Misrepresentation to HNA Irish and HNA Group
331 In connection with the sale of assets of the Aviation Division, Mr Veal drafted parts of, reviewed and commented on the Sale Information Documents. HNA Irish contends that he did so by passing drafts and comments to Mr Stephen Mullins (see paragraph [174] above), who had joined the Aviation Division in 2006 as an associate director and to whom was assigned the responsibility for collecting comments from the various personnel of the Aviation Division, including Mr Veal. On 19 December 2008, the date of the issue of the Sale Information Memorandum, Mr Veal wrote to the Receivers saying that, in the time available, he had not had the opportunity to verify the statements, including the forward-looking statements, made in that document. He said that, to the extent to which he had been able to review the Sale Information Memorandum, he had found nothing in the factual statements that, as far as he was aware, he believed to be incorrect. However, he said that he was not in a position to comment on the reasonableness of the forward-looking statements. Mr Veal said in cross-examination that he stood by what was said in that letter.
332 Following the appointment of the Receivers, Mr Veal, and other personnel in the Aviation Division working under him, organised the Sale Information Documents. Mr Veal accepted in cross-examination that he personally edited the Sale Information Memorandum on 6 December 2008. He specifically accepted that he made a deliberate decision to omit from the Sale Information Memorandum any reference to KV Aviation's allegedly valuable interests in ordinary shares in the RILAs. Mr Veal also accepted that he told no one in the Aviation Division about his decision not to refer, in the Sale Information Memorandum, to those allegedly valuable interests. Mr Veal told the Receivers that there was an issue in connection with the ownership of KV Aviation, and that he controlled the shares in KV Aviation, which owned and controlled the subsidiaries that owned and funded the aircraft, namely the RILAs and the Financing SPCs. He said that he told the Receivers that, on the assumption that they wished to sell the assets of the Aviation Division, that issue would need to be addressed. However, Mr Veal did not say that he mentioned the redemption of preference shares by the RILAs, the timing of any such redemption, or the consequences of any such redemption.
333 Mr Veal accepted that the Sale Information Memorandum referred to very high rates of return that were based on the re-lease of aircraft, resulting in large dividends to the preference shareholders. He conceded that nowhere in the Sale Information Memorandum was there any qualifying language to the effect that there was no guarantee that preference shareholders would, in the future, get the revenue derived from a re-lease, by reason that the directors might redeem the preference shares. Mr Veal accepted that the high rates of return depended upon the proposition that the preference shareholders got essentially all of the return from the re-lease in those transactions.
334 Mr Veal accepted in cross-examination that he carefully read the statement in the Sale Information Memorandum to the effect that the Receivers were seeking to divest all of their interest in the aviation portfolio and ongoing business of the Aviation Division. He made no change to that. Specifically, he made no change referring to the exclusion of KV Aviation.
335 The Sale Information Memorandum includes reference to the performance of the Aviation Division based on the proceeds realised for the preference shareholders from the refinancing of the Qantas aircraft. Mr Veal accepted that the quality of disclosure in the Sale Information Memorandum could and should have been improved by referring to the right of redemption of preference shares. He accepted that the Sale Information Memorandum should have mentioned the right of redemption in black and white, in order to avoid being misleading and deceptive.
336 Thus, HNA Irish asserts, Mr Veal deliberately omitted reference to material matters from the Sale Information Memorandum. HNA Irish says that those omissions rendered various aspects of the Sale Information Memorandum misleading and deceptive. For example, one appendix presented figures for the expected 'equity receipt' for the preference shares on the basis that all of the proceeds realised from the aircraft were for the preference shareholders, with no amount allocated to the ordinary shareholders of the RILAs. If there were a right of redemption, it says, that would importantly qualify the information contained in the appendix. HNA Irish says that if Mr Veal's theory is to be accepted, the disparity between the statement of the entitlements of the preference shareholders in the appendix and the true position, namely that the preference shareholders' entitlements were subject to redemption at any time based on a revaluation, was so great that it was necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way (see National Exchange Pty Limited v Australian Securities and Investments Commission (2004) 49 ACSR 369 at [55]). Mr Veal, however, consciously decided to omit that disclosure. HNA Irish contends that Mr Veal's conduct, accordingly, contravened s 12DA of the ASIC Act and s 1041H of the Corporations Act.
