GARDINER v AGRICULTURAL AND RURAL FINANCE PTY LTD

CITATION: GARDINER v AGRICULTURAL AND RURAL FINANCE PTY LTD [2007] NSWCA 235

JUDGMENT OF: Spigelman CJ at 1; Basten JA at 142; Handley AJA at 356

(1) Allow the appeal and set aside orders 1-6 made in the Equity Division on 11 April 2006 with respect to the Appellant.

(2) Give judgment for the First Respondent (Agricultural and Rural Finance Pty Ltd) against the Appellant (Bruce Walter Gardiner) in an amount of $31,616.35, together with interest, but otherwise dismiss the Summons in the Equity Division.

(3) Dismiss the Appellant's cross-claim with no order as to costs.

(4) Dismiss the First Respondent's cross-appeal against the Appellant. DECISION: (5) Dismiss the Second Respondent's cross-appeal against the Appellant.

(6) Dismiss the First Respondent's motion of 7 November 2006 to amend the Summons filed in the Equity Division.

(7) Order that the First Respondent pay 50% of the Appellant's costs of the proceedings in the Equity Division.

(8) Order that the First Respondent pay 50% of the Appellant's costs of the appeal and in respect thereof grant the Second Respondent a certificate under the Suitors' Fund Act 1951 (NSW) if not disqualified pursuant to s 6(7) thereof.

CONTRACT - general contractual principles - construction and interpretation of contracts - consideration of surrounding circumstances - relevance of regulatory scheme - prescribed interests - Corporations Law Pt 7.12

CONTRACT - general contractual principles - construction and interpretation of contracts - relevant event for purposes of indemnity agreement - distinction between "cause" and "event" - issue is immediate rather than ultimate cause

CATCHWORDS: CONTRACT - general contractual principles - construction and interpretation of contracts - force majeure - "beyond the control of" - mere commercial impracticability not sufficient

CONTRACT - general contractual principles - construction and interpretation of contracts - "punctuality" - waiver - acceptance of late payment

EQUITY - general principles - misrepresentation - reliance on representation - weight given to ex post facto claims of reliance - loss or damage "by " misrepresentation - Corporations Law s 1005

Australian Securities and Investments Commission Act 2001 (Cth), ss 12DA, 12DB, 12GH Corporations Act 2001 (Cth), Ch 5C LEGISLATION CITED: Corporations Law, ss 762, 995, 996, 1005, 1006, 1023B, 1024, 1024A, 1024B, 1067, 1069, 1325, 1454, Pt 7.11, Div 5 of Pt 7.12 Income Tax Assessment Act 1936 (Cth), Pt IV, Pt IVA Trade Practices Act 1974 (Cth), ss 51A, 52, 75B, 82, 84 Trustee Act 1925, s 92

Ambatielos v Anton Jurgens Margarine Works [1923] AC 175 Andar Transport Pty Limited v Brambles Limited (2004) 217 CLR 424 Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 Ayoub v Euphoric Pty Limited [2004] NSWCA 457; 12 BPR 22, 735 BI (Contracting) Pty Limited v AW Baulderstone Holdings Pty Limited [2007] NSWCA 173 Bowtell v Goldsborough Mort & Co Limited (1905) 3 CLR 444 Cackett v Keswick [1902] 2 Ch 456 Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Coghlan v S. H. Lock (Aust) Ltd (1987) 8 NSWLR 88 Colliers Jardine Pty Limited v Castle Mall Properties Pty Limited [2005] NSWCA 311 Crowe v Graham (1968) 121 CLR 375 Davis v Commissioner for Main Roads (1968) 117 CLR 529 Federal Commissioner of Taxation v Sleight (2004) 136 FCR 211 F D Normoyle Pty Limited v Transfield Pty Ltd (2005) 63 NSWLR 502 Finch v Underwood (1876) 2 Ch D 310 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (1993) 40 NSWLR 206 The Glendarroch [1894] P 226 Global Funds Management (NSW) v Rooney (1994) 36 NSWLR 122 Global Sportsmen Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Halford v Price (1960) 105 CLR 23 Hancock v Williams (1942) 42 SR(NSW) 252 Henville v Walker (2001) 206 CLR 459 House of Peace Pty Limited v Bankstown City Council (2000) 48 NSWLR 498 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 Hyundai Merchant Marine Co Limited v Dark Brook Coal (Sales) Pty Limited [2006] FCA 1324 I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 K & S Lake City Freighters Pty Limited v Gordon & Gotch Limited (1985) 157 CLR 309 Kenyon, Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519 Leeds & Hanley Theatre of Varieties v Broadbent (1898) 1 Ch 343 Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2005) 223 ALR 560 Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1 MacDonald v Robins (1954) 90 CLR 515 Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181 Mayer v Isaac (1840) 6 M&W 605; 151 Eng. Rep. 554 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 CASES CITED: National Roads and Motorists' Association v Whitlam [2007] NSWCA 81 Network Ten Pty Limited v TCN Channel Nine Pty Limited (2004) 218 CLR 273 Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 Parkes Management Ltd v Perpetual Trustee Co Ltd (1977) 3 ACLR 303 P J Van Der Zijden Wildhandel N.V. v Tucker & Cross Limited (1975) 2 Lloyd's Rep. 240 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 335 Provimi Hellas AE v Warinco AG [1978] 1 Lloyds Rep 373 (CA) Provincial Insurance Australia Pty Limited v Consolidated Wood Products Pty Limited (1991) 25 NSWLR 541 R v Wilson; Ex parte Kisch (1934) 52 CLR 234 Rava v Logan Vines Pty Ltd [2007] NSWCA 62 Repatriation Commission v Vietnam Veterans' Association of NSW Branch Inc (2000) 48 NSWLR 548 Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229 Rosenberg v Percival (2001) 205 CLR 434 Siqueira v Noronha [1934] AC 332 South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 Sperry Rand Australia Limited v Arrandale Properties Pty Limited [1979] VR 409 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Toll (FGCR) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 Travel Compensation Fund v Tambree (2005) 224 CLR 627 Vidler & Co (London) Ltd v R Silcock & Sons Ltd [1960] 1 Lloyd's Rep 509 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Way v Hearn (1862) 11 CB (NS) 774; 142 Eng. Rep. 1000 Wilkie v Gordian Runnoff Ltd (2005) 221 CLR 522 Wilson v Stewart (1889) 15 VLR 781 Wilson v Zealandia Soap and Candle Trading Co Ltd [1928] G.L.R. 120

J W Carter and David Yates "Perspectives on Commercial Construction and the Canada SS Case" (2004) 20 J of Contract L 233 at 235-237 Nuncio D'Angelo "The Indemnity: It's All in the Drafting" (2007) 35 ABLR 93 at 96-102 Daniel Gosewitch "Difficulties with Indemnities Between Business Entities" (2006) 34 ABLR 89 at 96 Lewison, "The Interpretation of Contracts" (3rd ed, 2004) at [12.02] E. McKendrick, "Force Majeure and Frustration of Contract" (2nd ed, 1995) James O'Donovan and John Phillips "Modern Contract of Guarantee" Thompson Law Book Co loose leaf service at [5.100]. G. Treitel, "Frustration and Force Majeure" (1994) Sir Guenter Treitel, "Frustration and Force Majeure" (2004, 2nd ed) at 309 Spencer Bower, Turner & Handley "Actionable Misrepresentation" 4th ed 2000 pp12-13

Australian Securities Commission Policy Statements: PS 23 Approval of Deeds Relating to Prescribed Interests PS 55 Covenants in Deeds PS 82 Covenants in Deeds: Non-Mining Primary Production Schemes PS 89 Trustees and Representatives - Approvals for Prescribed Interest Schemes PS 90 Related Party Trustee Approvals

Bruce Walter Gardiner - Appellant PARTIES: Agricultural and Rural Finance Pty Ltd - First Respondent Oceania Agriculture Pty Ltd - Second Respondent

R. Smith SC/M. Jones - Appellant COUNSEL: S. Robb QC/C. Bevan - First Respondent G. Inatey SC/G. Ellis - Second Respondent

Clayton Utz - Appellant SOLICITORS: Evangelos Patakas & Associates - First Respondent Colin Biggers & Paisley - Second Respondent

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT JUDICIAL OFFICER: Young CJ in Eq

LOWER COURT DATE OF DECISION: 29 March 2006

LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWSC 202

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40232/06 SC 50063/03

SPIGELMAN CJ BASTEN JA HANDLEY AJA

6 September 2007 GARDINER v AGRICULTURAL AND RURAL FINANCE PTY LTD & ANOR

On 28 April 1997, Oceania Agriculture Ltd ("Oceania") filed a prospectus with the Australian Securities Commission in relation to a project identified as the "Port Macquarie Tea Tree Plantation". Investors in the project acquired rights in respect of particular allotments of land on which tea trees would be planted. The project was intended to run for 17 years.

The project was promoted by Gerard Cassegrain & Co Pty Ltd ("GCC"), of which Oceania was a wholly owned subsidiary. The land was owned by Endwise Holdings Pty Ltd, which was owned half by GCC and half by the managing director of GCC, Mr Claude Cassegrain. The plantations were managed by Oceania.

The Corporations Law, as in force in 1997, required the appointment of an independent trustee to protect the rights and interests of the investors. The trustee was Australian Rural Group Ltd. Endwise Holdings leased the land to the trustee, which in turn sub-let the land to Oceania.

The investment scheme involved a financing arrangement whereby a company known as Agricultural and Rural Finance Pty Ltd ("A&R Finance") provided finance such that, in the first year of the investment, the investors were only required to provide approximately one third of the investment in cash. In addition, investors were required to make two advance interest payments on the loans, the first at the time of application and the second at the commencement of the second year. Most investors also entered into an indemnity agreement under which Oceania agreed to indemnify their obligations of repayment under the loan contracts in particular circumstances.

A&R Finance received an initial capital contribution from GCC of $300,000 to cover the cost of the loans. Thereafter, it obtained further funds through a "round-robin" arrangement, whereby the application moneys lent to investors were paid to Oceania and then on-lent to A&R Finance, which lent the funds to further investors.

On application, an investor was required to pay licence and management fees amounting to $24,060. Over the 17 years of the project, annual licence and management fees were to be paid to Oceania at an increasing rate, commencing at $1,854. It was anticipated that after the second year of the project, the licence and management fees would be met from the proceeds of the sale of the oil. This was based upon an anticipated increase in the price for tea tree oil. However, the price instead fell dramatically from $55 per kilogram in 1997 to $15 per kilogram by the time the project terminated in January 2003.

The project deed was an agreement between Oceania, the trustee, Endwise Holdings and GCC as "settlor". It provided that the project would continue in operation for 80 years, subject to earlier termination. The project deed provided that termination could occur if the office of trustee became vacant and a new trustee was not appointed within 60 days.

On 27 September 2002 an administrator was appointed to the trustee. The trustee retired on 5 November 2002. Pursuant to clause 46.4 of the project deed, the project terminated on 4 January 2003.

On termination, the First Respondent, A&R Finance commenced proceedings in the Equity Division against all of the borrowers, seeking payment of loan moneys which it claimed were repayable by each investor on cessation of the scheme. The proceedings involving the Appellant, Mr Gardiner, were pursued as a test case.

The borrowers argued that the indemnity agreement was effective and enforceable, thereby releasing them from any obligation to repay amounts under the loan agreements. Mr Gardiner also filed a cross-claim, asserting breaches of s 52 of the Trade Practices Act 1974 (Cth), ss 995 and 996 of The Corporations Law and ss12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth).

Young CJ in Eq gave judgment in favour of A&R Finance and dismissed the cross-claim by Mr Gardiner.

On appeal, Mr Gardiner sought to reagitate each of the issues on which he was unsuccessful below.

The Court held, allowing the appeal in part and dismissing the cross-appeal:

A. Construction of loan agreement and indemnity agreement

Identifying the meaning of terms in a contract requires consideration of the surrounding circumstances and the purpose and object of the transaction. [8] Toll (FGCR) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 cited.

McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181; Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451; Wilkie v Gordian Runnoff Ltd (2005) 221 CLR 522; Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337; South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 referred to. Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2005) 223 ALR 560; Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1 approved.

The taxation advantages of primary production schemes which are structured like this scheme constitute an important surrounding circumstance for the interpretative task. [35], [51]

The general principle is that ambiguity in an indemnity should be construed in favour of the party providing the indemnity. Where, as here, the party providing the indemnity drafted the indemnity, an ambiguity will not necessarily be construed in its favour: [21]. Andar Transport Pty Limited v Brambles Limited (2004) 217 CLR 424 distinguished.

Rava v Logan Vines Pty Ltd [2007] NSWCA 62 doubted in part, approved in part.

Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549; Chan v Cresdon Pty Limited (1989) 168 CLR 242; Mayer v Isaac (1840) 6 M&W 605 at 612; Halford v Price (1960) 105 CLR 23 at 30, 34, 40, 41 and Davis v Commissioner for Main Roads (1968) 117 CLR 529; Coghlan v S. H. Lock (Aust) Ltd (1987) 8 NSWLR 88 referred to.

(a) The Relevant "Event" (per Spigelman CJ and Basten JA, Handley AJA agreeing)

The relevant event for the purposes of cl 2(d) of the indemnity agreement was the failure to replace the trustee:[24], [29], [64], [195], [356].

The trial judge erred in holding that a "cause" cannot be an "event" within cl 31(a). The better view is that the phrase "other causes beyond the control of the farmer" is apt to identify relevant "events", both in terms of cl 31 and cl 2(d) of the indemnity agreement: [53], [196].

The context to this agreement indicates that what is required is a direct and immediate cause, rather than identification of some ultimate or "real" cause. The factual inquiry that a search for a "real" cause may entail would undermine the certainty that such a contractual provision requires. Here the immediate cause was the failure to replace the Trustee: [102], [106], [208], [358].

The failure to appoint a replacement trustee was an event having the quality of a physical or material restraint imposed by an external actor and thus fell within the scope of cl 31(a): [198].

In order for the investors to benefit from the tax deductions, it was necessary that they carry a commercial risk of failure of the venture. The relevant contractual provisions should not be given a construction that would remove that level of risk. The only relevant risk for a financed investor who purchased the indemnity was the risk that, if the project failed for commercial reasons, the investor would lose part or all of his or her investment: [200].

(b) Control of the Farmer (per Spigelman CJ and Basten JA, Handley AJA agreeing)

The failure to appoint a replacement trustee was an event "beyond the control of" the Appellant: [73], [213], [357].

The text refers to the farmer in the singular, it does not envisage collective action to replace the trustee and there is nothing to suggest it was contemplated that the replacement of a trustee was within their joint "control": [71]-[73].

Even if the Appellant was able to act in concert with other investors, it may reasonably be inferred that he would have been unsuccessful in appointing a replacement trustee because there was no readily accessible source of funds, other than through the manager, from which to pay a trustee: [213].

Clause 7 of the loan agreement is best construed as constituting part of the definition of the primary liability under the agreement, rather than an exclusion or exception to the borrower's duty to perform. Thus, the onus of proof fell on the lender to establish that a liability had arisen because the indemnity was not effective and enforceable: [217]. Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (1993) 40 NSWLR 206; Kenyon, Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519, applied.

(c) Meaning of "as a result of" in the force majeure clause (per Spigelman CJ)

Changes in economic conditions, which significantly alter the commercial aspects of an arrangement, even though in one sense they are "beyond the control" of a party to a commercial agreement, may not fall within such a general phrase in a Force Majeure clause. Mere commercial impracticability may not be sufficient: [93]. P J Van Der Zijden Wildhandel N.V. v Tucker & Cross Limited (1975) 2 Lloyd's Rep. 240; Hyundai Merchant Marine Co Limited v Dark Brook Coal (Sales) Pty Limited [2006] FCA 1324 referred to.

Performance will not be beyond the control of a party to a contract merely because performance becomes uneconomic for the supplier of goods and services. A more stringent test of supervening impossibility may need to be applied where the recipient of services asserts frustration of purpose: [227]. Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd [2006] FCA 1324; Vidler & Co (London) Ltd v R Silcock & Sons Ltd [1960] 1 Lloyd's Rep 509; PJ van der Zijden Wildhandel NV v Tucker [1975] 2 Lloyds Rep 240; Provimi Hellas AE v Warinco AG [1978] 1 Lloyds Rep 373 (CA); considered.

The following findings were made at [233]: (i) the relevant event, for the purposes of cl 2(d)(i) of the indemnity agreement, was the failure to replace the trustee within 60 days of the vacancy occurring; (ii) as a result of that event, the investors (in this case the Appellant) ceased to carry on the business; (iii) that event was a cause beyond the control of the investors (the Appellant); (iv) even though the investors could not have relied on market conditions as a cause beyond their control to excuse their performance under the licence and management agreement, they did not seek to do so; (v) although market conditions may have made it difficult for the manager to find a replacement trustee, it was not established that those conditions frustrated the purpose of the contract so as to prevent the manager performing its obligations to the investors under the contract; (vi) it was not established that the "true cause" of the termination of the business was a material diminution of the amount available for distribution to investors, or even that the manager and the (putative replacement) trustee could properly act on an opinion to that effect if they were otherwise inclined to hold that opinion; and (vii) accordingly, accepting that the event relied on by an investor for the purpose of invoking cl 2(d) of the indemnity agreement had to be an event which would excuse the investor's performance for the purposes of cl 31(a) of the licence and management agreement, the vacancy in the office of trustee was such an event.

(per Basten JA, Spigelman CJ agreeing, Handley AJA disagreeing)

The first and second payments were punctually paid for the purposes of the indemnity: [129], [268], [360].

(per Basten JA, Spigelman CJ and Handley AJA agreeing)

All payments under loan contract 3 were punctually made for the purposes of cl 2(a) and (b) of the indemnity agreements. The Appellant owed no obligation to pay any amount to A&R Finance under those agreements by operation of cl 7 of the loan agreement: [268], [360].

(per Basten JA, Spigelman CJ and Handley AJA agreeing)

Payments under the fourth loan agreement were not punctual: [130], [267], [360].

Summary of reasons on punctuality (per Spigelman CJ)

The use of the word "punctually" in contractual documentation usually requires a payment to have been made on the day provided in the contract and on no later day: [110]. Leeds & Hanley Theatre of Varieties v Broadbent (1898) 1 Ch 343 referred to.

However, the issue is one of interpretation which depends on the full context. The fact that the Indemnifier here did not have a direct financial interest in the punctuality of payments is an unusual contextual element which leads to the word "punctuality" losing its usual connotation of precision in timing. Moreover, the long term nature of the agreement makes it unlikely that a late payment at the outset was intended to render the Indemnity Agreement ineffective: [110], [118], [123]-[124]. Andar Transport Pty Limited v Brambles Limited (2004) 217 CLR 424 distinguished. Sperry Rand Australia Limited v Arrandale Properties Pty Limited [1979] VR 409; McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 referred to.

In the contract under consideration, punctuality is satisfied where the person who is entitled to the benefit of the original obligation accepts the actual payment as constituting punctual payment. It is not necessary to find evidence of variation of a date for payment: [126], [129], [359].

There is no evidence that the fourth payment was accepted by Oceania as punctual: [130].

A condition requiring punctual payment is intended to operate from time to time as the payment obligations arise and it is not sufficient that all payments have been made by the time the question of fulfilment of the condition arises. The meaning of a particular condition must be understood within its own contractual context. Compliance is a question of fact which must be separately determined in each case. The conditions as originally agreed may be varied by later agreement between the parties: [242]. MacDonald v Robins (1954) 90 CLR 515; Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122; Finch v Underwood (1876) 2 Ch D 310; Leeds & Hanley Theatre of Varieties v Broadbent [1898] 1 Ch 343; Sperry Rand Australia Ltd v Arrandale Properties Pty Ltd [1979] VR 409, considered.

The interlocking agreements should, so far as possible, be read together so that cl 5 of the loan agreement operated consistently with cl 2 of the indemnity agreement: [259]. The obligation to repay the outstanding balance of the principal was conditioned on the lender opting to require repayment for default: [260].

In relation to the first and second loan agreements, the letter of 2 June 1999 should be understood as an extension of the time for due and punctual payment: [261], [264]. It amounts to an undertaking that the lender would not exercise any right under cl 5.1(a) or (b) to call up the outstanding amount under the loan for failure to make due and punctual payments: [263], [361]-[362], [365], [371], [376].

(per Basten JA, Spigelman CJ agreeing, Handley AJA not deciding)

The evidence relied on by the Appellant does not establish that the projects were terminated as a result of any conduct engaged in by Oceania in breach of its obligation to act in the best interests of the investors. Accordingly, other issues relating to this basis of defence and cross-claim need not be addressed: [135], [278].

C. Misleading and deceptive conduct: Representations by Mr Lloyd

Save with respect to the fourth payment, it is strictly unnecessary to determine the Appellant's cross-claims. However, given the resources already expended by the parties and the fact that this is a test case for a significant number of other investors, it is not appropriate to remit these issues for redetermination: [131]-[132].

As the Appellant succeeds on the contractual construction points, the representations by Mr Lloyd need not be addressed: [279].

(a) The Appellant's estoppel and misleading and deceptive conduct case against A&R Finance with respect to Project 1 & Project 2

The trial judge's findings that the first representations were made cannot be disturbed, based as they must have been, at least in part, on the judge's assessment of the appellant's demeanour: [136], [388].

The trial judge's decision that Mr Lloyd, who made the first representation, had no authority to make that representation on behalf of A&R Finance should not be disturbed. Therefore A&R Finance cannot be held liable for the representations with respect to Project 1: [136], [397].

A finding that the second representation did occur is appropriate, although no finding was made by the trial judge: [136], [399].

Mr Lloyd had no authority to bind ARF during the telephone conversation that constituted the second representation. Therefore A&R Finance cannot be held liable for the representations with respect to Project 1 or Project 2: [136], [400].

(b) The Appellant's misleading and deceptive conduct case against Oceania with respect to Project 1

The trial judge's findings that the Appellant did not rely on the representations cannot be disturbed: [136], [412], [416]. Rosenberg v Percival (2001) 205 CLR 434; Global Sportsmen Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 applied.

(c) The Appellant's misleading and deceptive conduct case against Oceania with respect to Project 2

It should be assumed that the further representations allegedly made in May 1998 were made: [136], [413].

However, given the finding that the Appellant did not rely on Mr Lloyd's opinion when investing in Project 1 it is not possible to find reliance when investing in Project 2: [136], [415], [416]

The trial judge's dismissal of the first prospectus case on the basis that the Appellant did not read or rely on the supplementary prospectus cannot be supported. This Court must consider the issue for itself. In determining questions of reliance an appellate court has regard to the direct evidence of the investor, the findings of the trial judge, and the probabilities based on the circumstantial evidence: [234], [453]. Siqueira v Noronha [1934] AC 332 cited.

Claims of reliance on financial representations by investors in such contexts should not be given much weight. The hindsight bias of an investor who has made a loss in a tax driven scheme is such that disbelief rather than mere scepticism is generally the appropriate response: [140].

The element of the Appellant's first prospectus case reliant on the repayment understanding fails for lack of proof: [137], [440].

Of the additional elements of the Appellant's first prospectus case only the alleged funds subscribed representation remains relevant. This aspect of the case, assuming that it had been proved, fails for lack of reliance: [138], [446], [455], [465], [471], [742], [475], [477].

On the evidence, the probabilities are that the Appellant's decision to invest in both Projects was based on tax benefits, the loans, the indemnities and the commercial prospects of tea tree oil. The Court should not infer that the disclosure of the A&R Finance funding arrangements would have affected the Appellant's decision to invest: [138], [474], [477]. Cackett v Keswick [1902] 2 Ch 456 cited.

The representations in the first prospectus which are claimed to be misleading or deceptive fell into two categories. The first concerned the liabilities of Oceania as at the date of issue of the prospectus; the second concerned the use of funds provided by the investors to Oceania: [286].

There was an understanding between GCC, Endwise and Oceania that Oceania would meet the loan expenses and repayments incurred by GCC in relation to the overdraft facility with the Commonwealth Development Bank. The denial in the first prospectus that Oceania had any undisclosed liabilities was false and misleading: [297].

The fact that the funds paid by the investors were on-lent to A&R Finance or Mr Cassegrain in a "round-robin" arrangement rendered the statements in the prospectus regarding the use of the licence and management fees false and misleading: [305].

In order to claim relief under s 1005 of the Corporations Law, the Appellant needed to establish that A&R Finance was a "person involved in" the contravention of the Corporations Law, that he suffered "loss or damage" and that his loss was suffered "by" the contravention: [309]-[310].

As A&R Finance was knowingly concerned in the conduct involving false and misleading representations, it can be said to have been "involved in" the contravention for the purposes of s 1005(1) of the Corporations Law: [309].

The trial judge's finding that the Appellant did not read or rely on the supplementary prospectus of 6 August 1997 was an incorrect finding on the evidence: [319].

The relevant causal connection is between the misrepresentation and the decision to make the investment. As the Appellant succeeded in the construction of the loan agreements associated with Project No. 1, namely the first three loans, his liability is limited to loan contract 4. Thus, it is the causal connection between the relevant misrepresentations and the decision to invest in Project No. 2, pursuant to the second prospectus, with which the court is concerned: [322].

The tentative view is expressed that A&R Finance could not defend itself against the cross-claim on the basis that it was not responsible for the misrepresentations in the first prospectus, because the prospectus was materially misleading in relation to the financing arrangements, to which A&R Finance was a party: [343].

However, there was an intervening cause of the Appellant's loss, being his failure to comply with the preconditions to the operation of the indemnity. This failure was not linked to his reliance on the first prospectus. Therefore, the Appellant may not have been entitled to the relief sought on the basis of any false or misleading statements in the first prospectus: [345].

The failure of the Appellant's first prospectus case means that his second prospectus case based on the deficiencies of the first prospectus must also fail: [138], [486].

Of the additional elements of the second prospectus case relating to the payments by OAL to GCC, those claims that relate to investments made before evidence of those payments must fail: [490].

Of the additional elements of the second prospectus case relating to the falsification of statements about OAL's non-current liability to GCC, the relevant information was available to the Appellant and it has not been established he relied upon it when making the decision to invest in Project 2: [138], [495].

It may be that if the Appellant had read the second prospectus and September 1998 accounts with greater care he would have been aware that the funds received by Oceania were made available to A&R Finance to permit further loans to investors. However, such carelessness does not demonstrate the falsity of his assertion that he placed reliance upon the misleading statements in the first prospectus in deciding to invest in Project No. 1: [138], [333]-[335]. There is insufficient evidence to establish the positive inference that the Appellant relied on the misleading statements. However, as he succeeds in relation to the first three loan contracts, and fails on the fourth on the prospectus claims for other reasons, the matter need not be pursued: [138], [336].

Although there was no express statement about the financing arrangements in the second prospectus, the accountants' report would place an interested and informed reader on notice that the viability of both A&R Finance and Oceania would be in doubt in the event of termination of the project: [326].

There is no error in the primary judge's conclusion that the Appellant failed to demonstrate that his decision to invest in Project No. 2 was materially affected by any false or misleading statement in the second prospectus: [327].

The requirement that the loss be suffered "by" the misleading or deceptive conduct encompasses both a connection between the representation and the plaintiff's conduct and a connection between the representation and the loss suffered: [329].

The representation need not be the sole or even the dominant cause of the plaintiff's conduct, but may be one of a number of factors inducing a decision that produces loss: [330]. The fact that a plaintiff has acted carelessly or unreasonably will not preclude recovery: [331]. Henville v Walker (2001) 206 CLR 459; Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229; Sykes v Reserve Bank of Australia (1998) 88 FCR 51, applied.

The misrepresentation need not be the sole cause of the loss, as long as the breach materially contributed to the loss: [337]-[340]. Henville v Walker (2001) 206 CLR 459; Travel Compensation Fund v Tambree (2005) 224 CLR 627, applied.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40232/06 SC 50063/03

SPIGELMAN CJ BASTEN JA HANDLEY AJA

6 September 2007 GARDINER v AGRICULTURAL AND RURAL FINANCE PTY LTD & ANOR Judgment 1 SPIGELMAN CJ: The facts, issues and submissions are set out in the judgment of Basten JA which I have read in draft. I wish to express my own reasons on the issues of contractual interpretation that arise. 2 The relevant provisions of the contractual documentation are set out by Basten JA. However, it is convenient, in order to understand my reasons, to repeat particular provisions. 3 The Loan Agreement provides: "7 The Lender acknowledges and agrees that the Borrower shall have no liability to repay any part of the Principal Sum outstanding or any interest thereon if the indemnity granted under the Indemnity Agreement as defined in the Project Deed is effective and enforceable in accordance with Clause 2 of the Indemnity Agreement." 4 It is pertinent to note the reinforcement of cl 7 of the Loan Agreement by cl 4 of the Indemnity Agreement, which provides: "4 The Lender agrees and acknowledges that the Borrower may rely upon the Indemnity set forth herein and that notwithstanding any failure on the part of the Indemnifier to punctually perform any covenant or obligation contained herein the Lender shall not have recourse to the Borrower if the Indemnity herein contained is effective and enforceable in accordance with the terms of Clause 2." 5 Clause 2 of the Indemnity Agreement provides: "The Indemnity referred to in Clause 1 shall be effective and enforceable if: (a) the Borrower has punctually paid the interest payable pursuant to Clauses 3.2 and 3.3(a) of the Loan Agreement; and (b) the Borrower has punctually paid the reductions of the Principal Sum set forth in Clause 4.1 of the Loan Agreement; and (c) the Borrower is not otherwise in default of any covenant or obligation contained in the Loan Agreement (save and except for any covenant or obligation to repay principal and interest which is subject to the Indemnity) or the Licence and Management Agreement; and (d) the Borrower has ceased to carry on the Business as a result of: (i) any event described in Clause 31(a) of the Licence and Management Agreement; or (ii) any decision of the Manager and the Trustee to terminate the Project pursuant to the Project Deed where that decision was made as a result of any event described in Clause 31(a) of the Licence and Management Agreement; or (iii) any resolution of Farmers to terminate the Project pursuant to the Project Deed where that resolution was as a result of any event described in Clause 31(a) of the Licence and Management Agreement or …" 6 Clause 31 of the Licence and Management Agreement which is entitled "Force Majeure" provides: "31(a) The Farmer, the Licensor, the Manager and the Trustee are excused from performance of any of their respective duties and obligations under this agreement whenever and to the extent that such performance is prevented or interrupted or delayed by reason of any action or requirement of any government authority or by any wars, public disorders, acts of enemies, sabotage, strikes, lockouts, labour or employment difficulties, accidents, breakdowns, fires, storms, tempests, hail, wind or events of nature or acts of God or any other causes beyond the control of the Farmer, the Manager, the Licensor or Trustee (as the case may be), but the Farmer, the Licensor, the Manager and the Trustee must at all times use all commercially reasonable endeavours to overcome or alleviate the effect of any such events as specified above."

