National Exchange Pty Ltd (ACN 006 079 974) v Australian Securities & Investments Commission

Facts 2 At some time prior to 6 August 2003 National Exchange forwarded to certain shareholders of Onesteel, offers to purchase their shares in that company, such offers being dated 25 July 2003. There were two different offers, one of $1 per share (the "one dollar offers") and the two dollar offers to which I have previously referred. The one dollar offers are not directly relevant for present purposes. However they may be of some evidentiary significance. There is hearsay evidence that individual shareholders received either a one dollar offer or a two dollar offer, but not both. There is also hearsay evidence that the two dollar offers were sent to "issuer-sponsored" shareholders, meaning 'less sophisticated investors who do not have an established relationship with a broker'. ASIC did not rely on this hearsay evidence at first instance. I will disregard it. The offers were accompanied by appropriate share transfer forms. The one dollar offers were in the form attached hereto as annexure A. The two dollar offers were in the form attached as annexure B. Examples of the relevant share transfer forms are also attached. The two dollar offers were sent to 5,000 shareholders, of whom 4,114 held less than 4,000 shares. 3 By the two dollar offers National Exchange offered two dollars for each share acquired. The offer document invited a comparison between such amount and the closing market price for the shares on 25 July 2003 ($1.93). The offers bore that date and were presumably received some days thereafter. However a subsequent (and less prominent) part of the two dollar offers provided that the purchase price was to be paid by fifteen annual instalments payable on 3 September in each year, commencing on 3 September 2004. Obviously, when this provision was taken into account, the actual value offered was substantially less than two dollars per share.

The LEGISLATION 4 Subsection 1041H(1) of the Act provides: 'A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.'

Particulars of the claim 5 ASIC asserts that by making the two dollar offers National Exchange wrongly represented that:

® the total price offered for Onesteel shares was payable in full upon acceptance of the offers by the recipients, whereas the total price was payable in fifteen equal instalments, paid annually on 3 September each year for fifteen years, commencing on 3 September 2004;

® the financial value of the price offered for each Onesteel share pursuant to the offers was $2 per share, whereas the financial value was less than $2 per share; and

® the financial value of the price offered for each Onesteel share pursuant to the offers exceeded the stated closing market price for Onesteel shares as at 25 July 2003, whereas the financial value did not exceed the stated closing market price.

6 I will refer to these three alleged misrepresentations as the "first alleged misrepresentation", the "second alleged misrepresentation" and the "third alleged misrepresentation" respectively.

Evidence 7 ASIC led evidence concerning the reactions of numerous shareholders to the two dollar offers. Much of this evidence appears in an affidavit of Colin Stuart Grant filed in support of an application for interlocutory relief. At least two of the shareholders to whom Mr Grant spoke, Mr Wittig and Mr Weir, appreciated the consequences of the proposed deferred payment of the purchase price. However three other shareholders, Paul Reginald Locke, Jean Constance Himmelhoch and Marie Margaret Normoyle, were confused or misled, at least temporarily. Although their evidence was initially set out in Mr Grant's affidavit filed in support of the interlocutory application, each has subsequently sworn an affidavit. Perhaps unfortunately, those responsible for preparing the affidavits of Mrs Himmelhoch and Ms Normoyle adopted the device of having each lady verify the paragraphs in Mr Grant's affidavit in which he set out their respective accounts. This may have created a degree of confusion in their evidence. I will summarize the evidence of all three witnesses.

Mr Locke 8 Paul Reginald Locke was previously Company Secretary of Onesteel. He retired in May 2002. On 5 August 2003, he held 3,041 shares in Onesteel and his wife, Jennifer, held 20,000 such shares. They both received two dollar offers on that date. Mr Locke noticed that the closing market price for Onesteel shares on 25 July 2003 was $1.93. He recalled that National Exchange had previously offered $1 per share and was surprised to receive the two dollar offer. He telephoned the present secretary of Onesteel, Mr Krenich, and informed him of it. He said that he thought that Mr Tweed, a director of National Exchange, must have made a mistake. After this telephone call Mr Locke looked more carefully at the documents and noticed the provision for deferred payment. He then decided to reject the offer, at least partly because of such deferment. He considered that the transfer form which accompanied the offer (and made no reference to the deferred payment arrangements) was 'the most important document'. National Exchange objected to that evidence at the hearing, but it was admitted over such objection.

