More recently, in Demagogue Pty Ltd v Ramensky & Anor (1992) 39 FCR 31, Black CJ said at p 32:
"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."
48 I have cited these passages for I have come to the conclusion that, in the present case, Mr Semrani did engage in misleading and deceptive conduct which was constituted both by the positive statements he made and by his failure to disclose that he proposed to purchase the machinery of which he spoke for less than $60,000. Although much of what Mr Semrani said can be regarded as "mere puffing", Mr Semrani represented as a matter of substance that he owned two assets of great value. One was the machinery and the other was the patent. Those representations, plus the representations as to potential business, induced Mr Manoun to invest funds in what he thought was a venture having value in it. Mr Manoun probably overstated the position when he said in evidence that, "I didn't buy prospects. I bought physical value." Nevertheless, I am satisfied that Mr Manoun understood that Mr Semrani was bringing assets of substantial value into the venture and that Mr Semrani induced that belief.
49 I am satisfied that, had Mr Manoun understood that the machinery was on offer to Mr Semrani for less than $60,000 and that no patent had issued, he would not have been prepared to invest. Mr Manoun risked not only his own moneys but also moneys of his family. He did so because he understood the venture to be backed by valuable machinery and patent rights.
50 It is not really in dispute that Mr Semrani did represent that the machinery was worth $1milllion or more. This was the basis upon which the transaction was structured. I accept, moreover, Mr Manoun's evidence that he was given a copy of the false Inteq letter in which Inteq appeared to place a value of approximately $2.2million on the machinery and $4-5million on the patent. The machinery was not worth anything like $1million. I regard the valuation obtained by the receiver/manager as placing a realistic value upon the machinery as a "going concern" and at an auction. The fact that a sale took place at that value is confirmatory of that. The fact that the records of Armourframe showed $173,000 spent on the machinery is also confirmatory that the machinery had a relatively modest value, nothing like $1million.
51 There is in evidence a valuation from Anthony R O'Dea, a valuation consultant. The valuation is dated 24 November 1996 and it was provided to Mr Semrani for use in promoting the business. The valuation placed a "going concern" value on the business of Steel Frame Connections of $1,626,115, of which $1,318,000 was attributed to the machinery on an in use basis. The foundations for the valuation in so far as they are explained do not appear to have any substance. The foundation of the valuation of the machinery was not explained. I would not give the valuation any weight.
52 It is also not in dispute that Mr Semrani represented that he owned the machinery and that Mr Manoun believed that to be the case. That representation was false. At all times during his negotiations with Mr Manoun, Mr Semrani had it in mind to purchase the machinery from the receiver/manager at or about the valuation which the receiver/manager had received. I have already pointed out that, although in the partnership proceedings in the Equity Division of this Court Mr Semrani claimed that he owned the machinery, the two affidavits which were filed in January 1994 both made the point that the materials for the machinery were acquired by the partnership and that the machinery was built by him and by employees of the partnership under his supervision whilst he was employed in the partnership's business. On the basis of those affidavits, one would conclude that the Armourframe partnership owned the machinery. In these present proceedings, Mr Semrani in his evidence appeared to confuse questions of patent rights with the issue of ownership. In his affidavit, Mr Semrani deposed, "Since I was the owner of the Patent (pending) I considered the machinery mine." His oral evidence seemed to put the same point and, in these proceedings, he attempted to distinguish between those parts of the machinery which reflected his invention, the dies and the rollers, from other parts of the machinery which could have general use. On the whole of the evidence, it seems to me that Mr Semrani was never the owner of the machinery. In any event, throughout his negotiations with Mr Manoun, Mr Semrani had it in mind that the machinery would be purchased from the receiver/manager at or about the valuation which the receiver/manager had received. I am satisfied that, had Mr Manoun known of this fact, he would not have dealt with Mr Semrani on the basis which he did, indeed, he would not have invested in the venture.
53 I should also mention that the machinery was in due course purchased by BONIS from the receiver/manager. The funds of BONIS were paid to the receiver/manager. The Deed of Agreement, which I have mentioned above, provided for BONIS to be the purchaser. Mr Semrani never became the owner.
