Lake Cumbeline Pty Ltd & Ors v Effem Foods Pty Ltd & Anor [1995] FCA 451

Halton Pty Ltd v Stewart Bros Drilling Contractors Pty Ltd (1992) 14 ATPR 40, 146 Mander Forklift Pty Ltd v Dairy Farmers Co-operative (1990) 12 ATPR 53, 227 Lawson v Ampol Ltd (1993) ATPR 41-204 Hooper v Commonwealth of Australia (unreported, Sup Ct, NSW, Comm Div, Gleeson CJ - 16 Nov 1990) Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53, 193 McWilliam's Wines Pty Ltd v L S Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 LAKE CUMBELINE PTY LIMITED, IDOBOOK PTY LIMITED, PETER HORROBIN, RICHARD SANDS AND RAYMOND PRIDMORE v EFFEM FOODS PTY LIMITED trading as UNCLE BEN'S OF AUSTRALIA No NG 129 of 1990 Tamberlin J Sydney 29 June 1995

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 129 of 1990 GENERAL DIVISION ) BETWEEN: LAKE CUMBELINE PTY LIMITED First Applicant IDOBOOK PTY LIMITED Second Applicant PETER HORROBIN Third Applicant RICHARD SANDS Fourth Applicant RAYMOND PRIDMORE Fifth Applicant AND: EFFEM FOODS PTY LIMITED Trading as UNCLE BEN'S OF AUSTRALIA Respondent CORAM: TAMBERLIN J PLACE: SYDNEY DATED: 29 JUNE 1995 MINUTE OF ORDERS THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicants pay the respondent's costs, except for any costs awarded to the applicants in interlocutory proceedings. NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 129 of 1990 GENERAL DIVISION ) BETWEEN: LAKE CUMBELINE PTY LIMITED First Applicant IDOBOOK PTY LIMITED Second Applicant PETER HORROBIN Third Applicant RICHARD SANDS Fourth Applicant RAYMOND PRIDMORE Fifth Applicant AND: EFFEM FOODS PTY LIMITED Trading as UNCLE BEN'S OF AUSTRALIA Respondent CORAM: TAMBERLIN J PLACE: SYDNEY DATED: 29 JUNE 1995 REASONS FOR JUDGMENT Introduction This action arises from an investment by the first applicant, Lake Cumbeline Pty Limited ("Cumbeline") made on 30 March 1987, in purchasing the shares of a company named Trawl Industries of Australia Pty Limited ("Trawl"), which was engaged in the processing and supply of fish, mainly pilchards and jack mackerel. The 50% shareholding was purchased from Atasco Australia Pty Limited ("Atasco") which was controlled

by Bruce Fasham ("Fasham"), Jon Wilson ("J Wilson") and Gavin Wilson ("G Wilson). At the time of the investment Trawl had one major customer, namely Effem Foods Pty Limited, the respondent, which traded under the name of Uncle Ben's of Australia (hereafter referred to as "UBA"). UBA is a fully-owned subsidiary of Mars Inc, an American multi-national corporation which is one of the largest food supply companies in the world. UBA is said to be the largest pet food manufacturer in the Southern hemisphere. In Australia UBA, in addition to marketing a wide variety of food for human consumption, marketed and sold pet food products including foods for cats and dogs. The brands used by UBA are well known and include products such as "WHISKAS" and "PAL". At the time of purchase of the shares in Trawl by Cumbeline on 30 March 1987, there was a contract and a Heads of Agreement in force between Trawl and UBA relating to the supply of fish to UBA for use in the manufacture of pet food. These agreements were an order (Contract No W17299) dated 11 February 1987, for the purchase of 6,250 tonnes of fish worth over $4 million, and Heads of Agreement, dated 26 March 1987 between Trawl and UBA relating to the supply of fish. At all material times the directors of Atasco were Fasham and members of the Wilson family. Shortly, the claim is that Cumbeline and the other applicants initially invested in Trawl and persisted with that investment on the basis of a series of misrepresentations (24 in all) made by UBA as to Trawl's business and as to the relationship between Trawl and UBA as a result of which the applicants, in reliance on the misrepresentations, made, and continued with the Trawl investment and as a result suffered substantial loss and damage. The investment proved to be a disaster. Receivers were appointed to Trawl on 18 April 1989 and liquidators appointed on or about 20 August 1990. The applicants face substantial liabilities as a result of and arising from the investment. Application and Statement of Claim The applicants claim damages under s 82 of the Trade Practices Act 1974 (Cth) ("TPA"), exemplary damages and interest, together with an indemnity under s 87 of the TPA and costs. The claim is for a total amount in the order of $16 million. In brief, the applicants' case is that the respondent, UBA, engaged in false and misleading conduct within the meaning of s 52 of the TPA on at least ten separate occasions, and has made in all approximately twenty-four misrepresentations. It is also claimed that in respect of each of the misrepresentations, the conduct of the respondent also amounted to negligent misrepresentation at common law. In respect of four of the occasions on which it is alleged misrepresentations were made, it is said that the misrepresentations were false to the knowledge of UBA, or were made recklessly. It is claimed that the applicants acted to their detriment in reliance on those false representations and as a result UBA is liable to the applicants in damages for negligence, fraud and deceit. The Parties Cumbeline Cumbeline was incorporated prior to 1987. Up to 31 August 1987, the third applicant, Peter Horrobin ("Horrobin") and the fourth applicant, Richard Sands ("Sands") were the sole shareholders and directors of Cumbeline. Horrobin and Sands each held one share in Cumbeline. On 1 September 1987, a further share in Cumbeline was issued to a family company controlled by the fifth applicant, Raymond Pridmore ("Pridmore"), namely Meriadoc Pty Limited ("Meriadoc"). About that time Pridmore also became a director of Cumbeline along with Sands and Horrobin. As at 30 March 1987, Cumbeline had a paid-up capital of $2 and net assets of $26,265. It was the primary vehicle through which the investment was made in Trawl. Idobook Pty Limited ("Idobook"), the second applicant, also made investments in Trawl. It was a company controlled by Sands and his family. Idobook also lent funds to Cumbeline both initially and on an ongoing basis. Funds for the investment by Cumbeline, in Trawl, were obtained in the main from the ANZ Bank ("ANZ"). On 30 March 1987 Cumbeline acquired a 50% shareholding interest in Trawl. By July 1988 it had acquired the further 50% interest giving it total ownership of Trawl. Pridmore In December 1986 Cerberus Investments Pty Limited ("Cerberus"), a company controlled by Pridmore, was engaged by companies associated with Horrobin and Sands to find investment opportunities for their consideration. Pridmore was not a direct investor in Cumbeline or Trawl, and his interest in these proceedings principally arises from guarantees given in respect of the debts incurred by Cumbeline and Trawl. Pridmore had substantial experience in locating suitable business investments and he regarded himself as competent in that area. He was employed because he claimed, and Sands and Horrobin believed, he had a particular expertise in the field of small manufacturing companies which they did not have. Pridmore had a degree in Economics, and was experienced in investigating a variety of companies for the purpose of business investment. He had done this almost continuously since 1977. He was competent in the business investment area and had specialised expertise in takeovers and acquisitions. He had experience in "company-type doctor" consulting activities and had been a director of several companies including three major listed companies. He was not "a babe in the woods" when it came to investigating prospective business investments. He was a sophisticated and skilful businessman. He studied some contract law for his Economics degree. He made his own independent judgments in relation to documents and if he did not agree with Horrobin or other persons he would say so. However, he could recall no occasion on which he disagreed with Horrobin in relation to matters of contract. Pridmore worked on investigating the proposed acquisition prior to 30 March 1987. He undertook his own investigation of the financial position of Trawl. His investigations began after he first met the Atasco directors in February 1987, and continued until the shares were purchased. He was satisfied with the investigation which he carried out prior to the Cumbeline investment on 30 March 1987. Horrobin Horrobin was a graduate of the University of Sydney, with degrees in Arts and Law. He was admitted as a solicitor in 1968. Prior to 1968 he was an articled clerk from 1965 to 1968, and from 1968 to 1971 he worked as a solicitor at the firm then known as Stephen Jaques and Stephen and was engaged in commercial and corporate work. In 1971 to 1972 he was head of the Consultant's Section of the Asian Development Bank in Manila assisting in the implementation of technical assistance programs in connection with regional development projects supported by the Asian Development Bank. His responsibility there was for the contractual and financial administration of all consultants and consulting firms employed by the Asian Development Bank throughout Asia, including assisting in the selection of consultants and the evaluation of consultants' proposals. From 1972 to 1977 he was the General Counsel with the Export Finance and Insurance Corporation ("EFIC") in Sydney and created the office of General Counsel within that body. He played a leading role in establishing and operating EFIC's buyer credit and export banking facilities. His functions included commercial activities, with particular emphasis on risk assessment and abatement, involving underwriting, borrowing, lending, control over loan disbursements and loan administration, foreign negotiations, debt rescheduling, debt recoveries, liaison with international organisations and foreign government authorities. From 1977 to 1981 he was the executive director of S G Warburg & Co Ltd of London, one of England's larger merchant banks. He was head of the Project Finance Group in charge of Warburg's finance and resource development activities worldwide. The assignments he undertook included major mining, transportation, oil and gas, refinery, pipeline and industrial manufacturing and processing projects. He was primarily responsible for the advisory service in the field of natural resource development provided to governments of developing countries and their instrumentalities by an international advisory group comprised of Warburg's (London), Maison Lazard Freres et cie of Paris and Lehmann Bros Kuhn Loeb of New York City. Between 1982 and 1985 Horrobin did freelance consultancy work. During the period 1 January 1980 to 31 December 1987 he claimed expertise in project finance, government export, credit finance and capital goods and services, with particular experience in developing countries, government aid projects and legal matters. From 1986 or possibly earlier, he conducted a corporate advisory practice in Sydney. In that advisory service it appears substantial amounts were earned. Sands Sands was a director of Trawl from March 1987. He was a guarantor of the debts of Trawl and Idobook. As at early 1987 Sands was 36 years of age. He was a chartered accountant and an Associate member of the Institute of Chartered Accountants in Australia and the Institute of Chartered Accountants Secretaries and Administrators. He had a Bachelor of Commerce degree from the University of New South Wales. Since 1983 he has been primarily responsible for all computer assisted financial modelling and analysis carried out by P R Horrobin Pty Ltd, a consultancy firm, over a broad range of assignments. During the period prior to the establishment of his own chartered accounting firm in 1980, he spent five years with Lloyds International Limited where he designed and implemented all of the computer systems used by that bank in Australia, including all accounting functions, all money market, securities trading and loan transactions and departmental accounting for profit and cost centre reporting. Sands was initially Company Secretary and Principal Accounting Officer of Lloyds International Limited in Australia, subsequently becoming Manager of the Corporate Lending section. He held this position for about 18 months. His previous accounting training was obtained with Messrs Wayland & Wayland, Chartered Accountants of Sydney, where over a period of five years he gained broad experience of the operations of manufacturing companies. He had a wide range of business interests as at early 1987. Sands had been associated with Horrobin since 1983 and prior to 1987 had investigated the purchase of a number of businesses. He had on his own account, or through a number of entities, bought interests in various businesses and in particular prior to the investment in Trawl he had been involved in the purchase of interests in three businesses. One of these, which was known as Duraframe Pty Ltd was made in July 1986. This was a steel housing frame business. He had an interest in a company which had a 30% interest in that company. Indirectly he was also interested in an orange orchard through an interest in another company. That company was one in which Horrobin and he had an indirect shareholding. After Cumbeline acquired its initial 50% interest in Trawl he, or a company associated with him, acquired an interest in the business owned by Telads Pty Ltd. This interest was a 75% interest. He did some parts of the investigations in relation to matters concerning those businesses in which he was directly or indirectly interested. He was also involved in a company called Restran Pty Ltd which undertook financial advisory services. Sands provided services to Horrobin's commercial consultancy business. He had certain expertise in business as at March 1987. Prior to the contemplated acquisition of an interest in Cumbeline he had looked at and on occasions bought interests in a number of other businesses, and had experience in banking and lending. At all material times from 1984 until 17 April 1989 Sands and his wife were the only shareholders and directors of the second applicant, Idobook, and thereafter the shareholders and directors of Idobook were varied, but this is not important for present purposes. Idobook lent money to Cumbeline and also to Trawl to assist its business operations. It can be seen from the above that the individual applicants were at all relevant times persons of considerable expertise in wide ranging areas of business, including banking, investment and legal matters. They had financial qualifications and significant substantial commercial experience at both the national and international level as at the relevant times. They had occupied positions of great responsibility. It is important to bear in mind the extent of the qualifications and the depth of experience which the individual applicants possessed when considering the issues in the present case. Lees The main witness for UBA is Mr Robert Lees, ("Lees") who joined UBA in 1970 as a management trainee. Subsequently he filled other positions with the company including seven years as Purchasing Officer from 1974 - 1981. In 1981 he became a Senior Buyer for UBA, responsible for all wet raw materials. These included fish. He held that position until June 1985. From then until 1 January 1987 he was Project Manager for UBA at its Bathurst Plant, although still physically stationed at Wodonga, Victoria. From 1 January 1987 until July 1988 he was the Senior Wet Raw Materials Buyer for UBA at Wodonga. In July 1988 Mr Gordon McBurnie ("McBurnie"), took over as Senior Wet Raw Materials Buyer. From 1 July 1988 Lees was Commercial Development Manager for Masterfoods, another subsidiary of Mars Inc in Tokyo, Japan. He left the employ of UBA in March 1990. In his role as Senior Wet Raw Materials Buyer he reported directly to Mr Ian Armstrong, the Commercial Director of UBA. Lees enjoyed a great degree of autonomy and held a very senior position with the respondent. He was responsible for a budget of between $18-21 million per annum in respect of annual purchases of in excess of 100,000 tonnes of raw materials, and he negotiated all major contracts himself. Trawl Trawl, the fish processing and supply company, was incorporated on 8 May 1984. As at 30 March 1987 the sole shareholder in Trawl was Atasco. Fasham was a director of Trawl until February 1988. G Wilson was a director of Trawl until July 1988 and General Manager of Trawl's operations until mid-1987. J Wilson was a director of Trawl until early 1988. Kerry Wilson ("KW") became a director of Trawl to replace G Wilson. Atasco was a company controlled at all material times by Fasham and the Wilsons. Alleged Misrepresentations The misrepresentations alleged in the Further Amended Statement of Claim to have been made by UBA are set out below. In cases where fraud has been alleged reference is made to that allegation. The misrepresentations are claimed to have taken place between mid-March 1987 through to 27 March 1988. Date Substance 16 March 1987(i) That UBA had entered into a binding contract with Trawl for the supply by Trawl to UBA of 6,250 tonnes of fish in 1987. (Fraud alleged) (ii) That UBA intended to honour its obligations under that contract. (Fraud alleged) (iii) That the contract was a genuine one intended to be fulfilled by the parties to it. (Fraud alleged) (iv) That Trawl presently had and/or would have the ability and capacity to supply 6,250 tonnes of fish in accordance with that contract. 18 March 1987(v) UBA's fish requirements were projected to grow from 13,000 tonnes to 28,000 tonnes per annum over the next five years. (This alleged misrepresentation was not pressed). (vi) That the proposed contract then under discussion with Trawl would be an exclusive one for any fish other than West Australian pilchards and that all other local suppliers would have to deal with Trawl in order to supply UBA. (Fraud alleged) ` (vii) That Trawl presently had and/or would have the capacity to process UBA's requirements and to handle the required volumes. (Fraud alleged) (viii) That UBA had confidence in Trawl and its management and had a very good relationship with it. (Fraud alleged) (ix) That UBA intended to have a long term relationship with Trawl involving profitability for Trawl and mutuality of benefit between Trawl and UBA. (x) That UBA looked after its suppliers such as Trawl.

(xi) That Trawl would be paid by UBA on a cost plus basis and would make a substantial profit from the relationship between the parties. (Fraud alleged) 26 March 1987(xii) That UBA would establish with Trawl an evergreen, continuing long term relationship for the supply of fish by Trawl to UBA. (xiii) That UBA would source in the first instance its requirements for fish from Trawl except for Western Australia. (Fraud alleged) (xiv) That UBA would assist and co-operate with Trawl in its effort to source raw material fish from various fishermen and enterprises within Australia. (Fraud alleged) About April 1987 (xv) That UBA was constantly reviewing upwards its budgeted use of jack mackerel and that jack mackerel was a long term need for UBA. About early June 87 (xvi) That the proposals contained in the documents entitled "Trawl Industries of Australia Limited - Fish Processing Plant Geelong - Development Plan" and "Purchase of New Vessels - Licences - Acquisitions Strategy" were satisfactory to UBA and were in accordance with the arrangement which had been made between Trawl and UBA. 11 September 1987 (xvii) That if Horrobin and Pridmore controlled the management of Trawl, UBA would give Trawl all the business it could handle. (xviii) That Trawl could be assured of a long and profitable future as supplier to UBA. August/September 1987 (xix) That UBA had never offered to buy fish from Mr Harry Mitchelson ("Mitchelson") and had no intention of doing so. (Fraud alleged) October 1987- January 1988 (xx) That UBA was happy to deal with Trawl and to pay a price which would give Trawl a return on all expenditure to date and which would cover a further investment by Trawl in heading and gutting equipment so long as Messrs Wilson and Fasham were removed from the management of Trawl. 18 February 1988 (xxi) That UBA was prepared to give Trawl a long term contract which would give back to the applicants their investment and a profit. (xxii) That UBA's requirements for mackerel were budgeted to go up tremendously. 23 March 1988(xxiii) That UBA would give Trawl the profits and the future certainty it needed to satisfy its bankers and to repay its interest and pay off its loans within the period of the contract then under discussion. (xxiv) That UBA would give to Trawl more than the standard 12 month contract and would in fact give it a binding long term contract covering a period up to 1993. It should be noted that the applicants do not press the claim made in (v) above that there was a misrepresentation to the effect that UBA's fish requirements were projected to grow from 13,000 tonnes to 28,000 tonnes per annum over the next five years. The Vessels A number of fishing vessels feature in the history of events set out below. In order to appreciate their roles, it is useful to describe briefly the types of vessel used and the fishing methods undertaken to catch fish for processing and supply to UBA. By 23 December 1987 Pridmore recorded that Trawl had purchased its own vessels valued at about $3.5 million in the last 6 months. One reason given for the purchases was to reduce the dependence of Trawl on supplies from fishermen by carrying out its own fishing operations. A purse-seiner was described as a fishing vessel which strings a net in the water and moves in a circle leaving the net as a large ring in the order of 200 metres diameter around a shoal of fish. The net has a drawstring on it and is drawn up like a purse and is then gradually pulled in. These vessels are used to catch fish such as mackerel and pilchards which swim on top, or close to the top of the water (pelagic fish). Jack mackerel, for example, swim in water of about 17 degrees Celsius and for part of the year they swim on the surface and they are fished by purse-seiner. From January to June of each year purse-seining takes place off the east coast of Tasmania which is the only proven jack mackerel grounds. In June the mackerel are found in deeper water and after that it is necessary to fish at greater depths and use a mid-water trawler. A mid-water trawler is a trawler that drags its net along at a depth of about 20-30 metres. Fish can be caught most of the year round that way but they are more abundant in the half-year when they are not swimming close to the surface between say July and December. The mid-water trawlers catch the fish off the east coast of New South Wales or else in Bass Strait. Another type of fishing vessel described as the normal trawler used to catch table fish such as orange roughy and John Dory, is referred to as a bottom trawler because the net goes virtually along the bottom of the ocean floor. The Fishing Vessels: The "Allied Star" Trawl purchased the "Allied Star" for the sum of $715,000 on 22 March 1985. It was proposed to use it as a dry ice boat and so rigged up it had a fish carrying capacity of in the order of 70 tonnes. It was a trawler. Whilst it was owned by Trawl, it never caught any fish, nor did it engage in any fishing operations. Large sums of money in the order of hundreds of thousands of dollars were spent on, or in relation to, the "Allied Star" whilst it was in the ownership of Trawl. The vessel sank at the quay in 1987 and substantial costs were incurred in repairing the damage. As at 16 February 1988 it did not have an endorsement to trawl in the south-east fishery grounds. The "Marine Countess" This was a large purse-seine vessel purchased by Trawl on 16 April 1987. It arrived in Geelong in August 1987 after a history of problems. It was bought for $495,000. Between that time and 9 September 1987 it was not in a condition to catch fish. It had a capacity to carry 100 tonnes of fish in refrigerated sea water. It was intended that the "Marine Countess" would fish for tuna during January 1988 and then fish for either pilchards or jack mackerel depending upon the demand for those species. The "Ole Madsen" This vessel was also a purse-seiner. It was purchased by Trawl on 8 July 1987 for $300,000, and had a carrying capacity of about 55 tonnes of fish in refrigerated sea water. As at 16 February 1988 it was not licensed to fish in Port Phillip Bay. The "Ilana" This was a small vessel with a carrying capacity of about 25 tonnes. It would carry its load dry packed in boxes in the hold and not in refrigerated sea water. It was purchased on 5 August 1987 for the sum of $154,000. It was intended to be used in fishing for pilchards within Port Phillip Bay. It did not catch a fish until mid-1989. The "Bacardi" Trawl resolved to purchase this vessel on 3 July 1987 for $65,000. It was a small vessel and was purchased to obtain the benefit of its fishing licence. The "Able" This was another small vessel purchased for the licence entitlement. It was licensed to fish in Tasmanian waters. Trawl Sales March 1987-June 1989 It is important when considering the history of this matter to bear in mind the sales which were achieved by Trawl to UBA over the period from March 1987 to June 1989. Set out below is a table which details the quantity of fish sold by Trawl over the period. Sales by Trawl to UBA March 1987 through June 1989

The initial investment was made by the applicants in Trawl on 30 March 1987. Contract No W17299 dated 11 February 1987 was for 6,250 tonnes of fish with a value of over $4 million for delivery over the period including February through December 1987. Contract No W17402 issued on 8 July 1987 replaced Contract No W17299 and was for sales of 2,460 tonnes of fish and provided for delivery during July 1987 through December 1987. The table above shows that during March through June 1987 there were large sales to UBA of mackerel. It must be borne in mind that the main jack mackerel season generally ran from January through June or July in each year. By 9 June 1987 all mackerel the subject of W17299 had been delivered to UBA. There were also substantial sales of pilchards but in much lesser quantities during this period. There were no deliveries of mackerel by Trawl to UBA between the end of June 1987 and the beginning of May 1988. During the period July 1987 through February 1988 there were relatively small deliveries of pilchards. There were virtually no sales of salmon from May 1987 to October 1988. It will be seen that after UBA cancelled Contract W17402 for failure to supply on 10 September 1987, UBA continued to take deliveries of fish through to June 1989.

Total sales to UBA during the 27 month period from February 1987 to end June 1989 were 5,831 tonnes or 419 tonnes less than contracted for by UBA in W17299 for delivery in 1987. By April 1989 the parties were in litigation over the meaning of the pricing clause in the new Heads of Agreement which were executed in June 1988. In October 1989 Cole J in the Supreme Court of New South Wales held that Trawl had repudiated those Heads of Agreement. This decision was upheld by the New South Wales Court of Appeal. On 18 April 1989 receivers were appointed to Trawl. Pre-Investment Investigations The main investigations in relation to the investment on 30 March 1987 were made by Pridmore. In February 1987 he met with Fasham and J Wilson who discussed the Trawl operation with him. He subsequently had several conversations with J Wilson and Fasham during that month. During one of those conversations he was shown an unsigned copy of a contract for the purchase of the Geelong Cold Stores situated at Corio Quay North, Geelong. He was not given a copy of this contract. He also obtained a draft of the 26 March 1987 Heads of Agreement with UBA. In March 1987 he discussed the results of his investigation of Trawl with Horrobin and Sands, and decided to make further investigations. In March 1987, he got a copy of purchase order W17299 and a costing document. Prior to 18 March 1987 he visited ANZ and saw a Mr Goldsworthy ("Goldsworthy"). He took steps to seek verification from Goldsworthy in relation to Trawl and the good standing of the Atasco directors. These inquiries were made under time constraints because of the need to obtain the relevant Minister's consent to purchase the Corio Quay facility; that is, the cold store at Geelong. He said there was less time than usual to chase up contingent liabilities and "things of that nature". Accordingly, the applicants took indemnities from the vendors to cover those contingencies. He said that the visit to ANZ was to assure the applicants that the vendors were in fact able to meet the indemnities. He discovered that Trawl had two overdrafts which totalled $1 million. His understanding at that time was that Trawl was in some financial difficulty. He relayed the results of his inquiries as to the financial position of Trawl with ANZ and the State Bank of Victoria to Horrobin and Sands. He regarded it as essential that the vendors should give indemnities and he relied on those indemnities. He agreed that there was no consideration given to the possibility of Trawl raising its own funds since it was always assumed that it would not need its own funds and that the input from Cumbeline would have been sufficient to carry the venture through. His understanding before the investment was that if Trawl had its own vessels, factory, blast freezer and storage, it provided a unique asset in Australia. He could not recall whether he saw a set of accounts for year ended 30 June 1986 before the investment. The probability is that he did not. He said that this situation would be unusual but it would also be "inconsequential in terms of this investment". He said that he sat down with Trawl's accountant to examine the general ledger, the costing sheets and working papers. He sought information as to the business ability, character and financial capacity of the Atasco directors. Prior to the investment he obtained a letter from the Port of Geelong Authority ("PGA") confirming that the Minister had approved a new lease of the cold store premises to Trawl. On 26 March 1987 he obtained a letter from Fasham confirming conversations about work necessary to be done to meet the requirements of UBA. He was assured by Fasham that there were no outstanding works or further plant to be installed to meet any requirements of UBA. He wanted confirmation about the existence of a replacement agreement with UBA and got confirmation in the letter. The shareholders' agreement required as a condition precedent that fishing licence endorsement should be provided for the south-east trawl region in respect of the "Allied Star". He said that this condition was waived before completion. He agreed that the applicants obtained a comprehensive set of warranties prior to investment as these were essential for this transaction in the applicants' view. He undertook his own financial investigation of the financial position of Trawl and was satisfied with that investigation. He obtained a copy of the executed Heads of Agreement of 26 March 1987 on or about that date. The applicants were content with these Heads of Agreement. His understanding was that the agreement imposed no obligation on either party to supply or accept fish in the absence of an agreement as to price, but said this was in the context of a cost plus method of negotiating price. The main input of Sands prior to the investment was to obtain information to prepare computer models and to make a projection as to the future operations of Trawl. The Heads of Agreement of 26 March 1987 and Contract W17299 were the only documentary evidence he saw prior to 30 March 1987, which supported his understanding of the "exclusive" arrangement with UBA. He was party to discussions with Atasco representatives on 9 March 1987. He was not party to the discussions with Lees on 18 March 1987 (which are referred to in more detail below), but was informed of them. He made some investigation of the accounting records. Sands prepared the budget which was attached to the shareholders' agreement. He agreed that the profit gross margins were attractive. He believed that the assumptions in the budget were realistic and capable of achievement. He prepared the budget in consultation with Horrobin and Pridmore and it reflected his own independent investigation of the business prospects of Trawl. Sands analysed Pridmore's material and discussed matters with Pridmore and prepared draft computer models. He also had discussions with Horrobin, but as far as the investigation was concerned, he didn't do anything else. He said that Pridmore had been employed to do the investigation. He said he had received a balance sheet from Pridmore, but he made no investigation of the accounting records prior to 30 March 1987. He understood that Pridmore had looked at those records. J Wilson had produced some accounts for 28 February 1987. Horrobin was aware that Trawl was in a very unhealthy situation for a trading company, without an injection of capital. His interest was principally in respect of one item, namely the gross profit made for the month of February 1987 on increased sales of fish. He formed the view that the profitability of the company was strongly increasing from what was previously, in his understanding, a start-up phase. He left the investigations basically to Sands and Pridmore and did not himself engage in that exercise. He did not examine any of the accounting records, but left this to Pridmore. He said that the applicants decided to invest after Sands had prepared a computer model which showed what the adjusted figures on performance of the contract looked like. He referred to various computer models having been prepared by Sands up to 30 March 1987. He considered that the timing of the investment became important after 9 March 1987 because he was told that the Victorian Minister for Transport was threatening to cancel the sale of the cold stores at Geelong to Trawl. As best he could recollect, this was about 12 March 1987. He agreed that the applicants were of the opinion that for $2 million they had bought into a company which had a "fantastic" future so far as profitability was concerned and that it had strong early cash flows and the potential for growth. The only investigations that Horrobin personally made before 30 March 1987 was at the brief meeting with J Wilson and Fasham on 9 March 1987 and a visit to Geelong on 18 March 1987, when he looked at the plant and talked to some people, and also had discussions with the Atasco shareholders. The only direct inquiries made by Horrobin of UBA were those discussions which he had with Lees on 18 March 1987, which lasted in the order of 15-30 minutes. He was interested in the model projections prepared by Sands. History Pre-Investment History to 30 March 1987 In order to set the context and to appreciate the substance of the submissions of both parties, especially those of the applicants, in relation to the misrepresentations alleged, it is necessary to consider in detail the pre-investment history.

1984 Trawl was incorporated on 8 May 1984. In early December 1984, discussions took place between Lees, on behalf of UBA, and Fasham on behalf of Trawl, in relation to plans by Trawl for the operation of fishing vessels in the south-eastern trawl region off the Tasmanian coast. This was the main fishing ground for trawlers. A Commonwealth endorsement to the fishing licence was necessary to fish in that region. Lees indicated that UBA was ready to open negotiations for the supply of up to 6,500 tonnes per annum of pilchards and mackerel. The requirements of UBA were then showing rapid growth and UBA desired to source requirements locally rather than importing. UBA saw any prospective commitment which might be made as being an ongoing one over an extended time period. The quantity of 6,500 tonnes of pilchards and mackerel is a large one and was considerably greater than the amount in fact used by UBA during the 1985 calendar year.

1985 Between January and March 1985 there was further contact between Lees and Fasham in relation to contemplated arrangements with Trawl. On 21 March 1985 the First Heads of Agreement ("the first agreement") was entered into between Trawl and UBA. The preamble to that agreement stated that Trawl was the owner of a modern fishing vessel of large capacity and was presently planning to purchase other vessels to be worked out of Victorian ports. The vessel referred to was the "Allied Star". Under the first agreement Trawl agreed to deliver to UBA a minimum total of 3,000 tonnes of pilchards and/or other agreed species Between May and December 1985. During the subsequent twelve months Trawl was to deliver a minimum of 6,500 tonnes of agreed species. As regards price, the parties agreed that price should be fixed for fish delivered during the first 11 months of the operation of the agreement within 14 days from the signing of the agreement. UBA was to issue its standard order for the quantity and prices determined. The standard orders took the form of the "W" contracts. There were various other provisions relating to continuing arrangements, delivery, storage pending delivery, payment terms, technical advice, quality assurance and confidentiality. The first agreement was executed by Lees for UBA and J Wilson on behalf of Trawl. As it turned out in the whole period from 21 March 1985 to January 1987 Trawl supplied only 420 tonnes of fish to UBA. On 21 March 1985 there were discussions between Fasham, Lees, J Wilson and the Harbour Master at Portland in which further details of Trawl's proposed operations were discussed.

The "Allied Star" was purchased by Trawl for $715,000 on 22 March 1985 using funds borrowed by Trawl from ANZ. On 29 March 1985, J Wilson wrote to Lees stating that Trawl proposed to lease premises at Portland to provide a dedicated facility for the processing and storage of fish for UBA. He stated that Trawl was counting on UBA's help and advice particularly relative to the design, layout and equipment necessary for the processing room and the blast freeze area in the Portland complex. On 2 April 1985, the first applicant, Cumbeline was incorporated. The directors' meeting Minutes of Trawl for 1 May 1985 recorded the purchase of the "Allied Star" and referred to a current certificate of valuation showing the value of the vessel at $1 million. In addition, the first agreement with UBA was tabled. An estimated profit of $900,000 per annum in the first two years was anticipated and a goodwill valuation of $1.8 million was created in the accounts in respect of the first agreement. On 3 May 1985 the PGA wrote to Trawl indicating that it was prepared to lease the bay adjacent to the cold store together with the shared use of amenities within the cold store area. Rates were quoted in relation to blast freezing of product on the basis of ordinary working hours of 7.45am - 4.30pm. About 8 May 1985 Fasham records that he spoke with UBA and that UBA saw no difficulty with the Geelong store. UBA suggested that their Product Development Manager, Mr Voigt, should look at both the Portland and the Geelong plants before a final decision was made by Trawl as to which were the more suitable premises and facilities. On 14 May 1985 Voigt met with J Wilson and the Port of Portland Authority and the PGA concerning the lease of cold store and processing facilities. Trawl was anxious that UBA should see both facilities before negotiations were finalised for the lease of amenities and facilities for fish processing. The appropriate course of action in Voigt's view was to proceed immediately to conclude a formal agreement and establish the operation at Geelong. On 29 May 1985 Trawl wrote to Lees enclosing a draft form of Heads of Agreement to take account of the change in location to Geelong, a change in the form of packaging to instant quick frozen product, and an alteration of the starting date to 1 July 1985. The draft Heads of Agreement were also expressed to make clear the intent of the parties that the agreement should operate on an "evergreen" basis. On 31 May 1985 Trawl wrote to one Brian Murray. The letter records a meeting to discuss Trawl's interest in contracting to buy fish from the "Marine Countess" for processing at Geelong. The letter sets out an outline of a proposal for consideration. This proposal sought the supply to Trawl of 350 tonnes per month of pilchards and 150 tonnes per month of jack mackerel at a price of $150 per tonne. On 5 June 1985 Fasham wrote to Lees and to Mr Death of UBA to confirm that agreement had been reached with PGA. The telex states that work had commenced on the process area at Geelong and Trawl undertook to keep Lees and Mr Death advised of progress on a regular basis. Further reference is made to a new form of Heads of Agreement to give better expression to the original intent of the parties to establish an evergreen rolling agreement within a twelve month price and quantity fixing framework. On 13 June 1985 a second form of Heads of Agreement ("the second agreement") between Trawl and UBA was executed. It was referred to on its face as an attachment to contract W16811. In substance it was a replacement for the first agreement. During the six month period July-December 1985, the second agreement provided for Trawl to deliver to UBA a minimum total of 3,000 tonnes of pilchards or other agreed species. During subsequent 12 month periods Trawl was to deliver an estimated minimum of 6,500 tonnes of pilchards or agreed species. Contract note W16811, dated 14 June 1985, was issued to Trawl for an estimated 1,500 tonnes of pilchards at 42.5c kg FOT Geelong, for delivery during July-August-September 1985. The contract note was signed by Lees on behalf of Mr Death. On 1 September 1985 Lees was transferred from the position of "Senior Buyer" at UBA Wodonga to become "Project Co-ordinator" at UBA Bathurst. Mr Peter Terry ("Terry") assumed Lees' position dealing with Trawl until early 1987. Although his responsibility in that period was in respect of the Bathurst project Lees remained stationed at Wodonga. On 2 September 1985 Trawl wrote to PGA complaining about the failure of the blast freezer and cold store during trials on 29 August 1985. The letter records that Mr Bruce Perkin from the Product Development department of UBA was present at those trials. J Wilson expressed concern that another failure could seriously jeopardise the contractual relationship between Trawl and UBA with direct consequent and substantial losses to Trawl. The block product after 7 hours in the blast freezer had not reached zero temperature and the performance of both the blast freezer and the main cold store were unacceptable to UBA. Also on 2 September 1985 Trawl wrote to PGA asserting that the basis of the lease to Trawl was that it would be provided with premises that would meet Department of Primary Industry ("DPI") export standards at all times.

