Plaintiffs v Defendants

Supreme Court of Victoria|2013-06-20|Before: DAVIES J

TRADE PRACTICES - Misleading or deceptive conduct - Representations as to present fact and future matters - Loan agreement - Representation that a loan could be "called up" at any time - Representation that funds in alternative facility could be drawn down to fund repayment of the loan - Whether a reasonable person would have understood representations as conveying that loan would be repaid immediately upon demand - Whether representations implied a capacity to repay - Failure to repay loan - Whether defendants had a reasonable basis for making representations - Whether representations misleading or deceptive - Whether plaintiffs induced to approve loan in reliance on the representations - Trade Practices Act 1974 (Cth), ss 51A, 52, and 82 - Fair Trading Act 1999 (Vic), ss 4, 9, and 159 - (1995) 183 CLR 563 applied - Award of damages.

TRADE PRACTICES - Misleading or deceptive conduct - Accessorial liability - Involvement in contraventions - Knowledge - Trade Practices Act 1974 (Cth), s 75B - Fair Trading Act 1999 (Vic), s 145 - Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 applied.

CORPORATIONS - Director's Duties - Non-executive directors - Care and diligence - Good faith - Proper purpose - Corporations Act 2001 (Cth), ss 180 and 181 - No breach of duty because company acting as agent not principal.

AGENCY - Joint venture - Whether nominee company merely agent for joint venture parties - Express denial of agency relationship in joint venture agreement and management agreement - Whether relationship was in truth one of principal and agent - Consideration of relevant principles - Relevance of control - Implied agency - Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465.

EVIDENCE - Relevance of pleading in prior proceeding to assessment of credit - Court entitled to assume that the pleading reflects instructions given by the defendants to their legal practitioners - Requirement to put one's name to a pleading reflects duty imposed on practitioners to be satisfied pleading has a proper basis - Unnecessary to consider whether pleading amounted to an admission - Evidence Act 2008 (Vic), ss 81 and 87 - Civil Procedure Act 2010 (Vic), s 18.

For the Plaintiffs and Eighth, Ninth and Tenth Defendants

No appearance on behalf of the First, Second or Third Defendants

1 The first plaintiff ("Texxcon") and a company called Austexx Constructions No. 2 Pty Ltd ("Austexx Constructions") were joint venturers in an unincorporated joint venture called the Austexx Texxcon Joint Venture ("the JV"), which was established to carry out the design and construction of various commercial developments for the Austexx Group of companies ("the JV works"). The second plaintiff ("Nominexx") is jointly owned and controlled by the joint venture parties and was appointed by them to undertake the JV works on their behalf. Those works included the construction of a retail and tower complex ("the South Wharf Development") for the second and third defendants ("the Developers"), both Austexx Group companies.

2 These proceedings concern a loan of $14 million of JV funds that Nominexx made to the first defendant ("Austexx") to enable the Developers to meet the September and October 2008 progress payments on the South Wharf Development. The loan was never repaid and the plaintiffs have sued to recover the loan amount by way of damages and/or compensation based on claims of misleading and deceptive conduct, accessorial liability and breach of directors' duties.

3 Austexx was a parent company of the Austexx Group, which was privately owned. Messrs Wieland, Goldberger and Porz (the fourth, fifth and sixth defendants respectively) held substantial indirect shareholding interests in the Group, and were also directors of Austexx. Mr Porz was the Group's Chief Executive Officer and during the relevant time, Mr Cowan (the seventh defendant) was its Chief Financial Officer.

4 In 2006, Messrs Wieland and Goldberger, on behalf of the Austexx Group, approached Messrs Gray and Henderson (the eighth and ninth defendants respectively) about a joint venture to undertake the design and construction of Austexx Group development projects, with the view to synergising the Austexx Group's pipeline of commercial development projects and financial strength with the large project construction experience of Messrs Gray and Henderson, who were in the construction industry. They agreed to form the JV and Texxcon was set up by Messrs Gray and Henderson as their JV vehicle. Austexx Constructions was set up as a subsidiary of Austexx as the Austexx JV vehicle.

5 The relations of the JV parties were regulated initially by a Term Sheet and later by a joint venture agreement ("JVA") which incorporated the Term Sheet. The contractual arrangements provided for a jointly owned and controlled company to conduct the JV works as the nominee of the JV parties and Nominexx was incorporated for that purpose and appointed to conduct the JV works. Messrs Porz, Wieland and Goldberger were appointed directors of Nominexx representing the Austexx interests, and Messrs Gray, Henderson and Gianfriddo (the tenth defendant) were appointed directors of Nominexx representing the Texxcon interests. Texxcon and Austexx Constructions hold the shares of Nominexx in equal shares.