Contractual Interpretation 7 The general approach to the interpretation of commercial contracts applicable in the common law of Australia has been stated in a number of recent judgments of the High Court. (See McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at [22]; Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181 at [11]; Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at 461-462; Toll (FGCR) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179; Wilkie v Gordian Runnoff Ltd (2005) 221 CLR 522 at [15].) 8 The most recent general statement is that of the joint judgment in Alphapharm at 179 where the Court said: "[40] … The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." 9 The contemporary approach to contractual interpretation was succinctly stated by Gleeson CJ in McCann v Switzerland Insurance supra at [22]: " … [A] commercial contract … should be given a business like interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure." 10 This passage was expressly adopted by the joint judgment in Wilkie v Gordian Runoff supra at [15]. 11 In a number of joint judgments the High Court has adopted an approach to statutory interpretation which requires attention to the broader context of the words in issue in the first instance, not only after some kind of "ambiguity" has been identified. (See, e.g. CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 335 at [69] and Network Ten Pty Limited v TCN Channel Nine Pty Limited (2004) 218 CLR 273 at 280-281.) There is nothing new about this approach. (See e.g. R v Wilson; Ex parte Kisch (1934) 52 CLR 234 at 244.) However, its application in recent cases was based on a judgment of Mason J in K & S Lake City Freighters Pty Limited v Gordon & Gotch Limited (1985) 157 CLR 309 at 315. 12 It has been suggested that Mason J adopted a different approach to the task of contractual interpretation by requiring the identification of ambiguity in the first instance. (See Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 348.) I have, however, expressed the view that his Honour did not intend to confine the approach to contractual interpretation in that way but that his reference in Codelfa at 348 to the proposition that language may not only be "ambiguous" but also "susceptible of more than one meaning" invoked a concept of "ambiguity" extending to any situation in which the scope and applicability of the formulation was, for whatever reason, doubtful. (See South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 at [35].) 13 This approach is consistent with the subsequent authority in the High Court, particularly the passages to which I have referred in Pacific Carriers and in Alphapharm. In this respect I agree with the reasoning in the Federal Court at first instance in Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2005) 223 ALR 560 at [78]-[79] and on appeal in Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1 at [45]-[52], [98], [101] and [254]. In this respect also, contractual interpretation has been brought into alignment with statutory interpretation. (See Bowtell v Goldsborough Mort & Co Limited (1905) 3 CLR 444 at 456-457; Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 at 287-288; Repatriation Commission v Vietnam Veterans' Association of NSW Branch Inc (2000) 48 NSWLR 548 at [116].) 14 In Andar Transport Pty Limited v Brambles Limited (2004) 217 CLR 424, the joint judgment said: o There are "principles of construction applicable to contractual indemnities". [17] o "notwithstanding the differences in the operation of guarantees and indemnities, both are designed to satisfy a liability owed by someone other than the guarantor or indemnifier to a third person". [18] o the principles applicable to construing guarantees are "relevant to the construction of indemnity clauses". [18] o pursuant to Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 at 561, approved in Chan v Cresdon Pty Limited (1989) 168 CLR 242 at 256, "ambiguous contractual provisions should be construed in favour of the surety … A doubt as to the provision in a guarantee should therefore be resolved in favour of the surety". [17] o accordingly, the ambiguity in the indemnity should "be construed in favour of" the party providing the indemnity. [29] 15 The reasoning in Andar has been applied in subsequent cases. (See e.g. BI (Contracting) Pty Limited v AW Baulderstone Holdings Pty Limited [2007] NSWCA 173 at [25] & [92]; Ayoub v Euphoric Pty Limited [2004] NSWCA 457; 12 BPR 22, 735 at [41]; F D Normoyle Pty Limited v Transfield Pty Ltd (2005) 63 NSWLR 502 at 509-510, [47]; Colliers Jardine Pty Limited v Castle Mall Properties Pty Limited [2005] NSWCA 311 at [40]-[41]; National Roads and Motorists' Association v Whitlam [2007] NSWCA 81 at [66]-[69], [81]. 16 With respect, I do not think it is accurate to describe the reasoning in Andar at [19] as characterising the principle as "an aspect of the contra proferentem rule". (Rava v Logan Vines Pty Ltd [2007] NSWCA 62 at [51] per Campbell JA.) However, the High Court left open the possibility of following the approach in Mayer v Isaac (1840) 6 M&W 605 at 612; 151 Eng. Rep. 554 at 557 where the guarantor/indemnifier has in fact prepared the document. 17 Observations have been made to the effect that, in its application to indemnity clauses, the approach in Andar is not entirely consistent with the general approach to contractual interpretation suggested by the cases listed in [7] above. (See J W Carter and David Yates "Perspectives on Commercial Construction and the Canada SS Case" (2004) 20 J of Contract L 233 at 235-237; Daniel Gosewitch "Difficulties with Indemnities Between Business Entities" (2006) 34 ABLR 89 at 96; Nuncio D'Angelo "The Indemnity: It's All in the Drafting" (2007) 35 ABLR 93 at 96-102; James O'Donovan and John Phillips Modern Contract of Guarantee Thompson Law Book Co loose leaf service at [5.100].) 18 In this context the joint judgment in Andar at fn [34] referred to Halford v Price (1960) 105 CLR 23 at 30, 34, 40, 41 and Davis v Commissioner for Main Roads (1968) 117 CLR 529 at 534 where the High Court construed ambiguous provisions in, respectively, a professional indemnity policy of insurance and an indemnity contra proferentem the guarantor/indemnifier who prepared the document. 19 What this illustrates is that there is more than one principle involved in the task of contractual interpretation, which must be undertaken in accordance with the general approach identified above as applicable to commercial contracts. (See Coghlan v S. H. Lock (Aust) Ltd (1987) 8 NSWLR 88 at 92 F-G.) 20 I agree with the conclusion of Campbell JA in Rava v Logan Wines supra: "[56] … [T]he application of the principle for construction of guarantees and indemnities that was adopted by the High Court in Andar does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that is most favourable to the guarantor or indemnifier. Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction." 21 Where, as here, OAL drafted the indemnity it is not, in my opinion, entitled to the benefit of the approach adopted in Andar. Accordingly, an ambiguity will not necessarily be construed in its favour.

The Interpretation Issues 22 Four issues of interpretation arise in the present case.

(i) Whether the vacancy in the office of Trustee and its continuance for a period of 60 days was an event within cl 31(a).

(ii) Whether the failure to fill the vacancy was beyond the control of the Appellant.

(iii) Whether the Appellant ceased to carry on business "as a result" of the event identified in answer to (i) or did cessation occur, as the Respondents contend, as a result of the collapse in the market for tea tree oil.

(iv) Whether the indemnity was not effective by reason of a failure on the part of the Appellant to "punctually" make payments. 23 The judgment of Basten JA sets out the general structure and objects of the tea tree oil investment scheme which constitute the relevant surrounding circumstances. Of particular significance for the task of interpretation that arises in these proceedings is the closely interrelated nature of the documents. The issues in dispute arise as a matter of interpretation of the Indemnity Agreement, which in turn refers to the Loan Agreement, which in turn refers to the Licence and Management Agreement and all three Agreements refer to the Project Deed for the investment. 24 As Basten JA shows, the relevant triggering event was the vacancy in the position of Trustee. The relevant surrounding circumstances extend to the role of the Trustee in the project. That is, in turn, determined by the detailed regulatory scheme found in the Corporations Law at the relevant time, which reflects a long period of development in Australian legislation for the regulation of investment in what were called, at the time, prescribed interests. Many of the detailed provisions of the interrelated agreements reflect requirements under the Corporations Law including, perhaps most materially, the requirement for an independent Trustee with defined rights and obligations. For these reasons the task of interpretation before the Court must commence with an understanding of the Corporations Law requirements.

The Regulatory Scheme 25 The principal provisions designed to protect investors are found in Div 5 of Pt 7.12 of the Corporations Law ("the Law") entitled "Prescribed Interests". Further provision is found in the Corporations Regulations ("the Regulations") relevant to Pt 7.12. Finally, there are a number of Policy Statements issued by the then regulatory authority, the Australian Securities Commission ("the ASC"), which built on a long course of practice by it and its predecessor regulatory authorities. These Policy Statements were: PS 23 Approval of Deeds Relating to Prescribed Interests; PS 55 Covenants in Deeds; PS 82 Covenants in Deeds: Non-Mining Primary Production Schemes; PS 89 Trustees and Representatives - Approvals for Prescribed Interest Schemes and PS 90 Related Party Trustee Approvals. 26 The particularly relevant features of this regulatory scheme, with which the documentation in issue in the present proceedings had to comply, were as follows: * No issue, offer or invitation to purchase a prescribed interest can be made other than pursuant to an approved deed (s1065 of the Law). * Approval of a deed requires application to the regulatory authority, the ASC (s1066 of the Law and reg 7.12.01 of the Regulations). * The ASC issues an approval for a person to act as a Trustee or representative for the purposes of a particular deed (s1067 of the Law). * A deed must contain a range of specific covenants (s1069 of the Law, as extended pursuant to s1069(1)(n) by reg 7.12.15). * Particular covenants are prescribed with respect to the obligations of a trustee (s1069(1) of the Law and reg 7.12.15(2) of the Regulations, reflected in cl 34 of the Project Deed). * The overriding obligation of a trustee is to exercise due diligence and vigilance in carrying out its functions and duties and protecting the rights and interests of the holders of prescribed interests (s1069(1)(e)(i)) of the Law, reflected in cl 34.1 of the Project Deed). * An approved deed must also contain a covenant that the Trustee will retire from office at the request of the management company if, relevantly, the Trustee is placed in liquidation or where a receiver is appointed and not removed within 30 days. (Regulation 7.12(2)(e) and 7.12.15(8), reflected in cl 37.1 of the Project Deed.) * ASC PS 89 contains detailed provisions outlining the criteria which the ASC applies when deciding whether to approve a person to act as a Trustee in relation to a deed. These include requirements as to an applicant's character, its ability and resources to perform its functions and to satisfying the ASC that the Trustee and its officers will act independently of the management company and establishing appropriate standards of accountability (see ASC PS 89 cll 35 - 95). * ASC PS 89 also makes provision for "fast track approvals" with respect to the appointment of a Trustee for a particular deed, but only in the case of applicants who had been accepted for entry into the fast track approval procedure (ASC PS 89 cll 12-16 and 110-111). 27 The role of the trustee in a prescribed interest scheme was a fundamental feature of the regulatory scheme. That role has been described as a "safeguard" (Parkes Management Ltd v Perpetual Trustee Co Ltd (1977) 3 ACLR 303 at 310) and as a "watchdog" (Global Funds Management (NSW) v Rooney (1994) 36 NSWLR 122 at 133). Doubts about the efficacy of the performance of this role has led to statutory change, so that managed investment schemes now have a "single responsible entity", reflected in Ch 5C of the Corporations Act 2001 (Cth). However, at the time relevant to the issues in these proceedings, the role of a trustee as a fundamental protection for investors was clearly a central feature of the scheme, reinforced by a detailed regulatory process for determining which corporations would be permitted to assume the role. 28 Perhaps most relevantly, the retirement of a trustee upon the appointment of a liquidator or a receiver was, as I have noted, an express requirement of the Regulations. 29 It is clear from this analysis that the existence of a trustee is of fundamental significance to the regulatory scheme. This is reinforced by the regulation of those who are permitted to become trustee in accordance with ASC PS 89. As I have noted, that Policy Statement also makes provision for "fast track approvals", but only in the case of persons who had already been accepted for entry into this particular approval procedure. Such prior approval could be of particular significance in the case of a liquidation or receivership where expedition is required. 30 It is also pertinent to note that nothing in the regulatory scheme impinges on the relevant aspects of the Loan Agreement or of the Indemnity Agreement, which fall to be interpreted in the present proceedings. 31 Section 1069(3) of the Law provided that the ASC could declare that, subject to specified terms and conditions, a particular deed need not contain specific covenants. The Project Deeds under consideration in the present proceedings notably omit one of the significant covenants, together with the detailed provisions made for its enforcement, namely the buy-back covenant. As required by s1069(1)(c) of the Law, such a covenant bound the management company to buy the prescribed interest from an investor. This covenant was a significant protection for investors. 32 ASC PS 55 outlined, in considerable detail, the way the ASC would approach applications for modifications of the required covenants in deeds. Most relevantly, however, ASC PS 82 made specific provision with respect to Primary Produce Production Schemes of the character under consideration in the present proceedings. With respect to such schemes alone, the ASC indicated that it would grant an exemption from the buy-back requirements. In this regard the ASC noted that the taxation benefits available for such schemes had the result that, in effect, there was no secondary market for such interests. ASC PS 82 indicated the concern that the ASC had about granting this exemption and set out detailed conditions before it would do so. 33 Certain aspects of the structure of the scheme presently under consideration, and of the disclosures in the Prospectus, were required as a condition for exempting the scheme from the buy-back requirement. In particular cl 29 of PS 82 provides: "29 Accordingly, the ASC will grant relief to schemes only if: (a) the business of the scheme is non-mining primary production; (b) the management company is responsible for ensuring that the primary production services required in relation to the scheme are performed; (c) investors are led to expect tax benefits because some or all subscription moneys from entering into the scheme are deductible and there are grounds to believe the deductions will be allowed; and (d) each prospectus contains a prominent statement advising potential investors that: (i) investments in the scheme should be viewed as being made for a fixed and specified term; (ii) interests in the scheme are likely to be illiquid because it is unlikely there will be a secondary market; and (iii) investors have no right to require their interests to be brought by the management company or any other person or to have their interests redeemed." 34 As is apparent, the regulatory scheme for the particular kind of investment in issue in these proceedings, recognised the critical role of the taxation regime in such a scheme.

The Taxation Regime 35 The taxation advantages associated with expenditure on primary production which, in other areas of investment, would be treated as expenditure on capital account rather than on income account, is one of the most important characteristics of primary production schemes. This constitutes an important surrounding circumstance for the task of contractual interpretation. 36 A careful consideration of the Prospectus for each project, which are in relevantly identical terms, manifests the centrality of the taxation treatment associated with this investment. 37 First, the very characterisation of each investor as a "Farmer" with a licence over a particular allotment of land, described as a "Farm", on which a certain number of tea trees will be planted, is itself a manifestation of the necessity for the person incurring the expenditure, to be personally characterised as a primary producer for purposes of the income tax legislation. The terminology of "farms", "licences", "licence agreements", "allotments of land" turns on the necessity to give the investor this particular status. 38 On the very first page of the Prospectus there is a statement required, as I have pointed out above, by the ASC in order to grant exemption from the buy back requirements of the Law, that: "Interests in the Project are likely to be illiquid as it is unlikely that a secondary market will exist for the securities offered by this Prospectus." 39 As I have said, this consequence arises from the fact that the taxation benefits were of such significance that sale of the investment in a manner capable of creating a secondary market was not regarded as feasible. It is for this principal reason that, in the case only of tax driven primary production schemes, the ASC was prepared to grant an exemption from the buy back requirement in accordance with ASC PS 82 as outlined above. 40 On the second page of the Prospectus, in the letter from the Manager, the following appears: "Under present legislation taxation deductions are available to Farmers carrying on the business of primary production for profit. Such deductions should be available to investors in this Project (see the Taxation Opinion from Arthur Anderson in Section 6)." 41 As Basten JA indicates, for an investor on the maximum marginal rate the flow of funds is such that, setting aside timing considerations, an investor has a small positive cash flow from making the investment. In this computation the tax deductibility of the original investment is the crucial component. There may be an upside from sales but, at least for borrowing investors who can rely on the indemnity, the downside is minimal, if any at all. 42 The taxation status of the scheme is set out at length in the Opinion from Arthur Andersen, annexed to the Prospectus. The Opinion refers to all of the basic documentation including the Project Deed, the Licence and Management Agreement, the Loan Agreement and the Indemnity Agreement. 43 The Opinion summarised the Loan Agreement, relevantly, as follows: "This Agreement is optional and allows a Farmer to borrow $22,750 for each Allotment from the Lender for the purpose of assisting the Farmer to pay the initial management fees due under the Licence and Management Agreement. In addition, the Lender is to advance a further $1,854 per Allotment on 30 June 1998 (subject to compliance with the loan agreement) to pay the Licence and Management Fees for the year ending 30 June 1999. The Farmer will be obliged to reduce the principal by the sum of $8,750 by: (i) 31 October 1997; or (ii) three (3) months after execution of the Loan Agreement (if entered into after 31 October 1997). Upon execution of the Agreement, the Farmer is obliged to pre-pay the first year's interest on the Principal at the rate of 8.5% per annum (ie $1,438). On or before 30 June 1998, the Farmer is also obliged to pre-pay the second year's interest on the Principal at the rate of 8.5% per annum (ie $1,348)." 44 With respect to the Indemnity Agreement, the Arthur Andersen Opinion stated: "The indemnity is only relevant and enforceable in the event that the Project is terminated due to: (i) 'Force Majeure'; or (ii) The effluxion of time and the Farmer has complied with the terms of the Licence and Management Agreement and the Loan Agreement and in particular the provisions relating to principal reductions and interest payments referrable to the first two years as set out above." 45 The Arthur Andersen Opinion summarised the position as follows: "Provided the horticultural activities are conducted in the manner described in the Licence and Management Agreement and the Project Deed, it is our view that: * Each Farmer will be carrying on a business of horticulture in respect of their Allotment(s); * A tax deduction is available pursuant to Section 51(1) of the Act in respect of expenditure incurred by each Farmer on licensing the Allotment and planting, supervision and maintenance of the trees; * The Farmer will be entitled to a deduction in the year the expenditure is incurred, being the year that the Farmer executes the Licence and Management Agreement and the outgoing of $23,850 (comprising $23,750 management fee and $100 licence fee) per Allotment is made. Where the Licence and Management Agreement is executed prior to 30 June 1997 and payment of $23,850 per Allotment is made prior to that date, the Farmer will be entitled to a deduction of $23,850 in the year ended 30 June 1997. Where the execution of the agreement and payment occurs during the year ended 30 June 1998 the deduction will be available in the year ended 30 June 1998; * The Farmer will also be entitled to a deduction for $1,854 in the year ended 30 June 1998 for the Licence and Management Fees for the year ended 30 June 1999 which are prepaid on 30 June 1998 from the further advance by the lender. * The Farmer will be entitled to an allowable deduction in the year of income ended 30 June 1997 of 1/365 of 13% of the cost of the germinated tea tree seeds, 13% of the costs of the germinated tea tree seeds for each of the next seven (7) years and the balance in the following year; * Interest charges incurred by a Farmer on funds borrowed to pay the amounts due under the Licence and Management Agreement will be tax deductible to the borrower pursuant to Section 51(1) of the Act in the year in which the interest expenditure is incurred; * The Farmer who enters into the Indemnity Agreement will be entitled to a deduction of 1/365 of 20% of the indemnity fee, 20% thereof in the next four years and the balance in the following year; * A Farmer can take the above tax deductions into account in determining whether to vary the Farmer's quarterly instalments of 1998 provisional tax; * Pursuant to Section 25(1) of the Act proceeds from selling the tea tree oil in respect of each Allotment will be assessable income to the Farmer in the year that these proceeds are derived; * Any payment by the Indemnifier to the lender under the Indemnity Agreement is likely to be assessable income in the form of a constructive receipt by the Farmer; * Where a Farmer's application money is refunded and the Licence and Management Agreement is not executed the Farmer has not incurred the expenditure and no tax deduction is available to the Farmer; * Pursuant to the terms of the Project Deed an amount refunded to a Farmer may include interest. In these circumstances the interest refunded, less any interest charges incurred by the Farmer on funds borrowed will be assessable income of the Farmer in the year in which the refund is made." 46 The Arthur Andersen Opinion went on to outline the circumstances, in accordance with Taxation Rulings, in which expenditure would be regarded as deductible for primary production and concluded: "We have reviewed the above rulings and in our view, provided the activities carried out by the Farmer are in accordance with the Licence and Management Agreement, each Farmer will be carrying on the business of horticulture in respect of their Allotment. This is on the basis that: * The requirements of the Licence and Management Agreement establish that the Project is carried out with a significant commercial purpose, and on a large scale; * The commercial nature of the project is also supported by the appointment by the Farmers of a professional manager with appropriate qualifications and experience to manage their horticultural operations. The ongoing duties and obligations that are contractually imposed upon the Manager over the life of the plantation provide clear indication of the repetitive nature of the activities and the organised business-like manner in which those activities are carried on; * Each Farmer has an interest in an identifiable area of land upon execution of the Licence and Management Agreement; * The Agricultural Report contained in the Prospectus confirms that: (i) the horticultural operations carried on by each Farmer are comparable to ordinary horticultural operations, (ii) subject to the normal risks associated with horticultural operations, the Project is expected to be commercially viable. * Farmers (both individually and collectively) maintain control over operations carried out on their land through the rights and powers contained in the Licence and Management Agreement and the Project Deed." 47 The Arthur Andersen Opinion went on to deal with other aspects of the taxation treatment of other elements of the scheme. 48 Furthermore, the Opinion noted: "In the event the Indemnity Agreement becomes operative for the reasons set out therein, a question may arise as to whether any tax consequences would arise for the relevant Farmer. In our view, no consequences would arise under the Commercial Debt Forgiveness legislation for the reason that the debt would be extinguished by the Indemnifier agreeing to pay the Lender any relevant principal balance and such a transaction is not within those provisions." 49 As is apparent from this observation, the structure of the scheme which interposes an Indemnifier between the Borrower and the Lender, was required by reason of this legislation. 50 With reference to the general anti-avoidance provisions of the taxation legislation the Opinion noted: "Based on the financial projections prepared by the Manager, it is our opinion that it could not be concluded objectively that a Farmer was entering the Project for the dominant purpose of obtaining a tax benefit. In particular, it could not be concluded objectively that a Farmer would have an expectation that the performance of the Project would be such that the provisions of Indemnity Agreement would be triggered. Rather it could reasonably be expected that a Farmer will repay in full the loan from the proceeds of the Project." 51 There can be no doubt that the tax treatment, particularly the deductibility of the key items of expenditure, was an essential feature of the scheme.

The Relevant "Event" 52 The first issue of interpretation that arises is whether the vacancy in the office of trustee is an "event" for purposes of s2(d)(i) of the Indemnity Agreement. This turns only on whether or not the vacancy in the office of trustee falls within the words "any other causes beyond the control of", relevantly, the Appellant. 53 I agree with Basten JA that the distinction which appealed to Young CJ in Eq between an "event" and a "cause" is unattractive. Something that is otherwise characterised as a "cause" can also be described as an "event". 54 The effect of a vacancy in this office as a relevant event is twofold. First, it excuses each of the parties, beyond whose control the vacancy can be found to be, from performance of their duties and obligations by force of the Force Majeure clause itself. This is not, however, the relevant application of the "event". This case is concerned with the manner in which cl 2 of the Indemnity Agreement picks up such part of cl 31(a) of the Licence and Management Agreement as describes "any event". 55 The case law on force majeure clauses is not directly applicable because the cases involve the court applying the whole of the clause, not just the words identifying the triggering 'events', to use the language of the Indemnity Agreement. 56 The use of the word "other" in the phrase "any other causes beyond the control of the Farmer etc" does not, in my opinion, gives rise to the application of the ejusdem generis principle. There are well known limitations on the utility of the ejusdem generis principle, not least in commercial contracts. (See e.g. Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 at 244-247.) I do not find it helpful to attempt to characterise the list of matters in cl 31(a). It is neither profitable nor, in my opinion, possible, to identify a "genus" of any kind in the list in cl 31(a). This is a case in which the general provision, namely "any other cause beyond the control of the" party, indicates the genus to which the identified matters belong. (See Ambatielos v Anton Jurgens Margarine Works [1923] AC 175 at 185-186; Crowe v Graham (1968) 121 CLR 375 at 388). 57 Accordingly, rather than reading down the words "any other causes beyond the control of" the party by reference to the preceding list of matters, it is the matters in the list which will be read down by reason of the general characterisation. Such events as "labour or employment difficulties" and "accidents" will only be relevant if they can be said to be "beyond the control of" the relevant party. 58 The position of the Trustee is, as my above analysis of the regulatory scheme shows, and the Project Deed confirms, an essential aspect of the entire project. The particular clause which created the vacancy was, as I have indicated above, an express requirement of the Regulations. 59 A vacancy in the office of Trustee is, from the point of view of a party not able to "control" the situation, as powerful as the most severe of the "external" events specifically listed in cl 31(a). Indeed, unlike some of those "events", no question of fact and degree arises. The project cannot continue where there is a vacancy in this office for more than 60 days. It terminates by force of cl 46.4 of the Project Deed. 60 Counsel for the Second Respondent submitted that the case was not run at first instance on the basis that the mere vacancy in the office was the relevant event. It was conducted on the basis that the conduct of the Respondents which resulted in the vacancy was the relevant event. However, it was not suggested that the evidence or the defendants' case would have been any different at trial. 61 The Appellant's case focused on the First Respondent's request under cl 37.1 of the Project Deed that the Trustee retire. Retirement was required upon receipt of the request and the vacancy was thereby created. Although his primary submission was that the relevant event was termination as a result of the conduct of OAL, the Appellant did consider the alternative of termination as a result of the vacancy. He submitted that Young CJ in Eq erred when he concluded that the vacancy for more than 60 days was not beyond the control of the Appellant. 62 The Second Respondent submitted that Young CJ in Eq correctly determined that the relevant event was termination as a result of the vacancy. 63 The Respondents' submissions that this was not an "event described" in cl 31(a) of the Licence and Management Agreement for purposes of cl 2(d)(i) of the Indemnity Agreement should be rejected. I would also reject the submission of the Second Respondent that the vacancy is not "an event described" in cl 31(a) for the purposes of cl 2(d)(i) of the Indemnity Agreement. The words "beyond the control of" a party, constitute a 'description'. 64 The vacancy in the office of Trustee which led to termination under cl 46.4 is, in my opinion, the relevant event. His Honour's finding to that effect was correct.

Control of the Farmer 65 The second interpretation issue arises from the reference in cl 31(a) of the Licence and Management Agreement to the proposition that, the "event" must be a cause "beyond the control" of, relevantly the Farmer. The submissions in this Court on the part of the Respondents were to the effect that the Appellant could have taken steps to ensure the appointment of a new trustee. I proceed on the assumption that the Appellant bore the onus in this respect. 66 The way in which cl 31(a) of the Project Deed is picked up by cl 2(d) of the Indemnity Agreement has the effect that the words "beyond the control of" the Farmer are part of the description of an "event" for purposes of cl 2(d)(i) of the latter Agreement. 67 This was a publicly marketed investment scheme. The size of the investment required for each allotment was a comparatively small amount. No doubt it was expected that most investors would apply for more than one allotment. However, that was not a matter that impinges on the interpretation of a word such as "control". The contracts have to be interpreted on the basis of each individual investment with respect to each of which a borrowing, and therefore an indemnity, may apply. It was not, in my opinion, the intention that each investor, drawn from as wide a range as the Prospectus sought, was to be regarded as having the capacity to take steps to appoint a replacement Trustee. 68 The right to appoint that Trustee is expressly granted to the management company, and, indeed, pending such appointment, the manager may, with ASC approval, act as Trustee. (See Project Deed cl 37.1, set out by Basten JA.) 69 Provision is made in the Project Deed for meetings of Farmers at which a resolution can be passed giving "directions" to the Manager (cl 33.9) provided, relevantly, that the resolution "relates solely to the management of the Project" (cl 41.22). I assume that a resolution requiring the Manager to appoint an identified Trustee under cl 37.1 would have been effective. In any event the Farmers would have had a right to make an application under s92 of the Trustee Act 1925, for the appointment of a new Trustee. 70 These mechanisms are of little moment when, as is the case here, there is no express obligation upon the Manager to tell Farmers that it has made a retirement request under cl 37.1, or even that the Trustee has retired and the 60 day vacancy period has commenced. 71 There is nothing to suggest that it was contemplated that, after retirement of a trustee, the diverse group of investors, let alone any one investor, could take steps to appoint a replacement, let alone that that was a matter within their "control". The regulatory regime for prescribed interests which I have outlined above, was based on the need to protect investors who find it difficult to act collectively. 72 The "event" for purposes of cl 2(d)(i) constituted by the words "other cause beyond the control of the Farmer" in cl 31(a) refers to the Farmer as an individual. The word "Farmer" is defined in cl 1.1 of the Licence and Management Agreement to mean "the person described in Item 1 of the First Schedule". There is no room for the application of the general cl 1.2(b) provision that the singular includes the plural. The text does not envisage collective conduct by the whole body of Farmers for the purposes of cl 31(a). 73 Subject to the Respondents' submission that the phrase "beyond the control of" the Farmer should be given a narrow interpretation, the expiration of the period of 60 days without a new Trustee being appointed was, in my opinion, 'beyond the control' of the Appellant as an individual investor. 74 The Respondents place considerable emphasis on the proposition that the Australian Taxation Office ("ATO") would not have approved that deductibility of the critical expenditures under the scheme if, as a matter of substance, the loans could be classified as "non-recourse loans". They submit that the interpretation of the indemnity agreement for which the Appellant contends, which gives a wide meaning to "beyond the control", is such that the scheme would, in substance, become one involving a non-recourse loan. 75 The Respondents contend that if the arrangements were such that there was not a significant degree of commercial risk on the part of each individual Farmer, having in mind the overall structure of the scheme, then the investors would lose the tax deductibility of the expenditure. Accordingly, the proper interpretation of each of the provisions that falls to be interpreted in the present proceedings should be approached from the perspective that it was intended to operate in the way which preserved the tax deductibility of the payments. 76 Specifically, the First Respondent submits that it would be wrong to construe cl 31(a) as if it simply said "any cause beyond the control of the Borrower", because this would have had the effect of making the loans non-recourse. This was so, it was submitted, because the capacity of an individual Farmer to control activities and outcomes about the project was so limited that virtually everything was beyond the control of the individual investor. On this basis the First Respondent supported the interpretation of Young CJ in Eq, set out by Basten JA. 77 The First Respondent submits that tax benefits "would have been denied to the Farmers had their loans been effectively non-recourse because of the OAL indemnity operating in all circumstances beyond the control of the Farmers". Numerous references to the evidence were relied upon in support of this proposition. 78 Furthermore, the First Respondent contends that, if the loans were non-recourse, this would attract the general anti-avoidance provision in Pt IVA of the Income Tax Assessment Act 1936. For this proposition the submissions relied on the judgment of the Full Federal Court in Federal Commissioner of Taxation v Sleight (2004) 136 FCR 211. This judgment was, of course, delivered well after the relevant event. However, Pt IVA was a matter that required consideration and, indeed, was considered in the Arthur Andersen Opinion contained in the Prospectus. 79 The Second Respondent made submissions to similar effect. 80 The Respondents' submissions in this respect should, in my opinion, be rejected. A review of the evidence listed in par [11] of the First Respondent's Submission in Reply do not support the contention. Nor does the judgment in FCT v Sleight. Even if it is appropriate to characterise the loan as "non-recourse" by reason of the breadth of the indemnity, which I do not accept, this characterisation is only one matter taken into account by the ATO in the evidence relied upon and in the reasoning in FCT v Sleight. Nothing suggests that it was determinative. 81 The ATO required investors to undertake significant commercial risk. Nothing in the materials relied upon suggests that the ATO required an investor to be at risk of loss by personal repayment of loans. In any event, there was part payment here. The investors did make two interest payments and a principal payment. This expenditure was at risk and the arrangement was, at least to that degree, unable to be characterised as "non-recourse". 82 The "non-recourse" nature of a loan was one element in a multi-factorial analysis undertaken by the ATO. It was not the only commercial risk of concern to the ATO. 83 Similarly, the application of Pt IV in FCT v Sleight was directed to determining whether tax avoidance was the dominant purpose of the claimed deduction. This also involved a multi-factorial analysis in which an indemnity/loan arrangement of the kind presently under consideration was one factor but was not determinative. Indeed the reasons of the Court hardly mention it, let alone emphasise it. In any event, the decision was given several years after the investments in issue in these proceedings. 84 Amongst the documents said by the First Respondent to support its contention was the letter from the ATO to the Second Respondent which indicated that tax deductions would be permitted. This correspondence occurs after the investment was made but nevertheless indicates the kind of issues known to arise in this context. 85 The ATO stated, relevantly: "You are advised that the management fees are commercially based. It is noted that the participants pay the management fees by taking out a loan from Agricultural and Rural Finance Pty Ltd. The round robin arrangements, the indemnity and the borrowing by OAL from other sources to fund the activities are of some concern. However, in looking at the substance of the financial arrangements, it is possible to see that substantial real funds have been made available to the manager to undertake the necessary activities and the Participants bear some real financial risks. Accordingly, the evidence would appear to support the conclusion that the management fees are commercially based. To the extent that the management fees are not capital, our present view is that they will be allowable deductions." 86 The detailed submission made by the Second Respondent to the ATO, to which this letter was a reply, considered the guidance given by the ATO in the context of a published ruling with respect to an afforestation scheme. However, references to non-recourse loans in this ruling treated it as only one of a number of matters which the ATO would take into account in determining whether or not the investor was carrying on a business. 87 The ATO ruling, as set out in the Second Respondent's submission, dealt with the non-recourse funding as follows: "61 As stated in Taxation Ruling IT 195, the provision in the agreements for non-recourse financing of a part of an investor's expenditure and the investor's escape from further liability in the event of default by the investor or other parties to the agreements, does not mean of itself that an investor is not carrying on a business of afforestation. However, the situation may be different, for instance, where the payment of the lease and management fees by the investor is financed wholly, or in part, by a non-recourse loan effected by way of a round robin of cheques and the transactions are not real business transactions underpinned by genuine commercial considerations. 62 For example, where there is evidence that: (i) the management fee is inflated in comparison with fees charged in the market place for the provision of similar services: (ii) payment of the management fee is financed by a non-recourse loan effected by a round robin of cheques: (iii) the investor has no financial risk or the investor's risk is limited to initial cash contributions from the investor's own moneys: and (iv) payment of the management fee does not result in the manager being put in substantial or adequate cash funds to carry out the services specified under the management agreement: the arrangements, as a whole, will be examined closely to ascertain whether the investor is truly carrying on a business of afforestation or, alternatively, where a person, not necessarily the investor, has entered into the scheme, or a part of the scheme, for the dominant purpose of enabling the investor to obtain a tax benefit. In respect of arrangements with non-recourse loans and high cost structures that reflect above market fees and financing costs, the inference may be drawn that investors are trading off high costs for large up-front tax deductions. 63 Similar considerations apply where there is evidence of: (a) an intention by participants to exit the scheme once claimed tax deductions have been allowed or before income commences to flow to the investor; or (b) an intentional default by the investor/borrower or manager where, on default, the investor's/borrower's rights, title and interest under the lease and management agreements are to be transferred to the lender and, upon such transfer, the investor/borrower is absolutely and fully discharged of any and all liabilities under the loan agreement. In these circumstances, inferences may be drawn that the relevant expenditure was not incurred for a deductible purpose, ie., gaining or producing assessable income. The circumstances point to a purpose of gaining a tax deduction rather than the carrying on of a business or the purpose of producing assessable income. These inferences are more likely where the investor's expenditure has been financed by a non-recourse loan (cf. Ensign Tankers and Commissioner of Inland Revenue (NZ) v Challenge Corporation Ltd (1986) 10 TRNZ 161)." 88 In this regard the submission of the Second Respondent to the ATO was: "The loans provided by ARF are full recourse loans. There is an optional indemnity agreement offered by OAL to Farmers who borrow from ARF. This indemnity, for which an additional fee is incurred, is limited in its application to being effective only if: 1) The investor is not in default of the loan agreement or the L&M Agreement 2) The project is terminated and that termination is a result of force majeure or the effluxion of time. The effect of the indemnity is not the same as non-recourse finance (which is nevertheless a common form of finance) as Farmers are still exposed to business risk, and the risk of the indemnity is taken by the Manager (who is familiar with the risks involved in the business and who has commercial incentives to assume that risk) not the financier. The indemnifier takes a position not dissimilar to an insurance company. The indemnity, like a loss-of-profits insurance policy, covers only some of the risks of the business. It is not, for example, effective if the production of tea tree oil becomes unviable to the point where the project is terminated by virtue of Clause 46.2(ii) of the Project Deed which provides that the Manager and the Trustee can agree to terminate the project if any event occurs which has the effect of materially diminishing the amount available for distribution to Farmers. The indemnity would also be ineffective if the Farmer ceased to carry on the business as defined in the loan agreement without terminating the project, or if the Farmer was in default under the L&M Agreement or the loan agreement. There are genuine commercial considerations underlying the indemnity from both the perspective of the borrower (whose risk is mitigated but not eliminated by the indemnity) and the indemnifier (who earns an additional fee for granting the indemnity and who also benefits from profits generated by management fees which might not otherwise be earned and from a reduction in his average costs by achieving greater economies of scale as the number of farms in the project is increased). The loans to Farmers made by ARF are all funded in cash before they are made. The transactions are not 'round-robins', which are characterised by the need for the funds to return to the point of origin for the initial cheque to be honoured. There are no bills of exchange used in the transactions or any other contrived or artificial arrangements which would characterise the transactions as either a sham or 'round robin'. The transactions are underpinned by genuine commercial motives on the part of both the lender and the Manager, who deposits funds with the lender to assist the lender in funding part of future loans. Farmers are not a party to, or aware of, the arrangements between the lender and the Manager. The purpose of the transactions between the lender and the Manager are, in the case of the lender, to generate assessable profits by earning a margin between the cost of borrowing its funds and the interest charged to borrowers and in the case of the Manager, to achieve additional profits by increasing the management fees it earns, reducing its costs by achieving greater economies of scale as more farms are developed in the project, and to earn a good rate of interest on funds which are deposited with the lender. Farmers in the PMTTP are exposed to real business and financial risk. The effect of the indemnity mitigates, but does not remove some elements of that risk as explained above." 89 This documentation indicates that the non-recourse nature of a loan, if it be such, is only one of the matters to be assessed when determining the issue of deductibility. There is no suggestion in the evidence that the characterisation of the loan as non-recourse would be determinative. It can, of course, be accepted that such a characterisation would increase the risk of rejection of tax deductibility. 90 In this context it is pertinent to note that questions of fact and degree arise about the extent to which a loan can be said to be non-recourse by reason of the breadth of the circumstances in which the indemnity could operate. In its submission to the ATO, the Second Respondent characterised the relevant circumstances as twofold i.e. termination either as a result of Force Majeure or by the effluxion of time. There was no express consideration of the breadth of circumstances capable of answering the description "beyond the control of the" Farmers. Plainly, the ATO had the full text of cl 31(a) before it. 91 By reason of the dual role played by cl 31(a) it is relevant, as Basten JA shows, to consider how cl 31(a) would be interpreted. The case law to which his Honour refers indicates that it is not appropriate to simply ask whether something is "beyond the control of", relevantly, the Farmer and on that basis conclude that the clause must apply. 92 Nothing is more common in the task of interpreting any text, including contracts, than the reading down of general words. The context and circumstances of the case and the full range of matters referred to, for example, by Gleeson CJ in McCann v Switzerland Insurance as quoted above, need to be taken into account. Contractual interpretation does not simply involve the application of dictionary definitions. 93 Accordingly, changes in economic conditions, which significantly alter the commercial aspects of an arrangement, even though in one sense they are "beyond the control" of a party to a commercial agreement, may not fall within such a general phrase in a Force Majeure clause. Mere commercial impracticability may not be sufficient (see e.g. P J Van Der Zijden Wildhandel N.V. v Tucker & Cross Limited (1975) 2 Lloyd's Rep. 240 at 242; Hyundai Merchant Marine Co Limited v Dark Brook Coal (Sales) Pty Limited [2006] FCA 1324 at [60]-[62].) (In the latter case the issue may be seen to turn on the word "prevent", rather than on the phrase "beyond the control" of the party.) 94 In the present case, where the issue is simply one of characterising each of the matters listed in cl 31(a) as an "event", similar issues of purpose and context also arise in the task of interpretation of the words in the Indemnity Agreement, not in the Licence and Management Agreement. 95 Matters of fact and degree may arise in determining whether an event, whether listed in cl 31(a) (such as "accidents") or falling within the general provision, are "beyond the control" of a Farmer. This element of flexibility is such that the significance of tax benefits for the scheme does not suggest that the words "beyond the control of" a Farmer should be given a narrow interpretation. 96 It is not, in my opinion, correct to simply point to the generality of the words "any other cause beyond the control" of, relevantly, a Farmer and conclude that as a matter of substance the loans would be characterised as "non-recourse loans". The actual breadth of the terminology cannot be determined in the abstract so as to lead to a definite conclusion with respect to the application of the income tax legislation. The principles of contractual interpretation are such that it cannot be concluded that the words are so wide that the element of commercial risk removed by the indemnity was such that the deductibility of the expenditure was placed at significant risk. There was no expert or other evidence to that effect. Nor was there any such finding. 97 The Respondents' submissions should be rejected.

