Plaintiffs v Defendants

1 The plaintiffs, Australian Rural Expo Ltd ("ARE") and Peter Rajakumaran Selvarajah, sue for the recovery of monies totalling $328,365.75 advanced by them in reliance upon certain representations alleged to constitute conduct by the defendants, Fibrenova Limited ("Fibrenova"), and its directors Adrian Francis Clarke and Gary Richard Allwood, that was misleading or deceptive or likely to mislead or deceive, in the case of Fibrenova in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") and in the case of Clarke and Allwood in contravention of s 9 of the Fair Trading Act 1999 (Vic) ("the FTA"). Recovery is also sought against Clarke and Allwood on the basis that they were "involved in the contravention" (as provided in s 82(2) of the TPA), by reason of having aided, abetted, counselled or procured the contravention and/or were directly or indirectly, knowingly concerned in, or party to, the contravention within the meaning of s 75B(1)(a) and (c) of the TPA.

2 The representations on which the plaintiffs rely are set out at [23] below. They are alleged to have been made, orally and in writing, between 31 May and August 2003. The representations were made in the context of discussions as to investment in a project for the development of a machine to decorticate and de-gum industrial hemp. Decortication refers to the separation of the hemp fibre from the stalk, which is necessary in order to be able to use the fibre. Clarke had worked on the project since 1994. Development of the machine to the point of commercial application was considered likely to produce substantial profits. But Fibrenova, which Clarke had established for the purpose, needed funds for the next stage of development. The project was introduced to ARE as a possible investor or arranger of funding and, following an initial meeting on 31 May 2003, a memorandum of understanding was signed on 17 June 2003 which provided for an investor arranged by ARE to provide $2.5M to the project over a six month period (known as the project stage, and which was to include the growing of a hemp crop) with progress payments commencing on 16 June 2003, and with a further $2M being necessary to fund the growing of a substantial crop in the Australian growing season 2004/2005. It was under this arrangement that the plaintiffs, Selvarajah having decided to invest $250,000, advanced the amount claimed. The amount claimed was advanced as to $258,825.42 by Selvarajah and as to $69,540.33 by ARE. The plaintiffs' case is that the advances were made on the faith of the representations which turned out to have been misleading or deceptive.

3 The project was concerned with industrial hemp, not marijuana. Each is a form of cannabis but the difference between the two is that the concentration of tetrahydrocannabinol (THC), which is the psycho-active (mind altering) ingredient in cannabis, is significantly lower in industrial hemp than it is in marijuana[1].

4 Recognising the possibilities of industrial hemp as a commercial agricultural activity, in the 1990s some States began to permit cultivation. In Victoria commercial cultivation has been permitted since 1997. The Drugs, Poisons and Controlled Substances Act 1981 permits the grant of an authority to a person for a period not exceeding three years authorising that person, for commercial or research purposes relating to non-therapeutic use -

(a) to possess, process, sell or supply cannabis seed harvested from low-THC cannabis, or

(b) to cultivate and possess cannabis from such seed, or

(c) to possess, process, sell or supply cannabis which -

(i) is substantially free of leaves and flowering heads; and

(ii) does not contain THC in excess of 0.1 percent[2].

Section 61 defines "low-THC cannabis" as cannabis, the leaves and flowering heads of which do not contain more than 0.35 percent of THC. Most authorities issued have been for less than one hectare, although one was for 30 hectares.

5 Regulatory legislation has also been introduced in New South Wales and Tasmania, they and Victoria being the relevant States for the purpose of this case. In New South Wales the Drug Misuse and Trafficking Act 1985 has since 1995 provided for permits for field trials for research purposes but not commercial production. In Tasmania the Poisons Act 1971 allows for growing under licence.

6 The existence of these regulatory regimes was known to the defendants.

7 ARE was established by Gary John Knight in (it appears) October 2002 to facilitate foreign investment in rural and regional Australia. The purpose was to foster joint ventures with Australian and foreign investors. This would comprehend informing foreign investors regarding investment opportunities in regional areas and liaising with the interested parties. Knight is a director of ARE, having been appointed as such on 25 October 2002. I would understand him also to be a shareholder in ARE. He lives at Lacmalac which is located about 20 kilometres from Tumut in New South Wales.

8 Selvarajah is a businessman who holds 10 percent of the shares in ARE. Other investors like him also hold shares in ARE.

9 Johanna Hendrina Armour is also a shareholder in ARE and was formerly a director. She is referred to in the statement of claim as Hansie Armour.

10 Fibrenova was incorporated on 12 December 1999. At relevant times its directors were Clarke, Allwood and Dr Robert Brown, an agricultural scientist who, as I understand it, represented an investment interest, Davstoc Investments ("Davstoc"). Clarke is the managing director and has been a director of Fibrenova since incorporation whereas Allwood was a director from 16 August 2000 to 15 January 2004. He said in evidence that he resigned for "a series of reasons" including concern about Fibrenova's solvency.

11 I have not been provided with historical searches of Fibrenova or of the related entity Fibre Laboratory Limited ("Fibre Laboratory"). There are references to Fibre Laboratory as a proprietary limited company but it is also referred to as an unlisted public company. The latter seems correct. The shareholding structure is set out in a business plan dated 3 July 2002 prepared by Pivotal Management Consultants[3]. This document states that:

(a) An entity called Australian Hemp Company, established in 1996, holds 70 percent of Fibre Laboratory with the balance of 30 percent held by "others". It would appear likely from references in Clarke's evidence to the Australian Hemp Unit Trust that the Australian Hemp Company was trustee of that Trust.

(b) Clarke, Elizabeth Clarke and Anthony Clarke are the directors of Fibre Laboratory. Elizabeth and Anthony are Clarke's wife and brother respectively.

(c) Shares in Fibrenova are held as to 80 percent by Fibre Laboratory, 12 percent by Davstoc and eight percent by others. These percentages differ from those stated in Fibrenova's application for an R & D Start Grant dated 21 December 2000 where it is stated that Fibre Laboratory held 72 percent of Fibrenova, that Clarke and related parties held nine percent, Davstoc held 18 percent and one percent was held by others.

(d) The directors of Fibrenova are Clarke, his wife and brother Anthony, Allwood and Dr Brown. Clarke is the managing director.

12 It appears that Clarke established Fibre Laboratory at an early stage in his endeavours and that it holds patents relating to the design of machines and systems for the processing of industrial hemp; see the list of patents at Court Book 716-717 and the Licence Agreement dated 16 May 2000 between Fibre Laboratory and Fibrenova at Court Book 1408-1423. The machines include the D 1 to D 6 decorticator machines referred to below.

13 In his evidence Clarke said, in reference to the time when the subject dealings were occurring with Knight in 2003, that he, his wife and one of his brothers were the directors of Fibre Laboratory. He indicated that he had power to have the board resolve as he might determine. Assuming this is correct, it indicates that Clarke was able to control decisions in Fibre Laboratory. As to whether it is correct, or merely an assertion to bolster the defendants' case as submitted by counsel for the plaintiffs[4], it was not suggested that such "power" was conferred by or contained in any constituent document or resolution of the company or the board, and no evidence was given by members of the board confirmatory of the existence of such "power". Nevertheless, regarding the evidence overall I accept that as a matter of practical reality Clarke was able to control decisions in Fibre Laboratory. I also find that he had similar control of Fibrenova. It is a reasonable inference that Clarke controlled the Australian Hemp Unit Trust and its trustee.

14 The statement of claim was amended pursuant to leave granted by me on the first day of the trial. Pursuant to that leave the plaintiffs filed a Further Further Amended Statement of Claim on the following day, 9 March. Unless otherwise stated, I will refer to this pleading as "the statement of claim".

15 In addition to the claims under the TPA and the FTA, the plaintiffs pleaded their case in contract and negligent statement. As pleaded, the contract was constituted by the memorandum of understanding dated 17 June 2003 ("the MOU") referred to below, and damages were sought for its breach. This claim was abandoned during the trial. As I explain below, the MOU was conditional upon Fibrenova submitting a list of liabilities to the proposed directors of the joint venture entity and agreement being reached upon the payments to be made from the joint venture to the creditors of Fibrenova and the time frame for payments. It was common ground that agreement was not reached as to the overall budget, although there was some dispute, to which I refer below, as to whether payments from the funds advanced were not made under Knight's authority. The case of negligent statement was but faintly put in final address, counsel stating that it must fail if the representations relied on to establish the claim under s 52 (or s 9) were not made out. This meant that the negligent statement claim added nothing to the statutory claims. Accordingly, and because I consider counsel's approach to be correct, I will deal only with the statutory claims.

16 The defendants did not file an amended defence to the statement of claim as amended at trial. They had filed an amended defence and counterclaim on 27 January 2005 before the close of pleadings pursuant to r 36.03(a). I shall refer to this pleading as "the defence and counterclaim" or simply as "the defence" or "the counterclaim", as may be appropriate. The case was conducted on the basis that the defence stood as the defendants' defence to the statement of claim as finally amended. That was a practical and convenient approach.

17 In a reply and defence to counterclaim filed on 28 February 2005 the plaintiffs made some general and specific denials but no positive averments. While I do not overlook this pleading, it is not necessary to refer to it further.

18 Notwithstanding that the defendants had a common solicitor and relied on a defence signed and filed by that solicitor in which the defendants joined common cause, at the trial Fibrenova on the one hand and Clarke and Allwood on the other hand were represented by separate counsel. As a result Clarke and Allwood were called by counsel appearing for them while counsel for Fibrenova called the balance of witnesses on the defendants' side. They were Adrian Ward Clarke who is Clarke's son and who I will refer to as Clarke Junior, and Hamish Gray Seymour Dennis.

19 The counterclaim was abandoned during the trial. It is necessary that I say something about it. The basis of the counterclaim was an alleged breach of terms of the MOU constituted by the failure of the plaintiffs to provide agreed funding of $4.5M as a result of which Fibrenova suffered loss and damage. In particulars it was merely stated that Fibrenova had lost the profits that it would have earned if the project had gone ahead. The amount claimed was quantified in particulars subsequently provided, as follows:

(a) In particulars filed on 25 August 2005 the loss and damage was stated to include, but not to be limited to, $15M made up as to $2.5M being lost profits in the six month period commencing 16 June 2003, and as to $12.5M being lost profits in the growing season 2004/2005. Particulars were provided of the calculation of these sums. It was stated that Fibrenova reserved the right to provide further particulars of loss.

(b) In particulars filed on 26 February 2007, a little over a week before the trial, Fibrenova specified its loss suffered as a consequence of the failure of the plaintiffs to make agreed payments from 17 June 2003 until 26 November 2003 as follows:

(i) English trip - the budget provision of $60,000, alternatively $80,228.53 being the aggregate of the money actually spent by Fibrenova in relation to the trip.

(ii) Net amount of wages/retainers allowed in budget, $177,100.

(iii) Liabilities of Fibrenova agreed to be paid by the plaintiffs, $385,000.

(iv) Agreed monthly payments to certain persons, $108,000.

The aggregate amount thus claimed was $730,100 or $750,228.53 depending on the amount claimed under item (i) relating to the English trip.

20 In his witness statement also filed on 26 February 2007 Clarke repeated verbatim the above further particulars. It is apparent that in doing so he was identifying and supporting the loss thus particularised as being the loss suffered, and sought to be recovered, by Fibrenova. He did not identify or seek to support the earlier (or any) claim for lost profits.

21 At the outset of the trial Fibrenova's counsel abandoned the counterclaim for lost profits. Later that morning, after he had outlined Fibrenova's case, I asked counsel what remained of the counterclaim to which he replied that "Essentially the main part of it is a trip to England in relation to the field test". This statement of counsel was equivocal as to whether all items of loss particularised on 26 February 2007 were being pursued. However I had the impression that the only item of loss being pursued was that relating to the English trip. With that intimation the trial proceeded with the calling of the plaintiffs' first witness.

22 Then, during the afternoon on the third day of the trial Fibrenova's counsel indicated to me that the counterclaim was wholly abandoned. At his request I held over making orders disposing of the counterclaim.

23 The representations are pleaded with particulars in the statement of claim as follows:

(a) Fibrenova was a world leader in the commercial production and harvesting of low-grade THC hemp;

This representation was oral and was constituted by:

(i) statements made on behalf of Fibrenova by Clarke to Knight at a meeting held in Melbourne on 31 May 2003;

(ii) statements made on behalf of Fibrenova by Allwood and Clarke to the Plaintiffs' representatives, Knight and Armour, at a meeting held in Melbourne on 7 June 2003;

(iii) statements made by Allwood and Clarke on behalf of Fibrenova to Knight at a meeting held in Melbourne on 17 June 2003;

(iv) statements made by Allwood on behalf of Fibrenova during telephone conversations with Knight during June, July and August 2003; and

(v) the communication of each of the above statements by Knight to the Second Plaintiff at the direction of and for and on behalf of each of the Defendants.

(b) Fibrenova had designed and developed a completely novel method of harvesting industrial hemp that was faster and more efficient than the methods utilised by other operators;

The Plaintiffs refer to and repeat the particulars to sub-paragraph (a) above.

(i) had rights in the Agreed Intellectual Property, which comprised all of the intellectual and industrial property rights (including rights in respect of patents and confidential information) which would be necessary to enable the Joint Venture to be successfully implemented;

(ii) was entitled to license the use of the Agreed Intellectual Property in the Pacific region (including India, Asia, China, Oceania, Canada and the United States of America) to the yet to be incorporated Australian company that was to conduct the Joint Venture; and

(iii) would grant to the yet to be incorporated Australian company that was to conduct the Joint Venture a licence to use the Agreed Intellectual Property (including, without limitation, to manufacture, market and distribute non-woven hemp products) in the Pacific region (including, without limitation, India, Asia, China, Oceania, Canada and the United States of America);

This representation was partly oral and partly written and was constituted by:

(i) statements made on behalf of Fibrenova by Clarke to Knight at a meeting held in Melbourne on 31 May 2003;

(ii) statements made on behalf of Fibrenova by Allwood and Clarke to the Plaintiffs' representatives, Knight and Armour, at a meeting held in Melbourne on 7 June 2003;

(iii) statements made by Allwood and Clarke on behalf of Fibrenova to Knight at a meeting held in Melbourne on 17 June 2003;

(iv) statements made by Allwood on behalf of Fibrenova during telephone conversations with Knight during June, July and August 2003;

(vi) an email from Allwood to Knight dated 19 June 2003, a copy of which is in the possession of the Plaintiffs' solicitors and may be inspected by appointment; and

(vii) the communication of each of the above statements by Knight to the Second Plaintiff at the direction of and for and on behalf of each of the Defendants.

(d) the necessary government approval and/or authorisation for the cultivation and harvesting of low-grade THC hemp in New South Wales, Victoria and Tasmania had been obtained by Fibrenova or, alternatively, could be obtained by Fibrenova and/or the yet to be incorporated Australian company that was to conduct the Joint Venture quickly enough to enable the planting and commercial harvesting of 200 hectares of low-grade THC hemp during 2003/2004;

The Plaintiffs refer to and repeat the particulars to sub-paragraph (a) above.

(e) the Joint Venture would be profitable and, consequently, the shareholdings in FIA[5] to be allocated to the Plaintiffs would be valuable;

This representation was partly oral and partly written and was constituted by:

(i) statements made on behalf of Fibrenova by Clarke to Knight at a meeting held in Melbourne on 31 May 2003;

(ii) statements made on behalf of Fibrenova by Allwood and Clarke to the Plaintiffs' representatives, Knight and Armour, at a meeting held in Melbourne on 7 June 2003;

(iii) statements made by Allwood and Clarke on behalf of Fibrenova to Knight at a meeting held in Melbourne on 17 June 2003;

(iv) statements made by Allwood on behalf of Fibrenova during telephone conversations with Knight during June, July and August 2003;

(v) statements contained in a "Projection Model" sent by Clarke to Knight via email on 16 June 2003 ("the Model"), a copy of which is in the possession of the Plaintiffs' solicitors and may be inspected by prior appointment; and

(vi) the communication of each of the above statements by Knight to the Second Plaintiff at the direction of and for and on behalf of the Defendants.

(f) the Joint Venture could reasonably expect to plant 200 hectares of low-grade THC hemp for the 2003/2004 season and 1000 hectares of low-grade THC hemp for the 2004/2005 season, yielding 3 tonnes of fibre per hectare;

This representation was partly oral and partly written and was constituted by:

(i) statements made on behalf of Fibrenova by Clarke to Knight at a meeting held in Melbourne on 31 May 2003;

(ii) statements made on behalf of Fibrenova by Allwood and Clarke to the Plaintiffs' representatives, Knight and Armour, at a meeting held in Melbourne on 7 June 2003;

(iii) statements made by Allwood and Clarke on behalf of Fibrenova to Knight at a meeting held in Melbourne on 17 June 2003;

(iv) statements made by Allwood on behalf of Fibrenova during telephone conversations with Knight during June, July and August 2003;

(vii) the communication of each of the above statements by Knight to the Second Plaintiff at the direction of and for and on behalf of each of the Defendants.

(g) the Joint Venture could expect to sell 3,000 tonnes of the fibre extracted from the low-grade THC hemp crop at the price of $3,000 per tonne and 6,000 tonnes of the hurd extracted from the low-grade THC hemp crop at the price of $50 per tonne;

This representation was partly oral and partly written and was constituted by:

(i) statements made on behalf of Fibrenova by Clarke to Knight at a meeting held in Melbourne on 31 May 2003;

(ii) statements made on behalf of Fibrenova by Allwood and Clarke to the Plaintiffs' representatives, Knight and Armour, at a meeting held in Melbourne on 7 June 2003;

(iii) statements made by Allwood and Clarke on behalf of Fibrenova to Knight at a meeting held in Melbourne on 17 June 2003;

(iv) statements made by Allwood on behalf of Fibrenova during telephone conversations with Knight during June, July and August 2003;

(vi) the communication of each of the above statements by Knight to the Second Plaintiff at the direction of and for and on behalf of each of the Defendants.

(h) Fibrenova had made arrangements with the Government of British Columbia for the production and harvesting of low-grade THC hemp on a large scale such that the Joint Venture would be able to exploit this commercial opportunity.

The Plaintiffs refer to and repeat the particulars to sub-paragraph (a) above.

24 It is alleged that the representations were false, untrue, misleading or deceptive in the respects or for the reasons identified in the statement of claim. It is stated that insofar as the representations were made with respect to future matters, the plaintiffs rely upon s 51A of the TPA and s 4 of the FTA. The plaintiffs did not particularise which representations were made with respect to future matters. However, in his final address counsel for the plaintiffs submitted, and counsel for the defendants did not dispute, that representations (c)(iii), (e), (f) and (g) were representations as to future matters, while (d) was formulated as either a present or a future matter. Accordingly I proceed on that basis.

(b) That the representations were made in trade and commerce.

(c) That insofar as the representations were made with respect to future matters, the plaintiffs relied on s 51A of the TPA and s 4 of the FTA. This was, of course, an inapt denial.

(d) That the representations were false, untrue, misleading or deceptive. It was alleged further that, as the plaintiffs well knew, the project depended for its development, viability and ultimate profitability on the provision of funding totalling at least $4.5M as contemplated by the MOU.

(e) That the representations constituted conduct in contravention of s 52 of the TPA or s 9 of the FTA or that Clarke and Allwood were involved in any such contravention.

(f) That the plaintiffs made the payments in reliance upon the representations. They alleged further that the plaintiffs knew that the project was potentially a speculative business venture involving new techniques and technology, and relied on the $4.5M being provided in order to come to fruition and generate profits.

(g) That the plaintiffs had suffered loss and damage.

26 It is important to note the effect of these pleadings in relation to the issues under s 51A of the TPA and s 4 of the FTA. The effect of the plaintiffs stating reliance on these provisions was to inform the defendants that sub-s (2) of those sections was invoked against them[6].

27 The next point is that the defendants did not seek particulars identifying which of the representations was alleged to be with respect to a future matter. Nor did the defence allege the existence of any reasonable ground or grounds for making any such representation. In consequence no such ground or grounds was specified in the defence.

28 Whilst there are differences in the language of s 51A and s 4 it was not suggested that there was any difference in their operation in this case. Both s 51A(1) and s 4(1) provide that a representation as to a future matter is deemed to be misleading if the representor did not have reasonable grounds for making it. Section 51A(2) provides that the corporation (being the representor) "shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation". Section 4(2) puts it somewhat differently, namely that "the person making the representation bears the burden of proving that he or she had reasonable grounds for making the representation".

29 It would have assisted in the identification of the issues for determination if the defence had included a succinct statement of the reasonable ground or grounds which the defendants intended to rely on, and the representation to which the ground or grounds related. In my view such a statement was required by r 13.07(1) and would have needed to accord with the requirements of r 13.02(1)(a).

30 In this context I note the statement of Heerey J in Sykes v Reserve Bank of Australia[7], with which I respectfully agree, that where a representation is as to a future matter "s 51A requires the representor to show:

31 I should perhaps note a further point which is that s 51A is not applicable to the determination of accessorial liability under s 75B of the TPA. It has been so held in Quinlivan v Australian Competition and Consumer Commission[8] applying in that regard the view of Emmett J in Australian Competition and Consumer Commission v Universal Sports Challenge Pty Ltd[9]. The position would be the same under s 145 of the FTA. In the present case, however, counsel did not refer to this point, perhaps because the corporation, Fibrenova, is sued as representor under the TPA, and Clarke and Allwood are sued as representors under the FTA, in addition to being sued as accessories under the TPA.

32 There were 11 witnesses each of whom, bar two called by the plaintiffs, gave their evidence in chief by witness statement. There was also a five volume Court Book and some other exhibits.

(a) Gary John Knight, who has been a director of ARE since 25 October 2002. He gave evidence of events and meetings since becoming aware of the hemp project, in particular dealing with the meeting on 31 May 2003 and the subsequent meetings on 7 and 17 June 2003, the signing of the MOU and subsequent events.

(b) Gregory David Roley King, a senior project officer in the plant standard branch of the Victorian Department of Primary Industries. In that role he assists in the processing of hemp applications. He did not provide a witness statement. He produced and gave evidence as to the following:

(i) Form of application for an authority to possess, cultivate, and/or process Low-THC Cannabis (Hemp) and related guidelines (Exhibit B).

(ii) Authorities relating to Low-THC Cannabis (Hemp), each in relation to a property at 5 Bickleigh Court, Croydon Hills, Victoria, one granted to Dennis on 16 November 2000 and the other to Clarke Junior on 1 September 2001 (Exhibit C). It is common ground that the subject property was a residential property. In view of that, and the fact that authorities are given to a named person (and not to a company) in relation to activity at a specified property, King considered that it was unlikely that hemp would be actually cultivated at the residential address, however he agreed that the terms of the authorities permitted the cultivation and processing of hemp. Each authority had a term of three years from the date of its grant.

(iii) Three emails between Dennis and the Department of Primary Industries, the first from Dennis on 7 March 2003 stating that he needed his hemp licence updated as it expired on 31 October 2003 and requesting an application form, the second on 26 August 2003 from the senior plant standards officer of the Department attaching an application form and requesting return, and the third from Dennis later on 26 August 2003 querying whether a new application was needed to be filled in as none of the information had changed (Exhibit D). King could not explain the gap between March and August but stated that the Department's records did not show that Dennis returned an application form or that Clarke Junior had sought an extension of his authority.

(c) Peter Rajakumaran Selvarajah, the second plaintiff, who around March 2003 became a 10 percent shareholder in ARE. He described the circumstances in which Knight introduced the project to him and of his investment.

(d) Christopher Robert Davidson, an agricultural consultant who had been subpoenaed by the plaintiffs to give evidence. He did not provide a witness statement. He gave evidence as to events and meetings subsequent to Morton bringing the project to his attention in late 2002 and his meeting Clarke in early 2003.

(e) Johanna Hendrina Armour, who is a shareholder and a former director and secretary of ARE. She lives at Bookham, south of Yass in New South Wales and is engaged in retailing and farming. She gave evidence of the meeting on 7 June, of an investigatory trip to Singapore with Knight in late June, and of a meeting on 23 November 2003.

(f) Geoffrey Allan Williames, the managing director of Williames Pty Ltd previously known as Williames Hi-Tech International Pty Ltd ("Williames Hi-Tech"), an engineering business. He met Clarke and Allwood in August 2000 when Clarke inquired whether Williames Hi-Tech would be interested in providing a prime mover for a decorticating machine. He gave evidence of his subsequent work requested by Clarke and his separate invention of an improved technology for decortication of hemp, and other matters.

(g) Rodger William Morton, a management consultant. In the late 1990s he met Clarke who informed him of his technology to decorticate and de-gum hemp to produce a fibre superior to that produced by traditional methods. Clarke was seeking investors to assist in developing his decorticating equipment. He gave evidence of his contact with Clarke and of events including meetings which he attended on 31 May and 7 June 2003.

34 While the defendants conducted the case with a united front, the witnesses were split as a result of retaining separate counsel. Fibrenova called Dennis and Clarke Junior while counsel for Clarke and Allwood called them, they being called first. The witnesses may be taken together and, as such, I refer to them in the order in which they gave evidence.

(a) Adrian Francis Clarke, a director of Fibrenova, who described the history of the hemp project and dealt with the relevant events and meetings. His evidence in chief was extensive being contained in a witness statement that ran to 122 pages.

(b) Gary Richard Allwood, a solicitor and partner of Kenyons the solicitors for the defendants. He met Clarke in 1998 since when he has provided "commercial advice" in relation to the hemp project. Notwithstanding that Allwood's witness statement suggests he became a director on incorporation of Fibrenova in December 1999, it is admitted on the pleadings that he was a director from 16 August 2000 until 15 January 2004. He gave evidence as to his involvement at meetings and other relevant events. He was not present at the meeting on 31 May 2003.

(c) Hamish Gray Seymour Dennis, who holds the degree of Bachelor of Applied Science (Horticulture) from Melbourne University and who was employed by Fibrenova as an R & D Co-ordinator/Manager from September 2000 to December 2004. He attended, and gave evidence as to, the meeting on 31 May 2003, the English trip, and some other matters. His witness statement contained much inadmissible material.

(d) Adrian Ward Clarke, now a Fraud Investigator with Centrelink and who formerly, commencing in October 2000, was employed by Fibrenova as Production Co-ordinator and then as Production Manager in the course of which he acquired knowledge of hemp. He attended, and gave evidence as to, the meeting on 31 May, and as to some other meetings and events. His witness statement also contained much inadmissible material.

35 As I have mentioned, in their defence the defendants denied making the representations sued upon. Clarke and Allwood repeated that denial in their evidence in chief. Their evidence was in conflict with evidence in the plaintiffs' case, for which case some support is found in evidence of Clarke Junior and Dennis. In their final submissions the defendants' counsel wove their way through the dilemma thus created in the following way, putting it broadly.

36 In the first place, the evidence did not establish representations in the terms alleged, as distinct from generalised references to subject matter discussed without condescension to the detail of that which was alleged to have been stated. Pointing to the absence of a contemporaneous written record of the oral representations counsel emphasised the need for rigour in evaluating the evidence. The correct approach was that stated by McLelland J in Watson v Foxman[10].

37 In the second place, and significantly, counsel submitted that of all the witnesses the evidence of Davidson should be preferred, the evidence of the other witnesses as to relevant matters being affected, as might be expected, by their interest in the result. Yet, it was submitted, Davidson's evidence was insufficient to establish the plaintiffs' case. By this submission the defendants' counsel conceded that the evidence of their witnesses, but Clarke and Allwood in particular, was not to be preferred to the evidence of the plaintiffs and their witnesses. Rather, their evidence, like that of the plaintiffs' witnesses, was affected by self interest and the guide through the morass was to be found in the evidence of Davidson.

38 Not only was this a significant concession in a word against word case, but it was, in my view, reflective of the reality concerning the evidence of Clarke and Allwood. I consider that Knight and the other witnesses who gave evidence in the plaintiffs' case gave evidence from their best recollection and as accurately as they could. I assessed them as honest witnesses.

39 In giving his evidence Knight manifested a quiet but firm sense of grievance as to ARE, and Selvarajah, having been led into an imprudent investment. His role in bringing Selvarajah to invest added to his interest to succeed in the case, and I take that into account.

40 Selvarajah's evidence supported his case. His evidence was given in a somewhat quiet but restrained manner reflecting his nature. He was evidently honest, not pushing his evidence one way or another but giving his best recollection.

41 Morton, an evidently intelligent person who had become impatient with Clarke and between whom differences had occurred, had been paid for his efforts in seeking to assist Clarke to commercialise the project[11], and no longer had any interest in it.

42 Armour had not invested in the project although as a shareholder of ARE it may be said that she had an interest in ARE succeeding in the case. I do not know ARE's overall financial position. Allowing for her possessing such an interest, she presented as a clear minded, independent person of firm recollection who gave her evidence in a reasonable and attentive manner. She was but briefly cross-examined.

43 Williames gave evidence in a clear and sincere manner, concerned to indicate the delineation between the work he and Clarke respectively had done in developing the D 7 decortication machine. I considered him an impressive witness, and prefer his evidence to that of Clarke where there is conflict. Williames was understandably aggrieved that Clarke had sought to patent a method that Williames said he had invented, without first discussing the application with Williames, and notwithstanding that Clarke acknowledged Williames' role in the application.

44 Putting aside King whose evidence was not controversial, the remaining witness for the plaintiffs was Davidson. I mentioned earlier that he did not provide a witness statement. He, like Morton, no longer had an interest or role in the project. It seemed evident from his evidence in chief that he was called cold, without having provided a statement. It was evident that Davidson was not in the camp of either party, just as I consider Morton was not. But Davidson had had much less experience of Clarke than Morton had, and had not suffered differences with Clarke as Morton had. It was also apparent from observation of him and his background, and the concentration that he brought to the task of giving evidence, that he was an intelligent and careful person experienced in the area of considering agricultural projects. This was a witness who gave evidence, under subpoena as I understand (and there is a subpoena addressed to him on the Court file), who clearly sought to assist the Court with evidence given of his best recollection prompted as questions were asked. He was independent of the parties, impressive and persuasive. Furthermore, I found his evidence to support the plaintiffs' case. It is of course only to be expected that in a case such as this in which witnesses gave evidence of statements made at meetings several years previously that there will be an inconsistency or difference here or there, but the substance of that dealt with by the witnesses was clear enough in my view.

45 In the end the position of the defendants' counsel that Davidson's evidence was a reliable indicator of relevant matters may be seen as a way of circumventing the blunt reality of inadequacies in the evidence of Clarke and Allwood.

46 I found Clarke and Allwood to be unsatisfactory witnesses, particularly Clarke. Where their evidence conflicts with other evidence in the case, I prefer the evidence of the plaintiffs' witnesses. To put it mildly, it was improbable that in circumstances where Fibrenova was insolvent and wished to commercialise the decortication machine and de-gumming process, Clarke in particular but Allwood also did not speak the virtues of the project as a likely profitable venture in a way that they denied. Such evidence of Clarke in particular was against all likelihood and I reject it as false. I found Clarke to be obsessive, argumentative and obfuscatory in relation to the project and his role and what he said at the meetings, even disingenuous in his evidence. Allwood, I consider, has become "caught up" in the matter and too close to Clarke, as a result of having been his legal adviser, appreciably unpaid, his firm acting as solicitor for the defendants in this proceeding and he also seeking to fend off a personal claim. His loss of objective detachment was evident in his evasive evidence concerning Fibrenova's solvency. For a commercial lawyer of experience, and addressing a time when he was a director of Fibrenova, to describe Fibrenova's financial position as being a "certain" state when it was evidently unable to pay its debts was silly to the point of adversely reflecting upon his judgment and reliability as a witness. Also reflective of Allwood's accuracy with detail was his false statement in his curriculum vitae provided as part of Fibrenova's application for an R & D Start Grant in December 2000, that Fibrenova is:

"an unlisted public company which grows, harvests, decorticates and de-gums Indian Hemp which is then on sold to processors of Indian Hemp for either the clothing or other uses."[12]

Apart from any other aspect of this statement the fact is that as at 2000 Fibrenova had not sold any hemp fibre, as Allwood agreed in cross-examination. Indeed that remained the case in May 2003 when Knight became involved.

48 The case is born of Clarke's desire to develop a process for the decortication and de-gumming of industrial hemp. Having become interested in the topic in approximately 1994, Clarke researched the various uses of hemp fibre and the present and historic processes by which the fibre was extracted from the stem of the hemp plant. The first step in the traditional processes is called retting which was done either by lying the cut hemp stems in the field and allowing natural processes to work or by submerging the stems in water. These processes, which Clarke described in his witness statement, are labour intensive, take weeks and are expensive. These processes are still practised in various parts of the world. The next stage in the process is called decortication. In this process the inner woody stem called "hurd" is fractured in machines with interlocking structures similar to gears and operated like hammer mills. The broken hurd is shaken from the skin and the skin is bundled in fingers and hanks for scutching. This may be done by hand, as it still is in China, or by machines in mills.

49 Where it is sought to make textile fibre (that is, "woven" use), the processor will keep the fibre in long fibre bundles with traditional long spinning to make linen. According to Clarke, most mills break the fibre into short lengths for industrial uses like paper, composite plastics, car parts and building materials (that is, "non-woven" use). That which is to be used in textiles is scutched, in which process the fibre is beaten to remove the last of the gums and hurd granules to prepare it for hackling. Hackling is a complex combing process which combs out the short coarse fibres known as "tow", from the long fibres known as "long-line". The tow is used by plumbers and ship-builders for a caulking fibre as well as spun and woven into heavy canvas. The long-line is spun into yarn in long-line wet spinners to make linen cloth. Clarke said that the bulk of the hemp fibre is used as a short filler fibre for non-woven industrial uses.

50 For reasons referred to in his witness statement, concerned with inefficient and unsatisfactory processes, practices and costs, Clarke saw an opportunity for hemp to become (as it once was) a major fibre resource alongside cotton and able to take the place of oil based textiles. He saw the need for an improved process to produce the hemp fibre, and new opportunities for its use including replacing fibreglass in a range of products. In addition to industrial use he perceived a significant textile market in supplementing cotton. In short, Clarke's research indicated both a significant woven and non-woven industrial market. The key limiting factor, however, was the retting process and in 1994 he and his father in law commenced work in relation to creating a machine which could decorticate the fibre rich skin of industrial hemp from the inner wooden core (hurd) of the hemp stem by a means that did not require retting.

51 In this process several decorticating machines were built. They are called the D 1 to D 7. A difficulty in this respect was that hemp was an illegal crop, being defined by reference to its cousin, marijuana, so testing was undertaken on other plants. After lobbying, the Victorian government allowed a trial period of three years in which small crops of hemp could be grown, following which in September 1997 the law was altered to permit hemp to be grown commercially under licence. I have already referred to the legal position concerning the growing of hemp. The change meant that the machine called the D 1 could be used on hemp. Such testing having taken place, Clarke was satisfied that the technology of the D 1 and the concept of green decortication was sound[13]. He sought investment to fund further work on the technology with a view to producing a commercial system. He also had to develop a method of removing gum from the fibre so that it could be used in textiles and non-woven products. This is referred to as the de-gumming process.

52 This led to the D 2, D 3, D 4 and D 5. The D 5 was tested on a crop grown under glass in a greenhouse in Victoria. The D 6 was then built by Clarke and tested in 1999 on crops in Italy. Clarke said that the fibre produced was evaluated by textile mills in Milan and Venice which expressed interest and requested several tonnes for the production of samples.

53 In the meantime Clarke met Morton in February 1997. Morton was introduced to Clarke as a person involved in the commercialisation of inventions, knowledge as to which was attractive to Clarke who required commercial advice and funding. Clarke provided Morton and an associate of his called John Knight (no relation to Gary Knight) with seven percent of the project by way of units in the Australian Hemp Unit Trust. Following the severing of Clarke's relationship with John Knight, Morton held three percent of the units in the Australian Hemp Unit Trust. Clarke and Morton spoke from time to time, Morton expressing interest in the project and assisting Clarke with business planning including reviewing projections prepared by Clarke for use in attracting investors to fund the development of the decortication machine. Clarke attracted investment from a number of investors over the years.

54 On 21 December 2000 Fibrenova successfully applied for an AusIndustry R & D Start Grant for the purpose of developing a new de-gumming process to be used in conjunction with the decortication process being developed by Fibrenova[14]. This work was done at the International Fibre Centre at Deakin University. In this work a simple way of preparing the fibre for spinning in standard cotton machines was devised. This was significant as it meant that fibre decorticated using the machine could be spun inexpensively on low cost cotton spinning machines found in most countries. Overseas mills expressed interest but wished to see textiles produced from the fibre. Unfortunately however the Victorian government closed the centre at Deakin University thus terminating the research and development project. Thus development of the de-gumming process remained to be completed to the stage of commercialisation. Work on this was stalled because the equipment relevant to the research was sold to the CSIRO and was not available for Clarke to use. That meant that Clarke (or Fibrenova) could not produce textiles and obtain orders which were the key to gaining investment.

55 In 2000 and 2001 D 6 prototypes were operated on a farm near Warragul.

56 At this point it is convenient to refer to the involvement of Williames through his company Williames Hi-Tech. On 10 August 2000 Williames met Clarke and Allwood. Clarke advised that he had developed a decorticating machine for harvesting hemp. The machine was called a D 6 which they had patented. Clarke asked Williames whether he would be interested in developing a prime mover, that is to say a self propelled undercarriage for the machine to make it transportable. The parties signed confidentiality and non-compete agreements dated 10 August 2000. It is not necessary to set out the terms of the agreements, except to note that cl 5 of the confidentiality agreement provided (in consideration of Fibre Laboratory having disclosed to Williames Hi-Tech confidential information relating to the D 3, D 4, D 5 and D 6) that any intellectual property arising as a result of the use of the confidential information shall be the property of the disclosor (Fibre Laboratory) and the recipient (Williames Hi-Tech) agreed to execute documents and do such things as may reasonably be necessary to vest ownership of the said intellectual property in Fibre Laboratory[15].

57 Subsequently Williames agreed to perform the work requested, to commence with the preparation of engineering drawings and then to move forward to build the prime mover. He was paid a deposit of $30,000. It would seem that the parties so agreed later in 2000 and that reasonably proximate thereto, at Clarke's request, Williames attended a farm near Warragul owned by Peter Abels to witness the hand feeding of a stationary hemp decorticating machine. Williames described it as a small prototype decorticator. This was a prototype of the Fibrenova D 6 machine.

58 Williames understood the principle of how the D 6 worked as Clarke had explained it in detail. It was a system of feed rollers feeding a single stem over a blade to divide the stem to expose the hurd to a rotor which removed the hurd. The purpose of observing the hand feeding was to help in understanding how the D 6 worked and thus to aid Williames Hi-Tech in its work.

59 Clarke also told Williames that Andrews Engineering was engineering an advanced model of the D 6. It was that advanced model that required the automated undercarriage that Williames was to design and build. The prototype Williames observed at Abels farm was not that which was being engineered by Andrews Engineering. What he observed was a small prototype whereas Andrews Engineering was working on "the major full-width new design machine ... which was to fit on the prime mover we were to construct". Williames said that work commenced on developing a prime mover to support this new advanced model based on its overall dimension. He said that Fibrenova frequently visited to inspect the progress of the drawings for the prime mover. He denied in evidence, and I accept, that there was a constant flow of information between his company and Fibrenova as to the decortication technology of the D 6. As to whether he discussed the de-gumming process with Clarke, Williames said, and I accept, that he (Williames) had no input into the development of the D 6 whatsoever. Williames said further that the contracts for Andrews Engineering and Williames Hi-Tech were different, with Andrews Engineering to provide the D 6 and Williames Hi-Tech purely to provide a prime mover and the means of cutting and conveying the cut hemp into the input throat of the D 6. He understood the principle of the D 6 and that was important in order to know how the stem should be introduced to it, but he was not involved in the development or engineering of the D 6.