Jean Constance Himmelhoch 9 Mrs Himmelhoch is a retired social worker. She held 2,505 shares in Onesteel. On 5 August 2003 she received a two dollar offer, together with a transfer form and noticed that the offer indicated that the closing market price for Onesteel shares on 25 July 2003 was $1.93. She decided to accept the offer because it was higher than the listed market price. She did not seek any legal or financial advice in relation to the documentation. On 7 August 2003 she signed the transfer form and mailed it back to National Exchange, also forwarding a copy of her issuer-sponsored holding statement, presumably evidencing her shareholding. She expected to receive a cheque for $5,010 'shortly' . 10 Mr Grant interviewed her at a later stage. He gave the following account of part of that interview, which account Mrs Himmelhoch has adopted: '31. During that conversation, I asked Mrs Himmelhoch to go and obtain her copy of the [two dollar offers]. I then asked Mrs Himmelhoch to read the paragraph on that document entitled "Payment". Mrs Himmelhoch told me she had read that paragraph. She also told me and I verily believe that until she did so she had been unaware that National Exchange were proposing to pay her for the Onesteel shares over a 15 year period commencing in September 2004. 32. Mrs Himmelhoch told me and I verily believe that had she been aware that National Exchange were proposing to pay her for the Onesteel shares over a 15 year period commencing in September 2004, she would never have agreed to sell her Onesteel shares to National Exchange.' 11 This account suggests that Mrs Himmelhoch read the payment provision for the first time in response to Mr Grant's invitation and, having read it, realized for the first time that she was to be paid over a fifteen year period. However, in her own affidavit, having adopted Mr Grant's account, she asserted in par 8: 'When I received the [two dollar offers] from National Exchange, I noticed in particular the table at the top of the page, comparing the market price of Onesteel shares against the higher price being offered by National Exchange. When I read the section of the page marked "Payment", I believed that I would be receiving the full amount from the sale of the Onesteel shares by September of this year.' 12 This passage might suggest that she had read the payment provision prior to accepting the offer and had expected to receive the purchase price by September, 2003.

Marie Margaret Normoyle 13 Ms Normoyle is a director of Southbrook Holdings Pty Ltd, the holder of 812 shares in Onesteel. She holds a number of shares in different companies, most of them being "blue-chip". On or about 4 August 2003 she received a two dollar offer (presumably addressed to Southbrook Holdings) from National Exchange and noted the closing market price of $1.93. She decided to accept the offer because it was at a price higher than the listed market price. She had only a small number of shares and thought that she would sell them and use the proceeds. She did not seek any legal or financial advice. She signed the transfer form on 5 August and returned it by mail, expecting to receive payment 'shortly'. 14 Mr Grant later interviewed her, asking whether she had received the relevant offer document. She said that she had done so but was now unable locate it. He then asked her whether she was aware of the payment terms offered by National Exchange. She said that she was not and thought that she would receive a cheque for the purchase price 'very shortly'. Mr Grant then asked her if she was aware that the terms of payment provided for fifteen equal instalments commencing on 3 September 2004. She said that she had no idea about this, that she was nearly eighty, did not expect to be alive in fifteen years and that had she known of that term, she would not have sold the shares. 15 National Exchange produced to ASIC a "contract note" dated 11 August 2003. It is exhibit CSG 8 to Mr Grant's affidavit. It recites the number of shares held by Southbrook Holdings and the total purchase price and then seeks certain information and documents. The last line of the letter is as follows: 'We look forward to remitting payment in accordance with our offer letter.' Mrs Normoyle says that she did not receive this letter.

The decision at first instance 16 The impugned conduct undoubtedly occurred within the jurisdiction and in relation to a financial product or a financial service. The only question was whether it was misleading or deceptive or likely to mislead or deceive. Finkelstein J found that the first alleged misrepresentation was established and was a breach of subs 1041H(1) but that the second and third alleged misrepresentations were not established. It was common ground that such a finding against National Exchange should result in an adverse finding against Mr Tweed. His Honour so found.

The appeal and cross-appeal 17 National Exchange and Mr Tweed appealed against his Honour's findings as to the first alleged misrepresentation. ASIC appeals against his Honour's findings concerning the second alleged misrepresentation.

The relevant test 18 In Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45, the High Court reviewed many of the seminal cases associated with s 52 of the Trade Practices Act 1974 (Cth) (the "TP Act"). That provision is similar in effect to subs 1041H(1) of the Act. Much of the decision in Nike concerned trademark legislation and is not relevant for present purposes. It is also not necessary that I address the facts of the case. For present purposes I need only consider [92-106] of the decision. The following propositions emerge:

® Conduct will only be misleading or deceptive, or likely to mislead or deceive if there is a nexus between such conduct and any actual or anticipated misconception or deception.

® In identifying such nexus regard must be had to the circumstances of the particular case, including the remedies sought. Section 52 of the TP Act does not confer any entitlement to a remedy for breach or anticipated breach. One must look elsewhere in the TP Act for such entitlement and construe the act as a whole.

® In some cases, a representation may be made to identified individuals; in other cases the representation may be to the public at large or to a section thereof. In the former case the process of deciding whether or not the representation is misleading or deceptive or likely to be so may be 'direct and uncomplicated'. In the latter case 'the issue with respect to the sufficiency of the nexus between the conduct or the apprehended conduct and the misleading or deception or likely misleading or deception of prospective purchasers is to be approached at a level of abstraction not present where the case is one involving an express untrue representation allegedly made only to identified individuals'. (I infer that the word "representation" in [100] of Nike should be "misrepresentation", relying upon the relevant passage in Taco Bell to which the High Court was referring.)