337 It is not necessary to enquire into the question of any reliance on the part of HNA Irish or HNA Group in order to establish the contraventions. Further, no such enquiry is necessary in order for Mr Veal's conduct to form the basis for injunctive relief under s 1324 of the Corporations Act or s 12GD of the ASIC Act. However, HNA Irish says that breaches of s 12DA of the ASIC Act and s 1041H of the Corporations Act are relevant to the grant of relief under s 233 of the Corporations Act, independently of whether they might also give rise to statutory remedies under s 1325 of the Corporations Act or s 12GM of the ASIC Act. On the other hand, HNA Irish accepts that the question of reliance does arise in relation to the claim for relief under s 1325 of the Corporations Act and s 12GM of the ASIC Act, since it is necessary, in making out such claims, to demonstrate that relevant loss or damage was suffered by the conduct of another person. That requires a causal connection between the alleged conduct and the alleged loss or damage.
338 HNA Irish says that Mr Smith's unchallenged evidence was that HNA Irish acquired the assets of the Aviation Division referred to in the Sale Information Memorandum on the premise that the preference shares were entitled to all of the Upside from each Aviation Transaction, and that HNA Irish would not have accepted the attendant risks, had he known that the preference shares could be redeemed prior to receiving all of the Upside. HNA Irish relies on that evidence as establishing its reliance on the representations made in the Sale Information Memorandum.
339 In any event, HNA Irish says, a fair inference arises that the representations in the Sale Information Memorandum operated as an inducement to any bidder, including HNA Irish, to acquire the assets of the Aviation Division. Where a representation is made with the intention of inducing conduct in reliance upon it, and the conduct occurs, it is possible to draw an inference that the conduct was induced by the representation (see Gould v Vaggelas (1985) 157 CLR 215 at 236-237; Dominelli Ford (Hurstville) Pty Limited v Karmot Auto Spares Pty Limited (1992) 38 FCR 471 at 482-483).
340 HNA Irish asserts that it suffered loss or damage because it remained unaware, through and until the completion of the Final Sale Agreement on 6 January 2010, of the alleged right to redeem preference shares in order to provide economic value to the ordinary shareholders. It asserts that, on the hypothesis that there is a right of redemption exercisable at the option of the defendant RILAs, it is clear, at the very least, that if HNA Irish had not been misled, it could have acted in some other way that would have been of greater benefit or less detriment to it than the course that it in fact adopted (see Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 at [48]). It says that it could have acted differently by negotiating a further reduction in the purchase price to take account of the risks arising from the existence of any right on the part of the defendant RILAs to redeem the preference shares. It asserts that such a reduction would have been appropriate if the right of redemption, as advanced by Mr Veal, had been known to the Receivers and HNA Irish in October 2009, when the terms of sale were being renegotiated.
341 HNA Irish also alleges that, by reason of the representations made by Mr Veal and the defendant RILAs, and by reason of the assumptions adopted by Mr Veal, HNA Irish and each of the defendant RILAs, acting through their directors, Messrs Veal, Kelly, Hardge and Wilson, Mr Veal and the defendant RILAs are estopped from taking any action to realise value in the ordinary shares in excess of $1 per share, including any action of the directors to redeem the preference shares, or otherwise, before the preference shareholders have received all the Aircraft Profits, and from asserting, in the Defence, that there is significant residual value in the ordinary shares in the RILAs.
342 HNA Irish also relies on the evidence of former employees of Public AFGL to the effect that the commercial purpose of Aviation Transactions was for the preference shareholders of the RILAs to receive all of the Aircraft Profits and for there to be no material economic value in the ordinary shares of the RILAs. Messrs Wilson, Kelly and Hardge gave evidence to that effect, and none of them was cross-examined on that question, although, as I have already indicated in considering the Redemption Issue, there is a controversy as to the extent to which their evidence may used. Mr Veal accepted in cross-examination that he could not say that it was part of the purpose of the structure of the Aviation Transactions to leave alive the possibility that some value might flow to the ordinary shareholders of the RILAs. HNA Irish says that all of the evidence leads to the conclusion that there was a common assumption made by HNA Irish, Mr Veal and the defendant RILAs that no value would flow to the ordinary shareholders.