On 17 September 1985 J Wilson wrote to PGA pointing out that over a seven hour period temperature in block centres in all cases failed to reach zero, whereas the UBA specification called for temperatures of minus 20 degrees at block centre within six hours for pilchards. By 4 October 1985, Terry wrote that he was most disappointed at the performance by Trawl up to that time. He stated that a lot of criticism had been levelled at him for letting the project slide without achieving any precise operating dates. After recording the foregoing he sought to obtain the current programme on an accurate basis so that reliable information could be provided at director level which could be used to enable forward plans to be formulated by UBA. The applicants point to the use of the term "the project" in this telex as having significance in relation to events in 1987 and 1988. It is said to support the inference that the Trawl operation was a "project" of importance to the directors of UBA. On 11 October 1985 Fasham wrote to Terry of UBA giving information concerning dealings with PGA, the conduct of freezer trials, staff appointments, plant and installation of equipment. This telex shows that UBA was being kept informed of the detailed operation of Trawl. On 22 October 1985 Trawl conducted freezing trials at Geelong at which Mr Perkin of UBA was present. He spelt out action necessary to comply with the UBA specification. The letter also anticipated the running of a large scale processing and freezing trial. In November 1985 UBA issued its operating plan for calendar year 1986. Reference is made in that document to the weakness of the Australian dollar, which made supply from local sources more desirable, and to reducing the reliance of UBA on a limited number of suppliers and species. It is submitted that the encouragement of Trawl to begin supplying fish to UBA was part of an attempt to expand the number of suppliers to UBA and this seems to be correct. On 19 November 1985 Terry wrote to Fasham and G Wilson noting that the indications were that Trawl would be catching only about 10 tonnes a week of pilchards to the end of calendar year 1985 and seeking an increase to a figure more like 40 tonnes per week. In the December 1985 issue of a trade publication "Australian Fisheries", an article appeared suggesting that there would be large increases in UBA's use of locally caught fish and a decrease in reliance on imported fish including pilchards. There is also reference to UBA wanting to enter agreements for the supply of product on a long term basis. Emphasis is placed on finding further suppliers of quality fish for which good prices would be paid by UBA. Reference was made to UBA processing engineers touring plants determining freezing temperatures and times. Further reference was made to UBA having reached the view that Australian pilchards were "superior" to Thai sardines for UBA purposes. A copy of this article was shown to Lees on 18 March 1987 at the meeting with Horrobin and Pridmore. This was the date on which a number of important representations are stated to have been made. On 5 December 1985 Terry wrote to G Wilson, who was managing the Trawl operation, referring to the proposed use of the "Marine Countess" and the need to get UBA specifications quite clear, and to have them satisfied by Trawl. Concern was expressed about the salt level in the fish and a suggestion was made that Bruce Perkin of UBA should talk to the "Marine Countess" people before too great a catch was acquired. This is part of the mosaic of evidence which demonstrates UBA's concern about and involvement in the operations of Trawl during the period 1985 to March 1987. The Trawl processing plant was formally opened on 13 December 1985. In a letter to the Victorian Minister for Sport and Recreation of 9 December 1985 reference is made to the plant being located alongside and within the cold store of PGA. It is stated that the plant would process a wide variety of scale and shell fish for a number of widely different markets and would employ up to 40 process workers as employment built up during the ensuing six months. On 20 December 1985 G Wilson, Trawl's General Manager, wrote to PGA making it clear that Trawl was ready to process table fish for the export market. They were not restricting themselves to production of pet food for UBA. In fact, as the applicants point out Trawl did not process table fish of any kind until about September 1987, although it foreshadowed its intention to do so on a number of occasions before then. 1986 On 6 March 1986 Terry issued a contract W17042 to West Ocean Canning Pty Ltd for 100 tonnes of tuna. This contract appears to have been extended to cover deliveries up to the end of 1987. By 26 March 1986 Terry became concerned about what he saw to be an apparent lack of effort to acquire fish for processing on the part of Trawl. The concern was that lack of communication from Trawl led him to believe that Trawl had "given up" its efforts to obtain fish. On 27 March 1986 G Wilson rejected the suggestion that Trawl had given up and pointed to an impasse in negotiations with the fishermen in respect of price. He states that every effort was being taken by Trawl to commence processing but that Trawl was at the mercy of market prices and uncooperative fishermen. Trawl had offered them 20c kg but they wanted 25c kg for pilchards.

On 24 April 1986 invoices in respect of freezer trials conducted at UBA's request were sent by Trawl to Terry indicating that UBA paid for the PGA freezer trials. The invoices sent to UBA claimed costs incurred by Trawl in searching for fish including the costs of fuel and labour. UBA paid for freezer rent for pilchards and other fish. In May 1986 UBA introduced its medium term plan for 1987-1991. This plan stated that it would achieve significant savings in raw materials and that current development work on the east coast of Australia would result in reduced fish prices. Reference is also made to the quality focus since 1984 having been a significant factor in the growth of UBA's business together with its commitment to quality. On 2 May 1986 UBA issued contract No. W17073 to Trawl for approximately 3,000 tonnes of Australian pilchards. On 19 May 1986 Trawl records discussions with Kevin Warren who was to sell fish to Trawl in the maximum possible quantities of all fish types acceptable to UBA. On 19 May 1986 Fasham wrote to Terry recording the meeting with Kevin Warren. On 22 May 1986 G Wilson wrote to UBA informing it of discussions with Terry regarding the use of 9 kg blocks of fish. The telex asserts that Terry was advised of extra costs involved in the processing by Trawl of the blocks and that was accepted by him as "inevitable". On 3 June 1986 UBA placed order A60816 with Trawl for 200 tonnes of blue mackerel at 55c kg ex works Geelong.("A" as opposed to "W" orders were raised for fish which had been delivered or which were required for near or short-term delivery). In fact only 23 tonnes of blue mackerel were processed by Trawl in June 1986 and there were none processed in July or August of that year. On 6 June 1986 Trawl wrote to Mitchelson, a fish supplier to Trawl, recording an arrangement to supply Trawl with the maximum quantities of all fish types acceptable to UBA. The price specified was 20c kg for mackerel, 20c kg for pilchards and 50c kg for Australian salmon. There was a similar letter on the same day to other suppliers, but at different prices, namely 45c kg for salmon; mackerel and pilchards were 19c kg. On 11 June 1986 G Wilson wrote to Terry confirming that current prices for fish were pilchards 47.5c kg; 9 kg block pilchards 53c kg; jack mackerel 55c kg and Australian salmon 84c kg. Reference was made to an attached agreement which revised the first agreement of 21 March 1985. This was prepared by Trawl. The 1986 draft Heads of Agreement nominated fish prices. They also included figures which set out the way in which the prices were calculated. The calculations indicate that prices were calculated by having regard to costs. With the exception of the price for pilchards, the prices calculated were those in the draft Heads of Agreement and then ultimately these went into the third Heads of Agreement of 13 September 1986. The price for pilchards was reduced by 2 cents but was above cost. A total of 3,000 tonnes of fish was used as the production figure over which to spread Trawl's anticipated fixed costs. On 30 June 1986 an agreement was made between Trawl and Brian Murray in relation to fish caught by the "Marine Countess". The prices were to be 20c kg for mackerel, 20c kg for pilchards and 45c kg for Australian salmon. The fish was to be delivered in bins, iced and loaded onto trucks at the Lakes Entrance wharf. The financial statements for Trawl in respect of year ending 30 June 1986 showed that Trawl derived an operating revenue of $72,300 but incurred an operating loss of $420,587. Processing costs were shown at $66,008 with a manufacturing profit of $5,084. Overheads totalled $230,369 of which management fees of $156,000 were the major component. In the three months April, May, June 1986 Trawl processed only 132.7 tonnes of fish. On 15 July 1986 G Wilson wrote to Terry to confirm recent discussions regarding salmon, to the effect that the agreement of Trawl was to process the salmon on a cost plus basis.

On the same day a further telex was sent by G Wilson to Terry referring to discussion concerning additional UBA products being stored at Geelong. This was said to be in keeping with the tenor of previous agreements and discussions from the outset of the relationship. G Wilson said that the original budget of Trawl included a percentage of storage by UBA at Geelong and stated that Trawl had pursued the matter with UBA since the discussion but that there was no finality. Concern was expressed at UBA communicating directly with PGA concerning storage. Clarification was sought on this matter. On 12 August 1986 Terry wrote to G Wilson complaining about some string found in a block of mackerel supplied by Trawl. On 29 August 1986 G Wilson wrote to UBA requesting a meeting to review pricing and finalise the proposed revised Heads of Agreement. On 2 September 1986 UBA arranged to send to Trawl 120 tonnes of fish comprising blue mackerel and whole salmon for "re-processing". The third Heads of Agreement ("the third agreement") were dated 13 September 1986. They were not signed until 30 September 1986. They provided for the delivery of a minimum of 3,000 tonnes of pilchards or other agreed species from June 1986 to May 1987. The price fixed was pilchards 47.5c kg, "special Australian pilchards" 53c kg, mackerel 55c kg, Australian salmon 84c kg. The agreement provided that during the subsequent 12 month period from May 1987 Trawl would deliver a minimum of 4,000 tonnes of agreed species. The document is signed on behalf of UBA by Terry. On 23 September 1986 UBA issued Contract No W17141 to Trawl for the supply of 500 tonnes of pilchards and sheba pilchards at 53c kg. On 29 September 1986 UBA complained to Trawl that 40 tonnes of salmon were in a "deplorable state" in that the fish were said to be all frozen together. On 30 September 1986, the third agreement was executed by G Wilson on behalf of Trawl. The prices in this document except one, were those provided for in the schedules to the letter of 11 June 1986 and with that exception were calculated by reference to cost. In October 1986 UBA issued its 1987 operating plan. This plan states that UBA intended to broaden the supply base of key materials by December 1987. On 3 October 1986 UBA contracted with Ocean Fresh Eden Pty Ltd ("Ocean Fresh") by contract W17147 for 1,000 tonnes approximately of jack mackerel, deheaded at 62.5c kg, together with 100 tonnes of white fish at 24c kg, and 200 tonnes of pilchards at 48.6c kg. On 10 October 1986 G Wilson notified Terry of UBA of the revised prices under the Heads of Agreement of 30 September 1986, namely 58c kg for mackerel, 55.5c kg for sheba pilchards, 50c kg for pilchards and 87c kg for Australian salmon. On 10 November 1986 UBA contracted with Sanford Limited of New Zealand for 200 tonnes of jack mackerel and 100 tonnes of a fish known as Kahawai. On 20 November 1986 UBA contracted with Miroz International Co Ltd of Thailand for 630 tonnes of south-east Asian pilchards, delivery to arrive in Melbourne in January, February and March 1987. At about this time UBA issued a contract to United DNS for 840 tonnes of south-east Asian pilchards. On 27 November 1986 Fasham on behalf of Trawl wrote to PGA proposing a long term lease for the whole of the cold store complex at Corio Quay at Geelong. On 15 December 1986 Atasco sought from Mason Greene & Associates a valuation of the Corio Quay cold store as a going concern. The total of the fish processed by Trawl during 1986 was only 680 tonnes, but Trawl projected that in 1987 it would increase to a minimum of 2,500 tonnes. This report was made by the valuers who issued a preliminary valuation on 24 December 1986 based on processing of 8,000 tonnes of fish giving an estimate as at 22 December 1986 of $2.5 million for the Geelong cold store. On 16 December 1986, UBA issued contract No. W17206 to Maryborough Fish Processors for 500 tonnes of white fish for delivery in January-December 1987. This was followed on 19 December 1986 by a contract W17213 between UBA and D R Johnson Pty Limited for 2,000 tonnes of white fish. 1987 January In early January 1987 Lees finished working on the Bathurst project assignment and resumed dealing with Trawl under the title of "Senior Wet Raw Materials Supply Buyer". Terry remained involved with Trawl until about 14 January 1987. In early January 1987 UBA issued a further contract W17207 to United DNC Enterprises, Malaysia for 1,260 tonnes of south-east Asian pilchards with delivery from February to May 1987. This was later reduced to 50 containers of fish or approximately 700 tonnes. In Lees' diary of 8 January 1987, there is a notation referring to J Wilson and Trawl in relation to "problems with UBA". On 12 January 1987 UBA issued a further contract W17247 to Ocean Fresh for 20 tonnes of squid. On the same day UBA placed a contract with Wanganui Trawlers Ltd for 12 tonnes of headed and gutted jack mackerel. On 14 January 1987 UBA issued contract W17262 to Ocean Fresh for 2,150 tonnes, including approximately 1,000 tonnes of jack mackerel at 60c kg FIS Melbourne and approximately 500 tonnes of pilchards at 48.6c kg FIS Melbourne. There was also provision for delivery of white fish, blue mackerel and calamari. On the same date UBA issued a contract W17263 to Kailis & France of Western Australia for a total of approximately 4,450 tonnes of pilchards to be delivered throughout 1987. Again on the same date, UBA drew up contract W17264 to be issued to Trawl for the supply of 200 tonnes of blue mackerel at 70c kg, 100 tonnes of salmon, headed and gutted at $1.01 kg, 500 tonnes of jack mackerel at 65c kg and 3,000 tonnes of pilchards at 50c kg, together with 200 tonnes of sheba mackerel at 62c kg and 350 tonnes of sheba pilchards at 55.5c kg. Handwritten amendments were made to a copy of this document increasing both the tonnages of salmon and jack mackerel and the price of each type of fish on the order. This was made by Lees after 14 January 1987 and the original date of the contract was changed to 11 February 1987. This date also appears on W17299, a contract of importance in this proceeding. On the same day UBA issued contract A69005 to Ocean Fresh Canberra for 10 tonnes of white fish. On 15 January 1987 Terry of UBA complained to G Wilson that 3 invoices issued by UBA had not been paid by Trawl. On 19 January 1987 Lees' diary records "Bruce Fasham/Jon Wilson... Geelong 56 year lease of land. Trawl buying alterations + extensions. $1.5 million to purchase..." This entry indicates that Lees was aware of a proposal by Trawl to purchase the lease of the blast freezer and cold store at Geelong. On 29 January 1987 UBA issued two contracts to Safcol and Heinz each for 50 tonnes of tuna red meat. February In early February 1987 UBA issued a further contract to Miroz International Thailand for 336 tonnes of south-east Asian pilchards. A telex from Trawl to J Wilson of 3 February 1987 records that the accountant at UBA would not pay an invoice because Trawl owed about $50,000 to UBA.

On 8 February 1987 McBurnie of UBA visited Trawl and made notes regarding the proposed processing method for jack mackerel. Lees was given a copy of this. This document indicates that McBurnie was making assessments on behalf of UBA of Trawl's method of dealing with mackerel and informing Lees of his views. Contract W17299 - Dated 11 February 1987 This is an important document. It was issued by UBA to Trawl for the supply of approximately 6,250 tonnes of fish for delivery between February and December 1987 "as scheduled by UBA". The total value of the contract was $4.042 million. The contract bears the date 11 February 1987. With the exception of blue mackerel every price on this contract note reflected the changes made by Lees on contract W17264 referred to earlier which was originally issued on 14 January 1987. This contract is executed by Lees. It appears from the evidence that the new prices for the fish supplied by Trawl were agreed on 11 February 1987. It will be seen that Contract W17299 bears a "Received" date of 26 February 1987. This was probably the date it was received by Trawl.

On 16 February 1987 McBurnie visited Trawl's premises at Geelong and recorded in his notes: "Fish in centre of block on pallet + spacer still -0.5 - +0.7 6 hours after placing in freezer. This could be a problem." This seems to be a similar problem to that noted earlier in September 1985. On 17 February 1987 UBA issued two contracts, one to Safcol Seafoods Pty Ltd for 20 tonnes of calamari and to Skeggs Foods Ltd for 500 tonnes of headed and gutted Kahawai, for delivery in March-May 1987.

Supply to February 1987 Fasham wrote to the State Bank of Victoria on 18 February 1987 setting out details of pilchards and mackerel delivered to Trawl up to that date, namely 75 tonnes of mackerel, and 78.35 tonnes of pilchards. In that letter reference was made by Fasham to a contract in place to purchase up to 3,000 tonnes of mackerel from the Stehr group of companies. The letter was written to obtain funds from the State Bank of Victoria and it places considerable emphasis on the arrangements in place with UBA. On 18 February 1987 Fasham also wrote to the Commonwealth Fisheries and Wildlife Service referring to the opportunity which Trawl had to win substantial export contracts if fish were available in quantities exceeding their domestic contract requirements. The letter sought the licensing of the "Allied Star" which was regarded as a major factor in ensuring that fish was available to the company both to maintain production and employment in the plant and to enter new markets. The letter asserts that Trawl then held contracts for delivery of over 8,000 tonnes of fish during the remainder of the calendar year 1987 into both domestic and export markets. It also asserted that Trawl was to deliver over 6,000 tonnes of fish to the canning plant at Wodonga owned by UBA. Reference was made to the cold store with a capacity to hold over 4,200 tonnes of fish and to the plant and cold store being export licensed by DPI. The letter stated that: "Our major contract with Uncle Bens .... to a value in excess of $4 million during the next four month period". This was a reference to W17299. UBA sought and obtained a credit report on Trawl in February 1987 which concluded that trading terms should be well defined and the account kept under close supervision until a trading pattern had been established by Trawl. The credit report also stated that enquiries in trade quarters revealed only smaller accounts were held, which payments were met in 30-90 days in a satisfactory manner. Overall, the report was not an unduly adverse one although it cautioned that careful monitoring would be required. On 21 February 1987 J Wilson for Trawl wrote to Lees enclosing a copy of a draft revised Heads of Agreement which later became the Heads of Agreement of 26 March 1987. This document was stated to bring into effect changes necessary to embody the latest terms of agreement and style of operation. The covering letter stated that Trawl was awaiting receipt of the contract from UBA which represented the agreement reached on 11 February 1987. The letter then goes on to set out the prices for various products contained in W17299, with the addition of a tonnage and price for base fish. The letter goes on to say that all other terms and conditions were embodied in the Heads of Agreement attached. The Heads of Agreement was attached together with a copy of the costing schedule discussed at an earlier meeting. J Wilson reported that supply to 21 February 1987 had been running to schedule, that an 18 fishermen delegation in Geelong had undertaken to supply 2,500 tonnes of pilchards and that the Hobart operation was running successfully with Mr Hagen Stehr ("Stehr"), already planning to divert another vessel into supplying Trawl. This was believed to increase the delivery capacity from 50 tonnes per load to a minimum of 100 tonnes per load. The revised draft Heads of Agreement sent by Trawl to UBA included a clause headed "Exclusively" and this draft is discussed in some detail later in these reasons. The applicants' case placed a great deal of emphasis on the differences between the draft heads of Agreement sent to UBA on 21 February 1987 and the executed Heads of Agreement dated 26 March 1987, particularly in relation to the "Exclusively" clause. On 23 February 1987 Lees made a diary note referring to Mitchelson and to "Own freezing plant. Thinking about est". This is said by the applicants to be the first record of the line of communication with Mitchelson directed towards his becoming a supplier to UBA. At some unspecified time in February Pridmore first met Fasham and J Wilson and discussed the operations of Trawl and the need for an investor to put money in. Pridmore says that he had a series of discussions with Trawl in February/March 1987. On 26 February 1987 contract note No W17299, as appears from a stamp on its face, was received by Trawl. Clause 2 of the standard conditions of contract which appear on W17299 provide for alterations and variations to the terms of that contract to be made by written agreement between the parties. The applicants contend that the delivery period specified in W17299 which provides for delivery over 11 months was in fact altered to 6 months as a result of the terms set out on page 5 of the Heads of Agreement of 26 March 1987. This is said to support the applicants' argument that contract W17299 ordering 6,250 tonnes in fact when read with the Heads of Agreement provided for delivery over a 6 month period. The effect of this is said to be that the contract contemplated that the plant at Corio Quay would be capable of processing 6,250 tonnes over the 6 month period and not over an 11 month period, with the consequence that the rate of processing and throughput to achieve this result would need to be much greater. During the month of February 1987, Trawl only processed 291.2 tonnes of fish. March 1987 On 4 March 1987 Lees wrote to Ocean Fresh stating that the UBA 1987 fish requirement was 14,600 tonnes of which imports comprised 6,500 tonnes. The 1992 estimates were for 29,600 tonnes of fish and it was not possible to tell what proportion would be imported. On 5 March 1987 Ocean Fresh wrote to Lees thanking him for assistance with figures and stating that a licence had been granted and that Ocean Fresh was now beginning to fund the purchase of vessels. On 9 March 1987 there was a meeting between Fasham, J Wilson, Horrobin and Sands to discuss possible investment by Cumbeline in Trawl. This was said to be a lengthy conversation mainly between Fasham and Horrobin in relation to arrangements with UBA and Trawl. There was some input by J Wilson to the effect that the fish was priced on a cost plus basis and that Trawl met with UBA twice a year to agree costs, tonnages and prices for the next half year. J Wilson also spoke about bringing in an investor to inject development capital into Trawl and stated that Atasco, which was the sole shareholder in Trawl, was seeking $2.5 million for a 50% interest in Trawl. About this time J Wilson and Fasham raised with Pridmore the threat by the Minister to withdraw consent to the sale of the cold stores because funds for the purchase had not been forthcoming. On 12 March 1987 PGA wrote to Fasham and J Wilson withdrawing its offer and advising that the cold store would only be open during normal working hours on a 9 day fortnight basis with no overtime. Some time between 9 March and 18 March 1987 J Wilson told Horrobin that the Minister was threatening to withdraw his consent to the proposed sale of the Geelong complex by PGA. On 16 March 1987 UBA issued two defective product notices to Trawl, one of which recorded that blocks of Trawl pilchards contained a large amount of blood/scales/crud and ice. This related to three pallets of fish which is a relatively small quantity. The other complaint was simply that tickets had not been removed and that there was a mislabelling. This was a minor complaint and related again to a small quantity, namely 20 pallets. On 16 March 1987 Pridmore on the letterhead of Cerberus faxed to Horrobin information including the statement that the sales figures seemed to be in agreement with the UBA contract except for mackerel. The fax included a copy of W17299, together with a copy of the costing sheets. Costings, contracts and orders had been requested by Sands in his conversation with Fasham and J Wilson on 9 March 1987. Sands received a copy of W17299 on 16 March 1987. The Statement of Claim alleges that the first four misrepresentations were made by UBA on or by 16 March 1987. Also on that date Trawl instructed Heidtman & Co Solicitors to prepare the shareholders' agreement to effect the purchase by Cumbeline from Atasco of a 50% interest in Trawl. These instructions indicate an advanced stage of negotiation with a tentative commitment to the purchase as early as 16 March 1987. The four misrepresentations made by UBA up to 16 March 1987 are in substance said to be inferred from the fact that Trawl had a copy of contract W17299, coupled with the allegation that UBA knew that it was going to be shown to potential investors whom UBA knew, or ought to have known, had little or no knowledge of Trawl, its ability to perform the contract and its relationship with UBA. On 17 March 1987 Trawl wrote to Lees seeking reimbursement of a sum of $5,805.40 in respect of accounts said to have been paid on behalf of UBA for the use of a "fish spotting" plane at Hobart. Lees responded to this with a strongly expressed letter of 19 March 1987, referred to below. On 18 March 1987 Lees records a meeting with Tom Kivelos ("Kivelos"), a fish supplier, and makes reference to a 30 tonne blast freezing facility. There appears to be reference to McBurnie of UBA investigating the facility. There is also reference to Stehr, another fish supplier, who later became a partner of Kivelos. Meeting of 18 March 1987 On 18 March 1987, while inspecting the Geelong facility, Horrobin and Pridmore became aware that Lees was also visiting the site and there was a brief meeting in the order of 15 to 30 minutes between Pridmore, Horrobin and Lees, at which Lees is said to have made a number of critical misrepresentations to Horrobin and Pridmore, which in substance comprise alleged misrepresentations (v) to (xi) inclusive. With the exception of a brief telephone conversation later that day between Pridmore and Lees in relation to the Minister's proposed withdrawal from the sale of the Geelong complex, this is the only occasion on which there was any discussion between the applicants and Lees prior to execution of the shareholders' agreement on 30 March 1987. There is no suggestion that Lees gave any detailed history of the previous relations between Trawl and UBA at this meeting. Also, on that date, Fasham wrote to Goldsworthy of ANZ reporting on the grant of a Commonwealth fishing boat licence to the "Allied Star" and asserting that Trawl was confident that the application for a south-east trawl fishery endorsement would be successful. The grant of the Commonwealth fishing boat licence was a condition precedent expressed in the shareholders' agreement of 30 March 1987. On 19 March 1987 Lees replied in a letter of that date to the letter from Mr Lever, the Financial Manager of Trawl, in relation to the invoices for $5,806.40, for the "spotting" plane. The letter included the following: "I refer to your letter of March 17, 1987 enclosing copy invoices for $5,806.40 for services apparently supplied by Tasair Pty. Ltd. to Trawl Industries. I am disappointed to the stage of being extremely annoyed as at no time during any of my discussions with yourself, John and Gavin Wilson or Bruce Fasham have I agreed or implied that Uncle Ben's would be responsible for any debts incurred by Trawl Industries to Tasair Pty. Ltd. or any other aircraft charter operator. My disappointment is deepened by the fact that having been in your office for approximately four hours yesterday discussing all issues, including payment of accounts, that this particular matter was not raised or even referred to, particularly as one of my major points was the fact that the long standing relationship between Uncle Ben's and Trawl Industries was being jeopardised by Trawl's apparent inability to conform to their own telex advices regarding account settlements with UBA. As you are aware, Uncle Ben's have made a large number of concessions and allowances to Trawl Industries in an endeavour to establish the operation on a sound and viable footing through financial and technical assistance. Thus, if we cannot begin to conduct our business on an open and honest basis, then I am left with little alternative but to withdraw this support for the continuation of the business..." The applicants assert that this letter demonstrates that Lees, prior to meeting with Horrobin and Pridmore on 18 March 1987, was aware that the long standing relationship between UBA and Trawl was in jeopardy because of the problems with account settlements, and that this was an ongoing dispute. This in turn is said to be relevant to the alleged misrepresentation that UBA stated that it had a good relationship with Trawl and that UBA was acting deceptively by not informing Pridmore and Horrobin of the dispute with Trawl. This matter will be discussed later. On March 23 1987, Lees' diary contains a record referring to Kivelos and specifications which appears to be a record of Lees sending specifications to Kivelos. On the same date UBA received a telex from United DNC referring to fish being shipped on 23 March 1987. On 24 March 1987 Trawl paid the amounts outstanding to UBA previously referred to. On 24 March 1987 ANZ (Goldsworthy), Regional Executive, wrote to Trawl, confirming that ANZ was happy to consent to the proposed allotment of shares, equal to 50% of the total issued shares to Cumbeline in consideration of the sum of $2 million. It was stated that the consent did not in any way prejudice ANZ's rights under its mortgage. The mortgage related to the "Allied Star". The letter confirmed that Trawl was not in breach of its mortgage with ANZ. This was shown to the applicants. On 25 March 1987 Lees received a telex from Miroz confirming that 84 metric tonnes had been shipped on 24 March 1987 per order W17276. On 26 March 1987 Fasham wrote to Horrobin on behalf of Trawl advising that Pridmore had been given a copy of the replacement agreement with UBA. This was a reference to the Heads of Agreement signed that day between UBA and Trawl. The letter also expressly confirmed that Pridmore had been given a copy of the current order. The letter refers to a "copy of the current order furnished in the terms of our ongoing frame agreement". This is reference to W17299 for 6,250 tonnes. The letter also confirmed that there were no outstanding works or any further plant to be installed at Geelong to meet any requirements of UBA. The Heads of Agreement were sent in conformity with the requirement of the shareholders' agreement with Trawl. 26 March 1987 - Heads of Agreement On 26 March 1987 the fourth Heads of Agreement between UBA and Trawl were signed. The relevant parts of that agreement are as follows: "WHEREAS TIA has a modern fish processing plant designed to process product for and to the specification of UBA, and has contracted for the purchase of large quantities of fish for UBA requirements. UBA is the operator of a large scale pet food plant at Wodonga, Victoria (hereinafter the plant) and is desirous of purchasing large quantities of suitable species of fish for the plant on a regular long term basis. By these Heads of Agreement, the parties agree:- i TIA will sell [ ] processed product to UBA. ii TIA will provide coldstore facilities to UBA.

iii UBA will buy and receive product from TIA, and store product with TIA on the terms and conditions set out below:- FRAMEWORK OF AGREEMENT Both parties agree to establish an evergreen, continuing long term relationship for the supply of fish by TIA to UBA. To this end, and in consideration of TIA installing a processing plant to specifically meet UBA requirements, the parties agree to structure their relationship on an ongoing basis, subject to the satisfactory performance by each of the parties of its obligations under this agreement. And the parties agree to consult regularly to maintain and further their mutual aims as set out in this agreement. EXCLUSIVELY In consideration of TIA establishing a facility tailored to meet UBA requirements, UBA agree to source in the first instance its requirements for fish from TIA, except for product caught and processed on the west coast of Australia. However, UBA reserves the right to purchase from any source such fish that TIA are not able to provide at a quantity, quality, price and time acceptable to UBA. UBA further agree to assist and cooperate with TIA in their effort to source raw material fish from various fishermen and enterprises within Australia. PRODUCTS Fish, hard frozen, prepared and maintained in a hygienic condition, of the following species:-

A. Australian Salmon B. Jack Mackerel C. Australian Pilchards D. Blue Mackerel E. Sheba Mackerel F. Sheba Pilchards G. And/or any other agreed species. ...... QUALITY & PRICES Commencing from February 1987, and for the continuing period of this agreement, the parties shall fix both a quantity and price for sale, delivery, and storage by TIA to UBA for each six month period, ensuing the expiration of each succeeding six month period. ..... The quantity and price agreed between the parties each six months shall be formalized and embodied in a six month contract form issued by UBA, and executed by both parties, each of which shall become an effective addendum to these Heads of Agreement. The standard conditions of contract embodied on the UBA form used for the above purpose shall be subordinated to these Heads of Agreement. DELIVERY UBA is to take delivery of the product, FIS at the Corio Quay Coolstore Complex occupied by TIA. .... TECHNICAL ADVICE & QUALITY ASSURANCE TIA agrees to maintain quality control procedures, to ensure that the product delivered to UBA shall accord with the UBA specification. UBA agrees to provide technical service and assistance to TIA to enable the most effective procedures for quality control.

Further, the parties agree to maintain a continuing liasion (sic) with the objective of maintaining and where possible improving the handling and storage of the product from time of catch to delivery to UBA...." 26 March 1987 is an important date because representations, namely (xii)-(xiv) are said to have been made on this date. These representations relate to UBA establishing with Trawl an evergreen, continuing long term relationship for the supply of fish; UBA sourcing, in the first instance, its requirements for fish from Trawl, except for Western Australia; and UBA assisting and co-operating with Trawl in its effort to source raw material fish from various fishermen and enterprises within Australia. These three representations are said to arise principally from the Heads of Agreement of that date when read in the context of the previous history of Trawl's relations with UBA as referred to above and in the oral evidence. As there was no discussion or contact between the applicants and UBA on that date the representations are said to arise from a construction of the Heads of Agreement, in the light of the context surrounding circumstances and history. Also on that date ANZ provided a letter to Trawl, advising that Trawl was not included in any cross-guarantees of other companies in the Atasco Group. This again was a requirement for settlement of the shareholders' agreement on 30 March 1987 and was provided to the applicants. On 30 March 1987 PGA wrote to Trawl, confirming the approval of the Minister for the lease of the Geelong cold stores to Trawl. This again was a requirement for completion of the shareholders' agreement. Shareholders' Agreement - 30 March 1987 Also on 30 March 1987 there was a directors' meeting of Trawl resolving to execute the shareholders' agreement with Cumbeline. The shareholders' agreement was made on 30 March 1987 between Trawl, Cumbeline, Atasco, Fasham and J Wilson. It provided for completion on that day. The agreement was a comprehensive document which together with annexures ran to well over 100 pages. Part 2 contained a number of conditions precedent which related to the production of evidence that Trawl had the continued right to use the Geelong plant on terms acceptable to Cumbeline; the grant of a fishing licence in respect of the "Allied Star"; consents and waivers of the holders of any security over assets of the company and waiving of breaches of such security; compliance with the law and the absence of any litigation. Part 4 provided for a number of matters to be made available for inspection before completion including company records and registers, certificates and minute books; books of account; taxation returns and assessments for the preceding 5 years; a budget for the company for the period 1 January 1987 to 31 July 1987 acceptable to Cumbeline and a copy of a contract acceptable to Cumbeline between Trawl and UBA for the supply of fish. All other records, documents and papers relating to the business of Trawl were to be provided so as to disclose all information relating to its affairs. Moneys payable for subscription by Cumbeline were to be paid as to $734,000 on completion and as to the balance of $1 million, on or before 31 July 1987. On completion, on 30 March 1987, the shareholders were obliged to lend moneys to the company in accordance with a Deed of Mortgage annexed, to the amount of $266,000. Part 10 dealt with warranties. In that Part the proprietors represented, warranted and undertook to Cumbeline the truth and accuracy of all information given by Trawl or its directors or auditors, together with 33 other specific warranties and representations. The remainder of the provisions of the shareholders' agreement appear to be standard form. The Schedule to the Agreement provided that the last accounting date was 28 February 1987. There were a series of disclosures made relating to commitments to purchase improvements at the cold store and as to fencing, together with references to hire purchase agreements, a charge on the "Allied Star" and an action in the Supreme Court of Victoria. The Agreement appears to have been drafted by Heidtman & Co, solicitors, who acted for Horrobin and Sands. That firm was given instructions by Sands on 16 March 1987 with a view to setting in train the preparation of the shareholders' agreement. Also on this day Cumbeline paid $734,000 to Trawl as part consideration for the issue of shares in Trawl and lent $266,000 to Trawl. Cumbeline took a charge over the assets and undertaking of Trawl to secure its loans to Trawl. There was also attached to the shareholders' agreement a computerised budget for the following 4 months prepared by Sands. The following day UBA received a telex from United DNC giving details of shipments of 840 tonnes of south-east Asian pilchards approximately from December 1986 to end March 1987. There was a request for a date for the new contract of supply. During March 1987 Trawl processed for UBA 224.27 tonnes of pilchards, 229.814 tonnes of mackerel, 52.307 tonnes of salmon, making a total of 506.391 tonnes for UBA and about 20 tonnes for others. This averaged out at 16.97 tonnes per day. The applicants submit that average rates on a daily basis are of no use when assessing the capacity or efficiency of a processing plant because of the unpredicatability and irregularity in the daily supply of fish. Summary to 30 March 1987 The above chronicle sets out the history of the relationship between Trawl and UBA up to the time when Cumbeline made its commitment to invest in Trawl. It is this commitment which is the principal issue in the case. As at this stage there were alleged to have been 14 misrepresentations made which induced Cumbeline to invest and the other applicants to commit themselves to liabilities in relation to the investment. The only contact between any of the applicants and UBA directly or by telephone, was the discussion which took place at Geelong on 18 March 1987 and which lasted in the order of up to thirty minutes on the most favourable view of the evidence. A number of central representations are alleged to have been made and these are referred to in the discussion of each individual representation below. These were all oral and there was no note or record of any of them, apart from the documents W17299 and the Heads of Agreement of 26 March 1987. These were documents issued by UBA and, in addition to the oral representations and the silence by Lees in relation to them, they are said to constitute the misrepresentations. As to the misrepresentations made after 30 March 1987, the applicants' case is that these representations were a continuance of the initial misrepresentations and as a result of them, the applicants exposed themselves to further and greater liability resulting in damages in the order of $16 million. It is not submitted that the subsequent representations gave rise to any particular or specific damage individually or cumulatively but they are relied on to demonstrate the continuing effect of the initial misrepresentations and to explain the causal relationship leading to the cumulative damages claim. In view of this matter and the detailed and extensive nature of the chronology subsequent to 30 March 1987, I will summarise events after that date in a less comprehensive manner before turning to the individual misrepresentations. Major Events Subsequent to 30 March 1987 April 1987 In early April 1987, the fifteenth representation is said to have been made, namely that UBA was constantly reviewing upwards its budgeted use of jack mackerel and that jack mackerel was a long-term need for UBA. In early April 1987 UBA introduced a 1988-1992 medium term plan. In this plan there is reference to using New Zealand supply to take up any gaps in supply and to nurturing and developing their wet raw materials base in south-east Asia.

