Findlay & Co Stockbrokers (Underwriters) Pty Limited v Carminco Gold & Resources Limited

Findlay & Co Stockbrokers (Underwriters) Pty Limited v Carminco Gold & Resources Limited - [2007] FCA 573 - FCA 2007 case summary — Zoe

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REASONS FOR JUDGMENT 1 The applicant ('Findlay Underwriters') by its Amended Statement of Claim, seeks to recover the amounts of $170,000 and $450,000 together with interest which it alleges was paid by it to the first respondent ('Carminco') and the second respondent ('TPM') as a result of misleading and deceptive conduct of those companies and of the third respondent ('Mr Salfinger') who was a director of Carminco and TPM. The claim against each of Carminco and TPM alleges breaches of s 52 of the Trade Practices Act 1974 (Cth) ('the Act') as well as common law contractual claims. Mr Salfinger is claimed to be liable pursuant to s 75B of the Act for being knowingly concerned in the breaches of s 52 of the Act by Carminco and TPM. 2 These proceedings have had a prolonged history. On 7 June 2005 the Court granted an adjournment to the respondents pending the determination of proceedings instituted in the Vancouver Registry of the Supreme Court of British Columbia in 2004. The adjournment was granted on the basis of undertakings being provided by the respondents to be bound by that Court's findings that neither TPM nor Carminco held an option to purchase the Summit Lake Mine. The Canadian proceedings were concluded by a decision of the Court of Appeal for British Columbia on 15 November 2006. 3 Initially the respondents defended Findlay Underwriters' claims and a cross-claim was filed by each of them. However, no evidence was filed in support of the cross-claim. On 2 April 2007 Mr Salfinger made an unsuccessful application to adjourn the proceedings on the ground of his illness. The relevant orders relating to the preparation of the matter for hearing and of the Court's decision concerning the application for adjournment are contained in an interlocutory judgment of the Court delivered on 17 April 2007: see Findlay & Co Stockbrokers (Underwriters) Pty Limited v Carminco Gold & Resources Limited [2007] FCA 499. 4 After such judgment was delivered, counsel representing the respondents sought and was granted leave to withdraw. Accordingly the proceedings have been heard undefended.

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FACTS 5 Mr Ivor Findlay is Managing Director of Findlay & Co Stockbrokers Pty Limited ('Findlay Stockbrokers') and Director of Findlay & Co Stockbrokers (Underwriters) Pty Limited ('Findlay Underwriters'). Findlay Stockbrokers conducts a stockbroking business, acting as agent for high net-worth individuals for the buying and selling of shares. Findlay Underwriters conducts a corporate advisory and underwriting business which includes advisory work in respect of capital raising and corporate dealings in matters such as Initial Public Offerings ('IPO'), placement of shares, underwriting, sub-underwriting and other preparatory work necessary for the flotation of a new company. 6 In October 2003 Mr Findlay was informed of an approach by Mr Salfinger to Findlay Underwriters to arrange for the listing of his company on the stock exchange and to provide assistance in the arrangements for an IPO. 7 The company with which Mr Salfinger was seeking financial assistance was at that time known as Trans Pacific Mining Limited (ACN 095 749 670). As will become apparent, this entity is now Carminco and is distinct from Trans Pacific Mining Limited (ACN 107 393 948) which comprises the second respondent. For present purposes, and to avoid confusion, the company in respect of which Mr Salfinger was seeking financial assistance (ACN 095 749 670) will be referred to as 'the company'. 8 Mr Findlay was informed that the business of the company was gold mining and that it had several current projects, one being located in Queensland and others in British Columbia, Canada. One of the Canadian operations was known as the Summit Lake Mine. 9 Meetings were duly arranged between Mr Findlay, an employee of Findlay Underwriters, namely Mr Tibor Vajda, and Mr Salfinger in late October 2003 and November 2003. The meetings were held for the purpose of considering the proposal submitted by Mr Salfinger for the IPO of the company. In the course of such meetings Mr Salfinger informed Mr Findlay that the company had three gold mining projects, namely at Croydon in north Queensland ('the Croydon Gold Fields') and two other projects in British Columbia known as Spectrum and the Summit Lake Mine. With respect to the latter Mr Salfinger said words to the following effect: 'The Summit Lake Mine is very interesting. It is not currently operating but it has all the equipment ready to go.' 10 Mr Salfinger then explained that the company could re-start the mine for very minimal operating costs and that it had large and rich tailings dams worth between $20 million to $30 million. He claimed there was 'a lot of gold' at Summit Lake Mine and that the resource estimate for the Canadian projects was about 300,000 ounces of gold of which 80,000 ounces would be derived from Summit Lake Mine. 11 A further meeting took place on approximately 19 November 2003 at the offices of Findlay Stockbrokers. Present at the meeting were Mr Findlay, Mr Vajda and Mr Salfinger. At such meeting Mr Salfinger provided a slide show outlining the company's projects and he produced details concerning the history of the projects including gold gradings, quantum of gold, mining techniques and mineral composition. Colour photographs and maps of the company's projects were also produced. During the meeting Mr Salfinger told Mr Findlay and Mr Vajda that the company 'has Spectrum, the Summit Lake Extended Claims, Summit Lake Mine and Croydon'. Mr Salfinger also said that the company owned 97% of a subsidiary company known as Akaroola Resources Limited ('Akaroola') which held the Spectrum tenements. In the course of his conversation, Mr Salfinger also told Mr Findlay and Mr Vajda that he wanted to float his company 'with these properties'. With respect to the Summit Lake Mine, Mr Salfinger informed Mr Findlay and Mr Vajda, 'I have an option'. Mr Salfinger explained that the company needed $550,000 (CAD) to exercise the option to purchase the mine. He also said that the company needed to raise seed capital, that is funding required for the initial arrangements for the IPO of $750,000 and would do so through associates and colleagues. The slide show presentation made by Mr Salfinger contains various statements to the effect that the company owned the option to purchase Summit Lake Mine. 12 A further conversation took place during December 2003 between Mr Findlay, Mr Vajda and Mr Salfinger during which it was agreed that Mr Vajda would accompany Mr Salfinger to Canada during January 2004. However, during mid-2003 Mr Findlay had a conversation with Mr Salfinger in which Mr Salfinger revealed that he was having difficulty in arranging 'the mezzanine funds', thereby meaning the seed capital necessary for the preparatory works for the IPO. Mr Salfinger stated to Mr Findlay words to the following effect: 'I've got a mining company who is willing to put up the $550,000 needed to exercise the option over Summit Lake Mine. However, they have advised me that they will only lend the money on certain conditions.'