As a Result Of 98 The third issue of interpretation is whether the Appellant ceased to carry on business "as a result of" the vacancy in the office of the trustee. On the above analysis that vacancy was the immediate cause of the cessation of business. The issue that arises is whether or not the proper interpretation of the contract permits, or requires, a broader inquiry. 99 As the High Court said in a completely different context, namely the use of the word "by" in s82(1) of the Trade Practices Act 1974 (Cth): "The word clearly expresses the notion of causation without defining or elucidating it." ( Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 525.) 100 In a contractual context the objective is to identify the intention of the parties, rather than to apply a common law principle of causation, even the so-called "commonsense" concept of causation adopted in the context of tort law. In a contractual context the meaning of such words is to be determined in accordance with the reasonable person's understanding of the words in their context, in accordance with recent High Court authority, to which I have referred. Perhaps the equivalent principle, in a contractual context, to the "commonsense" approach to causation for tort is the proposition that commercial contracts of this character must be given a "business like" interpretation. (See e.g. McCann v Switzerland Insurance supra at [22] and Wilkie v Gordian Runnoff supra at [15].) 101 The terminology that falls to be construed is terminology designed to determine whether or not the promise by the Indemnifier under the Indemnity Agreement that that Agreement would protect the Borrower from any demand by the Lender for repayment was "effective and enforceable". 102 In my opinion, this context indicates that what is required is a direct and immediate cause, rather than identification of some ultimate or "real" cause. The latter process necessarily involves the prospect of disputation of a character inconsistent with one purpose of the Indemnity Agreement, namely to enable the parties to know whether the indemnity was "effective and enforceable". The factual inquiry that a search for a "real" cause may entail would undermine the certainty that such a contractual provision requires. 103 Furthermore, it is notable that in cl 2(d) the formulation "as a result of" is used in two ways. It appears first in the introductory words of the paragraph which are directly relevant to subpar 2(d)(i) in issue in these proceedings. However, it also appears, in addition, in the body of the text of each of the subpars 2(d)(ii) and (iii). 104 Where appearing in the introductory passage the words directly qualify the word the "event" in subpar 2(d)(i). This is also the way in which the words are used in the body of each of subpars 2(d)(ii) and (iii). However, in the case of the latter two subparagraphs, the introductory words do not qualify the word "event" but the words the "decision of the manager and the trustee to terminate the project" (in 2(d)(ii)) and the words "resolution of farmers to terminate the project" (in 2(d)(iii)). Accordingly, the formulation "as a result of" does not only qualify an "event", but also a "decision" and a "resolution". 105 It is, perhaps, much clearer that the concept of cessation of business "as a result of" a "decision" or "resolution" to "terminate the project" requires a direct and immediate link between, relevantly, the "decision" or the "resolution" and the cessation of business. However, the same words must be applied, relevantly for present purposes, in 2(d)(i) to an "event". Where, as here, the identical formulation performs this additional function it ought to be construed as carrying the same connotation, relevantly, of establishing a relationship of causation that is direct and immediate. 106 For these reasons, in my opinion, the proper interpretation of the clause leads to the link being established in this case because the Appellant did cease to carry on business as a result of the termination of the Project following the period of vacancy in the office of Trustee. No inquiry into some underlying or "real" reason for the failure of a new trustee to accept appointment is relevant. Neither the Respondent's reliance on the collapse in the price of tea tree oil, nor the Appellant's reliance on the adamantine intention of the First Respondent and its privies, allegedly in breach of their obligations, to terminate the projects, is, in my opinion, relevant. 107 In any event, as for the Respondents' contentions, I am not convinced that the evidence in the case is such that it is open to the Court to make a finding of fact as to why it was that no trustee was prepared to assume the burden of this particular appointment. The evidence is equivocal. 108 Obviously the commercial impracticality of the tea tree oil plantation could be the basis of an inference as to why trustees who were invited to apply failed to do so. However, there was also evidence suggesting that the existence of litigation about the particular schemes involved in the present proceedings was also a consideration. In my opinion, the evidence is not such as to enable the Court to determine what was the "real" reason for the vacancy, even if it were pertinent to do so. 109 In my opinion, this element of cl 2(d)(i) was satisfied.

Punctual Payment 110 As quoted above, each of pars 2(a) and 2(b) of the Indemnity Agreement state that the indemnity will be "effective and enforceable" if the Borrower has punctually paid, respectively, both of the first two interest payments and the first payment in reduction of principal. The use of the word "punctually" in contractual documentation usually requires a payment to have been made on the day provided in the contract and on no later day. (See Leeds & Hanley Theatre of Varieties v Broadbent (1898) 1 Ch 343 at 348-349.) However, the issue is one of interpretation which depends on the full context. (See Sperry Rand Australia Limited v Arrandale Properties Pty Limited [1979] VR 409 at 412-413.) 111 The Appellant contends that in the Indemnity Agreement the word "punctually" should be understood to mean not only a payment in accordance with the strict terms of the Agreement but also payment which has been accepted as punctual by the Lender, or that acceptance by the Lender can be treated as punctual payment. He further submitted that the issue of punctuality had to be determined as at the time of cessation of business when the Indemnity fell in and was to be determined by identifying what was regarded as a punctual payment at that time. 112 It has long been established that the process of interpretation of a text, including a contractual text, is not a process involving the application of dictionary definitions to the words. 113 As Justice Learned Hand once put it: "Of course it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable, source of interpreting the meaning of any writing; be it a statute, a contract, or anything else. But it is one of the surest indices of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." (See Cabell v Markham 148 F.2d 737, Comp.C.A. 2 (NY) at 739 (1945).) 114 Nevertheless, as Justice Frankfurter said: "While courts are no longer confined to the language, they are still confined by it. Violence must not be done to the words chosen." (See Felix Frankfurter "Some Reflections on the Reading of Statutes" (1947) 47 Columbia Law Review 527 at 543.) 115 Furthermore, as Mahoney JA said in Provincial Insurance Australia Pty Limited v Consolidated Wood Products Pty Limited (1991) 25 NSWLR 541 at 560: "The meaning of the words used in a statute or document is not merely the sum of the individual meanings of the words used, ascertained from dictionaries. To adapt the much cited comment of Holmes J, a word is the skin of a living thought, and it is the thought which the court must ascertain and apply." 116 Similarly, Mason P said in House of Peace Pty Limited v Bankstown City Council (2000) 48 NSWLR 498 at [28] that a dictionary: " … can illustrate usage and context, but can never enter the particular interpretative task confronting a person required to construe a particular document for a particular purpose." 117 The Lender is a party to the Indemnity Agreement and repeats, in cl 4 of that Agreement, its undertaking not to have recourse to the Borrower if the indemnity is effective and enforceable, an undertaking already contained in cl 7 of the Loan Agreement. However, cl 4 in the Indemnity Agreement extends the promise to circumstances in which the Indemnifier fails "to punctually perform" its obligations under the Indemnity Agreement. The relevant obligation is the obligation under cl 3 of that Agreement for the Indemnifier to pay to the Lender amounts outstanding under the Loan Agreement. 118 It is of particular significance that the Indemnifier under the Indemnity Agreement does not have a direct financial interest in the punctuality of the prior payments by the Borrower to the Lender. This is quite a different context to the usual case in which words requiring punctuality of payment must be interpreted. This unusual aspect of the context leads, in my opinion, to the word "punctually" losing its usual connotation of precision in timing. 119 There is force in the Appellant's contention that the commercial purpose of cl 2(a) and (b) operates in favour of the Lender, being a reinforcement of the Borrower's obligation to comply with the terms of the Loan Agreement. In this regard it is pertinent to note that the relevant provisions of the Loan Agreement do not contain words of strict compliance. Specifically, the word "punctually" does not appear in any of cll 3.2, 3.3(a) or 4.1, to which cl 2(a) and cl 2(b) of the Indemnity Agreement refer. The formulation in those clauses is: * "The Borrower agrees to pay upon execution of this Agreement the first year's interest." (cl 3.2) * "The Borrower will pay to the Lender on the date which is one year from the date of execution of this Agreement … interest for that second year in advance … ." (cl 3.3(a)) * "The Borrower will repay to the Lender the sum of … on or before the date which is three months after the date of execution of this Agreement" or by instalments as agreed over 12 months. (cl 4.1) 120 A reference to "punctuality" in the Loan Agreement appears in cl 5.1 dealing with default, which relevantly provides: " … The whole of the Principal Sum remaining outstanding shall become immediately repayable at the option of the Lender … if the Borrower defaults in the due and punctual payment of interest or Principal Sum or any repayment instalment or any other monies payable …" 121 It is of significance that no reference to punctuality appears in the provisions regarding payment. Rather, the reference to punctuality appears in the provision for default, which operates to create an election by the Lender, to whom the obligation is owed, to call up the Principal Sum. A failure to make punctual payment has no automatic consequence in the relationship of Lender and Borrower. It is unlikely that the parties intended it to have an automatic consequence in the relationship between the Borrower and the Indemnifier when the latter has no commercial interest in the punctuality of payment. 122 Finally, it is significant, as the Appellant submitted, that the indemnity was intended by the parties to operate for the full 17 years of the contractual period. The references to punctual payment in cl 2(a) and cl 2(b) relate to payments at the very outset of the intended contractual relationship. The first payment is required upon execution of the Agreement; the second is required three months after the execution of the Agreement; the third is required 12 months after the execution of the Agreement. The fact that the first payment which must be made "punctually" occurs at the time of execution of the documentation is of particular significance. 123 In an agreement intended to operate for 17 years, the parties could not have intended that delay in a payment required upon execution of the Loan Agreement, but accepted by the Lender at a later time, meant that the Indemnity Agreement to be executed simultaneously, never became effective. This refers to the obligation under cl 3.2, but the word "punctually" cannot have a different connotation for purposes of cl 3.3(a) or cl 4.1 with respect to which, in any event, the obligation also arose very early in the contract period. 124 It is, in my opinion, unlikely that the parties to an Agreement expected to operate for a 17 year period intended that Agreement to become ineffective by reason of default in strict compliance with time for payment at the very outset of the relationship. Rather, it was a stipulation inserted for the benefit of the Lender, which was not the party undertaking the principal obligation, which the Agreement imposed so as to emphasise the need on the part of the Borrower to fulfil its obligations to the Lender in the manner upon which the Lender would insist in accordance with its contractual rights. 125 In terms of the formulation in McCann v Switzerland Insurance by Gleeson CJ, as quoted above, the relevant 'commercial circumstance which the document addresses' and the 'object [it] intended to secure' was the reinforcement of an obligation created by a separate contractual arrangement. For the reasons set out above, the strict construction adopted in Andar is not applicable in the present case. 126 The word "punctually" should not be given a strict interpretation in these clauses. The condition is, in my opinion, satisfied where the person who is entitled to the benefit of the original obligation accepts the actual payment as constituting punctual payment. 127 As Basten JA notes, with respect to the first and second payments the Lender accepted in its letter of 2 June 1999 that the Appellant's obligations with respect to Project 1 had been performed. The express reference with respect to one such payment to the effect "we will accept payment as 'on time'" should be understood as dealing with the issue of 'punctuality' for purposes of both the Loan Agreement and the Indemnity Agreement. 128 There is a long established principle that a guarantor will be discharged when a creditor gives a debtor time to pay. (See e.g. Ankar supra at 559; Hancock v Williams (1942) 42 SR(NSW) 252 at 255.) The rigidity of this principle has often been criticised. It has been suggested that this principle does not apply to a contract of indemnity. (See O'Donovan and Phillips supra at 7-55.) The cases cited in support do not seem to me to clearly establish the proposition. (Way v Hearn (1862) 11 CB (NS) 774; 142 Eng. Rep. 1000; Wilson v Zealandia Soap and Candle Trading Co Ltd [1928] G.L.R. 120.) However, in the absence of authority extending this much criticised principle to a contract of indemnity, it is not appropriate to do so. 129 Accordingly, I agree with the conclusion of Basten JA with respect to the first and second payments. However, I have approached the matter in a slightly different way. It is not necessary to find evidence of variation of a date for payment in the way which I understand Basten JA to require. On my approach the words "punctual payment" in the Indemnity Agreement extend to the situation where the Lender accepts payment as punctual. 130 With respect to the fourth payment I am unable to identify any conduct which could satisfy the test which I have formulated. The payment was accepted, but there was nothing to indicate that it was accepted as punctual. Accordingly, I agree with Basten JA on the fourth payment.

Misleading Conduct and Prospectus Issues 131 Save with respect to the fourth payment, it is strictly unnecessary for me to determine the Appellant's alternative case based on misrepresentations in oral statements by Mr Lloyd and in the prospectuses. However, these proceedings involve a high level of factual and legal complexity. The parties have expended considerable resources in preparing for the appeal. It would not serve the Court's obligation to ensure the just, quick and cheap disposal of proceedings to allow a situation to arise in which there was a successful appeal on the interpretation issues, but the balance of the case had to be remitted to this Court for determination. 132 Furthermore, this Court has been informed that this is a test case for a significant number of other investors. A considerable amount is at stake. No doubt that makes it more likely that an attempt will be made to take the matter further. 133 As in the case of the delayed payment, aspects of the misrepresentation and prospectus issues, notably reliance, are unique to this Appellant. Nevertheless, there are aspects which will impinge on other plaintiffs. 134 For these reasons, the Court should decide these additional issues. 135 On the alleged breach fiduciary duty I agree with the reasons of Basten JA. 136 I agree with Handley AJA on the issue of allegedly misleading conduct by Mr Lloyd. 137 With respect to the first prospectus, I agree with Handley AJA, for the reasons his Honour gives, that what his Honour calls the repayment understanding did not falsify the representation with respect to the existence of a liability. I also agree with his Honour that the prospectus did not convey the representation that funds subscribed would only be used by OAL to provide services under the Management Agreement. 138 I agree with his Honour's analysis of the reliance issues with respect to both Prospectus 1 and Prospectus 2. I also agree with Basten JA's analysis of reliance with respect to Prospectus 2, which save insofar as Handley AJA repeats his analysis on Prospectus 1, appears to me to be supplementary with respect to Prospectus 2. 139 The only matter to which I would give greater weight than appears in the analysis of Handley AJA is the tax driven nature of the investment. As Basten JA shows at [14]-[15], the total investment and interest per lot was $25,914, of which $12,846 was payable from the investor's own funds. The available deductions of $13,888 would, at the maximum marginal tax rate, return a net cash amount of $1,042 by year two. An investor who acted on the basis that the indemnity was effective would have, in effect, a guaranteed cash return of this size. 140 I find it almost impossible to accept expost facto protestations of reliance on financial representations or of hypothetical responses to omissions in such a context, particularly with respect to specific details of an overall commercial assessment. The hindsight bias of an investor who has made a loss in a tax driven scheme is such that disbelief rather than mere scepticism is generally the appropriate response.

Conclusion 141 I agree with the orders proposed by Basten JA. 142 BASTEN JA: This judgment adopts the following structure: INDEX A Background [143] B Project Documentation [149] Prospectus [149] Project Deed [162] Licence and Management Agreement [171] Loan Agreement [179] Indemnity Agreement [188] C Claim under Loan Agreement [194] Reasoning of primary judge [194] Relevance of market circumstances [200] "Beyond the control of" [209] Onus of proof [214] Force majeure clause [218] Punctual payment [234] Due dates for payments [244] Conclusions [268] D Breach of Fiduciary Duty [269] E Representations by Mr Lloyd [279] F Prospectus Claims [280] Statements and omissions [286] Pre-prospectus expenses [287] The funding arrangement [300] Relief available [307] Consequential loss - fourth loan contract [321] Prospectus No. 1 - first three loan contracts [328] Conclusions [348]

A. BACKGROUND 143 On 28 April 1997, a company known as Oceania Agriculture Ltd ("Oceania") filed a prospectus with the Australian Securities Commission in relation to a project identified as the "Port Macquarie Tea Tree Plantation". It stated: "The objective of the project is to establish and maintain a commercial tea tree plantation for purposes of producing Australian tea tree oil, and to market and sell that oil." 144 The project was originally anticipated to run for 17 years and investors were invited to acquire rights in respect of particular allotments, referred to in the documentation as "farms". The investors were offered finance, so that, in the first year of the investment, they were required to provide about one-third of the investment in cash. They were, however, required to make two interest payments on the loans, payable in advance, the first being payable on application and the second at the commencement of the second year. 145 The project did not run for 17 years, or anything like that period: it terminated about 5 years from its commencement. On termination, the lender, Agricultural and Rural Finance Pty Ltd ("A&R Finance"), being the First Respondent on the appeal, sought to call up loan moneys, which it claimed were repayable by each investor on cessation of the business. However, on taking out their loans, most investors, including the Appellant, also entered into an indemnity agreement under which, for the payment of $250, Oceania agreed to indemnify their obligations of repayment under the loan contracts, in particular circumstances. 146 Upon termination of the project, A&R Finance made demands on each of the borrowers (investors) for payment of outstanding amounts under the loan agreements. The borrowers denied liability, asserting that the circumstances identified in the indemnity agreement had come into play, ending any contingent obligation they may have had to repay amounts under the loan agreements. In order to resolve that dispute, A&R Finance commenced proceedings against all of the borrowers in the Equity Division. The contractual documentation was in standard form as executed by the parties and by arrangement between the parties, the proceedings involving Mr Gardiner were pursued as a test case, with the intention that both the lender and the borrowers would all be bound by the outcome. 147 In addition to defending the claim on the basis that the indemnity was effective and enforceable, Mr Gardiner filed a cross-claim asserting breaches of s 52 of the Trade Practices Act 1974 (Cth), ss 995 and 996 of The Corporations Law, as then in force and ss 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth). 148 These proceedings were heard by Young CJ in Eq over four days. His Honour handed down judgment on 29 March 2006, pursuant to which orders were made on 11 April 2006, giving judgment for A&R Finance on its claim and dismissing the cross-claim by Mr Gardiner. Mr Gardiner seeks to reagitate on this appeal each of the issues on which he was unsuccessful below. In order to address these matters it is convenient, first, to set out the key elements of the documentation on which the claim by A&R Finance was based; secondly, to consider the correctness of his Honour's conclusion in relation to that claim and, thirdly, to deal with the issues which arise on the cross-claim, to the extent that that is necessary. B. PROJECT DOCUMENTATION Prospectus 149 The prospectus for 'project no. 1' dated 10 April 1997, invited investors to acquire "prescribed interests" which would involve a 17 year licence over an allotment of land on which tea trees would be planted. The investors were referred to in the documentation as "farmers". They were in fact investors and expected not merely a return on their investment, but also certain tax benefits. The plantations were to be managed by Oceania. 150 The project was promoted by Gerard Cassegrain & Co Pty Ltd ("GCC"), of which Oceania was a wholly owned subsidiary. The owner of the land was Endwise Holdings Pty Ltd, which was half-owned by GCC and half by Mr Claude Cassegrain, who was the managing director of GCC. 151 For the purposes of the Corporations Law, as in force in 1997, it was necessary to have an independent trustee to protect the rights and interests of the investors. The trustee was Australian Rural Group Ltd, a public company listed on the Stock Exchange in 1988. Endwise Holdings leased the land to the trustee, which in turn sub-let the land to Oceania. 152 In 1998 a second project was developed, but it is sufficient for present purposes to consider the investment arrangements by reference to the first project. Thus, on application, an investor was required to pay $24,060 for a licence with respect to a farm having an approximate area of 0.5 hectare. The application moneys included a fee for germinated seeds ($210) and a licence fee ($100). The bulk of the amount was a "management fee" of $23,750. Over the 17 years of the project, Oceania should earn annual management and licence fees, commencing at $1,854 and increasing to $6,673 in year 17. The anticipated cash flow for each farm was expected to provide a positive yield to the investor by year three. However, the cash flow was calculated at an anticipated price for tea tree oil which was $55 per kilogram in 1997, and was forecast to increase to over $100 per kilogram by year 17 (2014). This price forecast proved to be dramatically wrong, at least in the short term. Instead of rising, the price began falling in 1999 and, by the time the project was terminated on 4 January 2003, the price had fallen to $15 per kilogram. The prospectus had described the project as "speculative". 153 There was another element to the investment scheme which was of central importance in the present proceedings. The prospectus included an option for a loan to the investor to cover the bulk of the initial investment. The lender was A&R Finance, a company which was not owned by GCC or Mr Claude Cassegrain, but rather by members of the Sarks family, being Mr Anthony Gerard Sarks and Mr Richard Damian Sarks; they together with Mr Anthony Blake Sarks, were also its directors. They were related by marriage to Mr Cassegrain, but the companies were not 'related'. Under the financing arrangement contained in the prospectus, A&R Finance would provide a loan of $22,750, which meant that the investor need only contribute $1,310 of the amounts payable on application out of his or her own funds. However, there was also an amount on account of pre-paid interest of $1,438 payable on taking out the loan, which meant that the "financed investor" was required to find $2,748 in cash. A&R Finance enjoyed an initial capital contribution to cover the costs of the loans of $300,000 obtained from GCC. Thereafter, it obtained further funds by means accurately described by the trial judge as a "round-robin", whereby the application moneys lent to investors were paid to Oceania and on-lent to A&R Finance, which lent the funds to further investors. 154 The finance arrangement provided for an additional loan of $1,854 to cover the licence and management fees for 1998/1999, which were payable on 30 June 1998. A further amount was then due from the investor by way of pre-paid interest, namely $1,348, which was also payable by 30 June 1998. The interest payment was lower than the first pre-paid interest, payable on application, presumably because the loan agreement required a reduction of principal by 31 October 1997, of $8,750. Accordingly, by 30 June 1998, of a total investment and interest of $25,914, $12,846 had become payable from the investor's own funds. However, the prospectus anticipated tax savings (at the maximum personal tax rate) in years one and two of $13,888 giving a net cash return to the financed investor of $1,042 by year two. The Appellant in the present proceedings, Mr Gardiner, invested in a number of farms, taking account of the available finance, as one may assume did most other investors. 155 There was one further element of the investment scheme, as proposed in the prospectus, which was central to the present proceedings. For the sum of $250, a financed investor could obtain an "indemnity" from Oceania in relation to repayments of the loan. The effect of the indemnity agreement was, in circumstances where it operated, to remove liability of the investor for repayment of principal and interest on the loan, other than the instalment of principal and the two interest payments referred to above. The prospectus stated (p 22): "The Lender is a party to the Indemnity Agreement and acknowledges that, if the indemnity is effective and enforceable, the loan can only be recovered from the Indemnifier. This means that the Lender does not have recourse to the borrower if the Indemnifier fails to meet its obligations under the Indemnity Agreement."