® When the representation is made to the public or to a section thereof, one must consider its effect upon an ordinary or reasonable member of the class in question. Although such class may include a wide range of persons, the ordinary or reasonable member will objectively be identified as having certain characteristics. In particular he or she can be expected to take reasonable care for his or her own interests and otherwise to behave reasonably.

® It is necessary to inquire as to how a particular or anticipated misconception has arisen or may arise. In so doing, the Court will consider 'the effect of the relevant conduct on reasonable members of the class'.

® Conduct will only be misleading or deceptive or likely to mislead or deceive if the representee 'labours under some erroneous assumption' or may be expected so to labour. Such an assumption or anticipated assumption may be obvious, predictable or fanciful.

® In assessing the reactions or likely reactions of the ordinary or reasonable member of the class, the Court may decline to treat as reasonable, assumptions which are extreme or fanciful. The initial question which must be determined is whether the misconception or deception, alleged or anticipated, is properly attributable to an ordinary or reasonable member of the class.

® The 'question whether particular conduct causes confusion or wonderment cannot be substituted for the question whether the conduct answers the statutory description contained in s 52.'

19 I accept that these observations are of general application in proceedings alleging contravention of subs 1041H(1) of the Act. However, before turning to the decision at first instance, I should make a number of preliminary comments.

Some preliminary matters 20 In the judgment under appeal at [10], Finkelstein J noted a possible difference in approach between that contemplated in Nike and that adopted by Deane and Fitzgerald JJ in Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. His Honour considered that Deane and Fitzgerald JJ had 'made it quite clear that when the impugned conduct is directed at a diverse group, that diversity must be taken into account when considering the likely effect of the conduct' and observed that: 'It is not clear whether the High Court goes along with this approach.' In other words, his Honour considered that to take into account such diversity might be inconsistent with use of the responses of an ordinary or reasonable member of the class as the basis for assessment of the effect or likely effect of the impugned conduct. 21 At [11] his Honour also referred to certain observations made by Wilcox J in 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1987) 79 ALR 299 where, at 302, his Honour said that it was necessary to establish that a 'significant proportion' of readers would be misled before a statement can be misleading for the purposes of s 52. Finkelstein J thought that this observation was 'going too far'. 22 These marginal observations were major strands of National Exchange's argument. It was submitted that they in some way demonstrated that his Honour had misunderstood Nike. National Exchange argued that the High Court's apparent adoption of the response of the reasonable class member as the criterion for judgment of misleading effect meant that it was necessary to formulate criteria for identifying such a person and that Finkelstein J had not taken this step. It was also submitted, relying upon 10th Cantanae, that in order to demonstrate contravention of the section, it must be shown that a significant proportion of the class would be misled or be likely to be misled. 23 I consider that this approach misconceives the respective effects of Taco Bell and 10th Cantanae. In my view, the relevant passages in both cases merely express, in different forms, the test propound by the High Court in Nike. The way in which such a test is propounded in a particular case may, to some extent, reflect the way in which the applicant has sought to satisfy it. An applicant may seek to prove misleading effect by showing that many representees were misled. To discharge the relevant onus, it may well be necessary to show that a significant proportion was misled. On the other hand, there will be cases, such as the present case, where there is little, or perhaps no evidence that any person was actually misled. Where a regulatory authority seeks to prevent conduct in breach of a provision such as s 52 of the TP Act or subs 1041H(1) of the Act, this will often be the case. Such an applicant will rely upon the terms of the representation and the circumstances in which it was, or is to be made, looking to the notional representative class member as the basis for assessing the likely effect of the conduct in question. To speak of a reasonable member of a class necessarily implies that one is speaking of a significant proportion of that class. It is impossible to postulate a situation in which the reasonable member of a class is not representative of such a proportion. Thus the approach adopted by Wilcox J in 10th Cantanae is simply an alternative way of expressing the test now clearly prescribed in Nike. 24 As to Taco Bell, the High Court considered that Deane and Fitzgerald JJ had applied an objective test in their Honours' joint reasons in Lego Australia Pty Ltd v Paul's (Merchants) Pty Ltd (1982) 60 FLR 465, a judgment published on the same day as was that in Taco Bell. It is inconceivable that their Honours would have applied an objective test in Lego and at the same time urged a different approach in Taco Bell. Whilst it is true that members of a class may differ in personal capacity and experience, that is usually the case whenever a test of reasonableness is applied. Such a test does not necessarily postulate only one reasonable response in the particular circumstances. Frequently, different persons, acting reasonably, will respond in different ways to the same objective circumstances. The test of reasonableness involves the recognition of the boundaries within which reasonable responses will fall, not the identification of a finite number of acceptable reasonable responses. 25 There is no inconsistency between the decisions in Taco Bell and 10th Cantanae on the one handand that in Nike on the other. In any event, it is clear that Nike must now be applied. There is nothing in the criticism that Finkelstein J failed to identify any particular criteria for selecting the reasonable member of the class. It is true that the High Court spoke of isolating 'by some criterion a representative member of that class'. I understand that process to be more concerned with describing the class than with identifying any particular member. The criterion for selecting the class member is reasonableness. That this is so appears at [102] of Nike where their Honours observed that in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191: '… Gibbs CJ determined that the legislation did not impose burdens which operated for the benefit of persons 'who fail[ed] to take reasonable care of their own interests.' 