On 1 April 1987 J Wilson, Fasham and Pridmore visited ANZ to inform it of developments which had taken place. On 2 April 1987 Fasham wrote to the Manager of the "Marine Countess" syndicate confirming that Trawl was interested in purchasing that vessel at a price of $475,000. On 2 April 1987 Horrobin and Sands wrote to the Senior Manager, Corporate Finance of First National Limited, (which subsequently became part of the ANZ Group). The letter is important because it refers to the reasons of Cumbeline for investing in Trawl, which was described as a company which has a "very exciting future". The letter referred to two main markets, namely UBA and the export of frozen fish for human consumption (jack mackerel). The letter also set out that it was proposed to expend $2 million and it indicated that the "Allied Star" was to be sold, generating about $700,000 after discharge of the mortgage. Most importantly, the letter annexed a computer generated cash flow (not a budget), said to produce a surplus of approximately $3 million from beginning April 1987 to end December 1987. There was an estimated profit in 1988 in the order of $9 million from sales of fish for pet food alone. The letter also annexed a pro-forma balance sheet prepared by Horrobin and Sands with the assistance of Trawl, said to have been made following examination of Trawl's financial records. The balance sheet showed capital and reserves of $3.718 million, including an asset revaluation reserve of $2.085 million. This revaluation reserve included a revaluation of a leasehold said to have been made because of the existence of a "long term contract with Uncle Ben". Horrobin testified that the material in this letter assumed processing of 13,000 tonnes of fish by 31 December 1987. At this time the only subsisting contract for the supply of fish was W17299 for 6,250 tonnes to be supplied as scheduled up to 31 December 1987. Cumbeline submits that if one accepts that W17299 was treated by the parties as a six month contract, then the assumption made in the cash-flow was not unreasonable. However, in my view it is clear that W17299 contemplated delivery over a period of not six months but rather eleven months. I do not accept that W17299 constituted a representation that the plant at Geelong was capable of handling 6,250 tonnes over a six month period. During April and subsequent months there are records in evidence which indicate that UBA entered into contracts with other suppliers for various types of material including squid, calamari and white fish. On 13 April 1987 the directors of Trawl resolved to buy the "Marine Countess". They record that G Wilson advised that 393 tonnes of fish should by that date have been processed for the month of April. If one assumes that Trawl was working a seven day week, that would be about 30 tonnes per day. As a rough guide, if one projects that figure, it would lead to 11,034 tonnes per annum at such a daily rate. In engineering reports obtained subsequently, the blast freezer capacity was said to be 40-50 tonnes per day and there does not appear to have been any improvement work carried out by 13 April 1987. The applicants point out that capacity to process 30 tonnes per day in a blast freezer is not a capacity to process 11,034 tonnes per annum, without regular availability of raw materials to be frozen. Such a calculation can only be a rough guide if it is of any use at all. Also on that date, Trawl and PGA entered into a formal lease for 56 years of the Geelong blast freezer and cold store for a consideration of $810,000. On 16 April 1987 Trawl completed the purchase of the "Marine Countess". This vessel had a history in the fishery off the east coast of Tasmania which was thought very likely to be closed by the Tasmanian Government to all vessels other than those having an existing history in that area. A survey report on that vessel indicated that there were 29 deficiencies. On 22 April 1987 Pridmore wrote to ANZ and spoke with Goldsworthy. ANZ was told of a major refurbishment and upgrading at Corio Quay to cost $475,000 and an agreement to lease a facility at Port Huon in Tasmania, and the intention to erect a cold store and blast freezer there. Preliminary estimates of cost to erect a cold store, blast freezer and fit out a processing area at Port Huon was given as $600,000. The letter refers to the purchase of the "Marine Countess" for $500,000 and sought a facility of $2 million with an undertaking to pay $1 million on completion of the sale of the "Allied Star" anticipated to be late May 1987. The letter asserted that the result of the expenditure would be a company with a capacity to catch, process, freeze and store 25,000 tonnes of fish per annum, giving a profitability in excess of $5 million per annum on a sustainable basis. Such a profit before tax for 1987-1988 would be a return on an investment of $2 million in the order of 63.75%. This clearly represented an excellent investment. On 23 April 1987 Trawl wrote to the Premier of Tasmania, stating that Trawl had signed an evergreen contract with UBA under which UBA was required first to source all their fish requirements in Australia from Trawl with the exception of a relatively minor existing source of pilchards from Western Australia. It states that Trawl are supplying approximately 1,000 tonnes per month of assorted fish to UBA. The total quantity processed by Trawl in February 1987 was 291.2 tonnes, in March 527.4 tonnes, and in April 1,089.8 tonnes. The letter asserts that Trawl has received several firm offers for supply of the jack mackerel for human consumption to major export markets in various forms. In fact, the actual amount processed by Trawl for UBA in April was 1,056 tonnes.

May 1987 On 1 May 1987 ANZ granted Trawl a facility of $2 million, comprising an overdraft of $300,000 and a commercial bill line of $1.7 million which was to be reduced by $1 million on the sale of the "Allied Star" by 31 May 1987. The bill line was to be cleared by 31 July 1987 from receipt of Cumbeline's second capital subscription of $1 million as provided for in the shareholders' agreement. In May 1987 Lees went on a trip to Japan, Bangkok, Singapore and Auckland and saw fish suppliers. He returned to Australia on 23 May 1987. On 13 May 1987 a meeting of directors of Trawl was held and the Minutes record a resolution to appoint MacDonald Wagner to prepare a report in relation to the plan. Fasham reported that the repair of the "Marine Countess" by the Port of Launceston Authority was progressing satisfactorily. Pridmore tabled a draft lease for the Port Huon facility which was still in the course of negotiation. On 15 May 1987 the DPI wrote to Trawl, suspending all export operations undertaken at the Geelong premises on the basis of unsatisfactory hygiene conditions in that plant. On the same date Stehr, a fish supplier, sent a telex to Trawl complaining about non-payment for fish supplied, inadequate facilities to unload the "Leonard Star" in Hobart and the arrival of the "Tasman Dawn" in Geelong fully loaded. On 21 May 1987 Idobook and Cumbeline made submissions to National Mutual Royal Bank Ltd ("NMRB"), in relation to a loan. The documents contained cash flow projections. On the same date, Wildridge & Sinclair Engineering Pty Ltd ("Wildridge & Sinclair") submitted preliminary information in relation to the freezing plant. This indicated that they were asked to consider the requirements to process 100 tonnes of fish to be frozen per day (a substantial increase on that originally contemplated) and stated the existing plant had only half the capacity for that requirement. It also criticised the mode of operation of the blast freezer arising from lack of air movement through the stacked product. Also on the same day MacDonald Wagner submitted a preliminary quote for a study of the operations of the Geelong plant with a view to investigating options for the overall improvement of the efficiency of that plant. On 27 May 1987 Lees, having returned from overseas, made notes of a meeting with Trawl, discussing the "Marine Countess" and the negotiations to purchase another vessel called the "Ilana" together with estimated pilchard supplies for the rest of the year. Lees arranged that on Tuesday 16 June 1987 there would be a re-negotiation, of the contract W17299 and the tonnages, with Trawl in Melbourne. This was directed to settling the further supply arrangements in accordance with page 5 of the Heads of Agreement of 26 March 1987. There were some further contracts issued for the supply of pilchards from Thailand and Malaysia in late May 1987. During May 1987 Trawl processed for UBA, 1,299.734 tonnes of fish principally comprised of 1,066.88 tonnes of mackerel and 202.655 tonnes of pilchards. June 1987 In June 1987, the sixteenth misrepresentation was allegedly made, namely that the proposals contained in certain documents relating to a development plan for the fish processing plant at Geelong and the strategy for acquiring new vessels were satisfactory to UBA and were in accordance with arrangements made between Trawl and UBA. On 3 June 1987 MacDonald Wagner sent a preliminary copy of its report to Horrobin entitled "Development Plan". This recommended improvements in the mode of operation of the plant, together with an increase in the blast freezer capacity to enable the processing of 100 tonnes per day over two eight hour shifts. The final copies were delivered the next day.

On 5 June 1987 Fasham wrote to Tasman Boat Brokers Pty Ltd confirming the agreement to purchase the "Ilana" for $154,000. Again, during the early part of June there were contracts by UBA to purchase calamari and squid products. On 8 June 1987 Fasham sent a fax to Horrobin regarding vessels purchased and available for purchase. Reference was made to a vessel, the "Ole Madsen" at an asking price of $300,000, with a refit estimate of less than $90,000. There was a recommendation that "our large vessel" should be fitted to catch and handle mackerel, pilchards, trevally and tuna and could be expected to return excellent results "from a year round fishing program based on these species". The significance of this fax is that it indicates Fasham's opinion as to the supply of fish other than that required by UBA, namely table fish. On 9 June 1987 Horrobin sent a memo to Fasham, expressing his views and understanding in relation to the vessel acquisition and licence strategy for discussion at the next board meeting that week. Horrobin sets out reasons for acquisition of licences for Trawl and as to why Trawl should acquire pilchard vessels as quickly as possible, namely in order to safeguard Trawl's two proposed new licences of boats and to boost Trawl's immediate cash flow, and to satisfy the requirements of UBA and consolidate what he described as a critically important relationship. Horrobin set out details of seven potential pilchard vessels, including the "Ilana" and the "Ole Madsen". The memo asserts that Trawl should contemplate producing an annual catch of around 10,000 tonnes of pilchards and seek access to at least 10,000 tonnes of the Tasmanian jack mackerel resource. This could be accomplished only with the support of the Tasmanian authorities. In relation to the representations as to the basis on which costs were to be calculated as between Trawl and UBA, the memorandum is significant in that it refers to the acquisition and licence strategy being significantly influenced by Trawl's future pricing negotiations with UBA and Trawl's cost cutting programme on the basis that there is no point in Trawl catching mackerel for UBA if, as then appeared to be the case, the price received from UBA was insufficient to cover Trawl's presently inflated cost and also generate a profit. This indicates that Horrobin's position was that the price from UBA could be insufficient to cover Trawl's costs and give rise to a profit. This is inconsistent with the submission that the position was that all prices must be such as to provide a profit margin above cost. On 9 June 1987 Wildridge & Sinclair faxed a report to Trawl. It stated that a survey of existing facilities based on a freezing time of 15 hours would enable Trawl to freeze 50 tonnes per day. Some advice is then given as to using the equipment efficiently.

On 10 June 1987 Sands sent a fax to Pridmore regarding UBA pricing, referring to the six months to 31 January 1987. This recommended a careful review of the manner in which Trawl should price its UBA product. There were seen to be three problems. The first was the inadequate allowance for actual processing costs, the second was that overheads were not covered under the subsisting pricing formula unless the full UBA order was achieved. Reference was made to experience with pilchards where there was then a considerable shortfall on the UBA contracted volume. Sands then stated that even if Trawl had achieved full UBA contract supplies in six months by supplying all contracted fish, the likelihood was that Trawl would not have recovered its total annual overheads in that six month period, given Trawl's inflated cost structure. The third matter was that the markup was too low. It varied from 16.5% to 31.4%. Here Sands expressed the view that his calculations produced greatly increased selling prices over those presently agreed to with UBA, and that it may not be "commercially realistic" to expect early price rises of the size which he considered necessary. He said that a resulting price structure would need to be much improved over that presently prevailing if Trawl was to operate profitably. On 10 June 1987 Lees' diary recorded an appointment at 10 am with Trawl and referred to the engineer's report at Wodonga and the inspection of stock. The engineer's report appears to be that made by MacDonald Wagner. On 12 June 1987 there was a directors' meeting of Trawl. At this meeting criminal charges against J Wilson, in conjunction with Sir Andrew Grimwade, came up for discussion for the first time. The meeting was adjourned at 4.45 pm to enable Horrobin, Sands and Pridmore to attend ANZ to sign their guarantees of Trawl's indebtedness to that bank. On 16 March 1987 there is a UBA memorandum from McBurnie to Lees recording problems with Trawl mackerel, arising from poorly processed material and compacted fish. The bulk of the material assessed visually as "borderline" quality was packed between 20 May and 28 May and involved about 200 tonnes of processed fish. On 17 June 1987, Horrobin sent a fax to Mr Haines, Executive Director of Export Development, seeking information from North American contacts as to markets for the sale of fish for human consumption, either whole fish or processed fish, together with reconstituted fish. The memorandum stated that Trawl wished to expand rapidly into the high volume export markets for human consumption. On 17 June 1987 Cumbeline gave a guarantee of Trawl's past and future indebtedness to ANZ. On 19 June 1987 Pridmore sent a fax to McBurnie regarding the fish quality problem for fish processed during the period May 20-28. This attributed the quality problems to the slow-down in processing and freezing that accompanied the enormous difficulty Trawl had in finding room in the freezers in which to store incoming processed fish. The problem was stated to be a storage one, rather than one of freezing capacity. The fax refers to tripling the freezing capacity in April and having recently commissioned a detailed upgrading plan with Wildridge & Sinclair. On 19 June 1987 Trawl wrote to the DPI, setting out that the cost of carrying out works necessary to retain the right to operate an export establishment would exceed $100,000, and asserts that a great deal of the required work has been done including concreting the whole of the grounds used by the operation. On 22 June 1987 Fasham wrote to Pridmore criticising Sands' memorandum of 10 June 1987 regarding fish pricing. It indicated that the proposed meeting with UBA regarding pricing should not be postponed and suggested that he and J Wilson should conduct the negotiations with Lees. On 23 June 1987 Fasham wrote to Horrobin recording that Atasco had offered to repurchase the Cumbeline shares immediately following completion of the purchase on 31 July 1987. Fasham asserted that Horrobin spontaneously refused the offer and repeated the offer on the basis that payment would be made by 31 August 1987. On 23 June 1987 Fasham recommended to directors the possibility of purchasing the "Ole Madsen" described as being in excellent condition with all equipment in good working condition for a price of up to $300,000. It is stated that the estimated cost of fitting out the vessel to supply pilchards totalled $112,000. On 24 June 1987 Lees met with representatives of Trawl in Melbourne regarding the pricing of product for the six months from July 1987 to December 1987. There is a reference to possible deliveries of 5,400 tonnes of fish. On 26 June 1987 in a letter from Horrobin to Fasham, Horrobin asserted that the position of Trawl was not as Cumbeline understood it to be when it acquired its shareholding in Trawl. Horrobin stated that a number of questions concerning Trawl needed to be clarified over the next few months. On 26 June 1987 two submissions were made to NMRB on behalf of Idobook and Cumbeline. In the second an offer is made of a mortgage over Sands' home as security and a personal guarantee is offered on behalf of Sands and Horrobin. The date of the information must have been after 30 April 1987 because it included the profit figures for the month of April. The material in this submission indicates that the profit expected was $9 million from pet food in 1988 with $3 million expected by 31 December 1987. The material refers to anticipated 1987 capital expenditure of $5,828,000 with $500,000 to be allocated to refurbish the Geelong facility to automate a major portion of the operation and eliminate labour costs. On 26 June 1987 Wildridge & Sinclair sent a fax to G Wilson which recommended that blast freezers be installed in three stages. Stage one was to install two freezers with product capacity of 38 tonnes per blast, ie. total 76 tonnes. It was then suggested that blast three could be added later once the plant room capacity had been increased to allow Trawl to achieve the 250-300 tonnes/48 hour turnaround. The fax also stated that such a fish intake would mean that Trawl would have to add additional compressors to the plant room. 300 tonnes was the capacity of the "Tasman Dawn" (Stehr's vessel). This was the principal vessel supplying Trawl with mackerel in the first half of 1987. On 30 June 1987 a UBA record indicated that problems were being experienced with mackerel. However there was no suggestion that the problems were sufficiently serious to warrant ceasing to use jack mackerel as a fish supply source. In June 1987 Trawl processed for UBA 18.577 tonnes of pilchards and 206.332 tonnes of mackerel, making a total of 225 tonnes only.

July 1987 A report dated 2 July 1987 recommended the carrying out of capital works in relation to the facilities amounting to $674,210. Plans showing the proposed factory alterations and updates of the consultants' reports were attached for the board. Around 3 July 1987 an approach was made for Stehr to supply UBA with mackerel directly. Stehr was one of Trawl's major suppliers of mackerel. Minutes of a meeting of Trawl directors on 3 July 1987 referred to G Wilson advising that no deliveries of pilchards had been received from local fishermen, as it was believed that higher prices were being paid for the product elsewhere. Fasham suggested recent problems regarding late payments, confusion of weights, paying wrong weights etc were probably deterring the fishermen from dealing with Trawl. He suggested the system should be designed to clearly identify the fish, the owner of the fish, the vessel, the weight and place of catch in order to restore confidence among fishermen and comply with UBA requirements. At this meeting the board resolved to purchase the "Bacardi", (a purse seine vessel) for $65,000 and to negotiate for the purchase of the "Ole Madsen" up to a maximum price of $300,000. Pridmore advised that he was investigating possible sales in the bait market. A resolution was passed to carry out capital works totalling $153,966 on the plant. There was also reference to G Wilson and Pridmore advising that works required to lift the suspension on the licence from the DPI should be completed within two weeks. Concern was noted by Fasham regarding the current lending arrangements and the need for capital and reference was made to the payment of $1 million on call. On 8 July 1987 UBA issued contract W17402 to Trawl for 2,400 tonnes of pilchards at 61c kg, and 60 tonnes of headed and gutted Australian salmon at $1.05 kg for delivery during July through December. The contract is expressed to replace any previous contract, meaning W17299. In fact in the period July to December 1988 Trawl delivered only 57.144 tonnes of pilchards and no salmon. The evidence was that Trawl did its best, according to Horrobin, to supply the 2,400 tonnes. On 8 July 1987 the contract for the purchase of the "Ole Madsen" was exchanged in Launceston and a deposit of $29,000 paid. On the same date, Lees' diary records a reference to Pridmore and the "Marine Countess" and to catching mackerel. There is no suggestion that UBA would not accept any more mackerel on the ground that Trawl had already fulfilled its contract.

On 13 July 1987 Fasham reported to board members on some minor problems which had arisen in relation to the "Marine Countess" and it was anticipated it should sail within a few days. On 14 July 1987 Stehr, of Australian Tuna Fisheries Pty Ltd, faxed the log of the "Tasman Dawn" to Lees which covered the period from 16 April 1987 to 6 June 1987. This records five large deliveries of 245 tonnes, 310 tonnes, 310 tonnes, 170 tonnes and 170 tonnes. It showed that fish caught on 14 May 1987 had been out of the ocean for at least 107 hours before unloading at Corio Quay commenced. Also on that date Trawl wrote to Lees in relation to Trawl's plans and activities relating to the pilchard contract. This records that $400,000 had been spent to fit out the "Marine Countess". It records the purchase of the "Ole Madsen". It was described as a good "beamy" 64 foot vessel of steel construction which would commence fit out prior to the end of July. Reference was also made to the "Ilana", a 60 foot vessel which would be fished in conjunction with one of the present group of contract fishermen inside Port Phillip Bay. Fasham expressed confidence that the small fleet working together would prove capable of delivering the UBA contract quantities on a regular, reliable basis throughout the remainder of 1987. Again on the same date Fasham reported to the directors of Trawl that Trawl had now purchased two Tasmanian purse seine licences, coupled with a Commonwealth licence on the vessels "Bacardi" and "Able". On 16 July 1987 Fasham wrote to the Secretary, PGA seeking berthing space. The vessels purchased were stated to have the following capacities: "Marine Countess" 90 tonnes, "Ole Madsen" 50 tonnes, "Ilana" 30 tonnes, "Gracie's Pride" 30 tonnes. It asserted that Fasham was preparing a programme for the restoration and fit out of the "Allied Star". This was stated to be expected to commence shortly so that the vessel would be licensed and in working condition within two months. The vessel "Gracie's Pride" was in fact never bought by Trawl. McBurnie had discussions on 16 July 1987 with Fasham, Pridmore and G Wilson, concerning mackerel quality and the catching and processing of pilchards. He indicated UBA would not accept sub-standard fish. There is also reference on that date to tests being done in relation to the strength of the gel for the fish and the quality of the product. Reference is made to the possibility of an enzyme problem causing gels in the pet food to break down. On 20 July 1987 Fasham told the Board that there were some problems with the "Marine Countess" and that it would sail as soon as a replacement engineer arrived and weather permitted. On 22 July 1987 Trawl signed an agreement to buy the "Ilana" for $154,000. On 24 July 1987 Victorian commercial fishing boat licences were issued for "Ilana" and "Ole Madsen" and application for purse seine endorsements on those licences was to be made the following week. On the same date there was a directors' meeting of Trawl. The May accounts were not finalised. Pridmore reported that the works were almost completed; concreting would be finished on that day. The break-out area was completed and works would commence on the second process area in the next few days. The first process area was completed by that time. G Wilson advised that the local fishermen were still not supplying. On 28 July 1987 Cumbeline paid its second $1 million instalment in respect of the shares in the 50% shareholding allotted to it. The following day Trawl paid Idobook $520,402.51 in repayment of the loan of $495,000 on the purchase of the "Marine Countess" plus interest of $25,402.51. By 30 July 1987 the DPI suspension of the export licence had been lifted. August 1987 By 3 August 1987 UBA identified a link between the use of whole jack mackerel and gel problems in certain of their products. Accordingly, it was suggested that the potential for buying gutted, as opposed to whole jack mackerel, should be investigated in order to minimise any potential gel problems. No fish at all were processed by Trawl in July 1987. On 4 August 1987 Pridmore reported to Mr Oldfield ("Oldfield") of ANZ, that upgrading of Corio Quay had been completed except for the second processing area which it was hoped would be completed within the next week. He said completion of that area would provide three substantial processing areas, all of them licensed for export. He stated that the lease on the Port Huon facility had now been secured with access dating from 1 August 1987. This facility was said to confer increased access to the large Tasmanian jack mackerel resource combined with an ability to enter the very lucrative export market for mackerel for human consumption. The purchase of the "Ilana" was settled on 5 August 1987. On 10 August 1987 Oldfield of ANZ informed Pridmore that the bank would cover cash flow forecast requirements to a maximum of $2.6 million on the basis of reduction in overdraft/ commercial bill lines to $2 million by 28 February 1988, and a further reduction of $500,000 by 30 June 1988, and a further reduction/clearance by 31 December 1988. As security ANZ required Trawl to give a registered mortgage debenture over its assets and undertakings and a formal charge over the Port Huon leasehold. On 12 August 1987 Gordon Bros Industries Pty Ltd inspected the "Marine Countess" and found systems faults and damage. On 17 August 1987 the DPI notified Trawl that the licence suspension had been lifted and that processing of product for export could commence. On 17 August 1987 Fasham wrote to Horrobin stating that Horrobin had accused him of fraud and misconduct and threatened him with massive litigation. Horrobin denied this in a letter of 20 August 1987. Trawl directors resolved to accept ANZ's offer of finance on 20 August 1987. On 24 August 1987 Pridmore sent a memo to all directors outlining a proposal for buying and processing table fish at the rate of 110 tonnes per week. On 26 August 1987 the DPI wrote to Trawl informing it that the request for a review of the application for an endorsement to enable the "Allied Star" to operate in the south-west sector of the south-eastern trawl fishery had been unsuccessful. On the same date G Wilson informed the Board that work on the blast freezers had commenced.

Also on that date G Wilson wrote to Trawl directors indicating that orders for some of the works upgrading the plant at Geelong should be deferred pending receipt of alternative proposals. On 27 August 1987 J Wilson wrote to Horrobin offering on behalf of Atasco to buy the whole shareholding of Cumbeline in Trawl for $2 million and set out the terms of that letter. The letter refers to "acrimonious exchanges concerning Lake Cumberline's (sic) rights and the warranties given by Atasco under the Shareholders' Agreement...". The letter points out that: " .... we are in the fishing business and subject to the vicissitudes of winds, weather and fish movements as well as the vagaries of complex mechanical equipment." On 27 August 1987 there was a lengthy directors' meeting. Horrobin expressed grave concern at the deteriorating financial position and inadequate line management of the company; the lack of fish, together with the adverse implications for the UBA contract of this lack of fish; delays and costs overruns in the vessel works and crewing programme; the poor functioning of the board and lack of co-operation or full disclosure. An example given was "the chaotic situation" regarding the "Ole Madsen". Reference is also made to an extremely unsatisfactory situation in the opinion of Horrobin. The minutes record the resignation of G Wilson, as General Manager from 10 September 1987. There is reference to the proposal for table fish processing. Fasham was requested to update UBA on the capital expenditure programme undertaken to improve production and the product supplied to UBA. There was a report on capital expenditure which itemised a great deal of the work done to the date of the meeting and proposed work. Reference was made to the need for work on the "Marine Countess" and the refitting of the "Ilana", which was anticipated to take about a month. There was reference to work on the "Ole Madsen". In August 1987 Trawl processed no fish at all. In May 1987 the blast freezers were capable of freezing about 50 tonnes per day and the capacity of the cold stores properly operated was over 2,000 tonnes. The total amount of fish processed for UBA between 1 March 1987 and 31 August 1987 was 3,087.097 tonnes and 45.707 tonnes were processed for other customers. The NMRB wrote to Idobook on 27 August 1987 offering credit to the extent of $2 million. September 1987 In the period August to September 1987, the nineteenth misrepresentation is said to have been made, namely that UBA represented it had never offered to buy fish from Mitchelson and had no intention of doing so. This is said to have been made fraudulently. On 3 September 1987 Pridmore wrote a report to the board regarding the Port Huon facility. It assumed a catch of 10,000 tonnes per annum of which 2,500 tonnes would go to UBA in 1988, and the remainder 7,500 tonnes would be processed for export. On 4 September 1987 Horrobin wrote to J Wilson what he described as "an angry letter". J Wilson and his colleagues are accused of misrepresenting the position of Trawl at the time Cumbeline acquired its shareholding. He claimed that what J Wilson described as "the vagaries of complex mechanical equipment" were in fact the subject of a series of specific representations and warranties made by Atasco and the directors at the time of acquisition. He stated that the representations were central to Cumbeline agreeing to acquire an interest in the company. On 7 September 1987 Pridmore's report in relation to Port Huon was tabled and the board resolved to take preliminary steps to proceed with their proposal. 10 September 1987 - The Cancellation Letter - W17402 On 10 September 1987 Lees wrote to Pridmore and said: "Having had confirmed that the fishing boat "Marine Countess" is still not ready to commence fishing to prove or disprove the viability of catching pilchards to UBA specification and further having not received any pilchards from Trawl Industries for a period of two months, I wish to cancel our contract W17402. As you are aware, Uncle Ben's has a near continuous requirement for this product and whilst I am in a position of having to contract offshore to cover non-deliveries, the "on paper" commitment I have far exceeds my requirements. I need to reduce this commitment and suggest we should wait until such time that the "Marine Countess" or other vessel is successfully commissioned prior to negotiating a contract for tonnages and prices that both parties believe to be achievable and usable (sic). The fishing industry is subject to more than its share of non forecastable vagaries, but I am sure that you understand my priorities in this matter and look forward to renegotiating future supply contracts with yourselves once the new catching and packing processes have been successfully commissioned." On the same day Sands, on behalf of Cumbeline, wrote to J Wilson reporting on outstanding liabilities and said that: "....Trawl is now virtually out of funds and still committing, and given that Trawl has lost the UBA Contract (unless Trawl can prove that it can meet the UBA pilchard specification when catching outside Port Phillip Bay) and the fact that in any event we are outside both the main pilchard and mackerel catching season ......" He expressed the belief that the shareholders must look to provide immediate additional financial support. It is at this time that the seventeenth and eighteenth misrepresentations are said to have been made, namely that if Horrobin and Pridmore controlled the management of Trawl, UBA would give Trawl all the business it could handle, and that Trawl could be assured of a long and profitable future as a supplier to UBA. On the same date Lees wrote to Horrobin to clarify UBA's intention of future relationships with Trawl. He said that the cancellation of W17402 was not to be construed as an intention to cancel UBA's future trading relationship with Trawl. It was stated to be merely to enable Lees to reduce his "on paper" commitment for product. He referred to the non-delivery of a substantial part of the contract and UBA's ongoing requirements. He said that because of that he had had to purchase tonnages for delivery to enable the plant to continue operations, with the result that his contractual commitment was well in excess of his actual operating requirements. Lees also expressed UBA's intention to re-contract with Trawl once the ability of the "Marine Countess" to purse seine, and of the Geelong plant to process pilchards to UBA specification was confirmed. He said that was an entirely new process when compared with previous approved supply from Trawl, which was based on small vessels within Port Phillip Bay. He went on to say that once the confirmation was completed he envisaged opening a contract for 3,000 tonnes over a 12 month period from the date of confirmation. There was also the opportunity to supply a further 1,500 tonnes should UBA be successful in replacing some of its imported pilchards from Thailand and Malaysia with local product. He further said that at previous meetings with Trawl he had stated this was the ultimate aim, once UBA had confidence that Trawl had the ability to consistently supply to UBA specification. He mentioned that for other species UBA would have a requirement for 300-500 tonnes of headed and gutted salmon during 1988 which would be negotiated prior to the salmon season commencing. He referred to UBA holding significant stocks in excess of 2,000 tonnes of jack mackerel of variable quality and said that it was unlikely UBA would require any further quantities of this species until October/November 1988, at which time UBA would discuss catch, process and values with Trawl. He expressed the hope to Horrobin that the latter would be able to continue with the already evident improvement in the ability of Trawl to remain a major supplier of fish to UBA. On the same date Trawl confirmed its agreement to purchase blast tunnel equipment for $175,000. On 14 September 1987 Fasham applied to Commercial Fisheries Licensing Branch for the grant of trawl net licences, limited to purse seine gear for Victorian coastal waters outside Port Phillip Bay for the "Ole Madsen" and the "Ilana". The following day Pridmore confirmed the appointment of Mr Just as captain of the "Marine Countess". Sands sent a memorandum to J Wilson about Trawl's financial position on 21 September 1987. He pointed out that the economics of Trawl buying, processing and reselling table fish in domestic and export markets was far from clear, and there was not sufficient information to judge whether Trawl should enter the field. It is interesting to compare this comment with the cash flow prepared on 2 April 1987, two days after entry into the shareholders' agreement of 30 March 1987, which refers to processing table fish. Sands expressed concern as to Trawl's financial position in a memo to J Wilson on 25 September 1987. Specifically he warned that Trawl would have major short term problems if ANZ was not going to be receptive to any application for additional funds or if it was unable to act quickly enough. At that time there was a deficiency of facilities of $69,473. There is reference to memoranda of 18 and 21 September regarding financial restructuring of Trawl and seeking a response from J Wilson. Reference was made to vessel syndication with an incoming risk equity partner. At the end of September 1987 Idobook granted a loan facility to Cumbeline in the sum of $2.4 million. Trawl did not process any fish in July or August 1987 and only 6.176 tonnes of pilchards in September 1987.