343 Accordingly, HNA Irish says, if the defendant RILAs are permitted to depart from the common assumption, and to redeem the preference shares, HNA Irish will suffer detriment by reason of the departure, since profits actually realised from the sale or use of the relevant aircraft after redemption would then go to the benefit of the ordinary shareholders of the RILAs, whereas those profits would go to the benefit of the preference shareholders if the defendant RILAs are held to the common assumption. Therefore, HNA Irish says, Mr Veal and the defendant RILAs should be estopped in the manner I have set out. However, assuming the preference shareholders have received any preferred dividend to which they are entitled under the constitutions, it is difficult to see how the holder of preference shares could ever realise a benefit that might flow to the holder of the ordinary shares by reason of the fact that the holder of the ordinary shares happens to hold shares in another company.
344 KV Aviation says that the representation, pleaded in paragraph 141(a) of the Statement of Claim (see paragraph [129] above), that the preference shareholders of the defendant RILAs were entitled to all Upside from the Aviation Transactions, describes accurately, albeit summarily, the substance of the entitlement of the preference shareholders under the constitutions of the RILAs. It says that the preference shareholders are entitled to the profit, or Upside, from the particular Aviation Transaction. Thus, the preference shares were issued to the original preference shareholders in conjunction with their making loans to the defendant RILAs or the associated Financing SPCs. The possibility of Upside was an incident of the reward for investing in a particular Aviation Transaction. KV Aviation does not deny the entitlement of preference shareholders to receive the preferred dividend, calculated by reference to the general description contained in paragraph 141(a) of the Statement of Claim, in accordance with the constitutions, properly construed.
345 KV Aviation contends, however, that the extracts of the Sale Information Memorandum relied on by HNA Irish as giving rise to the representation alleged in paragraph 141(a) clearly inform the reader that the return to be enjoyed by the preference shareholders is expected to occur at about the end of the Operating Lease. Specifically, KV Aviation draws attention to the following extract:
Upside Participation
In each Aircraft Transaction, the title to the aircraft is held by a transaction SPVO, which typically issues ordinary shares and preference shares. On the realisation/refinance/lease renewal of an aircraft at the end of the primary lease term, the preference shareholder is entitled to all economic Upside (i.e. the excess of realisation proceeds once all the debt and selling/remarketing costs have been fully repaid). Expected (or target) Upside Participation returns are benchmarked off the achievement of Projected Base Values.
As described above, each of the business' Aircraft Transactions generally has its own aircraft owning SPVO. In many cases, the SPVO is an Australian tax resident company and, where that is the case, on sale of the aircraft at the end of the lease term sale profits are expected to be taxable in the hands of the SPVO. The entitlement of the holders of the preference shares issued by the Australian SPVOs, under the terms of those shares, to all or part of the profits from the sale or re-lease of the aircraft at the end of the lease term (after debt funding has been repaid), is accordingly and after company tax entitlement.
[KV Aviation emphasis]
346 Thus, KV Aviation says, the entitlement of the preference shareholders arises on the realisation, refinancing or re-lease of an aircraft at the end of the primary term of the Operating Lease. The Upside is the excess of realisation proceeds, once all debt and costs have been fully repaid. It says that there is no suggestion in that extract that, if the holders of the preference shares do not participate in any refinancing, they will continue to be entitled to the profits from the use of the aircraft until its ultimate sale, or for the duration of its useful life, if the RILA continues to own the aircraft.
347 KV Aviation accepts that Mr Veal, in his capacity as an employee of the Receivers, had a supervisory role in relation to the preparation of the Sale Information Documents. It says, however, that that involvement was itself under the direct supervision of Citi, as the Receivers' advisors. It says that Mr Mullins was given primary responsibility for the Sale Information Memorandum. Mr Veal supervised some of the initial drafts. KV Aviation contends, however, that when Citi took over control of the process of drafting the Sale Information Memorandum, the document was substantially recast and redrafted. KV Aviation says that, in substance and form, the final draft overseen by Mr Veal was quite different from the first draft produced under the supervision of Citi. For example, the last version of the Sale Information Memorandum commented on by Mr Veal contained a description of the rights of the RILAs and the Financing SPCs that was absent from the next version prepared by Citi. Further, the first version prepared by Citi contained other descriptions of Upside and references to the RILAs and Financing SPCs, which were excised from the final form. KV Aviation says that there was no evidence that Mr Veal was privy to any of those amendments or the decision to amend the Sale Information Memorandum in that way.