6 Mr Gianfriddo was, at the relevant time, the Chief Financial Officer and Company Secretary of Contexx Pty Ltd ("Contexx"). Contexx is not a party to these proceedings but it is relevant to the contractual structure within which the JV operated. Messrs Henderson and Gray set up Contexx shortly before the JV was established, primarily to undertake construction works for Austexx Group projects.

7 From the outset, the JV arrangement was that Nominexx would enter into a fixed price building contract (which included margin and overheads) with the relevant Austexx development entity and would then sub-contract the construction of the project to Contexx at cost. The profit, being the margin on the building contract plus any savings, was made at JV level.

8 The Developers were the development entities through which the Austexx Group, in conjunction with the Plenary Group, undertook the South Wharf Development. The Austexx Group held a seventy-five per cent interest in the Developers and the Plenary Group held the remaining twenty-five per cent share.

9 The South Wharf Development was the second project undertaken by the JV and proceeded under the contractual model that the JV parties had agreed on for JV projects. The head contractor for the project was Nominexx, which entered into a contract with the Developers on 6 December 2007 to construct the South Wharf Development at a fixed price. On or about the same date, Nominexx entered into a sub-contract with Contexx for the construction of the project at cost. The JV parties agreed on Texxcon taking a seventy-five per cent share of the margin on the building contract ("the base margin") and otherwise sharing any savings equally. Construction was to start in 2007 with an expected completion date in November 2009.

10 On 19 December 2007, the Developers (and associated companies in the Austexx and Plenary Groups) entered into a Syndicated Facility Agreement ("SFA") with a number of financial institutions ("the senior lenders") to finance the construction of the South Wharf Development. The facility limit was $556.7 million which included funding of $124 million to construct the tower component of the Development.

11 The funds from the SFA were used by the Developers to meet progress claims on the South Wharf Development. At the end of each month Nominexx submitted a progress claim for the full contract value of work done to the end of that month (which included base margin and other amounts), which would be certified within ten business days and a certificate then presented to the Developers for payment, due by the 28th of the following month. Each month, after receipt of payment from the Developers, Nominexx would reimburse Contexx for its costs under the sub-contract. Those costs excluded the base margin and any other savings, which remained in the JV account. Contexx, in turn, would pay its subcontractors for work performed.

12 A condition of drawing under the SFA to fund the construction of the tower was the pre-sale of the tower by 19 September 2008. If the pre-sale condition was not satisfied, the construction facility limit automatically reduced and the senior lenders were not obliged to finance the construction of the tower.

13 During the first part of 2008, it became apparent that the Developers would not be able to satisfy the tower pre-sale condition. However, work on the tower had begun before the condition was required to be met. That work was necessary, and done with the approval of the senior lenders, due to the physical interconnection between the retail construction and the tower construction: Contexx needed to construct footings and foundations for the whole site, including the tower, at the same time.

14 Consequently, the financing arrangements were renegotiated with the senior lenders and changes were made to the design of the tower to reduce its height from sixteen to twelve floors. Under the new financing arrangements, the facility limit was reduced to $427.6 million and the Austexx and Plenary interests were required to provide $72 million from external sources towards the cost of the Development.

15 On 18 September 2008, a Deed of Variation to the SFA was entered into giving effect to the altered financial arrangements, and a copy of the Deed of Variation was provided to Nominexx and Contexx. The continued funding through the SFA was subject to certain conditions precedent, which included substantiation that the Austexx and Plenary interests were providing the additional funding of $72 million. Of that amount, the Plenary interests agreed to contribute $12 million (representing their twenty-five per cent interest), leaving the Austexx interests to fund the balance of $60 million.

16 In the meantime, the Austexx interests had been pursuing external finance for their $60 million contribution through a broker at Ashe Morgan Winthrop. The broker, Mr Davis, secured funding through a Mr Vella at Mirvac Funds Management Ltd. On

6 August 2008, Mirvac Funds Management Ltd, as facility agent for Ausmezz Pty Ltd and Mirvac Capital Investments Pty Ltd, agreed to provide a mezzanine finance facility of $60 million ("the Mirvac facility") to be used for the purpose of contributing equity towards the South Wharf Development.