October 1987 Between October 1987 and January 1988, the twentieth misrepresentation is said to have been made. This was that UBA represented it would be happy to deal with Trawl and to pay a price which would give Trawl a return on all expenditure up to that time and which would cover a further investment by Trawl in heading and gutting equipment so long as Fasham and J Wilson were removed from the management of Trawl. On 1 October 1987 the Marine Board of Hobart granted a lease to Trawl of the Port Huon facility. On the same date reference was made by Fasham to the net on the "Marine Countess" requiring replacement. By 13 October 1987 the work necessary to be completed on the "Allied Star" would cost approximately $112,000 and work on the "Ilana" would be in the order of $17,700. In addition, the outstanding construction work at Geelong was stated to cost in the order of $75,000. The following day Sands and J Wilson wrote to Oldfield of ANZ, seeking a total facility of $3.5 million comprised of a bill facility and overdraft to meet the increased costs of the company's capital works programme and to provide working capital. The letter refers to the last two months having been frustrating and expensive but the company was now in a position to commence large scale processing of table fish in addition to the company's basic lines which it was stated, should shortly generate the long awaited positive cash flow. The letter envisages that the current negotiations for table fish would enable the "Allied Star" to commence fishing. The following day, Mason Greene Real Estate Pty Ltd valued the complex at Corio Quay also. On 15 October 1987 Horrobin wrote to all board members supporting the acquisition of a skinning machine for processing table fish (orange roughy). On 19 October 1987 Lees' diary records the following: "Harry Mitchelson - Something in writing for bank. Plans have been passed. Needs some contract indications for quantities." The applicants submit that this is "another" example of Lees being requested to issue a contract to induce investment or provision of finance. On 19 October 1987 Sands gave a guarantee in favour of NMRB with regard to the indebtedness of Idobook to that bank. On 20 October 1987 Mason Greene Real Estate Pty Ltd valued the Corio Quay complex at $2.2 million. On the same date board members were advised of fishing permits to enable the "Ilana" and "Ole Madsen" to purse seine in Victorian coastal waters excluding Port Phillip Bay. Also on that date Lees and McBurnie held a meeting with representatives of Trawl in which they were informed in detail as to the activities which Trawl was undertaking and on which it was incurring expenditure. On 27 October 1987 Oldfield's diary refers to a meeting with Horrobin, Sands and Pridmore and it records the existence of a lien being held by ANZ over shares in Trawl to secure indebtedness of Atasco. As at 30 October 1987 the "Ole Madsen" was valued at $627,550 by Tasman Boat Brokers Pty Ltd and on the same day Sands indicated to J Wilson that Trawl needed an additional $3.5 million to carry out its budget. This was on the basis that expenditure was to be made at Port Huon and this in fact never occurred. In October 1987 Trawl processed for UBA 10.579 tonnes of pilchards, 12.142 tonnes of other fish, making a total of 22.721 tonnes for UBA plus 12.534 tonnes for others. November 1987 In November 1987 UBA issued its Operating Plan for 1988. On 10 November 1987 Pridmore and Fasham signed a letter. There was no addressee but it is obvious that the letter was intended to be sent to prospective financiers, which further included ANZ. It itemised an estimated capital expenditure of $750,000. It stated that creditors at the time of writing were owed $312,000 and that the directors believed it would be prudent to allow $350,000 to be provided as working capital. The letter requested that ANZ give consideration to the extension of the company's existing facilities to a total of $3.6 million providing the company with what the directors believed to be sufficient funds to place it in a fully operational and profitable condition. The application was dependent on Cumbeline and Atasco signing an agreement concerning the future ownership of Trawl, acceptable to both parties and ANZ. In return for the extension in finance facilities the document states that Cumbeline was prepared to concede the validity of the ANZ charge over the shares in Trawl held by Atasco and that the directors of Trawl would continue to give joint and several guarantees in respect of debts owed by Trawl to ANZ. On 12 November 1987 Fasham wrote to Oldfield confirming that the "Ilana" was purchased on 5 August 1987 and the "Ole Madsen" on 18 August 1987. He stated that he expected the "Ilana" to "commence fishing next week" and the "Ole Madsen" being ready to fish within 3-4 weeks. This was approximately three months after the vessels had been purchased.

ANZ wrote to Trawl on 24 November 1987, expressing ANZ's disappointment to learn that Trawl shareholders had not come to an agreement so the company's application for increased assistance could be considered. ANZ stated that unless the situation was resolved promptly the company should go elsewhere. On 26 November 1987 Horrobin wrote to J Wilson noting the "disturbing news" that the lawyers still appeared to be at cross purposes over the wording of the proposed agreements between the shareholders. He expressed grave concern because time had run out for Trawl. Creditors totalled more than $400,000 and in the light of the letter from ANZ, the directors of Trawl were at risk in continuing to permit Trawl to incur financial obligations without any finance facilities in place. The buy-out deed between Atasco, Cumbeline and Trawl was executed on 29 November 1987. On 30 November 1987 Touche Ross wrote to the Trawl directors in relation to an audit report for year ended 30 June 1987. They had not been provided with accounts for the year ended 30 June 1986. They say that because the previous accounts of the company were not audited it was not possible to show the comparative figures in the operating statement for the year ended 30 June 1986. They draw attention to the fact that a draft balance sheet as at 30 June 1986 included the sum of $1.8 million being internally generated goodwill. They said that the concept of internally generated goodwill was contrary to Australian Accounting Standards and has been eliminated from the opening balance. They also drew attention to the necessity to write off the asset recorded in the 1986 draft accounts as formation expenses of $170,923 to the extent of $170,000 paid to Atasco. Fish Supply - November 1987. Trawl processed for UBA in November 40.389 tonnes of pilchards, and 3.317 tonnes of other fish, but no mackerel, making a total of 43.706 tonnes. December 1987 ANZ on 1 December 1987, informed Trawl that bank lines had been increased from $2.6 million to $3.25 million with $500,000 to be reduced by end of March 1988 with a further review by 30 June 1988. ANZ then had a further proposal to increase credit lines to $3.5 million under favourable consideration. On the same date Lees' diary records that he spoke with a fish supplier regarding potential jack mackerel supply. As at 2 December 1987 Trawl had no proper books of accounts for years ending 30 June 1985 or 30 June 1986 and had not lodged accounts for those years with the Corporate Affairs Commission. On 4 December 1987 Pridmore wrote to the Trawl directors reporting on the acquisition of two trawl nets and a cable and on work being carried out on the "Allied Star" to render it capable of trawling. He referred to spending $67,000 on equipment for the "Allied Star" and to additional equipment necessary for the vessel estimated to cost about $200,000 exclusive of crew wages. He referred to the upgrade of the freezer being arranged for the coming week and draws attention to a problem in relation to inadequate piping to service the equipment in the plant. He set out steps proposed to install the equipment without closing down the blast freezers. On the same date Horrobin wrote to ANZ stating that Cumbeline acknowledged ANZ held a charge over the 50% shares in Trawl owned by Atasco and that Cumbeline did not intend to challenge the validity of that charge. It subsequently did challenge the charge. On 7 December 1987 Pridmore records the history of the "Marine Countess". When it arrived at Geelong after a refit in Launceston, it was laid up in Geelong for 34 days for further work. He estimates the loss of pilchards as a result of the unsatisfactory work by the Port of Launceston Authority to be 728 tonnes, with a value of $348,493.60. On 14 December 1987 Sands wrote to the auditors, Touche Ross with three sets of accounting records. One set was described as approved by the board. These are dated 14 October 1987. They go through the period October 1987 to December 1988. They assume a total catch of pilchards of 8355 tonnes; mackerel 3950 tonnes; table fish 4675 tonnes; with a total catch of 16,980 tonnes costing in total $7.55 million to be sold for $17.6 million. This throws up a gross profit of approximately $10 million with a net profit before tax of about $3.77 million. A second set of accounting documents are said to have been prepared by Sands and Pridmore for ANZ. They are dated 10 December 1987 and project to July 1988. This set of documents show that the net profit before tax for the 8 month period to 30 July 1988 was projected to be $1.738 million. In the second set of documents sales were projected of both pilchards and mackerel to UBA. The greatest revenue over that 8 month period to end July 1988 would be produced by table fish. The Tasmanian Department of Sea Fisheries declined on 16 December 1987 to transfer the licences held in respect of two vessels, the "Bacardi" and the "Able". Oldfield advised Trawl on 17 December 1987 that an overdraft facility of $1.5 million was approved to 31 March 1988 when a reduction of $500,000 was to be effected. On 23 December 1987 Pridmore recorded that the blast freezing capacity at Geelong was approximately 100 tonnes of fish in 12 hours. He referred to a long lease over the facility situated at Port Huon in Tasmania, and to the company having bought in the last 6 months its own vessels valued at $3.5 million. The trawler, "Allied Star", was stated to be totally refitted on 9 January 1988 and was intended to commence trawling operations in the south-east trawl area where it would seek table fish primarily orange roughy, Mirror dory and trevally. He expresses a hope that the "Marine Countess" would commence fishing within 2 weeks and the "Ole Madsen" shortly thereafter. Initially fishing by the "Marine Countess" was intended to be for tuna during January and then for either pilchards or jack mackerel, depending on demand. The "Ilana" was referred to as being currently intended to fish within Port Phillip Bay. Reference is made to the contract with UBA and to Trawl spending considerable money and effort in placing itself in a position to exploit pilchards and jack mackerel, with a result that Trawl had gained access to significant supplies of those jack mackerel which it wished to export into markets for human consumption. He referred to the closure of the mackerel fishery in Tasmania which would allow no new entrants and which placed Trawl in an advantageous position and to the intention of the Victorian Government to close the pilchard fishery having issued new licences to Trawl which left Trawl the major operator in that industry outside Port Phillip Bay. He also referred to the possibility of crayfish and squid fishing. Fish Processed - December 1987 No fish at all were processed by Trawl during this month. January 1988 In a fax from Horrobin to Australian Fishing Processing and Cold Storage, on 4 January 1988, in reference to Cumbeline's operation, Horrobin said: "These assets and an experienced staff have been assembled over the past 6 months by an Australian venture capital company as a strategic investment ... The role of the venture capital financier is now essentially completed." (Emphasis added) As at 4 January 1988 the position of ANZ in respect of its scrip lien on Atasco shares in Trawl was that it held a scrip lien over 65,002 shares in Trawl registered in the name of Atasco as security for advances made by ANZ to Atasco. ANZ stated that although the deed of 29 November 1987 required shares held by the parties to the deed to be delivered to the stakeholder, until ANZ's lien was discharged it could not release the shares to the stakeholder. On 8 January 1988 employees of UBA had a meeting in which it was said that in order to optimise taste and appearance the new range "WHISKAS" recipes would not include whole jack mackerel. They would have higher levels of Australian pilchards and would use 1988 catch headed and gutted jack mackerel. No more whole jack mackerel was proposed to be purchased and headed and gutted jack mackerel would need to be available by the end of April 1988. The problem with whole jack mackerel was that it was known to cause product gel breakdown at levels of inclusion greater than 3% unless suitable buffers were included. On 13 January 1988 Lees' diary records a reference to "Kevin Warren - looking to open own process". This is said to show that Lees was encouraging other processors possibly to set up in business at a time when the March 1987 Heads of Agreement were still in existence. On 29 January 1988 Pridmore sent to Lees a copy of information received from a Norwegian company referring to the heading and gutting process. The fax stated that Pridmore thought it might assist Lees in his consideration of the matter. On the same date Idobook wrote to Trawl offering a short term facility of $300,000 to enable Trawl to have the benefit of certain removable capital items of plant and/or equipment and quantities of table fish for resale by Trawl purchased by Idobook at the request of Trawl. On the same date Pridmore sent a memo to the Wilsons and Fasham, stating that Trawl had now reached the point where it was unable to write any cheques for any sum be it wages, creditors or any other purpose without exceeding its bank overdraft limit. He stated that the continued inaction and lack of communication from the Atasco directors was not merely severely limiting the actions of the company, but it was damaging it in the eyes of creditors and the industry. In this month Trawl processed for UBA 9.661 tonnes of pilchards and 0.165 tonnes of salmon. It also processed 41.954 tonnes of fish for other parties. February 1988 On 5 February 1998 Trio Industries of Norway wrote to Pridmore with information relating to the heading and gutting process. Pridmore wrote on 9 February 1988 to a Mr Bucci in California setting out details of Trawl in relation to the offer of a short-term assignment as a master fisherman. He said the company caught and processed (i) table fish and (ii) industrial fish. He said that table fish were processed and sold to both domestic and export markets and industrial fish were primarily sold to UBA as raw material for pet food. He expressed the belief that the factory and cold store complex at Geelong was unique in Australia. The letter stated that several of the main species of fish processed by the company could only be caught using the purse seine method of fishing. These included jack mackerel, skipjack tuna, Australian pilchards, Australian salmon and trevally. He referred to the company recently acquiring a fleet of purse seine vessels. He referred to the "Marine Countess", the "Ole Madsen" and the "Ilana". He said these vessels were currently not being properly used because of the lack of adequately experienced skippers and crews familiar with the techniques of purse seining. He expressed the need, as a matter of urgency because the fishing season had commenced, of a master fisherman whose role would be to assume the overall responsibility of Trawl's purse seine fishing activities. On 10 February 1988 the Secretary of CIBC Australia Ltd resigned as stakeholder under the deed of 29 November 1987 between Atasco and Cumbeline, relating to the buy-out options in relation to Trawl shares. On 12 February 1988 Pridmore faxed Lees with a costing for whole mackerel and for headed and gutted mackerel. Reference is made to a variable cost for the headed and gutted fish of 65.6c kg, with overheads of 14 cents, totalling 79.6c kg, plus a 20% margin of 15.9 cents, giving a total of 95.5c kg. On the same date Sands sent a fax to J Wilson setting out the method by which Idobook was financing the acquisition and sale of fish, particularly export sales. He referred to the arrangements being entered into as a matter of urgency to provide funds to Trawl to enable it to participate in the table fish business. By contract W17621 issued to Tamar Fisheries by Lees, UBA contracted for 400 tonnes of headed and gutted jack mackerel at 67.55c kg. The final price of 79.6c kg represented taking into account freight to the cold store in Melbourne. As at 16 February 1988, the licence situation as to the 6 vessels owned by Trawl, according to Horrobin, was as follows: • "Allied Star" - had a Commonwealth fishing boat licence but no endorsement to trawl in the relevant zones. • "Marine Countess" - had appropriate licences but limited to purse seining. • "Ole Madsen" - had appropriate licences but not for Port Phillip Bay. • "Able" - had appropriate licences for fishing in Tasmanian waters. • "Ilana" - had appropriate licences but not for Port Phillip Bay. • "Bacardi" - had no licences.

On 17 February 1988 Camelot Design Industries Group reported to Trawl on steps taken to market fish for export. On the same day Young J in the New South Wales Supreme Court gave judgment in an action by Cumbeline against Atasco arising from the resignation of CIBC as stakeholder under the deed and the attempt to replace that stakeholder with another stakeholder. On about 18 February 1988 the applicants allege two further representations were made, namely that UBA was prepared to give Trawl a long-term contract which would give back to the applicants their investment and a profit, and that UBA's requirements for mackerel were budgeted to go up tremendously. On 18 February 1988 a note is recorded to Lees from Nick Pucar of UBA referring to objections to headed and gutted mackerel being cut into "steaks" by the Trio machine which Trawl was considering buying to head and gut mackerel. On 19 February 1988 Cumbeline sent a tender to the stakeholder advising that its tender value for all the issued capital of Trawl under the deed with Atasco and Trawl was $2,000,010. On 22 February 1987 Trawl's solicitors wrote to ANZ's solicitors seeking release of guarantees of Atasco and its directors if Cumbeline's tender was successful. On 23 February 1988 Idobook increased its facility to Trawl to $1.5 million. A letter of that date sets out the terms of the facility. The shares of Atasco were transferred to Cumbeline on 24 February 1988. On 25 February 1988 Horrobin compiled a document headed "Australian Fishing, Processing Freezing & Cold Store Company", giving a detailed description of the Geelong and Port Huon facilities and the company-owned vessels. Trawl's fishing plan for targeted species as stated in this document was to be 1,000 tonnes of skipjack tuna for H J Heinz Cannery; 4,000 tonnes of pilchards for pet food and bait; 1,000 tonnes of mackerel for pet food and human consumption; and 4 types of table fish, totalling 7,100 tonnes, making in all a total tonnage of 13,100 tonnes. There are set out some indicative prices for targeted fish species. For jack mackerel, the resale price to UBA is stated to have been in the last season about 68c kg in block frozen form. No contract had been issued at that stage for 1988. Reference is made to it being envisaged that a new investor would be brought in from among the ranks of the major international fishing companies to join the existing shareholders in Trawl. The document states that several major fishing companies had expressed interest and that the likely outcome would be the injection of substantial equity capital into Trawl to significantly reduce bank debt within the next six months or so. The following day Sands wrote to the Commonwealth Bank seeking a facility of $4.35 million. Sands stated that Trawl had been established to become a major exporter of large quantities of frozen table fish to export markets in the United States and elsewhere, and to supply fish in large volumes as raw material for pet food to UBA for use in their complex. He said that Trawl currently exported one 16 tonne container per week of table fish which was expected to increase to two containers per week, giving export sales of up to $8 million per annum. A similar letter was sent to the Bank of New Zealand. During February Trawl processed no fish for UBA and 93.240 tonnes for other parties. March 1988 On 3 March 1988 Lees sent a fax to Pridmore stating that UBA expected to require approximately 500 tonnes of headed and gutted jack mackerel from Trawl at an indicative price of 67c kg FOT Geelong. It then sets out what are described as "first cut" requirements for 1989-1993, building from 2,600 tonnes in 1989 to 3,700 tonnes by 1993 in increments of 300 tonnes. Lees states that assuming agreement on volumes could be achieved (he records that he had no reason to doubt this) it would be expected that Trawl would be the major supplier of these volumes and to this end UBA would be prepared to issue a 12 month rolling contract to secure its requirements. He goes on to add that the above tonnages were confidential and he requested them not to immediately gear their facility to handle the total volumes as they would be subject to change. Lees again faxed Horrobin and Pridmore on the same date in amplification of his previous fax. He stated that UBA would maintain a second supplier of headed and gutted mackerel as it was company policy but it should be made clear that the contracted tonnage from the second source would in no way jeopardise the proposed investment in heading and gutting equipment to be made by Trawl. He then sets out different expected tonnages to those in the earlier fax expressed to be subject to UBA requirements not falling short of current expectations (the risks being up, not down). The figures for 1988 were 500 tonnes, and for 1989 2,000 tonnes, rising by increments of 300 tonnes to 3,100 tonnes in 1993. He confirmed that UBA had expended significant sums in time and resources to ensure the success of the Trawl operation as a viable source. He stated that it was not in UBA's best interests either strategically or monetarily not to continue their support. He confirmed that it was becoming apparent that a viable management base had been established and that should ensure the success of the project.

The following day Lees referred to a draft long term contract for Trawl and mentioned Pridmore and Horrobin in the diary note of that date. On 8 March 1988 Horrobin sent a fax to Lees confirming that, relying on the assurances contained in his second fax, Trawl had taken the decision to acquire heading and gutting machinery of sufficient size and capacity to process the tonnages set out in the second fax. Horrobin stated that Trawl was moving as rapidly as it could to diversify into other products to spread its overhead load, but that this would take 2 or 3 years. He recorded that the establishment costs of Trawl were substantial because, with the active encouragement and support of UBA, Trawl had geared up to provide large volumes to it. He stated that "if you make it too tough for us and give us no profit and no security on which to plan our finances, you will simply drive us out of the industry". Horrobin went on to say that his dealings with Lees had always been based on mutual trust and Trawl had proceeded in all dealings with UBA in reliance on its repeated assurances that if Trawl was prepared to make the investment in equipment, vessels and facilities, Trawl could be absolutely assured of a profitable future as a long term supplier to UBA. Horrobin points out that at a suggested price of 67c kg for processed (ie headed and gutted) fish, Trawl did not anticipate doing much better than break even and could make a loss. This figure was said to be close to that received by Trawl in the last season from UBA for unprocessed jack mackerel. Sands sent a fax to Scanz Marketing Ltd on 11 March 1988 confirming the order for two Pisces heading and gutting systems for a price of US$26,000 per system. A 30% payment was to be sent on Monday 14 March 1988, by Idobook, which company was to establish a letter of credit for the balance of US$36,400 in favour of the vendor, expiring on 31 May 1988, payable upon commissioning of the equipment at Geelong satisfactory to Idobook. Lees was aware of this purchase by 15 March 1988. On 15 March 1988 Trawl and Pesch Holdings Pty Ltd ("Pesch") and Fasham entered into a deed whereby Pesch was engaged to endeavour to obtain the endorsement of the licence which the "Allied Star" needed to fish in the south-east trawl fishery zone. Pesch was to get a fixed fee of $12,500 and a success fee of $225,000. Pesch was not paid the $225,000. On 16 March 1988 Sands wrote to Oldfield giving an update on the company. On or about 23 March 1988 two separate representations are alleged, namely that UBA would give Trawl the profits and future certainty Trawl needed to satisfy its bankers and to repay its interest and pay off its loans within the period of the contract then under discussion and that UBA would give Trawl more than the standard 12 month contract and this would be a binding long term contract covering the period up to 1993. On 30 March 1988 Horrobin sent a fax to Lees with draft Heads of Agreement for the jack mackerel contract incorporating the various points said to have been discussed with UBA at Geelong that week. A copy of this document was also sent to Pridmore. The prices spelt out in this document were jack mackerel bodies in headed and gutted form 67c kg; jack mackerel heads 25c kg, and jack mackerel guts 25c kg. The draft stated that base prices should apply for calendar year 1988 and in the course of November 1988 and each subsequent November up to and including November 1992, Trawl and UBA should confer and establish applicable prices for the immediately following calendar year, using the following formula: "Price to UBA = cost to TIA (meaning Trawl) + percentage profit margin." This formula was the subject of the proceedings before Cole J in July/August 1989. It was proposed in this draft that the prices agreed on each occasion should be inserted in the schedule to the Heads of Agreement. There was also provision in the draft Heads of Agreement for future quantity variations in the course of November 1988 and each succeeding November, to November 1992 for a meeting between Trawl and UBA to confer and establish applicable tonnages for the immediately following calendar year. During March 1988 Trawl processed 98.034 tonnes of pilchards for UBA and 129.161 tonnes of unidentified fish for other parties. April 1988 On 7 April 1988 Lees wrote to Gunn Gollin Ltd in New Zealand placing an order for headed and gutted mackerel for shipment on 18 April 1988. Oldfield of ANZ wrote to Sands on 8 April 1988 extending the overdraft limit until 30 June 1988 on two conditions and drawing attention to an excessive drawing of $135,000 on one of Trawl's accounts. By 29 April 1988, ANZ had commenced litigation against Cumbeline and Atasco in the Supreme Court of Victoria, seeking a declaration of entitlement to a scrip lien and Cumbeline had lodged a defence. During April Trawl processed 255.506 tonnes of pilchards for UBA and 14.158 tonnes of fish for others. During May Trawl processed about 164.245 tonnes of pilchards and 6.638 tonnes of mackerel for UBA, making a total of 170.883 tonnes for UBA. Exports by Trawl from 10 February to 7 March 1988 were of the value of $757,646. June 1988 On 7 June 1988 Trawl signed Heads of Agreement with UBA to replace the Heads of Agreement of 26 March 1987. This contained the pricing clause referred to above. During June Trawl processed 17.222 tonnes of pilchards and 188.874 tonnes of mackerel for UBA and 68 tonnes of fish for others. July 1988 On 6 July 1988 the dispute between ANZ, Cumbeline and Trawl was settled. Cumbeline abandoned its allegation that the scrip lien of ANZ was void. ANZ agreed to sell the shares the subject of that lien to Cumbeline for $10. There were mutual releases. On the same date a Deed of Acknowledgment between ANZ, Cumbeline, Trawl, Horrobin, Sands, Idobook and Pridmore ratified and confirmed Trawl's debt to ANZ and the guarantees given by Cumbeline, Horrobin, Sands and Pridmore to ANZ. Pridmore contested at a later stage that he was told by ANZ that his signature was only affixed for "office purposes" and would not be enforced against him.

On 22 July 1988 Idobook and Horrobin and his wife, gave a guarantee and indemnity to NMRB. During July 1988 the total supply by Trawl to UBA was 83.477 tonnes of mackerel. August 1988 - April 1989 In August 1988 Trawl processed 36.845 tonnes of mackerel for UBA. In September 1988 Trawl processed 129.707 tonnes of mackerel for UBA and 10.9 tonnes of fish for others. In October 1988 Trawl processed 96.145 tonnes of pilchards and 221.550 tonnes of mackerel and 4.015 tonnes of salmon for UBA, making a total of 321.71 tonnes for the month. In November 1988 Trawl processed 167.768 tonnes of pilchards and 154.669 tonnes of mackerel for UBA, making a total of about 323 tonnes of fish for UBA. In December 1988 Horrobin wrote to Tasman Boat Brokers regarding their efforts to find a buyer for the "Allied Star" at $1.25 million. In December 1988 Trawl processed 88.449 tonnes of pilchards for UBA and 23.937 tonnes of fish for others. On 11 January 1989 Pridmore wrote to the Marine Board of Hobart seeking a release from Trawl's obligations under the lease of the Port Huon facility. The Marine Board of Hobart agreed to release Trawl from the tenancy agreement relating to Port Huon on 22 February 1989. In January 1989 Trawl processed 22.9 tonnes of pilchards for UBA in total. On 23 February 1989 Pridmore wrote to solicitors in Hobart setting out the effect on Trawl of the unsatisfactory fit out of the "Marine Countess". He estimated Trawl's losses at $700,000. In February 1989 Trawl processed 51.164 tonnes of pilchards, 10.48 tonnes of mackerel and 5.657 tonnes of other fish for UBA. By 6 March 1989 it was apparent that substantial disagreement had arisen between Trawl and UBA in relation to the overheads which should be included in the price for jack mackerel. Horrobin threatened litigation if the dispute could not be resolved amicably. On 9 March 1989 Mr Sapp ("Sapp") of UBA wrote to Horrobin stating that the June 1988 contract remained in force and UBA was ready and able to accept fish pursuant to the contract for the 1989 season. He pointed out that costs in relation to vessels which had a minimal role in catching fish for UBA ought to be excluded from overhead calculations. On 13 March 1989 Horrobin faxed Sapp that he would accept a lump sum settlement from UBA of $5.6 million. On 16 March 1989 UBA asserted that the June 1988 contract remained in force and UBA was ready and willing to accept fish delivered pursuant to it. There was a price offered of 80c kg ex Geelong for headed and gutted mackerel, being higher than would be fixed under the June 1988 agreement. On 20 March 1989 Horrobin wrote to UBA seeking, as an interim arrangement, a whole fish price of approximately 78c kg for 4,750 tonnes of fish. On 23 March 1989 UBA faxed to Horrobin a letter requiring strict adherence to the Heads of Agreement of 7 June 1988. The fax offered a base price for the 1989 calendar year for supply of 3750 tonnes of jack mackerel at 76c kg for headed and gutted bodies, 25c kg for heads, and 25c kg for guts. On 31 March 1989 the solicitors for Trawl wrote to UBA asserting that a refusal to pay in accordance with the contract of 7 June 1988 would be regarded as repudiation by UBA which Trawl could accept and sue for damages.

In March 1989 Trawl processed 68.244 tonnes of pilchards, 11.796 tonnes of mackerel and 2.426 tonnes of salmon for UBA. On 17 April 1989 Trawl commenced an action in the Supreme Court of New South Wales against UBA on the basis that it had repudiated the Heads of Agreement. This was heard in July/August 1989. October 1989 On 26 October 1989, Cole J in the Supreme Court of New South Wales rejected the argument of Trawl as to the method of costing under the Heads of Agreement and rejected Trawl's claims that UBA had repudiated the contract. Credit Credit in this matter assumes a significant role because almost all of the representations alleged are specifically and categorically denied. There are four principal witnesses whose credit is squarely in issue, and I propose to comment on each of them in turn. I should add that my final conclusion is that having regard to the seven to eight year period that has elapsed between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time. Due to the detailed cross-examination of each of the major witnesses over many days, I had the opportunity to observe and appraise the reliability of their evidence. Horrobin I will not repeat his background but suffice to say that he had substantial commercial and legal training and very wide experience and that he impresses as a very intelligent and capable man both in his role as a businessman and lawyer. His evidence showed that he had a very thorough grasp of most of the documentary material in the case. No doubt this was as the result of the great financial importance of the case to him and to the fact that he had been working on the preparation of the case with Sands for many months. The way in which his evidence was given indicated that he was arguing his case, rather than recalling facts or answering questions directly. An examination of his evidence discloses throughout a non-responsiveness to questions coupled with an emphasis on points perceived to be in his favour. This commonly occurs when parties to litigation give evidence in which they have, of course, a high degree of personal involvement. What was unusual in this case, was the persistence of this approach over 13 days in the witness box. Whenever the opportunity arose, he argued the case rather than giving evidence. He consistently and repeatedly volunteered evidence and advanced propositions as to special relationships with UBA beyond the normal buyer-supplier nexus. He advanced material about costs being fixed by reference to a pre-existing procedure and arrangements which were part-performed. In one instance, he outlined six matters to support an assertion of falsity in the letter from Lees of 11 September 1987 and concluded by saying: "There are a series of other atrocities which I haven't mentioned." When pressed he could not recollect the "other atrocities". He spoke in terms of matters "central" to Cumbeline's investment in Trawl on 30 March 1987. On numerous occasions he was confronted with documents where he refused to admit the plain meaning of his statements made in the documents or attempted to talk around them. For instance, when questioned about his letter to J Wilson of 4 September 1987, in which he spoke of accounting methods as designed to deceive, he said they were remarks made "in anger" and were over-statements, exaggerated or inaccurate. By this, he clearly intended to attempt to escape from the inaccuracies he was prepared to assert in writing. Another instance of inaccuracy, was when he wrote to the Premier of Tasmania on 23 April 1987, and asserted: "Trawl has now received several firm offers for supply of the product to major export markets, in various forms..." He admitted that might have been "slightly" exaggerated. There was no evidence of any firm offer at this time. He previously made other admissions of exaggeration or "possible" over-statements. He consistently asserted that everything Trawl did was somehow related to UBA, notwithstanding that in the Sands' budget of August 1987, $7.5 million of revenue was to come from table fish and exports and only one-third from UBA. He also asserted in these proceedings that Lees had said to him words to the effect that each year prior to commencement of the Tasmanian mackerel season, the parties would meet to establish Trawl's costs by checking Trawl's records, deducting contributions from sources other than mackerel and adding the profit margin.