348 KV Aviation says, referring to the example just given, that Mr Veal was not responsible for deciding what was or was not included in the final form of the Sale Information Memorandum. Further, it says, the constitutions of the RILAs clearly suggest that the preference shares are redeemable, and no one could have believed otherwise. Finally, KV Aviation says, its interests in the ordinary shares were not included as part of the sale. Decisions to remove other references to the RILAs and Financing SPCs were taken not by Mr Veal but by Citi.
349 KV Aviation accepts that the earlier drafts of the Sale Information Memorandum contained descriptions of the rights involved in what is termed Upside participation that are comparable to those found in the final form of the Sale Information Memorandum. It says, however, that those descriptions, though concise, were reasonably accurate in the context of the Sale Information Memorandum.
350 However, it is probably no answer to say that Citi issued the Sale Information Memorandum, or that Mr Veal had no direct contact with HNA Irish prior to his resignation. Further, it is probably no answer for Mr Veal, having failed to disclose important matters when he was reviewing and commenting on the Sale Information Memorandum, to say that the final document was not under his control. It would be a different matter, of course, if he had disclosed that the ordinary shareholders were entitled to economic value from the Aviation Transactions, but that comment had subsequently been ignored. That, however, is not what happened.
351 In response to the allegation in paragraph 138 of the Statement of Claim (see paragraph [128] above) that Mr Veal represented to the other persons involved in preparing the Sale Information Documents that the preference shareholders were entitled to all Upside from the Aviation Transactions, KV Aviation says that that representation is true, provided that what is meant by the Aviation Transactions is properly understood. I have already said something about KV Aviation's contentions as to that matter. KV Aviation contends, further, that there is no reason why Mr Veal was required to provide to the Receivers, or any employees of or advisors to the Receivers, any information as to the effect of the constitutions of the RILAs in the context of the Aviation Transactions. None of the Sale Information Documents contemplated the sale of ordinary shares in the RILAs. There is considerable substance in that contention.
352 Paragraph 139 of the Statement of Claim asserts that Mr Veal did not inform any person involved in the preparation of the Sale Information Documents that the owner of the ordinary shares in the defendant RILAs had significant rights, and that there was significant residual value in the ordinary shares. Paragraph 141(c) alleges that the Sale Information Documents did not disclose that the owner of the ordinary shares had such rights (see paragraph [129] above).
353 However, HNA Irish called no evidence that might establish that any person believed, on its behalf or on behalf of HNA Group, that the preference shareholders had some rights and entitlements that were different from the rights and entitlements provided for in the constitutions of the defendant RILAs. Nor was there any evidence that any person formed that belief on the basis that that person expected that Mr Veal would explain any such difference.
354 KV Aviation contends that it is crucial that HNA Irish formulate the subject matter of what it says Mr Veal did not disclose in terms of residual value, being the value that exists as a residue after the preference shareholders have received their entitlements, under the constitution, to a preferred dividend. The fact that the ordinary shares existed was disclosed by the Sale Information Documents. It was also obvious that the ordinary shares had the rights provided for in the constitutions of the RILAs. It was obvious that those rights included the power to appoint the directors of the RILAs, and it was also obvious that the RILAs had various rights and entitlements under the Transaction Documents. Since the Sale Information Documents were not concerned with any sale of the ordinary shares in the RILAs, there was no occasion for any party, including Mr Veal and the Receivers, to make statements in the Sale Information Documents as to their understanding concerning significant rights held by the owner of the ordinary shares in the defendant RILAs, and any significant residual value of owning the ordinary shares in the RILAs.
355 In any event, KV Aviation says, HNA Irish became fully aware that Mr Veal intended to cause KV Aviation to rely upon its rights under the constitutions of the defendant RILAs as an ordinary shareholder, well before it entered into the May Sale Agreement on 5 May 2009 (see paragraph [28] above). It says that, at all times during the sale process, HNA Irish and HNA Group were aware that Mr Veal openly claimed that KV Aviation's ordinary shares in the RILAs had value, and that KV Aviation was entitled to exercise those rights in accordance with the constitutions of the RILAs and the Transaction Documents. HNA Irish became aware of Mr Veal's claims no later than the publication, on 23 February 2009, of an article in the journal Commercial Aviation Online. That was the date on which HNA Group submitted its second round bid to the Receivers (see paragraph [25] above).
