mr Backshall was not challenged in cross-examination about the grounds upon which he formulated the figures for budget and forecast or his opinions as to the reasons the figures were not achieved or on his evidence to the effect that at the time he prepared the spreadsheet sales were consistent with the budget for the 2007 financial year. This makes the appellant's attempt to show error in the trial judge's finding of reasonable grounds a very difficult one. For example, Mr Backshall was not cross-examined to the effect that the forward orders for the period from January to April 2007 should have alerted him to a likely deficit in terms of budget or at least they were such that he could not have reasonable grounds for the budget figures.
190 Another relevant circumstance is that it would appear that it was open to the appellant to withdraw from the transaction with Vegas at any time before 19 December 2006. On 10 December 2006 Mr Backshall received the monthly board package which contained the Vegas actual sales figures from 1 July 2006 to the end of November and at that time income was ahead of budget by $176,000.
191 It seems to me that if the relevant date is on or around 19 December 2006 then it cannot be said that at that date the respondents did not have reasonable grounds for the sales representations by reason of the fact that sales were below budget for the period from July to September 2006. Actual sales for the five-month period from July to November 2006 were then ahead of budget. If it is appropriate to take an earlier date of say early to mid November then the absence of cross-examination of Mr Backshall is telling because it is not really known what Mr Backshall did or did not know about actual sales at that time. What is known is that there must have been a 'spike' in sales some time between late October and early December 2006.
192 The trial judge found that the respondents had reasonable grounds for making the sales representations based on the evidence of Mr Backshall which was, for the most part, unchallenged. I am not satisfied that he erred in doing so.