A major issue in these proceedings was whether Mr Gardiner was entitled to rely upon the indemnity, so as to resist a claim by A&R Finance for repayment of the loan on early termination of the project. 156 One of the "project risks" identified in the prospectus was market risk, which was in part identified in the following terms (p 25): "Tea tree oil is an agricultural commodity and is subject to market forces of supply and demand which will determine the price which can be achieved. Oil prices may be expected to fluctuate from time to time as a result of increases in the supply of oil in excess of prevailing demand, or shortages of oil relative to prevailing demand. … There is no guarantee that the oil prices set out in the 'Anticipated Cashflow for a Single Farm' in Section 4 will be achieved." 157 The prospectus also contained what was described as an "oil market report" prepared by the Australasian Institute of Management and Science. A director of that Institute stated (Prospectus, p 61): "The developers of this project have assumed that the base price of Australian Tea Tree Oil in 1997 will be AUD 55.00 per kilogram. They have forecast an increase in the nominal price over the project period of 4 per cent, in line with the general rate of inflation. The Institute believes that, because of the acceleration of demand resulting from the rapid growth of per capita incomes in the developing countries as well as the move from increase to decrease in the supplies of farm land and labour, the increase in the price of farm products as a whole will exceed the rate of inflation during the project period. Farm products that promote health and beauty and compete with synthetic inputs should enjoy a higher rate of increase. The Institute therefore believes that the trend price of Australian Tea Tree Oil will at least match that of inflation and should exceed it during 1997-2014." 158 The Australasian Institute report did not consider the possibility of alternative sources of supply. Five years later, the New South Wales Department of Agriculture, in a report to Oceania, noted: "The market outlook for tea tree oil is most uncertain. Some informed growers believe that the market is growing at between 1 - 2% per annum. This is a guess. Some believe that once the price of oil goes above $25/kg there is a big possibility of expanded plantation areas in China, Vietnam and other low labour cost countries. For this reason alone it would be very unwise to budget for sustained prices above present value AU$30 /kg over the next 10 years. In the 1930s and 1940s Australia produced about 1000 tonnes of eucalyptus a year. Now Australia produces 120-150 tonnes, whilst China produces 1600-2000 tonnes out of a total world production of 2500-3000 t." 159 After the second year of the project, the scheme provided that the licence and management fees payable to Oceania by the investors would be met from the proceeds of sales of oil. However, for that assumption to be made good, the price needed to remain above $25 per kg. Indeed, once it fell below that price, it appears to have been uneconomical to harvest, distil and market the oil. As a result of the drop in price, Oceania suffered a shortfall in income from which to fund its expenditure. 160 On 31 July 2001, Mr Claude Cassegrain sent a letter to the investors suggesting that each investor should contribute a further $1,000 per farm to meet the additional costs and keep the project on foot. His proposal was not accepted by Mr Gardiner, or, so far as the evidence reveals, any significant number of investors. 161 By December 2001, Oceania advised the trustee that its tangible asset levels and cash resources may have fallen below the minimum levels required by the project deed. Project Deed 162 The project deed was an agreement between Oceania, the trustee, Endwise Holdings and GCC as "settlor". It provided that the project would, subject to earlier termination, continue in operation for 80 years: cl 46.1. That was, of course, considerably longer than the 17 years for which the investors' prescribed interests were to continue. Clause 46.2 envisaged that the trustee might terminate the project if Oceania went into liquidation, or if a receiver were to be appointed in relation to its business. 163 Termination could also occur in two other circumstances which are of direct concern in the present proceedings. First, cl 46.2(c) provided: "(c) If: … (ii) any legislation is enacted, or any event occurs, which adversely affects the rights of Farmers under the Licence and Management Agreements or in the opinion of the Trustee and the Manager has the effect of materially diminishing the amount available for distribution to Farmers; then the Manager and the Trustee may agree that the Project shall determine." 164 Clause 46.4 read as follows: " Termination if no Trustee for more than 60 days If the office of the Trustee of the Project becomes vacant and a new Trustee or Trustee [sic] is not appointed within 60 days of the vacancy occurring the Project shall terminate." 165 That provision in turn drew attention to the circumstances in which the office of trustee might become vacant. Pursuant to cl 37.2, the trustee was able to retire from the project, on giving three months notice to the manager, and appoint a replacement trustee nominated by the manager and approved under s 1067 of the Corporations Law. That did not happen in the present case. Rather, steps were taken in relation to compulsory retirement pursuant to cl 37.1, which read as follows: 37.1 Compulsory Retirement The Trustee covenants subject to the provisions of the Corporations Law and the Corporations Regulations that it will retire from the Project at the [Manager's] request in any of the following events: (a) if it shall be placed into liquidation (except for the purpose of amalgamation or reconstruction or some similar purpose) or in official management or if a receiver or receiver and manager is appointed in relation to the property of the Trustee and is not removed or withdrawn within 30 days of the appointment, or if it ceases to carry on business; (b) if it fails or neglects after reasonable notice from the Manager to carry out or satisfy any duty imposed on the Trustee by this deed; (c) if the Farmers who have Licence and Management Agreements in respect of Allotments representing 50% or more of the total number of Allotments in the Plantation (subject to clause 41.6(b)) resolve at a duty convened meeting of the Farmers that the Trustee should be removed; (d) if it is not, or is no longer, empowered to act as Trustee; (e) if and for so long as this deed is an Approved Deed and if the approval of the Trustee to act under section 1067 of the Corporations Law is revoked. On the retirement of the Trustee under this clause the Manager shall be entitled to appoint in writing some other Person approved under section 1067 of the Corporations Law to be the Trustee of the Project and representative of the Farmers and until the appointment is complete the Manager may, subject to approval under section 1067 of the Corporations Law, act as Trustee of the Project, with all the powers and duties conferred upon and to be observed by the Trustee under this deed." 166 Given the powers of the manager generally, and particularly the power to determine the project pursuant to cl 46.2(c), there was an issue as to how the manager should exercise its powers. Although some emphasis was placed in the course of argument on the nature of the fiduciary relationship between the manager and the investors, that relationship was substantially defined by the terms of the various agreements, including the project deed. Thus, the deed included a number of covenants by the manager, pursuant to cl 33, which commenced: "The Manager covenants with the Trustee, with the intent that the benefit of such covenants shall enure for the benefit of the Trustee, the Farmers jointly and each of them severally … ." 167 Clause 33.17 read as follows: "33.17 Best interests of Applicants and Farmers The Manager will: (a) perform its functions and exercise its powers under this deed in the best interests of all Farmers and not in the interests of itself or the Trustee if those interests are not the same as those of the Farmers generally; and (b) subject to paragraph (a), treat the Farmers of the same class equally and treat Farmers of different classes fairly." 168 On 21 December 2001, Oceania advised the trustee that it intended to retire within three months as project manager of Projects 1 and 2 and requested that a new manager be appointed. That intention appears not to have been taken further at that stage, and also appears to have been a step opposed by a group of investors. On 15 May 2002 Mr Claude Cassegrain wrote to the trustee and Oceania advising them to terminate the projects under cl 46.2(c)(ii). Oceania sought legal advice and determined to follow that course and wrote to the trustee on 11 June 2002, asking it to form a similar opinion. On 25 July 2002 the trustee commenced proceedings in the Supreme Court seeking judicial advice in relation to termination. 169 The fate of this litigation was overtaken by what appears to have been an independent event, namely the appointment of an administrator to the trustee. That occurred on 27 September 2002, and was an event which triggered a request from Oceania, pursuant to cl 37.1 of the project deed, that it retire from the project. The trustee retired on 5 November 2002. There was an issue as to whether cl 37.1 had been engaged in these circumstances, but on 17 December 2002, its proceedings seeking judicial advice were heard by Campbell J, who held that it had validly retired on 5 November 2002. By operation of cl 46.4 of the deed, the project terminated upon the position of trustee remaining vacant for a period of 60 days, on 4 January 2003. 170 Upon termination, an investor was required to yield up his or her allotment to Oceania with the result that he or she ceased to carry on business as a farmer for the purposes of the project: see Licence and Management Agreement, cl 8. Licence and Management Agreement 171 It is convenient to note at this stage some aspects of the licence and management agreement, putting to one side for present purposes the financing arrangements. The agreement was in a standard form, annexed to the prospectus, but was separately entered into by Oceania and the trustee with each investor, identified as the "farmer". The Appellant entered into a number of such agreements (one for each investment). One related investment referred to in evidence, entered into only by the Appellant's wife, Ms Marie Gilbert and not in issue in these proceedings, was signed on 27 June 1997 and commenced on 30 June 1997. Subsequent agreements commenced on their dates of execution which were, respectively, 29 October 1997, 30 March 1998, 25 June 1998 and 10 May 1999. Three agreements, commencing with that executed on 29 October 1997, were joint investments by the Appellant and his wife, whilst the last was executed in his name alone. The three joint investments involved two farms, one farm and seven farms respectively. The final investment involved two farms. All of the agreements were expressed to terminate on 30 June 2014, unless terminated earlier in accordance with the project deed. 172 One curiosity about the licence and management agreement was that no manager was specified. Oceania was identified in the parties as "the indemnifier", a term which was not defined but which could only have meaning by reference to the role of Oceania as the indemnifier under the indemnity agreement, which could be entered into by a borrower obtaining finance from A&R Finance. In the licence and management agreement itself, the manager was defined as the person "who is appointed from time to time by the Farmer to perform the services and duties imposed on the Manager pursuant to this agreement being the Manager of the Project from time to time". Under the project deed, Oceania was identified in the parties as the "Manager", a term defined in that deed to mean the person appointed as manager under that deed although the deed did not confer a power of appointment in relation to the first manager, but only if the manager should retire: cl 36.2. 173 The licence and management agreement assumed the execution of the project deed and provided, in cl 1.3 for possible inconsistency in the following terms: " 1.3 Conflict with Project Deed In the event of any conflict or inconsistency between the rights, duties and obligations of a party to this agreement and the rights, duties and obligations of that party under the Project Deed, the latter will prevail to the extent of the conflict or inconsistency." 174 Although the agreement contained a number of provisions requiring the investor to use the allotment for the purposes of the "farmer's business", which was defined to mean the long-term commercial tea tree oil production business of the investor, the agreement appointed the manager to manage the business upon the terms and conditions set out in the agreement: cl 13. The manager agreed to manage the business, including the carrying out of services described in item 6 of the first schedule: cl 15.1(c). Those services were extensive, covering the major aspects of tea tree oil production and included conducting the business, "in a commercial manner in keeping with accepted industry standards". Other aspects of the obligation to perform services, as identified in cl 15, are usefully set out in full: " 15.1 Performance by Manager (a) In consideration of payment by the Farmer to the Manager of the licence and management fees described in Clause 19 hereof, the Manager will duly and punctually observe and perform all and every one of the covenants, duties and obligations in this Agreement to be observed and performed by the Manager. (b) The Manager will strive to carry on and conduct the Farmer's Business in a proper and efficient manner and will exercise its powers and perform its functions under this Agreement diligently. (c) The Manager will manage the Farmer's Business which includes but is not limited to the carrying out of the services described in Item 6 of the First Schedule. … (e) The Manager warrants to the Farmer that it either has or has access to and will maintain access to such staff, personnel, consultants, other specialist services, trees and equipment (both fixed and portable) as may be reasonably necessary for it to perform the Services." 175 Clause 19 set out the relevant licence and management fees to be paid by the investor. It dealt separately with an initial period and subsequent periods. The term "initial period" for the purposes of cl 19, was defined to mean twelve months from the commencement date. That date being, except in relation to agreements entered into prior to 30 June 1997, the date of execution of the particular licence and management agreement. As will be seen below, the relevant licence and management fees were identified for the initial period. For subsequent periods, the fees were calculated on the basis of a compounding calculation using a figure of 4% or the increase in the Consumer Price Index, based on the amount of the immediate preceding year. 176 The precise details of the calculations differed with respect to licence fees and management fees, with a major jump in management fees occurring in the second 13 month period. The calculation of the fees is otherwise sufficiently explained by the following extracts from cl 19: " 19.1 Initial Period The Farmer shall pay to the Trustee, on execution of this Agreement, the sum of $24,060 per Allotment representing the following amounts payable to the Manager: (a) $100 Licence Fee per Allotment for the period from the Commencement Date until 30 June 1998; (b) $23,750 Management Fee per Allotment for the period of 13 months from the Commencement Date; (c) $210 per Allotment for the purchase of germinated tea tree seeds … ." 19.2 Subsequent Periods (a) Licence Fees For each year of the Project after the Initial Period the Manager will be paid a licence fee of $'X' per Allotment where: X = A x (1 + B) where: A is the licence fee applicable to the immediately preceding year excluding any amount which may be carried forward from the previous year; and B is the higher of 0.04 (4%) or the increase in the Consumer Price Index as defined in the Project Deed for the immediately preceding year. (b) Management Fees (i) For the period commencing 13 months after the Commencement Date and ending on 30 June 1999 the Manager shall be paid $1,750 per Allotment. (ii) For the year commencing 1 July 1999 the Manager shall be paid the sum of $3,000 per Allotment; (iii) For the year commencing 1 July 2000 the Manager shall be paid the sum of $3,895 per Allotment; (iv) For the year commencing 1 July 2001 and each succeeding year the Manager shall be paid $'Y' …." 177 Of greater importance to investors than the calculation of the actual fees payable to Oceania under the licence and management agreement was the mechanism for payment contained in cl 19.3, which read as follows: " 19.3 Payment of Fees (a) The Licence Fees and Management Fees referred to in Clause 19.2 will be paid as provided in Clauses 42.2, 42.5 and 42.7 of the Project Deed and will be paid at the earliest opportunity in each Financial Year but no later than 30 June in each such Year except that the Licence Fees and Management Fees in respect of the year ending 30 June 1999 shall be payable in advance on or before 30 June 1998. (b) If in any Financial Year the Farmer's Annual Aggregate Income, together with (if applicable) the Second Tranche as defined in the Loan Agreement, is insufficient to pay all of the Licence Fees and Management Fees due and payable in that Financial Year then any shortfall shall be added to the licence fees or management fees (as the case may be) due and payable for the next succeeding Financial Year except that if any such shortfall shall occur in the year ending 30 June 2012 the licence fees or management fees due and payable in that year shall be reduced by the amount of any such shortfall. Any shortfall, payment of which has been deferred to the succeeding Financial Year, ceases to be due and payable on determination of the amount of that shortfall and is due and payable at the same time as the Licence Fees and Management Fees in the next succeeding Financial Year. For the purposes of this clause any amount paid by the Trustee to the Manager in respect of licence fees and management fees shall be applied in accordance with the advice of the Trustee as to the purpose of the payment." 178 Despite the reference in cl 19.3(b), there is no definition in the licence and management agreement of "farmer's aggregate annual income", but that term is defined in the project deed to mean the aggregate of the investor's gross proceeds of sale and the investor's proportional interest in other income of the project in respect of a financial year. In effect, this is the income received on the investor's account in a particular financial year from the sale of tea tree oil or other proceeds of the project. Accordingly, the effect of cl 19.3 is that the investor is not required to pay out of his or her independent funds any amount on account of licence and management fees except as required by cls 42.2, 42.5 and 42.7 of the project deed. The effect of these provisions is to require the trustee to collect all income from the project from time to time and to pay out expenses attributable to the investor in accordance with the licence and management agreements. Although the documentation is oblique, the intention appears to be that, after the initial period, no investor will have to provide licence or management fees in cash, but will only be liable contingently for such fees to the extent that the income from the project attributable to the investor allows for their payment. This conclusion follows from cl 19.3(b) of the licence and management agreement, which provided that the fees were to be paid from the aggregate income and, to the extent that there was a shortfall, the payment obligation was carried over until the next year, on a cascading basis until 30 June 2012, when, if there remained a shortfall, the unpaid fees ceased to be due and payable. On the assumption that cl 19.3 applied only to the fees referred to in cl 19.2, the cash required from an investor was limited to the amount of $24,060, as provided in cl 19.1. At least that was so except in respect of investors who entered into loan agreements, which provided for payment of the second management fee by way of "the second tranche", as defined in the loan agreement. Loan agreement 179 Loan agreements were entered into between investors and A&R Finance. Recital A to the loan agreement identified Oceania as the manager which had entered into a project deed with the trustee and the landowner. The loan involved the provision of a first and second tranche of payments, the first being the amount payable by way of management and licence fees pursuant to cl 19.1 of the licence and management agreement less the amount of $1,310 payable by the investor from his or her own funds, the second being the amount of such fees payable under clauses 19.2(a) and 19.2(b)(i). The second tranche was the licence fee of $104 and the management fee of $1,750 per allotment. 180 The loan agreement thus provided for advances of $22,750, being the amount payable on execution of the agreement, together with a further $1,854, being the amount payable on 30 June 1998, with respect to the succeeding financial year. The loan agreement provided for the payment of interest and the repayment of capital, in the following terms: " 3. INTEREST 3.1 Subject to clauses 3.2 and 3.3 below, interest shall be chargeable on the Principal Sum outstanding from time to time at the rate of 10.5% per annum payable monthly in advance. 3.2 In consideration of the Lender discounting the rate of interest set out in clause 3.1, the Borrower agrees to pay upon execution of this agreement the first year's interest on the Principal Sum advanced in the amount of $1,438.00. 3.3 (a) In further consideration for the Lender: (i) reducing the rate of interest payable during the second year of this agreement, the Borrower will pay to the Lender on the date which is one year from the date of execution of this agreement … interest for that second year in advance in an amount of $1,348; and (ii) reducing the rate of interest payable from and including the commencement of the third year of the loan until repayment in full of the outstanding principal sum, to 8.5% per annum, the Borrower will pay the Lender interest as set out in paragraph (b) below or where applicable, paragraph (c) below. (b) Interest set out in clause 3.3(a)(ii) above shall be calculated monthly in advance on the Principal Sum then outstanding and shall become due and payable subject to such payment being made from the income of the Borrower from the Business as contemplated by clause 42.2 of the Project Deed after payment of: (i) all licence fees; (ii) all management fees and charges; and (iii) any other amount payable prior to interest in accordance with Clause 42.2 of the Project Deed; and subject further to Clauses 3.4 and 7. … 3.4 Any interest which becomes due and payable during the previous 12 months which is not paid by 30 June at the end of that year pursuant to clause 3.3(b) will be capitalised so as to form part of the Principal Sum then outstanding." 181 Clause 4 of the loan agreement provided for the repayment of principal. Clause 4.1 provided that the borrower (investor) would repay an amount of $8,750 per allotment either by way of instalments over the first year, or in full, by three months after the date of execution of the agreement. Clause 4 provided in relation to the balance, as follows: "4.2 (a) The balance of the Principal Sum, after payment as set out in Clause 4.1, shall subject to … Clauses 4.3 and 7, be paid to the Lender by direct deduction from the income of the Borrower from the Business as contemplated by Clause 42.2 of the Project Deed. … 4.3 The Borrower and Lender agree that for the term of this agreement the income of the Borrower available for repayment to the Lender of the Principal Sum outstanding after the repayment contemplated by clause 4.1 will be fifty per cent (50%) of the balance of the net income of the Borrower from the Business which in this agreement means the gross income of the Business after payments in the order of priority as set out in subparagraphs (i) to (v) of clause 42.2 of the Project Deed. 4.4 The parties agree that the whole or part of the Principal Sum remaining outstanding from time to time after the payment referred to in clause 4.1 may be repaid at any time." 182 Clause 5 provided in relation to default by the borrower as follows: " 5. DEFAULT 5.1 The parties agree that subject to Clause 7 below the whole of the Principal Sum remaining outstanding shall become immediately repayable at the option of the Lender on the happening of any one or more of the following events without the necessity of any notice of demand: (a) if the Borrower defaults in the due and punctual payment of interest or the Principal Sum or any repayment instalment or any other moneys payable under this agreement; (b) if the Borrower defaults in the observance or performance in any of his other covenants or obligations contained in this agreement; (c) if the Borrower ceases to carry on the Business. 5.2 Notwithstanding anything contained in this agreement if the Lender elects to call up the whole of the Principal Sum remaining outstanding pursuant to any default by the Borrower, interest on the whole of the Principal Sum remaining outstanding shall then be calculated at the rate of 10.5% per annum and shall be payable on demand." 183 As appears from the references in each clause set out above relating to payment obligations of the borrower, cl 7 of the loan agreement is a critical provision. It was to the following effect: " 7. LIMITATION OF BORROWER'S LIABILITY The Lender acknowledges and agrees that the Borrower shall have no liability to repay any part of the Principal Sum outstanding or any interest thereon if the indemnity granted under the Indemnity Agreement as defined in the Project Deed is effective and enforceable in accordance with Clause 2 of the Indemnity Agreement." 184 Thus, if the income from the project were not sufficient to repay interest in any year or years, the relevant amount would be capitalised and would become repayable in accordance with cl 2.1 of the agreement which provided as follows: "2.1 Subject to the specific requirements of this agreement in respect of payments and repayments from time to time, and subject further to clause 7, the Principal Sum outstanding and all interest outstanding must be paid to the Lender on demand on or after the last business day in June 2014 … ." 185 It is necessary to turn next to the terms of the indemnity agreement. However, it may be noted that the loan agreement itself envisaged that cash payments would be made by the borrower in three amounts, namely the pre-payment of interest for the first year in an amount of $1,438 and pre-payment of interest for the second year in an amount of $1,348, and the sum of $8,750 on account of capital either by instalments over 12 months or within three months of execution of the agreement. Thereafter, payments were anticipated to come from the income from the business. Accordingly out of a total advance of $24,604 (including the first and second tranches) after repayment of the only capital amount repayable by the borrower from sources independent of the project, the lender expected to recover $15,854 from the proceeds of the sale of oil. Similarly, the lender expected to receive all interest payments from the proceeds of the sale of oil, other than the payments due on execution of the loan agreement and at the end of the first year. 186 A number of subsidiary issues arise from the practical consequence of this funding arrangement. One which need not be addressed at this stage is the complaint that the manager never had the full benefit of the fees which were received from the lender because those moneys, together with the repayments received from the borrowers were lent by the manager to A&R Finance. In this way, some of the risk which would otherwise have been borne by A&R Finance, if it had been responsible for obtaining funds for the loans, was transferred to Oceania. 187 Of more immediate concern is the effect of the indemnity agreement and, in particular, whether it was triggered in the circumstances of the present case. It was the liability of the borrowers under the loan agreement, against which the indemnity provided protection. Indemnity Agreement 188 The effect of the loan agreement, with respect to repayment of principal, was that, after the initial repayment of $8,750 per allotment, the balance was to be repaid out of the income of the borrower, derived from the tea tree business: Loan Agreement, cl 4.2(a). In other words, if the business was successful, no further injection of cash was expected from the borrower. Although cl 5 of the loan agreement was headed "Default" and provided that the principal sum outstanding "shall become immediately repayable", at the option of the lender if the borrower defaulted under the loan agreement, cl 5.1(c) was not tied to any default, but provided that the principal sum could be called in "if the borrower ceases to carry on the business". As explained above, the business ceased 60 days after the resignation of the trustee, on 4 January 2003. The lender sought to exercise its option under cl 5.1 on 6 January 2003. Whether or not it could validly take that step depended upon the operation of cl 7 of the loan agreement, which removed the borrower's liability if the indemnity granted under the indemnity agreement "is effective and enforceable" in accordance with cl 2 thereof. 189 The indemnity agreement involved three parties, namely A&R Finance, the borrower and the indemnifier, Oceania. The consideration payable by the borrower under the indemnity agreement was $250 per allotment, to Oceania. Clause 2 of the indemnity agreement, which was the critical operative provision, read as follows: "2. The Indemnity referred to in Clause 1 shall be effective and enforceable if: (a) the Borrower has punctually paid the interest payable pursuant to Clauses 3.2 and 3.3(a) of the Loan Agreement; and (b) the Borrower has punctually paid the reductions of the Principal Sum set forth in Clause 4.1 of the Loan Agreement; and (c) the Borrower is not otherwise in default of any covenant or obligation contained in the Loan Agreement (save and except for any covenant or obligation to repay principal and interest which is subject to the Indemnity) or the Licence and Management Agreement; and (d) the Borrower has ceased to carry on the Business as a result of: (i) any event described in Clause 31(a) of the Licence and Management Agreement; or (ii) any decision of the Manager and the Trustee to terminate the Project pursuant to the Project Deed where that decision was made as a result of any event described in Clause 31(a) of the Licence and Management Agreement; or (iii) any resolution of Farmers to terminate the Project pursuant to the Project Deed where that resolution was as a result of any event described in Clause 31(a) of the Licence and Management Agreement; or (iv) the termination of the Licence and Management Agreement as a result of the effluxion of time." 190 Before turning to the particular conditions to which the indemnity was subject under cl 2, it is convenient to set out the operative provisions of the agreement, which were to be found in clauses 3 and 4. "3. Subject to Clause 2 hereof the Indemnifier agrees to pay to the Lender upon demand of the Lender or the Borrower any Principal Sum outstanding under the Loan Agreement and any interest thereon and the Borrower irrevocably directs the Indemnifier to make such payment and agrees that the Lender may demand such payment from the Indemnifier. The Indemnifier acknowledges the terms of the Loan Agreement, in particular clause 7 of the Loan Agreement. 4. The Lender agrees and acknowledges that the Borrower may rely upon the Indemnity set forth herein and that notwithstanding any failure on the part of the Indemnifier to punctually perform any covenant or obligation contained herein the Lender shall not have recourse to the Borrower if the Indemnity herein contained is effective and enforceable in accordance with the terms of Clause 2." 191 Under the loan agreement, unpaid interest was capitalised on 30 June of each year. There was no provision for the payment of interest otherwise than from income derived from the business, after the first two payments. The requirement for payment pursuant to cl 5.1 of the loan agreement carried an obligation to pay interest, but only if the loan were called up "pursuant to any default by the Borrower" (cl 5.2) as opposed to cessation of business. 192 In order to give effect to the critical provision in cl 2(d) of the indemnity agreement, it is necessary to return to the terms of the licence and management agreement, and in particular the terms of cl 31(a). The question to be addressed is whether each investor ceased to carry on business "as a result of" any "event" described in that clause. The first step in the process is to identify what "events" the clause identifies. The clause reads, in full, as follows (spacing added): " 31. FORCE MAJEURE (a) The Farmer, the Licensor, the Manager and the Trustee are excused from performance of any of their respective duties and obligations under this agreement whenever and to the extent that such performance is prevented or interrupted or delayed by reason of any action or requirement of any government authority or by any wars, public disorders, acts of enemies, sabotage, strikes, lockouts, labour or employment difficulties, accidents, breakdowns, fires, storms, tempest, hail, wind or events of nature or acts of God or any other causes beyond the control of the Farmer, the Manager, the Licensor or Trustee (as the case may be), but the Farmer, the Licensor, the Manager and the Trustee must at all times use all commercially reasonable endeavours to overcome or alleviate the effect of any such events as specified above. (b) The Manager shall not be required to replace any Trees on the Allotment which are damaged, or die as a result of any event in Clause 31(a) above. (c) The Manager and the Licensor shall be entitled to recover from the Aggregate Fund, any costs incurred whether directly or indirectly, relating to the Farmer's Business, the Licence or the Project where those costs arise as a result of the occurrence of any of the events specified in Clause 31(a) above. Any amount so recovered is in addition to any amount or amounts due to the Manager or the Licensor pursuant to Clause 19." 193 The operation of this clause is critical to the liability of investors in the circumstances of the case. However, before considering its proper construction and operation in the circumstances of the case, it is convenient to address the approach adopted by the trial judge in reaching a conclusion that the indemnity did not apply and the Appellant was not relieved of his obligations under the loan contract. C. CLAIM UNDER LOAN AGREEMENT Reasoning of primary judge 194 The primary judge approached the operation of the indemnity on the following basis:

(1) that which brought about the cessation of business was the termination of the project, which was not on any view an "event" - at [64];

(2) on the facts, the only way in which an event could be identified which fell within cl 31(a) was if it fell within the last phrase, namely "any other causes beyond the control of the Farmer", but a cause is not an event - at [60];

(3) even if a relevant event could be identified, to fall within the scope of cl 31(a) it must have the quality of a physical or material restraint imposed by an external actor and is not satisfied by the failure of another party to act - at [62], and

(4) the Appellant failed in any case to establish that the replacement of the trustee was beyond his control. 195 As appears from the last step in his Honour's reasoning, at least as a fall-back position, he identified a relevant "event" as the failure to replace the trustee. That characterisation followed from the fact that termination occurred under cl 46.4 of the project deed because the office of trustee had become vacant and a new trustee was not appointed "within 60 days of the vacancy occurring". That identification of the relevant event should be accepted, rather than that which his Honour preferred, namely "the termination of the Project". The reason why the termination of the project cannot be the relevant event for the purposes of cl 2(d) is that, with the exception of sub-par (i), each of sub-pars (ii)-(iv) referred to termination, and then identified a relevant event as a decision to terminate, a resolution to terminate or the effluxion of time. The same should be understood in relation to sub-par (i), which deals with the direct operation of an event described in cl 31(a) rather than such an event leading to a decision by the manager and trustee or leading to a resolution by the investors. Thus each of the sub-clauses should be seen as identifying a relevant cause of termination, rather than as referring to the fact of termination itself. 196 The second step in the reasoning should not be seen as carrying the weight which his Honour appears to have ascribed to it. It is no doubt arguable that a "cause" may not be synonymous with an "event". Nevertheless, at least some causes will be events and, once a relevant cause has been identified, it is necessary to determine whether it is also an event, before concluding that the final phrase in the identification of excuses for non-performance in cl 31(a) simply cannot be engaged by the language of cl 2(d) of the indemnity agreement. Indeed, it may be doubted that any relevant distinction is drawn between the terms "cause" and "event" in cl 31. Such a distinction would mean that performance may be excused by a cause beyond the control of the investor, but one the effects of which the investor would not be required to use all commercially reasonable endeavours to overcome or alleviate, because the proviso is limited to the effect of "any such events as specified above". Similarly, in relation to a cause beyond the control of the manager, not only would it be surprising if the manager were not required to use all commercially reasonable endeavours, but such a restricted reading of 'cause' would also mean that the provision permitting the manager to recover the costs incurred as a result of the occurrence of any of the events specified in cl 31(a) would not operate in relation to a 'cause' not being an event: see sub-cl 31(c). The better view is that the phrase "other causes beyond the control of the farmer" is apt to identify relevant "events", both in terms of the use of that word in the subsequent parts of cl 31 and for the purposes of cl 2(d) of the indemnity agreement. 197 The third step in the reasoning of the primary judge asked whether the failure to appoint a replacement trustee was an event of the kind which involved some "physical or material restraint imposed by an external actor": at [62]. Accepting that the concepts identified in cl 31(a) do have such an element, it is difficult to see why that requirement was not satisfied. Once the initial trustee had resigned, it was necessary to obtain the consent of an alternate trustee, in order to prevent the project terminating. The potential pool of external trustees might be described as "external actors" - they were certainly not persons who were party to the project deed, nor to any of the associated agreements. If consent were not forthcoming, the unavailability of a third party willing to take on the role would, in keeping with the putative requirement, qualify as having the requisite degree of externality. 198 The fourth step concerned the requirement that the failure to find a replacement trustee was "beyond the control of the Farmer", that being an essential element of the description of the relevant event. The Respondents relied in this respect on the finding of fact set out by his Honour at [67] in the following terms: "67 Finally, if all the above is erroneous, then Mr Gardiner would need to provide evidence that what has happened was beyond his control. He has not done so. His evidence was that his action group comprised a majority of farmers by number and value, thus his group controlled a meeting of farmers and there is no explanation as to why the group did not pursue the replacement of the trustee." 199 It is apparent from the wording of this conclusion that his Honour was applying a finding made at [44], that the operation of cl 7 imposed an onus of proof on the Appellant. In other words, cl 7 provided an exception to liability which the lender had no obligation to negate, in order to establish its claim for money owing under the loan agreement. His Honour also expressed the view at [44] that the conclusion as to onus was not likely to affect the result of the litigation, no doubt because the fact-finding as to what was beyond the control of the investor was not the primary basis for rejecting the operation of the indemnity in the present circumstances. However, on the reasoning set out above, the question of onus is a relevant factor. Relevance of market circumstances 200 It was common ground between the parties that a significant attraction to an investor was the tax benefit, as outlined in the prospectus for each project. For the investor to obtain the full benefit of the anticipated tax deductions, it was necessary that he or she carry, in a practical and realistic sense, a commercial risk of failure of the venture. As appears from the correspondence in evidence between the promoters of the project and the Australian Taxation Office, the existence of risk was a matter as to which the ATO required some persuasion. The point for present purposes is, however, that the relevant contractual provisions should not be given a construction which would remove that level of risk. Without commenting on the adequacy of the risk for the purposes of the Income Tax Assessment Act 1936 (Cth), it is clear that the only relevant risk for a financed investor who purchased the indemnity was the risk that, if the project failed for commercial reasons, the investor would lose part or all of his or her investment. 201 Although the contract must be construed so as not to diminish the real commercial risks borne by the investors, clearly a 'financed investor' did not carry the risk of failure in all circumstances. After the initial payment involving a reduction of about one-third of the capital amount, the repayments of capital and interest thereon were to be made out of, and only out of, the income from the business. That arrangement was subject to exceptions where the borrower defaulted under the loan agreement, or ceased to carry on the business, and the lender elected to call up the outstanding amounts together with interest thereon, pursuant to cl 5 of the loan agreement. The cessation of business exception was in turn subject to cl 7 which excluded liability for such payments where the indemnity was effective and enforceable. Absent default, the investor would carry a commercial risk where he or she terminated the business otherwise than in circumstances to which cl 2(d) applied, being in broad terms, a result of a force majeure event or the effluxion of time. 202 The Respondents contended that the 'real cause' of the termination was the fact that the project was no longer commercially viable, and that, to reflect properly the inherent commercial risk, the contract must be construed so as to give effect to that reality. Although that no doubt satisfied the requirement of an external constraint, it was not, they argued, an event which could properly be described in law as an instance of "force majeure". 203 This contention would require the Court to go behind the immediate reason for termination, namely the vacancy in the office of trustee, and ask why that vacancy had occurred. Initially, the vacancy occurred because the original trustee vacated the office. That was apparently due to its insolvency, and there was no evidence to link that to its role in the project. Subsequently, the vacancy continued because no replacement was willing to occupy the office. It might be inferred that that resulted from the lack of income available from the project, although there was no direct evidence as to why those parties who responded to an advertisement for a replacement trustee did not agree to take the position. 204 The Respondents also contended that the causal connection between the termination of the contract and any relevant event under cl 31(a) had not been made out because even had a replacement trustee been found, termination would have occurred under cl 46.2(c). 205 Each of these contentions was supported by consideration of the way in which changed economic circumstances have been held to affect commercial contracts. However, the cases demonstrate that in considering the operation of a force majeure clause, the courts have commenced by determining on which party the contract intended the risk of unforeseen economic circumstances should lie. It is therefore necessary to commence by considering the extent to which the underlying reason needs to be considered, when assessing the effect of an act or omission of an external actor, by reference to the provisions of the agreements and the project deed. In particular, there were key features of the present contractual arrangements which were markedly different from most of the cases in which issues such as force majeure or frustration of purpose have arisen. First, the contractual arrangement between the individual investor and the manager and trustee involved contracts of adhesion in identical form to those entered into by other investors. Further, because the contractual rights extended over a significant period, and required the performance over time by third parties, beyond the control of the investor, the congeries of rights, powers and interests which he or she obtained was regulated under securities legislation as a prescribed interest, for the protection of investors as a class. By contrast, cases which have arisen in relation to force majeure have more usually involved a commercial contract between two parties for the purchase and sale of goods or services, often between countries. 206 In relation to cl 46.2(c)(ii), there is no doubt that the project might be terminated where the manager and trustee were jointly of the opinion that an event had occurred, which had "the effect of materially diminishing the amount available for distribution to Farmers". However, the engagement of that provision gave rise to a further series of questions. First, it would be necessary to identify whether a drop in the market price of tea tree oil was itself an "event" for the purposes of that provision. Secondly, the provision conferred a power on the manager and trustee to agree that such an event had occurred but, it was contended by the Appellant, neither could exercise its power to form that opinion unless it satisfied the dual requirements of cl 33.17(a), in respect of the manager, a constraint which was imposed on the trustee in identical terms by cl 34.11. The operation of that provision involved a number of steps, including the identification of "the best interests of all Farmers", identification of the interests of the manager, identification of the interests of the trustee and a determination as to whether the interests of the manager and the trustee were the same as "those of the Farmers generally". As noted above, although the manager was pressing the trustee to form such an opinion, the trustee, prior to its retirement, was clearly unwilling to do so, at least without advice of the Court, possibly because a majority of investors had passed a resolution opposing termination. There was no doubt that the downturn in the market created a disparity of interests: the investors, who had no on-going liability to inject cash into the project had a significant interest in seeing the project continue, in the hope that over a decade or more the price of tea tree oil would increase. The manager, on the other hand, had an interest in early termination, to prevent it losing money whilst the price of tea tree oil remained below its break-even figure. On the other hand, if the indemnity had not been triggered, termination of the contract would allow A&R Finance to look to the investors to recoup outstanding moneys under the loan agreements, and not to the manager. If A&R Finance owed money to the manager, its solvency would be important to the manager. 207 In this context, the Appellant raised a number of factual issues, albeit these were also relevant to separate claims it made against the manager and A&R Finance for contravention of the Corporations Law and the Trade Practices Act 1974 (Cth). For example, the Appellant alleged that the manager had liabilities to GCC and Endwise Holdings which had not been disclosed and which limited the resources available to it to ride out what might be a temporary downturn in the market for tea tree oil. Similarly, it might have had additional resources had it retained the loan moneys, rather than on-lending them to A&R Finance to provide to further investors. 208 In my view the considerations raised by the Respondents are not relevant to the question to be determined as to the operation of the indemnity agreement. Clause 2(d)(ii) identifies a sufficient reason for the cessation of business by the investor that a decision has been taken by "the manager and the trustee to terminate the project", where that decision was itself made as a result of an event described in cl 31(a). One such joint decision (and indeed no other was identified by the parties in the course of argument), is the joint opinion formed for the purposes of cl 46.2(c)(ii). Accordingly, cl 2(d) recognised that such a decision might be made as a result of a cl 31(a) event. Where that subparagraph is relied upon, it will be necessary to determine whether the reason for the decision was such an event; however, because that subparagraph is not relied upon in the present case, it is not appropriate for the Court to speculate, first as to whether the opinion would have been formed and secondly, if it had been, on what it would have been based. Further, that exercise would require a determination as to whether clauses 33.17 and 34.11 applied to the exercise of the power to form such an opinion and, if so, whether those clauses precluded the formation of such an opinion in circumstances where the interests of investors and the manager diverged. "Beyond the control of" 209 It is appropriate to return to the question of whether the failure to appoint a replacement trustee was an event "beyond the control of" the Appellant. The question may be addressed initially on the assumption that the Appellant bore the onus of establishing that fact. 210 The phrase "beyond the control of" the relevant party, in cl 31(a), invokes a requirement additional to that contained in the proviso to the description, which requires the relevant party to use all commercially reasonable endeavours to overcome or alleviate the effect of the event in question. The proviso would appear to apply, not as part of the description of the event, but as a constraint on the operation of an event permitting the party to be excused from performance of duties and obligations under the agreement. That element may perhaps colour the descriptive identification of relevant events, but it does not seem to add much to the concept of a cause beyond the control of a party. Similarly, the causative element in cl 2(d) of the indemnity agreement, requiring that cessation of business be "as a result of" an identified event may also indicate a distinction to be drawn between the causative effect of the event and any failure by the affected party to exercise commercially reasonable endeavours or other forms of control. 211 The matters relevant to this consideration were, in effect, threefold, namely that:

(a) the original trustee retired, at the request of the manager, for a reason not shown to be related to its role as trustee under the deed;

(b) the manager sought, by advertisement at least, a replacement trustee and obtained two responses, and

(c) neither of those who responded accepted appointment to the office of trustee under the deed. 212 In order to conclude that the appointment of a replacement trustee was not beyond the control of the Appellant, it would be necessary to infer that:

(a) the Appellant could persuade a majority of the investors to seek such an appointment;

(b) a qualified person would be found who would agree to accept appointment, and

(c) the manager would exercise its power to appoint the replacement. 213 Starting with the third step, it may safely be inferred that if a qualified person had been found, the manager would have exercised its power of appointment under the deed. Although it was suggested by the Appellant that the manager's step in advertising the vacancy had been something of a charade, because the manager had then discouraged each of the applicants by informing it of the outstanding litigation commenced by the investors, there is nothing to show that such disclosure was inappropriate in the circumstances. On the other hand, it may be assumed that a similar disclosure would have been made by the manager to any other qualified person, although it might not have discouraged acceptance if the prospective trustee had the support of the investors. More importantly, the reasonable inference is that the investors, acting as a group, would not have been successful in finding any other qualified person more likely to accept appointment than those who responded to the manager's advertisement. Thus, even if one assumes the Appellant was able to act in concert with the other investors, an assumption which may reasonably be made on a factual basis in the present circumstances, it should be inferred that he would have been unsuccessful because there were no available funds and no readily accessible source of funds, other than through the manager, from which to pay a trustee. It should be added that it was no part of the Respondents' case that the litigation itself relevantly caused the cessation of the business and was a cause which was not beyond the control of the investors. Onus of proof 214 It is convenient to return to the question of onus of proof, in order to determine whether, if the matter were evenly balanced, the Appellant would fail because he bore the relevant onus. It is well established that, if cl 7 provided a true exception or exemption from liability, the Appellant would bear the onus of establishing that he fell within the exception: see Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (1993) 40 NSWLR 206 at 226-228 (Sheller JA, Handley and Cripps JJA relevantly agreeing, and applying The Glendarroch [1894] P 226 at 231 (Lord Esher MR)). The question, however, is whether cl 7 is to be identified as an exception, or as a provision defining the scope of the obligation under the contract. The distinction is well-established, and was helpfully expressed by Donaldson J in Kenyon, Son & Craven Ltd v Baxter Hoare & Co Ltd [1971] 1 WLR 519 at 522. After noting that the obligation of a bailee may be expressed either as a duty to redeliver the goods "in the like good order and condition as when received, subject only to such loss or damage as might arise despite the exercise of all reasonable skill and care in their preservation and custody," or as a duty "to exercise all reasonable skill and care in the preservation and custody" of the goods, he preferred the former, because it better reflected the burden of proof. His Lordship continued: "Protective conditions are of three distinct types, namely, first, those which limit or reduce what would otherwise be the defendant's duty; second, those which exclude the defendant's liability for breach of specified aspects of that duty and third, those which limit the extent to which the defendant is bound to indemnify the plaintiff in respect of the consequences of breach of that duty." 215 There remains the question of how the particular provision should be classified. As explained in Lewison, The Interpretation of Contracts (3rd ed, 2004) at [12.02] the result can depend upon whether the contract is approached as a whole, or whether one looks at the remainder of the contract without the exemption clause, and then considers the operation of the exemption clause. If the contract is read as a whole, one is, perhaps, more likely to reach the conclusion that what might otherwise be seen as an exception which excuses liability for failure to perform, will rather be construed as a limitation on the scope of performance. 216 Usually an indemnity would operate only where the person indemnified had a liability to make a payment to a third person. The indemnifier would be subrogated to the rights of the indemnified, but only upon meeting the principal liability. However, the indemnity agreement not only gave the lender a right of recourse against the indemnifier directly (cl 3) but precluded recourse against the borrower if the indemnity was engaged, despite failure of the indemnifier to meet its obligation: cl 4. In the present case, the liability of the borrower under the loan contract, except in a case of default, was to be met from the proceeds of the business. The liability, after the initial payments, arose upon 'default' but was "subject to Clause 7". Clause 7, as already noted, constituted an acknowledgment and agreement that a borrower should have "no liability to repay any part of the principal sum" if the indemnity were effective and enforceable. 217 In its terms, the operation of cl 7 was not exclusion or exception to the borrower's duty to perform, but rather an acknowledgment that the operation of the indemnity agreement extinguished the borrower's liability. It is better seen as constituting part of the definition of the primary liability under the agreement. The fact that, in the case of default the indemnity would not be effective and enforceable tends to confirm that construction by giving the two agreements an internally coherent and consistent operation. On that approach, the Appellant did not bear the onus of proof, but rather the lender needed to establish that a liability had arisen because the indemnity was not effective and enforceable. However, on the evidence discussed below, findings can be made without reliance on which party bore the relevant burden of proof. Force majeure clause 218 It remains to be considered whether the nature of cl 31(a), including its heading "Force Majeure", and the authorities dealing with the relevant legal principles, require a different conclusion. 219 The failure to obtain a replacement trustee, may be seen as analogous to the failure of one party to obtain a licence required in order for it to fulfil it obligations under a contract. Thus, in Vidler & Co (London) Ltd v R Silcock & Sons Ltd [1960] 1 Lloyd's Rep 509, a seller sought to rely upon a clause in a contract which provided that it was cancelled in any case of "prohibition of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the Government of the country of origin": at p 510, col 2. The contract required shipment of undecorticated cotton-seed cake from Egypt to the United Kingdom. It was held that the Egyptian prohibition was not an absolute prohibition but was conditional, it being unlawful to export the goods from Egypt "except under the authority of a licence which might be granted by the appropriate Ministry": at p 511, col 2. The approach adopted by the relevant tribunal, which was approved by Pearson J, was described in the following terms (p 512, col 1): "Here is a system of conditional prohibition, that is to say, a prohibition subject to licences. The sellers have got to show that that system prevented their fulfilling their obligation to ship. Here the sellers did not, on the face of it, make any attempt to obtain a licence. … Therefore … the sellers, in order to say that they were prevented by this system put into force by the Egyptian Government, have to say there was nothing they could have done which would have been of any use." 220 A similar provision was considered in Provimi Hellas AE v Warinco AG [1978] 1 Lloyds Rep 373 (CA). The Court of Appeal held that the test to apply was whether there would have been "any reasonable possibility that further efforts on the part of the sellers would have been successful in securing the lifting of the ban": p 380, col 1. 221 More generally, the cases with respect to force majeure are addressed to circumstances where a party is treated as having been discharged of its obligation to perform under a contract, in whole or in part, as a result of circumstances beyond its control and not otherwise provided for by the contract. The principles are closely related to those applied under the doctrine of frustration of purpose, as explained by Sir Guenter Treitel, Frustration and Force Majeure (2004, 2nd ed) at 309: "In cases of impossibility, the contract is discharged because the supervening event has made it impossible for the [supplier] to supply the thing, service or facility. In cases of alleged impracticability there is no such impossibility, but the normal position is that the supplier argues that the cost of providing the thing, service or facility has risen, or that other difficulties of so doing have increased, to such an extent that he should be discharged. In cases of alleged frustration of purpose it is normally the recipient of the thing, service or facility who argues that the contract should be discharged. His own obligation, being merely one to pay money, cannot have become impossible, nor has any impossibility affected the obligation of the supplier, which can still be performed. But the recipient's case is that the contract should be discharged because the supplier's performance is no longer of any use to the recipient for the purpose for which both parties had intended it to be used." 222 A case which appears to illustrate the difference between impossibility and frustration of purpose is Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd [2006] FCA 1324 (Kiefel J). The defendants were joint venturers seeking to sell coal out of Newcastle, New South Wales to a Philippine company, National Power Corporation. Her Honour concluded that a sales contract had been agreed by 29 March 2004: at [52]. On the same day, the defendants agreed to charter a ship from the plaintiff in order to transport the coal to the Philippines, with delivery to be effected during a specified period between 26 April and 8 May. By 14 April, the defendants were satisfied that the purchaser had reneged on the contract and sought to cancel the charter party. The plaintiff treated the cancellation as repudiation, which it accepted and sought damages for breach. The defendants argued that the failure by the purchaser to perform the sales contract excused them from performance of the charter party, pursuant to a force majeure clause. The contractual provision stated that neither party "shall be liable for any failure to perform … its obligation under this charter party … where the party is being … prevented from doing so by reason of any force majeure event". Such an event was defined to include many of the common factors, as exemplified by cl 31(a) in the present agreement and included the following: "(e) Any other cause, whether or not of the nature or character specifically enumerated above, which is beyond the control of such party." 223 In terms of principle, Kiefel J noted at [60]-[61]: "[60] [Impracticability] of performance is not generally recognised as a ground of discharge of a contracting party's obligations … . To the extent that it has been accepted as a ground by American courts, Treitel at par 6-020 observes that they have become increasingly reluctant to regard the increased cost or difficulty of performance as sufficient for this purpose. The assertion that force majeure 'includes every event which is beyond the control of the parties' … has been regarded as too wide … . In PJ van der Zijden Wildhandel NV v Tucker [1975] 2 Lloyds Rep 240 the sellers were entitled to cancel the contract if they did not effect shipment in time by reason of war, flood, fire or storm or 'any other cause beyond their control'. This was held not to protect them when the supplier let them down, since the event did not prevent them from performing by other means."

Her Honour's reference to Treitel is to G. Treitel, Frustration and Force Majeure (1994). Her Honour continued referring to matters identified by E. McKendrick, Force Majeure and Frustration of Contract (2nd ed, 1995), in the following passage: "[61] There is no doctrine in English law which corresponds with the doctrine of force majeure in French law. The use of the words in contracts have required English and Australian courts to give them some meaning. The characteristics [stated] by McKendrick at pp 24-25, which have been recognised by the courts as constituting a force majeure event have regard to something which is: (a) irresistible; (b) unforeseeable; (c) external to the person claiming discharge; and has (d) made performance impossible and not merely more onerous or difficult … . In the present case (a), (b) and (d) are not present." 224 Care must be taken in adopting the characteristics identified in McKendrick (1995). The book is a collection of essays edited by Mr McKendrick. The chapter relied upon by Kiefel J was written by Professor Nicholas and is entitled "Force Majeure in French Law". As noted by William Swadling in the first chapter of the book, "The judicial construction of force majeure clauses" (at p 7): "Although there is no general doctrine of force majeure in English law parties often use the words force majeure in their contracts, thus forcing the English courts to attribute to them some meaning. And though Donaldson J, in Thomas Borthwick (Glasgow) Ltd v Faure Fairclough Ltd [1968] 1 Lloyds Rep 16 at 28, remarked that 'the precise meaning of this term, if it has one, has eluded lawyers for years', the words have been considered in a number of cases. One caveat should, however, be entered at this stage. It is rare for the words force majeure to appear in a contract otherwise than as part of a longer list of exceptions and, as McCardie J pointed out in Lebeaupin v Richard Crispin & Co [1920] 2 KB 714 at 720, the words should be construed in each case with a close attention to those which precede or follow them, and with a due regard to the nature and general terms of the contract."

This caution is of particular relevance in the present case, where the words "force majeure" do not appear in the clause itself, but only in the heading. 225 Secondly, the reliance on PJ van der Zijden Wildhandel repays further consideration. In that case Donaldson J was concerned with a dispute arising from the non-delivery of "Chinese frozen rabbits". The question was whether the seller was excused because its own supplier had not performed, on the basis that such non-performance was a cause beyond the control of the seller. In relation to the principle to be applied, Donaldson J stated (p 242, col 1): "[Counsel for the sellers] goes on to submit that the words 'any other causes beyond their control' are not to be limited in their meaning by the application of the ejusdem generis rule and a consideration of the specifically enumerated perils which go before. … Again, for the purposes of this case, I am quite content to accept this, and it may indeed be right that this clause is not to be construed narrowly and that the words 'any other causes beyond their control' are to receive their wide and literal meaning."

Donaldson J then noted that the onus lay on the defaulting sellers to bring themselves within the clause and continued: "All that they have been able to show was that the imports of Chinese frozen rabbits into Holland were at all material times much smaller in quantity than the amount called for under these contracts. They have quite failed to obtain any finding from the arbitrator that they were unable to buy in Chinese frozen rabbits from some supplier other than the one with whom they have a contract. Unless they can do that, they are unable to show that they were prevented from fulfilling their contract by a cause beyond their control." 226 His Lordship continued, no doubt obiter, that if "suddenly the Americans develop an overwhelming desire to eat Chinese frozen rabbits in consequence of which the price of Chinese frozen rabbits c.i.f. America rose steeply", it could be anticipated that shippers would divert the commodity to the United States, "but it would be the duty of the sellers in those circumstances to buy in from the United States market and to procure the reshipment of the frozen rabbits c.i.f. Rotterdam". 227 The inference to be drawn is that performance will not be beyond the control of a party to a contract merely because performance becomes uneconomic for the supplier of the goods or services. However, as Treitel notes, a different and more stringent test of supervening impossibility may need to be applied where the recipient of the services asserts frustration of purpose: Frustration and Force Majeure, Ch 13. 228 It is as well to identify with some precision the movement in market prices in the present case and how they affected the relevant parties. The movement, as noted above, was a 'collapse' in the price of tea tree oil so that, in effect, it became uneconomic to produce tea tree oil as envisaged under the project deed. On one view, the investors as the "farmers" might be thought to have a greater interest in terminating the project than the manager who was paid to operate the farms. If the investor owned the produce, and paid the manager for services, the loss would be likely to fall on the investor. However, that was not the present case. Rather, the investors, having paid their initial investment, were not liable to pay any further amounts to the manager, except out of the proceeds of sale of tea tree oil. In this sense under the agreements, the manager took the risk of a fall in price, whereas both parties expected to share the benefits of a higher price, especially if the price increased as predicted in the prospectus. 229 Whilst there remained a level of unpredictable volatility, and whilst the risk of a decrease lay with the manager, it was in the interests of the investors to maintain the project in the hope that, despite experience over the first four years, the price might increase at some time during the remaining 13 years of the project. 230 One way of testing the scope of the events described in cl 31(a) is to consider their operation in particular circumstances. For example, the investor was required to pay to the trustee or the manager the fees identified in cl 19. (This was one of the few obligations imposed on the investor by the licence and management agreement.) If, through circumstances beyond the control of the investor, there were no trustee or manager at the time for payment, there was no reason to suppose that the investor would not be excused from his or her performance of that obligation, at least until the offices were filled, pursuant to cl 31(a). Whether that would constitute the operation of force majeure principles, under the general law, is not decisive: cl 31 must be applied in its own terms. 231 If the vacancy in an office operates in that manner with respect to obligations under the licence and management agreement, it is not clear why it should operate differently under cl 2(d) of the indemnity agreement. 232 Further, if there is some principle by which the scope of the events described in cl 31 should be read down, it is not apparent from the caselaw to which the Court was taken. As noted above, the bulk of the caselaw regarding force majeure clauses is concerned with the supply of goods or services under a bilateral contract. Care must be taken in importing particular principles developed in that context into a multilateral arrangement of the kind identified in the project deed, which has a network of inter-relating contracts and is subject to statutory regulation. 233 The following findings should be made:

(1) the relevant event, for the purposes of cl 2(d)(i) of the indemnity agreement, was the failure to replace the trustee within 60 days of the vacancy occurring;

(2) as a result of that event, the investors (in this case the Appellant) ceased to carry on the business;

(3) that event was a cause beyond the control of the investors (the Appellant);

(4) even though the investors could not have relied on market conditions as a cause beyond their control to excuse their performance under the licence and management agreement, they did not seek to do so;

(5) although market conditions may have made it difficult for the manager to find a replacement trustee, it was not established that those conditions frustrated the purpose of the contract so as to prevent the manager performing its obligations to the investors under the contract;

(6) it was not established that the "true cause" of the termination of the business was a material diminution of the amount available for distribution to investors, or even that the manager and the (putative replacement) trustee could properly act on an opinion to that effect if they were otherwise inclined to hold that opinion, and

(7) accordingly, accepting that the event relied on by an investor for the purpose of invoking cl 2(d) of the indemnity agreement had to be an event which would excuse the investor's performance for the purposes of cl 31(a) of the licence and management agreement, the vacancy in the office of trustee was such an event. Punctual payment 234 The next question is whether the Appellant satisfied the conditions of the indemnity set out in cl 2(a), (b) and (c) of the indemnity agreement. No reliance was placed upon the terms of par (c) in particular, but it was alleged that in particular respects, the Appellant had failed to comply with pars (a) and (b), which made it a condition of the indemnity being effective and enforceable that the borrower "has punctually paid" the interest and reductions of the principal sum pursuant to or as set forth in the loan agreement. To assess this aspect of the case, it is convenient to note first the relevant principles and the approach taken by the trial judge. 235 The primary judge dealt with the question of whether punctual payment meant payment on the date fixed for payment and that payments after that date were not good, relying on Leeds & Hanley Theatre of Varieties v Broadbent [1898] 1 Ch 343 and Sperry Rand Australia Ltd v Arrandale Properties Pty Ltd [1979] VR 409. His Honour also held that no question of waiver could arise because that doctrine had "no part to play where the fact of punctual performance is one of the matters to be established before a right comes into existence or a right continues to exist", relying on Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122. 236 Leeds & Hanley Theatre involved the sale of premises, with a vendor mortgage permitting part of the purchase money to remain outstanding for three years, subject to payment of interest by equal half-yearly instalments. The Court of Appeal held that the mortgagee was entitled to call up the debt upon failure to make the first payment for a period of some days after the due date. The trial judge had thought the delay "not so unreasonable as to prevent the payment of interest from being made 'punctually' within the meaning of the proviso": at 348. The Court of Appeal rejected that approach, Rigby LJ noting (at 349) that "there was no waiver". 237 Sperry Rand involved the exercise of an option under a lease, the option being conditioned upon rent being duly and punctually paid monthly in advance on the first day of each month. The tenant paid each month, but the rent was received at a date which varied between the seventh day and the twentieth day. Lush J concluded that rent had not been paid "punctually" where payments had been made late, though before expiration of the 21 days of default required to activate the landlord's right of re-entry: p 415. Although the right of re-entry did not arise at any stage, the right to sue for the rent arose on the day after it became due. 238 Lush J in Sperry Rand also considered the comments of Dixon CJ in MacDonald v Robins (1954) 90 CLR 515. There the High Court accepted that the lessee had not failed to comply with a term of the lease by accepting an equitable assignment of his partner's interest in the leased properties. Accordingly, the effect of the breach did not arise. Nevertheless, the Chief Justice stated at 519: "The condition precedent is expressed in the covenant in the lease by the defendant, which confers the option, by the words 'the lessees having duly observed performed fulfilled and kept all the covenants conditions agreements and stipulations herein contained or implied on their part to be observed performed fulfilled and kept'. No doubt these words make it essential to the right to exercise the option that the lessees' covenants in the lease 'have been so observed and performed that there is no existing right of action under them at the time when the' option comes to be exercised, cf per Mellish LJ, Finch v Underwood (1876) 2 Ch D 310 at p 316; Bastin v Bidwell (1881) 18 Ch D 238; Wilson v Stewart (1889) 15 VLR 781. Moreover it is immaterial that the forfeiture arising from the breach of covenant has been waived as a breach of condition: Finch v Underwood ; Wilson v Stewart ." 239 Finch v Underwood (1876) 2 Ch D 310 had a similarity to MacDonald in that the joint tenants sought to renew a lease in circumstances where one, immediately prior to bankruptcy, had assigned his interest in the lease to the other. Unlike MacDonald, the agreement was treated as an assignment in law as well as equity, that being necessary to avoid a separate breach of the lease which would have arisen from the bankruptcy of the assignor. In relation to the forfeiture committed by assignment, Mellish LJ stated at 316: "This forfeiture, no doubt, has been waived, but I do not see that this waiver can alter the terms of the covenant for renewal. Very often a landlord has no intention of waiving a breach of covenant, but having received rent after notice of it, is precluded from taking advantage of the forfeiture, because it is a contradiction in terms to treat a man as a tenant, and then treat him as a trespasser." 240 Finally, reliance was placed by the Respondent on the decision in Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122. That case also involved an option to renew a five year lease conditional upon the punctual payment of rent and the due performance of covenants by the tenant. In a suit for specific performance, the tenant argued that the condition was in the lessor's favour and that it had waived performance: p 123. The Full Court rejected that submission on two bases, first, in relation to the option to renew, the Court stated at pp 123-124: "In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it." 241 Their Honours further noted at p 125: "Waiver of performance connotes that a person has a right to have a condition performed and that that right has been waived. But cl 4 gave the lessor no right to have the plaintiff perform any of the conditions stated in that clause. The conditions specified were conditions which, so far as that clause was concerned, the plaintiff might or might not perform as it thought fit. It was not bound, for example, to give notice in writing or at all, any more than cl 4 bound it to pay the rent punctually. Performance of the conditions in cl 4 was necessary only if the plaintiff wished to accept the offer contained in the clause, and performance of those conditions was the only way by which that offer could be accepted." 242 Three points are apparent from a consideration of the authorities. First, a condition referring to punctual payments is clearly intended to operate from time to time as the payment obligations arise, so that it is not sufficient that all payments have been made by the time the question of fulfilment of the condition arises. Secondly, the meaning of a particular condition must be understood within its own contractual context, a point emphasised in a number of cases, referred to and applied by Lush J in Sperry Rand at pp 412-413. Thirdly, compliance is a factual question which will need to be separately determined in each case, and the conditions as originally agreed may, by later agreement, be varied. Thus, in Wilson v Stewart (1889) 15 VLR 781 the lease provided that rental should be paid monthly in advance. However, once the primary judge, Hodges J, had accepted that that term was varied by agreement (p 787) failure to pay rent in advance was no longer a breach of the requirement that the rent had been "duly paid". 243 In the present case, the primary judge was undoubtedly correct to conclude that payment of rent made after the due date was not punctual payment. However, it remained necessary to determine what was the due date for each of the relevant payments. It was necessary to consider separately each of the contracts in which payments were made after the date provided for by the contract, taking into account the option of the borrower, as to any relevant instalment regime. Furthermore, the date of payment could be varied by agreement between the parties and, indeed, could be varied for some purposes but not for others. It was necessary to consider whether that had happened. Due dates for payment 244 As noted above, the Appellant entered into four loan agreements with A&R Finance. The first three were entered into jointly with his wife; the fourth by him alone. It will be recalled that the standard form of loan agreement required the borrower to make three cash payments. The first payment was to be made on execution of the agreement and consisted of interest for the first year in advance together with the fee for the indemnity agreement. This payment was not in issue. The second payment involved a repayment of capital and the third a lump sum payment of interest for the second year of the loan, payable in advance at the commencement of that year. 245 It is necessary to identify the capital amount repayable under the various agreements. For the purposes of the first two agreements, the amount was $8,750 and, for the purposes of the second two agreements, it was $9,800 per allotment. The first two agreements involved Project No. 1, whereas the third and fourth involved Project No. 2. Apart from the increase in the initial repayment of principal, the other arithmetical variation involved a lower interest rate in relation to Project No. 2. There was a third variation, which involved repayments of the principal amount. Under the prospectus for Project No. 1, repayments could be made by way of a lump sum of $8,750, payable three months from the date of execution of the agreement, or by quarterly payments of $2,187.50, the first amount being payable three months after execution of the agreement, or by way of monthly payments, over the year following the execution of the agreement, in an amount of $729.17 per month, commencing with a payment on the last business day of the first month following execution of the agreement. The option for repayment of the principal amount by instalments was not available under the prospectus for Project No. 2, although it appears to have been permitted for the third loan contract. 246 The largest investment involving the Appellant was the third loan (in relation to Project No. 2) and involved agreements executed on 25 June 1998, in respect of seven farms or allotments. The total amount payable under the third loan agreement by A&R Finance to Oceania, in respect of both first and second tranches, was $179,606. It is not suggested that any of the payments due from the Appellant with respect to that agreement were not punctually paid for the purposes of cl 7. Accordingly, the Appellant was entitled to rely upon that clause as extinguishing his liability (and presumably that of Ms Gilbert) in the proceedings brought against him for repayment of the outstanding principal. 247 The fourth loan agreement was dated 10 May 1999 and involved two allotments. The failure to make due and punctual payment in relation to that agreement arose in respect of an amount of $2,458 due and payable by way of interest on 31 May 2000. According to the statement prepared by A&R Finance, the interest payment was credited on 8 June 2000. If it was not received before that date, it was eight days late. The Appellant did not give evidence of earlier payment. It will be necessary to return to the consequence of this apparent late payment below. 248 The payment record in relation to the first two contracts was more variable. Each was entered into under Prospectus No. 1 and in each case the borrowers opted for quarterly repayments of the required part of the principal sum. The first contract was dated 29 October 1997 and involved two allotments. The repayment of principal on the two allotments was $4,375 payable on each of 31 January, 30 April, 31 July and 31 October 1998. The first payment was received on time, but the second payment was not. 249 These payment dates overlapped with those under the third agreement. Although, as noted above, the second prospectus application form did not contain an option for quarterly repayments of the principal sum, on 14 July 1998 the Appellant and his wife received a letter from Ms Vanessa Edwards, for A&R Finance, indicating the dates on which quarterly payments were due under the third contract. On 16 July 1998, Ms Edwards sent a letter enclosing a schedule indicating the quarterly payments due on the first loan, of which the second instalment of principal should have been paid on 30 April, but had not then been paid. Ms Edwards stated: "We thank you for your previous prompt attention to payments and do apologise for not sending a reminder earlier, however, please find enclosed a current schedule which indicates principal repayments which are currently overdue and the next payment due on your Farms in the Port Macquarie Tea Tree Plantation - Project No. 1." 250 The third instalment was due on 31 July. Each of the second and third instalments were recorded as paid on 13 August 1998, the first being approximately three and a half months late and the second some 13 days late. 251 Under the second contract, the first instalment was paid on time, but the second, due on 30 September 1998 was not. On 27 October 1998 Ms Edwards wrote again noting that the payment due on 30 September had not been made and also that there were two further payments, one under each of the first and second contracts, due on 31 October 1998. She stated: "I have enclosed new schedules for your convenience." 252 It is noteworthy that the schedules indicated that the second and third instalments under the first contract had been made on 26 August 1998, although the only reference in the evidence was to one cheque which was dated, on its face, 10 August 1998. The variance is not explained and the schedule prepared by A&R Finance for the purposes of this proceeding accepted a payment date of 13 August 1998. 253 Under the second contract, the second instalment of principal was paid approximately five weeks late, but the other three payments were on time. The interest payment under that contract, which was not due until 7 April 1999, was also late, and was received on 30 June 1999. However, on 2 June 1999, Ms Edwards wrote to the Appellant in relation to Project No. 1 stating: "Please find enclosed an updated schedule detailing your final obligations for farms in Project No. 1. The payment was due on 7 April 1999 however as we failed to send reminder notices we will accept payment as 'on time' up until 30 June 1999. The payment of the prepaid interest concludes your obligations in Project No. 1." 254 On 2 June 1999, Ms Edwards also sent the Appellant and Ms Gilbert two further letters, each enclosing a schedule detailing payments due under the third contract up until 30 June 1999 and, without comment, a schedule identifying payments due under the fourth contract. 255 It will be recalled that, pursuant to cl 5.1 (see [182] above) default in "due and punctual payment" of the interest or the instalments of the principal sum rendered the whole of the principal sum "immediately repayable at the option of the lender". Further, interest was payable on the amount outstanding at the rate of 10% per annum. Finally, interest was payable monthly in advance at the rate of 10.5% per annum, subject to the lender agreeing to accept a reduced rate during the second year conditional on payment in advance of the amount specified in cl 3.3(a)(i). Given these contractual entitlements, it would appear that the letter of 2 June 1999 with respect to Project No. 1 was an express variation of the borrowers' obligations under the first and second loan agreements. It could be construed as a waiver of any entitlement to further interest in relation to the first and second agreements, despite the 10 days lateness in payment of interest under the first contract and the need to extend the interest payment for two and a half months under the second contract. Further, all the principal repayments having been made prior to 2 June 1999, under the first and second contracts, the letter would also appear to be a waiver of any outstanding obligation in relation to repayment of the principal sums. On the other hand, it may be said that the lender merely forewent its demand for further interest; that did not show that payments had been punctually made or made "on time". That is an issue to which it will be necessary to return. 256 Mr Gardiner gave evidence of telephone conversations with Ms Edwards in which other and more particular statements were made, which were relied upon to constitute waivers of default in respect of those payments. The content of these conversations was challenged by A&R Finance and the primary judge did not accept the Appellant's version. The case for the Appellant, in relation to the payments under the first and second contracts relating to Project No. 1, must rely upon acceptance by A&R Finance that he was, by 2 June 1999, not in default under those loan agreements. 257 The real question is whether such acceptance of the payments as sufficient satisfaction of the financial obligations between it and the borrowers also satisfied the requirements for punctual payment under cl 2(d) of the indemnity agreement. There are three reasons why that conclusion may follow. The first is that A&R Finance was itself a party to the indemnity agreement and, to the extent that it waived default by a borrower under the loan agreement, it may be taken to have waived any reliance on such default by the borrower for the purposes of the indemnity agreement. Secondly, that approach is confirmed by the fact that the effect of default under the indemnity agreement is incorporated into the loan agreement, by virtue of cl 7, so that absence of default (subject to satisfaction of the other conditions) would mean that the borrower had no further liability under the loan agreement. If the lender were intending to accept the borrower's tender of payments as sufficient compliance with obligations under the loan agreement, otherwise than for the purposes of cl 7 and the operation of the indemnity agreement, that distinction should have been made clear. Nor can the indemnifier, Oceania, suggest otherwise, because it will have no obligation to make any payment to A&R Finance in respect of a borrower who has no obligation under the loan agreement. 258 The third reason is founded on the language of cl 2 of the indemnity agreement. As its terms indicate, the indemnity becomes effective and enforceable when three conditions have been met. Two are, as it were conditions precedent, namely the punctual payment of the interest and reductions of the principal sum, as discussed above. Until those amounts have been paid, the indemnity would not operate. In addition, the borrower must have ceased to carry on business for a particular reason. Further, and contemporaneously with the engagement of the indemnity, the borrower must not otherwise be in default under the loan agreement. 259 The interlocking agreements should, so far as possible, be read together, so that cl 5 of the loan agreement operated consistently with cl 2 of the indemnity agreement. Clause 5.1, set out at [182] above, is the obverse of cl 2 of the indemnity agreement. Thus, in relation to the condition in cl 2 that the borrower has "punctually paid" the interest and the reductions of capital, cl 5.1(a) permits recovery at the option of the lender if the borrower "defaults in the due and punctual payment" of interest or capital. 260 In other words, the obligation to repay the outstanding balance of the principal is conditioned on the lender opting to require repayment for default. It is doubtful whether, in the light of the conduct of the lender set out above in 1999, it would have been open to the lender in January 2002 to rely upon delay in payment to invoke cl 5.1(a). In any event, it did not purport to do so. Rather, it purported to rely upon the cessation of business as a result of the vacancy in the office of trustee and the operation of cl 46.4 of the project deed: Summons, paragraphs A.(4), B.(1)-(3), C.(11)-(19). 261 To the extent that the Appellant relied upon a verbal variation of his obligations, pursuant to telephone conversations with Ms Edwards, his Honour rejected that evidence. However, the letter of 2 June 1999, with its express reference to A&R Finance accepting a payment "as on time" up until 30 June 1999, should be understood as an extension of the time for due and punctual payment of that amount. 262 The statement that that payment "concludes your obligation in Project No. 1" is ambiguous. It may simply mean that all amounts had, by that date, been received, as opposed to an agreement that they should be treated as having been received "on time". 263 The statement is properly understood to mean that the lender would not exercise any right under cl 5.1(a) or (b) to call up the outstanding amount under the loan, for failure to make due and punctual payments. True it is that the lender could indicate such an intention without agreeing to vary the requirements of the contract, so as to treat the payments as having been made duly and punctually. On the other hand, the more limited reading of the letter would imply an intention on the part of the lender, unexpressed in the letter, that the late payments would leave the borrower at risk of a requirement to pay all outstanding moneys, together with interest calculated at the rate of 10.5% per annum even if there were a cessation of the business some 14 years later due to a matter beyond the control of the borrower. In other words, the lender would be treating the late payments as not conferring the right to call up the moneys under cl 5.1(a) and (b), but reserving the right to call them up at any time, pursuant to cl 5.1(c), on the basis that the indemnity agreement could not apply. That reading would, in my view, be entirely inconsistent with the apparent intention of the letter of 2 June 1999, which was to provide reassurance to the borrowers that they were not to be treated as in default. 264 That conclusion should apply to both the first and second loans, each of which was encompassed within the reference to obligations "in Project No. 1". 265 As already noted, the third contract, being the largest entered into by the Appellant, did not give rise to any issue with respect to due and punctual payment. The question does arise, however, in relation to the fourth contract where payment of interest was made, according to the materials before the Court, seven days late. 266 In relation to this payment, made in early June 2000, the Appellant does not seek to deny that it was late, nor does he claim any particular variation of the contractual date which was agreed to by A&R Finance. In his affidavit of 22 October 2004 (par 122) the Appellant stated that he sent the cheque in question "on or about 31 May 2000". He said he was unable to locate a copy of the cheque butt in respect of the cheque or a receipt for payment. He accepted that the cheque was presented on 9 June 2000. 267 This evidence does not support the view that the cheque was sent more than a day prior to 31 May. The history of payments indicates that where cheques were sent to A&R Finance receipts dated two working days after the date of the cheque, were routinely provided. The inference should therefore be drawn that the payment was not received on time. There was no evidence of a variation of the date for payment. Accordingly, cl 7 did not operate to avoid the liability for repayment of the amount outstanding under the fourth loan contract. Conclusions 268 Taking into account the findings at [233] in relation to the satisfaction of cl 2(d)(i) of the indemnity agreement, and the findings at [263]-[265] that all payments under loan contracts 1, 2 and 3 were punctually made for the purposes of cl 2(a) and (b) of the indemnity agreements, the Appellant owed no obligation to pay any amount to A&R Finance under those agreements, by operation of cl 7 of the loan agreement. The judgment in favour of A&R Finance in respect of those agreements should be set aside. D. BREACH OF FIDUCIARY DUTY 269 In addition to the construction issues, the Appellant argued there was a "second group of issues" which disentitled A&R Finance from recovering the amounts due under the loan agreement. It was said that A&R Finance was estopped from enforcing the loan agreements in circumstances where Oceania had acted in breach of its fiduciary duty to the investors, to act in their best interests. 270 As the trial judge noted, no assistance was obtained by seeking to impose a general law fiduciary duty, arising from the relationship between Oceania and the investors. That was because under the project deed, there was an express undertaking by Oceania to "perform its functions and exercise its powers under this deed in the best interests of all Farmers and not in the interests of itself or the Trustee if those interests are not the same as those of the Farmers generally": cl 33.17(a). That covenant was intended for the benefit of the investors jointly and severally: cl 33. (Similar covenants were made by the trustee: see cls 34 (chapeau) and 34.11.) The Appellant, in written submissions, sought to quibble with his Honour's refusal to invoke the general law fiduciary duty, but identified no benefits which would flow from reliance on that source of obligation, rather than on the contract. In any event, for the reasons noted below, nothing turns on that point. 271 The Appellant's substantive argument turned on two factual allegations. The first was that Oceania in effect conspired with GCC and Mr Claude Cassegrain to terminate the projects in circumstances which would result in the investors remaining liable under their loan agreements, without the benefit of the indemnity. This would result in a substantial recovery by A&R Finance and, through its loan arrangements with A&R Finance, by Oceania. A&R Finance was, it was contended, party to this scheme and was liable to equitable relief to prevent it taking steps to enforce repayment obligations under the loan agreements. 272 It will be seen that this contention also depends, in a significant respect, on the operation of the indemnity agreement discussed above. To the extent that the construction arguments adopted above result in the alleged scheme failing in its purpose, no relief is necessary. To the extent that those investors who could no longer rely on the indemnity because of their own failures in relation to punctual payment might be caught by the scheme, such a result would have been largely incidental to the breach of duty. 273 The second way in which a breach was alleged, was the payment away by Oceania of substantial sums in favour of GCC and Endwise (to which it was not legally indebted) and to A&R Finance, to provide the funds for further investors. To the extent that these actions involve dereliction of duty, they too fail to cause immediate loss to the investors who continued to enjoy the protection of their indemnity agreements. On the other hand, they may have adversely affected the interests of those investors who did not enjoy an indemnity, either because they had not entered into an indemnity agreement, or because they had not maintained punctual payments, because they would become liable to repayment of outstanding loan amounts. The Appellant fell within this class, in relation to his fourth loan agreement. 274 There remains a causal link to be established in order to demonstrate that a relevant loss followed from the breach of duty (assuming for present purposes that there was such a breach). The direct cause of termination of the projects was the appointment by the trustee of an administrator, which triggered the entitlement of Oceania to call for its resignation. Having taken that step, Oceania then sought a replacement trustee, but was unable to make an appointment within the 60 days provided for that to happen, under the project deed. 275 In relation to the first step, the evidence did not establish that the appointment by the trustee of an administrator to its business was in any way related to the shortage of funds with respect to the projects. 276 The second step in the chain of causation was the request by Oceania that the trustee retire pursuant to cl 37.1(a) of the project deed. It was not shown that Oceania made that request acting otherwise than in the best interests of the investors. Indeed, as the evidence set out above at [168] suggests, the preferred course being taken by Oceania was to obtain the trustee's consent to termination of the projects. As noted, ARG was either not willing or unable to give that consent, but that is insufficient evidence to establish that the request to retire was not a proper request. 277 The third step in the chain of causation was the failure to appoint a new trustee. Oceania took appropriate steps to advertise for a replacement trustee, and two parties appear to have expressed interest. Why that interest was not pursued, is simply not known. It may be that agents of Oceania took steps which discouraged a replacement coming forward, on the basis of its own impecuniosity. However, an equally available inference is that the prospective replacement trustees formed the same view as those in control of Oceania as to the long-term viability of the projects. 278 In my view, the evidence relied on by the Appellant does not establish that the projects were terminated as a result of any conduct engaged in by Oceania in breach of its obligation to act in the best interests of the investors. Accordingly, other issues relating to this basis of defence and cross-claim need not be addressed. E. REPRESENTATIONS BY MR LLOYD 279 The Appellant accepted that the core representation given by Mr Lloyd and relied upon was in relation to the operation of the indemnity so identified by the trial judge at [83]. He also accepted that this issue would only arise if he failed on the contractual claim, because it would be that result which would render the representation false. That concession was made because the representation relevantly addressed the circumstances in which the indemnity would be available generally in relation to the project, and not by reference to individual obligations, such as punctual payment. As, on my view, the Appellant succeeds on the contractual construction points, the Lloyd representations need not be addressed. F. PROSPECTUS CLAIMS 280 The investments in project 1 were, as noted above, "prescribed interests" for the purposes of the Corporations Law. Changes were made to the Corporations Law by the Managed Investments Act 1998 (Cth), which commenced on 1 July 1998. Both projects 1 and 2 were the subject of prospectuses lodged prior to that date and the relevant obligations of the trustee and the manager have been treated as subject to the pre-July 1998 law: see Corporations Law, s 1454(1), inserted by the Managed Investments Act. 281 Section 995 of the Corporations Law made it an offence for a person in, or in connection with, any prospectus issued in relation to securities to engage in conduct that is misleading or deceptive or is likely to mislead or deceive: s 995(2). Further, s 996 relevantly provided: "996 Misstatement in, or omission from, lodged prospectus (1) A person must not authorise or cause the issue of a prospectus in relation to securities of a corporation if: (a) the prospectus has been, or is required to be, lodged under Part 7.12; and (b) either: (i) a material statement in the prospectus is false or misleading; or (ii) there is a material omission from the prospectus." 282 Investments may be made on the basis of information contained in a prospectus over a period of time. During that period, the corporation may become aware of information of which it was not aware at the time the prospectus was lodged or become aware that there have been changes in circumstances since the prospectus was lodged. These eventualities were dealt with under the Corporations Law in the following provisions: " 1023B Correction of false or misleading statements etc. in prospectus by a supplementary or replacement prospectus (1) This section applies if a prospectus relating to securities of a corporation has been lodged and the corporation becomes aware, during the application period in relation to the prospectus, that the prospectus is deficient because: (a) it contains a material statement that is false or misleading; or (b) there is a material omission from the prospectus. [Note omitted]