356 KV Aviation draws attention to other indications that HNA Irish knew about and understood the need to deal with and investigate Mr Veal's claims. For example, on 5 March 2009, Bravia raised, as an outstanding question for consideration, the status of Mr Veal's issues with regard to ownership and control of the defendant RILAs. On 6 March 2009, an officer of Bravia said that HNA Group needed to clarify that the equity assets would be bought in a separate negotiation, referring to Mr Veal's claims. HNA Irish became aware, on 2 April 2009, of an article in The Australian newspaper that included a reference to Mr Veal enforcing his legal rights to the ownership of aircraft.
357 On 5 May 2009, HNA Group entered into the Control Payment Deed, and agreed to pay up to US $24,299,066 for the control of all of the RILAs and the Financing SPCs. That control was derived from the ordinary shares in the defendant RILAs and the shares in the Financing SPCs, which are owned by KV Aviation. HNA Group must have understood how that ownership conferred control of the defendant RILAs and the Financing SPCs and, through that control, the ability to restructure Aviation Transactions. KV Aviation says that, whatever HNA Group understood, it clearly realised that the ordinary shares in the RILAs had some value. During the final negotiations to determine the price that HNA Irish would pay to the Receivers, Mr Bharat Bhise of Bravia told the Receivers that "the bottom line is that we jointly allocated a value of US $25 million to the [KV Aviation] shares that you can't deliver, but we may be able to if we have the freedom to negotiate".
358 HNA Irish contends that, without control of the RILAs, it faced some serious risks in entering into the transaction by which it acquired assets of the Aviation Division. It says that one of the key assets being sold was the rights of the Managers to management fees under the management contracts. It says that, since the RILAs had certain rights pursuant to the Financing Deed to remove the Managers, HNA Irish could not be assured, without control of the RILAs, that it would receive the rights under the management agreements that it was buying. That submission appears to reinforce KV Aviation's contention that HNA Irish clearly understood the value of the ordinary shares in the defendant RILAs.
359 A virtual data room, which was made available by Receivers to prospective purchasers of assets of the Aviation Division, contained over 7,000 documents listed in an index of almost 600 pages in length. The Q&A Document (see paragraph [24] above) was provided as part of that information. The way in which HNA Irish and HNA Group understood the Aviation Transactions, and the nature of the interests that they were acquiring, is set out in detail in a due diligence report dated 25 March 2009 (the Due Diligence Report). The Due Diligence Report stated that Bravia had been retained by HNA Group to assist in preparing the document, which was based on the information provided by HNA Group and the due diligence performed by Bravia and other engaged parties solely for use by prospective financiers or investors in considering their interests in the proposal.
360 The Due Diligence Report stated that the Aviation Division held junior receivables loans, junior assets loans, lease management and Upside participation/residual interests in a diversified portfolio of 68 aircraft. It stated that one of the assets being acquired by a potential investor was Upside participation, which was described as $197 million of future value in aircraft, which entitled the business to a pre-agreed portion of the net proceeds from the sale or re-lease of the aircraft at the end of the term of the Operating Lease, after repayment of all outstanding debt and costs.
361 The Due Diligence Report also referred, under the heading 'Considerations for Closing', to conditions precedent, which included a condition that the purchaser be satisfied, in its sole discretion, that it has control, or it is otherwise satisfied with the control, of the RILAs. In giving an overview of the Aviation Division, it stated that the Aviation Division was entitled to all or part of any Upside participation in aircraft residual values, in the form of preference shares, that may be realised from sale or re-lease of the aircraft at the end of the term of the Operating Lease, after repayment of all outstanding debt and associated costs.
362 The Due Diligence Report contained a diagrammatic representation of the Aviation Transaction structures, and stated that a primary feature of the structure was that the residual value of the relevant aircraft and the rent received from the airline operator are separated and sold by the lessor to a RILA and a Financing SPC respectively. It stated that preference shares had been issued by the RILAs, which provided Upside participation in relation to the Aviation Transactions. It stated that, in broad terms, the preference shareholders were entitled to a preferred dividend payable out of the after-tax profits derived by the RILAs from the sale of the aircraft. It also stated that the ordinary shares of the RILAs were typically held by KV Aviation, which held the legal title but received no economic benefit. It stated that Allco Rentals was typically the lessor but that, like KV Aviation, Allco Rentals typically received no economic benefit in the receivables of residual value of the aircraft.
363 Under the sub-heading 'Financing Risk', the Due Diligence Report referred to the potential for a Financier to buy back current senior debt at a discount. Under the heading 'Counterparties', reference was made to strategic partners, including equity holders of the legal interest of various special purposes vehicles involved in the Aviation Transactions. Under the heading 'Special Considerations', reference was made to discussion and negotiation with current equity holders of the RILAs and the Financing SPCs.