17 The facility agreement was entered into on 19 September 2008. The borrowers were Direct Factory Outlets Spencer Pty Ltd and Austexx Spencer Pty Ltd ("the Borrowers"), companies associated with Austexx. The lenders were a syndicate which included the Government Investment Corporation ("GIC"), the investment arm of the Singapore Government. The Mirvac facility provided for the advance of funds in three tranches totalling $46 million and a Capitalisation Interest Facility of $14 million ("CIF"), which was expressed to be available to secure the payment of the capitalised interest for the third tranche of the advance. Austexx drew down the full $46 million in September 2008 and interest on those borrowings began to accrue.

18 Under clause 4.3(c) of the Mirvac facility, the Borrowers could elect to convert the CIF into a principal sum available for draw down by prior written notification given to the facility agent. As Austexx's intention all along was to use the CIF to fund the $14 million that remained to be injected by it into the South Wharf Development, Austexx did not use the CIF to capitalise interest for the month of September 2008 but instead gave notice that it wished to exercise its right to convert the CIF into a principal sum.

19 In early October 2008, Mr Porz and Mr Cowan were in communication with Mr Davis and Mr Vella about the conversion of the CIF into a principal sum for draw down to fund the September and October 2008 progress payments due to Nominexx on 28 October and 28 November 2008 respectively. On 14 October 2008, Mr Vella informed Mr Porz and Mr Cowan by email that formal approval to convert the CIF to loan principal was expected by 30 October 2008. Mr Vella noted that the next progress payment was due at the same time and asked whether there was any capacity to delay the progress payment or for Austexx to fund the progress payment in the interim before the loan funds were available. Mr Cowan replied to Mr Vella by email the same day, copied to Mr Porz, that the progress payment was actually due on 28 October 2008 and at most Austexx could delay the payment by one day and that Austexx could not fund the payment on a short-term basis for many reasons.

20 On 20 October 2008, the Borrowers gave a draw down notice for $7,241,968, requested to be paid by 28 October 2008 (the draw down sum was equal to the amount of Austexx's share of the September 2008 progress claim). The following day, Mr Cowan sent an email to Mr Davis, copied to Mr Porz, asking Mr Davis to set out the steps and timing that Mirvac needed to go through to provide the balance of the funds. Mr Davis replied by email the same day to Mr Cowan, copied to Mr Porz, advising that the Mirvac funds would not be available by 28 October 2008 and that Mr Davis was unsure of the timing for the advance of the funds from Mirvac, which he said required the approval of the GIC and Mirvac's capital investment board, but he did tell them that "when approval is obtained ... funding becomes immediately available".

21 At that time about $32 million was sitting in the JV account and Mr Cowan approached Mr Gray about the possibility of a short-term loan of $14 million being made to Austexx from the JV funds. It is common ground that Mr Cowan raised this with Mr Gray at a meeting between them on 20 or 21 October 2008.[1] It is also common ground that sometime prior to 29 October 2008, Mr Gray and Mr Porz had a short discussion concerning the proposed loan.[2] The case for the plaintiffs was that there was also a meeting between Mr Cowan, Mr Gray and Mr Gianfriddo on

27 October 2008 at which the proposed loan was discussed.[3] The alleged misrepresentations on which Texxcon has sued were said to have been made by Mr Cowan and Mr Porz during those meetings and were also said to be contained in a document titled "South Wharf Tower Funding" ("the Funding Document").

22 It was uncontroversial that Mr Cowan was asked by Mr Gray to put the loan proposal in writing and that Mr Cowan emailed the Funding Document to Mr Gianfriddo, copied to Mr Gray and Mr Porz, on 29 October 2008. The document was described as containing a "summary of [the] commercial terms" of the proposed loan. The document briefly set out the background to Mirvac providing a $60 million facility to Austexx, and noted that $46 million had already been drawn down. The Mirvac facility was described as including:

... an Interest Capitalization facility of $14m which at Austexx (sic) election may be drawn down as a capital contribution.

