"Lionel Hunt is the creative talent that changed the face of Australian advertising … and is doing it again. Lionel is now the founder of 2 successful agency brands.
Lowe have offices in Sydney, Melbourne and Auckland. We have over 200 people and generate $300 million in billings.
Our Sydney office is one of the network's 12 lead offices and we have 150 offices around the world."
34 Mr Moss pleaded that by these statements Mr Colman represented (on behalf of Lowe Hunt) that Lowe Hunt was a financially successful agency in Australian advertising as at April 2005.
35 Mr Moss's evidence about the first representation was that he attended a "pitch" on or around 18 April 2005 (the same pitch made on at least three occasions) at which Mr Colman presented Lowe Hunt's credentials to prospective clients. The pitch was presented with the aid of a PowerPoint presentation. Although Mr Moss billed Lowe Hunt for his time, he disavowed any role in developing that presentation and Lowe Hunt called no evidence to the contrary. The PowerPoint presentation corroborated Mr Moss's account.
36 Lowe Hunt contended, in effect, that Mr Colman's representation had nothing to do with financial success. In its written submissions it made the following points:
· Mr Moss was unable to say whether or not the PowerPoint presentation evidencing the content of the representation was a draft.
· He was unable to say how he came into possession of the PowerPoint presentation.
· He was unable to say when precisely the representation was said to have been madebut recognised in any event that it was made in the context of a "pitch" to potential clients, a process in which he himself was engaged on behalf of Lowe Hunt. Accordingly, the emphasis, more likely than not, would have been on creativity rather than profitability.
· He agreed that the reference to "billings" is advertising terminology for the amount of media expenditure by clients in relation to the promotion of a creative idea generated by the particularagency and that this is understood by advertising clients.
· He could not say that the statement that Sydney, Melbourne and Auckland offices generated $300 million in billings was inaccurate.
· As to the balance of the matters contained in the PowerPoint presentation, he knew from his own experience and knowledge that they might be qualified in various ways.
· It is not apparent from either his affidavit evidence or his oral testimony that he was misled in any material way.
37 None of these circumstances seems to me to be to the point. It does not matter whether the PowerPoint presentation was a draft or that Mr Moss might have been unable to say how he came into possession of it. Mr Colman admitted he made the representation in the manner in which Mr Moss deposed. Neither does it matter what the emphasis of the presentation might have been. The question concerns whether what was said was misleading or deceptive or likely to be so. The presentation was clearly designed to create the impression that the business was a financial success with a solid base. It was not just focussed on the creative talents of its owner or staff. As for the submission that "it is not apparent" that Mr Moss was misled by it, it is well accepted that there may be a contravention of s 52 although no-one was actually misled. Whether any damage was caused by the conduct is another matter to which I will return later.
38 It is true that Mr Moss agreed in cross-examination that "billings" is "advertising agency terminology for the amount of media expenditure by clients in relation to the promotion of a creative idea generated by the particular agency". But he disputed that the term had nothing to do with revenue or profitability, as Mr Colman had said in his affidavit, insisting that it was "a financial indicator" and that "one would assume, given the size of that billings figure, that it will relate to the profitability based on benchmarks within the industry, for instance".
39 Section 52 of the TPA provides:
(1) A corporation will not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this Division will be taken as limiting by implication the generality of subsection (1).
40 Section 42 of the FTA is in essentially the same terms.
41 Section 53B of the TPA provides:
A corporation will not, in relation to employment that is to be, or may be, offered by the corporation or by another person, engage in conduct that is liable to mislead persons seeking the employment as to the availability, nature, terms or conditions of, or any other matter relating to the employment.
42 Section 46 of the FTA is in similar terms.
43 There is no statutory definition of "misleading" or "deceptive". As Gibbs CJ observed in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 the words are tautologous as they can both mean "to lead into error" and it is this sense in which they are used in the legislation. See also Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] HCA 31 ("Miller") at [15].
44 Heydon J, writing extra-judicially in Trade Practices Law, said of the formulation "liable to mislead" used in s 53B (at [12.940]):
"Liable to mislead" will probably be interpreted to mean nothing more than "misleading" (ss 52 and 53-53A) or "likely to mislead" (s 52)… If there is a difference, something "liable to mislead" would seem to be less certain to be so than something "likely to mislead". Plainly no-one need actually be misled.