364 It is highly unlikely that HNA Irish and HNA Group did not obtain and rely upon their own legal advice as to the meaning and effect of the constitutions of the defendant RILAs and the operation of the Transaction Documents, together with the independent rights and entitlements of the RILAs and the associated Financing SPCs under the Transaction Documents. Clearly enough, HNA Irish and HNA Group obtained and relied upon their own legal advice concerning the rights and entitlements attached to the ordinary shares in the RILAs owned by KV Aviation, and the consequent effect on the rights of the preference shareholders. Indeed, HNA Group engaged three legal firms. The first, Addisons, dealt with property matters. The second was a Chinese firm. The third firm acts for the plaintiffs in the present proceeding. HNA Group received legal advice from Addisons on 26 March 2009 on the subject of discussions with Mr Veal's solicitor. Mr Smith said, in a letter of 1 September 2009, that HNA Group and the Receivers had sought their own legal advice on the ramifications of proceeding with the acquisition with the KV Aviation issue unresolved. By 22 December 2009, HNA Group had formulated a detailed strategy to gain control of the RILAs. It is clear from the formulation of that strategy that it was based on legal advice.
365 No officer of HNA Irish, HNA Group or Bravia who actually gave any detailed consideration to the contents of the Sale Information Documents, was called to give evidence. As I have said, it is reasonable to assume that HNA Irish and HNA Group relied upon detailed legal advice as to the constitutions of the RILAs and the Transaction Documents. Nevertheless, no evidence of that advice has been put before the Court.
366 Accordingly, I would not draw an inference that HNA Irish and HNA Group were ultimately caused to enter into and complete the Final Sale Agreement in reliance upon representations made in the Sale Information Documents, or by any failure by Mr Veal to make some public statement as to the precise nature of the rights that he claimed KV Aviation had by reason of its ownership of the ordinary shares in the RILAs. Rather, HNA Irish and HNA Group did not rely on Mr Veal's conduct at all but relied, if at all, on the Sale Information Documents provided by the Receivers.
367 The reliance case advanced on behalf of HNA Irish and HNA Group, which is substantially dependent upon the evidence of Mr Smith, is based on what seems to be a false premise inherent in much of the evidence called by them, namely the proposition that the practical effect of the assertions made by KV Aviation and Messrs Veal and Kinghorn is that the preference shareholders will not receive the amount of the preferred dividend to which they are entitled under the constitutions of the RILAs. I have already said something about that question in dealing with the Redemption Issue. The real issue appears to be whether or not the preference shares may be redeemed before the end of the term of the initial Operating Lease, upon satisfaction of all obligations under the Transaction Documents, on the basis of an estimate of the value of the aircraft. The essential difference between the parties is as to who should have the opportunity of taking the benefit of an upturn in the aircraft market and bear the risk of a downturn in that market.
368 I consider that the conduct of Mr Veal in connection with the preparation of the Sale Information Documents was undertaken by him in his capacity as an employee of the Receivers, under an employment agreement entered into on 26 November 2008. Mr Smith's evidence makes it perfectly clear that he, and accordingly HNA Group, understood that the Sale Information Documents were issued by or on behalf of the Receivers, and that the due diligence process was undertaken between potential buyers and the Receivers and their agents. KV Aviation accepts that Mr Veal acted in his capacity, and within the scope of his authority, as the head of the Aviation Division, provided that it is understood that, after the Receivers were appointed, Mr Veal's employment relationship was with the Receivers.
369 I do not consider that Mr Veal was acting in his capacity, and within the scope of his authority, as an officer of KV Aviation or of any of the defendant RILAs. Neither KV Aviation nor the defendant RILAs was engaged in the sale of assets of the Aviation Division or in the due diligence process. There was no proposal that KV Aviation or the RILAs would sell any assets owned by them. The terms of the Sale Information Memorandum and the Q&A Document make it clear that the shares in the Financing SPCs and RILAs owned by KV Aviation were not being offered for sale. The only reasonable inference that could be drawn is that Mr Veal was acting on behalf of the persons who were seeking to sell assets, namely, the Receivers.
