King v GIO Australia Holdings Limited

"27. The representations alleged in paragraph 26 above were false, misleading and deceptive because: (a) the risk factors were material matters which were not disclosed or not given adequate prominence in the Part B Statement and which the Applicant and the group members ought to have taken into account in deciding whether to accept or reject the varied takeover offers; (b) GIO, Grant Samuel and the Directors had not undertaken all necessary and reasonable investigations which, had they been undertaken, would have led to the risk factors being adequately disclosed before publishing the Part B Statement and had not satisfied themselves on reasonable grounds following those investigations that the Part B Statement was accurate, balanced, reasonable and not misleading or deceptive in any respect; (c) the risk factors constituted matters which could reasonably support arguments in favour of acceptance of the varied takeover offers; (d) the risk factors were of such importance that the Applicant and the group members could not safely ignore them and ought to have taken them into account in deciding whether or not to accept the varied takeover offers." 5 The submission made by the second respondent is that its accessorial liability is not said to depend on it having knowledge that the implied representations were made or that the representations were false. Counsel for the second respondent referred to a number of authorities which were said to demonstrate that both matters were essential elements in the liability deriving from s 75B of the Trade Practices Act 1974 ("T P Act"); Yorke v Lucas (1985) 158 CLR 661 at 667-668; Compaq Computer Australia Pty Ltd V. Merry (1998) 157 ALR 1 at 4-5; Periera v Director of Public Prosecutions (1989) 63 ALJR 1 at 3; Giorgianni v The Queen (1984) 156 CLR 473 at 504-507; Fernandez v Glev Pty Ltd [2000] FCA 1859 at par 18; and Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 599 at paras 40-43. 6 Section 75B provides: "(1) A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA, IVB or V, all of section 75AU, shall be read as a reference to a person who: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. (2)…" 7 In Compaq Computers Australia Pty Ltd v Merry, Finkelstein J made the following comments about accessorial liability (at page 4): "It is necessary to say something about the law that governs accessorial liability in connection with a contravention of the Trade Practices Act and also in connection with a breach of fiduciary duty. There was only passing reference to the relevant principles during argument no doubt for the reason that the applicable principles were not in dispute. A contravention of s 52(1) of the Trade Practices Act can occur regardless of whether the corporation is acting honestly or reasonably: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197. But where it is sought to make a person liable as an accessory to a contravention of s 52(1) based on s 75B it is necessary to establish that the person has intentionally participated in the contravention. To establish intentional participation it must be proved that the person has knowledge of the essential matters that make up a contravention of s 52(1): see generally Yorke v Lucas 158 CLR 661; Edwards v R (1992) 173 CLR 653. In this regard 'knowledge' means actual and not constructive knowledge. For example, it would not be sufficient merely to show that the person charged with accessorial liability had shut his eyes to the obvious if that is intended to be a substitute for actual knowledge: Giorganni v R (1985) 156 CLR 473. Of course, where there is a combination of suspicious circumstances and a failure to make an enquiry it may be possible to infer knowledge of the relevant essential matters: Pereira v Director of Public Prosecutions (1989) 63 ALJR 1 at 3." 8 It can be accepted it is necessary for the applicant to plead, as against the second respondent, that it knew of the essential matters that made up the contravention of s 52 by the first respondent. The point presently in issue is what are the essential matters. As noted earlier, the complaint of the second respondent is that the applicant has not pleaded that it knew of two essential matters. The first is that the implied representations pleaded in (i), (ii) and (iii) of par 26 were made. The second is that they were false misleading or deceptive as pleaded in par 27. It is accepted by counsel for the applicant (and it is the fact) that there is no specific allegation pleaded that the second respondent knew the implied representations were made or that the second respondent knew they were false. 9 On the question of whether it is necessary for knowledge of the implied representations to be pleaded, counsel for the applicant submitted that it is sufficient for the applicant to plead, as he does, that the second respondent knew of the conduct of the first respondent (relevantly pleaded, in a synthesised way, in (a), (b) and (c) of par 26) that is said to give rise to the making of the implied representations. I was not referred to any authority by counsel for the second respondent in support of the proposition that where it is pleaded that implied representations in contravention of s 52 resulted from the conduct of a corporation, an essential matter that must be known by a person said to be accessorily liable, is that the implied representations were made (rather than simply the conduct was engaged in). In putting this way I am not overlooking that ultimately, for the purposes of s 52, the impugned conduct is the making of the representations. 