(2) As soon as practicable after becoming so aware, the corporation must lodge a supplementary prospectus or a replacement prospectus that corrects the deficiency and that complies with whichever of sections 1024A and 1024B applies.

1024 Changes or new matters requiring the issue of a supplementary or replacement prospectus (1) This section applies if a prospectus relating to securities of a corporation has been lodged and the corporation becomes aware, during the application period in relation to the prospectus, that: (a) there has been a significant change affecting a matter included in the prospectus; or (b) a significant new matter has arisen the inclusion in the prospectus of information about which would have been required by this Part if the matter had arisen when the prospectus was prepared. (2) As soon as practicable after becoming so aware, the corporation must lodge a supplementary prospectus or a replacement prospectus that contains particulars of the change or new matter and that complies with whichever of sections 1024A and 1024B applies." 283 Sections 1024A and 1024B set out requirements in relation to supplementary and replacement prospectuses, the details of which are not presently relevant. 284 It should, however, be noted that relief was also sought for breach of s 52 of the Trade Practices Act 1974 (Cth) and for breach of ss 12DA and 12DB of "the Australian Securities and Investments Commission Act" ("ASIC Act") although whether the 1989 ASIC Act or the 2001 ASIC Act was unclear. The relevant provisions, in the Australian Securities and Investments Commission Act 1989 (Cth) had a different application at the date of the conduct complained of from their present application. Sections 12DA and 12DB of the 1989 Act did not apply to "dealings in securities", which would appear to include an offer of prescribed interests. It was not suggested in argument that any greater or different consequences flowed from reliance on the ASIC Act, in addition to the relief available under the Trade Practices Act, and the provisions of the ASIC Act may therefore be disregarded. 285 The Trade Practices Act and the Corporations Law operated in different fields. Both the circumstances of their operation and the relief available are differently expressed. Nevertheless, as in other cases, the differences appear not to be presently relevant: c.f. Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 463-464 (Black CJ, von Doussa and Cooper JJ). It may be also be noted that in a prosecution for a breach of s 996 of the Corporations Law, there was a defence of reasonable grounds for believing that the statement in the prospectus was true and not misleading or the omission not material, if the belief were formed after making reasonable inquiries. There was a similar defence in relation to an omission which was "inadvertent": s 996(2). These proceedings were not by way of prosecution and no evidence was given by any officer of a relevant corporation. Accordingly, these differences may also be put to one side. Statements and omissions 286 The statements or representations contained in the first prospectus, relied upon as false or misleading or deceptive, fell into two categories. The first concerned the liabilities of Oceania as at the date of issue of the prospectus; the second concerned the use of funds provided by the investors to Oceania. Pre-prospectus expenses 287 In relation to the first category, in describing "the manager", Oceania, at cl 3.1, the first prospectus stated: "Except in relation to the preparation of this prospectus the Manager has not traded. The Manager has no other assets or liabilities as at the date of this prospectus and all costs associated with the Project to date have been met by the parent company of the Manager. The Manager is a wholly owned subsidiary of Gerard Cassegrain & Co Pty Ltd ACN 000 342 174." 288 The assets identified constituted $50,000 cash at the bank and a $20,000 performance bond, secured by a bank deposit, and lodged with the Australian Securities Commission. Those funds were said to represent the paid up capital of the company, namely $70,000. No liabilities were disclosed. Further information was supplied in section 8 of the first prospectus, sub-section 8.2 being headed "Disclosure of Interests". In cl 8.2.4, various amounts were identified as having been paid for expert assistance in relation to the preparation of the project, "by an associate of the Manager". Clause 8.2.6 read, in part, as follows: "Except as disclosed … no sums have been paid or agreed to be paid at the date of lodgement or in the two years prior to the date of lodgement to any … promoter or expert, …: (a) in the case the Manager: (i) to procure subscriptions for or purchasers of prescribed interests; or (ii) for services rendered in connection with the promotion or inception of the Project; or (iii) for services rendered in accordance with the Project Deed … ." 289 The first prospectus was dated 12 April 1997 and was lodged with the Australian Securities Commission on 28 April 1997. On 27 June 1997 Endwise and GCC sent letters to Oceania, each being signed by Mr Claude Cassegrain and being expressed in largely similar language. One difference was that GCC noted that Oceania was aware that it, GCC, had incurred "substantial expenditure in the formative stages of the tea tree project". Endwise merely noted that it had incurred "expenditure". Otherwise each made statements to the following effect: "We acknowledge that GC & Co [or Endwise] has no present legal right to require the repayment of these costs from Oceania Agriculture Ltd (OAL). However, we expect that OAL will repay these costs as and when the cashflow from the tea tree project allows. Accordingly, we request that these costs be taken up by OAL as ['and' in the GCC letter] expenses of the tea tree project, and credited to a loan account in the name of GC & Co in the accounts of OAL for the year ending 30 June 1997. We confirm that GC & Co, in consideration of these costs being taken up by OAL, agrees that it will accept repayment of these amounts in accordance with the capacity of OAL to pay after due allowance for all reasonable expenditure (present and forecast) associated with the business of OAL, and further that GC & Co will not demand repayment of these amounts or pursue any legal rights to recover these amounts before June 2000. GC & Co's undertakings as set out in the above paragraph are subject to the condition that OAL acts in good faith to repay the amounts due at the earliest reasonable opportunity (consistent with the development expansion of the business of OAL)." 290 These letters were either disingenuous, or reflected confusion on the part of the author. Acknowledgement that the companies had no "present legal right" to require repayment, did not sit well with the expectation that OAL would "repay" the amounts and the request that they be "credited to a loan account" in the accounts of OAL. If Oceania had no such legal obligation, it is not clear how the costs were to be "taken up" by Oceania, with the result that it would incur an obligation to make "repayment" which would not be 'demanded' before June 2000. Further, Oceania was required to act "in good faith to repay the amounts due". 291 No amount was stated in the letters of 27 June 1997 but Oceania admitted in its defence to the cross-claim that, as at 30 June 1997 it "owed" GCC $751,349 (together with $286,000 by way of a management fee) and that it owed Endwise $29,402: Defence to Cross-claim, par 26(d)(vi). 292 Mr Lloyd, on behalf of Oceania, was later to write to the Australian Taxation Office (on 6 May 1998) stating, amongst other things: "There were no other loan agreements between the parties or other member of the group in the year ended 30 June 1997. However, loans did exist in the books as follows: … (b) OAL owed GC & Co $751,349 and Endwise $29,401 as at 30 June 1997 which related to services provided and costs incurred by GC & Co and Endwise on account of OAL between the date upon which OAL commenced business (November 1996) and 30 June 1997 … ." 293 Despite this material, a supplementary prospectus dated 6 August 1997, made no disclosure of the liabilities. The liabilities should have been considered significant, as (apart from the management fee) they totalled approximately $780,000 and the current assets of Oceania were noted in the accounts of 30 June 1997 as $2 million. 294 The trial judge appears to have accepted a submission that no such liability existed as at 30 June 1997 or indeed until 28 August 1997 when a resolution of the board of directors of Oceania "accepted" the liabilities. Accordingly, his Honour held, there were no liabilities to be disclosed prior to that date. 295 It is tolerably clear that GCC sought to recover from Oceania costs incurred in connection with the inception and promotion of the project. These costs were originally funded by way of an overdraft facility granted to GCC by the Commonwealth Development Bank. Thus, on 3 January 1997, Mr Lloyd writing on behalf of GCC to the Commonwealth Development Bank sought funding of $750,000 for the tea tree project, including specified amounts for land preparation, fund raising, borrowing costs and interest, operating costs, plantation establishment and contingencies. In a further letter dated 12 March 1997, Mr Lloyd sought an extension of the term of the facility until July 1998 "to allow a further 12 months sales period". He continued: "Given the delay in obtaining approval for the facility, and to allow for any contingency which may require additional selling time, we request that the facility be extended to 30 June 1998. This will allow for 1997/98 sales to be available for debt repayment."

He noted that if a minimum level of subscriptions of 50 farms were not achieved by 30 June 1997 there would be an immediate program "to sell the tea tree project land to facilitate repayment of the $750K facility". On 3 April 1997 Mr Claude Cassegrain wrote on behalf of GCC referring to a letter of the previous day from the Bank "advising of approval for a $750,000 overdraft facility for working capital in relation to the Port Macquarie Tea Tree Plantation". It may be noted that a schedule of expenses paid by GCC to be taken up by Oceania in 1996/97 included an amount of $13,913, being bank fees on funding "PMTTP", which is clearly a reference to the fee payable by GCC to the Commonwealth Development Bank. According to the letter of 3 April 1997, the amount paid on account of the establishment fee, stamp duty and registration charges totalled $13,600, but the variation is not significant. It should also be noted that an amount $18,497.50 was included in the indicative sheet of expenses "paid by GCC" to be taken up by Oceania in 1996/97. 296 On 18 July 1997 Mr Lloyd wrote, again on behalf of GCC, to the Manager - Business Banking, Commonwealth Bank of Australia, noting that in the period to 30 June 1997 125 farms had been sold "representing gross sales of some $3,000,000." Of that amount he noted that there was a cash flow generated to Oceania of $396,000 with a further $8,750 per farm due by 31 October 1997 on each of the "financed sales", which were all but one of the farm sales, providing a further cash flow of $1.085 million. He concluded that the "outlook for the tea tree project is favourable for 1997/98 and we are comfortable that the target sales of 400 farms are achievable based on our results in the five weeks to 30 June 1997". It is clear that the cash flow from these sales was being proffered to the bank as a source of funds available to GCC for interest and loan repayments. 297 The Appellant pleaded in his cross-claim that there was a "common understanding" between GCC and Endwise on the one hand and Mr Lloyd representing Oceania on the other that Oceania would meet the loan expenses and repayments incurred by GCC in relation to the overdraft facility. Indeed, the expectation appears to have been held by Mr Lloyd both before and after the incorporation of Oceania, before that date, in his capacity as a director of GCC and thereafter in his capacity as managing director of Oceania. I would infer that the understanding existed prior to the issue of the first prospectus on 12 April 1997. It was clear that, since the first letter from Mr Lloyd to the Commonwealth Development Bank of 14 August 1996, GCC had been seeking funding, in an amount of $750,000, to finance stage 1 of the tea tree project. That GCC would wish to pass on the cost of such financing to the manager of the project, and recover funds which it had itself expended on the project makes commercial sense. The denial in the prospectus that any such liability had been incurred by Oceania was false. 298 The trial judge dealt with the evidence on the basis that because the directors of Oceania only "accepted" the "claims" by GCC and Endwise on 28 August 1997, there was no misleading or false statement in either the first prospectus in April 1997 or the supplementary prospectus of 6 August 1997: at [176]. However, the means by which the common understanding was formalised does not necessarily fix the date at which it existed. The covering letter to the prospectus is signed by Mr Lloyd as managing director of Oceania. I would infer, in the absence of evidence to the contrary, that he, as the person who negotiated the funding for the development and promotion of the project, was aware of the understanding on the part of GCC (for whom he negotiated the loan) that Oceania would repay those amounts. His letter to the ATO confirming that, as at 30 June 1997, Oceania had such liabilities is persuasive confirmation of that inference. Even if such a view had not been held on behalf of Oceania prior to the receipt of the letters on 27 June 1997 from GCC and Endwise, it would have been necessary for Oceania to form a view immediately as to whether or not the claims were well founded, and in what amount, so that a supplementary prospectus could be published, if the claims, especially that of its holding company, were not rejected. 299 It should be noted that the "acceptance" which occurred on 28 August 1997 followed acceptance of the accounts for the year ending 30 June 1997, a specific item of which referred to the "expenditure incurred by GC & Co", in the following terms: "The Board confirmed the existing arrangements made in June 1997 for expenditure and charges of GC & Co in relation to the tea tree project to be taken up in the 1996/97 accounts of the company offset by a loan from GC & Co to OAL on the basis that GC & Co will not demand repayment of the loan before 30 June 2000."

That language was consistent with an existing liability, subject to a concession not to demand repayment within a particular period. The funding arrangement 300 The second non-disclosure relied upon by the Appellant concerned the arrangement by which funding was to be made available to investors. The trial judge stated at [134]: "There is no secret about the fact that some monies which investors might reasonably have supposed would be used in the Projects found their way via round robin transactions back into the hands of the plaintiff [A&R Finance] or Mr Cassegrain … ." 301 In the cross-claim, the Appellant had pleaded that on or about 18 October 1995, GCC had borrowed $3 million from the Commonwealth Development Bank with which to develop the projects, including money for the purpose of loaning funds to Oceania to be advanced to A&R Finance, so that A&R Finance could make loans to investors in the projects. That was admitted by Oceania, which was incorporated in November 1996. In the letter to the Australian Taxation Office dated 6 May 1998, Mr Lloyd advised that A&R Finance owed GCC $250,000 for funds provided to facilitate loans to investors on the tea tree project. The loan was said to be "unsecured and interest free, and was repaid on 2 July 1997". Other funding came from Oceania, with the result that, in the period to 30 June 1997 Oceania had provided $2.45 million to A&R Finance by way of loans. The arrangements between Oceania and A&R Finance were formalised in a deed dated 27 December 1997. 302 The first prospectus contained a section headed "Additional Information", being section 8. Paragraph 8.1 read as follows: " 8.1 Application of Funds The funds paid by each Farmer will be applied by the Manager in the provision of services and rights as described in the Management and Licence Agreement. The Manager is permitted by the Project Deed to invest any surplus funds in investments authorised in the Project Deed in the name of the Trustee."

It was not contended that a loan to A&R Finance constituted an authorised investment under the project deed. 303 Paragraph 8.9 of the prospectus read, in part, as follows: " 8.9 Cashflows In the opinion of the Manager the funds to be raised are adequate under foreseeable conditions to allow the Manager to meet its obligations under the Licence and Management Agreements. Budgeted expenditure may vary significantly from actual costs as a result of factors beyond the control of the Manager such as ground conditions and weather. The table below shows the anticipated expenditure of the initial Management Fee of $23,750 per Farm based on the minimum subscription level (50 Farms) and the maximum subscription of 400 Farms." 304 The table contained various items of expenditure, including a heading "Contingency, Profit & Risk". A note to this item stated: "Contingency, profit and risk will be expended as required to meet any unforseen costs or variations in costs. The amount remaining (if any) after the completion of the Manager's obligations pursuant to the Licence and Management Agreements will represent the profit to the Manager for the assumption of the commercial risks inherent in providing a fixed price to perform the services to be provided to Farmers." 305 Although the sale of 125 farms prior to 30 June 1997 should, on the calculations provided in the prospectus have produced a cashflow to Oceania of almost $3 million, the fact that all but one of the investments were financed and that the moneys used for that purpose were recirculated, meant that the statements set out above in the prospectus were indeed false and misleading. 306 The next question is whether any loss or damage flowed to the Appellant from the statements. Relief available 307 As noted above, the obligation not to engage in misleading or deceptive conduct in connection with the issue of a prospectus was contained in Part 7.11 of the Corporations Law. The obligation to correct a material statement was contained in Part 7.12. Civil liability for contravention of such provisions was to be found in s 1005 (in Part 7.11) which read as follows: " 1005 Civil liability for contravention of this Part or Part 7.12 (1) Subject to the following sections of this Division, a person who suffers loss or damage by conduct of another person that was engaged in in contravention of a provision of this Part or Part 7.12 may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention … ." 308 The primary claim made by the Appellant was that he suffered loss or damage by entering into the loan agreements in circumstances in which he would be obliged to repay the full amount of each loan, without the benefit of the indemnity, because of the termination of the businesses. However, the prospectus was issued by Oceania, while the Appellant entered into the loan agreements with A&R Finance. In part the relief sought was an order setting aside the loan agreements, pursuant to s 1325 of the Corporations Law. Pursuant to s 1325(5)(a) the Court may make an order which will prevent or reduce the loss or damage, being an order declaring the whole or any part of a contract between the person who suffered the loss and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, to be void. Alternatively, such an order might merely be an order refusing to enforce any or all of the provisions of such a contract: s 1325(1) and (5)(c). However, in each case it would be necessary for A&R Finance to be "a person involved in" the conduct. 309 For the purposes of s 1005(1), a reference to a person involved in the contravention "includes" a reference to any of a number of categories of persons none of which in terms would catch A&R Finance. However, the definition in s 1006(2) is inclusive and not exclusive. Where a corporation is directly involved in the conduct which involves false or misleading representations, in the sense of being "knowingly concerned in" those representations, to adopt the terminology of s 75B of the Trade Practices Act, it is at least arguable that it is "involved in" the conduct. 310 There are, however, two further elements which must be established by the Appellant. The first is that he suffered "loss or damage"; the second is that he suffered such loss "by" the conduct in contravention of the Corporations Law. 311 In relation to the first element, it is apparent that the Appellant has suffered both benefits and potential losses from the investments he made. The benefits involve tax deductions which he obtained on the basis of his investments; the losses, relevantly for present purposes, are limited to any payments he may be required to make under the loan agreements, to which the indemnity does not apply. 312 In relation to the second element, he must establish a causal connection, implicit in the word "by" between such losses as he may be able to establish and the contravening conduct. 313 Assistance can be gained in relation to the assessment of loss from the principles established in relation to a claim under ss 52 and 82 of the Trade Practices Act: see HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. Guidance in relation to the relevant causal connection may be obtained from an earlier case involving a claim under the same provisions of the Trade Practices Act, namely I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109. Nevertheless, in the present case, the Appellant failed at an anterior point: the trial judge concluded that he did not "read or rely on" the supplementary prospectus of 6 August 1997. If this finding stands, it might be inferred that he would not have read a supplementary prospectus which corrected any errors or omissions in the original prospectus. However, the Appellant challenges the factual finding made by the trial judge in relation to the supplementary prospectus. As the Appellant noted, his Honour gave no reasons for that conclusion. 314 The Appellant swore a number of affidavits in the proceedings, and was cross-examined on them. His first affidavit of 22 October 2004 gave a broad description of the manner in which he became aware of the project in May 1997 and set out various respects in which he took account of the contents of the first prospectus. He stated that he took account of the risks involved in the investment and the identity of the parties and their apparent expertise. The tax benefits were a significant factor in his decision to invest, as was the nature and extent of the indemnity. He noted that he had received a copy of the supplementary prospectus in or about late August 1997 and executive summaries prepared by Mr Atkinson in relation to it: at par 38. He attached the documents to his affidavit, but said no more about them at that stage. 315 On 10 May 2005 he swore a further affidavit in which he stated that he had also noted the statement at par 3.1 in relation to the assets and liabilities of Oceania and the statement on p 93 concerning the absence of any interest of a promoter as having arisen in the two years prior to the date of lodgement of the prospectus. He also referred to the express provisions in the first prospectus concerning the manner in which the licence and management fees would be used. At paragraph 3 he stated: "The additional portions of the Prospectus to which I have referred in paragraph 2 above caused me to understand that the licence and management fees, payable by Farmers to OAL as manager under the Licence and Management Agreement in the first two years of the Project, would be expended by OAL in performing its obligations to Farmers (including the provision of the Services (as defined)) under the provisions of the Project Deed and the Licence and Management Agreement and for no other purpose." 316 He further stated that he held such a belief when he made each of the investments and that whilst he had read the prospectuses and supplementary prospectuses nothing caused him to form a different understanding to that identified in paragraph 3. He then continued (in paragraph 6) to set out the matters with respect to which complaint is now made and stated that had he been aware of the matters at the time he made his investments he would not have made his investments because the agreements and arrangements were contrary to his understanding "that the Projects had the backing of the Cassegrain family, and, had I been aware of them, the agreements would have raised a concern in my mind about the financial viability of not only the manager, but also the Cassegrain family". He noted in an annexure to the affidavit that amounts totalling a little under $1.166 million had been paid by Oceania either to GCC, Endwise or the Commonwealth Bank in the period up to 13 May 1999. 317 The Appellant was cross-examined by counsel for A&R Finance as to his failure to note in his first affidavit the factors referred to in relation to the financial arrangements in his second affidavit: Tcpt, 26/07/05, pp 22(30)-(45) and 29(40)-31(5). His explanation for the subsequent additions was that at the time of his first affidavit, he was not aware of the financial circumstances which were to cause him concern when they were discovered. 318 He was also cross-examined by counsel for Oceania, the thrust of the cross-examination being that, by the time he made his final investments in June 1998 and in May 1999, he was aware of the inter-company loans and payments because he had obtained a copy of the accounts dated February 1998 which were in the prospectus for project 2 at that time. The cross-examination was directed to the proposition that his statement that he would not have made investments had he known of those inter-company liabilities was incorrect. He denied that conclusion and stated (Tcpt, 27/07/05, p 84(35)): "I couldn't tell from these accounts when those debts were taken up or for what purposes. When I went through this balance sheet, and it's common in a group of companies to see company loans, if the disclosure was such that there were expenditures incurred prior to the prospectus date, I would have been very concerned."