45 Nonetheless the expression has been held to impose a higher threshold than "likely to mislead": Westpac Banking Corporation v Northern Metals Pty Ltd (1989) 14 IPR 499. Happily, the difference between the two formulations is a matter of academic interest in this case. As long as Pegasus can prove that damage has been caused by a contravention of any of the provisions upon which it relies, it is entitled to the relief it seeks.
46 In deciding whether Lowe Hunt engaged in conduct that is misleading or deceptive or likely (or liable) to mislead or deceive, the question is not what the respondents intended but what were the consequences of their conduct. It does not matter that Mr Colman may not have intended to mislead Mr Moss: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 ("Hornsby") at 228. The test of whether conduct is misleading or deceptive or likely to be such is entirely objective. Moreover, it is not necessary for the applicant to prove that it is more likely than not that he would have been misled or deceived. All that must be shown is the existence of a real or not remote chance that might occur, even if the chance does not rise above 50%: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87; Equity Access Pty Ltd v Westpac Banking Corporation & Westpac Savings Bank Ltd (1990) ATPR ¶40-994 at 50-950.
47 Pegasus argued that the first representation could be characterised as misleading in at least three ways:
(a) As a misrepresentation because it is simply false, on any ordinary meaning of the adjective "successful", to describe a business as successful if it is not making money;
(b) As a misrepresentation by silence, in the sense that Lowe Hunt failed to make full disclosure of its situation in circumstances where Mr Moss could reasonably expect that its financial situation would be disclosed to him; or
(c) As a misrepresentation by half-truth, in the sense that Mr Colman said something that was true, i.e. Lowe Hunt was successful in at least one reasonable meaning of that adjective (e.g. creatively successful as it was winning awards), but was nevertheless misleading because it did not exclude the other more obvious meaning, that it was prosperous.
48 If the representation was made two questions arise. What was to be taken by Mr Colman's conduct (having regard to the fact that he is not said to have made a representation in terms that the business was successful or was financially successful)? And was what he represented misleading or likely to mislead?
49 Lowe Hunt argued that neither the first nor the second representation was "proven to the requisite standards in order to be actionable". I bear in mind the salutary warning given by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-19 upon which Lowe Hunt relied:
Where the conduct [alleged to contravene s 52 of the TPA or s 42 of the FTA] is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
50 Here, however, Mr Colman did not deny he uttered the words attributed to him. He merely tried to put a different spin on them. He testified that "billings" is a term of art in the advertising industry and "has nothing to do with the revenue or profitability of the agency" but to the amount of media spending that an advertising concept generates.
51 It may be literally true that "billings" relates to the amount of media expenditure by clients but in the circumstances it may also be misleading as explained in Hornsby at 227:
No doubt the meaning of the statutory prohibition which s 52 (1) enunciates must be gained from the terms of the sub-section itself; but nothing in those terms suggests that a statement made which is literally true … may not at the same time be misleading and deceptive. It clearly may be. To announce an opera as one in which a named and famous prima donna will appear and then to produce an unknown young lady bearing by chance that name will clearly be to mislead and deceive. The announcement would be literally true but none the less deceptive, and this because it conveyed to others something more than the literal meaning which the words spelled out.
52 Mr Colman agreed in cross-examination that billings alone do not provide an accurate guide as to the financial health of an agency as the expenses associated with their generation might be so large as to make the business unsuccessful. But he conceded that the size of the billings could tell you something about an agency; that it was "an indicator", although not necessarily "a conclusive indicator". Although he did not say so expressly, I do not think it unfair (given the context of the cross-examination) to take this as a concession that the size of the billings was an indicator, though not a conclusive indicator, of the financial success of the business. In any case, a statement about the size of the billings with no reference to the level of expenses is apt to lead a person to think that the business is a financial success. In my view, the representation that Mr Colman made in April 2005 was likely to lead a reasonable person to believe that the business was financially successful. Without qualification and in the context in which the statement was made, the reference to $300 million in billings and 150 offices around the world amounted to a representation that the business was financially successful.
53 Yet, the business did not enjoy financial success. The following matters were either admitted or not disputed.
54 At all material times Lowe Hunt depended upon IPG's financial support to continue trading because there was an excess of liabilities over assets.
55 For the reporting period 1 January 2003 to 31 December 2003 Lowe Hunt made a net loss of over $1.1 million, net liabilities exceeded net assets by over $2.5 million, and was only able to continue to trade as a going concern due to the agreement of IPG to continue to provide financial support.
56 The fundamentals of Lowe Hunt's business did not improve. In fact, the figures conceded by Lowe Hunt show that the situation grew steadily worse with the business making larger trading losses in 2004, 2005 and 2006 and the ratio of liabilities to assets also worsening throughout the same period.