That such an assurance was given is highly unlikely and improbable from a commercial view point. It is even more unlikely to have been given by a reticent, hard-bargaining fish buyer such as Lees. It is also most improbable that given Trawl's past record by 1988 that UBA would ever agree to indemnify all Trawl's costs, however incurred, in relation to all products and guarantee a profit margin on top of that. Commercially, this does not make sense. I do not believe that a statement to the above effect was ever made by Lees or on behalf of UBA in this regard. I respectfully come to the same conclusion as that of Cole J in the New South Wales Supreme Court, when faced with substantially the same proposition. His Honour did not accept this part of the testimony by Horrobin and nor do I. It is in my view inherently unlikely that at the relatively brief unarranged encounter with Lees on 18 March 1987, Lees would have proffered the vital assurances attributed to him by the applicants "off the cuff", as it were, in a 15 to 30 minute talk. The conversations testified to by Horrobin in many instances refer to assurances and reliance which if accepted would in terms make out the essential ingredients of a cause of action. In a number of instances I consider that his memory has been coloured as a result of the extensive litigation in which he has become embroiled. It is also highly improbable that an astute lawyer-businessman in Horrobin's situation would place any reliance on the remarks of a fish buyer from UBA, no matter how senior, as to the effect of a legal document. This is especially so when Pridmore had expressly raised that the draft Heads of Agreement were not satisfactory and also in circumstances where the document was available to the applicants for several days for scrutiny before entry into the shareholders' agreement on 30 March 1987. No satisfactory explanation was ever proffered as to why there were no records or notes made to evidence the vital assurances given by Lees. I had ample opportunity to observe the demeanour of Lees during the five days he was cross-examined. He was inclined much more to reticence than to the extravagant assurances attributed to him. He displayed a marked lack of frankness. He was evasive and reluctant to answer the questions put in cross-examination. He was, in my opinion, the type of person who is far more likely not to make such assertions as had been attributed to him, rather than to volunteer them. His whole background, approach and experience was that of a self-educated, hard-nosed raw materials buyer, trying to get the best deal possible for his employer, by securing materials at the lowest possible price. He was unlikely to have proffered any critical guarantees or undertakings to two relative strangers. In my view, the giving of such assurances would be completely out of character for him, especially for him to assert that UBA would in effect, guarantee the costs of Trawl, and that there would always be for the indefinite future, a profit. Nor is he likely to have given assurances as to sole sourcing, even leaving aside the inferences to be drawn from the variations made to the 26 March 1987 Heads of Agreement. The more likely version is that he simply would have said very little and endeavoured to give nothing away, playing his cards close to his chest. Credit of Pridmore I found the evidence given by Pridmore most unsatisfactory. He was the main investigator into the investment and was a man of substantial commercial experience and was perceived to be such by the other individual applicants. This view is strengthened by the fact that Horrobin and Sands, two astute businessmen, entrusted him through his company, Cerberus, to seek out and investigate investment opportunities. Again, he made no note or record of any of the oral representations allegedly made either to him, or in his presence, prior to the investment on 30 March 1987, yet he expressly sought and obtained written assurance from Fasham as set out in Fasham's letter of 26 March 1987. There was no complaint of the falsity of any of Lees' representations allegedly made on 18 March 1987, prior to April 1989. Pridmore, of course has a strong financial interest in the present proceedings. If his guarantee is enforced he will be made bankrupt. Pridmore believed by July 1989 that the lack of profits was due to problems with the plant and yet there was no complaint about any oral or other assurance at this time. Assuming the accuracy of the applicants' evidence, the applicants had by November 1987, become aware of the falsity of most of the representations allegedly made by UBA, yet no complaint was recorded by any of them. By 19 June 1987, Pridmore, when discussing the matter of defective fish quality in a memo to McBurnie, made no mention of Lees having given assurances that the plant was able to do the job. Instead, he expressed thanks to Lees and McBurnie for their "unfailing courtesy and helpfulness in attempting to find solutions to these teething problems." Yet, these very problems arose from the inadequacy of the plant according to the applicants. This must have been clear to Pridmore who was then actively involved on a regular basis on the plant site. He may not have wanted to "offend" UBA, but no doubt a restrained protest could easily have been made as to the alleged assurances. Not a word was said about this vital matter. Pridmore's response to questioning was also unsatisfactory. Throughout his five days in the witness box he repeatedly volunteered statements in order to press his position, rather than restricting himself to answering the particular questions asked. He reconstructed evidence where he could not recollect. There were a number of other matters which led to my reservations and extreme caution with respect to Pridmore's evidence. First, the matter of the executed guarantee of 12 June 1987 to ANZ which he alleges was signed by him "for clerical purposes only" and would not be enforced against him. He relied, he said, on assurances from an ANZ officer to this effect. He alleges that ANZ promised him a written assurance of his non-liability under the guarantee, and that he was told he would get one in a few days, but he did not receive such an assurance and despite the open-ended exposure on the face of the guarantee, he did not follow it up. He said he did not believe it would be called on. The ANZ manager's diary note of 23 April 1987 indicates that Pridmore accepted the necessity to give the guarantee, although reluctantly. It was made clear to him that ANZ required the unlimited personal guarantees of himself, Horrobin and Sands. In effect, his contention is that his signature to the guarantee, so far as he was concerned, was a hollow exercise, since it was to have no enforceable validity as regards him. He says he was promised a written assurance, and that he was told he would get one in a few days, yet he did not receive such an assurance. Furthermore, in July 1988 he signed a Deed of Acknowledgment with ANZ in which he expressly confirmed the efficacy of his original guarantee, and he agreed that this deed was required to secure further advances, but that he had not informed ANZ in writing of the alleged assurances by its officer. Also, in August 1990, he offered to transfer to ANZ assets worth $1 million. One wonders why this would have been done if he did not think there was any liability under the guarantee. One important further aspect of the guarantee evidence is that Pridmore said that he understood that in giving the alleged assurances to him, the ANZ officer was in breach of his duty to ANZ. However, the day following that evidence, upon reflection, he sought to qualify that position by saying that he may have been confused, and that he was mistaken. It is at least prima facie highly unlikely that a bank officer would give assurances against the clear interest of his employer by being party to a guarantee which would never be enforceable against a signatory. It is also quite likely that it would not have been in accordance with the ANZ guidelines to condone such undisclosed assurances. It must have been obvious to Pridmore, that the officer was in breach of his duty to ANZ. At one stage Pridmore stated that he had been told by the ANZ officer, Oldfield, that the guarantee was null and void because he had never been asked for a statement of assets and liabilities. It is an extraordinary assertion for Pridmore, an experienced businessman, to say he accepted such an alleged statement. A second important matter as to credit, is his assertion that the vessel, the "Marine Countess" could catch fish during 1987. The reality was that the "Marine Countess" when it arrived at Geelong on 6 August 1987, was defective in many respects, and its load was unfit for supply to UBA. On 21 September 1987 it failed survey and could not use the necessary nets. It had no skipper during the latter part of 1987. The third matter concerns Pridmore's assertion that no consideration was given to non-UBA supplies, such as sale of mackerel for human consumption. He agreed that by 23 April 1987, a firm decision was made to supply mackerel for human consumption. The budget to the shareholder's agreement of 30 March 1987, shows a substantially larger proposed catch of jack mackerel, namely 3,600 tonnes, than was required to satisfy UBA contract W17299. The importance of this matter is that if the sale of fish for human consumption was an important consideration in making the investment decision, it could be seen to reduce the applicants' reliance on the alleged UBA "sole supplier" contract, and indeed on the relationship with UBA. There was no market in Australia for jack mackerel, other than for UBA and the strong inference is that any excess mackerel was to be exported. A fourth matter is Pridmore's evidence as to what he would have done, had he learned of the supplies by Ocean Fresh to UBA. He says that if in late 1987 he had learned of this, he would have recommended breaking off dealings with UBA, and reverting to legal remedies. In the circumstances this seems highly improbable because the UBA Heads of Agreement of 26 March 1987 were clearly perceived to be an important asset for the purpose of selling the undertaking of Trawl. On 29 April 1988, Cumbeline wrote to ANZ stating that: "Our own relationship (ie that of Lake Cumbeline and its directors) with Uncle Ben's has always been extremely cordial and remains so." Fifth, Pridmore asserted that the June 1988 contract was in accordance with alleged representations by UBA as to pricing, namely the provision of a guarantee, in effect, of profit, regardless of whether the costs to be reimbursed were reasonably or necessarily or even desirably incurred. The applicants' assertion is that the price would be calculated by checking Trawl's records and deducting payments from sources other than mackerel and adding the profit margin. It is obvious that such a contract is commercially irrational and I have found that such a representation has not been made out for reasons given elsewhere in this decision. However, the assertion of such a contract by an astute businessman must necessarily reflect on his credit or sense of commercial reality. Sixth, Pridmore asserted that UBA had approved all expenditure incurred on vessels and plant with the consequence that it could be included in the fixing of a price. Nowhere is there any written request for approval or ratification of such expenditures by way of notification with reference to price calculation before 1988, when the heading and gutting machinery was purchased. When that equipment was bought there was an express reference to its purchase in the June 1988 Heads of Agreement. If, for example, the vessels had been bought at the request of UBA and were intended to be included in price calculations, there would also, one would expect, have been express reference in the recitals to the June 1988 Heads of Agreement. There was no such reference. Pridmore asserts that after 1 April 1987 Lees agreed to pay costs associated with the "Allied Star", which over 2 years produced no income. There was no note or record of this and it was denied by Lees. Again, this sounds a note of a warning against unqualified acceptance of Pridmore's evidence. Sands's Credit Again, Sands has a very strong financial interest in the outcome of these proceedings. He was in the witness box for over four days. To a large extent his answers were non-responsive and somewhat evasive. He was a not a party to the discussions with Lees in March 1987 and could give no direct evidence as to what was there said. He said that he understood the prices under the 26 March 1987 Heads of Agreement had to be determined on a cost plus basis notwithstanding there was no mention of cost plus pricing in the agreement. He is experienced with regard to business consultancy work and particularly in accounting and finance. He had comprehensive experience in investment. His alleged understanding is quite contrary to what J Wilson is said to have told him on 9 March 1987, namely that costs had to be agreed with UBA. This indicates the necessity for negotiation on cost. If there had been a formula to resolve such a critical question as pricing, then one would have expected it to have been clearly set out in detail in the agreement as occurred with the June 1988 Heads of Agreement when there was a cost plus formula provided. Again, Sands stated that W17299 was only a 6 month contract, although it provides for delivery over an 11 month period with prices fixed for that time. If this was for six months there would be no need for the price negotiations which took place in relation to W17402 in June-July 1987. Another unsatisfactory aspect of Sand's evidence relates to the 12 June 1987 guarantee. He swore that he would not have signed it if he had been aware that Pridmore's execution of the guarantee did not bind him and it was for "clerical purposes only". However, when giving evidence, he stated that: "... if I had known that Mr Pridmore was executing a guarantee for clerical purposes, as long as everyone knew the situation I would probably still have signed the guarantee with the ANZ Bank..." He went on to confirm that he thinks he would have signed the guarantee. This evidence tends to show that Sand's defence to proceedings on his personal guarantee relying on the alleged non-disclosure by Pridmore was false.

When asked in the witness box whether he would have signed the guarantee if he had been made aware of the alleged assurances given to Pridmore, he said he would need to discuss that matter with Horrobin. This was a curious answer. The answer is ambiguous but to some extent it supports the argument by UBA that Horrobin was the directing force and mind in the Trawl litigation. I gained the firm impression from the way in which Sands gave his evidence that he was to a large extent very conscious of the case being put forward by the applicants and strove to support that case, rather than attempting to carefully and accurately recall events and discussions which had taken place, and to give the Court the benefit of his best recollection. Sands would not agree that Pridmore had misled him by failing to tell him the basis on which Pridmore had signed the guarantee. This is hard to accept in view of other evidence by him, that Pridmore should have told him before execution of the guarantee, that Pridmore's guarantee was not binding on him. Moreover, Sands swore that he first became aware of the bank's assurances around June 1992, whereas Pridmore testified that he probably told Sands and Horrobin of the assurances before July 1988, almost 4 years earlier. This contradiction in evidence between the applicants calls for considerable caution in accepting their versions of oral statements made up to 7 years earlier. Lees Lees also proved to be an unsatisfactory witness, and his evidence must be examined with extreme caution and carefully considered against the established facts and events, together with the contemporary documentation. His testimony, both in this Court and the Supreme Court proceedings before Cole J, was confused and riddled with inconsistencies and contradictions. He admitted that he was prepared to tell half-truths if necessary. To this extent he could be said to have been disarmingly frank about his lack of frankness and honesty. No doubt it was with an acute appreciation of these difficulties that in the written submissions UBA structured its case basically on the documentary material and the surrounding circumstances having regard to an inherent commercial probability. In his favour, it must be pointed out that Lees did not have the formal education of the applicants but he was entrusted with wide discretions in relation to purchasing raw materials up to tens of millions of dollars and there is no substance in an argument fairly advanced that he in any way lacked authority to make representations on behalf of UBA of the type under consideration in this case. It was suggested that his views were not always those of UBA, but as far as the alleged representations are concerned I have no doubt that they were made with full authority and in the course of his employment. He does not have any apparent financial interest in the outcome of the proceedings and he no longer works for UBA. He obviously and understandably took a strong stance in negotiations. He was frank about his view of the 26 March 1987 Heads of Agreement and the lack of any binding effect of that document, and other similar documents. He did, when pressed, make concessions, or admit fairly obvious matters, but was extremely reluctant to do so. Again, as in the case of the three individual applicants, I do not accept Lees' uncorroborated oral evidence of conversations or representations made up to 7 years ago, unless otherwise admitted. I prefer to rely on the documentation and objective circumstances and behaviour as disclosed in the evidence. Litigious History The present litigation before me forms part of a complex web of inter-related proceedings arising from the Trawl investment which it is useful to outline since these earlier proceedings do bear on matters such as credit and damages in the present proceedings. 1987-1988 Since the events of February/March 1987, there has been a series of proceedings instituted in relation to the contractual arrangements between the applicants and respondent and also between ANZ and the applicants on personal guarantees. On 24 February 1988, ANZ commenced an action in the Supreme Court of Victoria against Cumbeline, seeking a declaration that it had a valid lien on Atasco shares in Trawl. Cumbeline counter-claimed and alleged that ANZ had misrepresented certain matters to it. Those matters included representations that: (a) To ANZ's knowledge, information and belief Atasco's financial condition was sound and that it enjoyed a good relationship with ANZ and that it was in a position to bear its one half share of any guarantees that might be required to support Trawl's indebtedness to ANZ. (b) ANZ approved the March 1987 shareholders' agreement including a term that Atasco would not charge its shares in Trawl without the prior written consent of all shareholders which consent should not be unreasonably withheld. (c) That in the event of the March 1987 shareholders' agreement being executed ANZ did not intend to take a charge over the shares in Trawl held by Atasco. It is then stated that in reliance on those representations and induced thereby Cumbeline entered into and became bound by the March 1987 shareholders' agreement and subscribed for shares and injected substantial funds into Trawl. There is then an allegation that the representations were false and untrue in that ANZ knew that Atasco's financial condition was not sound and it did not enjoy a good relationship with ANZ and that Atasco was not in a position to bear its one half share of any guarantees or securities and that in the event of the March 1987 shareholders' agreement being executed by Cumbeline, ANZ intended to take a lien or charge over shares in Trawl held by Atasco. There is then an allegation of negligence, misleading conduct under s 52 of the TPA, together with unconscionable conduct under s 52A of the TPA. On the basis of the above claim by Cumbeline it was asserted that Cumbeline was entitled to orders declaring that the scrip lien claimed by ANZ was void. This litigation was settled on 6 July 1988, when Cumbeline and Horrobin, Sands and Pridmore, entered into a Deed of Acknowledgment to the effect that the guarantees given by them were binding and effective, and by entering into a fresh guarantee to secure a further advance from ANZ. Those parties later argued that the guarantees were void due to alleged representations made by ANZ to Pridmore. Proceedings before Cole J - July-August 1989 Proceedings were instituted by Trawl against UBA on 17 April 1989, in the Supreme Court of New South Wales. The applicants in the present proceedings were not parties in these proceedings. They were heard by Cole J. As originally constituted these proceedings made no reference to any misrepresentation but were simply an action for breach of the Heads of Agreement of 7 June 1988, particularly relating to the cost plus provision of that contract. The pleadings simply alleged a breach of contract by UBA. This claim was expanded on 24 May 1989 to raise a representation that the price payable under the 6 June 1988 contract was one under which mackerel price was required to be one which provided a reasonable commercial profit to the plaintiff. There was no reference to any other representation. On 14 June 1989, points of claim were filed and again the claim was expanded to include an allegation based on misrepresentation. This representation was stated to be that the price was to be determined by establishing the plaintiff's total costs by checking the company's records, deducting contributions from sources other than jack mackerel and adding a profit margin sufficient to provide the plaintiff with a reasonable commercial profit. This is the first reference to the claim under s 52 of the TPA, more than two years after the representations were said to have been made. Later on 30 July and 2 August 1989 the Trade Practices allegations were again expanded. This time they raised for the first time, the misrepresentations relating to the 18 March 1987 discussion, the representations in June 1987 and from late February to early March 1988. The matter came on for hearing before Cole J on 31 July 1989. By consent on 8 August 1989 his Honour ordered that other claims including the s 52 claim should be heard separately. He dealt with questions concerning the interpretation of the 7 June 1988 Heads of Agreement and whether either party had repudiated that agreement. He also dealt with a question raised by UBA as to uncertainty arising from the price clause. He decided that the Heads of Agreement were not uncertain and that Trawl had repudiated that agreement. An appeal to the Court of Appeal of New South Wales was unanimously dismissed in March 1992. See Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd Trading as "Uncle Bens of Australia" (1992) 27 NSWLR 326. The evidence of Horrobin relating to the oral representation to the effect that the total cost to Trawl would be established by looking at the records of Trawl and adding a profit margin was not accepted by Cole J. In coming to that conclusion his Honour referred to the absence of any note by either Pridmore or Horrobin and to "material discrepancies" in the evidence of Horrobin and referred to "previous pricing practices". He referred to a number of other considerations particularly the absence of any sound commercial basis, in the case advanced by Trawl, on this point. His Honour also noted that the recollection of Lees was "imprecise". Other Proceedings By action commenced on 24 April 1992 ANZ sued Sands, Pridmore, Horrobin and Cumbeline in the Supreme Court of Victoria on the personal guarantees. Pridmore filed a defence that his guarantee was given on an assurance from ANZ's officers that it was to be for clerical purposes only, and would not or could not, be enforced against him personally. Sands, Horrobin and Cumbeline amended their defences by defence dated 18 August 1992, and relied on the non-disclosure of the assurances given to Pridmore as a basis for claiming invalidity of the guarantees as against them. They relied on s 52 of the TPA. On 12 May 1994 ANZ commenced action in the Supreme Court of New South Wales for possession of the homes of Horrobin and Sands, under the mortgage to NMRB, whose assets had passed by that time to ANZ. The action was based on guarantees given to secure a loan to Idobook, which was a company in which Sands held a major interest. The defence relies on a cross-claim which is verified by Horrobin and Sands. It asserts a range of misrepresentations by ANZ relating to the "clerical purposes" assurances allegedly given to Pridmore by ANZ. It also asserts that ANZ engaged in misleading conduct under s 52 of the TPA. It must be noted that the claims of Horrobin, Sands, Pridmore and Cumbeline in these proceedings before me, claim amounts which they assert are due by Trawl to ANZ under guarantees to that bank, whereas they have already denied on oath in the defences and counter-claims raised against the banks that any such debts exist. Neither the 1992, nor the 1994 proceedings in relation to the guarantees has yet been heard. In the light of these previous proceedings counsel for UBA sought to highlight the large number of misrepresentations alleged by the applicants not only in the present proceedings, but also in the other proceedings referred to above. It was suggested in cross-examination that the applicants appeared to have been the subject of an exceptional number of misrepresentations by a variety of bodies, including UBA and ANZ, and the Atasco directors, J Wilson and Fasham. The submission was also made that the applicants had more than a passing acquaintance with the law of misrepresentation and were using it in effect as "a tool of trade", in the course of this extensive web of litigation. I think there is substance in these submissions. Attention was also drawn by UBA in address to the gradual way in which the misrepresentations alleged against UBA emerged in stages as the result of amendments to the pleadings and to the fact that they were not raised at all initially. The initial case in 1989 was of course founded on breach of contract. The suggestion was that the misrepresentation claims were an afterthought and had not in most instances been the subject of any complaint to UBA before July 1989, when the first claim, apart from the cost plus allegations, was made for misrepresentation. Legal Principles The relevant legal principles and guidelines for consideration of the present matter are set out below: Section 52 (a) The section is cast in wide terms. It provides a norm of conduct. It does not in itself create liability but where the norm is contravened it may give rise to a wide range of remedies including damages or injunctive relief as set out in Part VI of the TPA (sections 75B - 87C inclusive). The ordinary meaning of the words of the section must be applied without preconception as to any limitations on the words. Some guidance can be obtained from the common law. See Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 at 348-349 (b) The section being remedial in nature should be given a broad interpretation. (c) Whether conduct is misleading or deceptive is a question of fact to be determined in the context of each particular case as considered at the time when the conduct occurred. See Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 at 36. (d) It is not necessary that the conduct or misrepresentation was intended to deceive or mislead. It is immaterial that the respondent did not know that the representation was false when made. The essential facts to be established include the making of the representation and the falsity of the representation: Yorke v Lucas (1985) 158 CLR 661 at 675-6. (e) The Court must take into account the relative experience and positions of the parties such as their familiarity with the subject matter and their experience and knowledge. The common understanding of commercial people must be taken into account in determining what is likely to mislead or deceive but the section does not require arm's length negotiations to be completely open or require full disclosure in every situation. The particular facts must be considered in the light of the ordinary incidents and character of commercial behaviour: General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 177-178. The pertinent question must be whether any member of the class of persons affected by the conduct, excluding only the quite unusually stupid or those with quite unusually great expectations of disclosure, would have expected that the information in question would be disclosed. If the class of persons affected are "commercial people", then the conduct must be assessed by reference to the expectations of all such people, and not by reference to the expectations of a reasonable member of that class. (f) Silence may constitute misleading or deceptive conduct where the circumstances give rise to a reasonable expectation that a particular matter or fact would be disclosed. However, the section does not impose any new general statutory duty to disclose. The question for the Court is simply whether the silence would as a matter of fact be misleading or deceptive in the particular circumstances of the case. See Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 per Black CJ. See also, Andrew Robertson, "The Circumstances in Which Silence can Constitute Misleading or Deceptive Conduct" (1991) Queensland Law Society Journal (February 1991) 21. (g) A true statement or a half truth can be misleading or deceptive where it is coupled with silence: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 227-228. (h) Where parties in a commercial situation negotiate at arm's length there is not necessarily an obligation to disclose information which might cause the other party to adopt a different negotiating position or tactic. This would normally only follow if there was a duty to make full disclosure. Such a duty could arise from a particular feature of the relationship, for example, a fiduciary relationship, or because there was a duty to correct earlier information: Lam v Ausintel Investments Australia Pty Ltd (1990) 12 ATPR 50,866 at 50,880 per Gleeson CJ. Section 52 does not strike at the "traditional secretiveness and obliquity of the bargaining process." Bargaining may be hard without being misleading or deceptive in the statutory sense: Poseidon (supra) at 26. (i) Not all information need be disclosed. However, the process of bargaining is not a licence to deceive: Poseidon (supra) at 26. See also Warren Pengilley, "But You Can't do That Any More!" - The Effect of Section 52 on Common Negotiating Techniques, (September 1993) 1 TPLJ 113. (j) A warranty in a contract may amount to a representation for the purposes of s 52. Insofar as it relates to a future state of affairs it will be necessary to see whether there were reasonable grounds for making it under s 51A. It is no objection to relief under Part VI that the misleading conduct is found in the making of a contractual provision and the complainant does not have contractual privity with the defendant: Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470. As to the relationship between s 52 and the law of contract see D J Harland "The Statutory Prohibition of Misleading or Deceptive Conduct in Australia and its Impact on the Law of Contract" (1995) 111 LQR 100. (k) Where an act is carried out for reasons completely independent of any misleading conduct, and there is no reliance on that conduct, there is no remedy under s 82. See Lam v Ausintel (supra) at 50,881, where the finding was that the applicant entered into an agreement not because of reliance on representations but on the basis of his own view as to his commercial interests. (l) Where a material representation is made, which is calculated to induce a representee to enter into a contract, and the contract is in fact entered into, then there is an inference of fact that reliance was placed on the representation. This inference can be displaced by showing there was no reliance because, for example, the representee knew the true facts: Gould v Vaggelas (1985) 157 CLR 215 at 236-7; Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229 at 233-235. See also Warren Pengilley, "Causation and Reliance in Misleading and Deceptive Conduct Law" (1994) 2 Competition & Consumer Law Journal 134. (m) Failure by an applicant to verify representations or to take adequate measures to check them as a result of which the falsity of the conduct or representation is not unveiled does not prevent recovery for breach of s 52. See Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 558-559; J D Heydon "The Relevance of the Victim's Level of Care in Misleading and Deceptive Conduct Actions" (1995) 2 Competition & Consumer Law Journal 230. (n) There is no general duty as between parties negotiating a contract at arm's length in a commercial negotiation to disclose or explain the interpretation or effect of the contract by either party. Thus, silence concerning a view of the proper interpretation of a contract, or silence on the subject of whether a contract will be enforced, would rarely, if ever, constitute misleading or deceptive conduct. Otherwise, the basis of objective interpretation of contracts, referred to by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352, would be destroyed. See Halton Pty Ltd v Stewart Bros Drilling Contractors Pty Ltd (1992) 14 ATPR 40, 146 at 40, 152-153 per Palmer AJ; Mander Forklift Pty Ltd v Dairy Farmers Co-operative (1990) 12 ATPR 53,227 at 53,228. (o) Finally, it appears from the authorities that, unlike positive conduct, silence must be deliberate in order to breach s 52, pursuant to s 4(2) of the TPA. See Lawson v Ampol Ltd (1993) ATPR 41-204 at 40, 864. The Heads of Agreement (p) Arrangements embodied in a document with a title such as "Heads of Agreement" can give rise to binding legal obligations. It is a question of considering the language used in the context of the surrounding factual matrix and deciding whether the parties intended to be legally bound thereby and whether the terms are sufficiently certain to be enforceable. The title "Heads of Agreement" does not of itself necessarily mean that the document is merely a preliminary outline of a proposed contract to be drawn up at a later stage which is not intended to be binding or which is too uncertain. Language used may disclose an intention by both parties to be immediately bound to a specific obligation or set of obligations which is enforceable. See Hooper v Commonwealth of Australia (unreported, Sup Ct, New South Wales, Comm Div, Gleeson CJ - 16 Nov 1990). (q) Heads of Agreement may be in the form of a contract to negotiate a contemplated agreement in good faith. In some, such an arrangement may be enforceable and give rise to a cause of action for breach. Breach of such a promise may, for example, found a damages claim but the damages may be nominal only, depending on the circumstances. See Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 per Kirby P at 25-26. Waddell AJA agreed "generally" with the reasons of Kirby P. Handley JA dissented on the ground that the content of the promise to negotiate in good faith was uncertain and that the promise itself was illusory and was not therefore enforceable. The trial judge in Coal Cliff Collieries, Clarke J, took the view that the promise to negotiate both would, and did, give rise to a binding obligation to negotiate. In my opinion the preferable view is that an obligation to negotiate in good faith on matters such as price, supply, quantity and timing, confers an entitlement to bring a party to the negotiating table and such a right could give a commercial advantage. If the parties have agreed to follow such a procedure I think the promise should be given effect to by the Court unless the circumstances say it is pointless to do so, as where there is clearly no prospect of any agreement being reached. I do not consider such a right empty, meaningless or illusory. The question, in each case, must depend on the circumstances, and the effect of such a promise is very much an open question on which informed legal opinion can and has, over the years, quite reasonably differed. The Representations The applicants' further amended statement of claim ("FASC") propounds twenty four representations. Representations (i)-(iv) - 16 March 1987 - W17299 The first four alleged misrepresentations are as follows: (i) That UBA had entered into a binding contract with Trawl for the supply by Trawl to UBA of 6,250 tonnes of fish in 1987, subject to the terms and conditions of that contract ("the first representation"). (FASC, para 3(a), 4A). (ii) That UBA intended to honour its obligations under that contract ("the second representation"). (FASC, para 3(b), 4A). (iii) That the contract was a genuine contract intended to be fulfilled by the parties to it ("the third representation"). (FASC, para 3(c), 4A). (iv) That Trawl presently had and/or would have the ability and capacity to supply 6,250 tonnes of fish in accordance with the terms and conditions of the contract ("the fourth representation"). (FASC, para 3(d).

These four representations are said to be in writing or alternatively partly in writing and partly to be inferred from conduct. The writing in question is the contract dated 11 February 1987, No. W17299. The conduct relied on is that UBA knew that the then shareholders of Trawl were going to show the contract to potential investors to induce such persons to invest in Trawl and that UBA ought to have known that those potential investors had little or no knowledge of Trawl, its ability or capacity to fulfil the contract, or of the discussions and relationship between Trawl and UBA. The representations (i)-(iii) inclusive are said to have been made fraudulently. The Applicants' Knowledge of W17299 The evidence is that W17299 was received by Trawl on 26 February 1987. Pridmore received a copy after 11 February 1987 and a copy was sent to Sands on about 16 March 1987. Horrobin was given a copy shortly before, or on 18 March 1987 when the discussion with Lees took place at Geelong. Horrobin was told about W17299 on 9 March 1987 by Fasham but did not ask to see it. There was no discussion of the document at the meeting of 18 March 1987 although the draft Heads of Agreement was referred to. This failure to refer to W17299 at this meeting is odd since the document was at that time the major supply contract for 1987 issued to Trawl and was for 6,250 tonnes of fish, an extremely large order worth over $4.04 million. All the individual applicants were therefore clearly aware of W17299 and its terms before they entered into the shareholders' agreement of 30 March 1987 for the acquisition of the 50% interest in Trawl through Cumbeline. Representations (i)-(iii) - 16 March 1987

• W17299 was a Genuine and Binding Contract The evidence of Lees, which I accept on this point, was that although he did not consider the Heads of Agreement imposed binding obligations, he regarded the "W" and "A" contracts as binding obligations on UBA. Accordingly, in my view it is more likely than not that he regarded W17299 as a genuine binding contract. The commitment on the part of UBA to take up to 6,250 tonnes of fish was honoured by UBA. In the three months after February 1987, UBA accepted and paid for all the fish which Trawl was able to supply. During the months of March, April and May 1987, Trawl supplied and UBA accepted under W17299, fish to a total value of $1.836 million. The above evidence, in my view, supports the conclusion that UBA regarded this contract as genuine and binding. There was never any suggestion from UBA that it was not prepared to take any of the fish contracted for under W17299 and which Trawl was able to supply at the prices and on the terms set out in that contract. Indeed, W17299 provides for the sale of approximately 2000 tonnes of jack mackerel over an 11 month period. In fact UBA accepted 2,287,641 tonnes of jack mackerel over a 3 month period. There was never any complaint by Trawl that UBA was not honouring its commitments to take fish or that W17299 was not a binding contract on UBA to take any fish which Trawl could supply under that contract. The complaint made by Trawl was rather that UBA was not taking its fish out fast enough from the cold store at Geelong to enable Trawl to fulfil its contract and not that UBA was not prepared to take the fish. In the months up to the end of May 1987, UBA had accepted about 45% of the total order scheduled in that contract to be taken by UBA over the 11 month period from January to the end of December 1987 which represents periods P2-P13 as provided for in W17299. Trawl was unable to supply because it was not getting deliveries of pilchards from the suppliers and the fish were not being taken out of the cold store quickly enough, because the store could not cope with the rate at which the fish were being processed. In other words, the inability stemmed not from the capacity or inability of the plant to process the fish, but rather from the failure of supply together with the failure of UBA to take out the fish promptly after processing. There was a contest as to whether W17299 when construed in the light of the 26 March 1987 Heads of Agreement required the fish to be supplied over a 6 month or an 11 month period. For the purposes of this representation it does not matter which view is taken. Even considered as a 6 months supply period the plant showed an ability to process the volumes of fish of the order contracted for over the period. The substance of the applicants' submission is that W17299 was a "sham" which came into existence simply to attract potential investors so that the difficult financial position of Trawl could be improved with consequent benefit to UBA in having a stable and reliable source of supply in Trawl. It is said that UBA could have had no reasonable basis, in view of Trawl's past performance, to expect that it would supply such quantities of fish. If Lees had entered into a binding contract for 6,250 tonnes with the firm expectation that Trawl would not be able to supply the quantities contracted for, it was a dangerous and extraordinary "tactic" on the part of Lees, because there was a significant danger that he would have to answer to his senior executives if the contract resulted in over-commitment or Trawl was not able to supply. Moreover, there was the added danger that the tactic would not work because Lees must have anticipated some inquiry by the applicants or other interested parties as to the past performance record of Trawl. The submission by the applicants is that W17299 was issued to attract potential investors, to commit funds to Trawl and that it was a representation by UBA to the applicants and to other potential investors, that Trawl would be able to satisfy its requirements, which was false, but that it was never intended by UBA to be a binding agreement. In my view it was a binding, legally enforceable contractual commitment on the part of UBA. Inability of Trawl to Supply or Process It is important to note that the allegations as to misrepresentation by silence in respect of the perceived incapacity of Trawl to supply the quantity contracted for are not alleged to be fraudulent. It is hard to understand this in the circumstances of this case because the basic submission is that UBA actively and intentionally participated in a "sham" transaction. This necessarily involves an element of subjective knowledge and deceit in order to construct a form of legal transaction which appears to be what it is not. Reduced to essentials, the submission of the applicants is that the issue by UBA of contract W17299, with the knowledge that it would be handed to ascertained investors in circumstances where UBA, through its officers, must have had strong doubts about Trawl's ability to perform, or even a firm belief that Trawl would not in fact be able to perform, amounts to a misrepresentation to those prospective investors to the effect Trawl would have the capacity and the ability to supply 6,250 tonnes of fish contracted to the specifications of UBA. I do not accept this submission for the reasons set out below: (a) The representation is not said to come from anything stated to any of the applicants by UBA. It must be derived from the contract itself and silence on the part of UBA in the context of the circumstances in which it was signed and issued. Contract W17299 was made with Trawl, not the applicants. (b) The contract speaks for itself and has its own operation and legal effect. The only representation by UBA in issuing the order made is that the contract exists in the form in which it has been executed and issued with the legal effect it has on its face. (c) The act of issuing the document, even if the beliefs and knowledge suggested were held, is not a representation in itself.