He agreed, however, that he had been aware at the time that there was insufficient disclosure in the accounts and that he had not queried that aspect of the matter. 319 The relevant passages in the cross-examination of the Appellant were designed to suggest, not that he had not read the prospectuses, nor that he had not understood them, but that matters which he now claimed he had relied upon were in fact of little or no concern to him at the time. Indeed, the commencement of the cross-examination on behalf of A&R Finance was to the effect that he was an experienced investor, had been a member of the Australian Stock Exchange from 1988 to 1997 and was well able as a person with training in accountancy and law to read and comprehend the contents of a prospectus. It follows, in my view, that his Honour's conclusion that he had not read the supplementary prospectus of 6 August was an incorrect finding on the basis of the evidence. Indeed, it is a surprising finding as, in relation to the second prospectus of February 1998, his Honour accepted that he had read the prospectus and read the disclosure of non-current liabilities to related companies. The evidence did not, in my view, allow this distinction to be drawn without some specific reason for disbelieving the Appellant in relation to one particular prospectus amongst several. The trial judge gave no reason and none is apparent to me on a reading of his affidavits and oral testimony. 320 Furthermore, the explanation for not including reference to statements as to the financial viability of Oceania in the first affidavit was plausible, given that he was not then aware that the viability of the manager was in issue because of payments made to related companies, for the very reason that they had indeed not been disclosed and thus the Appellant did not know of them until after the preparation of his first affidavit. Consequential loss - fourth loan contract 321 On the basis that he did read the prospectuses, it is necessary to consider whether the misrepresentations caused him to suffer loss in relation to the fourth loan contract. There are three ways in which potential consequential loss may be viewed. The first and most direct assessment would concern the financial viability of the project. That would require an assessment of whether, at the time the project terminated, the availability of additional resources to Oceania might have provided a financial basis to continue the maintenance of the project in the hope that the prices available for tea tree oil would improve. A second approach would be to view the matter from the point of view of the investor concerned as to the financial viability of the project at the time of making an investment. To such an investor it is possible that a statement of the true position in relation to the funds available to the manager would have dissuaded that person from making an investment with the result that any consequential loss (whether caused by inadequate reserves or extraneous factors) would not have been suffered. The third approach is to consider the position of the investor at the time of making the investment, but consider such loss as may have been suffered through making an investment which would not have been made had the true position be disclosed, by reference only to that loss which can be proved to have flowed from the false or misleading statement. The trial judge appears to have adopted the first option, taking the view that no loss or damage was suffered unless it was the false or misleading statement which was "the cause of the project's failing": at [134]. 322 In my view, the correct approach is to focus on any causal connection between the misrepresentation and the investment decision. The case was presented on the basis of a cross-claim to the demands for payment by A&R Finance under the loan agreements. The Appellant's primary position was that the loss or damage he faced was the obligation to make such payments. However, those payments were not required if the indemnity applied. The conclusions set out above in relation to the operation of the indemnity mean that he will not be required to make payments under loan contracts 1, 2 and 3, so that his liability is limited to loan contract 4. Different questions of causation are relevant in relation to different periods of time. The fourth loan agreement, as noted at [247] above, was dated 10 May 1999. That involved an investment in project no. 2, pursuant to the second prospectus, issued on 16 February 1998. It is the causal connection between relevant misrepresentations and that investment decision which should be addressed. 323 The prospectus for project no. 2 varied from the earlier prospectus in significant respects. In particular, the statements referred to above (to be found in paragraph 3.1 of the first prospectus) concerning the assets and liabilities of the manager, did not appear in the second prospectus. Rather, there was a note that Oceania was the manager of project no. 1 and gave details of the manager's financial position in an investigating accountants' report set out in section 6 of the second prospectus. In relation to the disclosure contained in paragraph 8.2.6, concerning the absence of other interests, reference to the absence of any interest in the promotion of the project was restricted to project no. 2. 324 Of critical importance in this context was the investigating accountants' report which appeared at section 6.4 of the second prospectus. That included brief financial statements in respect of Oceania and A&R Finance. In relation to Oceania, the accounts revealed total assets of $3.4 million and total liabilities of $3.9 million, leaving a net deficit of approximately $500,000. The notes in relation to receivables included reference to current and non-current loans to A&R Finance totalling $2.4 million. The liabilities included loans from related companies in an amount of $780,751 and the notes to the balance sheet referred to the inter-company loan from GCC, a management fee incurred by GCC on behalf of Oceania of $286,000 and the inter-company loan to Endwise in an amount of $29,402, which was described as "reimbursement of expenses … for operational expenses incurred on behalf of" Oceania. 325 The financial statement for A&R Finance reflected the loans from Oceania and the further loan of $252,880 from another company, which was presumably a reference to the loan from GCC which provided the seeding money for the financing arrangement. 326 Although there is no express statement about the financing arrangements, these accounts would place an interested party on notice that the investments might in fact be the subject of finance from the manager, which would render it financially dependent on the viability of A&R Finance. However, A&R Finance included in its assets receivables totalling approximately $2.75 million, being almost the total amount of its assets. It may be inferred that the bulk of the non-current receivables were loan repayments which were subject to the indemnity granted by Oceania. Accordingly, the informed reader would be at least put on notice that should either project terminate in circumstances where the indemnity agreements operated, the viability of both companies would be in serious doubt. 327 In relation to the disclosure of the inter-company arrangements with GCC and Endwise, it is true, as the Appellant noted in his cross-examination, that the accounts do not reveal that the liabilities arose in relation to promoter's expenses which pre-dated the first prospectus. Indeed, someone who had read the first prospectus, as well as the second prospectus, might have assumed that the liabilities arose from activities undertaken following the issue of the first prospectus. The Appellant contended that it would have made a difference to his willingness to invest again to have known that the amounts payable, particularly to GCC, were a liability which pre-dated the first prospectus. However, that evidence is not entirely persuasive. Taking the cross-examination as a whole, and disregarding the finding of the trial judge that he was "not particularly impressed with Mr Gardiner as a witness" (at [147], made in relation to a discussion of his evidence with respect to representations made by Mr Lloyd) I am not persuaded that error is shown in his Honour's conclusion that the Appellant did not demonstrate that his decision to invest in project no. 2 was materially affected by any false or misleading statement in the second prospectus: at [179]. Prospectus No. 1 - first three loan contracts 328 On the basis of my conclusions with respect to the first three loan contracts, it would not be necessary to pursue further the liability in relation to the misleading statements made in the first prospectus and its supplementary prospectus. However, in case those conclusions are not shared, it is appropriate to note the further questions which would then arise. 329 Identification of a sufficient causal connection between a misleading or deceptive statement and loss or damage is frequently expressed in terms of 'reliance'. However, the requirement in s 1005 of the Corporations Law, in common with s 82 of the Trade Practices Act, that the plaintiffs suffer loss or damage "by" conduct of another in contravention of s 996 of the Corporations Law (or s 52 of the Trade Practices Act), has been recognised as invoking a somewhat amorphous concept, although "the word clearly expresses the notion of causation without defining or elucidating it": Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 (Mason CJ). Indeed, the word "by" encompasses two related but separate problems. The first is the connection between the representation and the plaintiff's conduct; the second is the connection between the representation and the loss or damage suffered. 330 So far as the former consideration is concerned, it is clear that the representation need not be the sole, or even the dominant causative factor. It is sufficient that it is one of a number of factors inducing a decision that produces loss: see Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229 at 235 (Lockhart, Gummow and French JJ). Their Honours stated: "A finding that a misrepresentation might have induced the decision will not of itself establish as a matter of probability that it did. Consistently with that finding, it may be that, on the balance of probabilities, a party was induced to make a decision by a combination of factors including the misrepresentation. Assuming a non-trivial contribution to the causative process by the misrepresentation, then it may be actionable." 331 It has also been held that recovery will not be precluded where a plaintiff has acted carelessly or unreasonably, consistently with the principle that contributory negligence is not a defence to such a claim: see Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 517 (Heerey J, Sundberg J agreeing). To similar effect, Gleeson CJ remarked in Henville v Walker (2001) 206 CLR 459 at [13]: "It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under s 82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage." 332 As noted above, the Appellant gave evidence of his reliance on the prospectus and on aspects of it which were false or misleading. He was cross-examined in relation to that evidence and provided explanations for the belated nature of his complaint. However, the difficulty in making specific factual findings in that respect will be referred to below in considering the connection between the misrepresentations and the loss. 333 Consistently with authority in relation to the related language of the Trade Practices Act, that evidence cannot be rejected simply on the basis that it is "easy to be wise after the event": see Farwell J in Cackett v Keswick [1902] 2 Ch 456 at 463 (quoted at [454] below). On one view, described by Handley AJA as the view of a person "of commercial experience who read the accountant's report with a minimum of attention", it was clear from the second prospectus and the accounts received in September 1998, that the funds received by Oceania had been made available to A&R Finance to permit further loans to other investors. It would also have been clear that, contrary to the statements in the first prospectus, GCC and Endwise had interests in the first project, as a result of which $741,000 had been paid to GCC by 30 June 1998: see [470]-[471] below. The inference is then drawn that, the Appellant was either insufficiently interested in the accounts to appreciate the significance of the disclosures or, if he did appreciate them, considered them immaterial: at [472]. From that it may be inferred that he placed no weight on the misrepresentations contained in the first prospectus. 334 With respect, I do not accept that reasoning. The very inferences which are sought to be drawn were relied upon in cross-examination of the Appellant as a basis for suggesting that he was aware of these factors long before his second, or indeed his first, affidavit. As already noted, he explained that he had not drawn the inferences from that material. Indeed, the cross-examiner appears to have accepted the explanation and established as a fall-back position that the accounts and the second prospectus should have given rise to inquiries, if the inter-company liabilities were unclear either as to their source or timing. 335 One might infer that the Appellant had not read the second prospectus and the later accounts with the care that he asserted, but carelessness does not demonstrate the falsity of his assertion that he placed reliance upon the misleading statements in the first prospectus. In my view, on the evidence given, which was not the subject of a finding by the trial judge, it should not be inferred that the misleading statements in the first prospectus did not constitute an element in his decision to invest in Project No. 1. 336 However, it is less clear that the positive inference should be drawn. This would require an assessment of the Appellant's evidence which would not reasonably have been open to this Court, in the absence of any assessment of the specific evidence by the trial judge. Anticipating that possibility, the Appellant sought a retrial in respect of the prospectus claims. However, on the basis that he succeeds in relation to the first three loan contracts, and would fail on the fourth loan contract on the prospectus claim for other reasons, this matter need not be pursued. 337 The next question would be to identify the loss or damage which flowed from the investment decisions and the relief appropriate in the circumstances. Again by way of analogy with the Trade Practices Act, that exercise attracts the principles discussed in Henville v Walker (2001) 206 CLR 459 and Travel Compensation Fund v Tambree (2005) 224 CLR 627. As stated by Gleeson CJ in Tambree, at [32]: "Misrepresentation will rarely be the sole cause of loss. If, in reliance on information, a person acts, or fails to act, in a certain manner, the loss or damage may flow directly from the act or omission, and only indirectly from the making of the representation. Where the reliance involves undertaking a risk, and information is provided for the purpose of inducing such reliance, then if misleading or deceptive conduct takes the form of participating in providing false information, and the very risk against which protection is sought materialises, it is consistent with the purpose of the statute to treat the loss as a resulting from the misleading conduct." 338 To similar effect, Gummow and Hayne JJ stated at [45]: "It is now clear that there are cases in which the answer to a question of causation will differ according to the purpose for which the question is asked. As was recently emphasised in Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [(2005) 221 CLR 568 at 596-597 [96]-[97] per Gummow, Hayne and Heydon JJ], it is doubtful whether there is any 'common sense' notion of causation which can provide a useful, still less universal, legal norm. There are, therefore, cases in which the answer to a question of causation will require examination of the purpose of a particular cause of action, or the nature and scope of the defendant's obligation in the particular circumstances."

(See also the comments of Callinan J at [81].) 339 In Henville v Walker, at [97], McHugh J stated: "The common law concept of causation recognises that conduct that infringes a legal norm may be causally connected with the sustaining of loss or damage even though other factors may have contributed to the loss or damage. Every event is the product of a number of conditions that have combined to produce the event. … Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage." 340 His Honour continued at [106]: "As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional." 341 The first question is whether the claim in the present case must fail because the proximate cause of loss was the failure of the project, which in turn resulted from a downturn in the market for tea tree oil. That was not, however, an intervening event of the kind sought to be identified by McHugh J in the passage referred to above. That risk was always present and indeed the prospectus expressly identified the proposed investments as "speculative". The conduct to which the misrepresentations contributed in a material sense was the making of each investment decision. That required payment of $24,060 per farm. Pursuant to the financing arrangement, the investor contributed only $1,310 of that amount in cash, the balance being funded by A&R Finance, to the sum of $22,750. According to the summons issued by A&R Finance, the amount sought to be recovered from the Appellant in relation to each investment was the outstanding capital under the loan agreement, together with interest. The primary relief sought by the Appellant on the cross-claim was an order restraining A&R Finance from recovering moneys under the loan agreements and a declaration that it was not entitled to recover such amounts of principal or interest. 342 There are two difficulties in the Appellant's path in seeking such relief. First, there is the question of involvement of A&R Finance in the misrepresentations in the prospectus. Secondly, there is the question, in this case hypothetical, as to the reason why the amounts are repayable. In other words, compliance with the requirements for timely payment under the loan agreements would have satisfied the preconditions of the indemnity, so that no amounts would have been due and payable by the Appellant. The second question thus becomes whether it was the hypothetical failure of the Appellant to make such payments that would in a legal sense have been the cause of his loss, as opposed to the misrepresentations made in the prospectus. 343 My tentative view in relation to the first question is that A&R Finance could not escape the relief sought, the prospectus being materially misleading in relation to the financing arrangements, to which A&R Finance was a party. Those arrangements included the borrowings which constituted its primary capital and the round-robin arrangement by which loan moneys were returned to it by Oceania, for further lending. 344 On the assumption that the first question were to be answered favourably to the Appellant, the next question would be whether there was an intervening cause of his loss. In my tentative view there was, on the assumption that there was a failure to comply with the preconditions to the operation of the indemnity. The misrepresentations were not necessarily irrelevant to the operation of the indemnity, but there was a link in the chain of causation which was missing in the evidence in the present case. It is reasonably clear that the Appellant relied substantially on the availability of the indemnity, which greatly reduced the risk of loss to him, should the project fail. Thus, his evidence was that he placed significant reliance on statements of Mr Lloyd as to the operation of the indemnity in the circumstances of the present case. The indemnity, however, if available, would have removed a significant speculative risk in the event that the project failed. By contrast, the misrepresentations in the prospectus went, in different ways, to the financial viability of those responsible for the continuation of the project. Greater financial resources might have allowed the project manager to ride out a downturn in the price of tea tree oil, even over a number of years, given the expected longevity of the project. On the other hand, there was a tension between the Appellant's evidence of reliance on the indemnity (which limited the importance of long term financial viability) and his expressed reliance on the financial resources of the project manager. Because relief was sought from on-going liabilities under the loan contracts, the causal link to the loss suffered should have involved the assertion that he was remiss in maintaining timely payments under the loan contracts (that being the hypothetical assumption) because he was satisfied as to the financial stability of the project manager. Evidence to that effect was not given. 345 My tentative view in relation to this second question is that, on the assumption that the Appellant failed to avoid liability under the loan contracts by reliance on the indemnity, he would have failed also in his claim based on the first prospectus. That would have been because the primary cause of his loss or damage was his failure to maintain the benefits available under the indemnity, a failure which was not linked on the evidence to the misrepresentations in the prospectus. (Such a conclusion might also affect an assessment of the evidence concerning reliance in deciding to invest, noted at [332]-[336] above.) 346 It is inappropriate to form final views in relation to these matters, or the evidential question referred to earlier, given that they do not arise for determination on the appeal. 347 The availability of relief which might have been appropriate if the Appellant had established loss or damage flowing from any false or misleading statement in the prospectuses, also falls away. CONCLUSIONS 348 The Appellant has been successful in establishing that he had no liability under the first three loan agreements entered into with A&R Finance. Accordingly, the judgment entered for A&R Finance should be set aside. In lieu thereof, there should be judgment in favour of A&R Finance limited to the loan agreement dated 10 May 1999, in an amount of $31,616.35 together with interest. 349 In relation to the cross-claim against Oceania, the Appellant has been successful in establishing that the prospectus in relation to project no. 1 included false or misleading representations, which (in my view) might have entitled him to relief if the Appellant had not succeeded in his reliance on the indemnity with respect to the loan agreements for investments in project no. 1. However, the Appellant has not succeeded in his cross-claim with respect to the fourth loan agreement either in relation to reliance on the indemnity, in respect of his misrepresentation claims outside the prospectus (Mr Lloyd's statements) nor in relation to the complaints with respect to the prospectus for project no. 2. 350 To the extent that the Appellant did not need to rely upon the cross-claim in relation to the first three loan agreements, that was because the indemnity, to which Oceania was a party, was effective to protect the Appellant from liability to A&R Finance. The Appellant sought relief to that effect, by way of declaration, in his cross-claim. That relief would in effect operate in respect of the rights as between A&R Finance and Oceania: such relief is neither necessary nor appropriate. Although that basis for relief was made out other aspects of the cross-claim were not and the cross-claim against Oceania should be dismissed. 351 There were three further forms of relief sought. First, A&R Finance filed a cross-appeal in relation to certain factual findings made by the primary judge in relation to Mr Lloyd. That course was unnecessary and that cross-appeal should be dismissed. Secondly, there was a cross-appeal filed on behalf of Oceania. It raised a similar matter, but sought a variation of a costs order made below. It will be necessary to set aside the costs orders made below for different reasons and accordingly this cross-appeal should also be dismissed. Thirdly, there was a notice of motion filed on behalf of A&R Finance seeking to amend the summons by which proceedings were commenced in the Equity Division to claim an entitlement to costs as a contractual right under the loan agreements. Because A&R Finance will not receive costs as a result of this appeal, that motion should also be dismissed. 352 It remains to consider the appropriate order as to costs, both in relation to the proceedings in this Court and in the Equity Division. Because there were a number of separate issues and because no party was successful in respect of all issues, practical justice can best be achieved by applying the principle that costs follow the event by way of a broad overall assessment of success in the proceedings, taken as a whole. By approaching costs in a global way, it is intended that allocation of costs between claims and cross-claims, appeals and cross-appeals, notices of contention and notices of motion is not appropriate. 353 The contractual claim by A&R Finance, with respect to four loan agreements, resulted in the matters of construction being resolved largely in favour of the Appellant, and A&R Finance obtaining judgment in respect of only one loan agreement. The success of the Appellant in that respect was based upon the indemnity to which Oceania was a party, which was held effective to protect the Appellant from liability to A&R Finance in relation to three of the loan agreements. To the extent that the cross-claim sought relief from the contractual claims of A&R Finance, that relief was unnecessary and should not be granted. However, a significant part of Oceania's case in this Court involved submissions in support of A&R Finance on the operation of the indemnity, being arguments rejected by this Court. Thus, although the cross-claim should be dismissed, Oceania was otherwise unsuccessful in relation to major issues addressed by it and it is inappropriate to order either party to pay the costs of the cross-claim, as between the Appellant and Oceania of the proceedings in the Court below. Further, no order for costs should be made in favour of or against Oceania in relation to the proceedings in this Court, for the same reason that no order is appropriate in the Equity Division proceedings. 354 As between A&R Finance and the Appellant, the Appellant has had a large degree of success, although not by any means total success in relation to the issues raised. Again adopting a broad-brush approach, the appropriate order is that A&R Finance should pay 50% of the Appellant's costs of the proceedings in this Court and in the Court below. The orders proposed take account of the fact that A&R Finance may have a liability in costs to Mr Lloyd pursuant to the second cross-claim filed in the Equity Division. 355 Accordingly, I propose the following orders:

(1) Allow the appeal and set aside orders 1-6 made in the Equity Division on 11 April 2006 with respect to the Appellant.

(2) Give judgment for the First Respondent (Agricultural and Rural Finance Pty Ltd) against the Appellant (Bruce Walter Gardiner) in an amount of $31,616.35, together with interest, but otherwise dismiss the Summons in the Equity Division.

(3) Dismiss the Appellant's cross-claim with no order as to costs.

(4) Dismiss the First Respondent's cross-appeal against the Appellant.

(5) Dismiss the Second Respondent's cross-appeal against the Appellant.

(6) Dismiss the First Respondent's motion of 7 November 2006 to amend the Summons filed in the Equity Division.

(7) Order that the First Respondent pay 50% of the Appellant's costs of the proceedings in the Equity Division.

(8) Order that the First Respondent pay 50% of the Appellant's costs of the appeal and in respect thereof grant the Second Respondent a certificate under the Suitors' Fund Act 1951 (NSW) if not disqualified pursuant to s 6(7) thereof. 356 HANDLEY AJA:

Construction of Indemnity Agreement: ceasing to carry on business

In this complex appeal I have had the considerable advantage of reading the judgements of Spigelman CJ and Basten JA in draft. I agree with them that the unfilled vacancy in the Office of Trustee was an event described in cl. 31(a) of the Licence and Management Agreement within the meaning of cl. 2(d)(i) of the Indemnity Agreement. 357 I am inclined to the view that the appellant bore the onus of establishing that the failure to appoint a new trustee within the 60 day period was an event or cause beyond his control and, like the Chief Justice, I will assume that this was a position. I agreed with both the Chief Justice and Basten JA that the continuing vacancy in the Office of the Trustee was beyond the appellant's control. 358 I also agree that the language of cl. 2(d)(i) of the Indemnity Agreement: "the Borrower has ceased to carry on the Business as a result of (i) any event described in cl. 31(a) of the Licence and Management Agreement" does not require or authorise an investigation into the remote causes which lay behind the failure to appoint a new trustee within time. This may have been caused by the collapse of the price of tea tree oil, but that may have been caused by overproduction in Australia, or by new production in Vietnam or China, and behind those causes there may well be others. If the tea tree plantation had been destroyed by fire there would have been no need, in my opinion, for further enquiries into the possibility of deliberate arson by a firebug, the negligence of the fire-fighting authorities, or the impact of climate change and global warming on such events. Thus I agree that cl. 2(d)(i) of the Indemnity Agreement was satisfied.

Condition for punctual payment 359 Clause 2(a) and (b) of the Indemnity Agreement provided, as a condition precedent to its enforceability, that the Borrower "has punctually paid" the interest and instalments of principal payable under the Loan Agreement. I agree with Basten JA (para [243]) that payment of principal or interest after the due date was not punctual payment for this purpose. Moreover in my judgment acceptance of late payments by ARF as Lender, without more, does not make those payments punctual of the purposes of the indemnity. Nor in my judgement does it matter for that purpose that when the indemnity is invoked all the contracted payments had already been made. 360 I agree with Basten JA that the appellant's liability under the third contract had been extinguished by the indemnity (para [246]) but that he remained liable under the fourth contract (para [267]). I respectfully differ from him in respect of the position under the first two contracts. The position under the first loan contract was as follows: Amount Due Due Date Date Paid $4375 31 January 1998 30 January 1998 $4375 30 April 1998 13 August 1998 $4375 31 July 1998 13 August 1998 $2696 (interest) 29 October 1998 10 November 1998 $4375 31 October 1998 10 November 1998

361 Thus only the first payment was punctual. The second was 105 days late, the third 13 days, the fourth 12 days, and the fifth 10 days. Ms Edwards, an employee of ARF, wrote to the appellant and his wife on 16 July 1998 and enclosed a schedule (Blue 5/1786-7). This showed the second payment as overdue and that the third payment was due on 31 July. Both amounts were paid on 13 August. I can discern no basis in the letter and Schedule for a retrospective waiver by ARF of late payment of the amount due on 30 April, or for a prospective waiver of late payment of the amount due in 15 days' time. 362 Ms Edwards wrote again on 27 October enclosing schedules rating to the first two loans (Blue 5/1996-8). The letter and schedule relating to the first loan drew attention to the fourth and fifth payments falling due on 29 and 31 October but these were then paid late. Nothing was said about the late payments in August and the schedule showed them as being paid late. I can discern no basis for construing this letter and schedule as a prospective waiver of the late payment of instalments which were not then due or as a retrospective waiver by silence of the late payments received in August. In my judgment therefore the indemnity did not respond to the appellant's liability under the first contract and ARF is entitled to judgement that the unpaid balance of this loan together with interest. 363 The position under the second loan contract was as follows: Amount Due Due Date Date Paid $2187.50 30 June 1998 30 June 1998 $2187.50 30 September 1998 10 November 1998 $2187.50 31 December 1998 30 December 1998 $2187.50 31 March 1999 23 March 1999 $1348 (interest) 7 April 1999 30 June 1999

364 Three of the five payments under this contract were punctual, the first, third and fourth. The second payment due on 30 September was 41 days late, and the last due on 7 April was 84 days late. Ms Edwards' letter of 27 October 1998 drew attention to the overdue payment due on 30 September, and asked for a remittance as soon as possible (5/1996). The schedule still showed 30 September as the due date. 365 Payment of this overdue instalment was made 14 days later, which was hardly "as soon as possible". I cannot find anything in the letter or schedule which supports a waiver by ARF of late payment of this amount. 366 The last payment due on 7 April 1999 was not paid on time. On 2 June Ms Edwards again wrote to the appellant enclosing an updated schedule for the second contract (6/2412-3) which showed the overdue interest payment. The letter stated that "as we failed to send reminder notices we will accept payment as 'on time' up until 30 June". Payment was made that day. 367 Late payments of instalments of principal and interest conferred the right on the Lender "at the option of the Lender" to call up the unpaid balance of the principal (Blue 2/855 cl.5.1). This right (strictly power) could only be exercised while the Borrower was in default. Acceptance of late payment would operate as an election against the exercise of that right and a waiver in respect of that default. 368 The Lender had stipulated for an interest rate of 10.5% but agreed to reduce this to 8.5% (Blue 2/853 cll.3.2, 3.3). On default ARF could only charge the higher rate if it called up the whole of the principal (Blue 2/855 cl.5.2). It had no other right to charge the higher rate. The letter of 2 June was undoubtedly a waiver by ARF of its right to call up the whole of the principal provided the overdue interest was paid by 30 June. When payment was made within the extended time ARF lost its right to call up the unpaid balance of the principal, and to charge interest at the higher rate. 369 The Lender's letter of 2 June stated that the schedule detailed the appellant's "final obligations for farms in Project 1" and that payment of the interest due on 7 April "concludes your obligations for Project 1". These statements can only be understood as referring to the payments the appellant was required to make from his own resources early in the life of the contract. They did not purport to release his other obligations under the loan contracts. If the venture had prospered ARF would have been entitled to receive payments from the appellant's share of the profits. 370 The appellant did not rely on this letter as a release of these loan debts or as a contractual variation, and an estoppel based on the letter was not pleaded. There was no consideration moving from the appellant or his wife which could have supported a release or contractual variation. Late payment of an amount already overdue is neither consideration nor detrimental reliance which could support an estoppel. An agreed variation of the due date before the event, even if it was not supported by fresh consideration, would normally establish an estoppel by convention. A non-contractual variation, when a payment is already overdue, does not have this effect, and the accrued breach remains. 371 Even if the letter of 2 June made the payment on 30 June punctual I cannot see how it could retrospectively alter the un-punctual quality of the payment due on 30 September the year before. 372 In my judgment therefore ARF is entitled to recover from the appellant under the first and second loan contracts..

Whether waiver by ARF binding on OAL 373 There is a further problem. The requirement for punctual payment is a condition of the Indemnity Agreement, not the Loan Agreement. The parties to the Loan Agreements (Blue 2/852) were ARF and the appellant. Clause 7 of the Loan Agreement, quoted in para [3] of the judgment of the Chief Justice, is an acknowledgement by ARF that the appellant will have no liability if the indemnity "is effective and enforceable in accordance with cl.2 of the Indemnity Agreement." 374 ARF, OAL and the appellant were parties to the Indemnity Agreement (Blue 2/861), but the only provisions which affected ARF were cl.3 (Indemnifier will pay the Lender on demand by the Lender and ARF's acknowledgement of cl.7 of the Loan Agreement), and cl.4 (Lender will have no recourse to Borrower if indemnity enforceable). 375 A waiver by ARF of late payment for the purposes of the loan agreement cannot, without more, be a waiver by OAL of late payment for the purposes of the Indemnity Agreement. Although both OAL and ARF were parties to the latter this did not make ARF the agent of OAL to vary or waive the condition precedent in cl.2(a) and (b) of the Indemnity Agreement. It is not competent for two parties to a tripartite agreement to alter the rights of the third party without its consent. Any variation or waiver of the requirement for punctuality would transfer liability for the unpaid balance from the appellant as borrower to OAL as indemnifier. There is no evidence that ARF had authority to do this, and no evidence of conduct by OAL which could establish a binding variation, waiver, or estoppel. 376 For this reason also ARF is entitled to recover from the appellant under the first and second loan contracts.