57 Letters of support were said to have been provided by IPG, although the only such documents tendered in evidence post-date the period of Mr Moss's employment.
58 The business also experienced ongoing cash flow problems, as operating costs exceeded revenue. By June 2005 its financial position was such that it was not in a position to pay interest due on its borrowing from IPG as and when the payments fell due.
59 At the same time there were question marks over IPG's financial position. In its annual report (Form 10-K) filed with the US Securities Exchange Commission for the fiscal year ending 31 December 2005 IPG warned investors to carefully consider a number of "potential risks", including:
· Numerous potential weaknesses in internal control over financial reporting, "each of which results in more than a remote likelihood that a material misstatement will not be prevented or detected" (p 5);
· The need for "extensive work" to remedy the material weaknesses in internal control over financial reporting (p 6);
· The burden of substantial ongoing compliance costs (p 6);
· An ongoing Securities Exchange Commission ("SEC") investigation (p 6);
· The prospect of obligations eating into the Group's cash flow for future years as well as the chance of fines, other penalties or damages "in our ongoing SEC investigation or new regulatory actions or civil litigation", any of which could also contribute to further ratings downgrades, negative publicity and difficulties attracting and retaining key clients, employees and management personnel (p 6);
· Recent liquidity problems including "operating losses that have adversely affected our cash flows from operations" and which will continue indefinitely with no guarantee that new sources of funding on commercially reasonable terms or at all could be found (p 7);
· A long term debt currently rated B+ by two ratings agencies and the prospect of further reduction influencing access to capital (p 7).
60 The report also disclosed trading losses for the years 2003, 2004 and 2005.
61 In all these circumstances the financial position of Lowe Hunt was, at least, vulnerable. It certainly could not be described as financially successful in April 2005, no more than in September or October. Mr Colman, himself, conceded in cross-examination that he would not regard as successful a business operation that was making ongoing losses.
62 Although Lowe Hunt opened its case concerning the third representation by submitting, in effect, that the support of IPG meant that the representation (if made) was not misleading or deceptive, once the admissions about the third and fourth representations were made, it made no submissions about the effect of support from IPG. In the circumstances, I take it as implicit that Lowe Hunt accepts that, even with IPG's support, it could not accurately be said to have been financially successful at the relevant time.
63 Lowe Hunt argued, however, that "the suggestion that there is some expectation of financial disclosure from a prospective employer which gives rise to a claim for damages is without basis in the case at Bar", citing Lam v Ausintel Investments Australia Pty Ltd (1990) 97 FLR 458 ("Lam") at 475. It is difficult to see how that decision affords any assistance to Lowe Hunt. Rather, in Lam the Court recognised that silence may be an element in the circumstances of the case which makes the conduct in question misleading regardless of whether there is a duty to disclose at common law or in equity. See, too, Commonwealth of Australia v Mehta (1991) 23 NSWLR 84 at 88, cited with approval by the Full Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 ("Demagogue") at 40 per Gummow J, Black CJ agreeing at 31 and Copper J at 46. If the circumstances indicate that silence amounts to misleading or deceptive conduct, then there is a statutory duty of disclosure: Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) ¶53,193 at 53,195 per French J, approved by the Full Court in Demagogue at 41. Silence or non-disclosure about a fact or state of affairs will amount to a misrepresentation where there is a reasonable expectation that the representor would speak or disclose. See, e.g. Gillette Australia Pty Ltd v Energizer Australia Pty Ltd, [2002] FCAFC 223, 193 ALR 629 at 646 per Lindgren J and the cases to which his Honour refers. The knowledge of the person to whom the representation is made may be relevant: Miller at [20]. The question is whether the circumstances called for something more to be said. The representation was not made directly to Mr Moss but it was made in his presence, at a time when Mr Colman was courting him to come and work for Lowe Hunt. To make glowing statements of this kind without qualification at any stage in this process was misleading, especially when one of them was admittedly false. This was a situation in which silence was apt to mislead. The circumstances here called for disclosure. That does not necessarily mean that Lowe Hunt had to open its books to Mr Moss for inspection. But it should have been candid with him before he entered into a contract of employment.
64 Consequently, I find that the applicant has made out its case on the first representation. I am satisfied that the conduct was in contravention of s 52 of the TPA and s 42 of the FTA. It is not necessary for me to decide whether it is also a contravention of s 53B of the TPA or s 46 of the FTA. Whether it caused Mr Moss any damage is another question to which I will return later.