10 On the other hand, as counsel for the applicant noted, there are observations in the judgments of the NSW Court of Appeal in Heydon v NRMA Ltd & Ors (2001) Aust Torts Reports ¶81-588 which suggest otherwise. The issue arose in that matter in the following context. A prospectus was issued during the course of the proposed restructuring of a group of companies including NRMA Ltd ("NRMA"). The prospectus contained statements which, as found in proceedings in this Court, resulted in it being misleading. Legal advice had been given about the contents of the prospectus. Several issues arose about the role of the legal advisers in advising about the prospectus. One was whether, in publishing the prospectus, NRMA engaged in misleading and deceptive conduct and, if so, whether the legal advisers had been involved in the conduct and were liable under provisions such as s 75B. Each member of the Court of Appeal concluded that the publication of the prospectus was not misleading and deceptive conduct. Nonetheless, the question of the accessorial liability of the legal advisers was addressed by the Court. Malcolm AJA said at 66,359: "Although [the legal advisers] did not in intend to mislead and the advice given by [one legal adviser] was that the prospectus could be issued in the form in which it was, it was at least strongly arguable that the respondents were "involved" in the contravention of the TP Act….. Assuming it was wrong and publishing of the prospectus was misleading and had the effect that the NRMA contravened s 52 of the TP Act, the knowledge that [the legal advisers] had of what was in the prospectus and that it was to be published would be sufficient to attract liability under s 75B." 11 Remarks to similar effect were made by McPherson AJA at 66,390: "If that conclusion is wrong [that the publication of the prospectus was not misleading conduct], then I find it difficult to see how the [legal advisers] could avoid being "involved" in a contravention of the Act. To state the matter in a more positive and direct form, it seems to me that, knowing as they would then have done that those expressions were used in a prospectus which would, in fact, issue to a vast number of people some of whom were not well educated or versed in the ways of business, they would be found to have intentionally counselled a contravention of s 52; or, alternatively, being aware of the essential facts which on this assumption made it misleading, to have been knowingly concerned in or a party to that contravention….. It is true that they did not intend to mislead, and that they did not believe that the prospectus or those expressions in it would mislead anyone; but if they knew what was in the prospectus and that it was coming to be published, they satisfied the provisions of s 75B." Orminston AJA agreed with McPherson AJA on this issue. 12 It appears from these extracts, which were obiter, that in a case where a document was published which contained statements which falsely represented the true position (as assumed by their Honours), the essential facts that must be known by a person said to be accessorily liable (at least on the basis of being knowingly concerned or involved) is that the document contained statements and that the document was to be published and perhaps also that the person knew of the essential facts that made the statements misleading. It may be accepted that in that case the representations appear to have been express and not, as alleged in this matter, implied. However I presently doubt that this is a material point of distinction. The following is arguably the position. Things that are said imply something because what is said does or may convey a meaning to people to whom it is said. A person can know that certain things have been said by another and also know the context in which it was said (including the audience to whom it was said). However a person with that knowledge would ordinarily not know that what was said conveyed a particular meaning to the people to whom it was said. At best the person would know that it might convey that meaning. The gravamen of the complaint of the second respondent is that it is necessary for the applicant to plead that it knew the implied representations were made. That is, it knew what was said conveyed a particular meaning. As I have just endeavoured to explain, I doubt that the second respondent could ever known that. But whether this view is correct or not is not critical and I am not expressing, as a concluded view, that all, as a matter of law, the applicant will need to demonstrate to establish the liability of the second respondent on the basis pleaded in para 65 is knowledge of the matters pleaded in para 64. However it is at least arguable that this is all that is necessary. That is sufficient to justify the pleadings in the form proposed by the applicant though subject to matters that have been raised by counsel for the second respondent but not yet developed concerning the adequacy of the particulars. 