60 Subsequently Clarke advised that Andrews Engineering had incorrectly assembled the machine. As a result the machine would not operate properly. The advanced model of the machine was not delivered to Williames Hi-Tech and thus the automated undercarriage was not fitted. Clarke expressed dissatisfaction with Andrews Engineering and asked if he could deposit some of the pieces of developmental machinery at Williames Hi-Tech's property. Williames agreed and bits and pieces of machinery were so deposited and remain there today. Williames Hi-Tech do not want this machinery and will soon send it to scrap.

61 Quite separately from the above, in late 2002/early 2003 Williames, who was himself an inventor in the area of agricultural machinery, commenced to consider whether there could be a better way of decorticating hemp. He saw that it could be a large industry. The process he had seen in operation at Abels farm was, he considered, slow and not satisfactory for high volume harvesting on a commercial basis. The machine he saw also appeared to be prone to fibre wrap and blockages. He engaged in development work on his own without, as he said, contribution from Fibrenova. He obtained samples of hemp from Dennis and at his own expense conducted trials on a small electrically powered device to prove a total new concept to decorticate hemp. This process could take multiple stems of hemp and put them across an anvil where it was struck to separate the fibre from the hurd. Upon developing this alternative decorticator Williames showed Clarke the drawings and demonstrated by hand the anvil and impact technology. Williames insisted in evidence that the technology he developed was unique and totally different from the D 6. He called this technology the "Williames technology". Williames denied in cross-examination that upon Clarke being shown the drawings, Clarke had told him that the process was exactly the same as the D 3. Williames said that he had not heard of the D 3, and the D 3 was not mentioned at that meeting. Clarke asserted the contrary in cross-examination. I prefer Williames' evidence, namely that the D 3 was not mentioned by Clarke.

62 Williames Hi-Tech constructed a small prototype for Fibrenova incorporating the Williames technology. He called this the Williames machine. Fibrenova called it the D 7.

63 There was a deal of further evidence on the question whether Williames had invented the technology incorporated in the D 7 solely or in conjunction with Clarke or Fibrenova. In his evidence Williames said that, without his permission, an employee of Williames Hi-Tech gave Clarke the confidential drawings of the Williames machine and that Clarke used them to register a patent that suggested that he and Williames were the co-inventors of the Williames machine. It seems that the application was lodged on 30 March 2003. Williames took this up with Clarke, Allwood and Fibrenova, following which it was, as Williames put it in his witness statement, "agreed" that Fibrenova could market machines embodying Williames technology but that Williames Hi-Tech be the manufacturer of all future harvester, decorticating, and de-gumming machinery. This agreement, as Williames described it, was set out in an email from Allwood to Williames on 16 July 2003. I interpolate that the email does not reflect the entry into a binding agreement, as distinct from an intention as to future acting. Williames correctly described the email as "weak" when it was known that he (Williames) wanted "something documented formally in a licence".

64 For reasons set out later in this judgment, it is neither possible nor necessary that I make a finding on the issue of invention. For present purposes, it is sufficient to note that in late 2003 or early 2004 Williames sought advice from a patent attorney but it was late, the project was in tatters, unfunded and had died off so Williames was not in a financial position to move forward with action and he did not do so. It is clear that Williames expressed and held his view that he had invented the basic or Williames technology in the Williames machine called the D 7. I also find that he held these views, and a grievance as to Clarke's secret patent application, throughout 2003, and that Clarke and Allwood were aware of his views. Williames set out a history of his position in an email to Knight on 3 November 2003.

65 It remains to mention, to complete this reference to Williames, that it was the small prototype D 7 that was sent to England in July 2003 for trials and Williames accompanied it to ensure the machine worked and to be able to make any modification required. It also served to provide him with experience in its use on a crop. Apart from his air fares being paid Williames bore his own costs. He did that as a contribution to furthering the technology and on the basis that the technology would be commercialised and he would manufacture the machine. As it was, out of the funding provided by the plaintiffs, Williames Hi-Tech was paid $117,000 in July 2003 and $12,000 in October 2003 for components. No further payments were made and a commercial sized D 7 machine never went to manufacture.

66 Returning to the chronology, in 2002 Morton informed Clarke of Davidson, an executive with Visy[16], who was working on an agricultural development project for Pratt Water in New South Wales. Morton suggested that Visy may be interested in investing in the hemp project.

67 There are differences in the evidence as to when Clarke and Davidson met. It was not suggested that anything turns on any difference in recollection here, and I do not think it does. I merely note their evidence. Clarke said in evidence that he did not meet Davidson until the meeting on 31 May, whereas Davidson thought they met very early in 2003 and on a number of occasions before he met Knight. Apart from actual meetings they spoke on the telephone. According to Clarke, Davidson rang him on 13 June 2002 to discuss the use of industrial hemp in the manufacture of cardboard and paper; Davidson said that could have been the time of their first communication. Clarke said that there was no further contact until 23 January 2003 when, at the suggestion of Morton, Clarke rang Davidson who suggested growing hemp in New South Wales as part of the Pratt Water Project. Clarke sent Davidson some financial and other information. Subsequently they spoke from time to time but - according to Clarke - did not meet until the meeting on 31 May 2003 referred to below. In the meantime, according to Clarke, on 16 April 2003 Davidson informed him that Pratt Water was interested in the project, that the documents Clarke had sent were being read, and also suggested another person who might be able to invest up to $3M. Davidson told Clarke that it would be necessary to secure interim funding to develop the project further prior to the Pratt Group taking an interest. He did not believe the Pratt Group would invest prior to the next growing season and that it was important to grow an Australian crop to develop the project.

68 On 30 April 2003 Clarke sent Morton the business plan prepared by Pivotal Management Consultants for Fibrenova Holdings Pty Ltd dated 3 July 2002, some financial data and letters of interest from Brett Boag dated 24 May 2002 and Fibretech dated 23 August 2002. Clarke also sent the business plan to Davidson.

69 It is to be noted that the business plan included as Appendix 3 a Fund Raising Protocol[17]. The protocol assumed an injection of $2M from an insurance bond and that further funds would be raised by equity and loan funds. It was then stated that a factor (among three) for consideration when raising such funds was that the "equity or loan provider must be prepared to advance funds in full knowledge that the companies are in the early stages of their development".

70 On 5 May Davidson spoke to Clarke. Davidson had received Boag's letter from Morton but wanted to see the later letter. Davidson said that he would make inquiries about Boag, and advised that he had not heard from the potential investor he had mentioned previously. Clarke agreed to send to Davidson the later letter from Boag.

71 Also on 5 May Morton rang Clarke advising that he was working with Davidson in relation to the Pratt Group investing in the project hoping it could be worked out. Morton suggested Clarke concentrate on the industrial non-woven side of the project as that would be the Pratt Group's interest, rather than the textile side. According to Clarke, Morton said it was important to grow 200 hectares of hemp in the next Australian growing season to prove the fundamentals of the project. Morton asked Clarke to set out in writing the requirements in relation to seed, water and location. Clarke advised Morton of a proposed trip to England to demonstrate the green decortication machinery and investigate funding for the textile side of the project. (I interpolate that this trip had been arranged for July/August 2003, with funding support provided from an English source.) Morton suggested that Clarke cancel the trip and concentrate on the non-woven side, against which Clarke noted the importance of the small but high value/profit per hectare textile production. Morton told him that Visy was only interested in the non-woven side. Clarke emailed Morton several pages of what he described as "Financials for Commercialisation". In the covering email[18] Clarke said that he had discussed the trip to the UK with Dennis and Clarke Junior who said it was better if "that last bit of R & D was done". Clarke added that it may save key time in "our later window of opportunity in November by having the thing right at that time". The way to get it right was in the UK "on a little machine and a hectare crop" that was "already in the ground in Surrey". He concluded that in "the worst possible case ... we could lose most or all of our 200 hectares of fibre if we don't finish the concept in the UK in June/July". I interpolate that the reference to the 200 hectares was to a crop aimed to be planted in Australia in late 2003 and harvested by the hopefully successfully trialled decortication machine. The "Financials for Commercialisation" was a projected budget for a commercial operation in the period June to December inclusive 2003. In his email Clarke said that he had prepared the budget in haste. One might expect inaccuracies and error in such a document but in one respect that was not the case. This concerned the treatment of existing debt for which some - but not total - allowance for repayment was made in the budget. A list of debtors was attached to the budget[19]. The list was made up as follows, including Clarke's comments as to payment:

(a) Deakin University - this was owed at the end of the R & D Start Grant project. There were two elements to this, (a) Davstoc did not complete its investment contract with Fibrenova, (b) the Deakin equipment was sold near completion of the project which in consequence did not produce cloth. The lack of cloth meant that orders and investments could not be obtained. Deakin took shares in lieu of payment, such shares to be redeemed when Fibrenova received a significant investment or income.

(b) Les Erdi loan - half was due now, the other when a significant investment was made.

(d) Kenyons, lawyers - Allwood had been "working for us with total dedication since 1998" and no fees had been paid. Kenyons required payment. The account should be reduced "considerably" followed by monthly payments for current work. Then, Clarke believed, the current account can be "quarantined and paid when Fibrenova is able".

(i) Farmers, for crops grown years ago when Davstoc defaulted on their agreement

(k) Pivot, for storage of hemp stems for three years

❖ Colin Mierisch - repaired D 6 decorticator wrongly assembled by Andrews Engineering

(m) Consultant - Davy Ward - assisted in repair of D 6's

(n) Fibre Laboratory licence fee - on hold until Fibrenova can pay

None of these debts had been paid or reduced by the time of the meeting with Knight on 31 May 2003.

72 On 6 May Morton told Clarke he had spoken to Boag. Clarke said that Davidson was satisfied with Boag's expected demand, and that Morton said that he was working with Davidson on a written presentation to the Pratt Group. Morton agreed to Clarke seeing the presentation before it was presented. Clarke said that Williames should go to England to have direct experience of the crop and what would be required to build a harvesting decorticator for Australia later in the year for the 2003/2004 crop. This would give him time to build the machine to put on one of his platforms. Clarke said that Morton agreed. Morton also said that the Pratt Group might require 51 percent of the industrial non-woven project.

73 On 7 May Clarke sent Morton a schedule of patents held by Fibre Laboratory.

74 On 8 May Clarke spoke to Davidson expressing unhappiness at Morton's suggestion as to the extent of the equity Visy might require. Davidson said that he was working on a presentation and budget to present to senior personnel of the Pratt Group. Davidson agreed to provide to Clarke a copy of the presentation before it was made.

75 Also on 8 May Clarke delivered to Boag a needle punched mat made from hemp decorticated by a Fibrenova machine, to enable Boag to undertake tests on the chemistry of the resins and on the final strength of the board as used in shipping pallets made by the Boag Group. He also collected a new letter from Boag, dated 8 May, expressing interest in the hemp fibre. In the letter, which was provided to Knight on 31 May 2003, Boag wrote most favourably about the potential for use of hemp fibre in his business, referring to a supply of 10,000 tonnes per month and to preferring the fibre to fibreglass for which they were currently paying $3 a metre roll. Referring to "this very strong hemp fibre which you can produce with your unique method", Boag saw "a real opportunity ... to achieve our ecological values as well as our commercial values".

76 On 12 May Clarke discussed with Davidson the cost efficiency of travelling to England to test the decortication machine or of growing hemp under glass in Victoria which Davidson favoured. Clarke preferred the former referring to the experience Williames would gain with a large scale crop. Davidson said he would speak with Boag about the trials he was to conduct to test the strength of the fibre compared to fibreglass.

77 On 13 May Clarke spoke to Davidson who was preparing his presentation. Davidson said that he would arrange a visit to the greenhouses in Berwick with a view to growing a small crop under glass and lights in the winter.

78 On 14 May Clarke sent Morton and Davidson a PowerPoint presentation headed Hemp Production in a Cotton Mill.

79 On 16 May Boag advised Clarke of his testing to date.

80 On 22 May Clarke spoke to Davidson who (according to Clarke) advised that the hemp project was among the final five selected for the Pratt Water Project and that he was trying to arrange $4M as soon as possible so that "we could work to the strict schedule I told him was essential for growing the 200 hectares in the coming summer".

81 On 23 May Boag advised Clarke, as was the fact, that Morton and Davidson had visited him. Morton gave evidence that he was satisfied from the visit that there was a potential for using the fibre in place of fibreglass in pallets. However he was unable to assess the scale of the opportunity because there were no pallets. Later that day Morton told Clarke of the visit as being a due diligence inquiry. Thus it was made without first informing Clarke. Clarke told Morton that Boag had advised he was interested in investing $300,000 in the project to ensure sufficient fibre was brought back from England to carry out extensive testing of the fibre to satisfy him (Boag) of the suitability of the fibre for shipping pallets, and he (Clarke) did not want that opportunity spoiled. According to Clarke, in the discussion Morton said that he and Davidson wanted a commission from the funder and equity in the non-woven hemp venture resulting from the funding they obtained. They would negotiate a commission from the Pratt Group. In his witness statement Clarke said that he was "shocked and hurt" by Morton's statement.

82 Later on 23 May Davidson rang Clarke and they discussed many topics.

83 On Monday 25 May Clarke emailed Morton requesting a copy of the proposed Visy presentation.

84 On 26 May 2003 Davidson was in Tumut for work when Armour introduced him to Knight. It was a social meeting at which Davidson mentioned that Pratt Water was looking at projects in relation to water reform and that he had been presented a project in regard to growing industrial hemp and was looking for funding for the development of a harvesting machine. He invited Knight, if he was interested, to come to a meeting later in the week and meet the proponents of the project. Davidson explained to Knight what his role had been. He said that he was interested in taking an interest himself, on the basis that the project would require a team to be put together and he would be happy to work in the team. As to what he told Knight about the potential of the project, Davidson said in evidence that "I would have pointed out to him that there were some steps that need taking in terms of developing up the project, that the most important part of the project was the development of a harvesting machine and that's what we'd be looking to seek an investor for, to build a harvesting machine, plant a crop and then harvest it and sell the product". Davidson also told Knight that he best come and see for himself, meet the proponents of the project and gauge his own summations of what the project was like. As to their discussion Knight said, and I accept, that Davidson told him about the project and encapsulated what it was about. It had new technologies, environmental possibilities and was a rural based project. Knight found it "interesting". Davidson did not sell it to him. Knight said, and I accept his evidence, that it was "a very initial meeting. I wasn't going to buy it there and then on the spot". He told Davidson that he had an investor (heading a group of investors) ready to invest $2.5M in a project of Knight's choosing.

85 Also on 26 May Morton advised Clarke that Davidson had made the presentation that day, and that all would be known on Friday. Clarke was upset as he had not seen the presentation.

86 On 27 May Morton emailed Clarke with advice that Davidson had met with a potential funder "yesterday evening and received a very positive response". Morton emailed "the brief information memorandum" Davidson used. He expressed confidence that Davidson would be able to close the deal in about two weeks time.

87 On 28 May Morton told Clarke that he had arranged a meeting on 31 May with the potential funder to whom Davidson had made his presentation. According to Clarke, Morton said they would meet with one of the Pratt companies. Davidson would be at the meeting. At a time which I infer was proximate to the meeting on 31 May, and shortly before Davidson spoke to Knight on 26 May, Pratt Water executives decided, and so advised Davidson, against involvement in the project. The reason was that Pratt Water did not involve itself in start-up projects. If the machine was developed to "some pilot commercialisation, they would look at it". Davidson informed Clarke of that decision at the meeting on 31 May.

88 In the days before the meeting on 31 May there was communication between Morton and Davidson. Davidson informed Morton of his conversation with Knight and, it may be inferred, of the latest position concerning the interest of Pratt Water. It seems that Davidson communicated with Knight as Knight's approval may have been sought for ARE's five percent interest specified in the memorandum of understanding referred to below. Similarly, as to Knight being a director of the joint venture company, Knight would have said that he or his investors would want to be a director. Nevertheless I am satisfied that there was little communication with Knight following his discussion with Davidson.

89 Morton and Davidson had previously discussed the need for a team of people with varied expertise to be put together to carry the project forward. In addition to technical expertise concerning the decortication and de-gumming of hemp fibre, expertise in finance and agronomy were required as well as skills in being able to handle the media and social impacts and so on, as Davidson said. Fundamental too was the need for an investor or investors to fund the further development of the project. There was thus a range of skills and interests that had to come together, and a structure to be determined upon, to be able to advance the project.

90 Although Knight had not committed himself to the project - he said that he went to the meeting on 31 May to "explore" the project and Davidson said that Knight went to the meeting on 31 May to assess the viability of the project - Morton prepared two memoranda of understanding each dated 31 May 2003 for the purpose of the meeting. One was between Davidson, Morton and Knight acting on behalf of ARE regarding the funding of the Fibrenova Hemp Project[20]. The other was between those parties and Fibrenova regarding the funding of the Project[21]. Morton presented the documents at the meeting on 31 May. There was a difference as to whether the former document was signed by the parties to it prior to the meeting or at the meeting, as to which I prefer Knight's evidence that it was the latter as that is more probable in the circumstances. Nothing, however, turns on the point. The latter document was not signed as Clarke refused to do so. The former memorandum was a logical precursor to the latter memorandum. Morton intended that if possible Clarke sign the latter memorandum of understanding at the meeting. The memoranda would provide a basis on which to move the project forward to binding agreements between the parties.

91 The memorandum of understanding between Davidson, Morton and Knight, provided as follows:

"1) ARE has an investor who is prepared to provide $2.5 million to the project over a six month period with progress payments commencing on 16 June 2003.

1. The project will be run by a company (to be incorporated) Fibrenova Non-Wovens Pty Ltd (Non-Wovens)
2. The investor will receive 40% of the equity in this company and 10% equity in the founding company (to be incorporated) Fibrenova Pty Ltd (Fibrenova)
3. In order to protect the interests of both Fibrenova and the investor, Chris Davidson, Rodger Morton and ARE will receive 11% of the equity giving them the casting vote at a members' meeting. This equity will be allocated as follows: CD (3%) RM (3%) ARE (5%).
4. Chris Davidson and Rodger Morton will each receive a fee of 2.5%, of the $2.5 million, in return for brokering the deal
5. Chris Davidson, Rodger Morton and Gary Knight will be appointed Directors of Non-Wovens and Fibrenova will also appoint a Director.
6. Chris Davidson and Rodger Morton will be appointed to the Management Team of Non-Wovens to:
   1. provide stewardship over the investors funds, corporate governance and the preparation of plans, schedules and budgets and monthly reporting on performance.
   2. take line responsibility for the business development of the company

In recompense for this effort, they will each receive a retainer of $15,000 per month

1. ARE will provide an interface to state and federal governments in regard to funding, legislative changes and tax and energy concessions. They will also provide lobbying, media relations and community groundwork programs for the project. In return they will receive a retainer of $15,000 per month."

92 The memorandum of understanding between Fibrenova, Davidson, Morton and Knight (for ARE) was in the same terms except that:

93 Concerning the terms of para 1 of the memoranda, I accept Knight's evidence that the investor he had in mind had not indicated his preparedness to provide $2.5M to "the" project and that Knight's first awareness of a six month period with progress payments was when he read it when Morton presented the memoranda at the meeting. What Knight had mentioned to Davidson was that he had an investor ready to invest in "a" project. Knight had not committed to this particular project. The inaccuracy was produced by Morton's drafting. Nevertheless Knight signed the memorandum between himself, Davidson and Morton on the basis that the drafting was peripheral. The investors "would want to sign a full-on agreement by themselves" and the memorandum was a basis on which to work towards a final agreement. It did not constitute a binding agreement in itself. If at the end of the day "everything stacked up" the payment schedules would not be an issue.

94 I further accept Knight's evidence that beyond what he said to Davidson, which included that his investor would require a substantial part, approval of a five percent interest and as to he or his investors being a director, the memoranda were drawn without input from him.

95 It is in this context that Knight attended the meeting in Melbourne on 31 May 2003. A few points may be noted as to Fibrenova's position at this time:

(a) It had been planned, and Clarke wished, to take a decorticating machine incorporating the D 7 technology to England for final trials on a one hectare crop planted in Surrey, and to seek funding on that trip. Funding for the trip had been arranged. (It is to be noted that the MOU signed on 17 June 2003 had the effect of expanding the exercise in England, for which Davidson agreed that the joint venture contribute up to $60,000.)

(b) It remained to build and bring to commercialisation an operating decorticating machine and harvester able to harvest a commercial crop of hemp.

(c) The de-gumming process also had to be brought to commercialisation.

(d) It was planned to import seed and grow up to 200 hectares of hemp in Australia in late 2003 for cultivation, harvesting and sale to customers, and to undertake commercial growing thereafter.

(e) Fibrenova was burdened with debt it could not pay. On this simple account it was insolvent.

For all of these purposes, Fibrenova required funding from an investor or investors. Without such funding the project could not be progressed to the stage of commercialisation of the decorticating machine and harvester and the de-gumming process.

96 The meeting on 31 May was held at an office in Melbourne. In addition to Clarke, those present were Clarke Junior and Dennis on behalf of Fibrenova, and Morton, Davidson and Knight. Subject to the caveat that (as stated by Davidson and as I find was the case) Clarke and Davidson had met already, this was the first occasion on which Clarke, his son and Dennis met Davidson and Knight. It was also the first occasion on which Knight met Morton. Knight had met Davidson once on 26 May 2003. Morton introduced those present and acted as chairman of the meeting. As the evidence of the discussion at the meeting is contentious it is necessary that I refer to it in detail.

97 I commence with the evidence of Knight. His evidence in chief was given wholly by witness statement and was somewhat general in content. He said he had no prior knowledge of the hemp industry and that Clarke made a number of statements regarding a proposed joint venture project with Fibrenova, a company of which he was a director and involved in the hemp industry. Clarke stated that Fibrenova was the most advanced company in the hemp industry worldwide and that it had new technology not available to others in the industry. This technology had been designed and created by Fibrenova which owned the intellectual property in the technology. Clarke explained that the technology enabled hemp plants to be harvested and decorticated almost simultaneously, that process being a necessary step to separate the hemp fibre from the hemp stem. Clarke stated that hemp fibre harvested and processed using Fibrenova's technology could be sold at a profit for use in clothing and industrial purposes (including as a replacement of the fibre traditionally used in fibreglass). He spoke at some length about the usages of hemp, both woven and industrial. He described the use of hemp fibre in recycled plastic to produce pallets that weighed significantly less than the conventional wooden pallet. Clarke gave him a copy letter from Brett Boag who Clarke said wanted to manufacture such pallets as soon as hemp fibre was available. Clarke described his "international reputation" in the hemp industry, speaking of links with reputable universities that had worked with Fibrenova in developing technology and in some cases had tested or verified the technology. The venture proposed by Clarke related to the commercial production and harvesting of low-grade THC hemp, in particular Fibrenova was seeking investment to enable it to exploit its technology on a global scale. In return for providing funding, the investor would be allocated a shareholding of 10 percent in Fibrenova itself (which would continue to harvest and sell hemp fibre for use in clothing) and a shareholding of 40 percent in a company to be established to exploit the industrial uses of hemp fibre and which would have full access to Fibrenova's technology and processes. Clarke described an upcoming trial in the United Kingdom at which Fibrenova's technology was to be used in relation to a hemp crop that had been cultivated by a company called BioRegional. Clarke provided Knight with a CD Rom titled "Fibrenova - Hemp Fibre Harvesting and Processing".

98 In cross-examination Knight said that they started to discuss Fibrenova and what it had done. At the start of the meeting he read a paper copy of a PowerPoint presentation he had been given "trying to get a grip on it" as he had no previous experience with the hemp industry at all. There was some discussion between Morton and Clarke which at times became heated, it being explained that "we cannot go back to the investors 'asking for their money to go into a project' if we don't have an agreement to put it into". On being asked what the procedure at the meeting was from when he arrived Knight said "Basically talked about the project, the technology, which was a bit lost on me in terms of the technical side of it, the usages for the fibre". Clarke and Morton did most of the talking. He denied suggested evidence of Clarke that when Clarke arrived at the meeting he (Clarke) was presented with a memorandum of understanding, that Clarke was silenced when he attempted to start talking about various aspects of the project, and that Clarke was told that there was no need for him to make a presentation. A little later Knight said that he was aware that Fibrenova was in the hemp industry but not of its activities. He knew prior to 31 May that it was looking for investors but he had not considered the merits of Fibrenova as an investment for his clients, saying that he went to the meeting to explore that. He was asked if he had "already essentially made up" his mind that it was worth investing and he said "at initial stage, yes". He had not met or spoken to Boag. Clarke told him about Boag. Further on Knight said that prior to the meeting Davidson had "broad brushed the project" to him and given him a soft copy of a CD Rom containing a PowerPoint presentation and that was what he knew about the project prior to the meeting. Morton produced the two memorandums at the meeting. Knight said that he wanted an agreement going forward where they could work together. Knight said that he had instructed Davidson to draw up the document, saying that he "wasn't coming to Melbourne just to look at something if it wasn't worthwhile ... I wanted some agreement where we could work forward". When he had spoken to Davidson about the matter "It had possibilities, something we should look at". After some discussion Knight was impressed by what Clarke had said, he was impressed with the possibilities of the project. He was impressed if the harvester did what was said. He was impressed with the use of hemp as a replacement for fibreglass. On initially being told those possibilities he was impressed. If it replaced fibreglass and it was agriculturally sound, he was impressed. Clarke was enthusiastic about his project all the time. As to what Clarke said, his talk about the plastic pallets stuck in Knight's mind vividly and talk about the maintenance reduction cost, the weight differential between wooden pallets and hemp and plastic pallets. Davidson talked about using recycled plastic with the hemp and freight costs that would be reduced to industry by a reduced weight in moving freight - that was impressive. The fibreglass replacement using pools and spa casing was impressive, and it had an occupational health and safety benefit and an environmental benefit. Knight said that he did not understand the harvester but he understood fibreglass replacement so he was impressed. On this basis Knight said that he signed the memorandum of understanding dated 31 May as he thought "let's go ahead and get the investors in and get this project rolling and get everything to stack up". The investor that he had in mind at that time was a Mr Foo. As it turned out, he fell out of the picture in late June 2003.

99 Certain evidence contained in Clarke's witness statement (which became Exhibit 1) was put to Knight. As to para 93 Knight denied that he said that he had a copy of a business plan and had read it. He had not seen a business plan before the meeting.

100 I do not overlook in this recounting of evidence that Knight had not recollected that Clarke Junior and Dennis were at the meeting. I consider that insignificant.

101 I next refer to the evidence of Davidson. He informed the meeting on 31 May of Pratt Water's decision not to be involved in financing the project and that external funding was required. Prior to the meeting there were no discussions with Morton or anyone else as to who would be involved. They evolved later. I interpolate that it is evident that his recollection at that early point in his evidence in chief overlooked the initial memorandum of understanding and discussions prior to the meeting, such as they were. Also, he initially did not recall Clarke Junior and Dennis being at the meeting. As to the meeting, Morton chaired it and in the early stages Clarke talked about what the project was potentially about. Davidson could not recall the exact words but it was a broad outline of the work that they had been doing which was developing a machine which would decorticate and de-gum hemp fibre. Davidson said that "we" explained the opportunity in front of us in terms of what needed to come out of a project, and "we" asked Clarke to identify the opportunities involved in the research or the work that he was doing. Clarke described what the project was about, about the harvesting equipment, the decorticator de-gumming machine and developing the intellectual property to a commercial outcome with an engineering company, Williames Hi-Tech. There was also discussion about what Fibrenova was wishing to achieve in the next half of 2003, namely it was wishing to achieve the construction of a commercial machine that would harvest the crop in a reasonably timely fashion and produce a superior quality fibre. Clarke mentioned that he had been working with Williames Hi-Tech on a machine to do that job and that it needed some funding, it needed a significant amount of funding to finish the project off, and also to look at where crop might be grown in order to get a sufficient quantity of fibre. Davidson said, and I accept, that Clarke had articulated quite clearly that there was an urgency in relation to funding because time was marching on in terms of the optimum time to plant the first crop and there was a lot of work to be done to get to that point. Clarke mentioned that six machines had been built and they were in completion of what they termed or named a D 7 that he was hoping to have finished to take to a trial in the United Kingdom. Clarke said that they had constructed six machines and the D 7 was 80 to 90 percent finished. Clarke said that crop would be planted in Tasmania and Victoria and that Fibrenova had access to a crop in the United Kingdom. He said that in June/July they would need to go to the United Kingdom and take the machine, as a crop had been grown at a property in Sussex that they had access to, and they needed the machine to harvest that crop. The purpose was to test the machine to gauge its ability to be able to decorticate and to de-gum, or decorticate anyway, the fibre. As to what Clarke said would occur if the trial was successful, it would demonstrate that the machine was workable and that the principles behind the technology would be demonstrated as being to a point where it could be taken to a commercial outcome. He could not recall Clarke saying how much crop would be planted in the first year.

102 Morton then provided a written proposal he had prepared, as to which Davidson's input had only been over the telephone in terms of comments and suggestions. The proposal led to a heated discussion between Clarke and Morton as to who owned the intellectual property and how it would be dealt with. Clarke offered some advice or comment, stood up to walk out and there was a break. Initially Davidson said that Allwood was at the meeting and also walked out but he immediately corrected that, saying that Allwood was not at the meeting. He also added that Clarke Junior and Dennis were at the meeting and that they left with Clarke and later returned. Davidson recalled that the dispute between Morton and Clarke concerned the fact that if there was a new company developed, the intellectual property would need to be transferred across, as an investor in the project would need access to the intellectual property, and Clarke was fairly adamant that that was not going to happen.

103 Davidson said that at the meeting, or elsewhere, Clarke had mentioned that they (Fibrenova) were leading the technology in the decortication and de-gumming of hemp. Commercialising the operation was subject to building a machine that would commercially harvest the crop and process it. Clarke said they had got to the stage where they had pretty much perfected the pilot process and that it was up to a stage now where it could be commercialised. Davidson could not recall whether it was in the first or a subsequent meeting that they discussed issues concerning differences between the textile and industrial use of hemp fibre. Davidson felt that the lower or industrial end of the market could be tried and tested in Australia and that the financial returns were less, but more sustainable.

104 During the meeting a joint venture was discussed. The nature of it was in the joining of the intellectual property owned by Fibre Laboratory or Fibrenova with a new commercial company to be formed to develop the technology called Fibrenova Australia Pty Ltd. The new company was going to build a harvesting machine, grow crop in Australia and market and sell the crop. He could not recall if Clarke or someone else presented that proposal to the meeting and then said he believed it was subsequent.

105 Continuing, Davidson said his recollection of the first meeting was that Clarke gave a "short rendition" of Fibrenova and Fibre Laboratory holding the intellectual property and that the opportunity was available to develop a business in the growing and manufacturing of industrial hemp. The opportunity was limited to the industrial use of hemp. Clarke articulated that the intellectual property was held by Fibre Laboratory and that Fibrenova would not or could not take the intellectual property as it would be a sub-licence to the original licence. Initially Clarke was reluctant to discuss that issue, the intellectual property was held by Fibre Laboratory and some agreement would need to be come to as to how that could be licensed across. As to whether Clarke had told the meeting what the current arrangements were at that time as to the licensing of Fibrenova by Fibre Laboratory, Davidson recalled that Clarke said that the licence was held in Fibre Laboratory and that he would need to seek the approval of the shareholders if he was to assign any intellectual property across.

106 It is pertinent to note the following in cross-examination. Davidson denied that at any of the three meetings Clarke stated that it was necessary to pay Williames Hi-Tech $117,000 or thereabouts in order to have the United Kingdom trials carried out. Nor did Davidson understand that the payment had to be made prior to carrying out the English trial.

107 Further on, Davidson said that there were discussions about the project "in total and the required funding" needed to get the harvester built and the first crop in the ground, $2.5M was discussed.

108 Morton's evidence in chief about the meeting of 31 May was that Clarke explained his technology and its capabilities to Knight. Morton said further that:

"We discussed a proposed joint venture that could secure the funding that Mr Clarke was seeking for the commercial production and harvesting of low-grade THC hemp in Australia ("the Proposed Joint Venture"). In return for capital funding, the investor in the Proposed Joint Venture would be allocated a shareholding in Fibrenova Limited and would obtain a significant shareholding (40%) in a new company. It was proposed that this new company would plant and harvest large crops of hemp in Australia. It was to have full and complete access to Fibrenova Limited's technology and processes and would exploit the non-clothing uses of the hemp fibre harvested."

Counsel did not challenge Morton about this evidence in cross-examination, nor did he put to Morton the suggestion that he (Morton) had effectively silenced Clarke at the 31 May meeting. When asked whether he agreed with Clarke's evidence that Morton stated to the meeting that he (Morton) and Davidson had done considerable work in relation to a joint venture between ARE and Fibrenova and that ARE could provide funding to ensure the success of the joint venture, Morton said "I think it's an accurate description of what happened later, yes". He agreed that he and Davidson had done work in relation to the proposed joint venture before the 31 May meeting, which work involved "reaching a view as to the merits and the opportunities and the problems with it, the likely problems, yes".

109 I turn now to the evidence of the defendants' witnesses, commencing with Clarke who gave a lengthy account in his witness statement.

110 In introducing the attendees Morton identified Knight as managing director of ARE, a specialist company providing advice to the agricultural sector and which provided funds to rural groups and rural projects and had trade and marketing links in world markets, especially in China. The others present were also introduced. At this stage Davidson had overlooked advising Clarke that Pratt Water were not interested in providing finance to the hemp project. On Clarke asking Knight as to the connection of ARE with the Pratt Group the position was explained. According to Clarke, Morton said that ARE wished to invest in the non-woven hemp project. Clarke said that not having heard of ARE and having had no opportunity to research it prior to the meeting he doubted it was worthwhile continuing and he prepared to leave. Davidson apologised for any confusion and for not telling Clarke that the presentation on 26 May had been made to ARE and not Visy or the Pratt Group, and asked Clarke to hear them out stating that the strategy that he and Morton had conceived would be helpful and profitable for Fibrenova. Morton said that ARE's skills would be beneficial to Fibrenova and the project.

111 According to Clarke, Knight said that ARE was the ideal partner for Fibrenova because it possessed public relations experts, government lobbyists, marketers, international sales people, head hunters, and that financing projects was routine. Knight explained that he was a journalist with strong connections with New South Wales and Federal politicians which would help in relation to changing legislation to legalise hemp production in New South Wales, and he had knowledge in relation to government grants in the agricultural sector. Clarke set out a number of statements made by Morton promoting, in effect, ARE as a joint venture participant able to provide funding and expertise. Clarke said that Knight agreed with Morton's statements saying that he was extremely excited about the prospects of the joint venture. According to Clarke, Morton said that without Davidson, ARE and himself the project would fail as Clarke lacked the relevant knowledge and skills. Furthermore Morton said he believed this was the last chance for the project as everything Clarke had done to this time had failed. Clarke objected to Morton's remarks. Morton said that he believed the proposed trip to England was a waste of time, that Fibrenova should disregard the woven side of the business and concentrate on the non-woven market. Clarke told Morton that he disagreed with many of his remarks and was insulted by them. He motioned Dennis and his son to leave the meeting. At that time Morton handed him the memorandum of understanding which he asked Clarke to read and sign. Clarke objected to the lack of notice and said that he would not sign the document without advice from Allwood. Knight asked him to read the memorandum of understanding as he had travelled from Sydney for the meeting and would like to discuss it. Knight also said that the memorandum of understanding was not legally binding but that signing it would permit him to arrange for the flow of monies needed by the project. Clarke then read the document and discussed each paragraph of it. He told Davidson, Morton and Knight that more than $2.5M was required, and mentioned $4M. Knight said he did not believe the project required that much because of the amount of money the project would make, but said he would have no difficulty obtaining further investment of $1.5M from ARE or one of its investors.

112 As to the memorandum of understanding, Clarke said he would need to take advice as to the creation of a joint venture and providing 40 percent equity to the investor. He told Morton that Fibrenova had use of the technology by way of a licence from Fibre Laboratory which was limited to Australia and New Zealand, with which Morton agreed and acknowledged that this was reflected in the business plan Clarke had provided to him. Knight said that he had a copy of the business plan and had read it. Knight said that he had not yet decided whether ARE or another person or persons would be the investor. As to paragraph 4 of the memorandum of understanding Clarke said that he told Morton that he did not agree to Morton, Davidson and ARE having 11 percent of the joint venture company and the casting vote. Clarke referred to discussion on this including that he had not had an opportunity to consider the skills and abilities of ARE, Davidson or Knight and resented his allegation that Fibrenova would be dependent upon Morton, Knight, Davidson and ARE. Clarke said he also objected to Fibrenova having power to appoint only one director and for the provision of monthly payments to Morton, Davidson and ARE. Clarke advised that Fibrenova had creditors which would need to be settled before entering into any joint venture agreement and Morton asked for a list which Clarke agreed to provide. The meeting concluded on the basis that Clarke refused to sign the memorandum of understanding without first taking advice. Clarke said that Knight and Morton placed considerable pressure on him to sign the memorandum with the threat that refusing to do so could result in the offer being withdrawn.

113 In cross-examination Clarke was asked a number of questions as to what had been said at the first meeting. At the outset, Clarke denied that during the meeting he explained to Knight what he had developed. He agreed with Davidson's presentation. He spoke to Knight about a number of other issues but nothing to do with what he had developed, stating that "That had been done prior to my arrival at the meeting". Clarke stated that:

"I was told by Mr Knight that he had a good understanding of the technology, and what was on offer from his discussions with Mr Morton and Mr Knight - with Mr Morton and Mr Davidson."

Clarke said he was not aware why Knight was at the meeting, but that Davidson and Morton explained why he was there. Knight also explained why he was there. He explained that he had some investors or that his company could arrange investment in the project. Knight told him that he understood the project to be regarding a non-woven use of hemp primarily to create and sell fibre to Boag. He did not dissuade Knight of that understanding, stating that he had not been directly involved in the non-woven industry or the possibilities to the extent that he had been with the textile industry, and Davidson was determined the discussion should only include the non-woven, which Davidson said Clarke was not very qualified to discuss and so Davidson had discussed it already and would discuss it further with Knight. He said that Davidson told him (Clarke) that he (Clarke) was not in a position to tell the meeting about the non-woven element of the hemp fibre potential.

114 Clarke said that it was a total surprise to him to talk about a joint venture as he understood there was to be a presentation to the Pratt Group. He denied that he gave a presentation to Knight as to what Fibrenova had developed. He believed that at no stage during the meeting did he explain what had been developed by Fibrenova. As to any discussion as to the amount of money needed to develop the process, later in the meeting he was presented with a memorandum of understanding that had an amount of money in it that he said was not sufficient. Clarke said that there would be a certain amount in the first year and a certain amount in the second year to build the first harvesting decorticating machine based upon the technology they had. He told the meeting that he believed the technology was:

"At the stage where it could be mounted in a harvester, and turned into a commercial machine, probably - possibly not in the first expression of that machine, but it would develop into it as more machines were - more of the technology was used in the field, and it would develop."