(d) The belief or understanding of UBA that investors would or might rely on the contract does not of itself make the contract a representation. (e) It was not realistic or reasonable to expect UBA to express any belief it had as to the inability of Trawl to perform before 18 March 1987 or after that date and before 30 March 1987. Such an expression of opinion could have involved UBA in litigation with Trawl if the investment did not proceed. (f) The surrounding circumstances, prior history and context, did not give rise to a duty in UBA to make known its doubts to the applicants. Even assuming the duty was to disclose to all potential investors all the suggested doubts, fears and apprehensions of UBA, there are practical difficulties which demonstrate the unreality of expecting such a statement to be made. This submission raises the following questions which illustrate the unreality of such a requirement and the uncertainty of its extent. Should there have been a warning in the contract or to the world at large that the buyer doubted the ability of the supplier to perform? Should it have published to the applicants or all potential investors a history of past failures by Trawl to supply contractual amounts? Should UBA have ascertained who the prospective/investors lenders were, and informed them of the position? What if it failed to contact one or more? Should it for example, have contacted ANZ which funded the transaction and warned it that the contract it had signed and issued was suspect in the light of Trawl's past failures? (g) It has not been demonstrated that it is likely UBA was convinced that Trawl did not in fact have the ability and capacity to supply and process the 6,250 tonnes or would not do so. The weight of the evidence is to the contrary. (h) It would generally be unreasonable, except possibly in cases of fraud or sham transactions, which do not represent the present situation, that a buyer of goods signing a contract to buy is taken to thereby represent to third parties such as potential investors or lenders, that the supplier has the capacity and ability to supply, with the consequence that it could be sued for misrepresentation by the third party if the seller fails. (i) Entry into a supply contract for raw materials with a manufacturer may be presented to investors or lenders to assist in the raising of finance. This does not give rise to a duty in the manufacturer-buyer for example, to investigate, for the benefit of the potential investors, the resources and capacity of the supplier or give rise to a duty in the buyer to contact, discuss with and enlighten the investor as to its doubts, if any, about the supplier. It would not be reasonable to expect it to investigate the resources and capacity of the supplier for the benefit of other parties. Furthermore, it is not possible to limit the point at which the category of potential investor or lender cuts out. For example, in the present case the immediate investor was Cumbeline. Additional liabilities were incurred by Horrobin, Sands and their companies. ANZ was responsible for funding. One must ask whether the duty alleged extends to all the investors or lenders and how far that liability extended? These are matters which tell against the suggestion that such a duty exists. (j) This is particularly so in an industry such as the fishing industry where supply depends on the ability to catch fish. It has been said many times in the hearing by the respondent, that "fish are not caught by appointment". The ability of the processor to procure the fish for supply to the manufacturer is a matter over which the processor can have no control because it will vary according to the ability of its suppliers, the fishermen to catch the fish in appropriate amounts at proper times, and of a particular quality and depends upon the other vagaries of the fishing industry. This situation is not unique. It arises in many other areas. As at 16 March 1987, the evidence was that the PGA owned the cold store and the plant and facilities. The facts were that the blast freezers were capable of freezing up to 50 tonnes in 15 hours according to the refrigeration engineers, and that the cold store could hold up to 2,000 tonnes. There was at that time an operational limitation imposed by PGA that the plant would only operate 9 days per fortnight. This limitation was not anticipated to apply if, as contemplated, Trawl bought the complex. The removal of this limitation would clearly enhance the capacity to process greater volumes. UBA points out that an obligation to process 6,250 tonnes of fish over a 48 week period, assuming the 9 day limitation period, would only require a capacity of 29 tonnes per day. Averages, of course are only a rough guide. However, this calculation does lend support to the proposition that there were grounds on which to believe the plant had the processing capacity to meet the contract, even if W17299, contrary to my view, were to be read as spreading the obligation to deliver the fish over only a 6 month period. Even with the 9 day limitation the plant could almost achieve the contract requirements over a 26 week supply period. But W17299 contemplates supply over the periods P2-P13, a period of 48 weeks. There are no reasonable grounds to read W17299 as a representation which warrants or guarantees that the fish will in fact be caught by fishermen or will be supplied to UBA by Trawl. The supply of fish to Trawl was in the hands of the fishermen who sold to it. This supply would be dependent on inevitable seasonal and other fluctuations in catch. The contract between UBA and Trawl cannot fairly be read as a representation that there is, or will be, a guaranteed supply which would make UBA liable if it were incorrect. Even if, contrary to my view, the contract could be read as a representation which warranted that the plant would be able to process the fish in the tonnages called for in the contract, there were reasonable grounds for making such a representation. These included the following. Other large contracts had been issued to Trawl prior to the applicants coming on the scene in February 1987, even after there had been previous failures to meet contract quantities. On 13 September 1986 the Heads of Agreement provided for a minimum total of 3,000 tonnes of pilchards to be supplied between June 1986 and May 1987. In fact only 736.2 tonnes were supplied from June 1986 to the end of February 1987, of which 291.2 tonnes were supplied in February 1987. Horrobin's evidence was to the effect that prior to investment in Trawl he was impressed with and focussed on the February/March 1987 sales results. Of course the February 1987 processing figures were not typical of the preceding period. This history of the supply of fish would make it highly unlikely that an experienced fish buyer in issuing W17299 would either be making a firm representation that Trawl had the ability and/or capacity to process an order double the size of the September 1986 Heads of Agreement, or that a prospective investor or lender would assume this to be the case from the contents of the document when coupled with silence. When the matter is looked at in its full context having regard to earlier orders which were not met, it is commercially unlikely that Lees or Terry would be making any representations in the nature of guarantees, warranties or assurances. It is not difficult to envisage circumstances, such as consequences of a strike at Trawl's plant, or machinery breakdown, or bad or unseasonable weather or simply lack of fish to be caught which might prevent such a representation being fulfilled, regardless of the capacity and goodwill of parties to the contract. Genuineness of Contract - W17299 - Attitude of UBA The applicants submitted that Lees did not believe W17299 to be a genuine binding contract or that Trawl would be able to meet it. The following considerations are referred to by the applicants in relation to this assertion: (a) Lees, contrary to prudent practice, did not carry out any investigation or inspection to ascertain whether Trawl had the capacity or ability to meet the contract. However, having regard to the processing capacity of the plant in February-March 1987 as established by the evidence, the plant did have the potential to meet the order over a 48 week period. (b) When UBA issued W17299 it is alleged that it had already entered binding contracts to take up to 18,000 tonnes from other suppliers against a total estimated requirement for the 1987 year of 13,000-14,600 tonnes. Detailed analyses of the "W" or "A" contracts said to have been in force as of early 1987 were made by the parties in submissions. Lees said that the majority of UBA contracts written were expired as at 31 December of each calendar year. Due to the absence of UBA records in the form of Current Commitment Reports for 1987, it is not possible to determine the amount of raw materials the subject of outstanding commitments as at early 1987. On the applicants' analysis, on any basis, UBA had contracts outstanding with suppliers other than Trawl for its total 1987 fish requirements prior to issuing W17299. On a number of varying approaches the applicants submit that the outstanding orders were in the range of 12,933 tonnes to 18,150 tonnes excluding contract W17299. In evidence Lees said that at the time he increased the quantities of fish for W17299, he was aware that UBA had contracted or intended to contract with others for, in a binding way, 18,000 tonnes of fish in 1987. This answer does not establish that UBA had contractually bound itself to purchase 18,000 tonnes but it does disclose an intention by UBA to do so. On the analyses presented by UBA as at 17 February 1987, the only extant contracts were for 16,326 tonnes including W17299. However, this also included items not within the Heads of Agreement such as tuna, white fish and calamari, together with pilchards from Western Australia. When these items were taken out, the extant orders on the UBA's submissions were only for 8,250 tonnes, including W17299 for 6,250 tonnes. When questioned as to what UBA would do if all contracts were met by suppliers, Lees said that he could have exported the surplus to sister companies in the UK. It was pointed out that such a course would entail considerable cost and other problems and that this was inherently unlikely. The applicants also pointed to the evidence of Mr Armstrong of UBA, that in 1987 it was not the practice of UBA to issue contracts for a combined tonnage of fish vastly in excess of UBA's projected requirements of fish for that year. On the evidence before me, I am not satisfied that at the time contract W17299 was issued or increased as to quantities, UBA had subsisting binding contracts in force for amounts vastly in excess of its projected requirements for 1987, such as to warrant or support any inference that W17299 was a sham. However, assuming that UBA had contracts outstanding with suppliers other than Trawl for more than its total 1987 fish requirement of up to 14,600 tonnes prior to issuing W17299, I am not satisfied that this fact either taken alone or in conjunction with the other considerations raised by the applicants, is sufficient to establish that the contract was intended to be other than a genuine and binding contract. Given the difficult commercial judgment involved in balancing the need for UBA to ensure that it had at all times sufficient raw material to meet its commitments against the danger of over commitment, the intention to contract or the entry into contracts by UBA in excess of its projected requirements, particularly having regard to the previous history of shortfall in supply both by Trawl and other suppliers, does not advance the applicants' case. (c) Historically, Trawl had supplied only in the order of 10% of the quantities contracted for up to February 1987. Therefore, it is said for the applicants that UBA (Lees) could have no genuine belief in Trawl's ability to meet W17299. It is said that W17299 involved substantial increases in tonnages and prices inserted to make Trawl a more attractive proposition to a potential investor. However, by the time W17299 had been given to Trawl on 26 February 1987, it is clear that Lees knew that Trawl was negotiating to obtain the Corio Quay complex with the result that Trawl would have greater control. Also, Lees had been informed by Trawl that an 18 fishermen delegation had undertaken to supply 2,500 tonnes of pilchards. The purchase of Corio Quay would eliminate the nine day fortnight limitation. The pilchard arrangement with the fishermen indicated that Trawl had already made arrangements for the supply of over 80% of the pilchards needed to meet W17299 and this fact was known to UBA. (d) It is claimed that the principal reason Lees issued W17299 for larger amounts and at higher prices than previously was to induce investment. However, the fact is that UBA accepted all the fish that Trawl could supply under that contract and in the case of mackerel more than the contract required. UBA paid the greater prices. UBA took steps to check and report on the quality of mackerel as evidenced by the inspection and report of McBurnie in June 1987. This raised the problems of defective quality and suggested remedies. This concern and involvement in the quality and quantity of Trawl's supply is not the hallmark of a false transaction or a contract considered by UBA unlikely to be met in any substantial respect and which for practical purposes could be ignored. Moreover, UBA eventually cancelled its contract with Trawl (W17402 which was substituted for W17299 in July 1987) because Trawl could not honour its obligations under the contract and provide the fish as contracted for. This would not have occurred if UBA did not genuinely want to receive a supply of pilchards, but simply contracted for them to induce investment in Trawl, its supplier in the firm expectation that the fish would never be supplied. Throughout 1987 UBA had a continuing need for pilchards which Trawl could not meet. Trawl itself recognised the significance of not being able to supply the requirements of UBA with respect to pilchards. Both sides throughout treated the "W" and "A" contracts as binding commitments which they sought to perform. UBA took delivery and paid for all fish supplied by Trawl, which met specification, and Trawl endeavoured, in turn, although ineffectively to a large extent, to meet its commitments under the contract. In view of this conduct the contract W17299 was clearly not treated or regarded as false or as "a sham" by UBA and this supports the view that it was not different to what it appeared on its face to be, namely, a contract to take fish intended to be binding on the parties. The true position is that not only was W17299 a binding enforceable contract which imposed clearly defined rights and obligations on the parties, but it appeared to be such on its face and was treated throughout as such a contract by both parties to it.

There is in my view no substance in the argument that W17299 either by itself or coupled with any silence or conduct on the part of UBA amounted to a representation to the effect alleged. However, even contrary to my view, if there was such representation it was true in that UBA intended to be bound by it and to honour its commitment, and there was therefore no misrepresentation or misleading or deceptive conduct in relation to this contract by UBA. I find that alleged misrepresentations (i) to (iv) inclusive were not made. Representations (v)-(xi) - 18 March 1987 Seven representations are alleged to have been made in relation to discussions on this date. Representation (v) relating to increasing requirements of UBA rising from 13,000 tonnes to 28,000 tonnes in five years was not pressed by the applicants as a misrepresentation. Representation (vi) - Exclusive Supply The first of the six representations remaining relates to exclusive supply and it is representation (vi). It is claimed to be as follows:

"that the proposed contract then under discussion with Trawl would be an exclusive one for any fish other than West Australian pilchards and that all other local suppliers would have to deal with Trawl in order to supply UBA." This is a reference to the draft Heads of Agreement revised and executed on 26 March 1987. The representations are all said to have been made during a brief exchange between Lees, Horrobin and Pridmore on 18 March 1987. This conversation took place over a period of between 15 and 30 minutes. The meeting took place by chance, in the sense that it was not previously arranged, or even anticipated, on that date. The evidence was that Pridmore and Horrobin went to Corio Quay to look at the complex and that they were told on the morning that Lees happened to be there. They went to see him. On Pridmore's version the relevant statement by Lees was: "Trawl will be supplying everything. We are not just talking about pilchards and mackerel. We also need fish frames and tuna and we have plans to upgrade the product to use the cheaper, white fleshed trawl fish. We will also be needing squid." Pridmore gave evidence that Lees produced a draft of the proposed new Heads of Agreement between UBA and Trawl. Reference was made to these Heads of Agreement and Lees is alleged to have said after looking at the document:

Lees: "You can see quite clearly that the clauses on page 3 under the heading "Exclusively" gives you the right to supply us exclusively.... Horrobin's evidence was that Pridmore said: "This is not satisfactory. You can import everything except the West Australian Pilchards. We need an exclusive contract before we invest." Lees: "I will have another look at the draft". (Emphasis added)

These statements are denied by Lees. Faced with a direct conflict between competing versions, the following circumstances are relevant. • A copy of the amended Heads of Agreement as executed on 26 March 1987 was sent to the applicants about three days before the shareholders' agreement was executed on 30 March 1987. They considered the document. The "Exclusively" clause had been materially altered from the draft shown on 18 March 1987. • In its earlier form the clause bound UBA to source its total requirements solely from Trawl, except for (i) any product caught and processed on the West coast of Australia and (ii) product imported to meet any deficiency in Australian supplies. According to Pridmore, Horrobin said: "We will invest..... subject to sighting a signed agreement between yourself and Trawl in a form acceptable to us." In fact after the applicants saw the executed Heads of Agreement of 26 March 1987 three days before investing under the shareholders' agreement on 30 March 1987 they raised no objection. In the signed Heads of Agreement of which the applicants were aware prior to 30 March, the "Exclusively" clause had been modified in two significant respects. The first respect was that the previous reference to UBA agreeing to source its total requirements of fish solely from Trawl, had been deleted and there was substituted an agreement by UBA to source in the first instance its requirements for fish from Trawl. The expressions "total requirements" and "solely" had been changed to "requirements" and "in the first instance". This change in language contemplates the right of UBA to go to other suppliers in certain circumstances. The second alteration is also significant. Previously, the Heads of Agreement had provided that UBA could import product to meet any deficiency in supply available from Australia. In the executed agreement, this entitlement of UBA expanded the specific reservation to provide:

"However, UBA reserves the right to purchase from any source such fish that TIA are not able to provide at a quantity, quality, price and time acceptable to UBA." (Emphasis added) This is a broader reservation on its face. There was no such clear and express reservation in the draft. Rather than strengthening the "exclusivity" of the relationship from the draft, these words operate to diminish the effectiveness of any "exclusivity" arrangement. The use of the words "reserve the right to purchase from any source" signal the change. Earlier this reservation related only to "imported product" and now it relates to "any source". The next reference is to "fish that [Trawl] are not able to provide at a quantity, quality, price and time acceptable to UBA". No formula, mechanism, or objective standard is established in the provision to determine how acceptability to UBA is to be determined. The only measure of quantity, quality, price and timing is what is in fact acceptable to UBA. The discretion of UBA is open-ended and unfettered on its face. There is no machinery in the agreement to impose restraints on UBA as to what price, timing, quantity and quality it must accept in the event of a dispute on any or all of these matters. It involves questions of subjective business judgment and corporate policy in relation not just to one centrally important term but to four such terms. Although the final wording in the Heads of Agreement is more open ended and less exclusive than in the draft, no attempt was made on behalf of the applicants to amend or to suggest any amendment to the final Heads of Agreement. They had the opportunity to make suggestions, seek written assurances, or protest. They did not do any of these things. The dilution of the clause must have been obvious not only to any businessman with a modicum of familiarity with contract principles, such as the applicants, but especially to Horrobin who, because of his legal training and wide commercial experience, must have appreciated that the document he considered so important had been dramatically watered down from the unsatisfactory document he allegedly referred to in the discussions with Lees on 18 March 1987. Pridmore said that he had studied general principles of contract, and considered that he would form his own opinion, and Sands took a similar stance. Both agreed that Horrobin had greater familiarity with legal situations and contract matters. Notwithstanding the obvious and significant difference between the two Heads of Agreement, on a matter which must have been at the forefront of their attention, on their versions of the conversation of 18 March 1987, there is no indication of any dissatisfaction, protest, disagreement or disappointment on becoming aware of the contents of the final Heads of Agreement. They were clearly most anxious to obtain a satisfactory document so far as the relationship between UBA and Trawl was concerned before 30 March 1987 when they signed the shareholders' agreement. They received one in which their position must have been, in their perception, quite contrary to their expectations said to have been engendered by the statements of Lees on 18 March 1987, in the course of which they had given careful attention and focus to the need for an "exclusive" arrangement. Horrobin says, in referring to the proposed Heads of Agreement, that he said in the conversation of 18 March 1987 that: "We are prepared to rely upon what you have told us today and make the investment, subject to being satisfied with the final provisions of the signed contract..." This is denied by Lees. From the fact that the investment was made it should be assumed that Horrobin both read and was satisfied with the final provisions of the Heads of Agreement which was not consistent with the "exclusivity" said to have been sought and discussed in the conversation. Moreover on 18 March 1987 even according to Horrobin, Lees made no commitment to amend the draft to "strengthen" the exclusivity provision, but simply indicated that he would "have another look" at the draft. He did have another look and he sought to strengthen the position of UBA so far as freedom to contract was concerned. There was no attempt by Lees to conceal the amendments from any of the applicants. They were even set out on one page of three short paragraphs which stood out because they had clearly been retyped. Although there were many unsatisfactory aspects of Lees' evidence, I accept his statement when he gives as his reason for amending the clause that he didn't like documents with "sole supply" on them. He was aware of UBA's second supplier policy at this time. This consideration and the alteration are consistent with the deletion of the word "solely" in relation to sourcing and the spelling out of what is clearly a reduction of commitment by making the quality, quantity, price and time "acceptable" to UBA. Moreover, it would be contrary to the interests of UBA only to have access to a single supplier who could hold it to ransom. In fact, UBA had a second supply policy. Commercially, it was very much more likely that UBA, whilst giving Trawl the opportunity to supply, would want to keep its options open to get supply from other processors and suppliers. The draft Heads of Agreement were submitted by and more likely than not drafted by Trawl. This explains the presence of the words "solely" and "total requirements" in the draft. These were clearly not words which appealed to Lees and in my view he saw it as far too "exclusive" and was concerned to minimise its exclusive effect. The true position was that the applicants perceived, at that time, that because of Trawl's geographic location and its facilities and its freight advantage, it was in a "unique" and especially commercially advantageous position to attract the custom of UBA from the viewpoint of price and supply. In circumstances where the applicants clearly believed that they had a unique commercial advantage, it would be less likely for them to have raised and insisted upon any oral or written representation or assurance of exclusivity in the terms alleged to have been stated. Pridmore gave evidence that "... we knew that it would be extremely difficult for anybody to set up economically against us." The importance of this emphasis on the commercial or economic advantage of Trawl is supported by a diary note of Oldfield of ANZ when after a discussion with Pridmore on 7 August 1987 he recorded: ".... Uncle Ben (sic) must either buy from them or import which is uneconomical ..." (emphasis added). Clearly this is an allusion to a commercial advantage not to a legal restraint. Pridmore attributed the economic advantage to the freight which would be involved in supplying pilchards from Western Australia and also to the low value of the Australian dollar in relation to imported fish. Further, having regard to the non-performance by Trawl in 1985 and 1986, it is unlikely that Lees would have given an assurance which meant either the restriction or limitation, if not abandonment, of access to other suppliers. As evidenced by the alterations made to the draft Heads of Agreement, Lees wanted to make it clear by the express reservation that UBA would have access, at its discretion, to other suppliers. It does not make commercial sense for a fish buyer whose concern was to ensure continuing fish supply at a low price to agree to unconditionally take fish only through Trawl, if others could give better terms. It is significant that when Lees made it clear in his cancellation letter to Horrobin of 11 September 1987 that UBA, in order to enable the plant to operate, had purchased tonnages from other suppliers, there was no complaint on the part of Trawl or the applicants that supplies must be obtained through Trawl, nor that UBA must first approach Trawl. Indeed, Horrobin and Sands conceded that it was reasonable for UBA to have approached other suppliers. This was at a time when Trawl had just lost its largest and most important supply contract. This conduct is consistent with Horrobin and Sands believing that the Heads of Agreement did not bind UBA to source all its fish through Trawl, or to first approach Trawl before contracting with other suppliers in some circumstances.

Pridmore and Horrobin agreed that they understood the Heads of Agreement did not oblige either party to supply or accept fish in the absence of agreement as to price, and that Trawl's right to supply depended upon satisfying UBA's requirements as to quality, quantity, time and price. I find that the above alleged misrepresentation was not made. Representation (vii) - 18 March 1987 Capacity to Process - The Oral Representation This representation is alleged to have been made in discussion with Lees on 18 March 1987, and is a representation that Trawl presently had and/or would have the capacity to process UBA's requirements and to handle the required volumes. Pridmore said that on 18 March 1987, Lees said : "Your blast holds 40 tonnes that has a 16 hour turnaround. That gives you a capacity of 400 tonnes a week." Horrobin states that he or Pridmore said to Lees: "We don't have the technical knowledge to assess whether the freezers and cold stores and the processing plant will do the job Uncle Ben's requires. You are talking about very large volumes of fish and the Mackerel are about to start. Will they do the job properly?"

Lees is said to have replied: "Yes. We are very familiar with the whole complex as we have been dealing with Trawl for some time. It will handle the large volumes we need." Lees denies making the above statements. If an oral assurance had been given to Horrobin by Lees that the plant would do the job properly for the large volumes needed, one would expect some contemporaneous written record to have been made. It was a matter of central importance to Trawl. By contrast, written confirmation was sought from, and given by Fasham, that the factory could, without additional work or further plant, meet the requirements of UBA. However, no written confirmation was sought from UBA of what Lees said. Nor does any note exist recording the statement. This is unusual. One would have normally expected a letter to have been written to UBA confirming such a critical statement. The assurance was raised late in the day. It was not raised until 1989, two years later, when Horrobin and Pridmore filed a statement of claim in the New South Wales Supreme Court proceedings which were heard before Cole J. When the plant clogged up in June 1987 there was no complaint based on any representation or assurance having been given by Lees or UBA that the plant would process UBA's requirements. This would have been a logical course of action. Instead, Horrobin simply sent a copy of a report by McDonald Wagner which suggested how efficiency could be improved. He attributed the problem to deceit on the part of Fasham and J Wilson. The absence of complaint about the blast freezer is significant because it controlled the rate of throughput. Pridmore claims to have spoken to Lees in early June 1988 and said: "both you and Wilson and Fasham told us that they would do the job." This is denied by Lees. I am not satisfied that this statement was made by Pridmore in the conversation of June 1987, or at all. On 19 June 1987 Pridmore wrote a detailed memo to McBurnie of UBA in relation to fish quality. This was in response to certain matters raised by McBurnie. He did not attribute the quality problems to the blast freezing capacity but rather to the conduct of UBA in not removing fish from storage at a sufficiently rapid rate. In his detailed four page memorandum Pridmore does not raise any allegation of misrepresentation by UBA as to capacity. He states that the freezing capacity was tripled in April 1987. When asked why he did not refer to the alleged representation by Lees, Pridmore says that he did not put it in writing because he was "making the peace, not making war". He could not give any explanation as to why a low key reference to Lees' alleged assurance could not, politely but firmly, have been made pointing out that the representation had been made and that it was incorrect. Moreover, because in the period 18-31 March 1987, the Geelong plant was managed by Atasco, the seller of the 50% interest in Trawl, an assurance would more logically be obtained from Atasco rather than from UBA. On 21 May 1987, the refrigeration engineers indicated in their report that the plant would handle around 50 tonnes per day on a 15 hour day. The alleged assurance by Lees was that it would do 40 tonnes within a 16 hour turnaround period. Part of the cause of the problem was operational in that the freezer was not being properly operated because there was no air moving around the spaces between the fish tubs. The plan of the applicants before 30 March 1987, was substantially to increase the capacity of the blast freezer to handle larger volumes above those necessary to meet the UBA contract. This was clearly shown by the Sands budget attached to the shareholders' agreement of 30 March 1987 and the Sands cash flow projection of 2 April 1987. These projections show an extensive plan for the expansion of Trawl's throughput. The significance of the plans for expansion in capacity of plant and the freezers, is that the importance was attached by the applicants not merely on the capacity to handle the present throughput, but rather on contemplated increases in capacity to handle greatly increased future throughput. In these circumstances it is unlikely that on 18 March 1987 there were discussions based on the continuance of present capacity because it was assumed that the existing plant was inadequate to handle the larger scale operation contemplated. Although there was a conflict of evidence, I accept that Lees did not make any detailed inspection or examination of the Trawl plant prior to entry into W17299 or the Heads of Agreement of 26 March 1987. In these circumstances, it is in my view unlikely that he would have made statements in effect warranting the capacity of the freezers at Geelong to handle the volumes then proposed. Lees' alleged statements simply relate to a rate of processing of 400 tonnes per week on a 40 tonne capacity operating over a 16 hour turnaround period. Horrobin's statement does not refer to specific volumes of fish. Neither of these assurances were communicated to Sands as might have been expected. Volume of supply from fishermen can be critical to processing capacity as shown by the very large deliveries by the "Tasman Dawn" in April-May 1987, when unprecedented volumes (in the order of 300 tonne loads) were delivered and which had to be urgently processed because of the time delay since the fish were caught. The refrigeration engineer's report indicated that the plant had a capacity of 50 tonnes per day. Moreover, the rate of processing in April 1987 was on average 36 tonnes a day and 42 tonnes per day in May 1987. The problems which arose in May 1987 did not establish that the statements attributed to Lees were misleading. It was never suggested that the plant could handle throughput, under all circumstances, regardless of tonnages to be processed at any particular time. In late May 1987 as McBurnie records on 5 June 1987, there were quality problems. These arose during the week of 20-28 May and were caused by the need to urgently process over 300 tonnes of jack mackerel from the "Tasman Dawn". During April and May, the two deliveries in each month by the "Tasman Dawn" amounted to about 50% of the total fish processed by Trawl. They were unusually large deliveries in the order of 310 tonnes each. The "Tasman Dawn" delivered 310 tonnes on 19 May 1987. The fish had been caught on 14 and 15 May. The vessel arrived at 10.00 pm on 16 May, but unloading did not begin until 11 am on 19 May, 61 hours after arrival. This delay, which had nothing to do with the capacity of the plant, made the situation critical. It appears that it was necessary to freeze the load quickly to prevent spoiling. On the basis of 50 tonnes per day capacity it would take a further 6 days to freeze that load to UBA specifications. The unloading was too slow for the vessels and too costly in terms of labour. The problem arose from trying to process 310 tonnes of fish in "one hit". Pridmore conceded that even a capacity of 60 tonnes in 24 hours would not have enabled the processing of 310 tonnes in sufficient time. Even with a capacity of 100 tonnes a day, the plant would have difficulty according to Pridmore in handling a load of 300 tonnes. In relation to this alleged representation (vii) I find that there was no misrepresentation made. Representation (viii) - 18 March 1987 - Relations with Trawl The representation alleged is that UBA had confidence in Trawl and in its management in March 1987 and had a very good relationship with it. It is alleged that statements to the following effect were made in discussion with Lees: Lees: "Lastly, we can rely on the quality because we know the management. They have been supplying us with good quality Pilchards for some time and I have been friends with Bruce Fasham for many years." ...... Horrobin: "We are happy to put the $2 million into Trawl and we will also guarantee any funds required providing that we are satisfied that your existing relationship with Trawl is satisfactory ..." ..... Lees: "We are confident in Trawl's management. We know Jon Wilson and Bruce Fasham well, particularly Bruce Fasham. We have a very good relationship with Trawl." In substance the statements to the above effect are denied by Lees. However Lees did agree that he said something to the effect that he had had "a long and close relationship" with Trawl's directors. Having regard to the history of that relationship outlined earlier this was clearly correct. It was not until April 1989, when Trawl commenced Supreme Court proceedings, however, that this representation was first raised, notwithstanding that relations between the applicants and Atasco deteriorated significantly during 1987. Allegations were also made by the applicants against ANZ to the effect that ANZ had misled them as to the business ability, character and financial capacity of the directors of Atasco. These allegations were only made when the dispute about the scrip lien arose. From about May 1987 it is obvious that major dissatisfaction and mistrust developed between the applicants and the Atasco directors. By June 1987, the applicants were considering whether they should decline to pay the balance purchase price of $1 million to Atasco and sue the Atasco directors under the shareholders' agreement for breach of warranty. Pridmore was of the view that J Wilson was thoroughly unreliable. He thought that G Wilson was incompetent and could not run the factory, and that Fasham did not have the knowledge of the fishing business that he professed. By August 1987 Atasco was offering to buy out Cumbeline's shareholding. Horrobin was concerned about the lack of co-operation or full disclosure from board members, presumably referring to the Atasco directors. By early September, Pridmore believed that Trawl was not as represented by the Atasco interests with respect to the plant and equipment and non-performance of the Atasco directors. Pridmore and Horrobin were by that time considering the termination of Cumbeline's involvement in Trawl. By late September, Pridmore believed Fasham and J Wilson to be "rogues and vagabonds" and that it was commercially inevitable that the relationship with the Atasco directors would be severed. This view was formed in and after October 1987. These disputes and strong recriminations persisted into early 1988. Having regard to the long history of disputes with Atasco and grave doubts as to the honesty, frankness and ability of Trawl directors it is remarkable that no complaint was raised with UBA as to UBA's alleged representations to the effect that the quality of Trawl's management was reliable and enjoyed the confidence of UBA. The Letter of 19 March 1987 Horrobin said he first became aware of this letter from Lees to Trawl in mid-1989 during the process of discovery in the Supreme Court proceedings. The letter was written the day after the conversations with Lees, Horrobin and Pridmore on 18 March 1987. The letter concerns a complaint by Lees about an invoice for $5,805.40 for an aircraft "spotters" fee. Lees expressed concern that the matter had not been raised on the preceding day when a lengthy discussion had taken place. The letter refers to the "long standing relationship" between UBA and Trawl and expresses dissatisfaction. It emphasises the need for completely open dealing. The basic premise in the letter is that there was up to that time a history of good relations but Lees was upset over a relatively small amount wrongly claimed and sent to UBA. It does not evidence, in my view, any significant deterioration of the relationship which had previously existed such that Lees ought to have raised it with Cumbeline as prospective investors. No misrepresentation based on this letter was alleged in the 1989 New South Wales Supreme Court proceedings brought by Trawl against UBA. If the applicants had genuinely believed that there was evidence of a misrepresentation as a result of this letter then one would have expected that this be raised in the Supreme Court proceedings. It was not. One aspect of the misrepresentation alleged is that Lees did not contact the applicants before 30 March 1987 and inform them of the decline in the relationship with Trawl since the discussion of 18 March 1987. This does not in my view amount to a misrepresentation. It does not support the conclusion that Trawl did not, fundamentally, enjoy good relations over a substantial period of time with UBA. It was clearly a letter written in the heat of the moment, the day after the 18 March 1987 conversation. It is true that in February 1987 UBA had obtained a credit report on Trawl. However, this does not support the view that there had been a deterioration in relations but is properly to be seen as a prudent inquiry to make in relation to a contemplated large contract of supply, and is some support for the view that the contracts and agreements between Trawl and UBA were regarded as genuine by UBA. Reliance was also placed on a number of "Defect Material Reports" made by UBA. A close examination of those reports shows that they were not of such a nature as to support a contention that the relationship between UBA and Trawl was otherwise than good, or that there were strong reasons to warrant doubts as to the efficiency of Trawl's management. For example, two specific defect reports of 16 March 1987 were referred to. The first concerned 3 pallets of pilchards which were used "reluctantly" by UBA. The second complaint was that there had been a mislabelling in relation to 20 pallets of fish. It had nothing to do with defective fish. There was reference in the evidence to a number of other defects between 1985 to 1987 but I do not consider them to be of any importance in considering this question. Lees is not alleged to have said UBA had never made complaints in relation to fish supplied by Trawl. Indeed, it must inevitably be the case that on occasions there will be defects in the quality of raw materials received from large suppliers. Business relationships are rarely perfect. This does not mean that the relationship between supplier and buyer is bad or that the supplier's management system is defective or inefficient.

The above matters do not establish that UBA in fact as at March 1987 lacked confidence in Trawl's management or that its relationship considered as a whole was otherwise than "good". I do not find that there was any misrepresentation in relation to this matter. Representation (ix) - 18 March 1987

• Long Term Relationship with Trawl The alleged representation is that UBA intended to have a long term relationship with Trawl, involving profitability for Trawl and the mutuality of benefits between Trawl and UBA. Lees is alleged to have said: "The only thing that Trawl needs to be an enormous success both for itself and for us is some extra funding to buy these premises and ensure a steady source of fish. Your business experience and reputations only make it more attractive for us. We will do everything in our power to reassure you and to facilitate your investment. Trawl will make good profits." This was denied by Lees. The evidence does not establish that Lees had any knowledge or appreciation of the reputation or experience of Horrobin, Pridmore and Sands. Moreover, it is inherently unlikely, in my view, that in this brief unarranged encounter, Lees would give such extravagant and extensive assurances and representations. There was simply no evidence in the conversations attested to by the applicants of any discussion on 18 March 1987 referring to "mutuality of benefits" which is one of the matters alleged, except that a UBA business card produced by Lees, contained the statement on the reverse side: "A mutual benefit is a shared benefit; a shared benefit will enure." Horrobin does not assert that Lees made the oral statement above. Rather it is Pridmore who attributes the statement to Lees. Sands does not say that anything was told to him about this representation. Neither Horrobin nor Pridmore say that they told Sands anything about this. If it had been considered important one might have expected it to have been passed on. Moreover, when it was put to Pridmore that there was no written evidence of this statement, Pridmore stated that he thought this was what the contract provided. I find that this representation (ix) was not made. In addition, on its face even if it were made, the statement could not be taken to be a representation that UBA was guaranteeing that Trawl would make profit, or that it would be an enormous success. At best, it is simply a background statement expressing a generalised goodwill. Furthermore, the evidence does not persuade me that the statement was false either when made or at all. Representation (x) - 18 March 1987 - Looking after Suppliers The representation alleged is that "UBA looked after its suppliers such as Trawl". Horrobin stated that Lees said: "We are very good people to do business with. We look after our suppliers." This was denied by Lees. There is no statement to the same effect by Pridmore. He could not say whether such a statement was made. I am prepared to accept that the statement was made but I cannot see any grounds or evidence for an assertion that there was any legal content or significance in the statement or that it was a misrepresentation. There is no evidence that it was false when made. The extent of any obligations between the parties and the way they conduct themselves in business will depend on the commercial arrangements made between them and not on generalised self-laudatory assertions. These are evidenced by the contractual arrangement. In June 1987 Pridmore specifically thanked Lees for his assistance and "unfailing courtesy" in relation to the "teething problems" which Trawl had experienced. As at 18 March 1987 the evidence does not disclose that UBA were other than good people to do business with or that they looked after their suppliers. Nor was there anything to establish that it was not intended by UBA to continue this approach in the future. I am not satisfied that the statement was made. If it were made, I do not think it has any significant content for present purposes. Nor do I think it has been shown to be false when made. Representation (xi) - 18 March 1987
• Cost plus - Making A Substantial Profit The representation is that: "Trawl would be paid by UBA on a cost-plus basis and would make a substantial profit from the relationship between the parties." Horrobin stated that the representation by Lees was in these terms: "It is all done on a cost plus basis as you can see and there is a substantial profit..." According to Pridmore, Lees said: "You know your profit margin in advance because all our dealings with Trawl have been on a cost plus basis."

Pridmore further alleges that Lees produced certain costing documents and said: "Jon Wilson gave me these documents a short time ago. You will see that when Trawl give us their variable costs and overhead costs we then add a profit margin which gives us a total price." Lees denied producing the costing documents and the above conversations. Sands said he was told by Pridmore: "Lees says Uncle Ben's pay for the fish from Trawl on a cost plus basis..." The costing document referred to showed that in two cases, namely "Viscera and Heads Salmon" and "Salmon Sheba Eden" the cost to Trawl was greater than the price UBA agreed to pay. This is quite inconsistent with the cost plus statement said to have been made by Lees. In the documents said to have been produced by Lees, there is no uniform standard or fixed mark-up for profit provided for. No explanation was given as to how the profit margins for each item is made up. Indeed, the prices eventually arrived at did not correspond in a number of cases to the cost price plus margin as submitted by Trawl. The price agreed and paid by UBA to Trawl was not in fact calculated on a cost plus basis. Lees' evidence was that while the price was to be calculated by reference to cost plus a margin, it was not to be fixed on a strict cost plus basis in the sense that costs would be looked at but that UBA was not bound to accept them. I accept this evidence by Lees. It is very significant that the Heads of Agreement as executed by Trawl and UBA, which was not objected to by the applicants, specifically provided by way of reservation on page 3 that the price among other matters must be "acceptable" to UBA. This is quite inconsistent with the alleged statement which assumes that UBA was bound to accept a price fixed on costs plus a margin. It is clear that this amendment to the draft was inserted by Lees after the 18 March 1987 discussions. Sands' evidence was that UBA was bound to accept a price arrived at by adding cost plus a profit margin. He said that all overheads had to be included in the calculation. On the version of Sands and Horrobin, the purpose of meeting in relation to price was not to agree a price, but simply to fix a price. The effect of such a cost plus method of establishing a price would significantly diminish the expressly reserved right of UBA in the executed Heads of Agreement to reject supply from Trawl if the price was not acceptable to it. Price is at the heart of the supply agreement. Yet nothing was said, recorded or done after 26 March 1987 to incorporate such a qualification or proviso into the Heads of Agreement. This would have been done if the representation had in fact been made.

If the cost plus representation had been made, and if it were binding on the parties, then one would have expected it to have been the subject of careful and detailed formal negotiation embodied and formulated in documentation and not just the result of an informal discussion at a short casual encounter which had not been pre-arranged and in respect of which there was no specific agenda. Furthermore, there was no attempt to amend page 5 of the 26 March 1987 Heads of Agreement which deals with quantity and price to reflect this important formula on which price was to be calculated and fixed. Pridmore said he understood that all Trawl's overhead costs would be taken into account in calculating the price UBA would pay and there would be added a profit margin. He said he understood that UBA was required to pay a price which was open-ended in that UBA had to pay all overheads and costs of Trawl plus a profit margin. In effect, his understanding was that UBA guaranteed that Trawl would never make a loss. This does not make sense commercially from the viewpoint of UBA. Later, Pridmore took the position that only those overhead costs agreed to by UBA were recoverable. He said: "Q. So, it is only those costs which Uncle Ben's agree to, correct?" A. Well, that's the effect of the contract, yes." Once this qualification is added then there is no longer a formula. It is open to UBA to disagree. The above evidence is at odds with that of Sands who said that the price was calculated by reference to all overheads whether agreed to by UBA or not. He said: "Q .....You have told me that the purpose of the calculation of the price under the 87 contract all overheads were to be included; correct? A. Yes. Q. And that Trawl notify Uncle Ben's of what those overheads were? A. I believe so." In the Supreme Court of New South Wales on 1 August 1989, Horrobin testified: "Q. And in the absence of an agreement as to price it was your understanding that there was no agreement was it not? A. Yes, that's correct. Q. So if the price provided or sought by Trawl was not acceptable to UBA, I take it that it was your understanding that UBA would be entitled to purchase its requirement from any source? A. In the context of the prices that you then paid, yes, that is correct".