26 Their Honours also observed that in the same case: 'Mason J concluded that, whilst it was unlikely that an ordinary purchaser would notice the very slight differences in the appearance of the two items of furniture in question, nevertheless such a prospective purchaser reasonably could be expected to attempt to ascertain the brand name of the particular type of furniture on offer.' 27 I should say something about certain evidentiary matters which were canvassed before us. Finkelstein J said at [19]: 'In resolving this case it is impossible to ignore the fact (and I find it to be the fact) that the offer has been purposely composed so that it will mislead shareholders. No reasonable shareholder appreciating the offer price is payable over fifteen years would accept it.' 28 National Exchange disputes both the availability of this inference of fact and its use in determining the primary issue, namely whether or not the two dollar offers were capable of being misleading or deceptive. For reasons which I will give at a later stage I consider the inference to have been fairly open and indeed, to have been correct in the circumstances. As to its relevance, the Full High Court said in Nike at [33]: 'However, it is well established by the authorities referred to by the Privy Council in Cadbury Schweppes Pty Ltd v Pub Squash Co Ltd(1980) 2 NSWLR 851 at 861 that, where there is such a finding of intention to deceive, the Court may more readily infer that the intention has been or in all probability will be effective.' See also S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd(1998) 88 FCR 354 at 361-2, apparently approved by the High Court in Nike at [33] and Slazenger & Sons v Feltham & Co(1889) 6 RPC 531 at 538, cited by Finkelstein J at [7]. 29 I turn to the evidence of Mr Locke, Mrs Himmelhoch and Ms Normoyle. Clearly enough Mr Locke was at least initially misled into believing that he had received a cash offer. Whether he was misled as a result of his having failed to read the whole document or as a result of his misunderstanding the effect of the payment clause is not clear. As to Mrs Himmelhoch, I consider that it would be unfair to give any weight to her evidence. It is ambiguous. That is unfortunate, but nothing can be done about it now. Mrs Normoyle clearly expected that she was to receive payment virtually immediately. As with Mr Locke, it is unclear whether this was as a result of her not having read the payment clause or of her not having understood its effect. Finkelstein J observed: 'If Mr Locke was mistaken about the terms so might other shareholders, many of whom may not re-examine the offer to discover the true position.' 30 Although Mr Locke himself held only a relatively small number of shares, his wife held 20,000. One might reasonably think that he had good reason to give appropriate consideration to the offer. He did not immediately commit himself to it and chose to re-read it with more care. Experience suggests that this may be a typical approach to such documents. His Honour seems not to have acted upon the evidence of either Mrs Himmelhoch or Ms Normoyle. 31 One other factual matter requires comment. At [18] his Honour observed: 'I appreciate that no other shareholder has come forward with a legitimate complaint that he has been misled, and only few shareholders have accepted the offer. Looked at in isolation these facts support National Exchange's submission that the offer document is not misleading. There are, however, two factors which throw a different light on the situation. The first is that shortly after the offers were dispatched ASIC issued a media release warning against acceptance of the unsolicited offer from National Exchange. It is reasonable to assume that many shareholders became aware of the release. The second factor is that the market price of Onesteel shares has risen above the offer price. As at 7 August 2003 the closing price for the shares was $2.10. So, by that time the offer was unattractive, even to those who believed it was a cash.' 32 National Exchange asserts that his Honour erred in so concluding. It submits firstly that there was no evidence that the ASIC media release received any publicity or that it was seen by any Onesteel shareholder. The release appears at AB 230. It was exhibit A. It constituted a warning from ASIC to investors considering 'accepting unsolicited offers for Onesteel shares from National Exchange ...'. Although there is no evidence as to the extent of its circulation, it is reasonable to infer that it was circulated. Nonetheless, in the absence of evidence as to the extent of such circulation, it would be inappropriate to give substantial weight to its possible effect. I do not understand Finkelstein J to have given it great weight. His Honour simply noted that only a few shareholders had accepted the offer, observing that this, to some extent, supported National Exchange's submission that the document was not misleading. He then identified other possible explanations. His Honour was merely explaining the weight which he attributed to the fact that only a few shareholders had accepted the offer. I detect no error in this approach. 33 Secondly, National Exchange asserts that there was no evidence that the market price of Onesteel shares had risen above the offer price. ASIC points out that in its media release, the current closing price of $2.10 was mentioned. This document was received without objection. At AB 83, in the course of counsel's address on behalf of ASIC, reference was made to the increase in price, at which stage counsel for National Exchange objected to what he described as 'evidence from the bar table'. Counsel for ASIC then continued, suggesting simply that '[o]ne can't exclude the possibility that the share price has changed, as indeed it did we say.' 34 ASIC could not, in the face of objection, have sought to prove the price at which Onesteel shares were trading at any particular time by tendering the press release. However the absence of objection strongly suggested that the matter was not in dispute. As I understand it, the trading price at a particular time of shares listed on the stock exchange is relatively easy to ascertain. In those circumstances it would not have been unreasonable for counsel for ASIC to have assumed that, in the absence of objection to the tender of the media release, or any assertion that its use was to be limited in a particular way, its factual content was not in dispute. If counsel for National Exchange intended to object to the use of the document as proof of the value of the shares, he ought to have done so when the document was tendered. It is unfortunate that this misunderstanding should have arisen, but I do not think that it is of any great significance in the overall scheme of things. Again, his Honour's reference to the matter was designed simply to suggest a possible explanation for the fact that very few offerees had shown any interest in the offer. The matter may have been more important if ASIC had relied substantially upon the conduct of offerees in order to prove the misleading nature of the offers.