115 A little later Clarke reiterated that at the meeting there was no presentation of the Fibrenova position, where it was as at 31 May. He (Clarke) did not speak about it at all and it was not spoken about by anybody in his presence. The first part of the meeting was taken up with an explanation as to why Pratt's people were not there and why Knight was there, and "they gave a proposal to me". Clarke said he was not particularly interested in a non-woven venture, he was not interested in yet another person claiming to be able to fund it. He needed to know who they were and how they could fund this. They were promoting to him their funding and managerial services. Counsel suggested to Clarke that at that time he had no money in relation to the project, to which he said he "did have money" and, further, that he "didn't need money to do what I was going to do next". So the creditor Erdi was not a problem. What mattered to Clarke was going to England to do the job he had there. The original trip to England (that is, before the question of a joint venture involving ARE was raised) required him to take a D 6 and a D 7 and show a group of investors and government people green decortication as they did not believe it was possible. It did not require a joint venture. It was partly funded by people in England, partly funded by local investors and an American investor. That project concerned textiles rather than the non-woven aspect of hemp.

116 Clarke agreed that the purpose of the joint venture was to commercialise the harvesting of hemp for non-woven purposes. He did not advise that he was not ready to commercialise the technology. Clarke said that by the stage of the third meeting on 17 June he had not explained to Knight anything about the Fibrenova process, stating that Davidson had done so. Clarke said that he was told in the first meeting with Knight on 31 May that "I did not need to explain anything, because it had already been done. I was told that by Mr Davidson, Mr Morton and Mr Knight". Counsel put to Clarke that over the period from the meeting on 31 May to the meeting on 17 June and signing the MOU that he communicated to Knight "all that you wanted him to know". Clarke said "I did not communicate things to Mr Knight, I communicated them to Mr Davidson. Mr Davidson communicated things to Mr Knight and told me he had done so". He was not present when Davidson communicated things to Knight. He added that he asked Knight his understanding of the project on 2 June and that Knight said he understood it, that he had his information from Davidson and Morton. Clarke said that he left it at that, adding that he was very unhappy about it, but he was under strict instructions from Morton and Davidson not to communicate very much about the textile side of it (which was the aspect Clarke knew about), and they did not wish to involve the textiles as to which you can make a lot of money on 20 hectares of land, whereas in order to make money out of non-woven you needed a vast amount of hectares which Clarke was not in the position to do until Davidson came along with Morton and proposed the Pratt Water Project which interested him because he could see the possibilities. Clarke later added that he told Davidson that he was interested in the non-woven side of the potential for hemp if the product was to be grown bio-dynamically, that is in a way that was part of the solution to global warming rather than one that would contribute to global warming. Clarke said that he told Davidson that:

"I would only entertain this if you agreed that the farming be done bio-dynamically as soon as practical. It takes three years to convert land to bio-dynamic farming, I knew that, but he was prepared to do that."

As to whether he explained this to Knight, Clarke said that he explained "some of that" to Knight at the meeting of 31 May. He explained to Knight "that that was my wish, and he told me that he was very very keen to do that".

117 Later in cross-examination, Clarke said that his original plan was to go to Britain to get investment, develop the woven project there, and come back to Australia with a machine. He planned to do 200 hectares "but we wouldn't have 1000 hectares the next year as we would've with the non-woven project". He said he did not want to be distracted from his original plan by the proposed joint venture, "It's just that I was pushed. Mr Davidson said it was extremely important that we did it this year in this way, because of certain dynamics that were happening in the Pratt Water Project and I tried to comply to what he needed".

118 Clarke said in cross-examination that the question of the intellectual property arose at the 31 May meeting. He said that at both the 31 May and 7 June meetings he explained "with great clarity" the intellectual property issue concerning Fibrenova and Fibre Laboratory and the distinction between them. He said that "they knew right from the first meeting and Mr Davidson and Mr Morton knew from months before that all that Fibrenova could offer was Australia and New Zealand".

119 Clarke said he did not believe that in the 31 May meeting he told Knight any detail of what Fibrenova could do. Clarke repeated that he was "under an embargo from Mr Davidson not to discuss these things, because he discussed them". And, he added, Morton discussed those things. What Fibrenova could do or was proposing to do was discussed in the meeting on 31 May but not by Clarke, he said he "listened and I answered questions when asked. I can't tell you what questions I was asked ... ". Clarke said that Davidson had proposed planting 1000 to 2000 hectares in the summer of 2004/2005, which Clarke had passed on to Williames, and conceptually there was no problem. Clarke said he did not present this proposal to Knight, it was presented by Knight's side to him (Clarke). He said in cross-examination that it could be done with the funding and the management help that Morton and Davidson were pledging and the work that Knight was pledging, they were pledging to do vast amounts of work that he (Clarke) had no interest in doing, no time to do, and they were going to do that work. Clarke said that they were selling themselves to him, he was not selling himself to them adding "I was not interested". He said he did not need any money and he had other ways of developing the machine, he was in the process of implementing these other ways when "this proposal was given to me".

120 In relation to an email Clarke sent Allwood on 7 June[22] which referred to 1,000-2,000 hectares or more in 2004/2005 summer at Tumut or Riverina or wherever and the need to do 200 hectares summer 2003/2004, Clarke said that he told Knight that "we could get on with all these things. We had our farmers, we had all our people lined up, all we wanted to do was get on with it and we needed the funding to do so".

121 Clarke denied that he ever stated to Knight that Fibrenova was a world leader in the commercial production and harvesting of low-grade THC hemp. He believed that nobody else was harvesting and decorticating green, which was a novel approach to the decortication of hemp. It would be cutting edge and leading the world only if it could be commercialised. The technology could not be leading the world in the state it was in.

122 Clarke agreed that conservatively three tonnes of fibre and approximately seven tonnes of hurd would be produced per hectare of crop. He had given that information to Davidson before 26 May 2003 and Davidson gave the information to Knight. Some of the information was presented by Davidson and Morton at the meeting on 31 May. Clarke agreed that three tonnes of fibre is fairly regularly extracted from a hectare of hemp. He did not correct that statement made by Davidson to Knight and he agreed with it. Further on, Clarke denied that at any of the meetings he told Knight that Fibrenova was the world leader in commercial production in harvesting of low-grade THC hemp. He denied counsel's suggestion that he told Knight that "Fibrenova had cutting edge technology, that nobody else had that technology available to on the field cut and decorticate hemp". He did not believe he would have used those words at all. He did not describe the process Fibrenova engaged in, in using its technology, to Knight nor did anyone describe it in his presence to Knight. He reiterated that at the 31 May meeting "I was told that everything had been explained to Mr Knight prior to my arrival, and he didn't ... want to hear any more, he told me that directly, and Mr Davidson and Mr Morton told me that I was not required to discuss it at all, because it had all been discussed". Further, Knight was present when they told Clarke that.

123 Later, Clarke agreed in cross-examination that he would expect with a prospective investor that he would be required to explain what Fibrenova did, as he did with the R & D Start Grant application. He said that he found he was in a meeting he was not prepared for, so he did not give a presentation. The flow of events precluded him from giving a presentation.

124 Later in cross-examination, Clarke reiterated that at the meeting on 31 May he made no presentation nor discussed Fibrenova's technology, its capacities to grow or cultivate hemp or produce fibre.

125 Clarke was cross-examined as to whether he told the 31 May meeting of a proposal to plant 200 hectares of hemp in the coming year and 1000 hectares the following year. He said that "whether or not I'd ever met ARE I would've had a plan to grow possibly 200 hectares, possibly 60 hectares in Australia ... that coming year [2003/2004] if my work in Britain had been as successful as I'd hoped". When it was put to him that he had not mentioned such a proposal in his witness statement, Clarke said "Well, those things were discussed and planned by Mr Davidson to be what he wanted to do and I understood he had dealt with those and specific issues before we arrived at that meeting". He did not recall those issues being discussed at the meeting. They may have been mentioned, but not by him (Clarke), as "it wasn't in the nature of that meeting". Counsel then put to Clarke the evidence of Clarke Junior and Dennis - to the effect that Clarke told Morton at the meeting that the project required funding of $4M to $4.5M if a machine was to be made and 200 hectares of hemp were to be grown in Australia during the next growing season and 1000 hectares in the following season - and suggested to Clarke that he did discuss the growing of hemp during the meeting. Clarke said "If the record says I did, I don't recall having done so". He did however recall arguing with Morton about the amount of investment required, because Morton kept saying that far less (than what Clarke proposed) would be required.

126 As to whether there was any discussion about the income that could be generated from selling hemp grown in the 2003/2004 season, Clarke said "I don't recall them going through numbers at all, at that, because I - I was very sceptical about making a profit out of - for non-woven out of 200 hectares after the cost of the machines and Mr Davidson, I believe, said we would make a profit in the second year". Clarke said he did not discuss his scepticism at the meeting as he had already done that with Davidson prior to the meeting. He (Clarke) did not tell Knight. When asked whether he thought he should have advised Knight of his scepticism, Clarke said "It was my scepticism prior to my discussions with Mr Davidson - Mr Davidson convinced me that he was satisfied with whatever the outcome was and that's what he would present to Mr Knight and Mr Knight was happy, they said 'it doesn't matter if it takes a couple of years to break even'. This was said by Mr Davidson to me prior to the meeting that I was to have with Visy - I thought I was having with Visy".

127 Clarke agreed in cross-examination that a letter from Boag to Clarke (unsigned and undated) referring to Boag's demand for hemp fibre was presented to the meeting of 31 May as Boag's position concerning the potential use of non-woven hemp fibre. Clarke did not recall Knight being provided that letter at the meeting. As to Knight's request for further information in the email of 2 June (referred to below), that did not confuse Clarke "because Davidson had undertaken to provide him all the information". Clarke agreed that Knight subsequently received the Boag letter (but it was provided by Morton or Davidson, not by Clarke) and he had no objection to Knight having the letter. Clarke agreed that the letter reflected his and Davidson's position that there was a market for non-woven hemp.

128 Clarke Junior's evidence in chief was that Morton introduced Knight to the meeting as the managing director of ARE, being a company that provided funds and services to the rural sector. Morton introduced Davidson to the meeting as a consultant advising the Pratt Group in relation to the Pratt Water Project, and said that Davidson was associated with ARE. Clarke Junior said that his father "expressed surprise that a representative of Visy Limited and/or the Pratt Group was not in attendance at the meeting". Clarke then asked Knight if ARE had any relationship with the Pratt Group or Visy. Morton said that he believed that the hemp project needed further development before it could be presented to Visy or the Pratt Group for the Pratt Water Project. Clarke Junior said that Davidson apologised to Clarke for not having explained to him that the presentation given earlier in the week had been made to ARE rather than to the Pratt Group. Davidson said that from his experience of working with the executives of the Pratt Group, they would not be interested in the development or commercialisation of a project. Davidson said they would be most interested in the project if it were already proven and in operation. Davidson told the meeting that on that basis he and Morton had decided to introduce ARE as the ideal funding body to finance that commercialisation step and bring the project to a size and stage of development that would be attractive to the Pratt Group. Knight said that he believed Fibrenova needed the involvement of ARE because of its specialist skills in the areas of marketing, political lobbying, public relations and fundraising. Knight added that he was an ex-journalist with knowledge of the type of government grants that might be available to the project, and he would write the applications for these grants. He said he was "well connected" with state and federal politicians, and ARE would be helpful in relation to effecting changes to the law required in New South Wales to enable commercial growing of industrial hemp. Morton said that ARE was only interested in investing in the non-woven side of the hemp project, that he believed a joint venture between ARE and Fibrenova could produce a "world-wide business concerning non-woven industrial hemp", and that he was excited about the possibility. Clarke Junior said that his father then asked Morton what the terms would be of any joint venture. Morton said that he and Davidson had researched the possibilities of a non-woven hemp business on a worldwide basis using the Fibrenova technology, that he and Davidson had met with Boag as a potential buyer of industrial hemp fibre, that demand could be created for hemp as a replacement for fibreglass, which demand could be met in substantial part by the growing of hemp "throughout the vast irrigated farming areas that Mr Davidson said the Pratt Water Project would make useable for that purpose", and that "ARE could provide all necessary funding to ensure the commercial success of a joint venture". Davidson said that he could arrange land, water and facilities through the Pratt Group. Clarke asked Morton how much ARE could invest in the project, Morton replying that ARE had the capacity to provide "all necessary funding to produce a worldwide business concerning non-woven industrial hemp". Knight said that he was excited about the prospects of a joint venture company.

129 Clarke Junior then referred to a dispute between Morton and Clarke. Without setting out all his evidence on the matter, Clarke Junior said that Morton told Clarke that this was his last chance to commercialise the hemp decortication technology, that without Morton, Davidson and ARE the project would fail, that the project had a "trail of failure" and that Fibrenova did not have the necessary knowledge and skills to make the project a success. Clarke disputed this, the discussion became heated with Morton shouting at Clarke, and "Morton said on numerous occasions to my father words to the effect that he should wake up and understand that this was his last chance and without this deal the project would certainly fail". Clarke and his people motioned to leave the meeting, then Morton produced a document (the memorandum of understanding) and requested that Clarke read it. Discussion ensued as to the amount of funds required. Clarke told Morton that he believed that the project required $4M to $4.5M of funding if a machine was to be made and 200 hectares of hemp were to be grown in Australia in the next growing season and 1000 hectares in the season after. Morton disagreed with the figure of $4M to $4.5M. Knight agreed with Morton but said they would provide $2.5M plus any additional sum up to the $4M as required to see the project through. Clarke asked whether ARE or some other person/s would be the investor, and Knight replied that he was not sure but that ARE had several investors interested in the project. Clarke said he would have to take legal advice concerning Fibrenova having less than 50 percent equity in the joint venture company, and that he would not agree to any deal unless Fibrenova had the same number of directors as ARE and its investor. Clarke also disagreed with the provision in the memorandum of understanding for payment of consulting fees of $15,000 per month to each of Davidson, Morton and ARE. Clarke mentioned further that Fibrenova had creditors which needed to be paid, and any joint venture would have to take these matters into consideration. In response to their request, Clarke agreed to provide Morton and Knight with a list of creditors. Morton and Knight requested that Clarke sign the memorandum of understanding, but he refused to do so and said he would communicate with Morton and Davidson the following week after obtaining legal advice.

130 In cross-examination Clarke Junior said that at the 31 May meeting there was no discussion about the decorticator developed by Fibrenova. There was discussion about planting 200 hectares of hemp in Australia in the coming season. There was also discussion about the UK trial, and its purpose. But there was no discussion about how far Fibrenova had progressed with its ability to harvest hemp, or whether Fibrenova had technology that was available to the joint venture. Clarke Junior said that:

"We didn't talk about technical machinery or anything, no, we talked about what - it was more an offer I think on their part, what they could offer us from a business perspective in forming a joint venture based on information they had about our technology. We didn't do any description of how the machine works or any showcase on any of that, no."

According to Clarke Junior, neither Morton, Davidson or Knight gave the Fibrenova people a description of what they expected to be available to them in the proposed joint venture. There was however discussion as to the licensing of the intellectual property, in the sense that Fibre Laboratory owned the intellectual property and had granted an exclusive licence to Fibrenova to use the technology, and it was the latter entity that was talking about going into a joint venture at the meeting. Counsel then asked Clarke Junior whether anybody told Clarke not to speak to Knight about Fibrenova's technology and capacity to produce hemp. Clarke Junior said "I don't know that there was a statement of not to speak about it, it was just not brought up at all. They had been previously briefed - Davidson had a copy of a Pivotal business plan that had been put together". He added that "The meeting was basically driven by the other side, what they wanted to talk about and they didn't seem to want to talk about the technology at all". Neither Clarke Junior, Clarke or Dennis tried to talk about the technology at the 31 May meeting.

131 Dennis gave evidence in chief that, following introductions at the meeting, Clarke asked Knight whether he had any relationship with Visy or Pratt Group, at which point (and before Knight could answer) Morton told the meeting that he (Morton) and Davidson had formed the view that the hemp project was not mature enough for presentation to Visy or the Pratt Group at this stage. Clarke was angry that they had formed that view, and acted on it by making a presentation to ARE instead of the Pratt Group, without consulting him. Dennis gave evidence similar to Clarke Junior as to Morton and Knight expressing their excitement about the prospects of a joint venture, Knight's statements as to the skills and resources ARE could bring to the project, and Morton's statements to Clarke about this being the last chance to make the project successful. Dennis also gave evidence that Morton said that he thought the planned trip to England was a waste of time and that Fibrenova should concentrate solely on the non-woven aspect of hemp. Clarke and his people motioned to leave the meeting, then Morton produced and gave to Clarke a memorandum of understanding. Clarke said he would not be signing any document without taking legal advice and that he felt he was being ambushed, but that he was happy to take the document away, read it and take legal advice about it. At Knight's request, Clarke agreed to read the document. He then read the entire document out loud and discussed each paragraph individually. There was discussion as to the level of investment required. Clarke said that $4.5M was required to grow a 200 hectare crop and build the machine for the 2003/2004 growing season and to grow 1000 hectares in the 2004/2005 season. There were disagreements between Clarke and Morton as to the extent of the shareholding required by the investors in the proposed joint venture company and Fibre Laboratory, the level of the consulting fees being proposed, and the number of directors to be appointed.

132 In cross-examination Dennis agreed that at the meeting on 31 May there was discussion as to Fibrenova's technology in its decorticating machine, Fibrenova's ability to harvest hemp, the use to which the hemp could be put including in relation to the business of Boag, the prospect of planting 200 hectares of hemp in 2003/2004, the prospect of planting hemp in New South Wales and the legislative restrictions in that State, and the trip to the UK. He believed that there was also discussion as to the volume of hemp that could be produced per hectare, and open figures were discussed as to the sales value of the hemp. Dennis agreed that he participated in discussions about the amount of funding required for the next six months to get the decorticator/harvester manufactured, and the seed acquired, planted and harvested for the purposes of the proposed joint venture. As to whether Clarke had been prevented from speaking to the meeting about what Fibrenova had available to bring to the joint venture, Dennis said "At the beginning of the meeting, Mr Morton was quite precise about, you know, the way he wanted the meeting to go, that it had been discussed, things had been discussed previously and his dealing with Adrian [Clarke] in the past had, that was the way he'd gone". Counsel added "And that Mr Clarke shouldn't speak to the meeting?", to which Dennis responded "I recall ... yes". Counsel asked "So Mr Clarke didn't speak to the meeting?" to which Dennis responded that "Mr Clarke did speak to the meeting during that conversation that was towards the beginning of the meeting and there was some open discussion after, further into the meeting". There was discussion about the memorandum of understanding and it was agreed at the end of the meeting that further discussion would take place in relation to it.

The period between the meetings on 31 May and 7 June 2003

133 On 1 June Clarke sent an email to Allwood referring to some of the issues raised at the 31 May meeting, including the disagreement as to the proposed 51 percent shareholding, the number of directors, the consulting fees, and the level of funding required. He stated:

"They would control the cheque book and the business, we would supply the know how etc for the engineers to make the machinery and they would provide the large (Huge) farming areas we would need to make the Non-Woven company profitable.

This does not impinge formally on our Textile work, but they would rather we did not do it. They are very hostile to our plan of going to UK this year OR next year. So they have signalled that they will oppose us working at Fibrenova's Textile business and thus they would reduce our earnings if they had their way.

However, I would seek to use this as a 'leg up' for doing the Textile business. Non-Woven needs huge areas to make a profit. Textile work needs much less. But both need the same equipment."

134 On the morning of 2 June Knight sent an email to Clarke (copied to Morton, Davidson and Dennis) which stated:

"Thank you for the meeting on Saturday evening - it was nice to meet with all of you and I think we have some very good pivotal ground from which to get this project underway.

I am meeting with my investor and some of his business contacts this evening so any information I may require or you feel is applicable to advancing this would be appreciated."

135 On 2 June Clarke sent an email to Davidson (copied to Morton, Knight, Allwood, Dennis and Clarke Junior). He referred to the upcoming meeting and noted that "we have met to discuss your proposal". He stated that "we" continue to have major concerns in relation to (a) the investment sum in the memorandum of understanding being $2.5M instead of $4M, (b) 51 percent of the new venture being controlled by the investors, Morton, Knight and Davidson, (c) "we would require 3 directors, and equal voting rights on the management team", (d) $15,000 retainer for 3 people is "far too high" and there is no reference to any director on the Fibrenova side being paid, and (e) "We would require the invested funds to be paid to Fibrenova Limited as the purchase of the shares and that the purchase be of 8% of Fibrenova Limited (considering you have requested a Global Licence) not 10% as in your draft. Notwithstanding the above, the concept of your proposal is attractive. Please discuss our concerns among yourselves and revert to us".

136 Morton responded to Clarke by email (copied to Davidson and Knight) on 2 June. He addressed each of the five points raised above. It is not necessary to set out the email in full. As to point (e), however, he stated:

"Under normal circumstances, we would not be able to fund this project without a more robust coverage of the Market Risk. The investor is putting money into this project based on the trust that exists between his business and ARE and ARE and Chris Davidson and myself. He does not have this relationship with you and your group. I was absolutely serious when I said that the ARE, CD [Davidson] & RM [Morton] 11% balance of power is there to protect both sides, yourselves and the investor. That structure is a condition of the investment.

I hope this goes some way towards satisfying your concerns Adrian but some of these issues would wreck the deal if you insist on their being satisfied.

Gary [Knight] is meeting the investor this evening and we need to know that we have you on board or Gary will be wasting his time."

Clarke forwarded this e-mail to Allwood. I note that counsel for the defendants did not cross-examine Morton or Knight about the contents of this email but later sought (unsuccessfully) to cross-examine Davidson about Morton's opinion expressed in Morton's document as to the basis on which the investors invested. In short, the opinion expressed by Morton is merely that, and has no evidentiary basis as to why the plaintiffs invested in the project. I include it merely as part of the background facts.

137 Also on 2 June Clarke sent an email to Allwood (copied to Dennis and Clarke Junior) stating that Davidson called and that they (Clarke and Davidson) discussed "our letter" and Morton's response. Clarke said in the email that he stated to Davidson "our concerns that we must have the money to do what we need to do within [Fibrenova] and that must be part of the deal. He asked for a list of that. I have asked Hamish [Dennis] to prepare it and a budget for the next 6 months". Clarke added that Davidson "agreed that we should do our Textile business and R and D in the background and agreed with my suggestion that 10% of the fibre produced be put to that purpose". Clarke concluded the email as follows:

"Gary, I need to discuss this with you. They do need some sort of concurrence with us so they can secure the funds as soon as tonight.

Given the total picture and the speed with which we can change our fortunes entirely, and assurances that [Fibrenova's] needs are met, I think we have little option than to go with it:

138 One hour later, Clarke sent a further email to Allwood (copied to Dennis and Clarke Junior) stating that he had just had a call from Davidson, who "is hoping to speak to you [Allwood] urgently as he must give something to Knight for his meeting with the investor". Clarke referred to Davidson needing a budget, which Dennis is doing, but "unfortunately nothing can be finalised before Gary Knight's meeting tonight".

139 Morton also sent an email to Clarke on 2 June, attaching a revised version of the memorandum of understanding, and an undated letter from Boag addressed to Clarke. For present purposes it is sufficient to note that the revised memorandum of understanding stated that the joint venture company Fibrenova Non-Wovens "will have a global licence for the Manufacture, Marketing and Distribution of Non-Woven hemp product using the Fibrenova Limited intellectual property". I interpolate that neither memoranda produced at the meeting of 31 May referred to the issue of licences to use intellectual property.

140 On 2 June Knight met with Armour and discussed the potential investment in the proposed joint venture. He relayed to her the information Clarke had given him at the meeting of 31 May. Armour told Knight that she would require more information about the proposed joint venture before deciding whether she might invest in it. Knight invited Armour to attend a meeting with him and Fibrenova representatives scheduled for later that week.

141 On the evening of 2 June Knight met with his then-potential investor Foo and a business associate of Foo, and relayed to them the information provided by Clarke at the meeting of 31 May. Foo expressed interest in investing, or arranging for others to invest, in the proposed joint venture subject to receiving further details.

142 On the morning of 3 June, Knight sent an email to Morton (copied to Davidson, Dennis and Clarke) stating that he had met with Foo and his associate, and presented to them a "condensed version of the Fibrenova seminar - to the best of my ability". Knight described "my investor" (Foo) as the ideal person to become involved in the project as he is a "passive investor" and "big picture person" who would not "bog meetings down with argy bargy". Knight continued:

"As much information as I possibly can in relation to everything - projections etc will be required for me to give to him after this weekend's meetings - so whoever is the figures person should start typing pronto. Whoever has the vision for future usages should also be typing. I need as much 'meat' as possible."

143 On 3 June Allwood sent an email to Clarke stating that:

"Over night I have considered the proposal we discussed yesterday.

There is no doubt from discussions that I had with Chris [Davidson] that they are not interested in an international operation.

Accordingly I believe there is some capacity (albeit limited) to reduce this to an Australian/New Zealand operation if we wanted to.

We could simply say that we could not get the matter through the Board on an international basis."

144 That afternoon, the board of Fibrenova met to discuss the proposed joint venture. The minutes of the meeting record that the draft memorandum of understanding of 2 June was discussed and it was unanimously decided to move forward in relation to the potential joint venture in accordance with that draft memorandum of understanding. Later that day, Clarke sent an email to Davidson (copied to Allwood, Knight, Morton, Dennis and Clarke Junior) stating that the board of Fibrenova had met and authorised Clarke to "move the matter forward based on the revised MOU". Clarke added that:

"The Board is not prepared to grant a global licence. It appears clear that there is no desire from your group to extend production beyond Australia in any event. Accordingly, we believe that the licence should be pitched within Australia and NZ for production. Any concerns that you have arising from this can be dealt with by strict non-competition agreement(s) if Fibrenova Limited conducts a non-woven business internationally. The effect of this is that the sale of product from the Australia JV company is unlimited."

145 On 4 June Morton sent an email to Clarke (copied to Davidson and Knight) stating, among other things, that the joint venture company must have an "exclusive global licence". He added:

"To quote Gary [Knight], 'I only reiterate what I said earlier - Simple rules NO GLOBAL LICENCE NO GO.' Your board needs to understand that Gary and his investors are prepared to invest more money in the intellectual property than you have done to date and that they, therefore, insist on having very broad rights in this regard, Until it was raised as an issue, we were not aware that Fibrenova Limited did not have a global licence."

Morton concluded by requesting that Clarke confirm as a matter of urgency that he is prepared to sign the memorandum of understanding, otherwise Knight would cancel his planned trip to Melbourne that weekend.

146 On 5 June Clarke wrote to Morton providing him with some cost figures for the commercialisation of the project. On 6 June Clarke sent an email to Morton enclosing a list of patents.

147 On the morning of 7 June Clarke sent an email to Allwood (copied to Dennis and Clarke Junior). He referred to having had a productive meeting with Williames the previous day, and that Williames wished to go to the UK to complete the research and development on the machine. He stated:

"Geoff [Williames] feels that by going [to the UK] we can be sure to have a machine which can do 200 hectares in November/December and any extra cost will be saved by the better design and costs saved in the machine by better design AND also covered by the fact that we will be able to process 200 hectares.

Geoff feels that if we are going to try for 1,000 to 2,000 hectares or more in 2004/5 summer at Tumut or Riverina or wherever, we need to do 200 hectares this summer.

[He went on to describe what needed to be done, and continued]

We must find the land and near Warragul. (We have some already near Phillip Island) We must see it planted, we must supervise it. WE also have our Fibrenova Textile R and D to continue.

II. Chris Davidson and his team must write the cheques. They can take an interest and get under our feet, but they know nothing and therefore need stand back while we work."

148 I now turn to the meeting held in the afternoon of 7 June, attended by Clarke, Allwood, Morton, Davidson, Knight and Armour. It is convenient to deal with the evidence given as to particular issues discussed at the meeting, in terms of the following categories:

(a) the capabilities of Fibrenova, the nature of the technology it had to offer the joint venture, and the state of development of the technology;

(b) proposed future activities of the joint venture, including funding requirements, budgets, profitability, and other commercial issues; and

(c) licensing issues concerning intellectual property rights in the technology.

While there is some overlap between categories, it is nevertheless useful to set out the evidence of each relevant witness in turn by reference to the above categories.

149 I deal with category (a) first, referring to the evidence of the plaintiffs' witnesses first.

150 Knight said in his witness statement that Clarke and Allwood described Fibrenova's technology and offered the opportunity to exploit this technology for industrial uses of the hemp fibre in the United States of America, Canada, Asia, Australia and New Zealand via an investment in the proposed joint venture. Clarke and Allwood both stated that Fibrenova had developed a machine capable of harvesting and processing hemp fibre and that the technology associated with this harvester was "state of the art". They explained that the harvesting, decorticating and carding techniques that Fibrenova had developed were "space age" in comparison to the existing and commonly used pond-retting techniques employed in most countries in relation to hemp. Clarke provided Knight with two sealed bags, which he said contained hemp fibre and hurd respectively. Clarke said that he would provide Armour and Knight with fibre samples from the UK trials and that the fibre produced would be softer and far more refined. I interpolate that Allwood said in cross-examination that he thought Clarke did provide two bags of hemp, and he believed that he (Clarke) explained how the fibre was produced. According to Knight, Clarke also described some of the potential commercial uses of hemp fibre, including use in recycled plastic to produce pallets which would require less maintenance and offer considerable savings to industry. Knight said that in the course of the meeting "we discussed the effects of low THC hemp crops in assisting with erosion and the opportunity to grow the crop in depressed rural areas. The environmental benefits and occupational health and safety benefits of using hemp as a fibre-glass replacement were also discussed".

151 In cross-examination Knight gave his recollection of what happened at the meeting in these terms:

"We again talked about the project, its possibilities, some of the issues that were outstanding from yesterday. There was somewhat friction between Mr Clarke and Mr Morton."

Counsel then asked Knight to be more specific as to what was said about the possibilities, to which Knight responded:

"The machinery, the technology entailed in that machinery, the usages for the fibre, Mr Clarke's passion for pursuing the woven side of the business, the upcoming trial in the UK, a variety of issues related to the project."

The "issues" related to the creditors, the need to get the trial to the end of the road, the EU backing/access to government funding over there at the completion of a successful trial, the fact that $500,000 of "Australian government money"[23] had been invested domestically in the project to complete R & D here, and the difficulty of the New South Wales licensing regime. Allwood mainly talked about the possible uses of hemp fibre. Clarke talked about the project and its possibilities - he had an enthusiasm for hemp and its possibilities and its usages. I interpolate that Allwood said in cross-examination that he did not believe that Clarke said that $500,000 of additional government funding was likely to be forthcoming, but he (Allwood) agreed that "there was certainly a discussion about having had funding from the Victorian government".

152 Armour gave evidence that the 7 June meeting began with each party explaining who they were and their role within their respective organisations[24]. Her evidence was that Allwood did most of the talking on behalf of Fibrenova but Clarke contributed significantly towards the end of the meeting. Allwood said that Fibrenova were the world leaders in the industrial hemp industry, because they had the advantage of technology which no-one else had. The technology was a harvester which could both harvest and decorticate hemp in the paddock. He described Fibrenova as having "world leading" and "cutting edge" technology and this is what made it viable. Clarke said that the harvester was now being modified so that it could be taken to England where further trials would be carried out. Without recalling specific words, Armour said that Allwood and Clarke "presented the harvesting technology in a way which clearly suggested that they owned the intellectual property associated with it". She said "it seemed to me that they had adequately tested the technology and were now at a point where they wished to commercialise it". She did not recall any Fibrenova representative at the meeting discussing restrictions on growing hemp. Rather, they spoke about Fibrenova's work with universities, government agencies, and the fact that they had received grants from Austrade, in a way which suggested to her that they had permission to grow hemp. In the context of a discussion about Fibrenova's wish to exploit the European and textile markets themselves, it was proposed that ARE's investors could deal with the Asian, Canadian, South American and Australian markets. The representatives of Fibrenova said that Canada "was a great market and a wonderful place to grow hemp". Allwood spoke about the various uses of hemp fibre and "they" mentioned several specific applications, which are unnecessary to set out here. Allwood said that hemp was not yet being used for these applications, but would be and there would be a demand for hemp fibre.

153 Counsel put to Armour in cross-examination that she understood from the meeting that one of the main purposes of getting funding was to build this machine and get it up and going, to which she responded "No, the machine was built, and it was working, and there was fibre coming out of the paddock direct as I understood it". She agreed however that she understood that further work was being done on the machine and money was needed for that.

154 Davidson was asked during evidence in chief whether Clarke talked about the stage of development the machine had reached, as to which (Davidson) said "only that they had a prototype unit built and developed, that the purpose of this investment was to build a commercial unit capable of harvesting larger scale operation". Later, counsel asked Davidson whether Clarke, as stated in an email to Allwood to which I refer below, "put squarely that the research and development is done", to which Davidson responded "No, he didn't". Davidson did not recall Clarke saying that confirmation work was to be done in the UK and that this was a commercialisation funding matter only. Clarke did talk about going to the UK to further develop the intellectual property in relation to the small prototype that they had developed "but my understanding is that that's hardly a commercialisation of a commercial unit for harvesting large-scale areas of crop". Davidson said that there was a plan to build a much bigger machine which would have been entirely different to the one built for the UK demonstration, in the sense that the machine that would be built for commercialisation would be a mobile, self-propelled machine as opposed to the prototype which went to the UK, which was sitting on the back of a little box trailer and could not be used as a motion vehicle. Davidson said in cross-examination that he understood that the decorticator had been built, trialled and was working. Davidson said in evidence (and reiterated in cross-examination) that he could not see the significance of the UK trial work, "as they had seven units of this type built and surely after seven attempts you would have to have got this ... right by then". As to whether Clarke said that they had or hadn't got it right by then, Davidson said "He believed that they were still in the process of trying to get it right". As to whether Clarke told the meeting of that, Davidson said that his recollection was that Clarke was adamant that they should take the machine to the UK to further test its worthiness and to give Williames the opportunity to see it working with a much larger production than they had been using to date. Davidson also said in evidence in chief that he had read the Pivotal business plan, but he did not provide it to anybody, and nobody spoke about the plan at the meeting. Later in evidence in chief, Davidson was asked whether he was told by Clarke or Allwood that Fibrenova had any standing in the market, to which Davidson responded that Clarke had said "that they had produced fibre and that their fibre was a superior fibre to that that was currently on the market".

155 Morton said in his witness statement that, given there were a number of meetings, he was unable to attribute particular discussions to particular dates and venues. He then said:

"A good deal of time was, however, spent discussing such issues as intellectual property (IP), returns that could be generated from growing hemp, the need to test the prototype decorticator on a real hemp crop, the structure of the relationship between the investor and Fibrenova and the extent of access to the IP."

Morton said that during the 7 June meeting Clarke and Allwood made a number of statements regarding Fibrenova and its technology. They stated that Fibrenova had the rights to a revolutionary method of harvesting hemp that would enable superior hemp fibre to be obtained quickly and at a lower cost than was incurred using traditional methods. Morton was not challenged on this evidence in cross-examination.

157 Clarke said in cross-examination that at the 7 June meeting neither he nor Allwood gave a presentation or discussed Fibrenova's technology, its capacities to grow hemp or produce fibre. However, in his witness statement he said that:

"I told the meeting that Mr Morton continuously refused to acknowledge the development in the technology that I had achieved since the time when he first became involved in the project. I told the meeting that I resented this and resented him continuously alleging that this JV deal was the last chance for the commercialization of the project."

Clarke also sent an email to Allwood after the meeting, describing what had occurred at the meeting, and stating that:

"I had to stop Rodger [Morton] from claiming they were funding development. I put squarely that the R and D is done - but for the confirmation work to be done in the UK and that this was a commercialisation funding matter only. Here I demanded that Rodger listen to what I had to say instead of what he wanted me to say."

Clarke said in cross-examination that the above comment (as to demanding that Morton listen to what he said) concerned the question of the marketing territory rather than the issue of the stage of development of the technology.

158 Allwood was asked in cross-examination whether it was his memory that Clarke had stopped Morton from claiming that they were funding development, as to which Allwood said "There were significant disputes between Mr Clarke and Mr Morton at that meeting". Upon counsel pressing him to answer the question, Allwood said "I wouldn't put it that way, I believe that they head-butted in respect of a variety of things, and it included the - the stage of the technology, the purpose of the technology, the opportunities - it was a series of things ...". As to whether there was conversation about each of these topics, Allwood said "Well, in respect of the disputes between Morton and Clarke, they were more jibes by Morton, that Clarke responded to and didn't respond to". Allwood agreed that Clarke said, in his presence, that the research and development had been done. Allwood said that he believed Clarke had stated that the purpose of the UK trip was for confirmation work. In re-examination Allwood said that he did not believe any information was exchanged between Clarke and Morton, as Clarke was trying to tell Morton the extent of the development of the machine, but Morton kept cutting him off.

159 It was put to Clarke in cross-examination that he never told Knight that Williames had to continue to develop the machine and that any joint venture was subject to him doing that, to which Clarke responded "Mr Williames had told me that he had designed a machine, he just wanted to build it. He had designed it and given me schemes of it in April of 2003". As to counsel's suggestion that Clarke told Knight that the machine was "ready to go", Clarke said "Mr Williames was absolutely convinced that all he had to do was build it and it was ready to go and he was my engineer and that's what he said". As to whether he (Clarke) told Knight that, Clarke responded "Did I tell him or did Mr Davidson, I am not sure but certainly that is what he was told". That occurred before 17 June. Clarke agreed in cross-examination that he told the 7 June meeting that the research and development had been completed on the D 7 and whatever was necessary for the joint venture. Clarke agreed that Allwood was present and did not correct the statement "because he and I understood what we meant", in contradistinction to Morton's claim "that we were still back at the stage that he saw in 1999". Counsel suggested to Clarke that he told the meeting that "Morton is wrong, what you're getting if we enter this joint venture is completed research and development, it's ready to be commercialised". Clarke said:

"Yes, it's ready to have a - what I mean and what I made very clear - was a machine, may this - Mr Davidson had had absolute understanding of this - we were to build a commercial size machine which would then obviously need some refining and a lot of commissioning but we were ready to build a commercial sized machine. And harvest hemp with it."

Clarke agreed that he made it clear to the participants at the meeting that that was where they were at, and that the intellectual property for the machine was available to the joint venture.

160 At this point in the cross-examination I asked Clarke whether Morton's comments about the state of development of the technology were sounding a cautionary note to Knight. Clarke said "No, he was attempting to bait me". I then asked Clarke whether the substance of Morton's comment was that Clarke did not have a project ready to immediately go into commercial effect, as to which Clarke said "According to my engineer Mr Williames we did. He told me he was ready to build this machine, harvesting decorticator, immediately and he needed the funding to do so immediately". Clarke said that he believed that. As to whether he believed that it could be truly represented that he had a machine ready for commercialisation, Clarke said "You have to build it to do that, and we needed to build it but we had enough knowledge to build one that would work". As to whether he (Clarke) may have been a year ahead of himself in saying that the machine was ready to commercialise, Clarke said "Mr Williames assured me, your Honour, that we could do 200 hectares".

161 I note that Clarke said in cross-examination that he was also told by Williames prior to the 7 June meeting that he (Williames) believed that he could also do the de-gumming process inside the harvester/decorticator. Clarke said that he did not tell the 7 June meeting that the harvester to be built might even include a de-gummer, although he "certainly would have discussed it with Mr Davidson".

162 Allwood denied in cross-examination that the technology had reached a stage where the decorticator could be placed on the harvester, and the hemp harvested and decorticated in the one process. He said that that was the plan, but it had not been achieved (at the time of the meeting), because the decorticator had never been placed on the harvester. He (Allwood) did not tell Knight that, although he said Davidson may have advised Knight to that effect, and he (Allwood) considered that Knight was aware that the harvester was not ready, because the integration of the decorticator and the harvester was a matter to be trialled with the 200 hectare crop planned for 2003/2004. As to whether there was any discussion at the meeting about Williames' ability to build the harvester as required, Allwood said that he thought Davidson raised the name of Williames. He agreed that a matter was raised as to the need to pay Williames, and his need to go to England. Allwood agreed with counsel's suggestion that, as at 7 June, he was satisfied that the D 7 would "do the job" but he denied that he told Knight, Davidson and Morton this, nor did he believe that anybody said that during the meeting.