54 If one looks at the terms of the handwritten agreement, one notes that there was an apparent conflict between the concept that BONIS would purchase the machinery from Mr Semrani and the provision that BONIS would pay for the release of the machinery. This discrepancy was not raised or discussed in the conference. Mr Williams said that he understood at the time that Mr Semrani would draw funds from BONIS on his loan account and with those funds would himself acquire the machinery. If Mr Williams had considered that that would happen, it would have been appropriate for him to raise that matter for discussion. Such a transaction would seem, on the face of it, to be inconsistent with the provision that the loan account was to come into existence only when the machinery was sold by Mr Semrani to BONIS.
55 The significance of the representation that Mr Semrani owned the patent is that it gave an element of substance to the enterprise in which Mr Manoun was asked to invest. The representation was not insignificant, because Mr Semrani alleged that the patent was valued at about $5million. The Inteq letter also contained the representation that the patent had a valuation of $4-5million. When Mr Manoun was asked to invest, and when he did invest, the enterprise did not have that substance behind it. There was no patent, merely an application for a patent.
56 The representations which Mr Semrani made with respect to potential customers were not significant matters in themselves, but the overall picture that Mr Semrani presented was that of a business which was in a position to make substantial profits within a short time of an investment by Mr Manoun of his $200,000. That picture was untrue as a matter of substance. There was no existing business ready to start and a great deal more capital and expertise was required than could be provided by Mr Semrani and Mr Manoun.
57 I am satisfied that Mr Manoun acted on the faith of Mr Semrani's representations and would not have invested had he been aware of the true position. I am therefore satisfied that his loss is attributable to, was caused by, Mr Semrani's misleading and deceptive conduct.
58 I have come to a similar view with respect to Mr Williams' conduct. Mr Williams did not set out to deceive Mr Manoun but he was aware of a vital fact which he did not mention. That fact was that steel frame making machinery which had been used by the Armourframe partnership was being offered for sale by the receiver/manager of the partnership for $58,365. Mr Williams himself had caused a letter to be sent to the receiver/manager offering that sum. The conduct was misleading and deceptive because the ownership and the value of the machinery was an important matter and the statement that Mr Semrani represented that he owned the machinery and that it was worth $1million or more was put to Mr Williams in such a way that Mr Manoun would have expected him to query the statement if he knew it to be untrue. Mr Manoun had been informed that Mr Williams had had an involvement with the machinery. Although Mr Manoun did not expressly ask Mr Williams whether Mr Semrani's statement was true, he stated the facts so as to make it clear what was the basis upon which he was proceeding and so as to give Mr Williams an opportunity to respond if the facts were wrong. He expressed the representation as to ownership of the patent in the same way. Mr Williams may have answered "Okay" or "Yes", as Mr Manoun alleged, or he may simply have remained silent. But he was aware that he had offered the "total auction value" of "the unencumbered plant & equipment of the … partnership" and that that value was only $58,365. By remaining silent, he joined Mr Semrani in deceiving Mr Manoun. His deception continued when he had produced the handwritten agreement which referred to "THE PURCHASE OF EXISTING MACHINERY" and "RELEASE MACHINERY" and which proceeded on the basis that the machinery was owned by Mr Semrani. The deception continued further when Mr Williams drafted and had signed the minutes of a shareholders meeting of BONIS of 13 June 1996 which provided, inter alia, that, "The shareholders unanimously agreed to the action of the directors of the company in entering into an agreement with ALATEN Pty Limited (acting in their capacity as trustee of the FUTURE TRUST) to acquire the existing machinery owned by the FUTURE TRUST". On that date, no machinery was owned by Alaten Pty Limited or Mr Semrani and negotiations with the receiver/manager had not been finalised.
59 I am also of the view that Mr Williams had a duty of care to Mr Manoun and that he breached that duty. By advising the two men as to aspects of their proposal and by agreeing to act as accountant for the enterprise, Mr Williams put himself in the position where he acted for both. He so acted in a professional capacity. When he knew of a fact which was inconsistent with what he was told and inconsistent with the agreement between Mr Semrani and Mr Manoun, he had a duty to raise the point, if he was to continue to act. He did not fulfil the duty of care which he owed to Mr Manoun.