13 If the applicant wishes to plead a narrow case on the basis that, in law, the pleaded case, if proved, would create liability in a respondent and, in law, the pleaded case is arguably correct, then the matter can go forward on that basis. Plainly the applicant runs the risk that the narrowly pleaded case will not, in law, create liability even if proved. However an interlocutory application such as the present is, at least ordinarily, not the appropriate time to determine finally whether an arguable case is, in law, correct or not. That is particularly so if the point is of some general importance and the party arguing that a case pleaded against it would not, in law, create liability is also alleged to be liable on other bases which are not challenged in the same way. 14 The approach which has been followed in this Court is that an applicant can ordinarily prosecute a claim even if, as to a particular legal issue on which the claim is based, it is an arguable legal proposition that will have to be resolved at trial: see, for example, Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473 at pp 45,454-45,455; State of Western Australia v Bond Corporation Holdings Ltd (1991) ATPR 41-095 at pp 52,530-52,531 and 52,536-52,537 and (1991) ATPR 41-129; Unilan Holdings Pty Ltd v Kerin (1992) 107 ALR 709 at 719; Phillips Oysters Pty Ltd v National Australia Bank Ltd (unreported, Lockhart J, 13 November 1992) at p 23; Murex Diagnostics Australia Pty Ltd v Chiron Corporation (1994) 55 FCR 194 at 203; Capro Group Pty Ltd v Janbrett Consultants Pty Ltd (1994) ATPR 41-298 at p 41,978; Optus Communications Pty Ltd v Telstra Corporation Ltd [1999] FCA 47 at [14]; Dimension Data Australia Pty Ltd v Kepper [2000] FCA 218. This accords with the general principle that a claim should not be struck out unless it is so clearly untenable that it cannot succeed: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130 per Barwick CJ. 15 I turn now to consider whether it is necessary for the applicant to plead, as against the second respondent, it knew the implied representations pleaded in par 26 were false as pleaded in par 27. An observation of Hely J in Fernandez v Glev Pty Ltd would suggest it is necessary, when alleging accessorial liability of a person, to plead that the person knew of the falsity of the representation. To similar effect are the following obiter observations of Lehane J inChan Cuong Su t/as Ausviet Travel v Direct Flights International Pty Limited and Airnet International Pty Limited and Qantas Airways Limited and National Airlines of Vietnam (1999) ATPR 41,677 and 42,666: "In Yorke v Lucas (1985) 158 CLR 661, Mason ACJ and Wilson, Deane and Dawson JJ said at 669: 'Notwithstanding that s. 75B operates as an adjunct to the imposition of civil liability, its derivation is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning.' As to those concepts, their Honours said at 667: 'Both in the case of felonies where the principal offender and the secondary participant commit separate offences, and in the case of misdemeanours where no distinction is drawn between the two, a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he intentionally participates in it. To form the requisite intent he must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime.' Thus, in the case of a contravention of s 52, the mere making of representations on behalf of a corporation, without knowledge of their falsity, could not constitute "involvement" in misleading or deceptive conduct contravening s 52." The last part of this passage was quoted with approval by Einstein J in Idoport Pty Ltd v National Australia Bank Ltd. 16 A not dissimilar issue arose in Dimension Data Australia Pty Ltd v Kepper [1999] FCA 1446. In that matter there was an issue about whether conduct of directors of a corporation caught by 75B would be conduct involving a lack of good faith or the purposes of s241 of the Corporations Law. In the matter I said: "The nature of the conduct which attracts s 75B was discussed by French J in Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1994) ATPR 41-315. His Honour said at 42,204: 'The application of that section [s 84(2) of the TPA] and the common law to the relationship between the conduct of the officers of a corporation and that conduct which is attributed to the corporation was discussed by the Full Court in Wheeler Grace and Pierucci Pty Ltd v Wright (1989) ATPR 40-940 at 50,255-50,257 [16 IPR 189 at 208-209] (per Lee J with whom Neaves and Burchett JJ agreed). And as is apparent from that decision, the officers of a corporation whose conduct is attributed to the corporation and in respect of which the corporation is in contravention of s. 52 may, by that conduct, be themselves "involved in the contravention" within the meaning of s. 75B. Such an involvement does require knowledge of the essential elements of the contravention - Yorke v. Lucas (1984) ATPR 40-622 at 47,056-47,057 and 47,060-47,061; (1984) 158 CLR 661 at 670 and 677. That knowledge does not require knowledge or awareness that the conduct has the capacity to mislead nor knowledge that it may be a contravention of s. 