163 Allwood denied in cross-examination that he gave a description of Fibrenova, what it could do, what its technology was, and how excited he and Clarke were about the joint venture. Allwood said "that's a complete lie. That just did not happen, I've never given a description to anybody in my life since I've been involved in this company about the prospects of the company, about what the company does. I've never attended a meeting without Mr Clarke, I don't think, and that is not my function when I attend meetings". Allwood denied making comments Armour said he had made, for example that Fibrenova were the world leaders in the industrial hemp area, as to which he said "I've never used that term in my life". He denied making the alleged statement that Fibrenova had an advantage because of technology which nobody else had, although he agreed that he did at the time believe that Fibrenova had unique and patented technology that was on offer to the joint venture. As to Armour's evidence that Clarke had said Fibrenova was at a point where they wished to commercialise the harvesting technology, Allwood said that "he may have said that" in his (Allwood's) presence, and he (Allwood) did not correct the statement because "that was the purpose of the meeting and the discussion". Allwood said he did not recall he or Clarke discussing the fact that Fibrenova had been working with government agencies and universities in relation to its development of the harvesting of hemp, although that was correct. Nor did he tell the meeting that Fibrenova had received a grant from Austrade, though Clarke may have said so in his presence.

164 As to discussions about the potential use of hemp, Allwood agreed that there were discussions about Boag and the pallets. He denied saying that Mercedes Benz were using hemp in their dashboards, though it may have been said by somebody. He did not recall any discussion about Narellan Pools needing hemp to substitute for fibreglass in their pools. As to Armour's evidence that he had indicated that there would be good demand for hemp from people including Boag, Allwood said that he believed that to be the case because he had seen the letter from Boag.

165 I now deal with category (b), referring to the evidence of the plaintiffs' witnesses first.

166 Knight said that Clarke stated that Fibrenova had "considerable licences" to plant hemp in Victoria and Tasmania in the upcoming season, and claimed to have licences and farmers "ready to go" in both States. Clarke told Knight he could attend a farm on Phillip Island to inspect a hemp crop that was about to be planted. Clarke stated that hemp could also be grown in New South Wales, but that licensing restrictions were more onerous in that State.

167 Knight said that Clarke stated that Fibrenova had also been invited by the government of British Columbia to farm hemp in that country[25] on a broad acre scale and that their negotiations in respect of such hemp farming were well advanced. This hemp would be used for the manufacture and export of products to the USA. I interpolate that Allwood denied this allegation, and added that he did not believe British Columbia was referred to by anybody. Davidson did not recall any discussion about British Columbia.

168 Knight said that he explained to Clarke and Allwood that ARE had contacts with a range of potential investors, and that as some of those investors were located in China there would likely be a time lag before receiving funds from such investors, as the funds would not be available until the investor had secured an appropriate visa.

169 As to the issue of profitability, Armour said in her witness statement that:

"Mr Allwood presented figures. While I cannot recall the specific details, I remember that the figures suggested that Fibrenova's technology and hemp fibre would be very profitable. I remember being shown a detailed projection model which said that investors would receive around three times the amount they invested within one or two years. I was amazed that no-one had exploited the opportunities presented by hemp fibre before."

Armour was not challenged about this evidence in cross-examination, although I note that none of the profit projections in evidence referred to investor returns of 300 percent within one or two years.

170 Armour added in oral evidence in chief that "we" were told by Allwood and Clarke on 7 June of the necessity for the urgency of funding, and that was because the machine in question had to go to England and needed to be modified and prepared and there was money required for that, and for the growing of crops that year.

171 Armour denied in cross-examination that the issue about the New South Wales legislative regime concerning hemp was raised at all. She said that there was discussion about crops to be grown but "it wasn't discussed where they were going to be grown other than at present they were growing in Victoria in some glasshouse somewhere".

172 Davidson's evidence was that there was discussion as to where crop would be planted that year, Clarke talked about areas to be grown in Victoria and Tasmania, and Davidson spoke about areas that could possibly be used for growing in New South Wales. Clarke talked about the restrictions on growing in New South Wales, and said it would be necessary for someone to liaise with the New South Wales government in order to get dispensation or grow the crop there. He said there were restrictions in Victoria and Tasmania and they would have to be passed through the Department of Primary Industries in both states, but he had contacts within the various departments that he had worked with before and he (Clarke) did not feel it would be an issue. He talked about the need for seed for planting a crop of around 200 hectares for the upcoming season, 2003/2004. He said he had secured land owners in Victoria who were prepared to grow the crop. He talked about an area to plant a small crop, particularly near Warragul. As to the money to be invested in the joint venture, the money was to be used for building a commercial harvester, planting of crop, and paying salaries related to the project. The amount of money required was said to be $4M, with $2.5M required to get seed, plant the crop and build the harvester. Davidson said in re-examination that the purpose of growing the 2003/4 crop was "that it was firstly an opportunity to demonstrate that the machine had commercial viability, and that we could do the things with the machine that we claimed we could do. Plus also of course, to generate some revenue, to facilitate the project to the next stage". As to whether Allwood or Clarke talked about the profitability of the joint venture, Davidson could not recall, but Clarke said they could expect to yield 3 tonnes of hemp per hectare, and that hemp fibre could be sold for $3 per kilogram. Clarke explained that there was a significant market for hemp with Boag's company, and that if he could secure enough non-woven fibre Boag would consider replacing the fibreglass with the hemp product. Davidson said his understanding was that the hemp needed to be processed into what was called "needle punched mat" which would be sold to Boag in rolls.

173 Morton's evidence was that "during one or more of the meetings", the planning[26] and harvesting of hemp crops in Australia was discussed. Clarke and Allwood stated that while licences were required, obtaining those licences would "not be a problem" for Fibrenova and the joint venture company would be able to plant the volume of hemp required to achieve the projections for its business. Clarke stated that the price that would be recoverable for hemp fibre processed using Fibrenova technology would be considerably higher than existing hemp fibre prices, and comparable to that of cotton. The hemp fibre would be able to be sold for $3000 a tonne (up to ten times the then market price for hemp) due to the superior quality of the fibre over that obtained from traditional methods. Clarke stated that he had people in the USA willing to pay large sums of money for such hemp as they were looking for a substitute for cotton. Morton was not challenged as to this evidence in cross-examination.

175 Clarke gave evidence that he told the meeting that growing hemp in New South Wales by the proposed joint venture would require a change to the New South Wales law. Knight and Davidson acknowledged that they were aware of this and Davidson said that he did not envisage any difficulties securing a change to the New South Wales law because of the relationship that Mr Pratt had with Premier Carr. Knight said that he envisaged issues such as changing the law of New South Wales fell within the jurisdiction of ARE as it had substantial connections with journalists and New South Wales politicians. Allwood gave evidence that Knight said that, for the first year, farm production could be undertaken under "Research and Development" licences in New South Wales, and that he (Knight) was happy to work with Davidson to investigate such licences for the first year, and that ARE had political connections and other skills which would assist in the joint venture obtaining suitable licences and grants.

176 There was also discussion as to the amount of funding required, with Morton disagreeing with Clarke that $4M to $4.5M was required. Knight said that ARE had investors who could provide $4.5M. Allwood said in his witness statement that Clarke told the meeting that approximately $2.5M would be required to be spent before Christmas 2003, and a further $2M would be needed to grow a substantial crop in 2004/2005, and that Knight agreed to this. Allwood said in his witness statement that there was disagreement (unresolved at that meeting) as to the extent of the shareholding that the investors should have in the joint venture company - Clarke saying that it should be 50 percent while the investors wanted 51percent. There was also discussion about the directorships of the joint venture company, and it was agreed that there be an equal number of directors from the investor's side (including ARE, Knight, Morton and Davidson) and from the Fibrenova side.

177 There was discussion about the proposed trip to England. Knight asked Clarke whether the trip was worthwhile, suggesting that a hemp crop could be grown under glass in Australia. Clarke told Knight that he believed that the England trip was crucial to the non-woven venture as it would provide an opportunity for Williames to observe the technology in a full sized hemp field with a view of providing him the experience to build a commercial sized harvesting decorticator for the proposed crops in Australia at the end of the year. In cross-examination, Clarke referred to Morton having raised the issue of growing hemp under glass in Australia instead of going to the UK, as to which he (Clarke) said "No, not discussing it". He did not recall saying anything by way of explanation of his position, though he said he had discussed the matter with Davidson and Morton at length prior to 31 May and that Davidson was convinced that the UK trip was necessary. Allwood gave evidence that it was agreed that the UK trial would proceed, as it would assist Williames to build an effective harvester.

178 Clarke (and Allwood) gave evidence that there was discussion about the establishment of a management team (required by Knight), the level of retainers to be paid, and that Knight explained that his various connections would help with funding, legislative changes in relation to New South Wales, and tax and energy concessions. Clarke told Knight about Fibrenova's outstanding debts, and Knight requested that a list of these expenses be tabled as soon as possible and that representatives from each side of the joint venture work through the list and prioritise payment. Knight said he believed it was appropriate that the directors representing the investor have ultimate discretion as to expenditure of the investor's funds. I interpolate that Allwood's evidence was that it was agreed that the directors representing the investor had the ultimate discretion in relation to the utilisation of "investor's funds" providing there was an agreed budget concerning the use of funds until Christmas 2003. Clarke's evidence was that Allwood said that any joint venture would need to be conditional upon the agreement between the parties as to the budget of $2.5M being spent by Christmas 2003, as to which Knight agreed, and Clarke said he would supply a list of debts as soon as possible, and Davidson agreed to work together with Dennis to cover the period to Christmas 2003. I interpolate that Allwood's evidence was that it was agreed that the memorandum of understanding was conditional upon Fibrenova providing to ARE and the investor and the proposed directors of the joint venture a list of Fibrenova's liabilities and agreement being reached in relation to the payment and the timing of payment to be made to those creditors. Clarke told Knight that Fibrenova required a supply of hemp fibre for its textile business and proposed that a percentage of the fibre produced by the joint venture be given or made available to Fibrenova at no cost in relation to its textile business. After some discussion Knight agreed that the joint venture vehicle would provide up to 10 percent of the fibre that it produced to Fibrenova at no cost for Fibrenova to use in relation to its textile business. At the end of the meeting Knight requested (and Clarke and Allwood agreed to the request) that Allwood prepare the next draft of the memorandum of understanding to reflect the matters agreed on in the meeting.

179 Allwood said in evidence that it was agreed and discussed that in relation to the 2003/2004 growing season, 200 hectares of hemp would be planted, harvested, decorticated and de-gummed utilising the technology, and if possible the product of that process would be sold. It was agreed that Clarke have the final say in relation to crop sites concerning the 200 hectares. It was agreed that the anticipated crop size for the 2004/2005 season would be about 1000 hectares. In cross-examination, Allwood agreed that as to the planned growing of 200 hectares, it was discussed as to how that would take place, where it would take place, and it would be in Victoria and Tasmania. Allwood agreed that Clarke said words to the effect that he had farmers "ready to go" in both Victoria and Tasmania. Allwood also agreed that there was discussion about opportunities through Davidson's connections to expand the growing capacity into New South Wales through the Pratt Water venture, and it was also discussed that as the legislation then stood, it was not possible to expand into New South Wales at that time.

180 It was put to Allwood in cross-examination that there were figures presented at the 7 June meeting as to the projections of the proposed joint venture, to which he responded "I don't believe there were". He agreed, however, that there were discussions about what the fibre could be sold for, $3000 per tonne he believed. He said "I've never presented figures to anybody in relation to Fibrenova". As to whether there were discussions about expected investors' returns, Allwood said:

"I can't remember that. That would depend on what has been planted, and I don't know whether there was - this is at the date of the 7th meeting, I don't know whether ... I don't recall whether there was a budget or a proposal built at that stage ... I can't remember whether Mr Dennis worked on that with Mr Davidson after the 7th meeting or after the 31st meeting, but I don't believe that there was anything prepared that was much prepared by the 7th. There was certainly an understanding that that would be prepared after the 7th."

181 I now deal with category (c), referring to the evidence of the plaintiffs' witnesses first.

182 Knight's evidence was that Allwood told him that all intellectual property in the harvester and related technology belonged to Fibrenova and could be sub-licensed by Fibrenova so that the proposed joint venture would have full access to the technology. Allwood stated that the proposed joint venture would be licensed to sell these harvesters in the specified countries. In cross-examination, Knight denied suggested evidence of Clarke that he (Knight) had stated that he did not have any wish for the joint venture company to operate outside of Australia and New Zealand. Knight said that was "totally untrue" as his Chinese investors would not have been interested in an investment that did not have an Asian capacity as their general viewpoint was that this [Australia and New Zealand] is a miniscule market and it just wouldn't attract their investment. Counsel suggested that it did not necessarily follow from Clarke's evidence that the joint venture could not market its products outside Australia (as opposed to producing them outside Australia), to which Knight said "I simply say to you it wasn't put to me".

183 Davidson gave evidence that there was an argument between Morton and Clarke which related to Clarke's reluctance to assign the intellectual property to the joint venture. His recollection was that Morton's point was that the intellectual property was an essential part of the investor's security in terms of investing money in the project and that it made sense that the intellectual property be secured. As to whether Clarke discussed with the meeting any restrictions as to where any potential licensee could operate, Davidson's recollection was "that it was for Australia and New Zealand only", and that is what Clarke told the meeting. Davidson said "I had the view that they were only offering Australia and New Zealand ... I seem to recall that Mr Knight had suggested perhaps that China be included".

184 Morton said in his witness statement that he clashed verbally with Allwood over the question of the joint venture's access to the intellectual property. Allwood stated that Fibrenova had all the intellectual property that would be required by the joint venture but he (Allwood) "would not permit a detailed discussion regarding that intellectual property. He was adamant that it would remain the property of Fibrenova Limited and, irrespective of the funding provided by the investor, the new joint venture company would obtain no more than a licence to use the intellectual property". Morton disagreed with that as he "did not believe it was reasonable that the investor underwrite the development of the equipment and not gain ownership or part-ownership of the IP." Morton was not challenged as to this evidence in cross-examination.

186 Clarke's evidence in chief was that Allwood told the meeting that Fibrenova could not agree with the revised memorandum of understanding, and one of the main problems was that Fibrenova could not offer a worldwide licence of its technology to the joint venture company, as Fibrenova held a licence from Fibre Laboratory to utilise the technology in Australia and New Zealand only. I interpolate that Allwood said in his witness statement that "it was acknowledged" that all of the technology vested in Fibre Laboratory pursuant to a licence agreement between it and Fibrenova, and that he (Allwood) told Morton that it was not possible for Clarke or Fibrenova to sign the revised memorandum of understanding, as Fibrenova could not provide a world wide licence of its technology to the joint venture company, given that Fibrenova had been granted a licence from Fibre Laboratory which was limited in its territories to Australia and New Zealand. Allwood gave evidence that Morton "pointed his finger at me and said that unless the joint venture received a worldwide licence of the technology of Fibrenova Limited in relation to non-woven hemp products and an equity of 8 percent of the shares in Fibre Laboratory there would be no deal ... I told Mr Morton that if his attitude and statements were correct the end result would be that there was no deal as it was not possible for Fibrenova Limited to grant rights it did not own and that I was acting solely for Fibrenova [and] I had no instructions from or brief to act on behalf of Fibre Laboratory". Morton reiterated that these issues were not negotiable and unless they were agreed to there would be no deal. Allwood told Morton that Fibre Laboratory was a separate company with different directors and shareholders to Fibrenova and that "Clarke or myself" could not speak on behalf of Fibre Laboratory.

187 Returning to Clarke's evidence, Morton stated that the joint venture must have a worldwide licence for non-wovens in relation to the technology or there would be no deal. Allwood told Morton that it was not possible for Fibrenova to grant rights it did not own, given its limited licence to use the technology. Clarke also told Morton that Fibrenova could not give a worldwide licence. Both Morton and Knight acknowledged that they were aware of this. Morton said that as the investor would be providing funds for the development of technology that the group could use worldwide, it was not fair or appropriate that the joint venture not be given the worldwide licence. Clarke told Morton that Fibre Laboratory was in discussion with other organisations and people in relation to investments concerning non-woven and textile hemp products in other regions. After some discussion, Clarke asked Knight whether he had any wish for the joint venture company to operate outside of Australia and New Zealand, and Knight said that he did not. Davidson said that he did not believe Visy or the Pratt Group had any interest in the project outside Australia or New Zealand as this project was tied to and limited by the Pratt Water Project in New South Wales. I interpolate that Allwood also gave evidence that Knight and Davidson said that they did not believe the joint venture company would operate outside Australia and New Zealand.

188 Clarke gave evidence that the discussion then turned to whether ARE and other investors, including Knight, Davidson, Morton and Armour, could at a later time invest in the European non-woven venture. Allwood explained in his witness statement that this issue was raised in the context of "the dilemma concerning ARE and the investor's having an equity interest in Fibre Laboratory" and that Clarke proposed it following Clarke and Allwood taking an hour break from the meeting to discuss the matter in private. Clarke's evidence was that he told Knight and the other attendees that he "would allow the investor to have a small founding equity interest in each of the new non-woven entities in other territories including the European structure as they were formed" and an 8 percent equity in Fibrenova (or whichever company conducted the European non-woven business), and that Knight said that subject to agreement about the shares in the European structure he was happy with the proposal. Allwood's evidence was that Clarke's proposal was on the proviso that the joint venture give (or sell at nominal cost) to Fibrenova for textile use 10 percent of its decorticated hemp, and that the European non-woven venture be allowed to use the technology commercialised by the joint venture.

189 According to Clarke and Allwood, Knight said that he was concerned about the joint venture only being able to supply hemp during the Australian summer. Clarke said that Davidson expressed concern about the integrity of the marketplace and requested that the territory be both a production and market territory which included the Chinese marketplace. Clarke suggested that "a solution to both concerns would be to expand the joint venture territory to include Canada and the USA for production in their alternate summer and to define the territory as the Pacific area so that both the ideal production areas and the target markets of China and India could be included in one large operational territory". Clarke said that he was prepared to offer the production and market territory of India, Asia, China, Oceania, Canada, and the USA in addition to Australia and New Zealand. Knight said he did not believe the joint venture would produce fibre in Asia but was very concerned that the joint venture have the right to market and sell fibre in Asia, as he had significant marketing contacts in China. Knight and Davidson agreed to Clarke's proposed solution and said that it would give them year round farm production and the developing marketplace which they specifically sought.

190 Clarke said in cross-examination that at the 7 June meeting "what was not understood was that we were giving a - Fibrenova had a production territory of Australia and New Zealand and its market territory was unlimited and it didn't seem to matter how I said it, it wasn't understood that the territory was a production territory". Later, Clarke said that he argued with Morton at the meeting, "mainly to do with my desire not to assign my IP" and "the fact that Fibrenova didn't have the rights from Fibre Laboratory that Mr Morton was demanding". Clarke said that Morton wanted the intellectual property assigned, whereas he (Clarke) wanted to license it to the joint venture.

191 Allwood said in cross-examination that there was discussion "in that the joint venture vehicle would receive from Fibrenova a sub-licence". Allwood agreed with counsel's suggestion that the joint venture would have "full access to the technology" which related not just to production of hemp but also to the production of the decorticator/harvester.

192 I accept the defendants' evidence that, at the end of the meeting, it was agreed that Allwood would prepare the next draft of the memorandum of understanding to reflect the matters agreed on in the meeting.

The period between the meetings on 7 June and 17 June 2003

193 Knight said that following the meeting on 7 June he phoned Selvarajah and told him that the meeting had gone well and that the proposed joint venture "looked to be an opportunity for investors to become involved in a profitable, rurally beneficial and cutting edge industry". Knight also discussed the project with several other clients, including Foo. Knight spoke to Armour about the possibility of her funding the joint venture herself until overseas investors could be procured.

194 On 8 June Knight hosted a meeting for employees and shareholders of ARE at his house in Sydney, attended by Armour, Selvarajah and others. Knight discussed a range of potential projects for ARE, including Fibrenova. Knight said in his witness statement that he "relayed to those persons present, in summary form, the information that has been provided to me at the meetings I had attended on 31 May 2003 and 7 June 2003". I note that in cross-examination Knight described the event in his house as "just a broad brush thing. That wasn't in any detail with the white board, without explaining the technology, anything, and that was more an introductory thing to everyone because we were just about to open our office in the city. It was much more a social thing than a business meeting". Selvarajah said in cross-examination that Knight might have spoken about Fibrenova at this meeting but he could not remember.

195 On 11 June Allwood sent an email to Knight attaching a revised memorandum of understanding. It is not necessary to set out all the terms of the memorandum of understanding. I merely note that cl IV stated that the yet to be incorporated joint venture company "will have a licence for the Manufacture, Marketing and Distribution of Non-Woven hemp product using the Fibrenova Limited intellectual property for the Pacific Region which includes India Asia, China, Oceana [sic], Canada and the USA (this includes Northern and Southern growing regions and seasons)". Allwood's email stated that references to Morton in the memorandum of understanding had been deleted as they did not believe they could work with him on the project. It appears that it was ultimately agreed that in light of the differences between Morton and Clarke, it was better that Morton not continue in the project. He was paid a sum of money[27] for his work on the project, and thereafter had no relevant involvement in it.

196 Knight provided the revised memorandum of understanding to his potential investor Foo.

197 Knight said in his witness statement that in the week commencing 16 June, he hosted a meeting of shareholders and staff at ARE's Sydney office, attended by Armour, Selvarajah, and other investors. At the start of the meeting, Knight outlined a number of projects then under consideration on the whiteboard, including the proposed joint venture. Knight said that "During the meeting, I gave a short presentation regarding each of the possible projects and passed on the information about Fibrenova and the Proposed Joint Venture provided to me at the meetings I had attended on 31 May 2003 and 7 June 2003. Using my laptop computer, I also showed to those in attendance at the meeting the CD Rom that had been provided to me at the meeting on 31 May 2003". In cross-examination, Knight referred to this meeting as being the first time he had "briefed Mr Selvarajah fully on the project". Selvarajah's account of this event in his witness statement was that:

"Mr Knight described information about the proposed Fibrenova project that he had obtained by attending a meeting in Melbourne, including that it related to the production and harvesting of hemp and would be a profitable business."

Knight did not ask Selvarajah to invest at this time.

198 On 16 June Clarke sent an email to Knight (copied to Allwood, Dennis, Clarke Junior and Davidson) attaching "our list of liabilities and our budget for the project".

199 The list of liabilities comprised amounts owing (totalling $1,128,074) and the amounts that can be paid presently (totalling $272,691). One item was a "Fibre Lab Licence Fee" of $500,000, stated to be a condition of the licence agreement between Fibrenova and Fibre Laboratory, but not to be paid until Fibrenova has income. There was no mention of any need to pay Williames.

200 As to the budget, although Clarke said in his witness statement that the budget was prepared by "Dennis, Davidson, and myself", in cross-examination he initially sought to distance himself from the figures, saying that that they were prepared by Davidson. Ultimately, however, Clarke said that he did not disagree with the figures at all. Without setting it out in full, I note that the budget is divided into a "Project stage 2003/4" and "Projection Model for Summer of 2004/5 - 1000 hectares". In the project stage (which appears to comprehend the period from June 2003 to January 2004) non-woven sales are projected to be $1.8M while operating expenses are $2,716,650, which included $410,750 in wages/retainers (including monthly retainers of $15,000 each to Knight, Davidson and Clarke), $1,217,000 for production (including the harvester, in respect of which two payments of $150,000 each in June and August, followed by two payments of $100,000 each in October and November were listed, the de-gummer in respect of which two payments of $90,000 each in June and August, followed by two payments of $60,000 each in October and November were listed, seed and $60,000 allocated for the English trip), $223,000 for consultants, $263,000 for debt repayment, $181,450 for administration and business development, and $181,450 for "contingency". The result was a projected operating loss of $916,650 for the 2003/4 period.

201 For the 2004/5 year, sales were projected to be $9.3M (comprising $9M based on a fibre yield of 3,000 tonnes sold at $3,000 per tonne, and $300,000 based on a hurd yield of 6000 tonnes sold at $50 per tonne). Production costs were estimated to be $6,180,000 (based upon very generous contracted fees to farmers) or $5,280,000 (based upon leasing land and growing it ourselves), in addition to estimated administration costs of $2,380,000 (which included staff, retainers, and machine amortisation). The overall result was, taking the higher production cost figure, a margin of $440,000 or $740,000 (including hurd), which represented respective returns on costs of 5.14 percent and 8.64 percent. Taking the lower production cost figure, the overall margin was $1,340,000 or $1,640,000 (including hurd), which represented respective returns on costs of 17.49 percent and 21.4 percent. It is clear that these rates of "return on costs" are calculated on the basis that costs include not only production costs in the order of $5M to $6M, but also the administration costs of some $2.4M, which means that the total costs required to produce the stated sales results are in the range of $7M to $8M. As to where these funds were to come from, Clarke said in re-examination that "we had some income from the first year which was reduced costs" and that Davidson told him that he (Davidson) was going to lease back machinery and thus reduce costs "and if there was any extra money required it would come from the investor". This evidence as to where the funds were to come from was not put to Davidson and I reject it. I do note, however, that Selvarajah said, and I accept, that Knight told him in late September that less funding was required than first anticipated as it had been decided that the business would only require one harvester (rather than two as originally planned).

202 It is convenient to interpolate that in cross-examination counsel put to Clarke that the estimated profit of the project was $3M. Clarke said that "2.3 I think is what we came up with" and then confirmed counsel's suggestion that he agreed with a profit projection of $2.3M. Counsel then referred to a projected profit of $2.3M in his final written submission. It seems to me that notwithstanding Clarke's agreement, this figure is incorrect and is the product of a misreading of the 16 June budget. There is a figure of $2.38M in the budget, but it is stated to be an administration cost, and it seems clear on the face of the budget that the projected profit is not $2.3M. Rather, projected profit is given as four possible figures ranging from $440,000 to $1,640,000, and that was for the 2004/5 year. The budget projected an operating loss of more than $916,650 in the first year. Clarke actually pointed this out in cross-examination, saying that "the operating revenue at the end of that would have been minus 916". He did agree, however, that the figures for 2004/5 showed "substantial profits". Shortly afterwards in cross-examination, Clarke agreed with counsel that there was a "positive cash flow in that first season", and that he (Clarke) presented that to Knight, but said that Knight knew that Davidson had prepared the figures and if he wanted to discuss them, he was to discuss them with Davidson. Counsel then asked Clarke whether he had told Knight that he did not "own" these figures, that he was not representing these figures as achievable, and that he (Knight) should speak to Davidson and satisfy himself, as to which Clarke said that Knight "knew full well that Mr Davidson and Mr Dennis were doing the figures" because it was agreed at the 7 June meeting that Davidson and Dennis would work together on the figures.

203 Returning to the chronology, Knight forwarded the budget to people on his "Fibrenova emailing list" which included Armour, Selvarajah, Foo and others.

204 When asked in cross-examination whether he had any difficulty with the budget, Knight said that he had a serious concern with the licence fee of $500,000, as to which he said "you will notice it didn't appear in later budgets as produced by Mr Clarke and Mr Davidson". Knight was also concerned about the creditors, and asked whether they could accept payment at a later date, when some money came in, "because 2003 was supposed to be profitable". Knight said that no agreement was ever reached with any of the creditors to accept payment at a later date.

205 I now turn to the meeting held at Allwood's offices on 17 June, attended by Clarke, Allwood, Davidson and Knight, which culminated in the MOU being signed.

"The proposed joint venture was discussed again during this conference. Mr Clarke stated again that it would be profitable. He stated that around 1000 hectares of hemp could be planted in the upcoming 2004-2005 season and that the resulting hemp fibre could be sold for $3000 per tonne. This was consistent with the projections sent to me on the previous day."

He added that he signed the MOU on behalf of ARE and did not seek or obtain any legal advice regarding this document prior to signing it. He had never signed such a document on a previous project. Knight was not specifically challenged as to his evidence of what occurred at this meeting. He agreed in cross-examination that it was understood by everybody who attended the meeting that finance was required by the joint venture in a very short space of time.

207 Davidson's evidence was that Allwood spoke at the meeting and told the meeting that he had prepared the MOU for signing, and went through each of the clauses "so that there was a general agreeance [sic] on each of those aspects". Knight said that he had an investor prepared to invest $2.5M, as recorded in cl I of the MOU. As to cl II (which stated that "the investor is aware that the required funds amount to $4.5 million"), that clause arose from the 7 June meeting. Davidson said in evidence that "the initial $2.5M was to get the harvesting equipment built and to prepare the crop for the coming 2003/4 season. The $4.5M was to take the investment through to full commercialisation". As to whether Allwood discussed cl IV (which stated that the joint venture company "will have" a licence to use the intellectual property for the Pacific Region), Davidson said "yes, he would've". Counsel referred Davidson to his evidence that at the 7 June meeting there was some discussion about the intellectual property being limited to Australia and New Zealand, and asked whether Allwood and Clarke explained on 17 June how this change (from a limited licence as implied by Davidson's evidence of the 7 June discussion, to a Pacific Region licence as defined in the MOU) had occurred. Davidson said that he did not recall. He said that the matter was discussed in relation to Australia and China, he did not recall Canada and the USA being included, "but that's just my recollection". He could not recall whether Clarke or Allwood explained to the meeting how it was that Fibrenova would be able to provide a licence in the area specified. He believed that Allwood articulated that the intellectual property was owned by Fibre Laboratory and that Fibrenova had rights to it, but could not recall if Allwood said there was any limit in Fibrenova's licence. As to the matter of the budget and creditors, Davidson said that he and Dennis had worked on a project budget prior to the meeting, and believed that the budget was available to the meeting and a list of creditors was presented to the meeting. There was one creditor that was potentially a problem, and Clarke articulated the fact that Erdi was seeking legal advice as to how to recover his money. As to whether there was any explanation of Erdi's role, Davidson said that his understanding from Clarke was that Erdi had given investment moneys to Fibrenova to develop a product. As to whether Knight had authorised him to be ARE's representative for agreeing on the budget, Davidson said that he was authorised by Knight to sign off on any disbursement of monies from the budget, but only in Knight's absence. Davidson recalled that the budget prepared at the 17 June meeting was a list of the creditors, it was a list of the expenses that were to be paid from the investment monies. Davidson was, in consultation with Knight, to agree on which debts were to be paid. He did not recall if there was any discussion at the meeting about the timeframe for payment of any debts, although there was discussion about cl VIII of the MOU which, among other things, obliged Fibrenova to submit a list of liabilities and a timeframe for payment. He did not recall what Knight's requirement was in respect of the timeframe for payment.

208 Clarke's evidence was that the parties worked through each clause in the MOU in an attempt to reach agreement on several clauses which were in dispute. There was discussion as to cl VI (the percentage shareholding of the investor in the joint venture company), cl VIIIB (the amount of retainers), cl X (the percentage shareholding of the investor in any company established for non-woven products in Europe), and cl XI (communication between the joint venture and any company established for non-woven products in Europe). There was also discussion about cl XIII, concerning the location of crops. Clarke told Knight that he would prefer the crop or crops to be located close to Williames' factory in Warragul. Davidson said that he had spoken to some cotton farmers in New South Wales who were friends of his, that the crops could be grown there, and that he would need to deal with obtaining the necessary research licences for the coming summer growing season and would also commence the lobbying for the New South Wales government to alter its laws to be similar to the Victorian law. After this discussion it was agreed to amend cl XIII to state that "the location of crop sites and variety of seeds utilized in planting will be determined by the directors". I interpolate that previous drafts of the MOU stated that Clarke "is to have the final word in relation to crop sites and variety of seeds sewn in relation to the 200 hectares sewn"[28]. There was discussion as to cl XV and it was agreed that up to 10 percent of the fibre produced by the joint venture would be sold to Fibrenova at cost price, plus 25 percent. There was also discussion as to cl XVII, and it was ultimately agreed that it was not the parties' intention to sell or transfer their shareholding in the joint venture company to any third party for a period of three years. Finally, there was discussion as to what percentage shareholding the investors would have in Fibrenova, as to which Clarke's evidence was that Knight said that it had always been explained to Selvarajah that the investor and ARE would hold 51 percent jointly and this issue remained not negotiable, and that Clarke agreed to this in light of the amendment to cl XVII above.

209 Allwood then left the room to have the amendments incorporated, and returned a few minutes later, whereupon Clarke, Davidson and Knight stated that they were happy with the MOU and signed it.

"Memorandum of Understanding between Fibrenova Limited, Chris Davidson, and Gary Knight (acting on behalf of Australian Rural Expo Pty Ltd - ARE) regarding the funding of the Fibrenova Non-Woven Hemp Project.

1. ARE has an investor who is prepared to provide $2.5 million to the project over a six month period with progress payments commencing on 16 June 2003.
2. The investor is aware that the required funds amount to $4.5 million. It is anticipated that $2.5 million will be spent in the project stage which will include approximately Christmas of 2003 and that a further $2 million will be necessary to fund the growing of a substantial crop in the Australian growing season 2004/5. Finance may well be required in relation to the construction of further machinery. Additional funding will not affect the shareholding referred to below.
3. The project will be run by a company (to be incorporated) Fibrenova Industrial Australia Pty Ltd ("FIA") (or a name to be agreed upon).
4. FIA will have a licence for the Manufacture, Marketing and Distribution of Non-Woven hemp product using the Fibrenova Limited intellectual property for the Pacific Region which includes India Asia, China, Oceana [sic], Canada and the USA (this includes Northern and Southern growing regions and season).

1. The investor will receive 40% of the equity in the new Australian FIA company and 8% equity in [Fibrenova].

This memorandum of understanding is conditional upon agreement being reached as to a budget of $2.5 million from the date of this memorandum of understanding until approximately Christmas 2003 being agreed upon. Such budget shall be submitted by Fibrenova Limited as soon as practicable after the execution of this memorandum of understanding.

This memorandum of understanding is conditional upon Fibrenova Limited submitting a list of liabilities to the proposed directors of the joint venture entity and agreement being reached upon the payments to be made from FIA to the creditors of Fibrenova Limited and the time frame of payments.

1. Williames Hi Tech International Pty Ltd have undertaken considerable unpaid R and D in relation to the development of decortication and degumming machinery. Williames Hi Tech International Pty Ltd are to be the engineers in relation to the development and construction of machinery.

1. It is agreed that Adrian Clarke and others shall be travelling to England during the month of July/August in relation to a pre-arranged trip concerning the decortication and degumming of fresh industrial hemp in the field in order to achieve optimum results in relation to the next Australian growing season.
2. In the project stage, the parties agree that approximately 200 hectares of Indian hemp shall be planted, decorticated and processing [sic] utilising the technology, and if possible the product arising therefrom shall be sold. The location of crop sites and variety of seeds utilised in planting will be determined by the directors.
3. Future crop sizes grown within the region referred to in this memorandum of understanding are to be agreed by the directors of FIA and it is acknowledged that the anticipated crop size for the growing season 2004/5 will be 1000 hectares approximately.

1. It is acknowledged by the parties and agreed that all technology possessed by Fibrenova Limited is owned and vests in Fibre Laboratory Pty Ltd pursuant to an existing licence agreement between Fibre Laboratory Pty Ltd and Fibrenova Limited."

211 After the MOU was signed, Knight asked Allwood to incorporate the joint venture company as soon as possible, as to which Allwood agreed. Knight also asked Allwood to commence preparing a joint venture agreement. Clarke agreed with this course of action. I note further that Clarke said in his witness statement that he told Knight that he (Clarke) would ask Allwood to amend the licence of Fibrenova from Fibre Laboratory "to reflect and regularize the terms of the MOU", however for reasons which I set out below I reject this further evidence of Clarke.

212 Clarke asked Knight if a payment would be made that day, namely 17 June. According to Clarke, Knight said that there would be payment into Kenyons' trust account during the week but that the money was not to be disbursed until representatives of both sides of the joint venture had viewed and approved the budget and expenses, and Knight said that Davidson would be "their representative for this purpose". Clarke said that he (Clarke) nominated Allwood as Fibrenova's representative, and Knight agreed to this. When Knight was asked in cross-examination whether this evidence of Clarke's accorded with his recollection, he said:

"Yes, Mr Davidson was going to help to resolve the licensing issues because as I said it was outside of my field of expertise. I had never come across sub-licences for intellectual property before. It was just being thrown at me from all quarters as being raised as a serious concern with investors so I was in a situation where I was dealing with something that was to me quite apart from the hemp project."

In my view, this answer in referring to the issue of intellectual property rather than the issue of Davidson's authority to disburse investors' funds, reflected that Knight was concerned about the "licensing issues" and, I infer, Knight was reluctant to permit investors' funds to be disbursed for the purposes of the joint venture until those issues had been resolved. Those issues plainly enough concerned the joint venture's rights to use the relevant intellectual property, and that potential investors had a sufficient level of security in the intellectual property. Then, during cross-examination on the following day of the trial, Knight said that Davidson did not have his authority to agree to disbursements of the joint venture's funds, because at that stage the potential investor Foo would have said how the investors' money was to be spent. In essence, Davidson was to work with Clarke to prepare the budget, which was to be approved by the directors of the joint venture, which meant "it would have to come back to us and then we would sit down and discuss it. But what I wanted was the framework of what the budget was, what the debts were, who they were to, how long they had to be paid over, etc".

213 Allwood's evidence as to the 17 June meeting was essentially the same as Clarke's. The only relevant difference was that Allwood said that "Knight asked me to amend the licence agreement between Fibrenova Limited and Fibre Laboratory Pty Ltd" whereas Clarke's evidence was that he (Clarke) told Knight that he would ask Allwood to amend the licence. Allwood said in cross-examination that:

"When the MOU was signed ... on 17 June, Mr Knight stood up and said a series of things. I recall them quite specifically. He said that he didn't want any money disbursed because he'd already been asked by Mr Clarke when the money would come in and he said he didn't want any disbursed without agreement, and I was concerned that the money would be coming into the firm, and I was very happy with that. He also said, 'Can you incorporate the company and can you incorporate - can you amend the licence agreement?' I wrote to him in respect of the incorporation of the company on the day of that the meeting, the 17th, and sought particulars, and I did this on the 25th, I amended - which was eight days later - I amended the actual licence agreement and sent him a draft."

214 On 19 June Knight spoke to Allwood and told him that Foo had taken the MOU to his solicitor, who had identified some potential problems with the arrangement, relating to the existing creditors (in respect of which the solicitor had advised that an indemnity should be sought) and the lack of security in the intellectual property if the company holding it were wound up. Allwood said in his witness statement that he told Knight that he believed the problem could be overcome by an amendment to the licence agreement between Fibre Laboratory and Fibrenova "dealing with such eventualities". On the same day, Allwood sent an email to Knight in which he acknowledged their conversation and "the genuineness of this concern" and noted that due to the limited trading engaged in by the holder of the intellectual property, "the chances of Fibre Laboratories Pty Ltd getting into financial difficulties is not particularly high". He concluded by stating "I have no doubt that satisfactory amendment can be made to the existing Licensing Agreement between Fibre Laboratories Pty Ltd and Fibrenova Ltd that will ensure an acceptable level of comfort to your investor. I shall consider this issue as soon as possible and revert to you".