The appellant's estoppel and misleading and deceptive conduct cases against ARF and OAL 377 The appellant pleaded in paras 26-9 of the further amended defence (Red 35-7) that in June 1997 he attended an investment seminar held at the offices of Ord Minnett in Sydney. Representations made by Mr Lloyd to that meeting are alleged to estop ARF from disputing that on the termination of the Project for any reason OAL's indemnity would operate to indemnify any investor against his liability under the loan agreement unless the investor had himself brought about that termination. 378 The appellant's wife entered into a Licence and Management Agreement with associated loan and indemnity agreements in respect of one farm in Project 1 in June 1997 and she and the appellant entered into such agreements in respect of two farms in October and a further farm in March 1998 (the investments in Project 1). 379 In June 1998 the appellant and his wife entered into such agreements in respect of seven farms in Project 2, and in May 1999 he entered into such agreements in respect of two further farms (the investments in Project 2). 380 Paragraphs 27 and 28 of the defence alleged that the representations at the investment seminar in June 1997 (the first representations) were made with the intention of inducing the appellant to make investments in Project 1 and that in reliance on those representations he had done so. 381 Paragraph 30 of the defence alleged that "in or about late 1997 to March 1998" Mr Lloyd confirmed the first representations by further representations to the same effect. The particulars alleged that these had been made on behalf of OAL and ARF "either during a telephone conversation … in late 1997 or during a visit to the Project site … in January 1998 in response to specific questions" from the appellant and again in or about March 1998 in the context of the investigation by the Australian Tax Office (ATO) (the later representations). 382 Paragraph 31 of the defence alleged that the later representations were made with the intention of inducing the appellant to make investments in Project 2 and para 32 alleged that he made such investments in reliance on the first and later representations (both representations). 383 Paragraph 33 of the defence alleged that by reason of the matters pleaded in paras 26-32 ARF was estopped from asserting that the proper construction of the indemnity agreement was otherwise than as represented. 384 Thus the defence of estoppel against ARF in respect of the investments in Project 1 was based on the first representations, and in respect of the investments in Project 2 was based on both representations. 385 Paragraphs 16-22 of the appellant's further amended cross-claim against ARF and OAL incorporated paras 26-28, and 30-32 of his defence and alleged that the conduct pleaded in paras 26 (the first representations) and 30 (the later representations) was misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the Trade Practices Act, s 995 of the Corporations Law, and s 12DA of the Australian Securities and Investments Commission Act 1989 (the ASIC Act). These sections are relevantly in identical terms. The particulars of paragraph 22 of the cross-claim referred to s 51A of the Trade Practices Act and its equivalents in the other Acts (misleading and deceptive conduct case). 386 Thus the misleading and deceptive conduct case against ARF was based on the first representations for the investments in Project 1 and on both representations for the investments in Project 2. 387 Although the further amended defence was verified the later representations in October 1997 were never proved, and the appellant conceded that there was no relevant phone conversation in 1997. He gave affidavit evidence about his meeting with Mr Lloyd at the site in January 1998 but did not say that the later representations were made either on that occasion or in March (Black 72-6). He gave affidavit evidence of the later representations being made by Mr Lloyd on the telephone in May in the context of the ATO investigation (Blue 1/16-18). He conceded in cross-examination that the relevant particulars in his defence were incorrect (Black 73, 74-5), but then said that the later representations were made at the site meeting in January, and during the ATO investigation in May (75). The Judge appears to have rejected the appellant's evidence about the later representations during his visit to the site in January (Red 162 para 140). 388 The Judge found that the first representations were made by Mr Lloyd (para [150]), but he had not made them on behalf of ARF (para [88]). Mr Inatey SC for OAL challenged the first finding and Mr Smith SC for the appellant the second. The Judge said the appellant was an unimpressive witness and criticised aspects of his evidence but his evidence about the first representations was not challenged in cross-examination or contradicted. The Judge's acceptance of this evidence must necessarily have been based, at least in part, on his assessment of the appellant's demeanour. The finding that the first representations were made cannot be disturbed. 389 Mr Lloyd was the managing director of OAL at the time but had no formal position with ARF. OAL did not dispute its responsibility for the representations if they were made, but ARF did and the Judge found that there was not a sufficient nexus between Mr Lloyd's conduct at the investment seminar and the lender ARF to found any estoppel against the latter. 390 ARF knew, through Mr Sarks, that Mr Lloyd was attending investment seminars to promote the scheme with loans from ARF and indemnities from OAL. Mr Lloyd was actively involved in funding ARF so it could make loans to investors and worked closely with it for that purpose. However ARF's knowledge and OAL's role as ARF's banker does not make ARF responsible for Mr Lloyd's representations. 391 Unless there is independent evidence of authority an agent's representations are not evidence against the putative principal. It was said that Mr Lloyd "offered" the loan and indemnity agreements to prospective investors who attended the seminar, but this is not correct. He issued invitations to treat. The prospectus required intending investors to complete and lodge the attached application forms and this was an offer to OAL on the terms of the prospectus. Mr Lloyd did not make offers on behalf of ARF at the seminar and agency cannot be established on that basis. 392 Mr Smith also relied on s 84(2) of the Trade Practices Act and equivalent provisions in s 762(4)(b) of the Corporations Law and s 12GH(2) of the ASIC Act. The former provided: "(2) Any conduct engaged in on behalf of a body corporate: (a) by a director, servant or agent of the body corporate within the scope of the person's actual or apparent authority; or (b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, servant or agent; shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate." 393 Mr Lloyd was not a director or servant of ARF and agency had to be established before sub-s (2)(a) could operate. On the assumption that Mr Lloyd was "any other person" within sub-s (2)(b) there was no evidence that his conduct was "engaged in on behalf of" ARF or that it was done at the direction or with the consent or agreement of a director, servant or agent of ARF. Mr Lloyd was one of the defendants named in the Schedule to the Summons but was not called by the appellant. Accordingly s 84(2) does not assist the appellant to establish that Mr Lloyd made the first representations as agent for ARF. 394 There is of course an element of unreality in considering the appellant's estoppel case when the Court has concluded that the represented construction is the correct one. The only purpose of the estoppel was to make a wrong construction binding on the parties to the estoppel. 395 Mr Lloyd's authority to bind ARF to a wrong construction of the indemnity must be considered against the normal assumption that ARF would be contracting with indemnified borrowers to be bound by the agreement on its true construction. Presumably it was prepared or settled by its solicitors who confirmed that it would operate as ARF intended. 396 While ARF knew that Mr Lloyd would be promoting the indemnity agreement to potential investors, it was entitled to expect that its agreements would take effect in accordance with their terms. It would not expect that its obligations could be increased or its rights reduced by what Mr Lloyd said at promotional seminars, without its actual authority, or evidence that he had been held out as its agent. There was no such evidence. 397 The Judge's decision that Mr Lloyd had no authority to make the first representations on behalf of ARF should not be disturbed. 398 The appellant's evidence about his telephone conversation with Mr Lloyd in May 1998 during the ATO investigation (Blue 1/16-18) which was referred to in the particulars to para 30 of the Defence (Red 36) is only relevant to the estoppel case against ARF and the misleading and deceptive conduct cases against ARF and OAL in respect of Project 2. The alleged conversation took place after the last of the appellant's investments in Project 1. 399 The Judge did not make any finding about this telephone conversation and it is safer to assume in favour of the appellant that it did occur. 400 In my judgment there was no possible basis for a finding that Mr Lloyd had any authority to bind ARF during any telephone conversation in May 1998. The appellant's transactions with ARF in respect of Project 1 had been entered into and further transactions were not in contemplation while the ATO investigation continued. 401 Accordingly the appellant's estoppel and misleading and deceptive conduct cases against ARF failed. There was no estoppel case against OAL but the misleading and deceptive conduct case against it based on the first and later representations must be considered. This failed because the Judge was not persuaded that the appellant relied on the first representations. 402 He gave extended reasons on this issue (Red paras [151-167]). The appellant said that before he went to the meeting at Ord Minnett he had read the prospectus carefully (para [157]) and formed his own view about the loan and indemnity agreements (para [152]). He had degrees in commerce and law and had been a member of the Institute of Chartered Accountants since 1975. He had worked in finance, stockbroking, and as the administrator of a large law firm (para [155]). 403 He was an experienced investor, and was advised by Mr Atkinson, his tax adviser who was also at the meeting (paras [151, 157]). The first representations were made in June 1997 and his investments in Project 1 were made in October 1997 and March 1998. The investments in Project 2 were made in June 1998 and May 1999. 404 The appellant gave the following evidence during his cross-examination by Mr Inatey (Black 60): "Q. You were seeking from Mr Lloyd his opinion as to how he thought the indemnity would operate? A. Well, I didn't seek a question, Mr Stewart asked a question from the floor. Q. … what you understood Mr Stewart was seeking was Mr Lloyd's opinion as to how he thought the indemnity would be construed? A. Well, that's correct, in terms of a slide which Mr Atkinson did have, were showing to the seminar at that point in time. Q. And you understood that Mr Lloyd was expressing his opinion as to how he thought the indemnity would be construed? A. That's correct. Q. Correct? A. Yes, that's right, yes." 405 The Judge rejected the appellant's evidence of reliance saying (para [164]): " … the authorities make it quite clear that judges are quite justified in discounting assertions by people in hindsight that they would not have entered into a transaction but for a particular utterance of a person on the other side of the record." 406 The classic statement of the principles to be applied when assessing a plaintiff's evidence that if he or she had been warned of a particular risk they would not have undergone some operation, is that of McHugh J. in Rosenberg v Percival (2001) 205 CLR 434, 444: "When a tribunal of fact has accepted the patient's evidence that he or she would not have undertaken the surgery, an appellate court would often be in a stronger position to reverse that finding than when the tribunal of fact has rejected the patient's evidence. That is because, human nature being what it is, most persons who suffer harm as the result of a medical procedure and sue for damages genuinely believe that they would not have undertaken the procedure, if they had been warned of the risk of that harm … When the tribunal of fact has rejected the patient's evidence that he or she would not have proceeded with the surgery, however, the ordinary restrictions on appellate review of fact-finding apply". 407 The appellant had read the prospectus and the loan and indemnity agreements. These were legal documents of some complexity and he must have appreciated that normally, if he signed them, he would be bound by their terms and not by a gloss put on them at an investment seminar. 408 The fact that the relevant conduct was a statement of opinion is of particular importance in a misleading and deceptive conduct case. The relevant principles are those stated in Global Sportsmen Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82, 88 by Bowen CJ, Lockhart and Fitzgerald JJ: "Many statements, for example, promises, predictions and opinions do involve the state of mind of the maker of the statement at the time the statement is made. Precisely the same principles control the operation of s 52(1) with respect to the making of such statements. A statement which involves a state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s 52(1) … the incorrectness of an opinion (assuming that can be established) does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate, foundation. The applicants argued that, nevertheless, the statement of an incorrect opinion is misleading or deceptive or likely to mislead or deceive merely because it misinforms or is likely to misinform. An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion. At least if those conditions are met, an expression of opinion, however erroneous, misrepresents nothing." 409 As the Judge said (para [153]) there was no evidence that Mr Lloyd did not hold that opinion when the first representations were made, or that he had no adequate foundation for doing so. 410 The appellant had to establish that he relied on Mr Lloyd's opinion about the meaning of the agreements, that is on Mr Lloyd's subjective belief about their meaning. For most legal purposes their meaning was a question of law. The opinion was given, apparently off-the-cuff, by a layman, in answer to a question. 411 The appellant was better qualified than Mr Lloyd to form an opinion about the meaning of these documents. He had not understood Mr Lloyd to state their meaning as a fact. Reliance on Mr Lloyd's statement of opinion as if it was a statement of fact would not help the appellant because Mr Lloyd had not made such a statement. The appellant had to establish that he relied on Mr Lloyd's opinion as an opinion, that is that he relied upon Mr Lloyd's state of mind. This was highly improbable: Spencer Bower, Turner & Handley "Actionable Misrepresentation" 4th ed 2000 pp12-13. 412 The appellant's written submissions focused on the evidence in his first affidavit of 22 October 2004 and did not come to grips with his evidence in cross-examination. The Judge's finding on reliance in respect of the first representations cannot be disturbed. 413 The appellant's misleading and deceptive conduct case against OAL in respect of Project 2 depends on the further representations made in May 1998 during the ATO investigation. Assuming in favour of the appellant that this conversation occurred he still faces the problem of reliance. 414 The conversation related to transactions which were already in place, and it occurred when further transactions were not in contemplation. 415 Given the finding that the appellant had not established that he relied on Mr Lloyd's opinion about the indemnity when making his investments in Project 1 in October 1997 and March 1998 it is not possible for the Court to find that he relied on a further expression of the same opinion in May 1998 when making his investments in Project 2 in June 1998 and May 1999. 416 The appeal against the dismissal of the appellant's misleading and deceptive conduct case against OAL fails.

First prospectus case against OAL Project 1 417 The original prospectus for Project 1 was lodged on 10 April 1997 and the only supplementary prospectus on 6 August (herein together the prospectus). The relevant investments in Project 1 were made in October 1997 and March 1998. The cross-claim (para 26) alleged that the prospectus contained statements that OAL as manager had no assets and liabilities other than those disclosed, that all costs to date had been met by Gerard Cassegrain & Co. Pty Ltd (GCC) and that the moneys paid by investors would be spent by OAL in providing the services described in the Management and Licence Agreements. It contained a table showing how the licence and management fees of $23,750 per farm, payable in the first two years (the funds subscribed) would be spent, and stated that, except as disclosed, no interest existed in the project for the benefit of any promoter (Blue 2/543-5). 418 Paragraph 32(a)(i) of the cross-claim (Red 72) alleged that the prospectus did not disclose the arrangement between OAL and GCC and Endwise Holdings Pty Ltd pleaded in para 28(d) and recorded in letters dated 27 June 1997 to OAL (the letters) that OAL would reimburse GCC and Endwise for their expenditures in the Project (the repayment understanding). This was correct. 419 The letters (Blue 2/604, 605) confirmed requests to OAL to record in its accounts debts owing to GCC and Endwise for their expenditures on Project 1 prior to 1 April 1997 for which OAL was not legally liable. It appears from other evidence that these totalled $780,751 ($751,349.34 for GCC and $29,401.85 for Endwise), (1/72). They were taken up in OAL's accounts for the year ended 30 June 1997 and credited to loan accounts pursuant to a resolution of its Board of 28 August 1997 (Blue 2/718) which confirmed "the existing arrangements made in June 1997" for this to be done. On 15 September GCC and Endwise gave letters confirming these loan accounts for their own audit purposes (Blue 2/727, 728) (the 1997 loan accounts). 420 Paragraph 32(a)(ii) of the Cross-claim (Red 72) alleged that the prospectus did not disclose the repayment understanding (Red 59, para 28(j)) which was alleged to have been made prior to 27 June 1997. An understanding prior to that date was not proved. The earlier dealings between GCC and the Commonwealth Bank do not establish such an understanding. GCC could have obtained access to OAL's cash flow by dividends or loans. 421 Paragraph 32(a)(iii) alleged non-disclosure of payments totalling $543,727 by OAL to GCC between 1 July 1997 and 30 June 1998, a loan to GCC by OAL, and further payments by OAL between 23 February and 17 May 1999 (the GCC repayments) (Red 61-2, para 28(v)). 422 The cross-claim alleged (Red 49, para 2(e)(v)) that at the date of the original prospectus OAL had no funds, that GCC lent $250,000 to ARF to enable it to make loans to investors to finance investments in Project 1, and that OAL then lent those funds to ARF which it used to make further loans to investors. These investors used the funds to pay subscription moneys to OAL and so the process went on (the ARF funding arrangements). These were proved. Paragraph 32(a)(iv) (Red 72) alleged, correctly, that the ARF funding arrangements were not disclosed. 423 Paragraph 32(b) and (c) of the cross-claim (Red 72) alleged that if the repayment understanding came into existence on 27 June 1997 its existence and the letters should have been disclosed in a supplementary prospectus. 424 Paragraph 32(d) (Red 72) alleged that the failure to disclose the repayment understanding, the letters, the GCC repayments, and the ARF funding arrangements made the prospectus misleading at the time of the appellant's investments on 16 October 1997 and 30 March 1998. 425 The Judge found (Red 170, para [173]) that the Board of OAL "accepted" liability for the expenditures incurred by GCC and Endwise on 28 August 1997. He seems to have found that liability was not "accepted" earlier (para [176]). 426 The appellant received the supplementary prospectus in August (Blue 1/13 para 38) but the Judge found (Red 171) that he did not read or rely on it. The finding that he did not read it cannot be supported because he said in his affidavit evidence that he did (Blue 1/37 para 5) and was not challenged. The finding that he did not rely on the supplementary prospectus will be considered later. 427 The letters and the GCC repayments post-dated the original prospectus, and the only proved non-disclosure at that time was the ARF funding arrangements. However these might arguably falsify the alleged representation that the funds subscribed would only be spent in providing the services described in the Management and Licence Agreements (the alleged funds subscribed representation). 428 The resolution of the Board of OAL on 28 August 1997 (Blue 2/718) "confirmed the existing arrangements made in June 1997 for expenditure and charges of GC&Co in relation to the tea tree project to be taken up in the 1996/97 accounts of the company offset by a loan from GC&Co to OAL on the basis that GC&Co will not demand repayment of the loan before 30 June 2000." 429 The repayment understanding and the condition that demand would not be made before 30 June 2000 were bilateral, but the only consideration moving from GC&Co and Endwise was past consideration which will not support a contract. The letters (Blue 2/604,605) acknowledged that Endwise and GC&Co had "no present legal right to require the repayment of these costs from" OAL. Since the expenditure had already been incurred those companies had no legal right to reimbursement. 430 The resolution and the 1997 accounts of OAL evidenced an account stated because they acknowledged debts to GC&Co and Endwise. However the acknowledgements did not create enforceable debts because there was no consideration for them. The principles were stated in Siqueira v Noronha [1934] AC 332, 337 by Lord Atkin: "An account stated may only take the form of a mere acknowledgement of a debt, and in those circumstances, though it is quite true it amounts to a promise and the existence of a debt may be inferred, that can be rebutted, and it may very well turn out that there is no real debt at all, and in those circumstances there would be no consideration and no binding promise." 431 Any payments made by OAL in respect of those "debts" were voluntary. The repayment understanding, and the acknowledgements in the accounts and minute evidenced OAL's intention of making voluntary payments after 30 June 2000 but otherwise they were without legal effect. 432 The repayment understanding did not falsify the representations in the original prospectus (para [417] above) that OAL had no "liability" as at April 1997 other than those disclosed, and that no promoter had any "interest" in the Project except as disclosed. However as from 27 June it might arguably falsify the alleged funds subscribed representation if this was proved (para [420]). 433 The supplementary prospectus of 6 August did not disclose the ARF funding arrangements or the repayment understanding nor did it correct the alleged funds subscribed representation. 434 The appellant did not say in his affidavit (Blue 1/37) that he relied on the supplementary prospectus. However nothing turns on this because he did not allege that it contained any statement that was itself misleading or deceptive. The Judge apparently rejected the first prospectus case because the appellant had not read or relied on the supplementary prospectus. His decision cannot be supported on that basis and this Court must consider the question for itself. 435 The case in respect of Project 1 which remains for consideration included the claims that the prospectus did not disclose the ARF funding arrangements or the repayment understanding (Red 72 para 32(a), (d)) and for those reasons was misleading. The appellant can also rely on the falsity of the alleged funds subscribed representation. 436 The appellant also alleged that "repayments" by OAL to GCC prior to 30 June 1997 and 30 June 1998 (para 32(a)(iii), Red 72, incorporating para 28(v), Red 61-2) should have been disclosed by a supplementary prospectus before his investments in October 1997 and March 1998. 437 There was no evidence of "repayments" by OAL to GCC or Endwise before 30 June 1997 or before April 1998. The accounting evidence was given by Mr Humphreys in affidavit and report form and orally. His affidavit annexed a copy of the folio of OAL's general ledger for the financial year ended 30 June 1998 recording its transactions with GCC (Blue 1/83A, 83B). This recorded GCC's 1997 loan account (Blue 1/83A) which increased until 31 March 1998 when the debt was $1,000,314.04. 438 A "payment" of $741,000.00 by journal entry and other debit and credit entries on 30 June 1998 reduced GCC's loan account to a "debt" of $236,331.11 (Blue 1/83B). In his cross-examination by Mr Inatey, Mr Humphreys said that he did "not advance any view about when in 1998 those payments may or may not have been made" (Black 93). There was no other evidence of payments by OAL to GCC during that financial year. 439 OAL's 1997 accounts included a management fee of $286,000.00 charged by GCC (Blue 2 / 771). Mr Humphreys did not examine its basis (if any). In his report he said that it was included in GCC's loan account (Blue 1/63F) but in another place he said that OAL's 1997 accounts "also" included this management charge. (1/72H). If it was included in the loan account there was no evidence of its repayment before April 1998. If it was an additional charge it was not separately attacked and there is no evidence of its payment in whole or in part before April 1998. 440 Thus the "repayment" part of the appellant's first prospectus case failed for lack of proof. This leaves for consideration the failure to disclose the ARF funding arrangements and the falsity of the alleged funds subscribed representation. 441 The prospectus cases were based on ss 995, 996(1), 1023B and 1024 of the Corporations Law which are in Pt.7.11. These sections proscribed misleading and deceptive conduct in connection with a prospectus, and the issue of a prospectus with a material omission or with material statements which were false or misleading. A contravention of any of these sections could give rise to civil liability under s1005(1). This enables any person "who suffers loss or damage by conduct of another person … in contravention" of a provision in Pt.7.11 to recover the amount of that loss or damage. 442 A plaintiff relying on a contravention of those sections must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement, or that he would have acted differently if the material omission had been disclosed. 443 In his first affidavit of 22 October of 2004 (seven years after the first investment) the appellant set out seventeen matters in the original prospectus "which I recall caught my attention" when he read it (Blue 1/3-5 para 7). Six of them related to the Indemnity. The others did not include the alleged funds subscribed representation and nothing was said about any non-disclosures including the ARF funding arrangements. None of the matters mentioned have been shown to be false. 444 He said that he based his decisions to invest in October 1997 and March 1998 on Mr Lloyd's statements at the investment seminar (1/13 para 39; 1/16 para 54). In other words he based his decisions on the availability of loan funds and the protection he thought was conferred by the indemnity and not on representations in the prospectus. 445 In his second and last affidavit of 10 May 2005 (1/36), two and a half months before the trial, he referred to para 7 of his earlier affidavit and said (para 2) that, in addition to the matters then referred to, he noted when he read the original prospectus another five matters which included the alleged funds subscribed representation (1/36 para 2)). He said, (1/37 paras 3, 5) consistently with his pleading (para 34, Red 73) that these five matters caused him to understand that the funds subscribed would be spent by OAL on the project and for no other purpose. 446 Of the five additional matters only the alleged funds subscribed representation remains relevant. 447 He referred (para 6) to eleven matters he had been asked to assume were true, and said (para 7) that he had been aware of those matters he would not have made any of the investments. 448 The eleven matters included four (para 6(h) to (k)) which post-dated his investments in Project 1 and are not relevant to this part of his case. 449 Other matters (para 6(d), (e)) related to payments allegedly made by OAL to GCC, Endwise and the Commonwealth Bank recorded in annexure C to his affidavit (1/42). None of these payments before April 1998 were proved (paras [437]-[440]). The matters assumed in para 6(f), and (g) did not occur prior to the appellant's last investment in Project 1 in March 1998. 450 The remaining matters (para 6)(a), (b), (c)) related to the repayment understanding in June 1997, the letters, and OAL's accounts for the year ended 30 June 1997 which recorded these "liabilities" to GCC and Endwise. These did not falsify the alleged funds subscribed representation because the arrangement contemplated "repayment" after 30 June 2000 out of OAL's general cash flow, more than two years after the appellant's last investment in this Project in March 1998. 451 The matters listed in para 6 of the second affidavit (para [447]) did not include the ARF funding arrangements. 452 The appellant explained (1/39 par 8) why he would not have made his investments if he had known of these matters, saying that the letters and the repayment understanding were contrary to his belief that the Project had the backing of the Cassegrain family, and the letters would have raised concerns about the financial viability of OAL and the family. 453 In determining questions of reliance, in contexts such as this, an appellate court has regard to the direct evidence of the investor, the findings of the trial judge, and the probabilities based on the circumstantial evidence. Evidence of the former kind is entitled to little weight, especially when the investor has been rejected as a reliable witness on other questions. The circumstantial evidence includes the materiality of the matters which were misrepresented or not disclosed. 454 The problem of proving reliance and inducement in a prospectus case based on non-disclosure is not a new one. In Cackett v Keswick [1902] 2 Ch 456, 463-4 Farwell J said: "Now, it cannot be enough for a man to swear that he would not have entered into the contract if he had known something that was concealed from him. It is easy to be wise after the event, and many men can honestly persuade themselves when a company has failed that they would have been influenced by a circumstance which in all probability would have made no impression whatever on their mind when considering an investment or speculation. The test must be, is the omission material? And if the Court sees that the fact is of such a nature that it might reasonably deter, or tend to deter the ordinary investor … this is sufficient. It is in great measure an inference of fact to be drawn … from the circumstances of the case." 455 Recapitulating to this point:

(a) In his first affidavit, 7 years after the October 1997 investment, the appellant said he relied on the Lloyd representation at the investment seminar (para [443]).

(b) He then identified 17 matters in the original prospectus which had caught his attention. None of them related to the ARF funding arrangements or the falsity of the alleged funds subscribed representation.

(c) In his second affidavit he identified a further 5 matters which he noted. Only the alleged funds subscribed representation remains relevant (para [445]).

(d) He referred to 11 matters and said that if he had known about them he would not have made investments in Project 1 (paras [447]-[452]).

(e) They did not include the ARF funding arrangements (para [451]). The appellant submitted otherwise in his written submissions in reply (para 57) but the evidence referred to (Blue 1/39) does not support the submission.

(f) The appellant said that the 11 matters which were not disclosed were material because they would have falsified his understanding that the project had the backing of the Cassegrain family, and raised concerns about the financial viability of the family and OAL (para [452]). 456 OAL maintained both Projects until 6 November 2001 when it advised the Trustee that it no longer had the financial resources to continue operations (Blue 8/3021). The Trustee advised the investors on 22 November (8/3024-7). 457 The appellant did not plead or prove that OAL had failed to comply with its obligations as manager under the Licence and Management Agreement (2/824, 836) before 6 November 2001. Its obligations included conducting "the Farmer's business in a proper and efficient manner", involving land preparation and planting, the harvesting and processing of trees, and the marketing of the tea tree oil (2/837-9). The appellant inspected the plantation with Mr Lloyd in March 1998 and was satisfied with what he saw. 458 The original prospectus (2/512) stated that the developers assumed a base price for Australian tea tree oil of $55.00 a kilo in 1997 increasing at a rate of 4% per annum. However by early 2001 the price had fallen to $15.00 a kilo with no prospect of a recovery beyond $20.00 a kilo (Judgment paras [117]-[118], noting that the prices were per kilo and not per tonne). 459 The original prospectus assumed that the Projects would pay their way without further funding from OAL or the investors once the trees could be harvested 15-24 months after planting (2/455). The dramatic collapse in the market price for tea tree oil falsified this expectation (Judgment paras [134], [184]). The falsity of the alleged funds subscribed representation and the ARF funding arrangements would not have affected the viability of the Projects if the market price had remained near the level forecast. This representation was not material at the time. 460 If the price had held up OAL's intention (formed on the evidence in June 1997) of making voluntary payments after 30 June 2000 from its cash flow would not have mattered. In any event OAL could have made loans to GCC instead of voluntary payments, and the effect on OAL's cash flow and assets would have been much the same. 461 The budget in the original prospectus (2/545) showed how OAL intended to spend the funds subscribed assuming the minimum of 50 or the maximum of 400 farms were "sold". The budget in the latter case was as follows: Maximum Subscription (400 Farms) Expenditure Items (All amounts in $'000s) Manager & Related Parties Non-Related Expenses Total Fund Raising-950950 Project Design & Approvals-120120 Drainage, Hydrology & Land Preparation2501,2901,540 Seedling Maintenance & Planting1,6008002,400 Irrigation150-150 Administration & Management640-640 Plantation Maintenance750-750 Research & Development600-600 Contingency, Profit & Risk2,350-2,350 Totals6,3403,1609,500

462 The maximum subscription would raise $9.5 million, of which $2.35 million (or 24.7%) would represent the provision for contingencies and OAL's profit and risk (provision for profit etc). The original prospectus stated that this would be spent as required to meet any unforeseen costs or variation in costs. Nothing was said about the consequences of a dramatic fall in the price of tea tree oil. The figures in the other section of the table projected a provision for profit etc of $133,000.00 or 20.2% if only the minimum number were sold. 463 In the result 140 farms were "sold" (Blue 2/457H) to produce subscriptions totalling $3,325,000.00. OAL's provision for profit etc at the rate of 24.7% of this figure would be $821,275.00, and at the rate of 20.2% would be $671,650.00. Each figure is more than the reduction of $514,326.00 in GCC's loan account on 30 June 1998. 464 The alleged funds subscribed representation based on par 8.1 of the original prospectus (2/543) did not state that the funds would not be spent for any other purpose. The statement was in general terms, and the negative relied on by the appellant has to be implied. The representation in par 8.9 which included the table, was detailed and comprehensive. It made it clear that the whole of the funds subscribed would not necessarily be spent on providing the contractual services. A reasonably careful reader would pay more attention to the detailed representation but, in any event, the two representations must be read together, and the composite representation excludes any negative that might otherwise be implied in par 8.1 if it stood alone. 465 OAL was entitled to use the funds representing the provision for profit etc as it saw fit provided it established and maintained the Project until the tea trees could be harvested. The composite representation of OAL's intention would not be falsified by its intention after 27 June 1997 of making voluntary payments out of the provision for profit etc. Moreover OAL did not make the alleged funds subscribed representation ("and for no other purpose") in the original prospectus that the appellant claimed to have relied on (para [445]). 466 When the appellant made his investment in Project 1 he would not know how many farms OAL would "sell" in this Project above the minimum subscription of 50. The latter must have been achieved, to his knowledge, before 30 June 1997 because his wife's subscription was retained. The appellant would not know what funds OAL should have had in hand as its provision for profit etc. 467 The appellant and his wife invested in seven farms in Project 2 on 25 June 1998, and he invested in a further two farms on 10 May 1999. The appellant received a copy of the original prospectus for Project 2 (3/1148) which included a report of the investigating accountant (3/1214-20) and read it in June 1998 (1/18). The report contained the accounts of OAL and ARF as at 30 June 1997. The OAL accounts disclosed (1218) the loan accounts totalling $780,751.00 and the management fee of $286,000.00 charged by GCC. They also disclosed (1217) receivables from ARF of $1,058,750.00 (current) and $1,391,250.00 (non-current). The ARF accounts disclosed these amounts as liabilities (1220) and assets which included non-current "loans to investors" of $1,694,000.00. 468 A person of commercial experience who read the accountant's report with a minimum of attention who regarded the alleged funds subscribed representation as material could not fail to notice that OAL had lent funds subscribed by investors to ARF which had used them to fund loans to other investors. 469 The prospectus and supplementary prospectuses for Project 2 (herein together the second prospectus) did not include OAL's accounts at 30 June 1998 (Blue 5/1958). However the appellant, as an investor in Project 1, received those accounts in September 1998 when he read them (Blue 1/19). It was not suggested that they did not properly disclose OAL's financial position as at 30 June 1998. 470 These accounts, which also disclosed the position as at 30 June 1997, would have revealed to the appellant, had he been interested, that as at 30 June 1997 OAL had liabilities to GCC and Endwise, that GCC had charged a management fee of $286,000 to OAL, and that both companies had become financially interested in Project 1. They would also have revealed that $741,000.00 had been paid to GCC during the year ended 30 June 1998, and had not been spent on providing the services described in the Management and Licence Agreements. 471 These disclosures in the second original prospectus and the 1998 accounts provoked no complaint from the appellant, and did not deter him from making his investments in Project 2 on 25 June 1998 and 10 May 1999. If he appreciated the significance of the matters disclosed he did not consider them to be material. If he did not appreciate their significance it must have been because he was not sufficiently interested in the accounts to study them with any care. 472 The Judge said (para [179]) that he was not prepared to find that repayment of part of the loans by OAL during the 1998 financial year "had any effect whatsoever on Mr Gardiner's decision to invest". This finding cannot be disturbed. 473 The appellant did not state in his affidavits that the ARF funding arrangements were a matter, which, if disclosed in the prospectus would have caused him to decide against making these investments (para [455(e)]). This omission is understandable given the disclosures in the second original prospectus 474 On the whole of the evidence the probabilities are that the appellant invested in both Projects because of the tax benefits they offered, the loans, the indemnities and the commercial prospects of tea tree oil at the time. His decision to invest in seven farms in Project 2 on 25 June 1998 soon after the decision of the Taxation Office on 9 June to accept the 1997 tax deductions for Project 1 is proof of this. 475 Although it appears that the ARF funding arrangements falsified the composite funds subscribed representation from the outset, the appellant did not plead reliance on the composite representation. He only relied on the alleged funds subscribed representation ("and for no other purpose") (para [445]). 476 The appellant said in terms in his second affidavit that had he known about the letters, the repayment understanding and the GCC repayments they would have made him aware that the alleged funds subscribed representation. He did not refer to the ARF funding arrangements for this purpose. The matters he relied on did not falsify the composite representation and there was no direct affidavit evidence from the appellant that disclosure of the ARF funding arrangements would have changed his investment decisions (paras [451]-[455(e)]. 477 I have not been persuaded that the Court is entitled to find, and should find, that the appellant relied on the alleged funds subscribed representation, assuming that had been proved, when making his investments in Project 1 and I am not prepared to infer that disclosure of the ARF funding arrangements would have affected his decisions to invest. For these reasons his appeal in respect of the first prospectus case fails and must be dismissed.

The second prospectus case against OAL 478 The original second prospectus included OAL's accounts at 30 June 1997 as part of the report of the investigating accountants (3/1214-20). This revealed that as at that date OAL had a non-current liability by way of loan from GCC and Endwise of $780,751.00 and GCC had charged it a management fee of $286,000.00 (Blue 3/1214-8). 479 The cross-claim pleaded (para 33, Red 72) that the second prospectus failed to disclose the following: (a) That the 'loan' by GCC to OAL described as a non-current liability as at 30 June 1987 had been partly repaid before the date of the second prospectus. (b) That the repayment was 'in breach of' the arrangement recorded in the letters. (c) That by 16 February 1998 the loan by GCC to OAL was being treated as a current liability. (d) That GCC was in financial difficulties and dependent on funding from OAL to meet its obligations. (e) The ARF funding arrangements. 480 Paragraph 33 of the cross-claim also pleaded that the non-disclosure of these matters made the second prospectus and the representations pleaded in para 27 false and misleading. 481 The following statements in the original second prospectus (para 27, Red 57-8) were alleged to be false and misleading or misleading and deceptive: (paras 33, 37, Red 72-3, 74): (a) The alleged funds subscribed representation (para 26(c) incorporated in para 27(a)). (b) Except as disclosed, no interest existed in the Project for the benefit of any promoter (para 26(d) incorporated in para 27(a)). (c) As at 30 June 1997 OAL had non-current liabilities to GCC and Endwise of $780,751 (para 27(b)(i). 482 The appellant read the second prospectus (Blue 1/17-19). 483 Inducement and reliance were pleaded in paras 34-6 (Red 73-4). Para 34 alleged that the appellant believed the alleged funds subscribed representation. Para 35 alleged that if the repayment understanding, the GCC repayments in breach of the arrangements in the letters, early repayment of the loan accounts because GCC was in financial difficulties, and the ARF funding arrangements had been disclosed in the prospectus for Project 1, the appellant would not have invested in Project 2. 484 Paragraph 36 alleged that if the second prospectus had disclosed any one or more of the matters referred to in para 33 (para [479]) the appellant would not have invested in Project 2. 485 Paragraph 38 alleged that by reason of the matters pleaded in para 33 (para [479]) which were not disclosed in the second prospectus, the representations alleged in para 27 of the cross-claim (para [481]) were misleading or deceptive. 486 The failure of the appellant's first prospectus case means that his second prospectus case based on the deficiencies in the first prospectus must also fail. 487 The appellant's second prospectus case repeated in respect of that prospectus a number of the allegations of misrepresentation and non-disclosure made in the first prospectus case. They were:

(c) the representation that, except as disclosed, no promoter had any interest in the project. 488 The appellant's first prospectus case having failed his allegations in respect of the same deficiencies in the second prospectus must share the same fate. 489 There remains for consideration a number of new claims (para [479]) based on payments by OAL to GCC and the falsification of statements in the second prospectus about OAL's non-current liability to GCC, that it was alleged should have been disclosed but were not. 490 There was no evidence that any payment or payments were made by OAL to GCC before 25 June 1998 (paras [437]-[440]), and the claims in respect of the investment on 25 June 1998 which depend on such a payment having been made must fail. 491 The appellant's affidavit evidence of the reasons for his decision to invest in Project 2 was confined to paras 68 and 77 of his first affidavit (1/18, 19, cf 1/37 paras 3-5). These were as follows: "68 After satisfying myself that the structure of Project 2 mirrored that of Project 1 including the availability and operation of the Indemnity, I decided to invest in Project 2. … 77 Based on my understanding of the terms of the Prospectus and Supplementary Prospectuses for Project 2, including that the structure of Project 2 mirrored that of Project 1, and my understanding of the advantages of the Project which I referred to … above, I decided to invest in an additional two farms in Project 2." 492 OAL's accounts as at 30 June 1998 disclosed the "debt" to GCC as a current liability, GCC's loan account as at 30 June 1997, the reduction in the "debt" during the 1998 financial year, and the use of funds subscribed by investors for this purpose. 493 The matters it was claimed should have been disclosed occurred before the appellant's last investment in Project 2 in May 1999. 494 However those matters were disclosed either in the original second prospectus or OAL's 1998 accounts (Blue 5/1958) or both. As already mentioned (para [482]) the appellant read the original second prospectus in June 1998 (1/18) and as an investor in Project 1, received and read a copy of the 1998 accounts in September 1998 (Blue 1/19). 495 For the reasons already given (paras [467]-[471]) his knowledge of the existence and contents of the original second prospectus and these accounts compels a finding that he has not established that the matters now complained of were material to his decision to invest and were relied on by him when he made his investments in Project 2. Indeed his failure to react to the information in the original second prospectus and the 1998 accounts throws light on the whole of his case in respect of both prospectuses. For these reasons his appeal in respect of the second prospectus case fails and must also be dismissed. 496 I agree with Orders 1, 4, 5 and 6 as proposed by Basten JA. I would have given judgment for the first Respondent against the Appellant for the amounts due in respect of the first and second loan agreements in addition to the amount of $31,616.35 due under the Fourth Agreement, together with interest. I also agree that the Appellant's cross-claim should be dismissed but I would have made different orders for costs in this Court and the Equity Division. I agree that the First Respondent should have a certificate under the Suitors Fund Act if not disqualified. **********

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