60 It has been submitted on behalf of Mr Williams that his advice was limited to recommending a corporate structure rather than a partnership and that his preparation of the handwritten agreement involved no input from him, merely the putting into good English of the matters which had been agreed in principle between Mr Semrani and Mr Manoun. However, I think that places too limited an ambit on Mr Williams' role. In the first place, he had had, and was understood to have had, an involvement with Mr Semrani's affairs and with the machinery. Secondly, probably before the document had been prepared and in any event before Mr Semrani and Mr Manoun went elsewhere, he had agreed to be the accountant for the venture. Mr Manoun expressed the representation as to ownership of the machinery and of the patent in such a way as should have evoked a response from Mr Williams if he knew facts to the contrary. Note the recording in the document of Mr Semrani's representation that he owned the patent. A similar representation with respect to the machinery is not expressed in the handwritten document but it is plainly implied and I accept the evidence of both Mr Semrani and Mr Manoun that it was made. By doing nothing, Mr Williams conveyed that these representations were not inconsistent with his knowledge.
61 In these circumstances, I am of the view that there should be judgment against both Mr Semrani and Mr Williams.
62 It was submitted that Mr Manoun was not entitled to damages for he got what he had paid for. It was pointed out that BONIS acquired the machinery and that a patent was ultimately issued. It was submitted that the venture did not fail because of misleading and deceptive conduct but because of mismanagement. I reject this submission. The enterprise did not have the character which had been represented. It was not backed by valuable assets and it was not in a position to make substantial profits within a few months. In my view, Mr Manoun's money was lost the minute he invested it. He suffered loss because he trusted Mr Semrani and Mr Williams and made the investment.
63 Mr Manoun paid the sum of $251,750. That sum must be reduced by the amount of $42,234 received back by way of the altered cheque dated 18 October 1996. The balance is $209,516. Of this sum, only about $120,000 came from Mr Manoun's own funds. $20,000 came from funds by his children belonging to or provided by his children and the remainder from funds belonging to his wife. The submission was made that Mr Manoun could sue only for the moneys to which he had presently been entitled. I reject that submission. The moneys were invested by Mr Manoun in his own name. The means he took to obtain finance is not relevant. Having used the money for investments in his own name, he is entitled to recover and has an obligation to repay to those from whom he obtained the finance.
64 It was submitted that Mr Manoun continues to hold valuable shares in BONIS and that no evidence had been adduced as to their value. The substance of the submission was put in Mr Semrani's affidavit of 15 December 1999 when he said, "I say that at the time of our agreements the plaintiff received a 30% interest in two companies, which together owned the business, the machinery and the exclusive licence to exploit the Patent." However, Mr Manoun received no interest in Steel Frame Connections and both Steel Frame Connections and BONIS are in the course of liquidation. Although Mr Semrani considers that the machinery and the patent rights have great value, I am not satisfied that the machinery has other than its auction value or that the licence has any significance for the purposes of the liquidation. The exclusive licence would not appear to be a saleable asset. The evidence as it stands is that the companies ceased trading on 27 October 1996 and that shortly thereafter Mr Williams examined the finances of the companies and concluded that they were insolvent and that steps should be taken to protect the interest of the creditors. It appears to me from the material before the Court that the shares in the company had no value at that time. Mr Williams recorded the trade creditors at $163,869. This was apart from the loan account of Mr Manoun and Alaten Pty Ltd. No evidence has been adduced to show that the position has changed.
65 Mr Semrani has cross-claimed for the sum of $48,250, the difference between the $300,000 agreed to be invested by Mr Manoun for his shares in BONIS and the amount actually paid. However, that claim must be set off against Mr Manoun's claim under s 42 of the Fair Trading Act. No purpose would be served by increasing the sum awarded to Mr Manoun by $48,250 and allowing a cross-claim for that sum. The appropriate orders are judgment in favour of Mr Manoun for the sum I have mentioned and dismissal of the Cross-Claim.
66 There will be judgment for the plaintiff in the amount of $209,516 with $80,663 for interest calculated in accordance with the rates set out in Schedule J to the Supreme Court Rules. The total is $290,179. The defendants are to pay the plaintiff's costs of the proceedings.
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