215 On 21 June Knight sent an email to Allwood in which he stated that:

"I have not heard from you regarding the way we can protect the interest of FIA in relation to our ability to secure the licences.

It is indeed a tricky one and two legal people I have spoken to subsequent to you have indicated to me it is a very real threat to any investor and a problem that they could not offer me a solution for."

216 Knight said in his witness statement, and I accept, that on or around 25 June it became apparent to him that Foo was unlikely to invest in the joint venture, and that at this time Knight contacted other potential investors including Selvarajah. On 25 June Knight sent a letter to Allwood referring to "the difficult position all of us have been placed in relating to solving the problem of the Intellectual Property". He stated that he understood Clarke's "desire to retain control of his intellectual property". He referred to having had discussions with potential investors in the hemp project over the last week and a half, including with "my own potential private investor Mr Peter Selvarajah". The letter continued:

"When the issue of liquidations and intellectual property were raised by my client[29] following his solicitor's perusal of our MOU, you rightly recognised this as a problem.

I must confess that I was not aware of the potential concern when we spoke in person as I have never previously dealt with a company where the IP and ensuing licences were not contained within the company being funded.

Once it was brought to my attention - I checked this with other sources independent of my investor - and they too have confirmed that this is a real fear. When I received your email this afternoon I again checked with a barrister friend of mine who told me that the area that Fibre Laboratories dealt in was a potentially very expensive area - as defending IP rights and dealing with patent lawyers can be excessively expensive, especially if breaches occur on more than one front at any one time.

I was told by the same barrister that protecting IP can be an expensive and exhaustive process.

I then checked with Mr James Coelho (a solicitor and another shareholder in my company) and James was also of the opinion it is a "difficult situation".

There is absolutely no doubt in my mind that my client[30] is "ready to roll" for at least part injection of the capital required as he rang my office at 5.30pm this afternoon to inform me he was going to Alice Springs and Uluru with his family from Monday for 10 - 12 days and he wanted to know if he needed to organise any money for Fibrenova before he left if the problem associated with the IP had been solved and sufficient comfort existed there for his solicitor.

Guys, I want to do this deal. I fear his solicitor will again put another "truck" through the IP issue - therefore I am asking for input and advice from all here.

I fear my potential investors will not find sufficient comfort in the IP issue that will see them make quick inputs, particularly as it appears there is no real protection as Gary correctly pointed out today, if in fact Fibre Labs runs into a liquidity problem.

Quick input was what I was trying to achieve for the project - especially in light of the Northern Hemisphere situation. I do not need pacifying - I need a real solution so that I can go forward. Currently, I am marking time on an issue that now seems insurmountable.

[Knight concluded by reiterating his request that if anybody could think of a solution, they advise him]."

217 Knight said in cross-examination that, at the time he sent the letter to Allwood:

"I was having several issues being thrown at me from a variety of sources that I had approached. They concerned the plug hole, whereby at any time Fibrenova Labs could move on Fibrenova for unpaid licence fees in the past, or what the scale of licence fees were in the future, which we were unaware of. At that stage we only knew it was a half a million dollars, we had never seen the licence agreement. I had requests on me to produce that licence agreement, because irrespective of what was happening the investors were of the view that at any time the plug could be pulled on Fibrenova, by Fibrenova Laboratories and everything just vanishes down what was termed as a plug hole."

Knight said he had also been told it was a possibility that Fibre Laboratory could unilaterally revoke the licence agreement with Fibrenova. He was also told that if Fibre Laboratory borrowed against the intellectual property and got into trading difficulties, the intellectual property could be lost not just to the joint venture company but to Fibrenova. Knight said in cross-examination that he wanted the intellectual property vested in the joint venture. As to whether he wanted the joint venture to own the intellectual property, "that was put to me by a solicitor, yes". Counsel also put to Knight Clarke's evidence in his witness statement that, on 2 July, Davidson had told Clarke that Knight had told him (Davidson) that "he (Knight) had overcome his concern in relation to the holder of the intellectual property" and also that Davidson told Clarke that he (Davidson) believed that Knight "wanted some form of covenant over the intellectual property till the investment was covered". When asked whether that was correct, Knight said "Briefly, but bear in mind I'm not aware of the conversation of Adrian [Clarke] and Mr Davidson on that date".

218 On 25 June Allwood sent an email to Davidson (copied to Knight) attaching a draft licence agreement between Fibre Laboratory and Fibrenova. A copy of this email was included in the Court Book but the draft licence agreement was not. Ultimately, Allwood produced during his cross-examination a draft licence agreement (exhibit 2) which he claimed was the document attached to this email. I refer to the issue further below. For present purposes, it is sufficient to note that Allwood stated in the email that the draft licence agreement contemplates Fibrenova entering into sub-licences and the joint venture company will enter into a sub-licence in very similar terms to the licence agreement. The email continued:

"Clause 8 contemplates that in the event that Fibrenova Ltd went into liquidation, receivership or was wound up, the licence that it has with Fibre Laboratory Pty Ltd would automatically transfer to the joint venture company on the basis that the joint venture company is not liable for any licence fees.

The investor does not have any protection pursuant to the abovementioned proposal if in fact the licensor (Fibre Laboratory Pty Ltd) got into financial difficulties. However, I refer you to my e-mail of 19 June 2003 to Gary and confirm that the IP was put into Fibre Laboratory Pty Ltd on the basis that it does not trade and only receives licence fees and pays moneys in respect of the protection of its IP eg patent attorneys and the like. Accordingly the chances of Fibre Laboratory Pty Ltd getting into hot water are extremely remote."

I merely note that cl 8 of the draft licence in exhibit 2 is an arbitration clause. It has nothing to do with the subject matter canvassed by Allwood's email. Further, Allwood's email said nothing about amending the licence agreement so as to enable Fibrenova to grant to the joint venture company a sub-licence for the Pacific region. Rather, it dealt with the concern Knight had expressed as to what would happen to the intellectual property if Fibre Laboratory were to become insolvent.

219 Meanwhile, according to Clarke's evidence, on 23 June Clarke spoke to Davidson and expressed his "deep concern about the timeliness of the actions he (Davidson) was to undertake on ARE's behalf regarding the acquisition and importation of seed from Europe and his securing of land in New South Wales and the securing of the necessary Research and Development licences for the growing of hemp on that land". Clarke said that he informed Davidson of the cut-off dates for the licence applications and said that he (Davidson) and Knight "had no time to waste". Davidson informed him that "he had all these issues under control". On 24 June Clarke spoke with Davidson about the urgent need to purchase seed and start shipping it by sea, explaining that transport would cost about $3000 if they acted soon enough to arrange sea shipment, whereas if there were delays and the seed needed to be flown in, the cost of air transport would be about $30,000.

220 On 24, 26 and 29 June Clarke made payments to Williames (totalling $35,010) for preparation of machinery for the UK trip. Clarke said in his witness statement that these payments were necessary because Williames would not release the machines from his workshop until he was paid, that the payments should have been from the investors' funds, but given that the investors had "failed to keep their promise about investment payment dates" he had to pay them himself. Clarke said that he was also concerned because a payment of $17,000 had to be made to the freight company within the next two weeks to transport the machinery to England, and he raised the issue with Davidson who "assured me that we would receive payment and Fibrenova Limited would be reimbursed for all expenses which were agreed".

221 On 30 June Knight and Armour travelled to Singapore to, as Knight said in his witness statement, investigate the potential of the technology that he understood would be exploited by the joint venture. He discussed the proposed joint venture with a Singaporean friend and explained to him the possibilities of fusing recycled plastic with hemp fibre to strengthen it. At this time, Knight was looking at possible partners to exploit the technology that was to be licensed to the joint venture. In this regard, he met with the managing director of a recycling company, and a couple who ran an environmental consultancy business and who had been consultants for the World Bank on a plastic recycling plant project in Indonesia. Knight said that they were very keen on the idea of pallets infused with hemp, and the concept of lightweight recycled plastic, and bins, being another use that Clarke had suggested was suitable for hemp in conjunction with recycled plastic.

222 On 2 July Allwood and Knight (still in Singapore) had a telephone conversation. Knight said in his witness statement that they discussed issues raised by Foo's solicitor in relation to the proposed joint venture. Allwood, however, said in his witness statement that Knight told him that Selvarajah, in order to overcome his solicitor's concerns, required certain things (referred to below) to happen. On 2 July, Allwood sent an email to Knight referring to their conversation and confirming that Selvarajah required: (a) a term incorporated into any deed entered into stating that Fibre Laboratory will advise Fibrenova who will in turn advise the joint venture of any litigation commenced against Fibre Laboratory or any litigation it proposed to commence in relation to the intellectual property, (b) that a dialogue will take place between the joint venture company, Fibrenova and Fibre Laboratory in relation to all the above matters, and (c) a copy of the Fibre Laboratory constitution. Allwood concluded the email by stating that he had spoken with Clarke "and he is happy to agree to the above in order to move the matter forward".

223 While the email above referred to Selvarajah, it was not put to Selvarajah that he had been advised by a solicitor that certain things should be done as a condition of his investing in the joint venture, or that the email reflected his solicitor's concerns. In short, and in circumstances where the issue was not explored in cross-examination, it is possible that the reference to Selvarajah should have been a reference to Foo.

224 As to the circumstances in which Selvarajah was to invest, Knight said in evidence that he suggested to Selvarajah that he could come in as the seed funder, and he explained to Selvarajah that Fibrenova was seeking the investment urgently so that funds could be used to facilitate the UK trial. In cross-examination, Knight said that by "interim capital" he meant "to put funds in to get this all important trial over and done with to enable me to clear up all the other issues and put in a group or a single investor whichever became available first". Knight said in cross-examination that he understood Selvarajah's investment was for a limited purpose, to enable the UK trials to proceed and no more, and that is what he told Selvarajah. As to whether Selvarajah would get a short term return on his capital, Knight said "It was a bit, originally, a bit of, well, if you put this in and we get all the issues sorted out and we put a couple of investors in, well, then we'll extricate you and that was basically it". Knight agreed that he told Selvarajah that he would make arrangements for other investors to come in, so as to reduce Selvarajah's investment and risk in the project.

225 Clarke said in his witness statement that on 2 July he spoke to Davidson and sent him copies of photos of hemp crops in England which "we had arranged to harvest utilizing Fibrenova's technology and know how. This exercise was to be a demonstration in relation to the woven and textile uses of hemp processed by our new method to the British government, British Textile Industry and British investors".

226 On 3 July Clarke spoke to Davidson and gave him the contact details of Hudson, the officer responsible for administering hemp licences in New South Wales. Clarke told Davidson that he had recently spoken to Hudson and told him (Hudson) that Davidson would be contacting Hudson shortly in relation to licences.

227 There were subsequent conversations, in the first half of July, between Clarke, Allwood, Davidson and others whereby, in essence, Clarke told Davidson that payments which should have been made by ARE under the MOU had not been made, and that Fibrenova needed to make further payments, particularly in relation to the UK trip. Clarke said in his witness statement that a meeting arranged for 11 July (on the basis that funds would be provided by that day), the purpose of which was for the respective parties to the joint venture to agree on the disbursement of funds, had to be cancelled as the funds were not paid.

228 Clarke said that on 13 July Davidson telephoned him and told him that despite funds not having been paid, he had spoken with Knight since 11 July and Knight "had assured him that all was well in relation to the funding". As to whether this evidence was accurate, Knight said in cross-examination that "I continually said to Chris [Davidson] that if everything stacked up, getting the funds wasn't the issue, the issue was getting the ducks lined up".

229 Ultimately, on 14 July Allwood telephoned Knight and relayed Clarke's concern that payments had not been made. Allwood said in his witness statement, and I accept, that Knight told him then that $250,000 would be paid into Kenyons' trust account on Wednesday 16 July. Allwood told Knight that a revised schedule of payment would need to be agreed on "as the proposed second tranche, two months after the first tranche was now unworkable". Also on 14 July, Knight sent an email to Clarke (copied to Allwood) noting that he (Knight) had asked ARE's accountants to establish the joint venture company and requesting the details of the directors from the Fibrenova side.

230 On 16 July Selvarajah paid $250,000 to ARE's lawyers' trust account. It is now convenient to deal with the circumstances in which he made these payments.

231 Selvarajah's evidence was that he did not call Knight, nor did Knight call him, before he went away on holiday, contrary to what Knight said in the letter to Allwood set out at [216] above. Rather, on about 7 or 8 July, while Selvarajah was on holiday, Knight telephoned him and told him that there was an opportunity to invest $250,000 in the Fibrenova project, that he (Knight) had been told that this business would be very profitable, and in return for being the "seed investor", Selvarajah would obtain a 10 percent shareholding in the joint venture company, and 30 percent of the joint venture company would then be available for other investors to be sourced by ARE and that upon those investors committing funds, Selvarajah would obtain a partial refund, reducing the amount of his investment to $100,000. Selvarajah told Knight that he would come and see him in his office early the next week to discuss the project. He said in his witness statement that he did not authorise Knight to enter into any agreement on his behalf, "during this telephone conversation or at any other time". In cross-examination, Selvarajah said that Knight had told him in the phone conversation that:

"this deal has come up and if I'm prepared to invest about $250,000 and if it gets looked at it's a very good deal and everybody stands to make good money and I just got to put 250 in and once he gets the investors in ... I'll only end up having put in $100,000 and I still get ten percent share of the company. He said investors are getting 40 percent and he said you put in 250 initially and over the next few months I'll return you 150,000 so you'll only end up putting 100,000 and get ten percent of the company."

As to his response to Knight's proposal, Selvarajah said "So I thought about it and I said, well, if it's a good deal then I said I'll get involved in it". He told Knight that he would see him the following week. As to whether this was to discuss the deal with Knight, Selvarajah said "More to find a bit more details and give him the money because he has told me it's a very good deal and you know, that all the - whatever (indistinct) over the phone and I said, fine, you know, I'll put 250".

232 Selvarajah said in his witness statement that on 14 July he received an email from Knight which stated "I have told them that you will deliver the cheque on Wednesday [16 July] that will be faxed (by copy to them) that will be placed in James (Coelho's) trust account until such time as the necessary papers are in James possession. Then James will release the money to them". I interpolate that there was no elucidation in the evidence as to what "the necessary papers" were.

233 Early on 16 July Davidson sent an email to Knight in which he stated, among other things, that:

"...from my meeting with Geoff Williames last Thursday I am convinced that the IP is safe[31]. The IP is not in the machinery technology [and is] more to do with a process ...

...critical to this project achieving milestones are two things;

a) Funding, in order to get to first base we need to be able to access funds (au$2.5m), based on my calculations by no later than the middle of October, 2003 with the further au$2m available from early March 2004

b) The engineer, Geoff Williames is the key to proving the technology of the harvesting process, without his co-operation the project will not perform within our desired time frame which is critical to it's cash flow."

Later that morning, Knight forwarded this email to Selvarajah, stating in his email that "This is Chris's total assessment of the recent developments - put here for your perusal". Selvarajah said in his witness statement that he received the email on 16 July and that he understood from Knight that Davidson was a senior employee of Pratt who had introduced the project to ARE. However, in cross-examination Selvarajah said that he did not think that he read the email on that day. Further, the name Davidson meant nothing to him at that stage.

234 Later on 16 July, Selvarajah met Knight at ARE's Sydney office to discuss the project. Selvarajah said in his witness statement that:

"Mr Knight told me that a new company was to be formed that would be growing and harvesting hemp. He said that the Fibrenova people that he had met with told him they were "world leaders" in the hemp business and had told him that the new business would be very profitable. Mr Knight explained that the hemp produced would have many uses, including in pallets and in swimming pools. He said that the Fibrenova people based in Melbourne had the technology to utilise the hemp fibre in these products.

Mr Knight stated that the $250,000 was required urgently to pay for Fibrenova people to travel to the United Kingdom to harvest some hemp that had already been grown there. Mr Knight said that in return for being the "seed funder" I would receive 10% of the shares in the new company.

Mr Knight told me that $2.5 million was required in relation to the Fibrenova project. He said that he expected to source three additional investors, probably from China, who would each contribute $850,000. He explained that upon this happening, $50,000 from the contribution made by each investor would be returned to me to offset my initial investment, leaving me with a $100,000 investment."

235 Following this discussion, Selvarajah handed Knight two cheques (which he had written out there and then) totalling $250,000 as his investment in the project, made payable to ARE's solicitors. Knight said in evidence that he told Selvarajah that the money was for seed funding initially, and he also mentioned that people were going to England and they needed money for other uses to get the whole project started. At the time he handed over the cheques, Selvarajah did not know specifically that some of his money was to be used to pay Morton, Davidson and ARE's solicitors. He later learned that $197,500 was paid to Fibrenova, $15,000 was paid to Queenscorp Pty Ltd (a company associated with Davidson), $8000 was paid to Davidson, $6000 was paid to ARE's solicitors, and $12,500 was paid to Morton. Selvarajah said in evidence that he did not know that ARE was to receive a commission, or indeed that ARE had entered into an MOU. Selvarajah did not see the MOU until January or February 2004. Further, Selvarajah said that Knight did not provide him with the profit projections of the joint venture until August. Selvarajah said in cross-examination, and I accept, that there was never any agreement drawn up in relation to his investment. Selvarajah said that he thought Knight was a successful businessman, and he agreed with counsel's suggestion that he thought Knight was "someone who knew how to find a good deal".

236 Knight's evidence on these matters was that on 16 July he and Selvarajah discussed the joint venture and that:

"I relayed to Mr Selvarajah the details regarding Fibrenova and the Joint Venture Project that had been provided to me by Mr Clarke and Mr Allwood, including as to the profitability of the Joint Venture Project and the multitude of uses for the hemp fibre that would be produced."

In cross-examination Knight added that "I would have raised the issue about the urgency of conducting the trial, I would have raised the issue about we can - at that stage Mr Allwood was confident that we could work out the IP issues and get a schedule of IPs and a list of creditors and timeframes and everything else, so I would have just relayed to him what I knew at that time". He said that he "would have used" the figures supplied by Clarke and Davidson and their projections, as he was not in the hemp industry that would have been pivotal. He "would have used" the information he had received about the technology and the possibilities and the capabilities of it. As to the level of persuasion required by Selvarajah, Knight said in cross-examination that:

"I said to Peter I saw great possibilities for the project and bear in mind I'm focusing on the project side of it, not the intellectual property side of it, not the licensing side of it, I said I thought it could be profitable, I said when we get a full proposal and agreement together I felt we could get Chinese investors in then but we had to resolve the issues that were at the time being raised constantly in relation to licensing and licensing agreements and debtors, past debtors and funding."

237 In cross-examination, Knight said that he told Selvarajah he had signed an agreement with the parties to raise funds for the joint venture, and that the MOU provided for payments of $15,000 per month to ARE. He could not recall whether he explained to Selvarajah what the money he was paying would be used for, although he said "I assume I would've told him that there were payments to be made". Later he said "I'm not sure if he was aware of the exact amount but I would have told him there was disbursements". Knight could not recall if, at the meeting, he referred Selvarajah to the email in which Davidson asserted his opinion that "the IP is safe", although Knight said that it was "highly likely" that he (Knight) was aware of the email when he met with Selvarajah. Knight agreed that he took some comfort from Davidson's opinion that the intellectual property was safe, and stated "I would have been looking forward to getting the documentation to prove that". Knight added that "I would've said we're on the way to solving the IP issues, we're on the way to solving the licensing issues, but we weren't on the way to solving the inter-licence with Fibrenova and Fibre Labs, at that stage, but I didn't see at that point that it was going to become as big a problem as it did". Knight said that there was no settled schedule of disbursements at this stage, however "we were assured that all these issues could be resolved" and he (Knight) was confident that outstanding issues could be resolved.

238 It is convenient to state at this point that I accept Selvarajah's evidence that he did not receive a copy of the budget and profit projections from Knight until August. Selvarajah was definite in his evidence in this regard, and would be likely to have remembered receiving the projections before he provided the cheques, if that had in fact happened. While I accept Knight's evidence that he relayed details of the project to Selvarajah including his view that it would be profitable, this was done orally and without providing a copy of the budget and profit projections. I also accept Selvarajah's evidence that, at the time he handed over the cheques, he was unaware of the MOU and the fact that ARE was to receive a commission under it. I accept Knight's evidence that he had not yet agreed to a schedule of disbursements, but I consider that he was at least aware of payments proposed at that time and, as he said, he told Selvarajah that there would be disbursements. As to Knight's evidence that he told Selvarajah about the MOU and that ARE was to be paid a retainer under it, on balance I prefer Selvarajah's evidence to the contrary as it impressed me as being more persuasive in its giving and content.

239 Returning to the chronology, later on 16 July Knight sent a facsimile to Allwood and Davidson, attaching a copy of Selvarajah's cheques. Knight stated in his covering note that he believed James Coelho (ARE's solicitor) had asked Allwood for some documents on Monday, and as nothing came through, he therefore did not bother rushing his client's cheques through "as there is obviously no cast iron hurry". On 17 July Allwood wrote to Coelho, noting that he (Coelho) held "cheques representing the first tranche", and enclosing "details of patents held as recently discussed". Allwood stated that "If there are any further requirements that your client has prior to the release of the funds, please advise". I infer from the fact that there was no evidence of further correspondence as to requirements prior to disbursement of the funds, that this list was the "necessary papers" referred to in Knight's email on 14 July without which the funds would not be released from Coelho's trust account.

240 On 17 July Knight told Clarke that Selvarajah was not able to fund the full investment, but that he had a Chinese investor who could contribute $2.5M to the project.

241 Knight said in his witness statement that, on 22 July, "in accordance with Mr Allwood's requests and directions to me" Coelho paid $197,500 to Kenyons' trust account, in addition to the other payments mentioned above.

242 On 23 July Allwood and Davidson met to discuss how the funds paid to Kenyons' trust account were to be disbursed. The minutes of the meeting record that they decided to "address those items that most reflected urgent attention and make funds payable" and "that the proceeds from the first traunch [sic] be deposited to Kenyons Trust Account for appropriate dispersal [sic]" in accordance with the attached table of expenses which totalled $247,156.93. This figure comprised wages/salaries of $61,500 (including $15,000 each to Clarke, Davidson and Knight), production expenses of $150,156.93 (including $117,586 to Williames for work on the harvester, $10,000 for seed, and $9,570.93 for the English trip), and debt repayment of $35,500 (being $23,000 for tax/super and $12,500 to Morton). Davidson said in cross-examination that he could not recall if this was "actually the budget which we used notwithstanding it does look as if it's the one that we agreed to, yes". He agreed that he and Allwood together authorised the disbursements on behalf of the joint venture.

243 On 24 July Allwood emailed to Davidson a summary of the payments agreed at the previous day's meeting, and sought confirmation of its accuracy. Davidson sent an email to Allwood in response, stating that "I have marked up the document as I see it, if you are happy then it is fine". The document attached to the email was not included in the Court Book.

244 On 29 July Allwood made numerous payments out of the Kenyons trust account, including $51,500 to Fibrenova (which included salaries, $10,000 for seed, and $10,000 for ongoing expenses). He also drew a cheque for $117,586 payable to Williames. Allwood sent an email to Clarke on that day telling him that he had disbursed the funds.

245 Although nothing turns on it, at this point it is convenient to note that there was a difference in the evidence as to whether Knight had authorised Davidson to approve disbursements on behalf of the joint venture. In short, Clarke asserted that Knight had so authorised Davidson, Davidson said that he was so authorised only in Knight's absence, while Knight said that Davidson was not authorised at all. I accept Knight's evidence in his witness statement that ultimately no agreement was reached as to a budget for the proposed joint venture, and he reiterated in cross-examination that the schedule of disbursements was never settled "because we received no time frames and we received no agreement from any of the creditors". Indeed, it was common ground that this lack of agreement on the budget meant that an essential requirement of the MOU was not satisfied. Nevertheless, and notwithstanding the fact that Knight did not specifically approve of a project budget and that he was reluctant to allow the investors' funds to be disbursed in the absence of an approved project budget, he was aware that the joint venture needed to pay certain expenses within a very short timeframe, that such payments might be required to be made even before a binding joint venture agreement was finalised, and that disbursements of the money paid by Selvarajah might be used for that purpose. Regardless of whether Davidson had actually been authorised by Knight, Davidson took it upon himself to meet with Allwood and others in order to approve budget expenses ostensibly on behalf of the joint venture. In this regard, I note Davidson's evidence that he "was to approve expenses in Knight's absence", and Davidson's evidence referred to below, which I accept, that Knight was sometimes absent and could not be reached. I note also Knight's evidence in cross-examination that Davidson "was acting as an agent on behalf of himself, and from in a sort of murky way on both sides of the joint venture pulling everything together, pulling all the strings, the details, the information together ... it's a murky area ... where he was liaising with Clarke and us. He wasn't acting as ARE's agent, or my agent, nor was he acting solely as Mr Clarke's, or Fibrenova's agent. He was someone that you would suggest is in the middle of the situation". I also note that on 5 September, Clarke asked Davidson for his authority to pay $1000 to a Mr Ward for services provided for the joint venture in England, that Davidson approved the payment and sent an email to Allwood stating that following on from his phone conversation with Clarke, "Could you please arrange for this amount to be directed to Mr Ward's account. You have my authority to do so". In all of the circumstances, Knight is to be taken as having acquiesced in Davidson's decision to approve the disbursement of monies invested by Selvarajah and ARE.

246 Meanwhile, the trial of the decorticating machine took place in England from mid-July through August, and was attended by Clarke, Clarke Junior, Dennis, Williames and Davidson. Clarke returned to Australia on 21 August. According to Knight, Davidson went to the UK "on behalf of all of us as an independent, so-called observer and he also had greater knowledge of harvesting type equipment than I did". Knight said that Davidson's report was that there were problems with things jamming, though parts of it went well, and he (Davidson) felt that with future development the machine would eventually achieve what it was setting out to do. It is convenient to note here that on 18 August there was a meeting attended by Davidson, Dennis and Allwood, the minutes of which record a short written review of the English trials, which review Davidson said in cross-examination was accurate. The review relevantly stated that the de-gumming process was not designed and built as per the original concept, and that the concept was proven but only in sample amounts. It was also stated that "Geoff Williames - now completely understands the process ... However, will need to adhere to direction for project to be successful." It was noted that the meeting "felt that we had a lack of expertise in the area of engineering documentation" and "Operators comfort for the new harvester needs to be discussed with Williames and include visibility issues". It was decided to review budgets "when Peter [Selvarajah] and Gary [Knight] are present next week". The minutes record that Knight and Coelho were to prepare "company structure" for registration with ASIC. As to the growing of hemp, the minutes state that:

"3 lots of seed stock in Tasmania to be investigated by [Dennis]. Tasmania would be a good place to commence growing crop as it has been proven to grow in that climate. ... [Davidson] to speak to the Youl family with regard to growing crop on their property at Simons Plains in Tasmania"

247 Clarke was cross-examined in relation to a report prepared by BioRegional, an English environmental organisation, concerning the results of the UK hemp trials. The Executive Summary to the report stated that the report aimed to assess the technical and economic feasibility of growing and processing hemp fibre in the UK for textiles, and that as the results of the UK trials were limited by pilot machinery that was not fully operational and only small quantities of fibre were produced, a second field trial was carried out in New South Wales in February 2004, and that some of the pilot machinery was not fully operational in the Australian trial. Clarke said that the trials did not concern harvesting, as "we did not have a harvester with us", but rather they were testing decortication. Counsel referred Clarke to the report's conclusions that:

"Whilst the technology shows promise, with the D 7 pilot decorticator demonstrating good separation of the bast fibre material consistently in both trials, there remain a number of technical and economic issues to overcome. These include;

1. removal of water from the green decorticated fibre to prevent degradation of the fibre and facilitate further processing or storage,
2. on-farm handling and storage techniques of green decorticated material,

1. processing of the green decorticated fibre to remove gums and pectins to produce a homogenous quality fibre at a cost competitive price.

There are machines other than the Fibrenova green decortication machine which it would seem could remove fibre from hemp stems in the field, the patents for which have lapsed."

Clarke agreed that removal of water from the green decorticated fibre was not achieved satisfactorily in the English trials, and he added that the green decorticated material needed to be dried further than it was. Counsel then put to Clarke that Fibrenova's system was not novel, unique or advanced, as to which Clarke responded "There had been attempts to make a green decortication machine that would do it in the field, but they were not successful, that's why their patents lapsed". Clarke then said in re-examination that he was present at the UK trials and did observe that "we had technical problems", namely that "the drying equipment Mr Williames had made for us was not made to the specifications I ordered" and that the way he made it, it could not work, however the problem was remediable. That was the problem referred to at (a) above. As to (b), Clarke did not know what they were referring to, as "we probably decorticated a tonne of material, so there really wasn't enough material for them to really make a comment on that". As to (c), that concerned de-gumming, and the problem arose as a "less than adequate machine at the dye works was available for textiles". Clarke said that the de-gumming problem was remediable as "we had the full equipment at Deakin University where we were regularly producing the fibre that we wanted and it was due to the equipment". As to whether the problems identified by the report have in fact been remedied, Clarke said "Yes. The remedies are known, it just needs simply to be built". Clarke stated that the technical difficulties (identified in the review arising from the 18 August meeting referred to above) have been remedied. Clarke also said in cross-examination that "we did build a machine in 2004 that worked ... it didn't work as well as we wanted it to, but we knew what we had to do to make it work absolutely ... and we now know - we - you know, that stage, that first machine had it been built would've done 200 hectares".

248 Returning to the chronology, and without setting out all the evidence, it is apparent that during August and into September there was ongoing friction between Clarke and Knight in respect of funding which Clarke claimed should be provided by ARE under the MOU. In essence, Clarke and Allwood said in their witness statements that Knight gave repeated assurances that further funds would be paid, but that payments were not made, and there were several instances where it was difficult to get in contact with Knight. Clarke said that he told both Knight and Davidson that delays in payment would adversely affect the 2003/4 growing season, as seed could not be purchased and planted in time, and additional freight costs would be incurred if seed had to be sent by air freight instead of sea. I interpolate that Davidson said in re-examination that he was asked by Clarke (and perhaps by Allwood also) to relay their concerns about the lack of funding to Knight. Further, Davidson said that sometimes he was not able to contact Knight, and it was not uncommon to go two or three days without hearing from him. On 28 August Davidson emailed to Knight a proposed budget for the project stage.

249 Clarke said in his witness statement that on 1 September, Davidson told him that Knight and Selvarajah had indicated that, until a joint venture agreement was signed, they were only prepared to pay for seed and pay enough to keep the engineers going. Similarly, according to Allwood's evidence, on 3 September Davidson told Allwood that Knight had told him (Davidson) that he (Knight) had stopped Selvarajah making any further payments as Allwood had failed to set up the joint venture company and draw the joint venture agreement. Further, that Davidson told Allwood that he (Davidson) had pointed out to Knight that he (Knight) had directed Allwood not to incorporate the joint venture company and draw the joint venture agreement. In short, none of this evidence was put to Davidson, Knight or Selvarajah, and I reject it. However, it is apparent that by this stage Clarke was losing patience with Knight and therefore sought alternative investors for the project.

250 On 2 September Clarke sent an email to Davidson advising that he was to attend a meeting that day with a potential investor who might be able to replace ARE. Clarke invited Davidson to attend the meeting. On 4 September Clarke and Davidson met with a potential investor and took him to Williames' premises.

251 In the following days, Clarke continued his attempts to secure alternative investors for the joint venture. On 15 September Davidson had a meeting with Knight, Selvarajah, Coelho, and Armour. Clarke said in his witness statement that Davidson told him (Clarke) that he (Davidson) had explained to the meeting the problems caused by the lack of funding from ARE, that the project was close to death, but that progress could still be made if they returned to the MOU and the project plan which he had devised and given to them, and that Davidson told the meeting that he had imposed a deadline of 6pm the following day for ARE to provide $2.25M, failing which the joint venture deal was at an end. According to Clarke, on 16 September Knight telephoned Davidson (while Clarke was meeting with Davidson) and Davidson immediately after the conversation told Clarke that Knight had told him (Davidson) that Selvarajah would put in $250,000 the following day and a further $2M would be transferred to Kenyons' trust account within 72 hours, with that money to be raised by Knight, Armour and Selvarajah against their own properties. I interpolate that when Clarke's evidence was put to Davidson in cross-examination, he said he could not recall imposing an ultimatum as to the provision of funds, although he agreed that he felt "a level of frustration" towards Knight at this time. None of this evidence of Clarke was put to Knight and I reject it out of hand.

252 On 18 September Davidson sent an email to Clarke requesting the details of the New South Wales official Hudson, and attaching an email from Clarke to Hudson the previous day in which Clarke confirmed that "we are seeking a licence to grow a small trial plot of hemp in the Griffith area as part of the Pratt Water Project ... As we will need to plant this 10 hectare crop in the next 2 to 3 weeks, we will need your help with the necessary NSW permits etc".

253 At about this time, Allwood telephoned Knight and requested that he pay $50,000 into Kenyons' trust account, and on 18 September Davidson emailed to Knight the account details and stated that "if this can be done by direct bank transfer we can get the seed paid asap and protect this year's crop".

254 On 22 September, Davidson sent an email to Knight stating:

Regarding the urgency for seed. Twynam has committed to 10 Ha's for trial this year/season, they have applied 140 units of nitrogen and keep it weed free ready for us. Phil Warner in Tasmania 20 Ha has done the same. Hamish has growers at Warragul, Phillip Island and Tasmania plus we have 25 Ha at Tumut under pivot irrigation. I have also got commitment from Cambalin Pastoral Co for 2000 Ha Fitzroy River[32] commencing April 2004 to harvest June 2004."

255 On 22 and 23 September, Dennis sent emails to Knight requesting that he pay 11,526 Euros (about $20,000) to a Hungarian supplier to purchase seed. Knight forwarded these emails to Selvarajah, who provided funds to ARE accordingly. On 25 September ARE arranged for $19,825.42 to be paid to the Hungarian supplier. I interpolate that it is not clear exactly when the hemp seed arrived, however Clarke agreed in cross-examination that three tonnes[33] of seed arrived in late September[34]. Counsel put to Clarke that the seed was available to be planted at this time, to which Clarke responded "Why would you plant it without a machine to harvest it?" Clarke then denied that land was not available to plant the seed, then added that, by the time the seed arrived, Davidson had taken over the arrangement of land, and he had cotton farmers in New South Wales, "which is something I did not like, but that's what he had done". Clarke said further in re-examination that the seed was not planted because Davidson had charge of the seed and was not prepared to plant it unless he knew there would be a machine to harvest it, and because of the lack of cash flow Clarke agreed with Davidson that the seed should not be planted until there was a machine. I note that none of this evidence was put to Davidson.

256 On 1 October Knight sent to Allwood a letter dated 29 September, which outlined steps "for us to sign, seal and deliver this JV agreement in a very short period of time". Knight stated that he was "not interested in making that many alterations to the MOU ... rather just tightening them up and having them drawn by a firm of solicitors (Clayton Utz)". He requested company details of Fibrenova and Fibre Laboratory and set out a list of points to be enshrined in the joint venture agreement. It is not necessary to set out these points in full. It is sufficient to note that Knight required "that the IP holding company/companies be restricted in their ability to trade and encumber IP, and that all accounts appertaining to the IP holding companies be made available quarterly to the directors of FIA". Knight also required "that all expenditure going forward to be approved by the board. Agreement has already been reached in relation to the cost of building the harvester and providing debt relief to past creditors - so in relation to these matters there is no need for re-hashing. I am talking about major expenditure going forward". It is convenient to note that although Knight said in this letter that agreement had been reached as to debt relief, he said in his witness statement that in October he was still seeking from Allwood a list of current creditors, and in this regard he referred to an email he sent to Coelho on 30 October in which he stated that one of the "obstacles" was a gentleman called Erdi "who is apparently owed $100,000 plus interest by Fibrenova Ltd". Knight said, and I accept, that no agreement was ever reached as to when Erdi or the other creditors of Fibrenova were to be paid from the funds that were to be provided to the joint venture by ARE.

257 In early October Knight received invoices from Dennis and Clarke for various amounts related to transport of seed, transport of machinery returning from the English trial, and consultancy/wages of Fibrenova for one month. Williames also sent a facsimile to Knight noting that, as requested by Davidson, there was a series of invoices totalling more than $600,000. On 7 October Knight emailed Clarke indicating that he would pay a sum of $3,719 in respect of the transport of machinery.

258 Clarke said in his witness statement that on 7 October he spoke to Davidson and explained to him "the need for cash flow ... to ensure that the engineering was done and the land secured" and that he confirmed that Davidson had not secured land or licences to grow hemp in New South Wales. Clarke said that he told Davidson that farmers needed time to prepare land and that "if we did not secure land immediately, farmers would use their land for other crops". Clarke said that he told Davidson that it was "critical that Knight understood these issues and started paying the money he claimed to have in the bank". Clarke said that later on the same day he had an argument with Davidson in which Davidson, in effect, expressed frustration that Clarke had not secured more land for growing hemp in the 2003/2004 season, while Clarke expressed "outrage" and reminded Davidson "that it was his job to secure land in New South Wales" and that this and other steps in the project should have been undertaken earlier, that ARE had failed to provide funds despite constant promises to do so and the obligation to do so starting on 17 June, and it was thus not a case of Clarke's people failing to comply with their side of the bargain.

259 According to Clarke, on 7 October Williames telephoned Clarke and complained about not being paid and outlined the difficulties this had caused his business.

260 On 8 October the joint venture company was incorporated in New South Wales as Fibrenova Industrials Australasia Pty Ltd ("FIA") in accordance with Knight's instructions.

261 On 10 October ARE paid $12,000 to Williames in respect of work done on the harvester.

262 Knight said in his witness statement that he made a number of requests of Allwood to provide documents confirming the intellectual property rights of Fibrenova that were to be provided to FIA. The evidence is unclear as to the time at which these requests were made.

263 On 13 October Allwood sent a facsimile to Knight attaching an agreement dated 16 May 2000 between Fibre Laboratory and Fibrenova. This was the existing licence agreement. For present purposes it is sufficient to note that the agreement granted Fibrenova an exclusive licence to use specified intellectual property for 25 years, but only allowed Fibrenova to grant a non-exclusive sub-licence to third parties for a period of five years, and limited use of the intellectual property to Australia and New Zealand. Further, the agreement provided for an annual licence fee payable by Fibrenova to Fibre Laboratory, commencing at $200,000 in 2001 and increasing by $50,000 per year until reaching an annual licence fee of $1.4M in 2025. Knight said in evidence, and I accept, that he had never seen this licence agreement before he received it on 13 October.

264 Clayton Utz wrote to Allwood on 17 October 2003 stating, among other things, that:

"On 13 October 2003, we were sent a copy of the Licence Agreement dated 16 May 2000 between Fibrenova Laboratory Pty Ltd and Fibrenova Ltd ("the Head Licence"). We are instructed that our clients had not seen the Head Licence before 13 October 2003. Our client was therefore not aware until that time that Fibrenova Ltd's rights under the Head Licence are not sufficiently broad to allow it to pass on to FIA all of the rights which FIA requires and is intended to acquire."

[The letter went on to state the plaintiffs' concern that the true state of the intellectual property rights had been misrepresented to them, and that the plaintiffs had decided that they required the Head Licence to be terminated and replaced with a licence agreement between Fibre Laboratory and FIA.]