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Events subsequent to agreement 14 Mr Salfinger was anxious to ensure that Findlay Underwriters was involved in the underwriting of the float of the company. In late November he had forwarded to Findlay Underwriters draft promotional letters which spoke of the opportunities for investors in the proposed float. On 19 December Mr Salfinger forwarded to Mr Vajda a draft Share Subscription Agreement in respect of TPM. Mr Salfinger had not revealed to Findlay Underwriters that on 12 December 2003 he had caused the name of the company, Trans Pacific Mining Ltd (ACN 095 749 670), to be changed to Carminco Gold & Resources Limited. Nor had he revealed that on 15 December 2003 he caused a new unlisted public company to be registered, namely Trans Pacific Mining Ltd (ACN 107 393 948). Mr Salfinger is recorded as being the Secretary and Director of each company at that time, and remained so at all material times. 15 Towards the end of December 2003 Mr Salfinger told Mr Vadja that he (Mr Salfinger) had been mistaken in his belief that the option for the purchase of the Summit Lake Mine was to be exercised by 15 February 2004 and that in fact it had to be exercised by 15 January 2004. Accordingly, Findlay Underwriters expedited the payment of funds in respect of the payment of seed capital required for the float and also made arrangements for the payment of the sum of $450,000 in respect of the loan. On 4 January 2004 Mr Findlay, accompanied by Mr Vajda, Mr Salfinger, a Director of the company, namely Mr Peter Strachan, and a geologist commissioned by the company, namely Vic Wall, visited Canada for the purpose of inspecting the Spectrum, Summit Lake extended claims and the Summit Lake Mine. Mr Strachan resigned from the company during the course of such visit. 16 During early January 2004 conversations took place between Mr Findlay, Mr Vajda and Mr Salfinger concerning the time for repayment of monies loaned for the purpose of the exercise of the Summit Lake Mine option. Mr Findlay estimated that the cost of exercising the option would be approximately $600,000. Mr Salfinger agreed with the estimate and further agreed that if the IPO was successful, the option funds would be repaid within days from the date of listing. Mr Salfinger estimated that listing would be completed by early May 2004. He agreed that if there was no IPO by May 2004, the loan monies would be repaid during that month. Such conversations occurred whilst the parties were in Canada. 17 On or about 12 January 2004 Mr Findlay and Mr Vajda returned to Sydney from Canada. Mr Salfinger informed them that he was going to stay on to exercise the option. During the holiday period, namely late December and early January, Findlay Underwriters caused amounts totally $170,000 to be transferred to the bank account of the company, payments which were made for the purpose of meeting the expenses incurred by the company in relation to the IPO. 18 Shortly after 17 January 2004 Mr Findlay was informed that the option over the Summit Lake Mine had not been exercised. He confirmed this fact with Mr Salfinger who reassured him that 'everything is under control. I wouldn't worry about it'. He further explained that it was the holiday period that had held up the exercise of the option. 19 On 20 January 2004 Mr Findlay instructed Richard Mollett, the Chief Financial Officer of Findlay Stockbrokers, to transfer the sum of $450,000 to the account of the company's lawyers in Vancouver, namely Klassen and Company. The details of the bank account had been provided by Klassen and Company by facsimile to Mr Findlay dated 18 January 2004. 20 Some days later Mr Findlay telephoned Mr Salfinger to inquire whether the option had been exercised. Mr Salfinger responded that he could not exercise the option because he had not been provided with the account details of the vendor. However Mr Salfinger assured Mr Findlay that his lawyers were pushing to make sure that the option was exercised. 21 On 28 January 2004 Mr Findlay had a further conversation with Mr Salfinger in which Mr Salfinger said words to the effect, 'I need more money to exercise the option'. 22 Mr Findlay replied, 'I've given you more than $600,000 of loan funds and seed capital. You can't have gone through all the seed capital money?' 23 It then became apparent to the applicant that the option had not been exercised and Mr Findlay told Mr Salfinger that he could not lend any further monies. The discussion continued with a proposal by Mr Salfinger to raise money by issuing shares in the company to the vendor of the option, namely Tenajon Resources Corporation ('Tenajon'). 24 Thereafter Mr Salfinger forwarded an email to Mr Findlay advising that there was 'good news in the wind re the Summit Lake deal'. He referred to due diligence that had been carried out and provided a statement of work purportedly undertaken towards due diligence examination. Later the same day he forwarded another email which is optimistic in its terms and suggested that various strategies had been reached to exercise the option. On 6 February 2004 Mr Salfinger forwarded another email to Mr Findlay and to Mr Vajda setting out a timetable for the proposed IPO of the company. Shortly thereafter he forwarded another email which referred, inter alia, to 'completing negotiations for the Summit-5 claim'. 25 At this time Mr Findlay became concerned that Mr Salfinger remained in Canada. He telephoned Mr Salfinger who informed Mr Findlay that he had just secured the 'Summit-5 Extended Property'. Mr Findlay urged him to concentrate on floating the company and to return to Australia to complete that project. Mr Findlay had further conversations with Mr Salfinger concerning the option in early February and Mr Salfinger explained that the negotiations were proceeding well with the assistance of his lawyers. At about this time Mr Findlay read an email forwarded by Mr Salfinger to an investment company referring to the listing of the company. The email sent 9 February 2004 contained the following statements: 'Our projects are in Canada and Australia. The Canadian properties include the Spectrum and Summit lake projects where we have high gold grades. We already have established resources from previous drilling (our resource report has been prepared by independent experts to N143-101 and JORC standards) and have excellent upside potential for a 1 million oz + high grade deposit.