370 There was no evidence suggesting that HNA Irish or HNA Group understood that anything stated in the Sale Information Documents was being stated on behalf of the owners of shares in KV Aviation, or on behalf of KV Aviation as the holder of ordinary shares in the defendant RILAs. Nothing done by Mr Veal could amount to conduct engaged in by, or on behalf of, KV Aviation or any of the defendant RILAs within the meaning of either s 769B of the Corporations Act or s 12GH of the ASIC Act. Accordingly, the allegation in paragraph 140(d) of the Statement of Claim that the relevant conduct was the conduct of KV Aviation and each of the RILAs cannot be sustained.
371 Further, Mr Veal did not act in his capacity and within the scope of his authority as an officer of the Managers of the defendant RILAs. The Statement of Claim does not make any allegation of a basis for any involvement of the Managers in the proposed sale or the due diligence process. There was nothing for the Managers to do, because the defendant RILAs were not involved in the proposed sale negotiations. In any event, it was not within the Managers' authority to act as agent of the RILAs in that context. The authority of the Managers, as set out in clause 8 of the Financing Deed, is limited to certain administrative tasks under the Transaction Documents, administrative or management tasks (with the agreement of the RILAs), the preparation of accounting records, and incidental matters. The Managers are expressly denied authority to negotiate and conclude contracts on behalf of the RILAs without the agreement of the boards of the RILAs. Accordingly nothing done or omitted to be done by Mr Veal was done or omitted to be done by or on behalf of KV Aviation or the defendant RILAs.
372 KV Aviation contends that the allegation in paragraph 142 of the Statement of Claim, that the representations alleged in paragraph 141 were misleading and deceptive, is misconceived. The economic value that KV Aviation claims resides in ownership of the ordinary shares is either residual to the economic value in the preference shares, or derived from ownership and control of the ordinary shares in all of the RILAs together with ownership and control of all of the Financing SPCs. Thus, any economic value in the ordinary shares does not impinge upon the economic value in the preference shares. Further, the existence of economic value in the ordinary shares does not have the effect that the preference shareholders are not entitled to all Upside from the Aviation Transactions, so long as the nature of that Upside is properly understood. The entitlement of preference shareholders is to receive a preferred dividend, calculated in accordance with the constitutions of the defendant RILAs. That is the Upside.
373 There is no representation made in the Sale Information Documents that there is no economic value in the ordinary shares in the defendant RILAs. Similarly, there is no representation made in the Sale Information Documents that the owner of the ordinary shares does not have some significant rights.
374 Mr Stubbs said that Mr Veal had made it clear from the very early days of the receivership of Public AFGL that he had informed the Receivers and Mr Stubbs that he was in control of the ordinary shares in the RILAs, and that those shares were not part of the sale process. That may be inconsistent with the proposition that Mr Veal kept the ownership of the ordinary shares secret and did not inform anybody that he was in control of the ordinary shares of the defendant RILAs. It may be that Mr Veal took no active steps either to publicise or to conceal his ownership of the ordinary shares. Mr Stubbs also said that HNA Irish and HNA Group were fully aware that Allco Finance Group did not own the ordinary shares in the defendant RILAs, and that KV Aviation was asserting rights arising from its ownership of the shares. That assertion of rights by the ordinary shareholder, and communications to HNA Group, occurred before a final and binding offer was made for assets of the Aviation Division by HNA Group. In those circumstances, it is difficult to conclude that HNA Irish and HNA Group were unaware of the rights being asserted by KV Aviation in its capacity as the owner of the ordinary shares in the defendant RILAs, or that Mr Veal had kept knowledge of those rights from the Receivers.
375 It must have been apparent to HNA Irish and HNA Group that the assets that were the subject of the May Sale Agreement did not include the ordinary shares in KV Aviation or the ordinary shares in the defendant RILAs. Further, by operation of the Control Payment Deed, HNA Group agreed to pay up to US $24.3 million for control rights that were substantially constituted by ownership or control of the ordinary shares in the RILAs (see paragraph [28] above). No one who read the Sale Information Documents could reasonably have thought that they contained any information about the rights and benefits attached to ownership of the ordinary shares in KV Aviation or the defendant RILAs. Mr Smith understood that the Sale Information Documents were not saying anything about the shares in KV Aviation or the ordinary shares in the defendant RILAs.