52. What must be shown to be possessed is knowledge of the elements of a contravention: Wheeler Grace and Pierucci Pty Ltd v Wright (supra) at p. 50,257.' In Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189, the [Full] Court considered the accessorial liability of an employee of a company which was a financial consultant and investment advisor. That company had held a meeting of potential investors, conducted by the employee, at which statements had been made about a trust which was to operate a gold mine. As to the accessorial liability of the employee, Lee J said at 209: 'According to his Honour's findings, the acts which constituted the contravention of s 52 were the appellant's [the company's] statement to potential investors in the course of inviting such persons to invest in the special units of the trust that such investors would receive a return of the premiums paid on their investment within a few months without informing those potential investors of any qualifications on the prospect of repayment of the premiums. Obviously Collins [the employee] was fully aware of those elements being the person conducting the meeting on behalf of the appellant and the person who made the statement for the appellant without qualification. His Honour found that Collins was aware, prior to the meeting, that such a statement would require qualification because Collins had participated in a resolution of the board of directors of Carbon Gold on 26 April 1985 that the speculative nature of the investment should be continually stressed to prospective unit holders. It followed from that finding that Collins possessed knowledge of the circumstances that gave the conduct of the appellant a misleading character. It is immaterial whether Collins understood the import of those circumstances or held a positive belief as to the truth of the assertion he had made for the appellant.' [Emphasis added] See also Richardson & Wrench (Holdings) Pty Ltd v Ligon No. 174 Pty Ltd (1994) 123 ALR 681 and Westbay Seafoods (Aust) Pty Ltd v Transpacific Standardbred Agency Pty Ltd [1996] FCA 630." An application for leave to appeal against this judgment was dismissed: see [2000] FCA 218. It may be accepted that the authorities referred to in Dimension Data Australia Pty Ltd v Kepper concerned circumstances where the person who was said to be liable by operation of s 75B was also the person who was an employee or officer of the corporation and did the acts that were attributed to the corporation as the contravening conduct. However the observations of McPherson AJAin Heydon v NRMA Ltd & Ors, and particularly his Honour's observations in the last sentence, would suggest that in a situation analogous to the present, a person can be liable by operation of s 75B, even if they did not know or believe that the published statements were misleading: see also the observations of Lindgren J in Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1999) 95 FCR 302 at 346 (para 186: It is not required that the accessory should have appreciated the conduct was unlawful.) 17 In my opinion the question of whether a person potentially liable by operation of s 75B must know that the contravening conduct of the corporation was misleading or deceptive is not a settled one. It is a question of law that should not be determined at this stage of the proceedings unless there is some compelling reason to do so. I put it this way for the same reasons given in paras 12 and 13 above. Counsel for the applicant made it plain that it was not part of the applicant's case that the second respondent knew the implied representations were false, misleading and deceptive. For reasons already given, if the applicant wishes to prosecute its claim against the second respondent on this narrow basis then he should not be prevented from doing so if the narrowly framed claim is arguably a complete statutory cause of action. I should note that an argument has not yet been put by the second respondent (but foreshadowed) about the adequacy of the particulars which may, as I understand the submission by counsel for the second respondent, compel some other conclusion about whether the pleading can stand. That is a matter I will hear the parties on in due course. 18 The next issue raised by the second respondent concerns whether it is necessary to allege, as against a person who is said to be accessorily liable for conduct of a corporation where the conduct involves a representation in respect of a future matter, that the conduct was misleading and deceptive and the material fact as to why this is so. An application for damages brought against a corporation, involving a representation with respect to a future matter, attracts s 51A which gives an applicant the benefit of what might be described as an evidentiary assumption that the corporation did not have reasonable grounds for making the representation and that it was misleading. One of the matters relied on by the applicant, as against the second respondent, is the consequences of the conduct of GIO pleaded in paras 28, 29 and 30 of the sixth further amended statement of claim which provide: "28. By making representations and doing the other things alleged in paragraphs 17-26 inclusive above, GIO impliedly represented that: (a) the valuation of GIO shares contained in the Part B Statement was accurate and reliable; (b) the profit forecast for GIO for the financial year ending 30 June 1999 contained in the Part B Statement was accurate and reliable. 