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Having read the email, Mr Findlay assumed that Mr Salfinger was confident that the option would be exercised. On 13 February 2004 he wrote to the company reminding the company that $150,000 had been deposited into the bank's account for pre-IPO expenses and that $491,000 had been forwarded to the company's lawyer's trust account in Canada for the purpose of the acquisition of Summit Lake Mine. 26 At about this time Mr Findlay had a further telephone conversation with Mr Salfinger in which Mr Salfinger requested further funds. However, Mr Findlay declined to provide additional funds. 27 Between 16 February 2004 and 25 February 2004 Mr Findlay conferred with Mr Salfinger in Sydney at the offices of Findlay Stockbrokers whilst Mr Salfinger was involved in preparing the prospectus for the float of the company. When asked about the exercise of the option he provided a confident answer that the negotiations were proceeding well and that the company was seeking to obtain a right of way over Tenajon's property. On one visit in February 2004 Mr Salfinger referred for the first time to the need to create a new company, explaining that retaining the old company was too complicated. He proposed the new company be called Trans Pacific Mining Ltd. He did not reveal that he had already created such company on 15 December 2003. On or about 24 February 2004, draft loan agreement documents verifying the terms of the loan by Findlay Underwriters in the sum of $450,000 had been prepared and were being negotiated between Findlay Underwriters and the lawyer acting for the company. A loan agreement dated 25 February 2004 was signed by Mr Salfinger for the company but was never signed by the other party, Akaroola Resources Limited, which was stated to own the whole of the Spectrum Mining claim. Nor was the draft loan agreement signed by Findlay Underwriters. 28 On 24 February 2004 Mr Findlay told Mr Salfinger that he was travelling to Canada to see Mr Bruce McLeod, the CEO of Tenajon. Mr Findlay duly departed Australia the next day and visited Mr McLeod. At that meeting Mr McLeod informed Mr Findlay that Mr Salfinger held no option to purchase the Summit Lake Mine. He also informed Mr Findlay the mine was owned by Tenajon and was not for sale. 29 In late February 2004 a further meeting was held between Mr Findlay, Mr Vajda and Mr Salfinger at which Mr Findlay expressed his dissatisfaction with the delays. His inquiries were deflected by Mr Salfinger. 30 On 13 March 2004 Mr Findlay contacted Mr Salfinger in Melbourne by telephone and pressed him for the documentation relating to the security over the Summit Lake Mine and the assets of the company. Mr Salfinger responded that he had been talking to his lawyer and added, 'the documents won't be long now'. Mr Salfinger also informed him in words to the following effect: 'We can give you signed transfer forms for all of the properties. That can be the security for the loan. My lawyer says that is sufficient.' 31 On this date Mr Findlay requested that Mr Salfinger attend a meeting. Mr Salfinger declined, claiming that he could not attend because of an eye problem. 32 A further attempt to arrange a meeting with Mr Salfinger was unsuccessful. On 25 March 2004 Mr Findlay contacted Mr Salfinger and told him that the loan monies were to be repaid to the investors and requested a meeting. Mr Salfinger informed him that the money was 'coming'. Mr Salfinger claimed that he was not able to fly and suggested that he could drive to Albury or Holbrook for a meeting. 33 Despite Mr Salfinger's statement made on 25 March 2004 that the loan monies would be repaid, Findlay Underwriters have received no repayment of the loan monies, nor of the monies advanced for the purposes of the pre-IPO expenses. 34 On 29 March 2004 Mr Findlay received a message from Mr Salfinger that he had requested the return of the amount of $450,000 from Canada. Mr Salfinger claimed that due to anti-terrorism laws he requested Mr Findlay's approval to repay the monies into his account on the basis that it would then be directly returned to the account of Findlay Underwriters. Such permission was given. Thereafter no payment was received by Findlay Underwriters and attempts to contact Mr Salfinger were unsuccessful. On one occasion Mr Findlay managed to speak to him briefly but Mr Salfinger claimed that he was driving the car at that time and would return his telephone call. No calls were returned until 8 April 2004. On this occasion, Mr Findlay demanded the payment for the investors and Mr Salfinger replied that he would 'try to sort it out'. A meeting was scheduled during which Mr Salfinger agreed to attend a further meeting on 15 April 2004 at the offices of Findlay Underwriters. Mr Salfinger failed to attend. 35 On 15 April 2004 a demand for the payment of the sum of $450,000 was made by letter of Findlay Underwriters upon the company. It is apparent that Mr Findlay was not then aware of the creation of the new company in December 2003 but he learnt for of this fact at about this time and of the fact that the funds advanced for the pre-IPO expenses and the loan had been provided to the new company.