If the price was strictly cost plus a profit margin UBA would of course have a vital interest to be informed of all the details of these significant costs incurred or proposed to be incurred by Trawl. Pridmore and Sands alleged that UBA were informed of and approved Trawl's costs. After February 1987 the overheads of Trawl increased dramatically yet there is no written evidence that UBA was informed of the details of specific increases, nor that Trawl had borrowed $3.5 million between April and December 1987. This is significant because on a strict cost plus basis UBA would be responsible for meeting the interest on the increased overdraft. The only record of Trawl informing UBA in respect of proposed overhead expenditure related to the purchase of Heading and Gutting ("H&G") machines in early 1988. It is useful to consider the formal way in which UBA was notified of the purchase of the H&G equipment and to compare this with the lack of documentation in respect of the previously incurred overheads. On 8 March 1988, Horrobin wrote to Lees in these terms: "For the sake of good order I am now pleased to formally confirm to UBA that, relying upon the assurances contained in your second fax, TIA has taken the decision to acquire heading and gutting machinery of sufficient size and capacity to process the minimum tonnages referred to on p.2 of your second fax..." (emphasis added). Here there is a carefully drafted confirmatory letter which is at pains to point to the fact that Trawl is "relying upon the assurances" and which records the purchase of the machine which amounted to some US$52,000. If Lees had previously given the cost plus assurances in March 1987, there was no need for such a letter one year later in relation to the H&G equipment. Yet there was no such letter after 18 March 1987, when the oral statement was allegedly made by Mr Lees. Moreover, it is significant that the UBA "assurances" referred to by Horrobin were in written form given on 3 March 1988. It is also significant that before contract W17402 dated 8 July 1987, there had been substantial increases in overheads yet no attempt was made to claim for or build into the calculation of fish prices under that contract any allowance in respect of these matters. If there had been a cost plus agreement one would have expected this to be done. Over the period from March 1987 to the end of that year Trawl and the applicants or their companies were regularly engaged in writing to various banks seeking to arrange finance. The existence or currency of a cost plus contract with a profit margin, would have been a most relevant matter to draw to the attention of bankers and financiers, but there was no such emphasis or mention to be found throughout this lengthy correspondence. This again reinforces the view that Lees made no such representation as to a cost plus contract or arrangement.

Again, it is significant that when Sands applied to NMRB in seeking a finance facility for Idobook of up to $400,000 in March 1989 Sands emphasised that Trawl had an exclusive contract with UBA at a set profit level to Trawl, and that Trawl was guaranteed a known profit level. This of course is a reference to the then applicable Heads of Agreement of June 1988, which expressly contained a cost plus price formula, namely "Price to UBA = cost to TIA + percentage profit margin." There is an important contrast to be made between the June 1988 contract with its expressed formula and the alleged informal oral statement made by Lees on 18 March 1987 at the encounter at the Corio Quay plant. The setting of a price mechanism is a matter for careful detailed negotiation and formulation and one would normally expect to find such a provision embodied in writing rather than comprised in an oral statement at an informal encounter which was not prearranged. In relation to the pricing for W17402 it is significant that the suggested approach to pricing from Sands' calculations threw up the figure of 81.66c kg for pilchards for a supply of 4,000 tonnes, an increase of 23.66c kg on the contract price for 2,400 tonnes, yet Trawl accepted about 20c kg less in contract W17402. Horrobin accepted that UBA would not pay 81.66c kg for pilchards. Pridmore believed 81c kg was out of the question and that UBA would not pay it. However, if that was the representation made Trawl was entitled to that amount. There was no satisfactory explanation as to why this was not raised in the price negotiations for contract W17402. Horrobin noted on 15 June 1987, that: "If our present core business can be based on pilchards @ 10,000 tonnes p.a. AND if we can reduce our presently unacceptable cost structure, then we must at the same time secure an immediate price rise for pilchards to at least 65c per kilo (ie less than the 81.6 cents calculated on p.2 of Richard's paper, but much more than the present UBA pilchard price of 58c)." The price in W17402 was only 61c kg. The view that UBA would not accept the calculated cost plus figure of 81.66 cents is a recognition that any price was subject to acceptance by UBA and was not fixed or made simply by application of a formula which did not involve any further agreement and then simply notifying UBA. UBA had to agree. On the evidence, in my view, the arrangement in March 1987 was not that price was to be fixed by the automatic application of a cost plus formula, but rather that it was to be agreed after discussion with UBA and taking into account and consideration, but not being bound by, the costs incurred by Trawl, and also taking into account what the parties considered to be a fair profit margin. It was an arrangement whereby UBA would consider Trawl's costs but the weighting to be given to the costs claimed was a matter left open for negotiation as was the appropriate profit margin. I find that the representations alleged in relation to cost plus pricing in representation (xi) have not been made out. I do not accept that the statements attributed to Lees were made. Representations (xii)-(xiv) - 26 March 1987

• Heads of Agreement These three misrepresentations are said to have been made in the 26 March 1987 Heads of Agreement. On that date the Heads of Agreement were signed and the applicants obtained a copy. There was no discussion with Lees on that date. Alleged representation (xii) is that UBA represented that it would establish with Trawl an evergreen, continuing long term relationship for the supply of fish by Trawl to UBA. The second page of the Heads of Agreement reads as follows: "FRAMEWORK OF AGREEMENT Both parties agree to establish an evergreen, continuing long term relationship for the supply of fish by TIA to UBA. To this end, and in consideration of TIA installing a processing plant to specifically meet UBA requirements, the parties agree to structure their relationship on an ongoing basis, subject to the satisfactory performance by each of the parties of its obligations under this agreement. And the parties agree to consult regularly to maintain and further their mutual aims as set out in this agreement." The applicants' submission is that UBA had no intention of establishing such a relationship because Lees did not regard the Heads of Agreement as imposing any binding obligation and took the view that the Heads of Agreement was "not worth the paper it was written on". It is said to be clear that the overriding concern of UBA was to get fish at the cheapest possible price from whomever could supply it at the minimum price. UBA submits that on the true construction of the Heads of Agreement there was no such representation made because the document has to be read as a whole. The document contains the express reservation on the third page that UBA has the right to purchase from any source such fish that Trawl is not able to provide at a quantity, quality, time and price acceptable to UBA. Therefore, so the submission goes, UBA reserved the liberty to go to other suppliers and the statement must be read subject to this. Furthermore, the only possible representation, if any was made, could be that each party would perform its promises to the extent that the contract imposes such an obligation. It should be noted that the parties agreed to structure their relationship on an ongoing basis subject to satisfactory performance of their obligations under the contract. UBA submits that the supply provisions of the Heads of Agreement gave no contractually enforceable rights because UBA did not have to accept any fish if the price, for example, is not acceptable to it in its absolute discretion. It was submitted that the most the document does is to represent that when binding contracts (meaning "W" or "A" Contracts for example), are entered into the parties will comply with their legal obligations under them. In my view, this clause is in the nature of a general recital to an agreement which records that the parties envisage a continuing relationship for the supply of fish and this ongoing relationship was to be subject to the performance by the parties of their contractual obligations as to specifications, quality, delivery, pick-up, storage and payment. It clearly does indicate at that time both parties contemplated a business relationship extending over an indefinite long term period. In my view, the clause does amount to a representation, albeit in the limited sense referred to above in my view, but I do not consider that it was false or that UBA as at 26 March 1987 did not intend to have a continuing long term relationship with Trawl for the supply of fish and in fact it did continue in a supply arrangement with Trawl until 1989. I find that there was no misrepresentation made in respect of this matter. Representation (xiii) - 26 March 1987 Heads of Agreement The second representation said to arise from the 26 March 1987 Heads of Agreement is that UBA would source in the first instance its requirements for fish from Trawl, except for Western Australia. The words on page 3 of the Heads of Agreement, "UBA agrees to source in the first instance its requirements for fish from TIA", were the result of an amendment made by Lees after 18 March 1987. The previous wording was: "... source their total requirements of fish solely from TIA ..." There is a substantial and obvious relaxation of restrictions on the sourcing by UBA in the signed form of the Heads of Agreement. The deletion of the words "total" and "solely" and the insertion of "in the first instance" make it clear that UBA could have access to any other suppliers. This is reinforced by the insertion of the entirely new second paragraph which sets out the reservation. As a matter of construction the second paragraph on the third page, in my view, qualifies the first paragraph. Lees considered that although contracts designated with a "W" or "A" prefix were binding, the Heads of Agreement did not impose any binding obligation. He considered that once the price, quantity, quality and time was agreed then there was a binding contract. His view was that this was done at the time when the "W" or "A" contract was issued. These contracts contained provisions as to price, quantity and timing and the quality was fixed by specifications. Different views could reasonably be taken by experienced lawyers as to the proper construction and precise effect of the Heads of Agreement particularly on the question whether there was any binding obligation on UBA to first approach Trawl, before approaching other suppliers, to attempt negotiations in order to see if Trawl could supply at a price, quality, time and quantity acceptable to UBA. On the other hand the view was reasonably open, particularly to a fish buyer such as Lees, to form the view that it was the "W" or "A" contracts that were binding and that the Heads of Agreement were generalised statements of an intention to negotiate with a view to reaching an agreement from time to time on quantity, quality and timing. There was no specified price and no objective formula, mechanism or standard to reach a price other than by attempting to agree, or to persuade the other party to a common price. The relevant wording is that: ".... UBA agrees to source in the first instance its requirements for fish from TIA... However, UBA reserves the right to purchase from any source such fish that TIA are not able to provide at a quantity, quality, price and time acceptable to UBA." The applicants submit that these words imposed at least a binding contractual requirement that UBA, before approaching any other supplier, would first approach Trawl and negotiate with it and attempt to achieve a price, quantity, quality and timing specification acceptable to UBA. Alternatively, even if it did not amount to a binding obligation the wording gave rise to a representation that UBA would in fact first approach Trawl when it required fish covered by the Heads of Agreement. The respondent's submissions are that: (i) Any requirement to source in the first instance is subject to the proviso that the specified terms must be acceptable to UBA. (ii) The only criterion set down is whether the terms are acceptable to UBA and there are no criteria as to what is meant by "acceptable". UBA is therefore not bound to accept any terms. (iii) Any approach by UBA to Trawl before obtaining supplies from another source is only an agreement at best to negotiate in good faith and as such was illusory and devoid of legal content. Compare Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (supra). (iv) Accordingly, there was no obligation on UBA to approach Trawl. (v) There is no representation that UBA would comply with any obligations in the Heads of Agreement which are unenforceable. (vi) The only representation which is made by the existence and signing by UBA of the Heads of Agreement is that they have the meaning and force which the law gives them. (vii) Since the condition is unenforceable then there is no representation that UBA will first approach Trawl before going to other suppliers. (viii) Alternatively, it is said that the wording on the third page must be read having regard to the quality and price terms on page 5. The latter provides for the parties to fix a price and quantity of fish for each six month period for which contracts are issued. Once the terms are agreed upon as to quantity, quality, price and timing for that period, then thereafter UBA is committed to take that agreed quantity of fish for the ensuing 6 months. If UBA requires more fish during the period of the 6 month contract it is entitled to approach other suppliers without first negotiating with Trawl and the "exclusively" clause does not apply. In my opinion the agreement of UBA to source, in the first instance, its supply of fish from Trawl, properly construed, imposed a binding obligation on UBA to first approach Trawl to see whether Trawl could supply fish covered by the contract on terms acceptable to UBA. The provision confers a "commercial advantage" on Trawl, over and above other suppliers, in that it gives it the opportunity of a first negotiation with UBA. In many circumstances such a "right" may be pointless, where there is clearly no prospect of agreement, but it will not always be so. Here any successful outcome of the negotiation is subject to the acceptance by UBA of the relevant terms but there is, nevertheless, an obligation on UBA to at least discuss the prescribed matters with Trawl, even though the process may not result in a binding contract. It is an arrangement of the type envisaged by the majority in the New South Wales Court of Appeal decision in Coal Cliff Collieries Pty Ltd v Sijehama (supra). Notwithstanding the above conclusion, the legal enforceability, certainty and content of the undertaking to "source in the first instance" is finely balanced and one in respect of which experienced lawyers could and have genuinely reached different conclusions. Lees was of course a fish buyer, not a lawyer, and the view he reached was open to him. The parties in this matter held two different views as to the meaning and effect of the Heads of Agreement. Lees clearly thought that he did not have to approach Trawl first before seeking supply from other suppliers. Such a procedure from his viewpoint was pointless. This was a view which was reasonably open to him. He was under no obligation to spell out his interpretation as to the operation of the Heads of Agreement, either to Trawl or the applicants. He was not asked for his views on the Heads of Agreement and he does not appear to have had any further contact with the applicants or Trawl in relation to the Heads of Agreement after he altered them on 26 March 1987. He did not deliberately advert to or refrain from informing the applicants of his legal opinion as to the binding force of the Heads of Agreement. Although, in my view, UBA was obliged as a matter of contract to negotiate with Trawl before contracting with other suppliers I do not consider that there was any obligation to reach an agreement. At best UBA was obliged to negotiate, but it was always open to UBA to refuse to accept the terms proffered by Trawl. It was, in other words, a procedural step which UBA bound itself to follow before approaching other suppliers. The first two clauses under the heading "exclusively" make it quite clear, from the use of references to Western Australian imports and "in the first instance" and also in the reservation made by UBA as to acceptance of terms, that it was not an "exclusive" arrangement. Whilst a contractual warranty in certain circumstances can also operate as a representation under s 52 of the TPA, in the present circumstances, the signing by Lees of the Heads of Agreement in the knowledge that it would be provided to Horrobin and Pridmore did not amount to anything more than a representation that UBA had contracted in relation to price, quality, quantity and timing with Trawl, to negotiate before sourcing from other suppliers. If it was not complied with, Trawl could sue UBA for such damages as might result from any failure to negotiate first before obtaining supply from other sources. There is no representation to be gathered from the Heads of Agreement that UBA would accept any particular terms, nor is there any mechanism, formula or standard by which to predict or fix any particular price, quality, quantity or timing as resulting from the negotiations. The contractual obligation did not impose an absolute duty to approach Trawl first in all circumstances. Such negotiations would not be required where it was patently obvious that Trawl would not be able to supply the fish in the quantity or at the time required by UBA, for example. This in fact occurred in relation to the September 1987 cancellation of W17402. UBA were at liberty to resort to other sources of fish where Trawl was not able to provide on the specified conditions. There is in terms no express requirement as to discussion or negotiation. Moreover, for reasons given later, I do not consider that the obligation to provide an opportunity for negotiation played any part in the decision of the applicants in entering into the shareholders' agreement in March 1987. In my opinion the applicants relied on their contractual rights as set out under the Heads of Agreement coupled with the strong commercial attractions of the investment. That is why they obtained a copy as altered on 26 March 1987 to ensure that the Heads of Agreement gave them sufficient protection in its terms. They were concerned with the written obligations of UBA as opposed to an assurance that Lees would "look at" the draft Heads of Agreement. They did not direct their attention to any representation in the Heads of Agreement that they would be approached first by UBA. There is no evidence that any of them considered the agreement did not give them the protection they sought. Nor do I consider that as events turned out it gave rise to any damages, because UBA took all the fish which Trawl could supply, and there was no evidence that Trawl supplied, or could have supplied, more fish than was contracted for in the "W" or "A" contracts in force from time to time. Had the clause given Trawl the right to require UBA to take additional fish at specific prices, quantity, quality and times, this would have been a most important matter, but in fact, it only gave a right to negotiate which in the face of disagreement by UBA would prove to be barren. Accordingly, in relation to the alleged representation as to sourcing supply in the first instance I do not find that there was such a misrepresentation made in the Heads of Agreement or otherwise. In fact UBA took all the fish contracted for which Trawl was able to supply. Supplies from other sources were over and above those which Trawl could supply and in some instances UBA took more fish than it was required to under its contract. For example, in the case of mackerel in the first 3 months of contract W17299 it took substantially more than it was contractually bound to. I find that there was no misrepresentation in respect of alleged representation (xiii). Representation (xiv) - 26 March 1987 Heads of Agreement

Silence The applicants submit that the conduct of UBA and more particularly the conduct of its servant, Lees, prior to the investment of 30 March 1987 in particular was not only expressly misleading, it was also misleading by the silence of Lees. The relevant principles as to silence are set out in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41 per Gummow J as follows: " ...But, consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive. Conduct answering that description may not always involve misrepresentation." His Honour goes on to quote from French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,195 as follows: "If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, s 52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure. The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist." Gummow J goes on to say: "As this passage suggests, one may give s 52 full effect without entirely doing away with what Barton J described as "superior smartness in dealing"... "... Nor does the application of s 52 in the manner suggested necessarily involve the outflanking by statute of developments in the law of contract, tort, fiduciary duty and estoppel of an obligation in certain cases to negotiate in good faith..." The reasons of Gummow J as set out above were agreed with by Black CJ at page 32 in the well-known passage: "Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of "mere silence" or of a duty of disclosure can divert attention from that primary question. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed." (Emphasis added) It is not asserted, in the present case, that there is any duty to disclose arising from the existence of a fiduciary relationship between UBA and Trawl. It is, however, submitted that it was a "close" relationship and that this is a relevant factor. For example, Lees agrees that when he was speaking to Pridmore in October 1987 there was an acknowledgment that the parties had to "trust" each other. Reliance was also placed on the history of the relationship between UBA and Trawl up to the making of the initial investment by the applicants. It is submitted that UBA did not have any intention to honour its agreements, referring to both W17299 and the 26 March 1987 Heads of Agreement, upon the terms set out therein, yet UBA through its servant, Lees, was silent as to this intention in his dealings with the applicants. It is said that in the circumstances there was a reasonable expectation in the applicants that such a disclosure would be made and that failure to disclose was misleading and deceptive conduct on the part of UBA. The reasonable expectation alleged is that where a person has no intention of complying with apparent promises contained in a document, unless it suited that person, then there is an obligation to disclose such intention. Reliance is also placed on the knowledge it is said that Lees had that the Heads of Agreement and the contract W17299 were to be shown to potential investors. It is submitted that Lees should have stated to the prospective investors that in effect, notwithstanding anything the document says, they should know that no credence was attached to the document by UBA, or that they did not really think the document was worth the paper it was written on so far as any legal rights or obligations were concerned. Silence and Contract W17299 For reasons given above I do not consider that a case has been made out that this contract was ever intended to be or was other than a genuine contractually binding commercial agreement. Whilst UBA, Lees and McBurnie may have entertained some surprise as to the rate at which Trawl had been able to process and supply fish, in April/May and June 1987, I do not consider that they believed W17299 was not what it appeared to be on its face, namely a binding supply contract. I am of the view that the statement by McBurnie as to the belief of himself and Lees as at March 1987, concerning the capacity of Trawl to supply was concerned with the rate of supply and processing and not with the basic capacity to meet the terms of contract W17299. The issue by UBA of Contract W17299 did not, in my view, give rise to any reasonable expectation that Lees would disclose to the applicants his alleged view to the effect that this contract was a sham or was not going to be met. I therefore find that there was no misrepresentation by silence in respect of contract W17299. Silence and the Heads of Agreement It is clear that Lees did not regard the Heads of Agreement as giving rise to any binding legal obligation. This was a strongly held and firm belief of Lees. He considered that until basic terms such as price, quantity and timing were agreed, a contract would not arise. He regarded the "W" and "A" contracts as binding because the outstanding matters had been agreed in respect of the fish supplied or to be supplied thereunder. The "W" and "A" contracts embodied and specified these terms in his view. In my opinion, having regard to the problems of construction, ambiguity and generality of the Heads of Agreement, the view which Lees took was one which was open to him as a matter of law. This is a case of one of the parties to the Heads of Agreement having a different belief, but one which was reasonably open to him, as to the legal force and effect of a written agreement, which, to put it mildly, is not cast in clear terms. The document was prepared at the instance of Trawl to serve its purposes and amendments were made to it by Lees.

I do not consider that the circumstances engendered any reasonable expectation that Lees would say to Trawl or the applicants, either before or after the investment by the applicants, that the document in his opinion, did not constitute a legally binding contract, or that he intended to act in accordance with his view as to the effect of the agreement, namely that it gave no rights. Indeed, in the event that he had contacted the applicants to inform them prior to 30 March 1987, that he did not consider the Heads of Agreement to be enforceable against UBA, he may well have exposed both himself and UBA to liability in the event that his view of the relevant contract law proved to be wrong and the sale of shares and/or loan transaction was aborted whereby Atasco suffered loss. The Heads of Agreement was the result of a commercial transaction, negotiated at arm's length between Trawl and UBA. The parties to the agreement each had their own conflicting interests, as regards the other party, to promote and embody in the agreement. There were also, it is true, areas where their interests coincided in relation to assistance and co-operation. The interests of the applicants as investors in Trawl would coincide with those of Trawl in relation to the bargaining process as regards UBA and would place them in a position of conflicting commercial interest to UBA insofar as the Heads of Agreement was concerned. The interests of the three parties, Trawl, the applicants, and UBA were each to get the most favourable agreement and treatment in their own interest under the terms of the Heads of Agreement. This does not mean that they had a licence to deceive each other in the process of bargaining, but they were entitled to have, and to proceed to conduct themselves on the basis of, different reasonably held legal views of the meaning and effect of the Heads of Agreement of 26 March 1987 and to act in their own commercial interests. This is what took place. The applicants were clearly aware of the terms of the executed agreement before they invested, for at least 3 days. There was certainly no evidence before Lees prior to 30 March 1987 to indicate that the applicants were not the astute, experienced businessmen which in fact they were. The draft agreement had been altered after the encounter at Geelong of 18 March 1987 on the applicants' version, in response to statements made by them. It could be reasonably assumed by Lees that the investors had examined the Heads of Agreement before investing and that they had formed their own legal or commercial opinion or had obtained legal or commercial advice as to the effect and operation of the Heads of Agreement. They did not contact him and protest at the amendments. There was no important communication with Lees between 26 March and 30 March 1987. Nor was there evidence of any meeting or conversation wherein Lees had occasion to state his interpretation of the executed Heads of Agreement. The applicants neither informed Lees of their interpretation nor did they ask for his views as to the proper interpretation and effect. In these circumstances there could be no reasonable expectation raised in the applicants that Lees would disclose to them his interpretation and view of the legal operation of the agreement sought by Trawl. It is quite unrealistic to have expected Lees to contact the applicants on or after 26 March 1987 to explain his alterations or views. Prior to the investment on 30 March 1987 there is no suggestion that there was any statement by Lees to the effect that the contract should be interpreted in a particular way. There was no half truth or misleading interpretation given by him as to its operation. He saw no necessity to make known his own subjective understanding of the Heads of Agreement, particularly in relation to the main matters relied on, that is to say, in relation to the three paragraphs under the heading "Exclusively". See McWilliam's Wines Pty Ltd v L S Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723; Mander Forklift v Dairy Farmers Co-operative (supra). Furthermore, Horrobin agreed in the Supreme Court proceedings that he regarded the Heads of Agreement of 26 March 1987 as having no contractual force. Pridmore and Horrobin said in the Supreme Court and in this Court that when they looked at the Heads of Agreement they formed the view that it was not contractually binding. In the present case there was no decision not to reveal facts which would make the silence misleading. Lees' testimony was that he did not think he needed to state his belief that the agreement of 26 March 1987 gave Trawl no enforceable entitlement until "W" or "A" contracts issued, in relation to the period up to 30 March 1987. He did not think it was something that he needed to advise Pridmore, Horrobin or Sands in relation to, and there is no evidence that he knew what they believed about the legal effect or non-effect of the Heads of Agreement prior to 30 March 1987. In these circumstances there can be no suggestion that Lees deliberately refrained, prior to the applicants' entry into the shareholders' agreement, from disclosing his interpretation of, and/or attitude to, the terms of the Heads of Agreement and the effect of that document. In the above circumstances I do not consider that there has been any misrepresentation by silence in relation to the Heads of Agreement or contract W17299. Representations Post Investment of 30 March 1987 As to the representations after 30 March 1987, the applicants put their case on the basis that subsequent to the applicants making their investment in Trawl, UBA continued to seek to foster in the minds of the applicants, the substance of the representations made prior to 30 March 1987. Also, there were further representations allegedly calculated to influence the conduct of the applicants into persisting with the business of Trawl. The main significance which the applicants attach to the post 30 March 1987 representations, is that they are relied on not so much as being representations which should each be individually or collectively assessed as compensable in specific damages, because difficulty was recognised in attributing to any individual representation a precise amount of damages. The subsequent representations are submitted to demonstrate continuing conduct by UBA representing various matters to Trawl which induced continued and further investment and involvement in the business and to explain why such large losses were incurred from a starting point of a $2 million investment. The submission is that the pattern of representations before 30 March 1987 and the pattern of continued assurances thereafter explain why the applicants found themselves in the extreme financial difficulties which they experienced by the end of 1989. Furthermore, it is submitted that the making of the later representations themselves is relevant as to the probabilities of the first or initial representations being made. It is the total effect of all the representations, conduct, omissions and silence up to 30 March 1987 which is of central importance. Events after 30 March 1987 also throw light on and give context to the initial fourteen alleged misrepresentations and bear strongly on the probabilities of statements having been made. Representation (xv) - About April 1987

• "Jack Mackerel, A Long Term Need for UBA" This representation is alleged to have been made by Lees in a telephone conversation in, or about April 1987. The representation alleged is that Lees said to Pridmore that UBA was constantly reviewing upwards its budgeted use of jack mackerel and that jack mackerel was a long term need for UBA. This statement was said by Pridmore to have been made in the context of the proposed purchase by Trawl of the "Marine Countess" and the anticipated closure of the Tasmanian fisheries and the limitation of fishing to vessels that had a history of operations in that fishery. The "Marine Countess" was bought a few weeks later. Lees denies the conversation. There was no note or record or communication of the conversation. It was raised first in about mid-1989 in the New South Wales Supreme Court proceedings which were eventually heard by Cole J. I am not satisfied that, in the absence of any record, this representation was made at all. However, even if it was made, it was not shown to be false or misleading. The evidence supports the increasing mackerel needs of UBA and the applicants produced no evidence to show that this was incorrect. Representation (xvi) - Early June 1987
• Investment Strategy Approved There are two representations involved here. The first is that in or about early June 1987, Horrobin on behalf of Trawl, forwarded to UBA two documents entitled "Trawl Industries of Australia Limited - Fish Processing Plant Geelong - Development Plan" and "Purchase of New Vessels - Licences - Acquisition Strategy" and that in about early June, Lees on behalf of UBA represented that the proposals contained in the said documents and the investment strategy being pursued by the applicants were satisfactory to UBA and were in accordance with the arrangements which had been made between Trawl and UBA. The evidence of Horrobin is that about 3 June 1987, he sent to Lees a copy of an engineering report prepared by Macdonald Wagner entitled "Trawl Industries of Australia - Fish Processing Plant Geelong - Development Plan." He says that on 11 or 12 June 1987, he sent to Lees a memorandum prepared by himself of 9 June 1987, which was entitled "Purchase of New Vessels - Licences - Acquisition Strategy." The statement by Lees is said to have been:

"I have read both reports. They look fine to me. I will talk to some of our engineering people and let you know if they have any suggestions." Lees does not recall these statements of Horrobin, but he denies saying that he had read the reports and they looked fine to him. The conversation alleged by Horrobin does not support the alleged representation pleaded about the two papers being in accordance with the arrangements which had been made between Trawl and UBA. The evidence does not show that prior to June 1987, Trawl and UBA had any "arrangements" in relation to development of the Corio Quay facility or the acquisition of vessels or licences. The Macdonald Wagner report and the vessel acquisition paper have not been shown to have been part of any pre-arranged consensus between Trawl and UBA, but were sent, in my view, to inform UBA as to what steps were under consideration to improve the quality of the products. The documents were probably sent to develop a good working commercial relationship between the two parties by the management of Trawl, keeping UBA informed as to what action it was taking to improve the position. It was part of the co-operation referred to by Pridmore in his memorandum to McBurnie of 19 June 1987, where he expressed gratitude to Lees for his helpful and courteous assistance. I do not accept that there was any misrepresentation in relation to this matter. Representations (xvii) and (xviii) - 11 September 1987

• "Give Trawl all the Business it Could Handle." This representation is said to have been made by Lees in a telephone conversation of 11 September 1987, between Horrobin and Lees, and also by letter dated 11 September 1987. It is alleged to be that: (xvii) If Horrobin and Pridmore controlled the management of Trawl, UBA would give Trawl all the business it could handle. (xviii) Trawl could be assured of a long and profitable future as a supplier to UBA. Lees denies these statements. Horrobin attributes to Lees the statement on 11 September 1987: "If you and Ray control the management of Trawl we will give you all the business you can handle." There is no record or note of any conversation to this effect, and it is denied by Lees. Lees agrees that he said to Horrobin in Sydney on 23 October 1987:

"If you and Ray Pridmore control Trawl we would be prepared to re-issue the Heads of Agreement." It will be recalled that these had been cancelled by letter dated 10 September 1987 from Lees to Trawl. In my view the letter of 11 September 1987 is the best guide as to what was said, and as to what the intentions of UBA were on that date. That letter spells out UBA's intentions and does not make any general assertion about giving all the "business" that Trawl could handle. It sets out, as Horrobin requested, the intentions of UBA, namely that once the ability of the "Marine Countess" to fish by purse seining, and the ability of the Geelong plant to process to UBA specifications, is confirmed, then UBA envisages opening a contract for 3,000 tonnes over a 12 month period. UBA needed to have confidence in Trawl's ability in view of the fact that it had not delivered any fish in the previous 2 months. There is no mention of any open end "carte blanche" commitment to buy on behalf of UBA. Furthermore, the applicants were given contracts after 11 September 1987 and there were no complaints about the quantities ordered. These contracts, as it turned out, were for greater amounts than Trawl could handle. Horrobin did not respond to Lees' letter by protesting that it did not set out the alleged discussions. At the end of the conversation as testified to in his statement, Horrobin asked Lees to fax him a letter confirming Lees' intentions. In my view the letter of 11 September 1987 is quite contrary to the assertions made by Horrobin in his statement. These representations are not made out. Representation (xix) - August-September 1987

• Purchases from "Ocean Fresh - Mitchelson" This representation is said to be constituted by a statement in late August or early September 1987 by Lees to Pridmore, that UBA had never offered to buy fish from Mitchelson and had no intention of doing so. In his statement Pridmore attributes the following words to Lees: "I give you my categorical assurance that we have never offered to buy fish from Mitchellson (sic) and have no intention of doing so. If he wants to supply us he will have to sell through you." Lees at first denied this statement. However, in cross-examination he said he didn't deny saying it. Lees also answered in cross-examination, that if he had said these words they were misleading. I am satisfied that this statement was made and was made with knowledge of its falsity, but on an objective appraisal of the statement in the context of the surrounding circumstances I do not consider that it had any significant effect. It was obvious from Lees' cancellation letter of 10 September 1987 that Trawl could not meet UBA's requirements. In July and August 1987, there were no sales of fish to UBA at all and only 6.176 tonnes in September. Accordingly, it was reasonable, as Horrobin and Sands conceded, that UBA should have gone to other suppliers in order to keep its manufacturing business operating. The letter of 11 September 1987 also makes it quite clear that UBA had gone to other suppliers. I find that this statement was made by Lees and was untrue but in the circumstances in which it was made I do not consider that any reliance was placed on it or that any damage flowed from this statement. It is not claimed on its own to have caused any specific or quantified loss or damage. It occurred five months after the shareholders' agreement of 30 March 1987. Representation (xx) - October 1987 - January 1988 - Cost plus Price - Return on all Expenditure - Removal of J Wilson and Fasham The representation alleged is in these terms:

Between October 1987 and January 1988 Lees represented to Pridmore that UBA was happy to deal with Trawl and to pay a price which would give Trawl a return on all expenditure to date and which would cover a further investment by Trawl in heading and gutting equipment so long as Messrs Wilson and Fasham were removed from the management of Trawl. The evidence on this matter is in Pridmore's statement in which he alleges Lees said to him: "We have already given you an undertaking to give you a price that gives you a return on all that you have spent. The price would have to be adjusted upwards to give you a return on the new expense of the heading and gutting machines as well." Lees is also alleged to have said in referring to J Wilson and Fasham: "Well, you will just have to get rid of them. We are very happy to deal with you. You can rest assured that we will not let you down and we are very happy to fully support you but we won't have a bar of them. I don't think that it's worth talking about the mackerel any more just now. It will have to wait until after you have got rid of them." This conversation is denied by Lees. Horrobin's evidence does not support this representation nor does that of Sands. Neither Pridmore, nor Horrobin nor Sands, say that Pridmore relayed this conversation or its effect to Horrobin or Sands which would have been expected if such a wide unconditional confirmation of an assurance had been given by Lees.

There is no assertion that Pridmore, Horrobin or Sands did anything or refrained from doing anything as a result of the conversation. There is no note or record of this conversation having taken place. It is highly improbable that Lees would have stated that UBA had given an open-ended, undefined undertaking to give Trawl a price which would give them a return on everything that was spent without any qualification at all. There was no evidence that Lees was provided with any written record of all Trawl's costs up to that time. It would be essential before giving such an open-ended assurance to be fully informed of the nature and extent of the costs and the necessity or desirability of incurring them. The submission is that UBA committed itself to pay a price which was entirely open and dependent on a number of factors each of which were outside the control of UBA. Such matters would include the extent to which Trawl undertook capital expenditure and increased its overhead costs, how it financed the cost of capital expenditure, whether the prices for vessels were reasonable, whether they were suitable or able to catch fish, whether Trawl's operation was conducted efficiently and whether the managers of Trawl paid themselves excessive salaries. On the applicants' case UBA was setting a pricing formula for a contract to enure through to 1993. It must be noted, as is pointed out by the respondent, that Lees was not disposed to grant open-ended commitments and any obligations to which he committed UBA were generally carefully hedged. For example, see the amendments to the "Exclusively" clause in the March 1987 Heads of Agreement. His letter of 11 September 1987, concerning a proposed future contract with Trawl, required a demonstration of ability to supply and process fish to UBA requirements. His correspondence of 3 March 1988 noted that any commitment given by Lees in relation to headed and gutted mackerel was subject to agreement as to quality and price. He did not accept the 95.5c kg price referred to in Pridmore's document, but gave an indicative price of 67c kg. There was simply no documentation at all giving details as to the expenditure to which UBA allegedly committed itself in agreeing a price to give Trawl a return on all investment to date. This is to be contrasted with the detailed costs provided by Trawl to UBA in Pridmore's memorandum of 12 February 1988, which contained references to actual expenditure, so as to enable Pridmore's calculations to be checked. Lees' conduct is entirely consistent with this representation not having been made. I find that this representation was not made.