29. Each of the representations alleged in paragraph 28 above was a representation with respect to a future matter within the meaning of s.51A TPA, s.12BB Australian Securities and Investments Commission Act 1989 (Cth) ('ASIC Act'), s.41 Fair Trading Act 1987 (NSW) ('FTA') and s.765 Corporations Law. 30. Because of the matters alleged in paragraph 27 above, GIO did not have reasonable grounds for making any of the representations alleged in paragraph 28 above and accordingly each such representation is taken to be misleading pursuant to s.51A TPA, s.12BB ASIC Act, s.41 FTA and s.765 Corporations Law." 19 It is convenient set out the terms of s 51A: "(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation. (3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead." 20 The issue raised by the second respondent may be stated this way. If an applicant alleges contravention of s 52 because a representation was made by a corporation in respect to any future matter the corporation must demonstrate, to avoid a finding that the representation was misleading, that it had reasonable grounds for making the representation. However, if the applicant alleges that a person has been knowingly concerned in or party to the contravention described in the preceding sentence, is it necessary for the applicant to demonstrate, as against that person, that the corporation did not have reasonable grounds for making the representation or otherwise demonstrate the conduct was misleading or deceptive? On the other hand, does s 51A have the effect, in the action against that person, that the person (or another party) must demonstrate the existence of reasonable grounds to avoid a finding that the representation was misleading? The gist of the submission of counsel for the second respondent was that the first approach was the correct one. 21 Again this issue is one that appears not to be settled. Indeed the research of counsel for both the applicant and the second respondent did not reveal authorities which deal with this issue other than Chaplin v Birdogan (1998) 146 FLR 243and Westbay Seafoods (Aust) Pty Ltd v Transpacific Standardbred Agency Pty Ltd (unreported 6 June 1996). However unlike the first two issues, the failure to resolve this issue at this stage may have consequences for the parties, and in particular the second respondent, in the way they prepare for and conduct the trial: see Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704 (at par 17). Equally it may not. The applicant will be able to rely on s 51A in its case against the first respondent in relation to the representations as to future matters. As the pleadings presently stand, the first respondent has filed a defence to an earlier version of the statement of claim (the second further amended statement of claim). The second further amended statement of claim does plead implied representations with respect to future matters that appear to be the same as those pleaded in the sixth further amended statement of claim. In its defence, the first respondent has denied the representations were made, and if made were matters of opinion and does not admit they were representations with respect to a future matter. Thus it is problematic whether the first respondent could be expected to adduce evidence to demonstrate that it had reasonable grounds for making the representations. 22 Given the possible practical consequences of any determination of this issue in the context of a debate about the pleadings, I have raised with the parties (including other respondents who are said to be liable by operation of s 75B in relation to the representations in respect of future matters by the first respondent) whether the issue should be resolved on some more general , and perhaps final, basis. In putting it this way I am not indicating that I consider it should. That would be a matter for the parties to make submissions about. However I proceed to consider the issue in the context in which it was raised, namely an application by the second respondent challenging parts of the pleadings concerning the action against it. 23 In this case a claim is brought against the corporation (the first respondent) and a claim is also brought against, relevantly, the second respondent claiming damages arising from the corporation's representations in respect of future matters. However it must be borne in mind that a claim against a person said to be involved in conduct of a corporation contravening s 52 (because the person would be liable by operation of s 75B) can be brought without a claim been made against the corporation and without the corporation being a party to the proceeding: see Matheson Engineers Pty Ltd v EL Raghy (1992) 37 FCR 6 see also Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681, World Class Alpacas Pty Ltd v Ostrich Farms (Cook Island) Ltd (Federal Court of Australia, unreported 30 October 1997) and Australian Competition & Consumer Commission v Black on White Pty Ltd & Ors [2001] FCA 187. This is relevant, in my opinion, in determining the issue raised by the second respondent. 