265 Clarke said in cross-examination that those instructing Clayton Utz were mistaken, because the issue as to ownership of the intellectual property was discussed in Knight's presence at both the 31 May and 7 June meetings, and it was made clear that Fibre Laboratory owned the intellectual property. Clarke agreed that as at the time of signing the MOU on 17 June, Knight had not been provided with a draft or actual licence agreement between Fibrenova and Fibre Laboratory. However, said Clarke, Knight was aware that the rights Fibrenova could give to use the intellectual property were limited to Australia and New Zealand, because that had been discussed on 31 May and "it was discussed in absolute detail in the second meeting". Allwood's evidence was to the same effect, namely that both Davidson and Knight said that they did not require a global licence, and that only Morton sought a global licence. Clarke said that it was explained to the meeting on 31 May that Fibrenova only had the territory of Australia and New Zealand for production, but that did not limit marketing and sales outside Australia and New Zealand.

266 I note that as to the time at which Knight received the licence agreement, Clarke initially said in cross-examination that in May 2003 he gave Davidson the original licence between Fibre Laboratory and Fibrenova. Counsel put to Clarke that it was not until October 2003, despite many requests made by Knight to Allwood, that the licence was produced. Clarke responded "That's not true. It was sent to Mr Knight earlier and I don't know why he didn't receive it". Counsel then referred Clarke to the facsimile from Allwood to Knight dated 13 October 2003 attaching the licence agreement, and suggested that this was the first time the licence agreement was given to Knight. Clarke said he did not believe it was the first time. He believed it was given to Knight "some time in July ... possibly by me ... I would have emailed it to him probably but I did not have the signed copy because that resides with Mr Allwood". Counsel then referred Clarke to the email sent from Allwood's office to Davidson (copied to Knight) on 25 June, attaching a draft licence between Fibrenova Laboratory and Fibrenova[35]. Clarke clarified that it was this email sent to Knight which he had in mind as being the earlier provision to Knight of the licence. Allwood was cross-examined about the email and attached draft licence. He said that he drafted the email, which was sent by his PA, who had since ceased employment with him. The attached document was not produced during the discovery process, indeed Allwood said in cross-examination that he only called for the attached document from his current PA "yesterday morning or the night before", and it was stored on the former PA's computer rather than his, and he ultimately conceded that he did not know that the draft licence agreement attached to the email in Exhibit 2 was in fact the same document sent to Davidson and Knight on 25 June 2003. Allwood nevertheless denied counsel's suggestion that the document in exhibit 2 was not the same document attached to the email of 25 June 2003. I note that Davidson said in re-examination that (on a date he could not recall) he received by email (from Clarke or Allwood) a licence agreement, which he believed was the licence agreement found in the Court Book. That is, it was not the draft licence produced by Allwood as Exhibit 2.

267 It is convenient to state at this point that I reject Allwood's evidence that the draft licence in Exhibit 2 was the document he sent to Knight and Davidson on 25 June. As noted above, Allwood's email refers to cl 8 in the context of addressing the issue of Fibre Laboratory going into liquidation. Evidently, Knight had raised that issue with Allwood as a concern. Clause 8 of the draft licence in Exhibit 2, however, is an arbitration clause and has nothing to do with the subject matter canvassed by Allwood's email. Allwood's evidence (that the document in Exhibit 2 was that which he sent to Knight) was assertive, and he conceded that he could not be sure that the document produced was the one he sent. Further, the evidence as to when the licence agreement was received, and whether the document produced by Allwood during cross-examination was the document attached to the email of 25 June, was not put to Davidson or Knight in cross-examination, and neither counsel for the defendants sought to recall Knight or Davidson to put that evidence to them. Regarding the matter overall, I accept Knight's evidence that he first saw the licence agreement on 13 October. I reject as false Clarke's evidence to the contrary.

268 It appears that at some time during October, Williames raised concerns about not being paid. There were also many ongoing discussions as to when a joint venture agreement was to be finalised and entered into. Clarke referred to many of the emails he sent in this period in his witness statement. I do not overlook them, but it is not necessary to set them out here.

269 I note that also in October, Selvarajah sought and obtained indicative approval from Westpac for an overdraft facility to provide further investment in the joint venture. As he said in evidence, at this stage he was considering advancing further funds to the project.

270 On 22 October Allwood met Davidson and Knight for lunch. Allwood said in his witness statement that at this time all parties were aware that Clayton Utz was working on a draft joint venture agreement, and Knight said that they could expect the deed in the next two days, and that they were still waiting for confirmation of a bank loan.

271 On 23 October Knight forwarded to Allwood a copy of a letter from Clayton Utz to Knight (dated that day) which stated that "we have real concerns about the current proposed structure of the FIA joint venture given the uncertainty surrounding the ownership of intellectual property rights ... and the circumstances surrounding previous attempts to commercialise those intellectual property rights". The letter proposed that in order to adequately protect the interests of the joint venture, the head licence be terminated and that all relevant intellectual property be assigned to FIA. The letter referred to further measures which should be taken to protect the joint venture. It is not necessary to set these out, although I note that the letter included advice that "the directors of Fibrenova should provide, and personally warrant the accuracy of, a schedule of trade creditors of Fibrenova".

272 Allwood said that his "concern on reading the letter was that little or no attention had been given by Clayton Utz to the agreement that had been entered into by the parties as evidenced by the MOU executed on 17 June 2003 and that the letter entirely concerned itself with the protection of Mr Selvarajah in a joint venture notwithstanding the terms of the agreement".

273 Allwood said in his witness statement that on 24 October he met Knight and Davidson, and Knight told him that he wanted to reduce the number of joint venture directors to five (in effect removing Clarke as a director) and he wanted all the existing intellectual property held by Fibre Laboratory to be assigned to the joint venture company. Allwood told Knight that he expected that Clarke could not agree to this, but he would get instructions as to a direct licence between Fibre Laboratory and FIA, and an agreement whereby all intellectual property developed in the future be jointly owned by Fibre Laboratory and FIA. Allwood said there was also discussion about repayment of creditors, as to which Knight said that the joint venture was prepared to pay Williames, Erdi and Kenyons, as to the latter of whom $40,000 would be paid as soon as possible and a further $80,000 in a time frame to be agreed between Allwood and Knight. There was also discussion about the level of retainers, and Knight said he wanted Fibrenova to cover the retainers to Clarke, Clarke Junior, and Dennis since the time of the MOU. I note that Allwood's account of the 24 October meeting was not put to Knight or Davidson.

274 Knight did, however, refer in his witness statement to a letter he received from Allwood on 27 October. Allwood's letter refers to the meeting on 24 October and states that, having discussed the matter with Clarke, "we are happy" with a board of five (excluding Clarke). As to the intellectual property, "we are not in a position to assign all IP to FIA. However, we are prepared to grant a licence from Fibre Laboratory Pty Ltd to FIA in respect of existing IP". Allwood stated that intellectual property developed subsequent to the joint venture should also vest in Fibre Laboratory, with licences to take into account developing intellectual property. They would be happy to discuss this further. As to creditors, "our clients cannot agree to your proposal". Allwood proposed that negotiations commence with Erdi with a view to securing his agreement to accept a payment of $50,000 plus interest "almost immediately and the remaining $50,000 to be paid at an agreed time, i.e. twelve to eighteen months down the track plus interest" and that it be agreed and documented that FIA is the party responsible for paying Erdi. Payment to Kenyons was to be $120,000 "in accordance with the agreed budget at the earliest opportunity". Allwood then dealt with other issues including the level of retainers, staff, shareholding and cross-fertilisation, as to which he generally expressed agreement with Knight's wishes. He concluded by saying "In consideration of the above, our clients would like the territory of the Agreement altered from that set out in the Memorandum of Understanding. Our clients would like the countries of China, South Korea, USA and Canada removed from the FIA territory. If this is agreed to, our clients are prepared to offer FIA the first right of refusal in relation to southern production of hemp to fulfil any orders or demands in the abovementioned countries, to facilitate those countries having year-round supply".

275 On 30 October Knight sent an email to Coelho, advising that:

I have subsequently discussed what I agreed to with Peter Selvarajah and he is also quite content with what I have organized."

Knight explained to Coelho that they had agreed that FIA have a board of five members, and "that the IP be licensed from Fibre Labs to FIA and that an agreement be struck whereby future developments in the IP would be conjointly owned. This is probably an inevitable partnership anyway due to the cross fertilisation agreement between FIA and any European entity established by Adrian Clarke Snr makes the development of any IP open to all parties. I believe, as I spoke to Hamish Dennis this morning, that Gary Allwood is drawing up the licence agreement today". As to the territory of the joint venture, Knight stated that it had been agreed that FIA would have unfettered rights in the operation, marketing and production of hemp in Australia, New Zealand, Asia, the USA and Canada. As to the payment of creditors, FIA would pay $40,000 to Kenyons and enter into an agreement to pay the further $80,000 within a timeframe agreed between Knight and Allwood. Knight also stated that he had requested from Kenyons a full list of creditors, and referred to Erdi who "is apparently owed $100,000 plus interest by Fibrenova" and who "has apparently threatened legal action", and "I will be requesting that he enter into an agreement with FIA".

276 Allwood said in his witness statement that on 30 October he received a copy of Knight's email to Coelho "which purports to set out the agreement that he has struck with me. Some aspects of the alleged agreement were not even discussed".

277 Meanwhile, Knight said in his witness statement that on 24 October Williames and Beaton (the general manager of Williames' business) advised Knight that Williames, not Fibrenova, was the owner of the intellectual property subsisting in the harvester[36] that had been used in the UK trial and which was intended to be used by the joint venture. Williames told Knight (and Davidson, who was also at the meeting) that much of Fibrenova's technology was already in the marketplace and could not be patented, and that any advances were in fact owned by Williames. Williames and Beaton also told Knight that Fibrenova owed significant sums of money to Williames. Beaton stated that Clarke also owed money to farmers in Tasmania that had grown hemp crops. On 30 October Knight met Allwood and Davidson for lunch, and Allwood told Knight that he would "work on Mr Clarke to answer all my [Knight's] outstanding issues". Knight said that "at or around this time" he spoke to Allwood about the intellectual property issue raised by Williames, and Allwood stated that Fibrenova would take the position that Williames had been paid for the tasks his business had performed for Fibrenova and therefore Fibrenova owned the intellectual property in the resulting technology developments.

278 Then, on 3 November, Williames sent an email to Knight advising, among other things, that Williames, not Fibrenova, was the owner of the D 7 and that he believed he could "file patent divisions that will protect key new technology that will be required to make the D 7 commercially viable". Knight said that it became clear to him "around this time" that Fibrenova and Williames were either in dispute or likely to be in dispute at some future time regarding ownership of the intellectual property that was fundamental to the proposed joint venture.

279 On 3 November Knight sent a letter to Allwood requesting a copy of assignments of intellectual property to Fibre Laboratory. In the letter he also requested a complete list of creditors, including the amounts and the conditions under which money had been lent. He said he would also like "a firm understanding that Fibre Labs will not be a trading company - therefore ensuring minimisation of the risk of the IP being encumbered or lost via any legal proceedings" and he sought "an assurance that Fibre Labs will not encumber the IP licensed to FIA in any way shape or form".

280 On 17 November ARE made a series of payments for the joint venture as follows, namely $1000 to Coelho, $32,100.33 to Queensland Cargo Service, $4000 to Dennis, $4500 to Queenscorp Pty Ltd, $4400 to Clarke, $3000 to Clarke Junior.

281 On 25 November Dennis attended a meeting with Knight, Davidson, Selvarajah, Armour and Coelho at ARE's offices, to discuss Dennis' proposed employment by FIA. Knight said in his witness statement that in preparation for this meeting he (Knight) had made enquiries as to the market price being paid for hemp fibre, and had discovered that the price being paid was "significantly less" than the amount in the projections provided by Clarke in June. Knight said that he raised Clarke's figures with Dennis who described them as "ridiculous". Knight then telephoned Clarke and Allwood, and outlined the price discrepancies, as to which Clarke was dismissive of Dennis' knowledge, saying that his expertise was limited to agronomy. Clarke than asked to speak to Dennis, and following a conversation between them, Dennis stated that as he was still employed by Fibrenova and Clarke, he could not speak any further regarding hemp prices. I note that none of this evidence of Knight was put to Clarke or Dennis. Knight said that at this meeting, Armour "expressed doubts to me that licensing agreements were possible such that industrial hemp could be grown in any significant quantity in New South Wales".

282 On 25 November Clayton Utz delivered to Allwood a draft shareholders' agreement and a proposed intellectual property licence. Copies of these documents were not tendered in evidence. After discussing these documents with Clarke, on 26 November Allwood sent an email to Knight stating that the documents presuppose that the existing licence agreement be terminated and that all intellectual property be assigned to FIA, and further do not distinguish between woven and non-woven uses, and that in Allwood's letter of 27 October and Knight's response to Coelho "we thought we had nutted out a deal which was acceptable to both sides. Certainly this agreement does not reflect what we thought was the deal which is pivotal to the proposed joint venture". Further, many of the clauses in the proposed shareholders agreement would require amendment. Allwood concluded by stating that the delays thus far experienced "have almost certainly resulted in an inability to achieve the objectives previously discussed for the current growing season".

283 On 27 November Clayton Utz wrote to Allwood, requiring that the documents be signed without further amendment by 1 December, otherwise the plaintiffs would not proceed any further with "this matter".

284 Clarke said that on 27 November he instructed Allwood that he was not prepared to sign the documents. Clarke said that at this stage, he regarded the joint venture as being over.

285 I note that Knight said in cross-examination that he "basically stopped trying to raise funds" for the joint venture in late October, as he was waiting for Fibrenova to sign the joint venture agreement put to it by Clayton Utz. Knight added that, at this point, Selvarajah "had decided to go it alone if everything was stacked up and had put in place bank loans to fund the project". As to the problems Knight had with the project at this stage, he said that "the intellectual property issue was a concern when you have one person claiming they own it and the person who actually built it saying they own it", also that the licence payments from Fibrenova to Fibre Laboratory were gargantuan and ever increasing, and further that the licences to grow in New South Wales were going to be difficult in the sense that "we weren't aware and weren't told" that applications had to be made 12 months in advance even to grow a ten hectare trial plot. I interpolate that as to the problem with the licences, later in cross-examination when asked if he explained that difficulty to Selvarajah, Knight said that the time lag in getting licences for 2003 was not an issue. As to counsel's suggestion that he and his investors "wanted to get hold of the intellectual property", Knight said "no more than secure their investment with it". As to why he persevered with the investment, Knight said that as at late November "I was hanging in there to see if it could all finally be sorted out because Mr Selvarajah had invested in a sum of money at my behest. Not because I wanted their intellectual property".

286 I note also that Knight said in his witness statement that Allwood did not provide him with information he had requested from Allwood, namely "full details of Fibrenova's intellectual property", "full details of the arrangement that Fibrenova had reached with the government of British Columbia and full details of the crops that were to be planted in Victoria and Tasmania". He said that Allwood either dismissed these requests or promised to provide the information in the future, but the details were never provided. Knight said he was not invited to inspect the hemp crop that was to be planted on Philip Island, and that (at a time not specified, although it appears in his witness statement to be after 25 November) he reached the view that Fibrenova did not have the locations or licences to grow hemp on a large scale. Further, Knight said that despite repeated requests he did not receive (a) a report from BioRegional on the outcome of the UK trial, (b) a sample of hemp fibre from the UK trial of sufficient size to allow it to be tested, (c) proof of any sales of hemp crop or material relating to contracts from Boag or Narellan Pools, (d) any prototype of any industrial or woven product made by Fibrenova from hemp fibre. Knight said in cross-examination that Allwood at times said to me "I will sort that out" or "leave it to me, I will fix it up" and that with some issues Allwood did respond to requests, but with other issues "I didn't get the full information and some of it was only broad-brushed rather than the detail I required".

287 According to Knight, in early December he spoke to Allwood on the telephone and Allwood said words to the effect that "the need for a joint venture between us had dissolved".

288 On 2 April 2004 Clayton Utz sent a letter to Allwood, stating that they act for Selvarajah, who on or around 22 July paid $197,500 to Kenyons' trust account via Coelho, and requesting that Allwood confirm whether his firm had issued a trust account receipt to Coelho, the use to which the funds were put, and the instructions upon which Allwood acted in distributing the funds. Allwood said in his witness statement, and he was not challenged as to this evidence, that on 9 April he responded to Clayton Utz, advising them of "the persons to whom money had been dispersed [sic] and that the dispersal [sic] had only occurred after an agreement with Mr Chris Davidson and myself according to the requirements of Mr Knight". On 14 April, Clayton Utz sent a letter (apparently to both Allwood and Clarke) alleging that at the meetings on 7 and 17 June, both men had made a series of representations. Both Allwood and Clarke set out the alleged representations in their witness statements and said "I deny ever making any of the representations". Ultimately, on 27 October 2004 Fibrenova, Clarke and Allwood were served with the writ.

Responsibility for obtaining land to cultivate hemp

289 With this overview of the evidence, it is convenient to say something about who undertook responsibility for obtaining land to grow hemp, as there was some dispute about this issue in the evidence. Clarke and Allwood said in their evidence that Clarke had initially been responsible for growing the crop in the upcoming 2003/2004 season, but that this role was "taken away" from Clarke at the 17 June meeting and given to Davidson. Counsel put to Allwood in cross-examination that this was not correct, as the MOU itself recorded that the responsibility for planting crops was that of the directors of the joint venture company, and Clarke could continue to contribute to the issue of planting crops as a director. Allwood agreed that Clarke could contribute as a director, and added that:

"Davidson said that he had these mates in New South Wales and that he wanted to grow there. Mr Clarke said that he wasn't happy with that, he wanted to have - he wanted to control this issue. And there was some dispute about it in the meeting of the 17th, but Mr Clarke agreed to give that control up, and that was quite a substantial thing for Mr Clarke to do in my opinion."

290 Clarke made enquiries of Hudson at the New South Wales Department of Health, and asked Davidson to contact Hudson to follow the matter up. According to Clarke, Davidson "told me he was working on it, he told me constantly he was dealing with it". In cross-examination, Clarke admitted that he did not make sure that licences to grow hemp were obtained, as it was Davidson's job to do, as that is what he had agreed. As to whether an R & D licence would have been appropriate given that the joint venture was for the commercialisation of hemp, Clarke said that Davidson regarded the large proposed crops in New South Wales as research and development. Clarke continued "I did not agree. I wanted to grow it in Tasmania and Victoria and all I had to do to get the land early enough was to ring my Tasmanian contacts or my Victorian contacts and I could do so. I could even if the seed arrived in September". As to why he did not do so, Clarke said that they had farmers but "my team and I were constantly redoing, keeping - we had to re-plan virtually every two or three days because a payment was not made". Clarke agreed that he told Knight that his (Clarke's) team could "get on with all these things" (referred to in the email to Allwood on 7 June, that is the development of the machine, and the planting of the hemp) provided that they (Clarke and his people) received funding on time. Clarke said that as at 7 June:

"I had responsibility for all the licensing and all the farm work. During the negotiations on the 17th that was taken away from me and given to - where the crops were grown, and I had very definite places where I wished to grow them, very definite farms and so on, by the draft that was signed on the 17th the choice of crop and location was taken from me and made the responsibility of the directors of the new company. The intention being that the new company would be formed very quickly and they could make those decisions, but it was the responsibility of Mr Davidson to take over the growing of the crops where he wanted them. He wanted them in New South Wales, but he did not accept that I needed, for the commissioning of the harvesting machine, to have a crop in Victoria that would start to be harvested earlier, because if the crop was only three or four foot tall, instead of the seven, eight or ten feet that it can grow, it would still be sufficient for Mr Williames to commission his machine and get it ready for a large task, and we needed a crop near his factory to do that, and we had one with Ruth Partridge, near Phillip Island that was going to do that work, was going to provide that crop. After that it was out of my hands, it was taken out of my hands by ARE, Chris Davidson, who wanted to grow it in New South Wales. But I kept my contacts just in case, but why Mr Davidson didn't follow through and do the things that he intended to do is - I don't know. All I know is that I reminded him and reminded him and introduced him to the people who were concerned so that he could do it."

Later in cross-examination, counsel put to Clarke that despite the fact that Davidson was going to plant a crop in New South Wales, he (Clarke) was still required to plant 200 hectares in Victoria. He responded "No, it was now a decision of the board of directors and I was told by Knight and Davidson that they would be looking after the planting of the major crop. I had to look after the planting of the crop for the engineer to commission his machine" (emphasis added). As to the size of this crop, I note that Clarke said in cross-examination that the land in Phillip Island which he mentioned in an email was only 17 acres. I infer that that is the crop referred to above.

291 Davidson agreed in cross-examination that he undertook the task of liaising with the New South Wales government, but he emphasised that by this he meant the obtaining of permits to grow crop, rather than achieving legislative change[37]. Davidson said that at some time between the first and second meeting he asked Dr Blackwell, a senior research scientist at the CSIRO, if he could assist in obtaining hemp licences, as to which Dr Blackwell agreed to help, in circumstances where Dr Blackwell was working on the Pratt Water project at that time and the CSIRO in Griffith had already planted a trial crop of hemp in the area. Later in cross-examination, Davidson said that Dr Blackwell indicated that the procedure for obtaining a licence was reasonably easy and, said Davidson, "we didn't envisage any problems in getting a licence in New South Wales at that stage". Davidson emphasised in cross-examination that the task he undertook concerned obtaining a licence, not the procuring of legislative change, although "that [the need for legislative change] would be correct if you were going to grow commercial quantities of hemp in New South Wales", by which he meant anything over and above 20 hectares. He then explained that the idea was to grow a trial crop in New South Wales in 2003/2004 and the results of those trial crops would then be used as a basis for arguing that there needed to be some change in the "government protocol" (by which he meant administrative rather than legislative change) to enable a crop of 1000 hectares to be planted in 2004/2005. In short, it would be necessary to grow a small demonstration plot first, to prove up the technology ... the difficult part was how you process, how you would harvest this crop in a commercial and timely fashion, and in order to be able to do that, it would be necessary to demonstrate that a machine had been designed and developed to actually harvest this crop in a much faster and more sustainable way than the traditional method". Davidson agreed that the planting of 1000 hectares in 2004/2005 was dependent on the planting of 200 hectares in 2003/2004. He denied counsel's suggestion that he knew this "at the time of these meetings". He said "it became evident during my discussions with Dr Blackwell in Griffith that we would, and it was at my suggestion, that we would grow a small demonstration plot first, providing that was successful, then we would apply for a much larger area to be grown". As to whether he communicated the results of these discussions with Dr Blackwell to the other members of the joint venture, he said that he spoke to Clarke, Knight and Dennis "about the way in which we would need to go forward in approaching this particular task". He said that Knight's response was that it was logical. Later in cross-examination, counsel referred Davidson to a project diary[38] which referred to the task of "secure cropping land", as to which Clarke was to secure 20 hectares in Warragul and Davidson was to secure 200 hectares in Riverina, New South Wales. Davidson said "I had taken it upon myself to secure some land at Darlington Point in New South Wales for the purpose of growing the first pilot plot", and further agreed that he undertook to secure cropping land for the joint venture as stated in the project diary.

292 It is important to note that it was not put to Davidson in cross-examination that he had failed to discharge his responsibility to organise the planting of hemp, or perhaps more importantly, that he had effectively prevented Clarke from organising the planting of hemp in Victoria and Tasmania. Nor did counsel for the defendants seek to recall Davidson to put Clarke's contentions to him. Further, Clarke gave contradictory evidence in cross-examination, initially saying that Davidson did not accept that a crop planted in Victoria was needed for the commissioning of the harvesting machine and that Davidson took over the planting of crop, but then later freely admitting that Davidson was responsible for "the major crop" and that he (Clarke) still had to look after the crop in Victoria for the commissioning of the machine. In these circumstances, I do not accept Clarke's evidence that Davidson took responsibility for securing all the land and relevant licences required to grow the hemp crop. While Davidson may have taken it upon himself to find land to grow 200 hectares of hemp in New South Wales, that did not prevent Clarke from making concurrent arrangements for the planting of crop in such locations as he saw fit. As he said, he kept his contacts. The evidence establishes that both Clarke and Davidson were responsible for making arrangements for the planting of hemp for the 2003/2004 season.

293 It is now convenient to turn to the respective submissions of counsel.

294 Counsel for Allwood and Clarke addressed first. He submitted that the plaintiffs had failed to establish that the pleaded representations were made. He referred at length to the circumstances prevailing at the time the alleged representations were made in order to develop his submission that, in such circumstances, it was unlikely that the defendants made the representations alleged. Counsel began by referring to the facts at a general level, then later addressed the specific representations pleaded. It is convenient to begin with his submission as to the facts at a general level.

295 First, submitted counsel, it was Davidson, Morton and Knight (rather than Clarke and the Fibrenova side) who were the people making the proposal at the first meeting. That is, the defendants were not "selling" their concept. Knight had already been informed by Davidson about the project and its potential benefits before the 31 May meeting. Morton, Davidson and Knight "were working as a team" before the 31 May meeting, and attended the meeting with the intention of having Clarke sign a memorandum of understanding upon which they had already agreed. Davidson told Knight prior to the meeting that he was interested in taking a personal position in the project and "it would be on the basis that it would require a team to be put together and I'd be happy to work within that team". Further, Davidson discussed with Morton what would be required to put together a project team. Knight had already named a figure of $2.5M available from his investors prior to the meeting, which figure appeared in the memorandum of understanding brought to the first meeting by Morton, and was in effect "an opening offer in these negotiations". From this, it should be inferred that Knight "had been informed or considered what was needed for the project and was ready to match the expectations of Fibrenova", and the fact that Knight had already stated that he had money available to invest in the project was a factor that may have led the defendants to conclude that there was no great need to induce Knight to invest. In making this submission, counsel expressly stated that he did not go so far as to submit that Knight had committed to the project before he attended the 31 May meeting, however he relied on Knight's evidence that he "had made up his mind that the hemp project was worth investing in at initial stage". Noting that before the 31 May meeting Davidson and Morton had been to visit Boag to see for themselves whether there was a market for hemp fibre, and that Davidson had explained the project to Knight, counsel submitted that Davidson's invitation to Knight to attend the 31 May meeting was "more than just a bare invitation to come along and have a look at things without any prior information or knowledge". I note that counsel conceded that Fibrenova needed money to pay its debts, but he also pointed out that the defendants did not mislead the plaintiffs about the financial state of Fibrenova. As bearing on the likelihood that Clarke did not sell the technology to the meeting, counsel referred to Davidson's evidence that Clarke gave only "a short rendition" of the opportunity available to develop a business in the growing and manufacturing of industrial hemp product. He submitted that given that Clarke could be observed when giving evidence to be "not a man of few words", the fact that Clarke gave only a short rendition was consistent with Clarke's evidence that "an embargo was placed upon him doing too much talking at the first meeting by Mr Davidson and Mr Morton". Counsel did however frankly acknowledge Clarke's evidence that he told the first meeting that the development was at a stage where it could be turned into a commercial machine. Further, counsel conceded that Clarke spoke about the project at the 31 May meeting, as to which he referred to Clarke's evidence that he told the meeting that 200 hectares of hemp could be planted with their help, and that he told Knight that they had farmers lined up to grow hemp and that all they needed to do was get on with it and they needed the funding to do so. Counsel submitted, however, that it should be inferred from the evidence that "Clarke was explaining and responding to questions rather than making a presentation or, for that matter, necessarily making positive representations that are pleaded".

296 Secondly, counsel submitted that the evidence of the plaintiffs' witnesses as to the defendants' representations was vague. For example, Knight described in evidence Clarke's role in the second meeting "just in general talking about the project, and its possibilities". Counsel emphasised the word "possibilities", in the context of his submission that the proposed joint venture was a venture capital project which of its very nature is a matter of high risk, and as to which there were many contingencies, including the provision of funding by the plaintiffs. Knight's description in cross-examination of the topics discussed in the second meeting was essentially the same as the topics he alleged were discussed in the first meeting. Knight was also mistaken in his evidence that Dennis and Clarke Junior were at the second and third meetings and, submitted counsel, "there is a very real likelihood that Mr Knight has confused all the meetings and transposed inadvertently matters which were dealt with and things which were said at the first meeting to the second and third meetings and the purposes and the circumstances of the second and third meetings were such that it was no longer necessary for matters which had been canvassed at the first meeting to be canvassed again, except for perhaps in the most general terms". As to this, Knight described what was said on 17 June in the most general terms, in terms of possibilities being alluded to.

297 The confusion of dates was particularly relevant to the case against Allwood, for example if Clarke made representations at the first meeting. As Allwood was absent, if those representations were not repeated at subsequent meetings, it could not be said that Allwood was a party to those representations.

298 Counsel submitted that Armour's evidence did not support the plaintiffs' case in relation to the representations. It was not adequate. It covered topics of conversation but not the substance of the representations allegedly made by the defendants.

299 Counsel submitted that Davidson's account of the second meeting should be accepted, namely that Clarke did not say very much, that it was made clear that any potential licensee of the intellectual property was limited to Australia and New Zealand, and that Clarke did not say that research and development was completed. As to the role of Allwood, it should be inferred that he only spoke about areas within his brief as a solicitor, that is dealing with the memorandum of understanding, the matter of directors, and the amount of money to be invested. This was consistent with Davidson's evidence that Clarke would have spoken about the planting of 200 hectares of hemp, but that Allwood would not have done so.

300 Further, counsel relied on Clarke's evidence that no presentation as to what Fibrenova could offer was required on 7 June because presentations had already been made by Davidson and Morton to Knight, and all that was to be discussed was the memorandum of understanding and how to move the project forward if enough common ground could be found.

301 Thirdly, as to the position of the intellectual property, counsel submitted that at the time of the 17 June meeting "the interest was in this as a start-up project and the hope was that once the project had been started up and got going, that Pratt's group would come in and take it up", thus it was understandable that the defendants were not prepared to relinquish ownership of the intellectual property, given that it was envisaged by at least some of the parties "to have the joint venture sold off to other parties". And although it may have been commercially unsatisfactory that investors not receive any assignment of the intellectual property, it was not pleaded that the defendants represented that the intellectual property would be assigned. On the contrary, it was made clear to Knight from the beginning that Clarke was not prepared to assign the intellectual property, and that a licence to use the property was all that the joint venture would receive.

302 Fourthly, as to reliance, counsel submitted that between the first and second meetings, Knight had one of his employees do research into the hemp industry. Further, Knight and Armour went to Singapore in late June where they met with people to discuss the industrial uses of hemp. In short, Knight exercised his own judgment in relation to the project. At the time he signed the MOU, he still had difficulties with the amount of the licence fee payable to Fibre Laboratory, and queried why creditors had to be paid immediately and why they could not be paid once profits started flowing into the project. Nevertheless, ARE and Selvarajah invested at a time when Knight was aware that issues needed to be resolved concerning the intellectual property. They invested with their eyes wide open. In contrast, it can be inferred that Foo decided not to invest because he received legal advice that the intellectual property arrangements were not appropriate. In short, Knight and Selvarajah were not induced by any misrepresentations as to what would be done with the intellectual property.

303 Fifthly, counsel submitted that even assuming that the defendants made the pleaded representations to Knight, Knight's evidence as to what he passed on to Selvarajah was too general to support a finding that the representations were made to Selvarajah. In short, Knight was not a conduit for representations made, at least not in the terms pleaded. Counsel submitted that Selvarajah was prepared to invest before he received the profitability projections (which might have been because the projections were not that relevant to Selvarajah's investment as he was being brought in for a discrete early period of the project for a limited amount of money, and his exposure would later be reduced further), on the basis of Knight's invitation to provide emergency funding in a deal which Knight said would be profitable, but as to which Selvarajah's involvement would be limited. Counsel submitted that, on the one hand, as Selvarajah had apparently committed to provide funds on 14 July (as Knight stated in an email on that day), which was before the meeting at which Knight said he conveyed to Selvarajah the defendants' representations as to the joint venture and its profitability, it could not be said that Selvarajah was induced to provide funds by those representations. On the other hand, counsel submitted that any doubts in Selvarajah's mind (and there was no evidence he had any) were resolved by Davidson's comforting email to the effect that the intellectual property was safe, in addition to Knight's evidence that he (Knight) told Selvarajah that Allwood was confident that the issues relating to intellectual property and the list of creditors could be resolved, and that "we were assured" that all the issues would be resolved.

304 As to the specific representations pleaded, counsel submitted the following.

305 As to (a), that Fibrenova was a world leader in the commercial production and harvesting of low-grade THC hemp, counsel referred to Davidson's evidence that Clarke had said they produced a superior fibre to that on the market, but submitted that that was not the same as saying that Fibrenova was a world leader in commercial production and harvesting of hemp, and in any case it was made clear from the beginning that the project for which funds were being sought was the commercialisation itself.

306 As to (b), that Fibrenova had designed and developed a completely novel method of harvesting industrial hemp that was faster and more efficient than the methods utilised by other operators, counsel submitted that the "method of harvesting and decorticating the hemp" was not completed, as several further steps were required, and it was precisely that task which the English trip was a first step towards.

307 As to (c), the pleaded representation is that Fibrenova had rights in the Agreed Intellectual Property necessary to enable the joint venture to be successfully implemented, and was entitled to license the use of the Agreed Intellectual Property in the Pacific region (including India, Asia, China, Oceania, Canada and the USA) to the joint venture company, and would grant to the joint venture company a licence to use the Agreed Intellectual Property (including, without limitation, to manufacture, market and distribute non-woven hemp products) in the Pacific region. Counsel submitted that the critical provision was cl XVI of the MOU, which made it clear that the relevant intellectual property was owned by Fibre Laboratory. Counsel submitted that this statement was correct, but that in any event the issue raised by Williames' evidence as to ownership of the D 7 was not pleaded by the plaintiffs. Any earlier confusion as to who owned the intellectual property was overcome by cl XVI. And as to cl IV, it had not been shown that there was any impediment to Clarke causing Fibre Laboratory to provide a licence directly to FIA, or to Fibrenova as contemplated by the MOU. Counsel conceded that cl IV was not carried into effect, in that no licence was issued to FIA. He said that was not done because the joint venture company had to be incorporated and a joint venture deed drawn up, and there had been some dispute as to who was to do that, with the result that FIA was only incorporated on 8 October. Counsel submitted that Allwood was prepared to attend to the amendment of the licence, as evidenced by his email to Knight and Davidson on 25 June, but even if the draft licence attached to the email was not the document marked exhibit 2, it showed that Allwood was participating in the process of drawing a new licence, rather than holding back on making good on obligations under the MOU. Even if the defendants did fail to make good on cl IV, the plaintiffs arguably waived reliance on any default by their conduct, namely making payments to the joint venture in September, October and November, and also continuing to discuss the issue of the intellectual property and how it should be dealt with. Further, even if the defendants had complied with cl IV, that would not have satisfied the plaintiffs because, despite the existence of cl IV, the whole intellectual property issue was a matter of ongoing negotiation and dispute, and ultimately the plaintiffs sought an assignment of the intellectual property. Counsel submitted further that it was premature for FIA to have a licence as contemplated by cl IV, as the project was at a very early stage, was a long way from the 1000 hectare crops required for a viable non-woven business, and it was only after several contingencies came to pass that a licence to manufacture, market and distribute non-woven hemp would become relevant. In short, the issue of the licence may not have been something very much on the minds of Clarke and Allwood.

308 As to (d), that the necessary government approval and/or authorisation for the cultivation and harvesting of low-grade THC hemp in New South Wales, Victoria and Tasmania had been obtained by Fibrenova or, alternatively, could be obtained by Fibrenova and/or the yet to be incorporated Australian company that was to conduct the joint venture quickly enough to enable the planting and commercial harvesting of 200 hectares of low-grade THC hemp during 2003/2004, counsel relied on the evidence of King to submit that Clarke would have been in a position to obtain necessary licences in Victoria within quite a short period, perhaps as short as a month. Further, Clarke had farmers available to grow hemp in sufficient quantities for the joint venture.

309 As to (e), that the joint venture would be profitable, counsel submitted that it was clearly understood by all the parties that the profit projections were contingent upon a number of intermediate steps being carried out successfully.

310 As to (f), that the joint venture could reasonably expect to plant 200 hectares of hemp for the 2003/2004 season and 1000 hectares of hemp for the 2004/2005 season, yielding 3 tonnes of fibre per hectare, counsel reiterated that all parties understood that the planting of 200 hectares depended on a successful UK trial, the provision of funds for the completion of the harvester, the purchase of seed, and the obtaining of land and licences to grow hemp. The development of the harvester necessarily had to be assured before the planting of the crop, but ultimately the coordination of events was not possible because of a lack of funds. Although cl XIII of the MOU could be interpreted as a representation as to future conduct (namely that 200 hectares will be planted in 2003/4), the defendants were frustrated in achieving that because of lack of funding and development on the machine.

311 As to (g), that the joint venture could expect to sell 3000 tonnes of the fibre extracted from the hemp crop at the price of $3000 per tonne, and 6000 tonnes of the hurd extracted from the hemp crop at the price of $50 per tonne, counsel submitted that Clarke referred to the Boag letter at the first meeting, and that the letter spoke for itself. Its contents do not correspond with the alleged representation. In any event, if the representation was made, it was reasonable on the basis of the Boag letter.

312 As to (h), that Fibrenova had made arrangements with the Government of British Columbia for the production and harvesting of hemp on a large scale such that the joint venture would be able to exploit this commercial opportunity, counsel submitted that not much had been made of it, and that Davidson did not recall it.

313 Counsel addressed the pleaded representations as follows. I do not overlook his other submissions on the evidence and witnesses, but in the circumstances I consider it appropriate to move directly to his submissions on the representations.

314 As to (a), that Fibrenova was a world leader in the commercial production and harvesting of low-grade THC hemp, counsel submitted that Fibrenova has never commercially produced and harvested hemp, nor was there any evidence that the defendants made representations that they had previously been involved in the commercial production and harvesting of hemp. Rather, the purpose of the joint venture was to build a harvester on which a decorticator would be mounted, and then trial that machine in the UK so that ultimately it could be used to commercially harvest hemp. In this regard, the pleaded representation makes no distinction between the harvesting (a relatively easy task) and the decorticating of hemp. It is implicit from the purpose of the joint venture that Fibrenova had not previously been involved in the commercial production and harvesting of hemp. Davidson's evidence was that commercialisation of the project was subject to the building of the machine. Davidson said that, during the first meeting or at some other time, Clarke had mentioned that they were leading the technology in the decortication and de-gumming of hemp, but not the harvesting. Knight's evidence was that Clarke told him that "Fibrenova was the most advanced company in the hemp industry worldwide and that it had new technology that was not available to others in the industry". This was the highest the evidence could be put, and was not the same as the "world leader" representation pleaded by the plaintiffs.

315 As to (b), that Fibrenova had designed and developed a completely novel method of harvesting industrial hemp that was faster and more efficient than the methods utilised by other operators, counsel conceded that representations were made on behalf of Fibrenova to the effect that the company had developed its own unique technology which could be used to decorticate hemp. However, the evidence of Davidson demonstrated that Clarke gave an honest account at the meetings of the stage of development of the decorticating machine. Davidson himself believed that the decorticating machine was 80 to 90 percent finished and still needed to be tested to see if it could be commercialised. Davidson also said that Clarke did not tell the meeting that the research and development had been completed, but rather that he was in the process of getting it right, and for that reason he (Clarke) was adamant that the machine should be taken to the UK for further tests. Knight was aware of the state of development of the machine, as Davidson said in evidence that he had told Knight before the 31 May meeting that they were looking for funding for the development of a harvesting machine, and it was clear to Knight that the machine had not yet been made. In those circumstances it would make no sense for the defendants to make representations about the abilities of a machine that had not yet been built or even trialled. In any event, Knight's evidence was that Clarke and Allwood stated that they had developed a machine capable of harvesting and processing hemp fibre and that the technology associated with this harvester was "state of the art", and that the harvesting and decorticating techniques developed by Fibrenova were "space age" in comparison to existing techniques used in most countries. These representations as alleged in Knight's evidence were different from the ones pleaded. Knight's evidence made no reference to speed or efficiency. Further, the evidence lacked specificity in that he was not able to identify which of Allwood or Clarke made the representation. Knight said that both Clarke and Allwood said the same thing, but that, submitted counsel, was very unlikely in the circumstances. Finally, even if the representation was made, the plaintiffs did not lead any evidence that the representation was false when made.