23 The proposal was for a loan of $14 million at ten per cent interest for a maximum loan period of fourteen months which:

Nominexx may call up [...] at any time during the 14 months (Austexx to draw down on the undrawn on Mirvac $14m at that time).[4]

24 It was also uncontroversial that Mr Porz, two days earlier, had instructed the Mirvac lenders that Austexx wanted to use the CIF to capitalise the interest accruing on the whole $46 million that had been drawn down (not just on the third tranche). That instruction was given on 27 October 2008 and agreed to by the Mirvac lenders. The amount of interest accruing per month on the whole $46 million in drawings was around $700,000. In Ausmezz Pty Ltd v Goldberger[5] ("the Ausmezz proceedings") Pagone J held that the instruction was not intended to be a withdrawal of the request to convert the CIF into a capital sum but rather was intended, and understood, as the Borrowers' accommodation of the need to deal with the situation created by the financiers' inability to convert the CIF to make the funds available for draw down.[6] No different case was advanced by Mr Porz (or Mr Cowan) in this proceeding.

25 Mr Gray and Mr Henderson gave their approval for the loan of the JV funds to Austexx and the loan was advanced in two tranches: an amount of $7,211,968 on

31 October 2008 and an amount of $6,788,032 on 27 November 2008. The loan monies, when respectively advanced, were applied by the Developers to the payment of the September and October 2008 progress claims.

26 In September 2009, Mr Cowan told Texxcon that the Mirvac facility was not available to repay the loan or accrued interest and that the funds to repay the loan would need to be sourced elsewhere. On 11 December 2009, Mr Cowan told Texxcon that Austexx would not be able to repay the loan and accrued interest within the fourteen month period. On 15 December 2009 a formal loan agreement was entered into which provided for the repayment of the loan plus interest by 1 January 2011. Austexx defaulted and the repayment did not occur.

The pleading of the misleading or deceptive conduct claim

27 Claims are made that s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") and s 9 of the Fair Trading Act 1999 (Vic) ("the FTA") were contravened by Austexx, the Developers, Mr Cowan and Mr Porz.[7]

28 It is pleaded that, in order to induce Texxcon to approve the loan from Nominexx to Austexx of $14 million, Mr Cowan, between 20 and 29 October 2009, represented to Texxcon that:

(a) the loan from Nominexx to Austexx would be for a maximum of fourteen months;

(b) Austexx would pay interest on funds drawn under the loan at a rate of ten per cent per annum, which was also to be paid to Nominexx by December 2009;

(c) Nominexx could call up the loan at any time during the fourteen months to December 2009 and it would be paid by Austexx if such call was made;

(d) funds were available to Austexx by way of the CIF that could be used to repay the loan amount plus interest due under the loan at any time; and

(e) by inference, as a consequence of those representations, that:

(i) Austexx then had the capacity to repay the loan amount plus accrued interest to Nominexx;

(ii) Austexx would have the capacity to repay the loan amount plus accrued interest to Nominexx at the expiry of fourteen months, in December 2009; and

(iii) at any time during the fourteen month period Austexx would have the capacity to repay the loan amount plus accrued interest.[8]

29 It is also pleaded that Mr Porz represented to Mr Gray between 20 and 28 October 2008 that the loan amount could be repaid at call by Austexx drawing down the CIF.[9]

30 It is alleged that the representations were misleading and/or deceptive because:

(a) "as the defendants knew", the Mirvac lenders had failed or refused to advance $14 million to Austexx pursuant to the draw down request on

(b) "as the defendants knew", the CIF accordingly could not be used by Austexx to repay the loan amount to Nominexx; [11]

(c) after 20 October 2008, Austexx and/or its related entities sought but were unable to find an alternate source of funding for the sum of $14 million, save for a short term "at call" facility which was the subject of a demand for repayment within a short time of the funds being loaned;[12]

(d) neither the loan amount nor any interest was repaid to Nominexx by Austexx by December 2009;[13]

(e) Austexx did not repay the loan amount or any accrued interest despite calls for repayment;[14] and

(f) Austexx did not have the capacity to repay the loan amount at any time during, or at the end of, the fourteen month period.[15]

31 It is further alleged that from 29 October 2008, Mr Porz knew, by reason of being copied into Mr Cowan's email of 29 October 2008 attaching the Funding Document, that the representations had been made and that those representations were misleading and deceptive,[16] and that despite his knowledge, he failed to correct the false representations or to disclose to Texxcon that the representations were false.[17] It is alleged that his silence was conduct in contravention of s 52 of the TPA and

32 Finally, it is alleged that if the representations constituted statements of opinion, there was no reasonable basis for the opinions[18] and that insofar as the representations were directed to the future capacity of Austexx to pay the loan amount, there were no reasonable grounds for making the representations.[19] Reliance on s 51A of the TPA and s 4 of the FTA are pleaded.