24 The interaction between s 75B and s 51A arose in Chaplin v Birdogan. In that matter, Ashley J determined an appeal from a magistrate dismissing an application made by a former employee of a medical practice. Her employer had been a company to whom she had lent money during her employment. For periods during her employment she was not paid her wages. She had alleged before the magistrate that the defendant, a director of the company, had made oral representations which led her to make the loan. They were characterised by His Honour as representations as to future matters. The former employee alleged in the proceedings before the magistrate that the conduct of the director was in contravention of s 52. The company was not a party to the proceeding before the magistrate. 25 The appeal was on a question of law. Counsel for the director made several submissions including a submission that (summarised by His Honour at 247): "… in this case the impugned conduct of the company was the making of representations as to future matters. The appellant must show that, when the promises were made, the company did not intend to perform them or that they were made without any, or any adequate, foundation; and that such lack of intend or absence of foundation was known to the respondent at the time. The opening words of s 51A of the Act showed that the section could only bear upon the circumstances of the company. The section would not directly assist in proof that the respondent engaged in conduct impugned by s 75B. The appellant has neither pleaded, nor established by evidence, case that the respondent had breached any part of that section." His Honour dealt with this submission at 249: "I agree that the representations relied upon were representations as to future matters. I also agree that s 51A would not directly assist the appellant in proof that the respondent engaged in conduct impugned by s 75B. It could assist the appellant to make a case that the company contravened s 52 (1)-such a contravention being a necessary precondition for accessory liability of the respondent. I do not agree with [counsel for the director's] submission that the appellant neither alleged nor gave evidence of conduct by the respondent which, in the circumstances, could fall within one or other of s 75B(1)(a) or s 75B(1)(c)." It is not entirely clear whether his Honour was taking the proposition relied on by the second respondent in these proceedings as far as it would wish. 26 Counsel for the second respondent also relied on remarks of the Full Court in Westbay Seafoods (Aust) Pty Ltd v Transpacific Standardbred Agency Pty Ltd. In that matter the trial judge had found that a corporation had contravened s 52 by engaging in misleading and deceptive conduct when selling a fishing boat. The trial judge had dismissed a claim against the director of the company alleging accessorial liability. In a cross appeal against the dismissal of the claim against the director, the Full Court considered the finding of the trial judge about the character of the representation and said (at para 4): "What his Honour held was that Mr Lonie [the director] promised, in consideration of the completion of the sale, that Westbay [the company]would do whatever should be necessary to procure approval of the use of the vessel without prohibition of the use of its tanks for the carriage of wet bait or wet fish. His Honour held further that this promise "implied a representation that Westbay intended to perform the promise and a representation that Westbay had the ability to perform the promise. No evidence having been adduced by Westbay that it had reasonable grounds for making either representation, it is deemed not to have had reasonable grounds for making either and each representation is to be taken to have been misleading: s.51A of the Trade Practices Act 1974 and Futuretronics International Pty Ltd v. Gadzhis[1992] 2 V.R. 217." 27 The Full Court then considered whether the director was liable, by operation of s 75B, having regard to the findings made by the trial judge about the director's state of mind and knowledge at the time the representations were made. The Full Court said (at para 5): "The question raised by the cross-appeal is whether the cross-appellant is entitled, in addition to judgment against Westbay pursuant to s.52, to judgment against Mr Lonie personally pursuant to s.75B on the basis that Mr Lonie was a party to Westbay's contravention. The trial Judge rejected the additional claim in the following terms: 'The evidence does not persuade me that on 26 September 1988 Mr. Lonie believed that the directors of Westbay (of which he was one) lacked the intention that Westbay should perform the promise. I am not persuaded by the evidence that on 26 September 1988 Mr. Lonie believed that Westbay had not the ability to perform the promise. I am not persuaded by the evidence that on that day Mr. Lonie believed that Westbay did not have reasonable grounds for representing that it would do what should be necessary to procure the specified approval.' If these conclusions of fact were open to the Judge, his rejection of Transpacific's case against Mr Lonie was plainly justified. That is because it is