Was the conduct misleading or deceptive or likely to mislead or deceive? 35 By reference to Taco Bell Finkelstein J identified four steps in this inquiry, namely:

® What was the intention underlying the conduct in question? (His Honour identified correctly that intention to mislead was not essential but nonetheless was relevant to the inquiry.)

® Was the conduct such as to lead to an erroneous assumption on the part of representees?

® Did the conduct mislead or deceive or was it likely to do so, having regard to the behaviour of a reasonable representative of the whole class of representees?

A false representation 36 National Exchange argues that one must read the offer documents as a whole. Whilst that proposition may be true in some senses, I consider that a document may be misleading even if a full and perfect understanding of its contents would not create that effect. This inevitably flows from the general proposition that a truthful statement may nonetheless be misleading or deceptive. See Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 227. 37 The offers clearly invited a comparison between the offer of $2 per share and the current market price of $1.93. That invitation carried an implicit representation that there was some point in such comparison, in other words that the comparison was between "likes". The invitation clearly implied that the offeree would be better off if he or she accepted, rather than rejected, the offer. The extent of that benefit may not have been clear. A person selling shares on the stock market might have to pay brokerage and perhaps other expenses of the sale. Further, in any transaction there is the possibility of delay in payment of the purchase price. Where no time for payment is stipulated, the law frequently implies an obligation to pay within a reasonable time. No doubt the stock exchange rules deal with this matter. Such considerations might mean that a reasonable offeree would understand that the comparison between $2 and $1.93 required some qualification. Nonetheless, I am inclined to the view that the heading 'Offer to buy your shares in Onesteel Ltd ("shares") for $2.00 each', and the subsequent information appearing under the heading 'Offer', represented to offerees that the comparison between the market price and the offer gave a reasonable indication of the value of the offer. The subsequent provision for deferred payment significantly undermined the validity of such a comparison. However, as National Exchange points out, in the fourth column of the table under the heading 'Total Offer Price', the words 'see payment terms' appear in parenthesis. It is said that this is equivalent to an asterisk, drawing attention to that other aspect of the document. The argument is valid as far as it goes. However, as Stone J pointed out in ACCC v Signature Security Group Pty Ltd (2003) ATPR 41-908: '… however the question remains whether the asterisk and its link to the additional information are sufficiently prominent to prevent the primary statement being misleading and deceptive or likely to mislead or deceive. The degree of prominence required may well vary with the potential of the primary statement to be misleading and deceptive.' 38 Price is usually of pre-eminent importance in an offer to purchase property of any kind. Terms of payment might reasonably be treated by some people as being of subsidiary importance. An offeree would not normally expect that information as to payment would have the effect of substantially undermining the correctness of information found elsewhere in the document, particularly information as to a matter of pre-eminent importance such as price. The prominence of the invited comparison in the offer documents and the absence of any reference to deferred payment in the share transfer form would have further discouraged any such expectation. The offers were capable of being understood as offering a purchase price significantly in excess of the closing market price, with the tacit representation that there was nothing else in the document which would seriously undermine the validity of such comparison. That representation was false.