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Claims of Findlay Underwriters 36 The Amended Statement of Claim seeks damages from the respondents arising from the alleged misleading and deceptive conduct of each of them in relation to the representations made by Mr Salfinger which claimed that the company held an option over all of the mining tenements at the Summit Lake Mine and that the company was the unencumbered owner of 100% of the mining tenements at the Croydon Gold Fields in northern Queensland. Findlay Underwriters claims that both representations were false at the time they were made and constituted misleading and deceptive conduct contrary to s 52 of the Act. It is alleged that Mr Salfinger was concerned in, or a party to, the contraventions alleged by virtue of s 75B of the Act and is accordingly rendered liable to Findlay Underwriters for damages under s 82 of the Act. 37 Additionally, Findlay Underwriters claims that between December 2003 and January 2004 Carminco and TPM, by themselves and by Mr Salfinger, represented that they would provide security to Findlay Underwriters for the advance of loan monies either by way of mortgage over the mining interests or by a fixed and floating charge over the assets of the company ('the Security Representation'). Findlay Underwriters claims that such representation was one with respect to a future matter but at the time it was made neither Carminco nor TPM had reasonable grounds for making it. Accordingly, such representation was one to which the provisions of s 51A(1) of the Act applied. Further, Findlay Underwriters submits that Mr Salfinger knew at the time that this representation was made that it was false because neither company owned any option in respect of the Summit Lake Mine, and he involved himself in a contravention of s 52 by the companies within the meaning of s 75B of the Act. 38 Findlay Underwriters claims that in consequence of the three representation referred to above it entered into an agreement described as the 'Loan Agreement' for the advance of $450,000 and that on or about 20 January 2004, again induced by the representations, Findlay Underwriters, at the direction of Mr Salfinger, paid the loan monies to the company in the mistaken belief that TPM was the subject company. Findlay Underwriters claims that neither Carminco nor TPM carried out the IPO and that the funds have not been repaid despite demand for repayment. 39 Additionally, Findlay Underwriters claims that by reasons of the failure to make any IPO of shares in the company, Carminco and TPM became liable to repay the loan monies on demand in breach of the agreement made between the parties. 40 The Amended Statement of Claim also claims restitution of the monies on the basis of unjust enrichment of the respondents since there has been no issue of shares in either Carminco or TPM.