settled upon the authorities that nothing less than actual knowledge of the essential facts constituting a contravention of s.52 will suffice for a finding of liability against a person alleged to have been involved in the contravention within the meaning of s.75B. The authorities are fully discussed in Richardson & Wrench (Holdings) Pty Ltd v. Ligon No 174 Pty Ltd (1994) 123 ALR 681 at 692-695. As is there noted, the law has been stated in the unreported Full Court decision Butt v. Tingey (Davies, Neaves and Beazley JJ, 5 August 1993), as well as in several decisions at first instance. In a different context, another Full Court accepted, citing Richardson & Wrench (Holdings) Pty Ltd v. Ligon No 174 Pty Ltd, that "'reckless indifference' and 'wilful blindness' are not synonymous with 'intention' or 'knowledge'": Allstate Life Insurance Company v. Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 at 37, per Lindgren J, with whom Lockhart and Tamberlin JJ agreed." I doubt that the Full Court had in mind the proposition advanced by counsel for the second respondent when it made these observations. 28 The issue raised by the second respondent concerns the proper construction of s 51A. Plainly enough, the starting point in resolving this question is the relevant provisions of the TP Act. In the present case, the central claim is one for damages under s 82. If the applicant (putting to one side, for present purposes, these are representative proceedings) has suffered loss or damage by the conduct of the first respondent in contravention of, relevantly, s 52 (by making the representations with respect to future matters (which is the only relevant conduct for present purposes)) then the applicant can recover damages in an action against the first respondent or recover damages in an action against any person involved in the contravention. Thus the liability to damages of both the first respondent and second respondent depends on proof of conduct by the first respondent which is in contravention of s 52. To the extent that the contravening conduct is representations with respect to future matters, the applicant can seek to prove the contravening conduct in the action against the first respondent by calling in aid s 51A. It has been repeatedly emphasised that the section simply concerns the burden of proof: see Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704 and the cases cited therein. If the applicant establishes the contravening conduct in the action against the first respondent, the applicant can recover damages if loss or damage was occasioned by the conduct. If the applicant establishes the contravening conduct in the action against the second respondent and the second respondent was involved in the contravention, the applicant can recover damages on the same basis. What then is the role of s 51A in the latter action? 29 Section 51A(2) deems a corporation not to have had reasonable grounds for making a representation with respect to a future matter unless it proves it did. That subsection operates in conjunction with subs (1), "…in relation to a proceeding concerning a representation…". There is little reason to doubt that an "action" of the type referred to in s 82, can be a "proceeding concerning a representation". There is also little reason to doubt that this would include an "action" against "a person involved in a contravention" being the second type of action referred to in s 82. However in an action of the latter type, the person against whom the action was brought would not, on a literal reading of s 51A (2), be able to adduce evidence to negative what is effectively a statutory presumption that a representation as to a future matter was made without reasonable grounds and was misleading if s 51A applied in that action. I say that because the statutory presumption is displaced if the corporation (being the "it" in subs (2)) adduces evidence demonstrating it had reasonable grounds for making the representation. If this is so and the deeming effect of subs (2) can only be displaced by evidence adduced by the corporation which made the impugned representation, circumstances could arise where the evidentiary presumption created by the subsection could not be displaced by a party on whom it would operate (assuming the wider operation of s 51A). One circumstance would be when the corporation was not a party to the proceeding because it was an action only against a person allegedly involved in the contravention. Another would be where an allegation was made that a corporation had made a representation in respect of a future matter, and the corporation elected to defend the action against it (in proceedings brought against persons alleged to be involved in the contravention as well) on grounds which did not included that it had reasonable grounds for making the representation. 