316 As to (c), counsel accepted that the representations as to intellectual property were made on behalf of the first defendant, to the effect that it had, and was entitled to license to the joint venture company, the relevant intellectual property rights. He submitted that this representation was true in that Fibrenova did in fact have rights in the relevant intellectual property pursuant to the licence agreement between it and Fibre Laboratory (as to which cl XVI of the MOU stated the parties' acknowledgement that the relevant intellectual property rights were owned by Fibre Laboratory) and was entitled to license those rights to the joint venture company. In this regard, counsel submitted that the plaintiffs had not pleaded that Williames owned the intellectual property rights, thus the defendants should not have to respond to this, but in any event the plaintiffs had not proven that Williames owned the intellectual property rights. He does not hold the patent for the D 7. Leaving that issue aside, although there was at the time of the representation a restriction on Fibrenova's ability to grant a sub-licence for use of the intellectual property outside Australia and New Zealand, that matter was no secret to the parties. Davidson's evidence in chief was that Clarke raised that matter at the meeting. Further, submitted counsel, it was always within Clarke's power as managing director of Fibre Laboratory to amend the head licence agreement so as to enable Fibrenova to grant a sub-licence to the joint venture company for the territory referred to in the MOU. Counsel submitted that this amendment was in fact done (in draft form) on 25 June (see exhibit 2). Counsel submitted that Fibrenova was at all times willing and able to grant the licence to the joint venture company, but the issuing of the licence was delayed by the plaintiffs' conduct. For example, the joint venture company first needed to be incorporated, a task which Allwood undertook to do after the second meeting, but which was later taken over by Knight and ultimately not done until 8 October. Also, the plaintiffs were in breach of the MOU by not paying moneys referred to in it. And the Clayton Utz letter of 17 October said that Clayton Utz had instructions to draft the licence and sub-licence. Further, the plaintiffs had never previously demanded that the licence be given to them.

317 As to (d), counsel said that the defendants deny making a representation in these specific terms. He submitted that there was no evidence that the defendants represented that government approvals would be obtained in time to enable the planting and commercial harvesting of 200 hectares of hemp in 2003/4. Rather, after 17 June Davidson undertook the responsibility of obtaining approvals and finding the land, as his evidence was that he planned to grow 200 hectares in New South Wales to begin with, and then 1000 hectares the next year, as to which he told Knight, who agreed that it was logical. In these circumstances, the plaintiffs' counsel's cross-examination of Clarke as to why he had not taken steps to plant the crop in Victoria was not to the point. In any event, Clarke Junior and Dennis held valid licences to commercially harvest hemp in Victoria. And Clarke's evidence was that he had farmers in both Victoria and Tasmania who could have grown hemp had Davidson not insisted on growing the crops in New South Wales.

318 As to (e), that the joint venture would be profitable, counsel submitted that any statements made as to future profits in the projection model were made on a reasonable basis given Boag's advice as to demand and prices. Davidson visited Boag and was impressed by him. Boag orally advised Davidson of the figure of the selling price of hemp, and Davidson asked Clarke to obtain a letter from Boag indicating his willingness to purchase hemp fibre and at what price. The plaintiffs led no evidence that the projection model was false or misleading. The joint venture was never given a chance to be profitable as it did not receive the funds promised by the plaintiffs.

319 As to (f), that the joint venture could reasonably expect to plant 200 hectares of hemp for the 2003/2004 season and 1000 hectares of hemp for the 2004/2005 season, yielding 3 tonnes of fibre per hectare, counsel submitted that this was a future matter and reiterated the arguments as to (d) above.

320 As to (g), that the joint venture could expect to sell 3000 tonnes of the fibre extracted from the hemp crop at the price of $3000 per tonne and 6000 tonnes of the hurd extracted from the hemp crop at the price of $50 per tonne, counsel submitted that the defendants did not make these representations but in any event the plaintiffs had not established that these figures were false or misleading, and again the joint venture was never given a chance to be profitable as it did not receive the funds promised by the plaintiffs. And given the figures provided by Boag, there were reasonable grounds for making the representations.

321 As to (h), that Fibrenova had made arrangements with the Government of British Columbia for the production and harvesting of hemp on a large scale such that the joint venture would be able to exploit this commercial opportunity, counsel submitted that the defendants denied making this representation and further stated that there was never any reference to British Columbia.

322 As to the question of reliance, counsel submitted that there was no direct evidence from Knight that he relied on the representations. At the time of the alleged representations, Knight was holding himself out as a conduit or agent for an investor. Morton's evidence was that Knight signed a memorandum of understanding (between Knight, Morton and Davidson) before the first meeting with Clarke, which provided for ARE to take an equity in the joint venture company in addition to an ongoing retainer of $15,000 per month. Knight did not have to pay for shareholdings and this would have presented as an attractive deal for ARE. Thus, when Knight signed the MOU (counsel did not specify which MOU he meant, although I infer that he meant the one on 31 May rather than the one on 17 June) his primary purpose must have been the financial reward to his company. He made this commitment to Fibrenova to provide funds based upon information that was obtained not only from Clarke but also from Davidson prior to any of the alleged representations being made. ARE undertook its own enquiries and due diligence to satisfy itself of the merits of being involved in the harvesting of hemp, which enquiries included research by an ARE employee, and Knight and Armour travelling to Singapore to explore possible markets for non-woven hemp fibre. Further, it was clear from the evidence that Knight was influenced by Davidson (who had met with and made a presentation to Knight about the project prior to the meetings with Clarke) who had undertaken his own research.

323 As to Selvarajah, counsel submitted that there was no direct evidence that he relied on any of the alleged representations in handing over the money. Selvarajah knew little about the production and harvesting of hemp, and his evidence as to what Knight relayed to him about Fibrenova lacked specificity and differed from what was alleged in the statement of claim. Rather, Knight's evidence was that Selvarajah chose to invest in Fibrenova at his behest. Selvarajah trusted Knight, who he considered an astute business man who knew how to find a good deal. It is likely that the reason that Selvarajah invested was simply Knight's representation that everyone stood to make good money, and an inducement by Knight that if he invested the seed money then his investment would be reduced once Chinese investors were brought in. Selvarajah did not see profit projections of the joint venture until after he had invested his $250,000, and he also said that he was not aware of the intellectual property issues until much later on. In these circumstances, counsel submitted that Selvarajah did not rely on any of the alleged representations.

324 As stated above, counsel conducted the case on the basis that the MOU was not enforceable, as it had conditions precedent which were not satisfied (particularly the directors' failure to agree on a budget). However, the MOU was executed based on representations made by or on behalf of each of the defendants. It was on the basis of the representations and because the MOU was signed that Knight arranged for ARE and Selvarajah to provide funding totalling $328,365.75, being the amount sued for by the plaintiffs.

325 Counsel began by submitting that the defendants' approach to the case was misconceived in that they pleaded a bare denial of the representations, in circumstances where the defendants always had a positive element to their defence, namely that the representations, if made, were either true at the time they were made or, if they related to future matters, there were reasonable grounds for making them. The consequence of this approach was that the defendants did not focus on the real issues, and deliberately evaded addressing the fact, established by the evidence, that all the matters the subject of the pleaded representations were the subject of comment, discussion, and representation by each of Clarke and Allwood and therefore the company. The defendants' witness statements effectively stated that nothing was said by either Clarke or Allwood relating to any of the matters the subject of the representations. And Clarke reiterated in cross-examination that he made no statements at all at the 31 May meeting about Fibrenova's technology or its capabilities. Further, Clarke said that Knight told him that he (Knight) did not want to hear anything more from Clarke, and that he (Clarke) was also told that everything had been explained to Knight prior to his arrival at the meeting.

326 In contrast, Knight, Armour, Morton and Davidson gave evidence that both Clarke and Allwood made a number of statements at the meetings regarding Fibrenova, its technology, the ownership of the intellectual property, and what would be achieved by a joint venture using that technology in a relatively short timeframe. And Dennis said in cross-examination that the 31 May meeting included discussions regarding Fibrenova's technology in its decorticating machine, Fibrenova's ability to harvest hemp, the use to which harvested and processed hemp could be put, the planting of 200 hectares of hemp in Australia in 2003/2004, the legislative restrictions on planting hemp in New South Wales, the Boag business, and the amounts for which hemp could be sold. Clarke's evidence that he was silenced at the 31 May meeting should not be accepted. It was not included in his witness statement, nor the witness statements of Clarke Junior and Dennis, and only emerged during cross-examination of Clarke. Moreover, it was not put to Knight, Davidson or Morton. Further, Clarke Junior said in cross-examination that he did not agree that Clarke had been told not to speak at the meeting. Further, submitted counsel, in circumstances where Fibrenova desperately needed an investor, Clarke and Allwood would have been unlikely to take the restrained position (allegedly directed by Morton and Davidson) of saying nothing about what the company had achieved, what its plans were in the future, and what benefits it could provide to a joint venture. It was highly improbable that Clarke would not tell a meeting of prospective investors about what was evidently his passion (that is, the growing of hemp). He had a record of publicly declaring the expertise of Fibrenova and its technology (including in his R & D Development grant application in December 2000). The effect of Clarke's evidence was that he left it entirely to Davidson and Morton to explain Fibrenova's technology and its uses to Knight, which was particularly unlikely in circumstances where, on Clarke's evidence, he had only met Davidson in person for the first time on 31 May, and that he (Clarke) did not trust Morton, with whom he had some history. Further, Davidson described the purpose of the 31 May meeting as an opportunity for Knight to "see for himself, meet the people that were the proponents of the project and gauge his own summations of what the project was like", which purpose would have been defeated if Clarke had been silenced. In short, that no element of selling their concept was part of any of the discussions between the parties "just beggars belief".

327 Counsel submitted that it was not the plaintiffs' case that the entirety of the project was explained and developed at the 31 May meeting. Rather, it was an introductory meeting in which Clarke gave a broad outline of where he was going, what he was doing, what he required from investors, the stage of development the machine was at, and, on the strength of that, the negotiations about the MOU took place over the following week. The primary sales position was undertaken on 7 June. Clarke's evidence as to this meeting was that no discussion occurred regarding Fibrenova's technology or its capacities to grow hemp or produce fibre. However, and contrary to his witness statement, Allwood conceded in cross-examination that the matters the subject of the pleaded representations were discussed. While Allwood attempted to distance himself from the making of any representations - indeed counsel submitted that he tailored his evidence to minimise his role at the meeting on 7 June - he accepted in cross-examination that there was discussion at the 7 June meeting about the stage and purpose of the technology, the opportunities including the potential use of hemp fibre by Boag, that figures were presented at the meeting as to the projections for the joint venture, that discussion occurred as to what price the fibre could be sold for, and that Clarke explained how the fibre was produced. Armour's evidence that Allwood made a presentation at this meeting should be accepted, as she was a credible witness who was not challenged in cross-examination, but even if Allwood did not make a presentation, the result would be the same, as Allwood remained silent while Clarke made representations.

328 Counsel also pointed to Clarke's evidence in cross-examination that he told the 7 June meeting that research and development on the D 7 had been done. Counsel submitted that the Court should accept Clarke's concession, and reject the defendants' reliance on Davidson's evidence to the effect that Clarke did not tell the meeting that research and development had been done. Counsel submitted that when Davidson spoke of his understanding that they were 80 to 90 percent finished on the D 7 machine they were to take to England, he was referring to construction rather than research and development. In effect, the Court should rely on what Clarke said that he told the meeting, rather than Davidson's account of what Clarke said. Davidson's uncertainty as to events is attributable to his having been called late in the case and without the benefit of preparing a witness statement by reference to discovered documents and witness statements. Counsel then referred to Davidson's evidence that he told Knight before the 31 May meeting that "we were looking for some funding for the development of a harvesting machine", and submitted that it was in stark contrast to the evidence of Allwood, Clarke, Morton, Knight and Armour to the effect that the decorticator was done, it was going to be tested in the UK, the harvester was going to be manufactured and the commercialisation of the decorticator/harvester was to be the reason for the joint venture. In short, Clarke told the meeting that the research and development relevant to the joint venture had been done.

329 Turning to the pleaded representations, counsel submitted generally that the evidence established that each representation was made by Allwood and/or Clarke (alternatively, the representations were made in their presence and they made no attempt to correct them) for and on behalf of Fibrenova for the purpose of extracting payment from the plaintiffs under the guise of investing in a viable commercial project. At the time they were made, Clarke and Allwood were aware of sufficient objective facts to know that the representations were false, the stated objectives unachievable, and that there was no reasonable basis for the making of each representation.

330 More specifically, as to (a), counsel submitted that "the evidence doesn't establish that those words were said. But what was said is that it was the leader in its development of the harvester and it's an appropriate presentation of the representation that it was a world leader in the commercial production of harvesting of low grade THC hemp, because Mr Clarke and Mr Allwood had presented Fibrenova as having the cutting edge space age technology to do that". Counsel referred to (1) Knight's evidence that Clarke had told him at the 31 May meeting that Fibrenova was the most advanced company in the hemp industry worldwide and that it had new technology that was not available to others in the industry, (2) Davidson's evidence that Clarke stated that Fibrenova were leading the technology in the decortication and de-gumming of hemp, and (3) Armour's evidence that Allwood stated that Fibrenova were world leaders in the industrial hemp industry and were at an advantage because they had technology which no one else had. Armour's evidence was not challenged in cross-examination and should be accepted.

331 Counsel submitted that this representation was false, as there was no evidence that Fibrenova cultivated or harvested hemp commercially, or had sold hemp. Clarke said that the biggest crop cultivated by Fibrenova was 70 hectares but that the hemp harvested was ploughed into the ground and not sold. Allwood said that Fibrenova only ever gave away samples of hemp and did not make any sales.

332 As to (b), counsel submitted that the evidence established that this representation was made. The only reason why anyone was being sought to invest was because there was a completely novel method of producing fibre, and it would defeat the rest of the marketplace that was doing it in the old method. Counsel relied on (1) Knight's evidence (unchallenged in cross-examination) that on 7 June Clarke and Allwood stated that Fibrenova had developed technology and techniques that were "state of the art" and "space age" in comparison to the existing techniques employed in relation to hemp, (2) Morton's evidence that on 7 June Clarke and Allwood stated that Fibrenova had rights to a "revolutionary method of harvesting hemp", (3) Armour's evidence (unchallenged in cross-examination) that on 7 June Clarke and Allwood described Fibrenova as having "world leading" and "cutting edge" technology that made the company viable, (4) Davidson's evidence that Clarke stated that Fibrenova had produced fibre superior to that currently on the market, (5) Clarke's evidence to the effect that he told the meeting that the research and development was done, and that he was ready to commercialise the technology, and (6) Allwood's evidence that Clarke had told the 7 June meeting that research and development had been done.

333 Counsel submitted that this representation was false as development of the Fibrenova method of decortication was not complete as at 2003. The UK-based organisation BioRegional carried out an independent study evaluating the technical and economic feasibility of the machinery presented by Fibrenova, in England in 2003 and in New South Wales in 2004. It concluded that "the technical and economic feasibility of the Fibrenova technology for the production of short staple hemp fibre for spinning on the cotton system and at a comparable price to cotton ... has not been demonstrated [and] ... there remain a number of technical and economic issues to overcome". Further, "there are machines other than the Fibrenova green decortication machine which it would seem could remove fibre from hemp stems in the field, the patents for which have lapsed".

334 As to (c), counsel submitted that the first two representations were false. First, "at no time did Fibrenova possess rights such that it could license the intellectual property referred to in the MOU". That was because the D 7, represented to investors as being owned by Fibrenova, was in fact invented by Williames, and the intellectual property subsisting in this technology was owned by him. Counsel submitted that rather than challenge Williames' evidence as to this matter, the defendants "blandly" took the view that cl 5 of the confidentiality agreement Williames signed in 2000 gave Fibre Laboratory the right to register a patent, which it did not. Counsel conceded that cl 5 may have given the defendants the right to call for an assignment of Williames' invention, (assuming that Clarke's assertion that the D 7 was just a reproduction or development of the D 3 was correct), but the defendants' counsel did not put to Williames the allegation that he had copied the D 7 from the D 3. The result was that Williames' evidence should be accepted, that is that he and not Fibrenova was the owner of the intellectual property. Counsel submitted, seemingly as an alternative position, that the question of who owned the intellectual property in the D 7 need not be determined by the Court, but that the important issue was that the defendants were representing to potential investors that all the intellectual property was held by them, when that position was disputed by Williames, the defendants were aware of the dispute, and the fact of the dispute was a matter incumbent on Clarke and Allwood to disclose or remedy. As to the second representation, counsel submitted that it was false that Fibrenova was entitled to license the intellectual property to the joint venture company in the Pacific Region, as the existing licence agreement between Fibre Laboratory and Fibrenova did not allow Fibrenova to sub-license the intellectual property outside Australia and New Zealand. As to the third representation (that Fibrenova would grant to the joint venture company a licence to use the technology in the Pacific region), again it was misleading because, at the time the representation was made, Fibrenova's licence did not allow it to sub-licence the intellectual property for use outside Australia and New Zealand. Further, being a representation as to a future matter, the onus was on the defendants to establish that there was a reasonable basis for making the representation. There was no evidence of any attempt by the defendants to remove the restriction in the existing licence. Neither the draft amended licence contained in exhibit 2 (which Allwood claimed he sent to Knight on 25 June), or the version of the attachment to the email contained in the Court Book, removed the territorial restriction on the granting of a sub-licence. Further, as to Clarke's assertion that as managing director of Fibre Laboratory he had the power to procure amendment of the licence, the evidence established that there were a number of shareholders and Clarke was only one of three directors of Fibre Laboratory, and the defendants failed to call evidence that the other directors would have agreed to amending the licence. Counsel also noted Alwood's evidence that he (Allwood) made it clear on 7 June that he could not do anything about the restrictions in the licence, as he had no instructions to act for Fibre Laboratory.

335 As to (d), the evidence established that the representation was made. At the time the representation was made, Clarke knew that Clarke Junior and Dennis had licences for commercial growing of hemp at a suburban property in Croydon Hills, Victoria, but the fact that Clarke was able to grow crop on a suburban block did not assist to say he could get a licence for 200 hectares. Apart from the licences mentioned above, the responses to subpoenas from the relevant government departments in Victoria, New South Wales, and Tasmania indicated that none of the defendants had applied for or been granted licences to grow hemp in the relevant period. Clarke conceded that as at 17 June the defendants did not have the licences required to grow 200 hectares of hemp. As to land being available, while Clarke said in evidence that he had land and growers available in various places throughout Victoria and Tasmania, the defendants did not call any landowners to give evidence that they were prepared to provide land to grow hemp, or were prepared to obtain the necessary licences to grow 200 hectares of hemp for the 2003/2004 season. In short, the onus was on the defendants to lead evidence of steps they had taken to secure land and permits sufficient to grow 200 hectares of hemp for the 2003/2004 season, and they led no such admissible evidence. The fact that no step was taken to secure land and permits establishes that the defendants had no reasonable basis for making the representation. In short, it was unreasonable to make the representation in circumstances where the defendants had no reasonable basis for believing that any land owner would make their land available, and that was particularly so given that previous landowners who had grown hemp for Clarke had not been paid in full.

336 As to (e), the evidence established that the defendants represented that the joint venture would be profitable. Counsel submitted that this representation rests on the other representations (that is that the decorticator/harvester would be made and would work, that 200 hectares of crop would be grown in 2003/2004, and that the joint venture could then develop further land on the basis of the initial success) and given the falsity and/or unreasonableness of the other representations, there was no reasonable basis for the defendants to represent that the joint venture would be profitable. Further, the defendants adduced no evidence from any person that was ready and willing in 2003 to purchase hemp fibre at the prices stated in the projections Clarke provided to Knight. Although Boag was apparently interested in purchasing hemp fibre, he was not called to give evidence and the Court should infer that his evidence would not have assisted the defendants.

337 As to (f), counsel submitted that the defendants had no reasonable basis to represent that the joint venture could plant the amounts of hemp claimed. The possibility of planting 1000 hectares of hemp in New South Wales in 2004/2005 depended on growing, harvesting and selling 200 hectares of hemp the previous year. As the defendants knew of the history of Fibrenova not paying contract farmers, and many other debts, and that the decorticator/harvester had not been properly tested or commissioned to harvest a commercial size crop, it was unreasonable to represent that 200 hectares could be grown in 2003/2004 or 1000 hectares in 2004/2005 or at all.

338 As to (g), for the reasons given for (f) above, it was unreasonable to represent that the joint venture could expect to sell the amounts of fibre claimed.

339 As to (h), counsel conceded that this was the weakest representation, and that only Knight remembered it being made. He nevertheless submitted that the representation had been made, although he effectively stated in final address that he did not rely on it to establish his case.

340 As to reliance, counsel submitted that the Court must be satisfied that the plaintiffs suffered loss by reason of the conduct of the defendants. In this case, there was absolutely no difficulty in the plaintiffs establishing that they would not have invested except for the fact of what Clarke and Allwood presented to Knight. Knight, taking that information, encouraged Selvarajah to make payment to the joint venture, commencing in July. In that period of time it was all on the basis of what had been presented to Knight. There was no requirement that the representations be made directly to Selvarajah. It was sufficient that he suffered loss by reason of the defendants' conduct.

341 It is convenient to begin by making several findings as to the facts.

342 I reject Clarke's evidence to the effect that he did not say anything to Knight at the 31 May meeting about the technology that Fibrenova had developed and the state of the development of that technology, that he (Clarke) did not speak about Fibrenova's position at all and that it was not spoken about by anybody in his presence. First, that position is contradicted by Clarke himself, who said in cross-examination that he told the 31 May meeting that he believed the technology was:

"At the stage where it could be mounted in a harvester, and turned into a commercial machine, probably - possibly not in the first expression of that machine, but it would develop into it as more machines were - more of the technology was used in the field, and it would develop."

Clarke also said in cross-examination that what Fibrenova could do or was proposing to do was discussed in the meeting on 31 May but not by him, he "listened and I answered questions when asked. I can't tell you what questions I was asked". Secondly, the evidence of the plaintiffs' witnesses and also Dennis indicates that Clarke did discuss the Fibrenova technology at the first meeting. I do not accept the evidence of Clarke Junior that there was no discussion about how far Fibrenova had progressed with its ability to harvest hemp, or whether Fibrenova had technology that was available to the joint venture.

343 I also reject Clarke's evidence that at the 31 May meeting he was told by Morton, Davidson and Knight that he did not need to explain anything to Knight because that had already been done. Likewise, I reject Clarke's evidence that, over the period from the meeting on 31 May to the meeting on 17 June and signing the MOU, he did not communicate or explain things to Knight, but rather communicated them to Davidson who communicated things to Knight and told Clarke that he (Davidson) had done so. I reject Clarke's evidence (at [116] above) that he asked Knight his understanding of the project on 2 June and that Knight said he understood it, that he had his information from Davidson and Morton, and that Clarke left it at that although he (Clarke) was very unhappy about it, however he (Clarke) was under strict instructions from Morton and Davidson not to communicate very much about the textile side of it. First, none of this evidence was put to Davidson, Morton or Knight in cross-examination. As a matter of fairness, I would reject the evidence on that basis alone. More fundamentally, however, I do not accept that Clarke was silenced by Morton and Davidson (or Knight for that matter) as to what he could convey to Knight. Having had the benefit of seeing Clarke give evidence, I had the overwhelming impression that Clarke was a strong-minded man, evidently enthusiastic about the hemp industry, and who regarding the project as "his". He appeared to have resented what he perceived as Morton's attempts to control the project. Clarke did not present as somebody easily pushed around, and I do not accept that he was silenced either at the 31 May meeting or at any other time relevant to the project. It may be that Morton chaired the 31 May meeting, and to that end Clarke's input might have been less than it otherwise might have been had Clarke been chair, yet the mere fact that Clarke did not chair the meeting did not mean that he did not communicate to the meeting about Fibrenova's position and credentials. I agree with counsel for the plaintiffs that it beggars belief that, in circumstances where Fibrenova was insolvent and needed investment to allow it to continue developing its technology, Clarke would remain silent and say nothing as to the benefits of the technology he had developed. I do not overlook Clarke's evidence that he was expecting to make a presentation to a representative of the Pratt Group on 31 May, but in my opinion that is of little, if any, relevance. That is because, as annoyed as Clarke may have been that nobody from Pratt had attended, and although he did not sign the memorandum of understanding proffered by Morton, he remained at the meeting and discussed the joint venture. Further, he was prepared to give the matter further consideration and meet again the following week. I note also that in the course of cross-examination Clarke changed his explanation as to why he gave no presentation about Fibrenova, initially saying that he did not do so because he was silenced, but later saying that that he found himself in a meeting he was not prepared for, so he did not give a presentation, as the flow of events precluded him from doing so. In my view, Clarke's evidence on this point was tailored to coincide with his overall position that he made no representations whatsoever. It was unpersuasive and I reject it. In short, I do not accept that it was only Knight, Morton and Davidson who were "doing the selling" at the 31 May meeting, as both counsel for the defendants would have it. No doubt Knight, Morton and Davidson were at the meeting to attempt to advance a deal, and to that end they sought to persuade Clarke that they could offer Fibrenova what was required to advance the project. But it must be remembered that Clarke was also in the position of needing to persuade Knight, Morton and Davidson that they should invest (or procure others to invest) in his project. In this regard, I do not accept the submission made by counsel for Clarke and Allwood to the effect that Knight's early indication that he had investors with money available was such that there was no need for the defendants to sell the project to Knight. Rather, the figure Knight mentioned was simply that, a figure which he believed he could get investors to put into the project if he (Knight) ultimately chose to recommend that they invest in it. The main purpose of the 31 May meeting, from Knight's point of view, was to meet Clarke and learn more about the project, so as to better inform himself as to whether he should invest (or recommend others to invest) in it.

344 Even if it were to be assumed that Clarke did not discuss Fibrenova's technology and capabilities on 31 May because of his not being prepared to meet Knight as opposed to somebody from the Pratt group, the fact is that Clarke attended the 7 June meeting under no misapprehension as to who was to attend. And as to the 7 June meeting, Allwood said in cross-examination that Clarke said in his presence that the research and development had been done. Further, Allwood conceded, and I find as the fact, that Morton and Clarke argued about several issues, including the stage of the technology, the purpose of the technology, and the opportunities. I also accept Allwood's evidence in cross-examination that Clarke provided two bags of hemp to Knight and explained to Knight how the fibre was produced. In these circumstances, I reject the defendants' evidence that "they" said nothing about Fibrenova's technology and capabilities.

345 It is now convenient to deal with the making of the pleaded representations in turn.

346 It is convenient to deal with the first two representations together, namely that (a) Fibrenova was a world leader in the commercial production and harvesting of low-grade THC hemp, and (b), that Fibrenova had designed and developed a completely novel method of harvesting industrial hemp that was faster and more efficient than the methods utilised by other operators. I note that while Clarke and Allwood denied making such representations, Clarke said in evidence that he believed that nobody else was harvesting and decorticating green, which he believed was a novel approach to the decortication of hemp, and Allwood agreed that he did at the time believe that Fibrenova had unique and patented technology that was on offer to the joint venture. Clarke said in cross-examination that this method could only be "cutting edge and leading the world if it could be commercialised", and the technology could not be leading the world in the state it was in. However, Clarke agreed in cross-examination that he believed in 2003 that Fibrenova had "proven technology". I find that Clarke told the 7 June meeting that the research and development had been completed on the D 7 and whatever was necessary for the joint venture. I consider that Clarke did this in the strongest terms possible, given that Morton had, in front of potential investors, expressed reservations about Fibrenova's progress in relation to the technology and suggested that investors in the project would be funding development. I find that, as he said in his contemporaneous email to Allwood, Clarke put it squarely to the 7 June meeting that the research and development was done. This is consistent with Clarke's evidence that he believed that Williames was ready to manufacture a harvesting decorticator which could be put into commercial operation. It is also consistent with Allwood's admission that Clarke "may have said that" in his (Allwood's) presence, and that he (Allwood) did not correct the statement because "that was the purpose of the meeting and the discussion". Further, when counsel for the plaintiffs put to Clarke in cross-examination that he never told Knight that "Williames had to continue to develop the machine and that any joint venture was subject to him doing that", Clarke did not deny that statement but merely replied that Williames had told him that he had designed a machine, he just wanted to build it, and that "Williames was absolutely convinced that all he had to do was build it and it was ready to go". Clarke said that he was not sure whether he (Clarke) or Davidson communicated that position to Knight, but "certainly that is what he (Knight) was told". As to the de-gumming aspect, I note Clarke's evidence that Williames told him prior to the 7 June meeting that he (Williames) believed that he could also do the de-gumming process inside the harvester/decorticator, and that although he (Clarke) did not tell the 7 June meeting that the harvester to be built might even include a de-gummer, he "certainly would have discussed it with Mr Davidson". In circumstances where Clarke was confident that the de-gumming process could be incorporated into the harvesting decorticator, the likelihood is, and I find as a fact, that Clarke did tell Knight and the other participants at the 7 June meeting that a machine to harvest, decorticate and de-gum hemp had been designed and, subject to some testing of the decorticating and de-gumming process in England in 2003, a commercial sized machine to harvest, decorticate and de-gum hemp would be built for use in the 2003/2004 season.

347 I reject the defendants' submission that such representations were unlikely as they would have made no sense in circumstances where (1) the very purpose of the proposed joint venture was to build a commercial sized harvesting machine and (2) Fibrenova had never commercially harvested hemp. As to the first point, the evidence clearly establishes that Knight was aware that funding was required to build a commercial sized machine, but the submission ignores the distinction between, on the one hand the design and development of a novel method of harvesting industrial hemp, and on the other hand the building of a commercial sized machine to carry out that function. While it was made clear that the latter task was yet to be completed, indeed funds were sought for that very purpose, the same was not said about the former task. As I have found, Clarke stated that research and development had been completed. Davidson's evidence (that his understanding was that the decorticating machine was 80 to 90 percent finished and still needed to be tested to see if it could be commercialised) must be understood in that context. Davidson also said that Clarke told the 7 June meeting that they had a prototype unit built and developed, and that the purpose of the investment was to build a commercial unit capable of harvesting on a larger scale operation. Further, Davidson's understanding, which I infer was reached on the basis of what Clarke told the 7 June meeting, was that the decorticator had been built, trialled and was working. In this regard I accept Knight's evidence that on 7 June, Clarke and Allwood both said words to the effect that Fibrenova had developed a machine capable of harvesting and processing hemp fibre and that the technology associated with this harvester was "state of the art", and that the harvesting, decorticating and carding techniques that Fibrenova had developed were "space age" in comparison to the existing and commonly used pond-retting techniques employed in most countries in relation to hemp. I accept Morton's evidence (which was not challenged in cross-examination) that on 7 June Clarke and Allwood stated that Fibrenova had the rights to a revolutionary method of harvesting hemp that would enable superior hemp fibre to be obtained quickly and at a lower cost than was incurred using traditional methods. And I also accept Armour's evidence that Clarke and Allwood stated that Fibrenova had the advantage of "world leading" and "cutting edge" technology which no-one else had, namely a harvester which could both harvest and decorticate hemp in the paddock, and that this is what made Fibrenova viable. I consider that Armour's impression (that they had adequately tested the technology and were now at a point where they wished to commercialise it) was a reasonable one she arrived at on the basis of what Clarke told the meeting about the research and development having been completed and that the technology was ready to be commercialised. I note that when counsel put to Clarke that he had told the meeting that the technology was ready to be commercialised, Clarke said "Yes, it's ready to have a - what I mean and what I made very clear - was a machine, may this - Mr Davidson had had absolute understanding of this - we were to build a commercial size machine which would then obviously need some refining and a lot of commissioning but we were ready to build a commercial sized machine". I find that Clarke did not express any such qualification to the meetings at any relevant time. Rather, he said words to the effect that Fibrenova had designed and developed a novel method of harvesting industrial hemp that was faster and more efficient than competitors' methods, and that the research and development was completed such that the investors would not be funding development work, but rather they would be funding the building of a commercial sized machine incorporating the (already proved) technology, and which could reasonably be expected to be completed in time to harvest a crop of 200 hectares in the 2003/2004 growing season. I find that Allwood either said words to similar effect or remained silent when Clarke made the representation, with the effect of endorsing what Clarke had said. Finally, I do not overlook the observation by counsel for the first defendant that there is a difference between harvesting (a relatively simple process) and decortication (a more complex process), and that the machine which was to be trialled in the UK was a decorticator, whereas the pleaded representation (b) merely refers to harvesting, without any reference to decortication or de-gumming. In my view, the novel method of "harvesting" proposed by the defendants included decortication and de-gumming. That was the inherent nature of the novel process being offered by the defendants to the joint venture. While the pleading may not reflect engineering strictures as to the separate nature of harvesting, decorticating and de-gumming, it nevertheless adequately encapsulates the fact that the defendants' proposal was to roll the three processes into one, by means of a special "harvester".

348 As to the second point, that Fibrenova had never commercially harvested hemp, I consider that this is a matter merely raised as a retrospective justification as to why the "world-leader" representation would not have been made, but I consider that at the time of the relevant meetings, neither Clarke nor Allwood explained to potential investors that Fibrenova had not commercially produced hemp fibre before. On the contrary, I find that they emphasised Fibrenova's standing in the world wide hemp industry, based on what they regarded as the proven technology they had available. I accept Armour's evidence that Clarke and Allwood said that Fibrenova were world leaders in the industrial hemp industry because they had technology which nobody else had and hence were at an advantage. This is supported by Davidson's evidence, which I accept, that Clarke told the 7 June meeting that Fibrenova had produced fibre which was superior to that which was currently on the market, and which is also consistent with the fact that Clarke gave Knight samples of fibre during the 7 June meeting. In short, I am satisfied that on 7 June Clarke and Allwood told Knight words to the effect that Fibrenova was a world leader in the commercial production and harvesting of low-grade THC hemp.

349 As to (c), the pleaded representation consists of three parts, that (1) Fibrenova had rights in the intellectual property necessary to enable the joint venture to be successfully implemented, and (2) Fibrenova was entitled to license the use of the intellectual property in the Pacific Region (including India, Asia, China, Oceania, Canada and the USA) to the joint venture company, and (3) Fibrenova would grant to the joint venture company a licence to use the intellectual property (including, without limitation, to manufacture, market and distribute non-woven hemp products) in the Pacific Region. In my view the evidence establishes that the defendants represented that Fibrenova "had rights" in the intellectual property necessary to enable the joint venture to be successfully implemented. I find that Clarke stated on 31 May that the relevant intellectual property rights were owned by Fibre Laboratory, but that Fibrenova had a licence to use that intellectual property. Allwood told the meeting on 7 June that Fibrenova would grant a sub-licence to the joint venture company to use the relevant intellectual property, but that the relevant intellectual property was owned by Fibre Laboratory, that it would not be assigned, and that he had no instructions to act for Fibre Laboratory. Then, cl XVI of the MOU stated that all technology "possessed" by Fibrenova (that is to say, that to which it had rights to) was owned by Fibre Laboratory pursuant to an existing licence agreement between Fibre Laboratory and Fibrenova. There was no reference in the MOU to Fibrenova's ability to use and sub-licence the intellectual property being limited to Australia and New Zealand, and cl IV of the MOU stated that FIA "will have a licence for the manufacture, marketing and distribution of non-woven hemp product using the Fibrenova Limited intellectual property for the Pacific Region" (emphasis added). I reject the defendants' evidence that they told Knight that the licence between Fibre Laboratory and Fibrenova was limited to Australia and New Zealand. I consider that Davidson was mistaken in his evidence that such restrictions in the licence were mentioned by Clarke at the 7 June meeting. I do not overlook Clarke's email to Davidson (copied to Knight) on 2 June which suggested that there was "no desire from your group" to extend production beyond Australia in any event, and that accordingly the licence should be pitched within Australia and NZ for production. But Morton responded to Clarke two days later, emphasising that a global licence was required. In these circumstances, I accept Knight's unequivocal evidence that the Australia and New Zealand restriction in the licence was not put to him by the defendants, and that he would have rejected it given that his potential Chinese investors would not have been interested in a joint venture restricted to Australia and New Zealand. In these circumstances, and when cl IV and cl XVI are read in combination, the defendants must be understood as having represented that Fibrenova was entitled to license the use of the intellectual property in the Pacific Region, and that Fibrenova would exercise that entitlement by granting to FIA the right to use the intellectual property in the Pacific Region. I do not overlook that cl IV of the MOU merely states that the joint venture company "will have a licence", without specifically providing that it is Fibrenova (as opposed to Fibre Laboratory) that is to grant the licence, nevertheless the reference to the joint venture "using the Fibrenova Limited intellectual property for the Pacific Region" indicates that the representation was not merely that the joint venture would have a licence, but that Fibrenova would be the party to grant that licence. It is also consistent with Knight's evidence, which I accept, that the defendants stated that Fibrenova would provide the licence. I am satisfied that each of the defendants made the representations in (c) in the terms pleaded.

350 As to (d), that the necessary government approval and/or authorisation for the cultivation and harvesting of low-grade THC hemp in New South Wales, Victoria and Tasmania had been obtained by Fibrenova or, alternatively, could be obtained by Fibrenova and/or the yet to be incorporated Australian company that was to conduct the joint venture quickly enough to enable the planting and commercial harvesting of 200 hectares of low-grade THC hemp during 2003/2004, I note that counsel dealt with these representations as relating not just to the question of whether Fibrenova had government approval to grow hemp, but also as relating to the issue of whether the defendants represented that they had land and farmers available (or could obtain such land and farmers) to grow the required amount of hemp. This was a logical way of approaching the matter, as any approval to grow hemp that Fibrenova ultimately obtained needed to be referable to a particular piece of land. I accept Knight's evidence that Clarke stated on 7 June that Fibrenova had "considerable licences" to plant hemp in Victoria and Tasmania in the upcoming season. Nevertheless, I consider that Clarke's statement to Knight was inherently vague and I do not consider that it carried the representation that Fibrenova, at the time of the representation, had obtained all the government approvals necessary to enable the planting of 200 hectares of hemp that season. As to whether the defendants represented that they could (in the future) obtain government approval to enable the planting of 200 hectares that season, that is a different matter to which I refer below.