Did National Exchange intend to mislead? 39 I am conscious of the traditional caution exercised by courts in determining whether or not a person deliberately intended to mislead. However, as his Honour indicated, it is impossible to imagine even the most unworldly of investors finding the offer attractive, given the arrangements for deferred payment of the purchase price. It is of some significance that National Exchange sent the vast majority of the offers to the holders of relatively small parcels of shares. Such persons, or some of them, could have been expected to pay less attention to the offers than they would if large holdings were involved. I also note that the one dollar offers were in a quite different form. It might be thought that National Exchange was, in those offers, trying to avoid any comparison between the offer of one dollar per share and the closing market price of $1.93, or at least to minimize the effect of any such comparison. When these factors are taken into account it is impossible to avoid the conclusion that National Exchange expected that some people might accept the two dollar offers without fully understanding them and tried to maximize the chances of uninformed acceptance. This view encourages me to infer that the offer was capable of being misleading or deceptive.

Erroneous assumptions 40 The two dollar offers invited the erroneous assumption that acceptance would yield two dollars per share to the offeree, or about seven cents more than would be derived from sale on the stock exchange. As I have previously pointed out, the amount of the benefit might need slight qualification. Nonetheless that was the substantial effect of the offers.

The reasonable shareholder 41 The class of shareholder to whom the two dollar offers were addressed was dominated by small shareholders - persons who stood to receive amounts of less than $8,000. Of course $8,000 is by no means an inconsiderable sum, but many shareholders would have received significantly less. As I have said it is likely that some offerees would have considered the matter to be of no great significance. There is evidence that both Mr Locke and Ms Normoyle were at least temporarily misled by the offer. It is not clear whether this was as a result of the impact upon them of the format of the offer or as a result of their not giving sufficient attention to the payment provision. It would be wrong to place great weight upon their having been misled. Further, there is no evidence of any substantial number of people having been mislead. It is also relevant to give some weight to the factors addressed by his Honour as possibly explaining that fact, namely that there was a media release, warning of the offer and the increase in share price. 42 The format of the offer, particularly the heading and the information which appears under the subheading 'Offer' would suggest to any reasonable person that the benefit to be derived from the offer was about $2 as compared to the market price of $1.93. No doubt, a sceptical shareholder would look for the "catch" but in my view, many reasonable shareholders would have been inclined to accept the offer at face value, assuming that conditions as to payment would be subsidiary and not such as significantly to reduce the value of the offer or the favorable comparison of it with the market price. It may be that many reasonable shareholders would, before finally accepting, have read the documents more closely and more critically. However I am satisfied that not every reasonable shareholder in the class would have done so. I conclude that the two dollar offers were likely to mislead or deceive reasonable offerees. The appeal should be dismissed. 43 As to the cross-appeal, I cannot see that a further declaration reflecting the second alleged misrepresentation will serve any useful purpose beyond that served by the existing declaration. For that reason there is little point in considering whether or not the second alleged misrepresentation was made out on the evidence. In any event, I accept the view expressed by Finkelstein J that it was not. The two dollar offer did not refer to the "financial value" of the offer. It is, in any event, an imprecise concept and really only another way of expressing the first alleged misrepresentation. The cross-appeal should be dismissed.

Costs 44 National Exchange should pay ASIC's costs of, and incidental to the appeal. ASIC should pay National Exchange's costs of, and incidental to the cross-appeal. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

VICTORIA DISTRICT REGISTRY No V 915 of 2003

On appeal from a single Judge of the Federal Court of Australia

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

PLACE: SYDNEY (VIA VIDEO LINK) (HEARD IN MELBOURNE)