30 However these difficulties do not arise if the word "it" in s 51A(2) is treated as a reference to a person or body on whom s 51A might operate to deem a corporation's conduct misleading. In my opinion, it is at least arguable that it should be construed this way. It must be borne in mind that on this wider construction s 51A will operate, against a person other than the corporation whose conduct is said to contravene s 52, when that person has had some close association with the conduct such as to be treated, by operation of s 75B, as having been involved in the conduct. It is arguable, in my opinion, that the legislature intended that such a person should, like the corporation, be potentially liable for the making of representations in respect of future matters if the person (or another party in the proceedings) cannot establish that there were reasonable grounds for the making of the representations. However, on this wider construction, it would be open to that person, as well is the corporation, to adduce evidence to establish reasonable grounds. 31 In addition, it can sometimes be somewhat artificial to focus on who may adduce the evidence. As Sheppard and Neaves JJ observed in Cummings v Lewis (1993) 41 FCR 559 at 566: "Evidence of reasonable grounds may be established by evidence other than that of persons who are alleged to have made particular representations as to a future matter. Indeed, as in so many other areas, the Court may find the overall probabilities which the circumstances of a given case give rise, the background to it and the conduct of parties parte conversations taking place as providing better guides to whether or not they had particular states in mind or whether particular fact has existed which would establish evidence of something such as reasonable grounds." 32 The operation of s 51A was touched on in observations of Cooper J in Bowler v Hilda Pty Ltd (1998) 80 FCR 191. In those proceedings, the applicants alleged, amongst other things, a representation with respect to a future matter had been made by a corporation, Leader Real Estate Pty Ltd ("Leader"), which was an agent selling home units. One representation concerned the future use of the units. Leader and its holding company were the second and third respondents. Another respondent was Mr Whitcombe, the sixth respondent, who was a director of Leader and the holding company. In the para 7 of the defence of Leader, the holding company and Whitcombe it was pleaded that if the relevant representation was a representation in respect to future matter, they had reasonable grounds for making it. Reflecting on this defence, Cooper J said (at 215): "Once the fact of the representation as to a future matter has been made out by the [applicants],s 51A(2) placed the onus of proof to establish reasonable grounds, and to so displace the operation of the deeming provision, on the second and/or third respondents as the representors. The second, third and sixth respondents clearly understood this to be the position, as par 7 of their amended defence demonstrates." These observations provide some support for both the narrower and broader construction of s 51A. His Honour does not say that the individual, Whitcombe, could establish reasonable grounds and he restricts his comments to the corporations establishing those grounds. However, his Honour does appear to accept that the existence of the reasonable grounds was a matter to be raised by Whitcombe in his defence. His potential liability arose by operation of s 75B (see [2000] FCA 899 at pars 75 to 84) 33 In my opinion, it is arguable that s 51A would operate, in the action against the second respondent based on s 75B, to relieve the applicant of the initial burden of proving that the representations with respect to future matters pleaded in par 28 are misleading and, if so, it would be incumbent on the first respondent or the second respondent (or indeed perhaps any other respondent) to adduce evidence that the first respondent had reasonable grounds for making the representations. Accordingly the way the case has been pleaded by the applicant is, in this respect, unexceptionable in the sense that it is based on a construction of s 51A which is arguably correct. For the reasons given in paras 13 and 14 the matter can proceed against the second respondent on the basis reflected in the current pleadings. However at least this qualification should be made to this conclusion. If there is some material prejudice to the second respondent in the matter going forward on the basis that it does not know in a concluded way how s 51A will operate at trial, the issue may have to be revisited. Moreover there may be some other basis, which has not presently occurred to me, that would warrant the issue being revisited. However, as I indicated earlier, I do not invite further interlocutory argument on the question. Whether there will be is a matter for further submissions. 34 I propose to stand the notice of motion of the second respondent over until 11 May 2001. I will then deal with any further submissions of the second respondent concerning the particulars before I determine what orders should be made in the notice of motion and also then, if it is necessary, deal with the question of whether leave should be granted to the applicant to amend the statement of claim (if it is practicable to do so) and the costs of the motion. If the parties consider it necessary to fix some other time for this purpose, I will consider doing so. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

Associate: Dated: 3 April 2001 Counsel for the Applicant: A Leopold

Solicitor for the Applicant: Maurice Blackburn & Cashman