351 I accept Knight's evidence that Clarke stated that Fibrenova had farmers "ready to go" in both Victoria and Tasmania for 2003/4. This evidence was consistent with Clarke's view, evidently maintained throughout cross-examination, that he did have farmers ready to grow hemp for him, provided that funds were available to pay them. I note that Clarke accepted in cross-examination that, as at 17 June 2003, he had no licence or formal arrangement with any landowner to grow 200 hectares of hemp, although he denied that when the seed arrived there were no arrangements in place to have land ready for planting. He accepted that he did not mention in his witness statement that arrangements were in place, nor provide during the discovery process any documents as to the arrangements in place to enable the planting of the seed, but he maintained that "we had land contracted", and stated that he did not provide discovery of any documents to this effect because "I didn't believe we needed to prove that, because we'd been in the industry so long, and that was such - to us, to do things in Victoria were fairly easy to do". Earlier, he said that because of his "years of work with the DPI [Department of Primary Industries] of Victoria and Tasmania, obtaining even licensed farmers was relatively easy for me and for my agronomist Hamish Dennis". As to whether Clarke expressed that view to Knight, he could not recall whether he (Clarke) or Davidson discussed it with Knight, however Clarke said that "It is entirely likely that I did say something along the lines that I would be able to get - to arrange the farmland required in Victoria, and I had the Tasmanian Hemp Cooperative in Tasmania who would grow for us down there". I find that Clarke did express that view to Knight. I also accept Morton's evidence that Clarke and Allwood stated that while licences were required, obtaining those licences would not be a problem for Fibrenova, and that the joint venture company would be able to plant the volume of hemp required to achieve the projections for its business, by which I infer that the relevant projection was that 200 hectares of hemp was to be planted in 2003/4. I also accept Davidson's evidence that at the 7 June meeting he (Davidson) spoke about areas that possibly could be used for growing in New South Wales. I find that both Clarke and Davidson told Knight that they would work to obtain relevant government approvals and land to grow hemp, and that given Davidson's view that everybody believed that there would be no problem in doing that, I find that nobody dissuaded Knight from his belief that the joint venture would obtain the necessary approvals in time for planting 200 hectares for the 2003/4 season. Having regard to all the evidence, I am satisfied that each of the defendants made representations that necessary government approval for the cultivation and harvesting of low-grade THC hemp in New South Wales, Victoria and Tasmania could be obtained by Fibrenova or the joint venture company quickly enough to enable the planting and commercial harvesting of 200 hectares of hemp during 2003/2004.

352 As to (e), that the defendants represented that the joint venture would be profitable, I note that it was not disputed that on 16 June the defendants provided to Knight projections for the joint venture indicating a profit. Indeed, Clarke agreed that the budget showed a positive cash flow for the first year, and that that is what he presented to Knight. I reiterate, without setting out the details found at [200] - [202] above, that on my reading of the projections, a loss is predicted for the first year, followed by a profit in the second year. The profit figure of $2.3M Clarke agreed to in cross-examination appears to be incorrect, as the forecast profits appear to be smaller. Further, it is unclear where the total costs of the project were to come from, as they substantially exceeded the investment amounts referred to in the MOU[39]. I note that Armour was not challenged in cross-examination on her evidence that, on 7 June, Allwood presented figures which suggested that Fibrenova's technology and hemp fibre would be very profitable, and that she was shown a detailed projection model which said that investors would receive around three times the amount they invested within one or two years. I accept Armour's evidence that that is what was presented to her, although I note that Knight did not refer to these projections in his evidence. Hence, I do not find that he relied on such figures. I do accept, though, the evidence of Morton and Armour that returns on hemp fibre were discussed at the 7 June meeting. In any event, it is clear enough on Clarke's own evidence that he represented to Knight that the project would be profitable. And although Clarke initially tried to distance himself from the projections as being the work of Davidson, he ultimately admitted that he agreed with the figures prepared by Davidson and Dennis. In all the circumstances, I am satisfied that each defendant represented to Knight that the joint venture would be profitable.

353 As to (f), that the joint venture could reasonably expect to plant 200 hectares of hemp for the 2003/2004 season and 1000 hectares of hemp for the 2004/2005 season, yielding 3 tonnes of fibre per hectare, it is sufficient to note that the MOU states that in the project stage, "approximately 200 hectares of Indian hemp shall be planted" and "the anticipated crop size for the growing season 2004/5 will be 1000 hectares approximately". I also note that Clarke said in cross-examination that he did not correct Davidson's view, expressed on 31 May, that each hectare of hemp would yield 3 tonnes of fibre, as he agreed with that view. The evidence establishes that each defendant made the representation in the terms pleaded.

354 As to (g), that the joint venture could expect to sell 3000 tonnes of the fibre extracted from the hemp crop at the price of $3000 per tonne and 6000 tonnes of the hurd extracted from the hemp crop at the price of $50 per tonne, these figures are taken directly from the profit projections provided by Clarke to Knight. I find that each defendant made the representation in the terms pleaded.

355 As to (h), that Fibrenova had made arrangements with the Government of British Columbia for the production and harvesting of hemp on a large scale such that the joint venture would be able to exploit this commercial opportunity, in light of the submission of counsel for the plaintiffs, and my view that nothing turns on whether the representation was made or not, it is unnecessary to make any finding on this representation and I say nothing more about it.

Were the established representations false, misleading, deceptive, or likely to mislead or deceive?

356 I now consider whether the representations (a) to (g) were false, misleading or deceptive, or likely to mislead or deceive. As I said at [24] above, I proceed on the basis that representations (c)(iii), (e), (f) and (g) were representations as to future matters, while (d) was formulated as either a present or a future matter.

357 As to (a), there was no evidence that Fibrenova cultivated or harvested hemp commercially, or had sold hemp. Both Clarke and Allwood said in evidence that Fibrenova had not sold any hemp. On that basis alone, I consider that the defendants' statement to Knight, to the effect that Fibrenova was a world leader in the commercial production and harvesting of hemp, was misleading or likely to mislead. Further, the world leader statement was not made in isolation, but rather in the context of the related representation (b) that Fibrenova had designed and developed a novel method of harvesting industrial hemp that was faster and more efficient than competitors' methods. It was on that basis that the world leader representation appeared credible. As to this, I note that both counsel for the defendants effectively conceded that the development of the method of harvesting and decorticating the hemp was not completed, but submitted that Clarke had been honest in telling the meeting that research and development had not been completed. For the reasons stated earlier, I reject that submission. I do, however, accept counsel's concession that, at all relevant times, the defendants had not completed the design and development of their novel method of harvesting industrial hemp. As to that, I accept that Knight was well aware that a commercial sized harvesting machine still needed to be built and, as the budget projections disclosed, payments totalling several hundreds of thousands of dollars were required over a period of some six months to enable Williames to build a commercial sized harvesting decorticator for use in the 2003/2004 growing season. In this sense, Knight knew that further development was required. It might even be said - and the defendants' submissions carried this implication - that Knight was naïve to expect that the harvesting machine could be built in time for the 2003/2004 season, and that on this basis it could not be said that the defendants' representation was misleading or likely to mislead. The argument is superficially attractive, but in my view erroneous. It focuses on what Knight should have known and supposed, with all the benefit of hindsight, but pays no proper regard to the force of the actual representations made to Knight and the context in which they were made. As I mentioned above, there is a real distinction between the harvesting method and the building of machinery by which that method was to be brought into effect. The distinction appears in the pleading of the representation but, more importantly, Clarke made the distinction at the 7 June meeting when he categorically stated that the research and development was completed and the investors would not be funding development work. It must be recalled that this representation was made in the context of there being a working decorticator (albeit not of commercial size) which was to be taken to England to be trialled on a hemp crop within the next few months, and that commercial operations would commence in Australia within six months or so. Viewed in this light, the tenor of the representation as made was that the harvesting method (incorporating the decortication and de-gumming processes) had been designed and developed to such an extent that commercial operations to harvest 200 hectares of hemp could commence within the next six months or so, using a commercial-sized harvester which would integrate those three functions, and be built as a matter of course using the technology which had already been designed and developed. In my view the evidence establishes that Clarke understated the extent of the design and development work required to enable a commercial operation to commence. In effect, while much design and development work had been done, there remained to be done such an amount of design and development work (including in respect of the de-gumming process) that it was unrealistic for the defendants to represent that a commercial operation could be commenced within six months. I reject Clarke's evidence that he simply relied on Williames' assertions that he could build a commercial-sized machine in time. The evidence was not put to Williames, but in any event Clarke was required to, and in my view did, exercise an independent judgment as to the stage of development of the relevant technology. In these circumstances, it was also misleading to state that the defendants' method was faster and more efficient than competitors' methods when that method had not been tested in the field on a commercial basis. In all the circumstances, it was misleading and deceptive for the defendants to represent that they had designed and developed a novel method of harvesting hemp that was faster and more efficient than competitors' methods.

358 I note that the above discussion assumes that the defendants (or Fibre Laboratory) did in fact own the relevant intellectual property. The plaintiffs, however, submitted that I should accept Williames' evidence to the effect that he owned the technology in the D 7. As I said earlier, it is not possible to (and I do not) make any finding as to whether the defendants or Williames owned the D 7 technology, however the fact remains that there was at the time of the representations (and indeed there still is) disputation as to ownership of the D 7. The defendants were aware of that dispute. Allwood acknowledged in an email to Williames (dated 16 July 2003) that Williames had "contributed significantly in terms of intellectual input to the improved design of the D 7 decorticator". On 31 October 2003 Clarke sent an email to Allwood stating that "Geoff is adding confusion by saying that the D 7 is a joint thing. He claims more invention in it than perhaps he should. Perhaps he is correct. The thing is he did it within the relationship". Further, in late 2004 Fibre Laboratory filed an international patent application for the D 7 stating that the inventors/applicants were Clarke, Clarke Junior, Dennis and Williames. When Clarke was cross-examined about the issue of ownership of the D 7, he did not deny the proposition that Williames had a role in the design of the D 7. Rather, he asserted that he felt, on advice he had received, that cl 5 of the confidentiality agreement between Fibre Laboratory and Williames meant that any intellectual property designed by Williames was owned by Fibre Laboratory. Clarke then denied that he had attempted to register a patent without speaking to Williames. He said that "we asked them to provide patent drawings, so we could patent it and they provided those drawings on that basis". I note also that cl 5 is premised on there being intellectual property "arising as a result of the use of confidential information" provided to Williames by Fibre Laboratory. The evidence before me does not establish that the D 7 arose as a result of Williames' use of confidential information. In short, all that can be said is that Williames had some role in the design of the D 7 and the question of ownership of the intellectual property underpinning the joint venture is in dispute. Even if the patent issue were pressed (in an appropriate forum) and ultimately determined in favour of the defendants (or Fibre Laboratory), the fact remains that at the time of the representation about the design and development of the defendant's method of harvesting hemp, the defendants were aware that there was a dispute with Williames. The defendants' acknowledgement that Williames had been involved in the design of the D 7 (even if it ultimately be determined that he was not the owner) was a matter relevant to the defendants' representation that they had designed and developed a novel harvesting method. I reject the defendants' submission that the matter had been resolved by an agreement with Williames. I consider that a temporary working solution had been reached, on the basis of what Williames said in his witness statement, namely that after he expressed his concern about the question of ownership of the D 7 technology to Clarke and Allwood, "it was agreed that Fibrenova Limited could market the machines embodying Williames Technology but that Williames Hi-Tech must remain the manufacturer" (emphasis added). In effect, Williames was prepared to build machines for the defendants, but he did not abandon his claim that the machines embodied "Williames Technology". In short, the question as to who owned the technology in the D 7 remains to be resolved at some time in the future. In any event, the "agreement" relied on by the defendants is derived from Allwood's email to Williames dated 16 July 2003, which was well after the defendants' representations to Knight as to their ownership of the D 7 technology. I do not overlook the defendants' submission that the question of the ownership of the D 7 was not specifically pleaded by the plaintiffs, nevertheless the defendants had sufficient notice of the matter as it was raised in Williames' witness statement, and they are not disadvantaged as I have not made a finding on the ultimate question of ownership. All I have concluded is that there was (and is) a dispute about ownership, which is plain on the evidence led by the defendants, and that the defendants were not denied the opportunity of leading evidence (as indeed they did) as to why they did not tell Knight about their dispute with Williames. In all the circumstances, not disclosing the fact of the dispute to Knight had the effect of making representation (b) misleading.

359 As to (c)(i) and (c)(ii), I find that it was misleading to state that Fibrenova had, and was entitled to license to the joint venture company, the intellectual property rights necessary to enable the joint venture to be successfully implemented. I repeat what I said above as to the dispute over the ownership of the D 7. And aside from that issue, the short fact is that Fibrenova's licence to use the intellectual property was limited to Australia and New Zealand, while the rights required by the joint venture extended to the Pacific Region. As to (c)(iii), that Fibrenova would grant such rights to the joint venture company, this was a representation as to a future matter. In circumstances where the existing licence agreement prevented Fibrenova from sub-licensing the relevant rights in the geographical area required by the joint venture, the defendants had no reasonable grounds for making the representation. The representation is therefore deemed to be misleading. I note that even if the representation had been expressed in the language of cl IV of the MOU, namely that the joint venture company "will have a licence" for the Pacific Region (rather than the pleaded representation that Fibrenova was the party that would grant the licence to the joint venture company), the result is the same. The defendants failed to adduce any proper evidence of reasonable grounds for making the representation that the joint venture company would have a licence. Clarke was asked in re-examination if he had in mind taking any steps to enable Fibrenova to comply with cl IV of the MOU, and replied that "we were going to adjust the licence between Fibre Laboratory and Fibrenova", which, he said, "would be a relatively easy task to do" as he was managing director of both companies. Notwithstanding this assertion, when counsel put to Clarke in cross-examination that the approach stated in Allwood's email of 3 June to Clarke (namely that they might reduce the operation to Australia and New Zealand, by saying that "we could not get the matter through the Board on an international basis") was misleading to investors, Clarke stated that "we have different shareholders in Fibre Laboratories and this was explained in the meeting of 31 May, that we have different shareholders and different groups need to be consulted if we're going to enter into anything which gives a 51 percent control to somebody else". In short, Clarke asserted on the one hand that it lay within his power to have Fibre Laboratory amend the existing licence so as to enable Fibrenova to comply with cl IV of the MOU, while on the other hand he asserted that "we have different shareholders and different groups need to be consulted" for Fibre Laboratory to act in relation to the intellectual property rights. I note that Clarke also said in his witness statement that when the issue was raised by Davidson in a conversation on 14 October, Clarke told Davidson that the MOU reflected the fact that the licence would be amended and that Knight had instructed Allwood to prepare the joint venture agreement, but later told him to do no further work. This evidence was not put to Davidson and I reject it. I also reject the evidence of Clarke and Allwood that on 17 June, following the signing of the MOU, Knight asked (or that Clarke told Knight he would ask Allwood) for the licence agreement between Fibre Laboratory and Fibrenova to be amended. First, the evidence was not put to Knight. Secondly, and dealing with the substance of the matter, a request to amend the licence was only likely if Knight was aware of the limitations in the existing licence, and as to this I accept his evidence that he was not aware of the limitation. I accept Knight's evidence that he was told by the defendants, and believed, that Fibrenova had all the intellectual property rights required for the joint venture. In these circumstances, Knight had no reason to request an amendment to the existing licence. Even if he did make such a request, it is overwhelmingly probable that the need to amend the existing licence to expand the territory in which a sub-licence could be granted would have been recorded in the MOU, or at least been the subject of an email shortly after the meeting.

360 In my view, the defendants' evidence does not establish reasonable grounds for making the representation in cl IV of the MOU. I note that although Allwood's letter to Knight in late October stated that Fibre Laboratory would grant a licence directly to the joint venture company (effectively bypassing Fibrenova), at the time the MOU was signed the defendants' position was that Allwood did not act for Fibre Laboratory and that any licence to the joint venture was to come from Fibrenova. In the absence of evidence as to the shareholdings in Fibre Laboratory, and whether other relevant parties would have consented to the company altering the existing licence or granting a direct licence to the joint venture company, I am not satisfied that the defendants had reasonable grounds to make the representation in (c)(iii) or in cl IV of the MOU as the case may be. And even if it be assumed that Clarke did have the power to have the existing licence amended, such that cl IV of the MOU could be complied with, the fact remained that there was a dispute with Williames as to ownership of the intellectual property in the D 7. In these circumstances, it cannot be said that the defendants had reasonable grounds to expect that they could licence to the joint venture all the intellectual property required to conduct the joint venture.

361 As to (d), given that the representation related to future matters, it is deemed to be misleading unless the defendants can establish that they had reasonable grounds for making it. In my view, the defendants have not established such reasonable grounds. Counsel for Allwood and Clarke relied on the evidence of King to establish that Clarke would have been in a position to obtain necessary licences in Victoria within quite a short period, perhaps as short as a month. While that was the effect of King's evidence, the fact remains that Clarke (and/or Davidson who had also taken responsibility for obtaining land for hemp crops) needed to obtain sufficient land, in respect of which valid licences were issued, to grow 200 hectares of hemp for the 2003/4 season. Apart from Clarke's assertion that he had farmers available at various places in Victoria, and that they had land amounting to 300 hectares or more, there was simply no evidence that any particular farmer was prepared to grow hemp for the joint venture and, more importantly, would have been in a position to do so to ensure that a crop was produced in the 2003/4 season. I note that Clarke appeared to suggest at certain points in his cross-examination that he had not gone ahead with arrangements to obtain land and farmers for hemp crops because Davidson had taken over that role. And further, that he had done a "monumental" amount of work in this regard before the 17 June meeting, at which time Davidson took over that role. I reject these suggestions. As I said earlier, the evidence establishes that Davidson and Clarke shared responsibility for securing land, farmers and permits so as to be able to cultivate 200 hectares of hemp in 2003/4. There is no evidence that Fibrenova put on hold the task of securing crop sites and licences due to some change in responsibilities flowing from the MOU signed on 17 June. And while Clarke Junior and Dennis held licences to cultivate hemp, the licences attached to a suburban property, which obviously could not provide 200 hectares of hemp. Further, Clarke gave evidence that the largest single hemp crop he had previously grown was 70 hectares. In short, the defendants did not lead evidence that they had any reasonable grounds for believing that a land owner (or land owners) would make 200 hectares of land available for hemp crops in time for the 2003/4 season. In these circumstances, the representation was misleading.

362 As to (e), this was a representation as to a future matter and is thus deemed to be misleading unless the defendants can establish reasonable grounds for having made it. As to this, counsel for Clarke and Allwood submitted that it was clearly understood by all the parties that the profit projections were contingent upon a number of intermediate steps being carried out successfully, which steps ultimately did not occur due to lack of funding. Counsel for Fibrenova submitted that the profit projections were reasonable based on what Boag said as to the prices that would be paid for the fibre. In my view the defendants have not established that they had reasonable grounds for making the representation as to profitability. First, the profit projections were based on the joint venture being able to use the relevant intellectual property to cultivate 200 hectares of hemp in 2003/4, followed by 1000 hectares in 2004/5, and as I have found in relation to (d) above, there were no reasonable grounds for representing that the joint venture would be able to cultivate that amount of hemp in the specified time frames. Further, as I found in relation to (b) above, the harvesting process had not been developed to the extent required to enable the commercial cultivation of hemp to occur within the time frames represented. In these circumstances, the defendants had no reasonable grounds for making the representation as to profitability. I do not overlook the fact (not mentioned by counsel) that despite the representations as to profitability, on one view of the profit projections, the joint venture might not have made a profit at all over the first two growing seasons. That is because the projections assumed a loss of some $900,000 in the 2003/4 season, followed by a profit ranging from some $400,000 to $1.6M in the 2004/5 season. In other words, on the lower estimate provided by the defendants, the profit in 2004/5 would not be sufficient to offset the loss in 2003/4. In these circumstances, it might be thought that the representation as to profitability was not misleading, as the projections spoke for themselves and Knight would have, had he properly understood the figures, appreciated that the joint venture might suffer a net loss for the first two years of operation. In this regard, I note Clarke's evidence that before the 31 May meeting he told Davidson of his scepticism as to whether a profit could be achieved in the first year, that Davidson convinced Clarke that he (Davidson) was satisfied with whatever the outcome was and that's what he would present to Knight, that Knight was happy, and said 'it doesn't matter if it takes a couple of years to break even'. This evidence was not put to Davidson or Knight, and I reject it. Nevertheless, the evidence related to an earlier period which was ultimately overtaken by the profit projections provided by the defendants on 16 June. It must be remembered that the profit projections only covered the first two years of the joint venture. In my view the representations as to profitability were not confined to the first two years, unlike the 16 June profit figures. Rather, the tenor of the representations was that although there might be losses in the first year, and only (relatively) modest profits in the second year, the project would be profitable in the long term. That may well have been the defendants' sincerely held view, but in my view they have not established that it was reasonable to so represent the position. Hence, representation (e) was misleading.

363 As to (f), that the joint venture could reasonably expect to plant 200 hectares of hemp for the 2003/2004 season and 1000 hectares of hemp for the 2004/2005 season, yielding 3 tonnes of fibre per hectare, for the reasons stated in relation to (b) and (d) above, the defendants have not established reasonable grounds for making this representation. It is thus deemed to be misleading.

364 As to (g), that the joint venture could expect to sell 3000 tonnes of the fibre extracted from the hemp crop at the price of $3000 per tonne and 6000 tonnes of the hurd extracted from the hemp crop at the price of $50 per tonne, those figures assumed that 200 and 1000 hectares of hemp could be cultivated in 2003/4 and 2004/5 respectively. For the reasons stated above, that assumption was not reasonable, hence the defendants' figures as to the tonnages of hemp which could be sold were not based on reasonable grounds. In these circumstances, it is not necessary to make a finding as to whether the defendants acted reasonably in acting on the advice of Boag. The representation in (g) is thus deemed to be misleading.

365 In all of the circumstances, I am satisfied that Fibrenova engaged in conduct that was misleading and deceptive, in contravention of s 52 of the TPA. I am also satisfied that Clarke and Allwood were each parties to the contraventions of s 52, within the meaning of s 75B of the TPA. Further, I am satisfied that Clarke and Allwood each engaged in conduct that was misleading and deceptive, in contravention of s 9 of the FTA.

366 I am satisfied, and find, that Knight signed the MOU on 17 June on behalf of ARE in reliance on the defendants' conduct in contravention of s 52 of the TPA and s 9 of the FTA as referred to above. In so concluding, I do not overlook the fact that ARE was to receive a retainer of $15,000 per month under the MOU as compensation for its role in developing the business. While that financial incentive may have played a part in Knight's willingness to sign the MOU, it was but one factor. More importantly, Knight believed, based on what the defendants had represented, that the joint venture would be profitable, that the joint venture would have the use of all relevant intellectual property, and that the harvesting, decorticating and de-gumming technology to be used by the joint venture had been designed and developed to such an extent that a commercial sized harvesting machine could be built in time to allow commercial hemp fibre production to commence in the 2003/2004 season. These factors lay at the core of Knight's decision to sign the MOU and remained so at all relevant times. Nor do I overlook the fact that Knight signed a memorandum of understanding at the meeting on 31 May, but in light of my finding that Knight did not sign the memorandum before the 31 May meeting commenced, I do not consider that Knight committed ARE to providing funds before Clarke had made any representations. In any event, the memorandum of understanding of 31 May was superseded by events, in particular the misleading representations made by the defendants during the 7 June meeting, and the MOU signed on 17 June. When Knight signed the MOU on 17 June, he did so in reliance on the defendants' misleading representations as to what could be achieved by the joint venture and in the context of, and relying upon, the earlier misleading representations and conduct of the defendants.

367 The MOU stated that "ARE has an investor who is prepared to provide $2.5 million to the project over a six month period with progress payments commencing on 16 June 2003", and that the investor is aware that a further $2M will be necessary to fund the growing of a substantial crop in 2004/2005. It was common ground that the investor referred to in the MOU was not Selvarajah, and that Selvarajah was only brought into the project by Knight after it became apparent to Knight that other potential investors were unlikely to invest. In this regard, I find that at the time he invited Selvarajah to invest, Knight was aware that a solicitor had identified to one of the potential investors (Foo) some potential problems with the proposed joint venture, relating to the existing creditors (in respect of which the solicitor had advised that an indemnity should be sought) and the lack of security in the intellectual property if the company holding it were wound up.

368 At this point it is convenient to state my findings as to the circumstances in which Selvarajah invested in the joint venture. I accept Selvarajah's evidence that Knight telephoned him and asked him to invest $250,000 in the Fibrenova project, and that Knight told Selvarajah that he considered that the business would be very profitable. I find that Knight's statement as to profitability was made in general terms, without specific reference to the profit projections. Indeed, Knight did not provide profit projections to Selvarajah until August 2003. I accept Selvarajah's evidence that Knight told him that the Fibrenova people that he had met with told him they were "world leaders" in the hemp business, and that Knight explained to Selvarajah that the hemp fibre produced by the joint venture would have many uses, including in pallets and in swimming pools. I accept Selvarajah's evidence that Knight told him that the Fibrenova people "had the technology to utilise the hemp fibre in these products". While Selvarajah's evidence as to "the technology" was vague, I find that Knight conveyed to Selvarajah the substance of what the defendants had told him, namely that they had designed and developed a new method of harvesting hemp which had a competitive advantage, and thus would enable the joint venture using this technology to make a profit, as to which commercial operations would be able to commence in the 2003/4 season. I accept that Knight told Selvarajah that, in return for being the "seed investor", Selvarajah would obtain a 10 percent shareholding in the joint venture company, and 30 percent of the joint venture company would then be available for other investors to be sourced by ARE and that upon those investors committing funds, Selvarajah would be refunded $150,000, effectively reducing his investment to $100,000. I find that at the meeting where Selvarajah signed the cheques for $250,000, Knight told Selvarajah that he saw great possibilities for the project although as Knight said, he was focusing on the project side of it rather than the intellectual property and licensing side of it. As to the intellectual property and licensing side of the project, I find that Knight mentioned to Selvarajah that there were issues relating to the intellectual property which needed to be resolved before the Chinese investors would invest in the joint venture, but consistent with Knight being confident that the outstanding issues could be resolved and Allwood's assurances to that effect, I consider it likely (and so find) that Knight did not refer to the matter in detail, but merely assured Selvarajah that everything would be resolved. This conclusion is consistent with the evidence Selvarajah gave in cross-examination when counsel asked whether he (Selvarajah) went to Clayton Utz to arrange an agreement, to which he responded that it was Knight rather than he that went to Clayton Utz, and that he (Selvarajah) only went to Clayton Utz for the purpose of the preparation of this case, "because I didn't even know much about all IPs and all that, that legal side I never knew". I do not overlook the defendants' submission to the effect that, at the time he sought Selvarajah's investment, Knight envisaged that Selvarajah's involvement would be limited to a discrete initial stage of the project, hence Knight may not have told him about the intellectual property issue because that was a matter of longer term concern. In my view, however, it was always intended by Knight that Selvarajah retain an ongoing 10 percent interest in the joint venture. Thus, I do not accept that Knight regarded the question of the intellectual property (which would ultimately have to be dealt with in the joint venture agreement) as a matter which Selvarajah did not need to be advised because he was only the "seed funder". Rather, I consider that Knight did not inform Selvarajah of the intellectual property issues in any detail because Knight himself knew little about those issues, and was still in the process of working through them. Knight was assured by Allwood, and believed, that the intellectual property issues could be resolved, and he passed on that belief to Selvarajah.

369 It is now convenient to deal with the defendants' submission on causation. The plaintiffs bring the proceeding under s 82 of the TPA as persons who suffered loss "by conduct of" the defendants that was done in contravention of s 52 of the TPA. Further, the case is brought under s 159 of the FTA by the plaintiffs as persons who suffered loss "because of" a contravention of the FTA. It is well established[40] that these provisions take up the "common law practical or common-sense concept of causation" as discussed by the High Court in March v Stramere (E & MH) Pty Ltd[41]. As their Honours observed in that case, causation is essentially a question of fact to be determined by reference to common sense and experience and one into which policy considerations and value judgments necessarily enter. Further, I note that it is not necessary that the defendants' misleading and deceptive conduct be the sole cause of the plaintiffs' loss. It is sufficient that the defendants' misleading and deceptive conduct be one of several causes of the plaintiffs' loss.

370 In essence, counsel for the defendants submitted that the plaintiffs' loss (represented by the payments made to the joint venture by ARE and Selvarajah) was suffered not because of any misrepresentations made by the defendants, but rather because of the plaintiffs' informed choice to invest money in a risky venture (which counsel described as "venture capital") in circumstances where (a) all involved knew that the relevant harvesting machinery had not been fully developed, (b) ARE had undertaken its own research as to the possibilities of the joint venture, and (c) the defendants had made it clear from the outset that while they were prepared to license the relevant intellectual property to the joint venture, ownership of the intellectual property would be retained by Fibre Laboratory, yet the plaintiffs' ultimate position (which only became apparent after the relevant payments had been made) was that they were not prepared to enter into a joint venture agreement unless the existing licence agreement was terminated and the relevant intellectual property assigned to the joint venture company. The submission was, as I understood it, that the plaintiffs' loss was caused by Knight procuring payments by ARE and Selvarajah to the joint venture (under the terms of the MOU, which terms did not include assignment of the intellectual property) and then taking the position that assignment of the intellectual property was required, which had the effect of ending the joint venture. Further, it was submitted, payments were made to the joint venture after the time at which Knight began to doubt whether the defendants in fact owned the relevant intellectual property. The defendants' counsel referred to Knight's evidence that Selvarajah invested in Fibrenova "at my behest", and Selvarajah's evidence that he trusted Knight and thought he was an astute business man who knew how to find a good deal, in support of their submission that it was on this basis, and on the basis that Knight told Selvarajah that investors stood to make good money, and on the basis of the further incentive that if Selvarajah invested the seed money then his investment exposure would be reduced once Chinese investors were brought in, that the plaintiffs invested.

371 The defendants' submission does not address the central question in the case, namely whether the relevant payments were made on the faith of the defendants' misleading and deceptive conduct. As to that, I have concluded that the payments were made in reliance on the defendants' misleading and deceptive conduct. I accept that Knight considered that Selvarajah invested in Fibrenova "at his behest", and I accept Selvarajah's evidence that he trusted Knight and thought he was an astute business man who knew how to find a good deal, but neither matter alters my conclusion. For Knight to say that Selvarajah invested "at his behest" is to acknowledge no more than that Knight, and Knight alone, introduced the investment to Selvarajah and that in consequence of what Knight advised, Selvarajah decided to invest. I find that it meant no more than that. It is self-evident in my view. The fact that Selvarajah trusted Knight did not mean that Selvarajah did not rely on anything that Knight passed on to him or any of the misleading representations that Knight had received from the defendants. Indeed I find that Selvarajah did not decide to invest merely because he trusted Knight and considered him an astute businessman who knew how to find a good deal. The reality of the situation, and the fact which I find, is that Knight, as was reasonably to be expected by the defendants, was induced by their misleading and deceptive conduct to take the possibility of investment to potential investors, relying upon that conduct, and to do so he communicated to such persons and Selvarajah in particular, expressly and inferentially, the terms or effect of the misleading statements. In effect, Knight communicated to Selvarajah his belief, based on what the defendants had represented, that the joint venture would be profitable, that the joint venture would have the use of all relevant intellectual property, and that the technology to be used by the joint venture had been designed and developed to such an extent that commercial hemp fibre production would be able to commence in the 2003/2004 season. I find that Selvarajah relied on these matters in deciding to invest, and in making payments. I find that ARE, for its part, also relied on the defendants' misleading and deceptive conduct in making its payments. I do not overlook the fact that ARE made payments totalling almost $50,000 at a time (17 and 19 November 2003) after Knight became aware that there was, or might be in the future, a dispute between Fibrenova and Williames as to the ownership of intellectual property. Nevertheless, Knight had asked Allwood about the issue, and Allwood told Knight that Fibrenova "would take the position" that it owned the relevant intellectual property. I find that ARE (through Knight) made all relevant payments for joint venture purposes in good faith and on the basis that the joint venture would be able to use the necessary intellectual property.

New point raised by defendants after judgment reserved

372 Finally, it remains to mention that several days after I reserved judgment the defendants' solicitors sent to my associate a further written submission raising a new argument. The submission was prepared by the defendants' solicitors (being Allwood's firm) but not signed by counsel. The submission was provided without my leave and the plaintiffs' solicitors opposed the granting of leave. It has been said time and again that the trial concludes with the completion of addresses and reservation of judgment. Unless the judge grants leave for a further submission, a party has no right to provide one to the judge and it acts wrongly if it does so whether unilaterally or with the concurrence of the other party. It is an indulgence for a judge to consider such a submission. Nevertheless, in the circumstances of this case, I will deal with the submission. There is no prejudice to the plaintiffs in doing so as for reasons set out below, the point fails on the merits.

373 In short, the defendants submitted that even if they misled Knight thereby causing him to advise Selvarajah to invest, and Selvarajah acted on that advice, nevertheless the chain of causation between the defendants' misleading conduct and the plaintiffs' loss was broken by one or both of the plaintiffs. The defendants referred to the decision of the High Court in Bennett v Minister for Community Welfare[42] where McHugh J observed that[43]:

"The causal connexion between a defendant's negligence and the plaintiff's damage is negatived by the subsequent conduct of another person only when that conduct is 'the free, deliberate and informed act or omission of a human being, intended to exploit the situation created by the defendant'. When the subsequent conduct is a cause of the damage but is unrelated to the situation created by the earlier negligence, the subsequent conduct and the earlier negligence are treated as separate and independent causes of the damage".

The defendants also referred to The Nominal Defendant v Gardikiotis[44] where McHugh J observed that "Under the common law theory of common sense causation, a free, informed and voluntary act of the plaintiff or a third party, which builds on a situation resulting from the defendant's tort and causes loss or damage to the plaintiff, negatives any causal connection between that tort and the loss or damage".

374 The defendants relied on the following conduct of the plaintiffs as negativing the causal link. As to ARE, it was submitted that Knight misled Selvarajah in two ways. First, he concealed the terms of the MOU from Selvarajah. Had Selvarajah known of the benefits payable to ARE under the MOU, he would have had real cause to doubt Knight's advice. Secondly, Knight mislead Selvarajah when he stated that he would obtain 10 percent of the equity in the joint venture company with an investment of $250,000. Given that the MOU stated that total investment of $2.5M was required to give the investor a 40 percent equity in the joint venture company, for Selvarajah to have received a 10 percent equity he would have needed to invest one quarter of $2.5M, that is to say in excess of $600,000. Alternatively, Knight intended to mislead the other investors who were to invest the balance of the $2.5M required, by only giving them 30 percent equity in the joint venture when the MOU stated that the investor was to receive 40 percent. As to Selvarajah's conduct, it was submitted that he made the investment for two reasons, first because he trusted Knight and secondly "the misleading and nonsensical promise" that by investing $250,000 he would have $150,000 returned to him and receive 10 percent equity in the joint venture. This conduct was a free, informed and voluntary act of Selvarajah which built on the alleged misrepresentations of the defendants and thus negated any causal link between those misrepresentations and the plaintiffs' loss.

375 In my view the defendants' submission is without substance. First, while I accept that Knight did not inform Selvarajah of the terms of the MOU, I reject the contention that, had Selvarajah been informed of the terms of the MOU, he would have had "real cause to doubt" Knight's advice. The likelihood is, and I so find, that Selvarajah would have still acted on Knight's advice. Secondly, it is not established that Knight misled Selvarajah about the 10 percent equity he was to obtain. Although the MOU referred to "an investor" the fact is that Knight was trying to secure investment from a number of sources, and there was always the possibility that the 40 percent equity referred to in the MOU would be split between different investors. And while it may be that the promise of 10 percent equity to Selvarajah for an outlay of only $100,000 (assuming that Selvarajah was reimbursed $150,000) was generous, given that only 30 percent equity would be left for the remaining $2.4M of investment, that does not establish that Knight misled Selvarajah, or that he intended to mislead other investors. Thirdly, while Selvarajah's trust of Knight and that Knight's offer was obviously attractive to him were factors in deciding to invest, I do not accept the submission that Selvarajah's voluntary act was "intended to exploit the situation created by the defendants" with the result that the causal link was broken between the defendants' misrepresentations and the plaintiffs' loss. Ultimately, the question under the TPA and FTA is whether the plaintiffs suffered loss by, or because of, the defendants' conduct. In my view, nothing that the plaintiffs did affects the conclusion that they suffered loss by, or because of, the defendants' conduct in contravention of the TPA and FTA.

376 For these reasons the plaintiffs are entitled to recover $328,365.75, being the payments they made to the joint venture as set out in paragraph 11 of the statement of claim. I will hear counsel on the orders to be made including as to costs.

[1] Information Paper on Industrial Hemp published by the Department of Primary Industries and Fisheries, Queensland, 12 May 2005, para 2.3.

[2] Sections 62 and 66.

[4] As to which submission, see [334] below.

[5] Fibrenova Industrials Australasia Pty Ltd ("FIA") was incorporated in New South Wales on 8 October 2003 as the company to conduct the joint venture.

[6] See O'Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188; (2002) 122 FCR 455 at 461-462, [15] quoting Drummond J in Australian Competition and Consumer Commission v IMB Group Pty Ltd [1999] FCA 819.

[7] (1998) 88 FCR 511 at 513.

[8] [2004] FCAFC 175 at p 4-5, [11]-[12].

[9] [2002] FCA 1276 at p 16, [44]-[45].

[10] (2000) 49 NSWLR 315 at 318-319.

[11] See the Deed at Court Book 1425-1428.

[13] The BioRegional report refers to "green decortication" as the process of separating the bast fibre from hemp stalks without the need for retting; see Court Book 1713.

[16] Davidson said in evidence, and I accept, that he was employed by Visy as "general farm manager".

[23] In his witness statement Knight said that Clarke stated that Fibrenova was being financially backed by the Victorian government, having secured initial funding of $500,000 and that additional funding was likely to be forthcoming.

[24] Allwood said in cross-examination, and I accept, that Knight introduced Armour to the meeting as a shareholder of ARE.

[25] I infer that "that country" refers to the province of British Columbia. Nothing turns on whether that was so or whether the reference was to Canada.

[26] Although Morton said "planning" in his witness statement (para 26), it seems from the context that the word "planting" was intended. Nothing turns on this, however, and discussion about planting and harvesting a crop would no doubt include discussion as to planning too.

[27] It appears that the amount was $20,500. There was some dispute about this in cross-examination, but nothing turns on it.

[28] See cl 16 of previous drafts at Court Book 888 and 952.

[30] I infer that this client is Selvarajah, as it was he who went on holiday to the Northern Territory.

[31] When asked in cross-examination what he meant by his statement that the IP was safe, Davidson said that "the synergies between a traditional combine harvester and the proposed machine weren't dissimilar. It would be argued that Case, John Deere, International, and so on, probably haven't come across something like this before".

[32] In the North of Western Australia.

[33] Clarke said that 12 tonnes of seed (costing about $100,000) was required to plant 200 hectares of hemp.

[34] Although nothing turns on it, I note that it is unclear whether the seed was shipped or sent by air freight. It was put to Knight in cross-examination that the seed arrived in November, as to which he could not remember. Selvarajah said in cross-examination that Knight sought $55,000 from him in September "to pay for the seed and to have the seed flown over from Hungary". Selvarajah also referred to paying $55,000 to have the seed flown over and said "the urgency was to fly the seed so they were ready for the next season. That's why they fly them over. I think the flight cost more than the seed".

[36] I note that it was a decorticator (not a harvester) which was used in the UK trial, however it was common ground that the joint venture intended to build a machine which combined the harvesting, decorticating and de-gumming processes.

[37] It is not clear when Davidson undertook this responsibility. His answer in cross-examination suggests that it was on 7 June, while Clarke and Allwood said it was on 17 June. In my view, nothing turns on the date, and it is unnecessary to make a finding as to which date is correct.

[39] I note that there was more than one set of profit figures prepared at times relevant to this case, however counsel focused on the 16 June figures and addressed submissions on that basis. In the circumstances of the way the case was conducted I am unable to, and do not, speculate as to whether any of such other profit figures were seen by any of the witnesses, and, if so, what they indicated to any such person.

[40] See Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 per Mason CJ at 525.

[41] [1991] HCA 12; (1991) 171 CLR 506.

[42] [1992] HCA 27; (1992) 176 CLR 408.

[44] [1996] HCA 53; (1996) 186 CLR 49.