REASONS FOR JUDGMENT JACOBSON & BENNETT JJ: 45 We have had the benefit of reading in draft the reasons for judgment of Dowsett J. We agree with his Honour's conclusion that the appeal must be dismissed and, generally, with his reasons. We wish, however, to add some further observations. 46 The essential question in the appeal is whether the appellant has demonstrated error in the primary judge's finding that a one-page offer document which, when read as a whole, was factually true, was nevertheless misleading. 47 The answer to this question is that, in our opinion, no error has been demonstrated because his Honour's finding that the document created a misleading impression that the price was payable in full on acceptance was one which was open to him. Indeed, we agree with the conclusion which his Honour reached. 48 The principal ground of attack made by Mr Karkar QC, Senior Counsel for the appellant, upon the judgment was that a document which is factually true cannot be misleading. He said that the document, containing only one page, should have been read in its entirety by the ordinary or reasonable shareholder who would then see that the offer was for payment by instalments. He submitted that the primary judge had fallen into error by misunderstanding and failing to apply the test of the ordinary or reasonable member of the relevant class stated by the High Court in Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 ("Nike") at [102] - [105]. 49 It is well established that an offer which is literally true may nonetheless be misleading. It will be misleading or deceptive if it carries with it a false representation; see Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd, 140 CLR 216 at 227-228 per Stephen J. However, Mr Karkar submitted that this principle cannot apply where the statement is factually true. 50 In our opinion, no such distinction can be drawn. A document which, when read as a whole, is factually true and accurate may still be capable of being misleading if it contains a potentially misleading primary statement which is corrected elsewhere in the document but without the reader's attention being adequately drawn to the correction. 51 The principle which applies to those cases is that the qualifying material must be sufficiently prominent or conspicuous to prevent the primary statement from being misleading; see Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289 at [35] - [38] (per Stone J with whom Mansfield J agreed); see also J D Heydon, Trade Practices Law, Law Book Company Sydney 1989 at [11.730]. 52 As Mason J said in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 210-211 ("Puxu"): "There may be situations where to exploit mistaken views of the public would contravene s52 and would not be corrected by an inconspicuous accurate representation made in e.g. a concealed label or the 'fine print' of a contract." 53 The relevant document in the present case is Annexure "B" to the judgment of Dowsett J. The striking feature of the document when read as a whole is the disparity between the impression created by the primary statement, namely that the offer is for payment in full on acceptance, and the true position stated in the qualification under which payment is to be made over 15 years. The primary statement is made in bold so as to emphasise it to the reader and it is repeated and reinforced in the comparative table. 54 The representation made in the table is that the shareholders will receive in cash in full on acceptance a premium of 7¢ over the closing price. The true position is that accepting shareholders make an interest free loan of the purchase price to the appellant over a period of 15 years. To describe it as a cheeky offer would be to understate the full import of the document. 55 Where the disparity between the primary statement and the true position is great it is necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way. 56 An analogy is to be found in cases dealing with exemption clauses. In Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 at 809, Denning LJ said: "When one party puts forward a printed form for signature, failure by him to draw attention to the existence or extent of the exemption clause may in some circumstances convey the impression that there is no exemption at all, or at any rate not so wide an exemption as that which is in fact contained in the document." 57 His Lordship's remarks in J Spurling Ltd v Bradshaw [1956] 1 WLR 461 were even more pointed. His Honour said at 466:- "… the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient." 58 A similar approach is justified by the remarks of Stone J in one of the "asterisk cases", ACCC v Signature Security Group Pty Ltd [2003] FCA 3; (2003) ATPR 41-908. Her Honour observed at [27] that the degree of prominence which must be given to a qualifying statement may well vary with the potential of the primary statement to be misleading and deceptive. 59 Although the primary judge did not refer to the disclaimer or asterisk cases, it seems to us that he took into account the question of whether the qualification was sufficiently clear and prominent to prevent shareholders from being misled. He appears to have done so at [20] by making the finding that "a number of shareholders" would have formed a mistaken view about the offer by reason of the "general impression" of the offer document. 60 So long as his Honour did not apply the wrong test in identifying the persons who fell within the class of the ordinary or reasonable shareholders, we can see no error in the approach he took. The question was one of fact for the primary judge and we would not depart from his finding because we do not consider that the finding has been shown to be wrong; see Branir v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [30] (Allsop J). 61 It is not entirely clear whether his Honour applied the test of the hypothetical ordinary shareholder stated in Nike. He said at [10] that it was difficult to identify the criteria for the ordinary member of a diverse group. He did not refer to the ordinary or reasonable shareholder in making his findings at [20]. Instead, he referred to "a number of shareholders" and the "general shareholding public" who would be likely to have been misled by the general impression of the document. It seems that the explanation for this is that he wrongly treated the case as one where the representation was made to identified individuals; see .au Domain Administration Ltd v Domain Names Australia Pty Ltd [2004] FCA 424 ("Domain Names") at [17] - [18]. 62 But even if his Honour failed to apply the correct test, we are not persuaded by the argument that the offer was not likely to mislead or deceive the ordinary or reasonable shareholder. The disparity between the primary representation and the qualification was so great that the warning was insufficient to draw the true position to the attention of the ordinary shareholder. 63 In coming to the view which we have reached, we have borne in mind that his Honour found at [19] that the offer was deliberately composed to mislead shareholders of the company. As the primary judge said, no reasonable shareholder who read the payment terms and realised that the price was payable over 15 years would accept it. We agree with Dowsett J that his Honour was entitled to make this finding. Where there is a finding of intention to deceive, the Court will more readily infer that the intention has been effected; see Nike at [33]. 