376 Ultimately HNA Group, or companies controlled by it, paid in the order of US $85.8 million for the assets acquired under the Final Sale Agreement. It is highly unlikely that HNA Irish and HNA Group entered into that transaction simply in reliance upon what was said or not said in the Sale Information Documents. There were significant due diligence investigations undertaken on behalf of HNA Group, which ultimately relied upon its own legal advice as to the legal effect of the entitlements it was acquiring.
377 Mr Smith only gave the Sale Information Memorandum cursory attention, and left it to other officers of Bravia to review the Sale Information Memorandum in detail. He relied upon those other officers. One of those other officers, Mr Yan, was available to give evidence but was not called. KV Aviation says that HNA Irish and HNA Group have deliberately adopted a course of proffering no witness who could have been cross-examined in detail as to any understanding on the part of HNA Irish and HNA Group as a result of reading the Sale Information Memorandum. Mr Smith failed to explain, by analysis of the Sale Information Memorandum, how he understood it to make any relevant representations.
378 In any event, the only representation alleged in relation to the Sale Information Memorandum is that pleaded at paragraph 141 of the Statement of Claim, which I have already described. KV Aviation says that that representation was not false, once one understands what is meant by the language used. That, again, raises the question as to the real issue between the parties and as to the nature of the entitlement to Upside of the holders of the preference shares.
379 KV Aviation further contends that the allegations in paragraphs 147 and 148 of the Statement of Claim (see paragraph [131] above) are misconceived. HNA Irish is entitled to all of the benefits of owning the preference shares in the defendant RILAs, and KV Aviation accepts that the preference shareholders are entitled to be paid a preferred dividend in accordance with the terms of the constitutions of the defendant RILAs. There is a genuine controversy as to the proper construction of the constitutions in relation to how and when the amount of the preferred dividend is to be determined and whether, and in what circumstances, the constitutions permit the defendant RILAs to redeem the preference shares. However that controversy may be determined in this proceeding, the preference shareholders will be entitled to receive whatever preferred dividend is payable in accordance with the Court's determination of the effect of the constitutions of the defendant RILAs.
380 It does not follow, from the fact that the ordinary shares in the defendant RILAs have some economic value, that the value of the entitlements of the preference shareholders under the constitutions is diminished by the amount of that value. The economic value available to the ordinary shareholder is that which is left after the preference shareholders receive whatever they are entitled to receive under the constitutions. The existence of the one type of economic value need not reduce the value of the other type of economic value. That highlights a misconception that permeates the case advanced on behalf of HNA Irish.
381 Any economic value that might flow to the holder of the ordinary shares in the RILAs, by reason of the benefit of controlling the ordinary shares in all of the RILAs and all of the associated Financing SPCs, arises at the shareholder level and not at the level of the businesses conducted by the individual defendant RILAs. That economic value could never be available to the preference shareholders, and its existence could never diminish the value of owning preference shares.
382 Where a misrepresentation allegedly induces a person to enter into an agreement to purchase property, the damage is generally measured by the difference between the price paid or payable under the agreement and the value of the property at the date of the agreement (see Potts v Miller (1940) 64 CLR 282). Value is determined by forming an opinion as to what a willing but not anxious purchaser will pay and a willing but not anxious vendor will accept for property. The proper measure of loss depends on the difference between the price paid and the estimated true value at the relevant time.
383 HNA Irish has not adduced any valuation evidence to demonstrate, by reference to the price that it paid for the preference shares in each of the defendant RILAs, that the value of its entitlements was diminished by a specified amount as a consequence of the fact that the ordinary shares might have some economic value. KV Aviation says that there was in fact no such loss. In any event, it says, the measure of any such loss is certainly not equal to the residual value claimed in the ordinary shares or a share of Remaining Aircraft Profits, as alleged in paragraphs 147 and 148 of the Statement of Claim. There is considerable substance in those contentions.
384 The common assumption alleged by HNA Irish proceeds on the premise that KV Aviation's case involves a subtraction from the Upside or preferred dividend. For the reasons set out above, HNA Irish has failed to establish the alleged common assumption at the relevant time, or at all, from the evidence of Mr Smith, Mr Veal and Messrs Hardge, Wilson and Kelly. The case based on such an alleged common assumption accordingly fails. Whether or not there was any misrepresentation or non-disclosure in the Sale Information Documents, there was no relevant conduct on the part of KV Aviation, Messrs Veal and Kinghorn or the defendant RILAs. Further, there was no relevant evidence led by HNA Irish and HNA Group of reliance upon any such misrepresentation or non-disclosure.