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legal principles 44 Division 1 of Part V of the Act provides a general prohibition against misleading and deceptive conduct of corporations in trade and commerce. A breach of this section can result in an order of damages under s 82 of the Act. The characteristics of statements which constitute representations in breach of s 52 of the Act have been considered in numerous decisions, see: Equity Access Pty Ltd v Westpac Banking Corporation and Another (1990) ATPR 40-994 at 50,950; (1989) 16 IPR 431; Brown and Another v Jam Factory Pty Ltd (1981) 53 FLR 340 at 348; Henjo Investments Pty Limited and Others v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546; Parkdale Custom Built Furniture Proprietary Limited v Puxu Proprietary Limited (1982) 149 CLR 191 at 198; Rhone- Poulenc Agrochimie SA and Another v UIM Chemical Services Pty Ltd and Another (1986) 12 FCR 477; Hornsby Building Information Centre Proprietary Limited and Another v Sydney Building Information Centre Limited (1978) 140 CLR 216. To constitute such breach, a statement must be made by a corporation in the course of trade or commerce. The concept of 'in trade or commerce' has been considered by the majority of the High Court in Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594 at 604. Further the intent of the representor is irrelevant (see Hornsby Building Information Centre 140 CLR 228). 45 To recover damages pursuant to s 82 of the Act an applicant must prove that loss or damage suffered was 'by' the conduct claimed to be in breach of the relevant parts of the Act. The meaning of the word 'by' in s 82 was considered by Mason J in Wardley Australia Limited and Another v The State of Western Australia (1992) 175 CLR 514 at 525 where his Honour said: '…s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & MH) Pty Ltd (1001) 171 CLR 506; 65 ALJR 335; 99 ALR 423; 12 MVR 353; [1991] Aust Torts Reports 81-095; 9 BCL 215, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act'.

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Security for Loan 71 In mid-December 2003 Mr Findlay told Mr Salfinger that any loan made to the company for the acquisition of the Summit Lake Mine option would require the company to provide security over all of its properties including the Summit Lake Mine, and proper loan documentation. Mr Salfinger agreed to such terms. The need for security documents was again discussed in early January 2004 when Mr Findlay referred to the need for such documentation. Mr Salfinger replied, 'I have been talking to my lawyer. The document won't be long now'. Mr Findlay again reiterated the need for the security documents. 72 Similar statements were made in the presence of Mr Vajda in December 2003 and on 14 January 2004 in a telephone conversation with Mr Salfinger, Mr Vajda said to Mr Salfinger 'we have not signed off on any documentation. We want the security documents.' 73 Mr Salfinger replied 'Moshel is working on it, leave it with me'. 74 Mr Salfinger submitted a draft loan agreement to Findlay Underwriters which referred, inter alia, to the repayment of the advance within seven days of the public listing of the company and the provision of security over company interests in the Summit Lake Mine and Spectrum. 75 On 12 January 2004 Mr Moshel forwarded an email to Mr Richard Mollett, Chief Financial Officer of Findlay Stockbrokers, referring to the 'Short Form Loan Agreement'. The draft document forwarded to Mr Mollett referred to the security to be provided by the company and under the heading of 'Security' relevantly included the following: '2. TPM will provide security over mining properties as follows: … iii. Summit Lake Mine- Laird Mining District Dease Lake BC Canada as detailed in the Information Memorandum.' 76 No draft transfer was submitted to Findlay Underwriters in respect of the interests to be provided as security. Subsequent loan agreements were prepared on 15 January 2004 and another version, which was not executed, was prepared later. It referred to the repayment by the company of the loan within four calendar months from the date of the deed 'or within 14 days of closure of the IPO, whichever is the earlier…'. On 25 February 2004 Mr Salfinger signed a proposed loan agreement which referred to the company's purported intention to purchase an interest in the Summit Lake Mine. It also referred to the provision of a fixed and floating charge over the assets of the company. It provided: '1.2 The Loan is repayable

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