Representations (xxi) and (xxii) - 18 February 1988

• Long term Contract - Investment Plus Profit These allegations are in these terms: (xxi) UBA was prepared to give Trawl a long term contract which would give back to the applicants their investment and a profit and (xxii) that UBA's requirements for mackerel were budgeted to go up tremendously. In his statement Pridmore says that on 18 February 1988, Lees visited Trawl's offices in Geelong, where there was a conversation. In the course of that conversation, he alleges the following words were said: Pridmore: "Well if we agree to losing our balls on the mackerel, are you prepared to give us a long term contract which will give us back our investment and a profit?" Lees: "Yes, we can do that. We won't need a lot of mackerel this year but our requirements are budgeted to go up tremendously. You won't lose by it in the long term." Pridmore: "Well, we already have this exclusive contract with you except for pilchards from the West. We would be looking for an addition to the contract, specifying future prices that would return us our investment, plus bank interest, plus a profit."

Lees: "We would rather have a new contract altogether. We really want to be free to buy fish elsewhere. If we give you a contract giving you prices for the mackerel that returns you your investment, plus a profit, we would want that to entirely replace the earlier exclusive contract". Lees denies the wording quoted above. In relation to the second paragraph, he does admit saying: "UBA will not need a lot of mackerel this year, but the company's requirements are budgeted to increase." Lees admits that Pridmore said: "We already have an exclusive contract for the supply of pilchards except from the West. In the future, any new contract will need to provide for a return on investment plus profit." Again, it is commercially improbable that Lees would have made the representations quoted which amount to a binding guarantee that the applicants would get back all their investment in Trawl plus a profit over a long term. If UBA considered giving a contract to Trawl which would be at a price for mackerel that returned the total investment plus a profit, then such a price would be the 95.5c kg set out in Pridmore's mackerel costing document of 12 February 1988. Lees indicated quite clearly that he would not pay more than 67c kg for mackerel. The price which Lees negotiated for is inconsistent with the above representations. There was no complaint raised in the negotiations that those representations or assurances had been made or given and that for this reason 67c kg was unacceptable. This could be seen to have been a powerful bargaining point on price. The applicants sought to explain the acceptance of 67c kg on the basis that it was an artificially low price imposed by Lees for 1988, but was agreed to on the basis that the price would increase substantially in 1989. Pridmore asserted that at a price of 67c kg there would be a loss of $1 million, whereas Horrobin stated on 8 March 1988, that if 67c was the contract price for headed and gutted mackerel, they did not anticipate doing much better than break even and could make a loss. At the time of discussions, February 1988, Lees gave evidence that he could purchase mackerel in whole fish form, and headed and gutted mackerel from other suppliers for 67c kg. Again, it seems highly unlikely that Lees would have made a representation committing UBA to pay a price in the order of $1 kg. It is also unlikely that UBA would be prepared to pay a non-competitive price in later years of the order of $1 kg or more. It is improbable that in February/March 1988 Trawl, in its straitened financial position, would agree to a price which would, on Pridmore's evidence, result in it losing $1 million, and rely on assurances given by Lees whose alleged earlier assurances had proven to be false and unreliable. The June 1988 Heads of Agreement, with the new price fixing formula, did not record this arrangement, and it appears that Horrobin was responsible for drafting the agreement together with Lees. Sands also read the June 1988 Heads of Agreement pricing clause and satisfied himself that it accurately recorded the agreement as to price between the parties. He would not have agreed to entering the contract unless he understood that it included all the terms that he thought appropriate to be included. My conclusion is that representation (xxi) as to giving the applicants their investment and a profit was not made and that at no time was there ever any assurance by UBA to that effect. In relation to the statement as to UBA's requirements being budgeted to go up tremendously, which is representation (xxii), I accept that this statement was made, in view of the admission by Lees that he did say that the requirements are budgeted to increase. Furthermore, it does appear that this statement was correct and there seems to be no reason why Lees should not make the statement, taking into account the fact that six years have passed and recollections as to precisely what was said, must be extremely suspect, without backup by documentation. I find that this statement was made. I appreciate the force of the observation that the making of such an assertion does not seem to follow or be responsive to the particular question asked, namely "are you prepared to give us a long term contract ...". Nevertheless, I think that the representation was made but that it was true and I do not think it carries the matter any further. There was no misrepresentation in respect of these two matters. Representation (xxiii) - 23 March 1988

• UBA Would Give Trawl the Profits to Satisfy its Bankers. The representation is pleaded as follows: "That UBA would give Trawl the profits and the future certainty it needed to satisfy its bankers and to repay its interest and pay off its loans within the period of the contract then under discussion." This representation is referred to in the statement of Horrobin. It is said to have been made at a meeting with Lees and Pridmore at Trawl's offices at Geelong as follows: Horrobin: "They (the bankers) will insist upon a long term contract with guaranteed minimum tonnages each year and an assured profit which will allow Trawl to pay their interest and repay their loans by the end of the contract." ... Lees is stated to have said: "We will give you the profits and the future certainty you need to satisfy your bankers. We can do better than our standard twelve month contract. We can give you a long term contract, but we can't go longer than 1993 because my projections for mackerel don't go beyond 1993." Lees denies each of these quotes. Again, it is improbable to say the least, that UBA would concern itself with Trawl's relations with its bankers so as to ensure that Trawl had the profits and certainty to satisfy its bankers. Further, it is even more improbable that Lees would assure Horrobin and Pridmore of a long term contract on such a basis, up to the end of 1993. Earlier in the conversation, Horrobin said that Trawl already owed ANZ well over $3 million, and was still spending money and it was necessary to spend a lot more money setting up for heading and gutting. Moreover, Trawl would need to borrow well over another million dollars to get through to 1989. This assurance, if given, meant that UBA would underwrite Trawl's interest obligations to ANZ on a capital borrowing of at least $4 million and that profits would be sufficient to pay off the capital over a 5-6 year period. Pridmore was also at the meeting on this occasion. He does not set out this part of the conversation in his statement, although he was not present during the entire meeting because of the necessity to look after matters in the factory. However, he does not assert that Horrobin told him about the arrangement which Horrobin allegedly made. This is unusual, in view of the importance such an arrangement would have for Pridmore and Sands. Sands does not say that he was told of the conversation alleged by Horrobin. Obviously, if Lees had agreed to give Trawl the contract asserted by Horrobin, Horrobin would immediately have told his fellow directors, and indeed ANZ. On 25 March 1988, 2 days later, there was a board meeting of Trawl. The minutes do not record the asserted agreement, although they do record that there had been discussions with ANZ. There is no indication that this arrangement was spelt out to ANZ and it would have been a most significant matter to draw to ANZ's attention. Furthermore, the matter is not referred to in any correspondence between the parties prior to entry into the 7 June 1988 Heads of Agreement, nor in the pricing formula contained therein. Horrobin says that the expression "cost to TIA" includes this arrangement. This cannot be right because that expression could not cover repayments of borrowings on capital account such as the purchase of the long term lease of Corio Quay and the purchase of vessels which were substantially financed by ANZ or NMRB. Second, given Horrobin's involvement in the drafting of the agreement of 7 June 1988 it is again improbable that he would not have made express reference to this oral arrangement. I am not satisfied this representation was made. Representation (xxiv) - 23 March 1988 - Contract Up To 1993 The representation is formulated in these terms: On or about 23 March 1988 UBA represented that UBA would give to Trawl more than the standard twelve month contract and would in fact give it a binding long term contract covering a period up to 1993. Horrobin's statement alleges that Lees said: "We can do better than our standard twelve month contract. We can give you a long term contract, but we can't go longer than 1993 because my projections for mackerel don't go beyond 1993." Lees denies this statement. There is no misrepresentation in relation to this allegation because UBA in fact gave Trawl a binding long term contract covering the period up to 1993. It was examined by the applicants and executed by them, but there was a difference in interpretation. However, at the time of signing they were content with the contract. It was a binding contact, as Cole J and the Court of Appeal held. All judges of the Supreme Court who heard the matter agreed that Trawl had repudiated that binding agreement and that therefore it had been validly terminated. Indeed, Horrobin and Pridmore certainly thought that the 7 June 1988 Heads of Agreement was binding because they took steps to enforce it according to their interpretation of its meaning. In relation to this matter, it should be noted that there is no allegation that Lees misrepresented his interpretation of the June 1988 Heads of Agreement as has been alleged in relation to the earlier Heads of Agreement. There was no misrepresentation in respect of this matter. Reliance Reliance on Representations Pre-30 March 1987 Even if any of the pre-30 March 1987 representations alleged were in fact made, I am satisfied that there was no reliance by the applicants on any one or more of them in making the initial commitment and investment on 30 March 1987. The individual applicants were astute, experienced and sophisticated investors with a broad and long history in banking, investment, law and commerce. It is, of course, true that they had no experience in, or knowledge of, the fishing industry. However, in my opinion it is inherently improbable that businessmen with such extensive experience would rely on oral statements made at a chance meeting in a 15-30 minute discussion before committing $2 million to purchase shares in a company such as Trawl. It is highly significant that no specific record of any kind was made at any time, by any of the applicants, in relation to any of the oral representations. Nor was there any attempt to confirm or record in writing, prior to, on or after 30 March 1987, any of the understandings, arrangements, and commitments allegedly made on behalf of UBA which the applicants say they understood to be derived from the Heads of Agreement or the "W" contracts or any other written material allegedly relied on. There is no correspondence, diary note, memorandum or written record of the representations, nor of any of the assurances said to have been given orally. In particular there is no confirmatory letter or note written to UBA. One particular example is eloquent in this respect. On 18 March 1987, Pridmore alleges that Horrobin said to Lees: "Having heard you today we are happy to rely on your assurances. We will invest the money subject to sighting a signed agreement between yourself and Trawl in a form acceptable to us." (emphasis added) If the above statement was relied on, one would have expected a formal confirmation on such an important matter as the alleged "assurances". The use of the term "assurances" gives rise to an appreciation in the applicants of the importance of the statement and hence the need for a record. The term "assurance" is by definition something that can be relied on. It is in the nature of a guarantee. Horrobin's statement alleges an express intention to rely on the assurances. The applicants would clearly have appreciated that meaning and ensured that if made, it was confirmed or at least recorded before they relied on it, and committed themselves to an investment of $2 million in a totally new area of business venture. Another significant consideration is that in the shareholders' agreement with itself which Atasco signed on 30 March 1987, there is express reference made in clause 10.6 to the representations, warranties and undertakings made to Cumbeline being set out in the agreement, and that Cumbeline had entered into the agreement on the basis of, and in reliance on, those representations, warranties and undertakings. That clause makes it quite clear that Cumbeline entered into the shareholders' agreement on the basis of the representations, warranties, and undertakings which had been carefully drawn and spelt out in the document. Furthermore, clause 2.1 of that agreement sets out a series of conditions precedent, including provision of evidence that Trawl has certain rights, licences, consents, waivers and other assurances. Clause 4, as is usual in such agreements, provides that prior to the completion date a large number of documents, records and papers shall be supplied and that certain actions will be taken by the parties. There was no attempt to include a reference to any assurances by UBA or to make the agreement conditional on such assurances. The extensive and detailed attention given in the shareholders' agreement of 30 March 1987 to these matters is in sharp contrast to the absence of any record or confirmation in relation to the alleged crucial assurances given by UBA and Lees. The evidence demonstrates that the applicants saw their 50% investment in Trawl in March 1987 as an extremely attractive, if not irresistible investment, with an enormous "upside" of sustained future profits with little "downside". This attraction in their opinion was so great that the clear inference is that Cumbeline and the applicants would have invested in Trawl even if the alleged representations had not been made. By 16 March 1987, Sands gave instructions for Cumbeline's solicitors Messrs Heidtmann & Co, to prepare a comprehensive warranty agreement in relation to the proposed purchase. This evidences at that time a strong attraction to the investment even before the discussions on 18 March 1987 and the Heads of Agreement having been seen by the applicants. Of course there was no firm commitment to invest at that time but preparation of a detailed draft agreement indicates a substantial attraction to the venture. On 16 March 1987, Pridmore had faxed to Horrobin a copy of contract W17299 and some financial information relating to cash flows, and profit and loss accounts to December 1986.

Horrobin, Sands and Pridmore gave evidence that on 30 March 1987, Cumbeline's investment in Trawl was regarded as a very attractive proposal. Horrobin described it as "an extremely good deal". His attention concentrated on Trawl's profitability and whether its profits would increase as turnover increased. It was clearly anticipated that turnover would increase markedly. He considered that Trawl was in a unique strategic position to serve large and profitable markets in Australia and overseas. He also thought that Trawl could profitably sell all the fish it could secure. This was his view when he entered the shareholders' agreement. In his eyes all the applicants considered that for $2 million they had bought into a company which had "a fantastic future" as far as profitability was concerned and it that it would have strong early cash flows and the potential for growth. Horrobin wrote to First National Ltd on 2 April 1987, three days after the shareholders' agreement had been signed and attached the cash flow prepared by Sands. In the period to December 1987, that cash flow indicated that Trawl would make a net profit in the order of $3.24 million, and be able from its cash flow to finance $5.825 million of capital expenditure. After answering questions concerning profitability as indicated in the spreadsheet of Sands, Horrobin was asked: "Q. You must have thought this was a magnificent opportunity to get into? A. Yes I did." There is no reason to think that Sands or Pridmore had different views to Horrobin in relation to the investment. Sands compiled the cash flow spreadsheet sent with the letter of 2 April 1987 and Pridmore had caused the investigations and enquiries to be carried out up to that stage. Pridmore did not indicate any disagreement with Horrobin or Sands as to the attraction of the investment. Horrobin referred to the warranties in the shareholders' agreement as being central to Cumbeline's agreement to acquire an interest. He sought and obtained from Fasham on 26 March 1987, a letter confirming assurances which Fasham had given to him. These assurances provided that there were no outstanding works or further plant to be installed to meet UBA requirements. A letter of assurance was obtained from the Reserve Bank confirming that ANZ consented to the proposed allotment of shares to Cumbeline. In addition, assurances were obtained from ANZ on 26 March 1987, that Trawl was not included in any cross guarantees of other companies in the Atasco Group. The executed Heads of Agreement of 26 March 1987 was obtained and regarded as satisfactory by the applicants. The applicants made extensive inquiries in relation to all matters which concerned them prior to entry into the transaction, yet there was no confirmation of any assurances from UBA, although confirmations and assurances had been obtained from other parties. The only discussion with UBA was at the chance meeting of 18 March 1987. Investigations by the applicants also included inquiries of ANZ as to the business ability, character and financial capacity of the Atasco directors. Pridmore had taken steps to visit Tasmania to inspect facilities and investigate mackerel grounds off Tasmania. Sands was aware of substantially all of the information recorded in the spreadsheet attached to the letter of 2 April 1987, before 30 March 1987, except for some cash flow information. His spreadsheet assumed that by January 1988, Trawl would supply about 14,924 tonnes of fish and that profit would be about $3.24 million and the cash flow would be able to finance $5.825 million of capital expenditure. Another operative and persuasive inducement to the investment was the plan of the Tasmanian government which the applicants understood prior to 30 March 1987 as involving a decision to close the jack mackerel fishing grounds and to allow no new entrants. This gave rise to an opportunity to buy vessels and thereby obtain a quota entitlement which permitted fishing in an enclosed mackerel fishing grounds, and this would clearly increase the capital value of boats because the licences were transferable. Prior to April 1987, in my view, the applicants regarded the proposed investment in Trawl as a "venture capital" proposal. It was present to their minds as an attraction of the investment, that if appropriate, they could substantially expand the business of Trawl, and then sell out at a very substantial profit. There was present to their minds that the investment could operate as a short-term investment. Horrobin was not prepared to admit that it was other than a long term investment proposal but in a faxed memorandum of 4 January 1988, to a Mr Arthur Partridge, under the heading "Potential acquisition of Australian fish harvesting processing and freezing company" he stated: "5. FINANCIAL INFORMATION These assets and an experienced staff have been assembled over the past six months by an Australian venture capital company as a strategic investment, because of the opportunities created by recent developments which are currently occurring in the Australian Fishing Industry. The role of the venture capital financier is now essentially completed, and the fishing/processing company will very shortly be ready to commence full scale operations, upon completion of the capital expenditure program. It therefore has no established track record. In appropriately experienced hands, the company should be capable of generating annual pre-tax profits of the order AUS$6 Million. Estimated new replacement value of the facilities assembled would be of the order of AUS$14 million. Price sought: AUS$8 Million to AUS$9 Million for 100%" (Emphasis added) Although this memorandum was written 8 months after the initial investment it does accurately reflect the approach taken by the applicants to the investment. The venture capital financier referred to is, of course, Cumbeline. That memorandum also emphasised the significance of Trawl's assets. These were said to include large new export-licensed fish processing works set up for both table fish and industrial fish; a large cold store and blast freezers and a fleet of five company owned vessels, supplemented by independent contract fishermen. There was emphasis placed on catching table fish from 10 large trawlers. This latter project had nothing to do with UBA; it was contemplated that table fish could be processed and resold to domestic and export markets. Emphasis was placed on the advantageous geographic location of the company's plant in relation to the developing fisheries, both for table fish and industrial fish. Also, reference was made to the location of the processing plant adjacent to the freezing and cold store facilities, and the wharf and rail line. Further reference was made to an exclusive evergreen contract with UBA. As at the date of this letter of course, there was no "W" contract in existence for the supply of fish, the previous contract having been cancelled in September 1987, for failure to supply. The importance of the perceived unique position of the location of Trawl's processing plant and the consequent strategic marketing advantages which this conferred were a most important feature in attracting the investment. In a situation where the applicants considered that Trawl had a strong competitive advantage over other suppliers, it was not nearly as essential for them to rely on assurances from UBA, because the fact was, to their thinking, that they were able to rely on the great economic and commercial strategic advantage which the location and size of the plant provided. This in my view was a major inducing factor. In addition, by 30 March 1987, Trawl had demonstrated a capacity to supply substantial quantities of fish. In February 1987, 291.2 tonnes had been supplied and in March 506.391 tonnes. This must have given considerable confidence to the applicants, apart from any representations, that Trawl had the capacity to obtain and process fish in large quantities. Horrobin gave evidence that he was particularly impressed with, and relied on, the increase in supply effected in February 1987. He did not appear to have considered the great shortfall in supply in the contract in the previous two years. This indicates a certain degree of selective blindness. It is clear also that reliance was placed on what Fasham and J Wilson had told the applicants in March 1987, and reliance was also placed on what ANZ had allegedly told the applicants about Atasco in particular, and Fasham and J Wilson. These assurances by ANZ were said to be, in later pleadings in relation to ANZ litigation, the basis of the misrepresentation claim by the applicants against ANZ. Pridmore was extremely optimistic and believed that Trawl's business would be profitable. With its own vessels, blast freezer and storage facility, he also considered that it had a unique asset in Australia. He told Lees in 1987, that the applicants had expected a profit of $2 million, in the period to July 1987. On 22 April 1987, little more than 3 weeks after the shareholders' agreement was signed, Pridmore wrote to ANZ indicating that by January 1988 Trawl would be a company without gearing and with the capacity to catch, process, freeze and store 25,000 tonnes of fish per annum. He foresaw a profitability in excess of $5 million per annum as being sustainable, given the margin currently experienced at that time and the increase in that margin which would flow from export markets. There was also expert evidence from Mr Lonergan, of Coopers & Lybrand. He had a long and extensive experience in the purchase and investigation of investment companies and the evaluation of companies and of securities. He was an investment consultant and expert equity valuer called by UBA. Mr Lonergan, under cross-examination, voiced the opinion that Trawl as at March 1987 was worth considerably less than $2 million, and that the applicants had substantially over-paid for their interest in that company. He pointed out that in his experience, purchasers of businesses do not rely on warranties except as a "fall back position", but they rely on proper and full investigations and enquiries. There can be no doubt that the three individual applicants were astute businessmen. This is readily appreciated from their background, as described earlier in these reasons. Lonergan was of the view that any reasonably prudent businessman who examined the management accounts of Trawl, would have appreciated the risk inherent in making the $2 million investment for a 50% interest in Trawl. During his cross-examination he pointed out that Trawl had lost about $600,000 in the year ended 30 June 1986, and for the year ended 30 June 1987, the management accounts of Trawl showed a budgeted loss in the order of $821,000, and that these figures would put a purchaser on inquiry. He said that having regard to these considerations: "It's showing you, put commercially, that this business looks like a dog." He referred to a number of features of the Trawl arrangements with UBA which would sound warning bells to reasonable businessmen. In particular, he pointed out that any contract must always be subject to catch for example. The significant fact is that the matters raised by Mr Lonergan were not examined nor appreciated by the applicants prior to investment, and this is consistent with a strong conviction in their minds that this investment was so good that they could not wait to get a substantial interest in Trawl. It was pointed out in cross-examination that the budgeted loss of $821,000 in the management accounts for 1987 did not take account of revenue from sales and that this would have been realised if a full investigation had been made. However, the salient matter is that no investigation was made by the applicants before committing the $2 million. The last mentioned matter is not determinative in itself, but is one of a number of factors coupled with the earlier matters mentioned which persuade me there was no reliance of significance before entry into the contract by the applicants on any representations which were said to have been made on behalf of UBA. Of all the factors mentioned above I think particular emphasis should be placed on the view of the applicants that Trawl held a unique strategic position and that by reason of this perception it was assured of custom from UBA, and collateral statements by UBA did not induce the investment. In my opinion, prior to 30 March 1987, Trawl was perceived by the applicants to be a highly lucrative, almost irresistible investment, with its promise of an extraordinary profit earning capacity of a sustained nature with the additional opportunity to produce very substantial capital gains given the enhanced sale price of assets coupled with the opportunities to expand into large new markets unrelated to pet foods, such as table fish and export markets. This "fantastic" investment, coupled with a sense of urgency generated by the need to purchase the PGA lease, propelled the applicants into the investment and none of the representations made by UBA were relied on to any extent or at all by them when they made the commitment. My conclusion is that none of alleged misrepresentations taken either individually or cumulatively were relied on by any of the applicants in entering into the investment. Reliance - On Post 30 March 1987 - Representations It is not possible on the evidence before me to attribute any degree of reliance on these representations either individually or cumulatively. Nor is it possible to allocate or quantify any specific damage arising as a result of these representations. The fact is that as from 30 March 1987, the applicants were firmly committed to the business. The second instalment of $1 million was paid on 28 July 1987, by which time they were aware of the significant problems which had beset Trawl's business. A number of these problems were clearly manifest by the end of July 1987. They had no commercial alternative but to continue to carry on the business. The dispute which arose with the Atasco directors was the direct cause of them entering into the buyout deed of 29 November 1987. They could either have sold out or obtained control by buying out Atasco and then selling at an adequate price to recover their investment at that stage. UBA continued to buy product after July, through October 1987, notwithstanding the cancellation of W17402 on 10 September 1987. Trawl was having problems at that time with its fishermen (arising from non- or late payment). In the latter part of 1987, relations broke down with the Atasco directors and ANZ was unwilling to advance funds whilst the dispute continued; the Trawl vessels were out of action for substantial periods and could not fish; and Trawl did not supply pilchards between early July and 10 September. There were also disputes over the November 1987 deed with Atasco and the dispute and litigation with ANZ over the existence of the scrip lien in December 1987 and following months. Trawl had difficulty in trying to get finance from anyone other than ANZ and substantial financial losses were building up in this period. As a result of these commercial problems, the applicants were unable to get out of the investment. They were unable to find another equity investor or to sell their own interest despite extensive efforts to do so in this period. The applicants persisted with the investment in the hope that they could get out at a profit. Put simply, they were plagued by a completely unanticipated series of problems after the investment, and their dominant objective was to stay in business in the hope that circumstances would change. Of course, the custom of UBA was essential to them and they were relying on the probability, as Lees foreshadowed on 11 September 1987, that UBA would order future supplies from them. In 1988, UBA did re-contract with them and on 8 June 1988, signed the new Heads of Agreement with a cost plus formula spelt out in the document. This was then repudiated by Trawl. As a result of the repudiation of the 1988 Heads of Agreement in April 1989, the arrangement with UBA was terminated. In my view, far from any representations after 30 March 1987 causing or contributing to losses by the investors, they resulted from unforeseen events not contributed to by UBA. The applicants' misfortune was the result of what turned out to be a disastrous business investment. The applicants did not in my view rely on any of the statements allegedly made after 30 June 1987, to their detriment. The real problems arose from their decision to invest in the first place, which was not done, as I have previously decided, in reliance on any representations by UBA. I now briefly turn to the individual misrepresentations alleged to have been made after 30 March 1987. Representation (xv) - Early April 1987

• Revising Estimates Upwards In early April 1987, contract W17299 was in effect and provided for delivery over the remainder of the year from early February 1987, of 6,250 tonnes. The evidence does not establish that the representation was untrue. It is in the most general of terms. I do not accept that any of the applicants did anything, or refrained from any action in reliance on this alleged representation. This is evidenced by the fact that there is no material to establish that Pridmore took steps to tell Horrobin or Sands about the matter. Representation (xvi) - Early June 1987 - Documents Satisfactory to UBA and in Accordance with Arrangements This relates to the upgrading work on the factory and purchase of the vessels. In my view the vessels were acquired because of Trawl's own independent assessment of the desirability of acquisition, and not in reliance on UBA's representations. By 2 April 1987, the applicants planned to process about 13,000 tonnes of fish by January 1988 which would require an upgrading of the plant. By early June 1987 the plant had processed 2,381.739 tonnes in April and May but by that time there had arisen a blocking or clogging up problem and other operational problems had manifested themselves. Pridmore considered that G Wilson, who was managing the plant prior to May-June 1987, was incompetent to operate the factory. There is no evidence as to how the applicants would have acted differently if Lees had made the statement alleged. Also, by June 1987, the applicants had envisaged the export of table fish. The evidence of sales to UBA in April-May 1987, was that the plant was capable of processing 1,082.005 tonnes and 1,299.734 tonnes respectively. This shows a throughput rate in the range approximately of 13,000-15,000 tonnes per annum. Lees was not shown to be an expert in refrigeration or plant layout, although of course he must have had some acquaintance with these matters. There was no note to the effect that Lees' statements or advice were being relied on. The evidence of Horrobin was that Lees said the Macdonald Wagner report looked fine to him but he would talk to UBA's engineering people, and would let Horrobin know if they had any suggestions. There is no indication that this matter was pursued any further. In my view the Macdonald Wagner report was sent to UBA as a matter of good working relations and to establish with UBA that Trawl was making every effort to ensure that fish were supplied.

Representation (xvii) - 11 September 1987 - All the Business They Could Handle if J Wilson and Fasham Were Removed. This representation is said to have been oral and set out in the letter of that date. The only reliance which could have existed was that on the letter of 11 September 1987, which sets out the intentions of UBA as requested by Horrobin. This letter does not support the alleged representation at all. No attempt was made to record the alleged representation, or to point out that the letter was inaccurate or incomplete in any way. There is not even a diary note or internal record in Trawl, in relation to this matter. The letter was concerned with the demonstration of ability to fish, and not with who comprised the management of Trawl. UBA was seeking assurance of ability to supply, understandably so, in view of the non-performance in July and August 1987 by Trawl. Representation (xix) - August-September 1987

• Dealings with Mitchelson Pridmore states that had he known any of the discussions with other suppliers were going on and that UBA was purchasing fish from Mitchelson, he would have concluded that the March 1987 Heads of Agreement was worthless and recommended suspension of business and reversion to legal rights against UBA. Pridmore said that the dealing with Mitchelson which had been denied indicated that UBA would have been proven to be totally untrustworthy. Notwithstanding this and the other allegedly false representations made by UBA up to that time which had become manifest, on the applicants' case, the applicants were prepared to deal with UBA by entering into the 7 June 1988 Heads of Agreement. The applicants clearly knew that UBA was taking product from suppliers other than Trawl during 1987 because of Trawl's failure to supply, though there had been no prior approach to Trawl by UBA in relation to ordering fish from other suppliers. When Pridmore learned of UBA's "second supplier" policy in March 1988, he took no steps to inquire whether that policy had applied during 1987. This would have been a logical inquiry to make if he had believed that there was an "exclusive" supply arrangement. Furthermore, when Sands learned of UBA having a policy of a second supplier in early March 1988, he said that he did not know what the policy related to or whether it was an existing policy or a new requirement, but says that it was a surprise. However, he made no inquiries. He agreed that the existence of the policy was inconsistent with the 26 March 1987 agreement being an "exclusive" supply contract. He said that if he had been aware that UBA was taking mackerel from Ocean Fresh, then he would have voted to appoint a receiver to Trawl. I do not accept this evidence given the financial circumstances in which Trawl was situated at that time and given the circumstances that the major asset of Trawl was its prospects as supplier to UBA once it convinced UBA of its capacity to meet supply and specifications. In my view, if the applicants had known about the relationship with Mitchelson, their response would have been simply to register a complaint with UBA, but no more. Representation (xx) - October 1987-January 1988
• Removal of Fasham and J Wilson from Trawl. In my opinion the removal of Fasham and J Wilson from Trawl was not undertaken because of statements by UBA. These steps to gain complete control of Trawl arose because it was simply impossible for the Cumbeline and Atasco interests to continue to work together. There was a strong sense of mistrust on the part of the Cumbeline directors in that Trawl's business had proven to be significantly different from that expressed prior to investment. At this time the applicants claimed they were misled and blamed Atasco for their predicament. As recorded by Oldfield on 27 October 1987 and 9 November 1987, the Cumbeline interests had formed the view that Trawl could not continue and that there would have to be a buy-out or a sale to an outside party. ANZ had refused to lend further funds to Trawl by this time unless disputes and differences were resolved. Sands considered that by November 1987 the liquidation of Trawl was a possibility unless arrangements could be reached between the shareholders in Trawl.

The reality was that there was no commercial alternative, as Sands indicated, but to enter into the November 1987 deed. It is significant that when the deed was signed Pridmore informed the bank manager and an increase in Trawl's overdraft was agreed. In my view the applicants would have entered into the deed of 29 November 1987 to get rid of the Fasham and Wilson interests apart altogether from any statement by Lees. This alleged representation also asserts reliance upon a representation that the price which UBA would pay to Trawl would give a return on all expenditure to date and cover further investment by Trawl in heading and gutting equipment. Horrobin did not assert that he was relying on any representation that the price which UBA would pay would give Trawl a return on all expenditure to date when he wrote on 8 March 1988 that future price was to recoup the cost of heading and gutting equipment. If reliance was placed on an assurance that the price would give a return on all expenditure, clearly this would have been referred to in the drafting of the new Heads of Agreement of June 1988. Representation (xxii) - 18 February 1988

• That Mackerel Requirements Would Go Up Tremendously. Again, I do not consider the applicants relied on this representation. They relied on the June 1988 Heads of Agreement which set out minimum quantities of mackerel which provided for an increase in the minimum quantity of mackerel to be purchased each year. This was obviously satisfactory to the applicants, otherwise Trawl would not have entered into the agreement. Representations (xxi), (xxiii), & (xxiv) - 18 February 1988 -23 March 1988 - The Profits and Future Certainty and Long Term Contract There was no reliance, in my view, on any representations to the effect of the representations alleged. The applicants drafted the relevant clauses of the document which became the June 1988 Heads of Agreement. It is clear that by entry into the June 1988 Agreement they relied on their own understanding of its legal effect and not on any assertions made by UBA. Horrobin said there was a meeting with Lees on 23 March 1988 in the course of which Horrobin offered to prepare a draft Heads of Agreement. He prepared a draft and sent it to Pridmore for comments before forwarding it to Lees. He asked Pridmore whether he had any ideas on pricing formula. This sits uneasily with the proposition that Horrobin and Lees had already agreed on a pricing formula. As it turns out there was no material variation or addition to the relevant parts of the draft in the 7 June 1988 Heads of Agreement. Representation (xxiii), to the effect that UBA would give Trawl the profits needed to satisfy its bankers and repay its interest and its loans within the period of the contract, was not in my view relied on. The applicants relied on the pricing formula embodied in the June 1988 Heads of Agreement and this said nothing about satisfying bankers and repaying interest and loans. Representation (xxiv), was believed by the applicants to be embodied in the June 1988 Heads of Agreement and there was no independent reliance on any representation in my view. Reliance - ANZ and Atasco Further relevant considerations on the question of reliance are assertions by the applicants that they relied on representations made by ANZ to them prior to investing in Trawl. They have alleged that without the misleading and deceptive conduct of ANZ, Cumbeline would not have invested in Trawl. Also, it is clear that the applicants relied on the shareholders' agreement and the warranties contained in it, together with the documents obtained prior to the execution of the shareholders' agreement in March 1987. They also relied on warranties given by Atasco. Horrobin agreed that the warranties given by the Atasco interests were "central" to Cumbeline agreeing to acquire an interest in Trawl, but he did point out that there were other considerations. Pridmore said that the representations by UBA were "vital". Notwithstanding this, it was not until 1989 that he raised the assertions presently relied on. Damages In view of the conclusions which I have reached on the issues of misrepresentation and reliance it is neither necessary nor appropriate to decide or deal with the question of damages. Conclusions My conclusions are :
  1. Apart from representation (xix) made in August/September 1987, relating to purchases from Mitchelson, I am not satisfied that any of the misrepresentations alleged were made by UBA.
  2. In relation to representation (xix) I do not consider that there was any reliance on it nor was any damage shown to flow from that misrepresentation.
  3. I do not consider that in entering into the investment and persisting with it, the applicants relied on any one or more of the representations alleged, either individually or taken together.

4. Accordingly, the appropriate order is that the application be dismissed with costs, except that the costs of the interlocutory hearing on legal professional privilege reserved on 14 November 1994, should be paid by UBA. I certify that this and the preceding two hundred and seventy-one (271) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Tamberlin. Associate: Date: 29 June 1995 Counsel for Applicants: Mr A J Sullivan QC Mr J B Whittle Solicitor for Applicants: Blake Dawson Waldron Counsel for Respondent: Mr R J Bainton QC Mr R M Smith Ms J Deamer Solicitor for Respondent: Sly & Weigall Date of Hearing: 10,12-14,17-21,24-28,31 October, 14-18,28-30 November 5-9,12-16 December 1994 10,13,16,17 February 1995 Date last written submissions received: 28 March 1995 Date Judgment Delivered: 29 June 1995