64 We agree with Dowsett J that price was likely to be of primary importance to the ordinary or reasonable shareholder. The bold statement in the heading that the offer was to purchase the shares for $2 and the statement of the total offer price in the table conveyed a representation that the price was payable in full. Even if the ordinary or reasonable shareholder read the words "see payment terms", he or she would not have expected those words to direct the reader to a statement which drastically altered the nature of the offer. This was an alteration which required not only a "red hand" but also the clearest possible words. Nothing short of a statement prominently made, as part of the heading or in the table, that the price was payable over 15 years would have been sufficient. We do not consider that the words "see payment terms" in the manner and form in which they appear in the table were adequate. 65 Moreover, we do not consider that the words directing the shareholders to consult an adviser if they did not understand the document were sufficient to remove the likelihood of misconception. This is because the words "see payment terms" would not have indicated to shareholders that there was something about which they might need financial or legal advice. The impression which was created by the heading, the table and the fact that it was a one page document was that it was a straightforward offer for cash on completion which did not require legal advice about the nature of the consideration that was payable. 66 Of course, s 1041H of the Corporations Act 2001 (Cth) is not intended to benefit those who fail to take reasonable care of their own interests; Puxu at 199 (Gibbs CJ), 209 (Mason J). However, as Gibbs CJ observed at 199, what is reasonable will depend on all the circumstances. The relevant circumstances included the inadequacy of the wording which directed the reader to the very substantial alteration in the terms of the offer. There was nothing unreasonable on the part of an ordinary or reasonable shareholder in failing to read that part of the document which stated that the offer was payable by instalments over a long period. We refer to the evidence as set out in [7] to [14] of the judgment of Dowsett J. 67 Mr Karkar submitted that the primary judge erred in failing to consider whether a "significant proportion" of shareholders would have been likely to have been misled. He relied on the use of those words by Wilcox J in 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1988) 79 ALR 299 ("10th Cantanae") at 302. Mr Karkar also pointed to a possible inconsistency between the remarks of Deane and Fitzgerald JJ in Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 ("Taco Bell") and the test of the ordinary or reasonable shareholder stated by the High Court in Nike. In a well-known passage in Taco Bell at 202, their Honours referred to the need to consider the question of whether conduct is misleading by reference to all those who come within the class including the astute and the gullible. 68 In Nike at [102] and [103] their Honours referred to the attribution of characteristics to the ordinary or reasonable members of the class and to the need to isolate the hypothetical member of the class who has those characteristics. The attribution is to be objective in order to allow for the wide range of persons who would, in fact, make up the class. It is also to allow for unreasonable reactions of members at either end of the spectrum which makes up the class. We see no difference between this approach and that which was contemplated by Deane and Fitzgerald JJ in Taco Bell. 69 Indeed, the same view seems to have been taken by Gibbs CJ in Puxu at 199 as follows:- "Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion by regarded as contemplating the effect of the conduct on reasonable members of the class." 70 Nor in our opinion is there any distinction between the words used by Wilcox J and the approach stated by the High Court in Nike. In determining the effect of conduct on the reasonable members of the class, it is necessary for the Court to consider objectively, as a question of fact, whether those persons have been, or would be likely to be, misled. A finding that reasonable members of the class would be likely to be misled carries with it the determination that a significant proportion of shareholders would be misled. 71 In any event, 10th Cantanae was a decision of a Full Court. Pincus J observed (at 309) that it was not sufficient that "some readers" were affected. Gummow J (in dissent, but not as to the test) referred (at 314-315) to the need to prove that a substantial proportion of persons was misled, in contrast to a need to establish that almost all purchasers were of a particular view. Gummow J also referred (at 315) to "the usual manner in which ordinary people behave". Accordingly, it is apparent that the test stated in 10th Cantanae is not inconsistent with Nike. We disagree with a suggestion to the contrary by Finkelstein J in Domain Names at [25] - [26]. 72 Although the primary judge referred to "a number of shareholders", it is sufficient that we have reached the view that the ordinary or reasonable members would be likely to have been misled. 73 The primary judge found at [21] that only one of three misrepresentations which ASIC claimed to have been made was in fact made. This was the misrepresentation that the offer was for payment in full upon acceptance. He made a declaration in those terms and ordered injunctive and other relief. 74 The second and third alleged misrepresentations were that the financial value of the offer price was $2 per share and that its value exceeded the closing market price. His Honour found at [21] that those misrepresentations were not made out because he was not satisfied that any shareholder formed a view about the economic value of the offer. 75 ASIC has filed a cross-appeal against the primary judge's finding on the second and third representations. ASIC seeks declarations in terms of those alleged misrepresentations but it does not seek any consequential relief. 76 We agree with Dowsett J that all three misrepresentations were related and that they all endeavoured to express in slightly different ways the same general concept. However, it seems to us to follow that there is no need to consider whether declarations ought to be made in terms of the second and third misrepresentations which are really no more than alternatives of the first. 77 Neither ASIC nor the appellant sought to vary the declarations or the orders made by the primary judge other than to supplement the declarations in the manner sought by ASIC in its cross-appeal. In the absence of argument about the terms of the existing declarations, we would not be prepared to amend them. 78 Accordingly, the orders we would make are that the appeal and the cross-appeal be dismissed with costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson and Bennett.

Associate: Date: 21 April 2004 Counsel for the First and Second Appellants: Mr J H Karkar QC Mr I G Waller

Solicitor for the First and Second Appellants: Lander and Rogers

Counsel for the Respondent: Mr P W Almond QC Mr M H O'Bryan

Solicitor for the Respondent: Justin Brereton Australian Securities and Investments Commission

Date of Hearing: 10 February 2004

Date of Judgment: 22 April 2004