33 A claim is made under s 75B of the TPA and s 159 of the FTA against Mr Porz, Mr Wieland and Mr Goldberger that they had aided, abetted, procured or were knowingly involved in the contraventions of s 52 of the TPA and s 9 of the FTA because they each:

(a) authorised Mr Cowan and/or Mr Porz to make the representations;

(b) knew at all relevant times that the representations had been made; and

The pleading of the breach of directors' duties claim

34 It is alleged that Mr Porz, Mr Wieland and Mr Goldberger breached their duties as directors of Nominexx because:

(a) as directors of both Nominexx and Austexx, they knew or ought to have known that Nominexx was lending $14 million to Austexx;[21]

(b) they knew or ought to have known that the CIF could not be used by Austexx to repay the loan amount or accrued interest to Nominexx "on call" if Nominexx was to make the loan to Austexx,[22] that Austexx did not then have the capacity to repay the loan amount or interest to Nominexx,[23] and that Austexx was unlikely at any time in the foreseeable future to have the capacity to repay the loan amount or accrued interest;[24] and

(c) they approved the making of the loan by Nominexx to Austexx, failed to disclose to the Nominexx board that the matters of which they knew or ought to have known and failed to prevent the making of the loan by Nominexx.[25]

35 The plaintiffs' case was that the representations sued on were made orally and in writing. The representations were said to have been made orally:

(a) by Mr Cowan at a meeting between Mr Cowan and Mr Gray on 20 or

(b) by Mr Porz at a meeting between Mr Porz and Mr Gray sometime between

(d) in the Funding Document that Mr Cowan emailed to Mr Gianfriddo, copied to Mr Gray and Mr Porz, on 29 October 2008.[29]

(a) The evidence about the meeting between Mr Cowan and Mr Gray on 20 or 21 October 2008[30]

36 Mr Gray was uncertain whether this meeting occurred on 20 or 21 October 2008 but it is reasonably clear from the evidence that the meeting must have taken place in the evening of 21 October 2008. Mr Cowan and Mr Porz had earlier that evening learnt from Mr Davis by email that the CIF funds would not be available in time to pay the September 2008 progress claim. Mr Cowan's evidence was that he contacted Mr Gray that night and said he had a proposal to discuss with him and that he went down shortly afterwards to Contexx's offices.

37 Mr Gray and Mr Cowan gave largely consistent accounts of what was said at that meeting. It was the common evidence of Mr Gray and Mr Cowan that:

(a) Mr Cowan told Mr Gray that he had a proposal that he wanted to put in regard to the funds in the JV account;

(b) Mr Cowan explained the funding arrangements for the construction costs of the tower and that Austexx had a $60 million facility with Mirvac;

(c) Mr Cowan told Mr Gray that there was $14 million remaining to be drawn down under the Mirvac facility, which was available to be drawn down any time;

(d) Mr Cowan raised the possibility of Austexx borrowing

$14 million from the JV account on a short-term basis as a cheaper form of finance than drawing down the remaining $14 million under the Mirvac facility, which had an interest rate of eighteen per cent;

(e) an interest rate of ten per cent was discussed;

(f) Mr Gray asked for the proposal in writing, and said that he needed to discuss the proposal with Mr Henderson; and

(g) Mr Cowan asked to be provided with Nominexx's projected cash flows to understand the likely time when Nominexx would require repayment.

(a) whether Mr Cowan told Mr Gray that the loan could be repaid "at call"; and

(b) whether anything was said about Mr Wieland and Mr Goldberger.

39 In his evidence-in-chief, Mr Gray said that Mr Cowan told him that the Mirvac facility could be drawn down at any time and that he then said to Mr Cowan:

"Is that at call?" And he[31] said, "Simon[32], it's available tomorrow if we need it." And I said, "Well Chris[33], we don't want to be scrapping around chasing cash from you guys when the bank account runs down, we need to know that that cash is there to go back into the account[34]

and that Mr Cowan confirmed that was the case. He said that he then asked Mr Cowan whether Mr Goldberger and Mr Wieland were aware of the proposal and its terms and Mr Cowan indicated that they were.

40 In cross-examination, Mr Gray relayed the exchange about the availability of the Mirvac loan in slightly different terms. His evidence was that:

I asked him, "Was this money available to draw down back upon immediately that we would need it, given that we would ultimately have to make sure our cash accounts, our cashflows were safe?" Chris[35] said, "This money's available at call and that we could draw it down at any time."[36]

41 In evidence-in-chief, Mr Cowan was asked to tell the Court what the proposal was that he communicated to Mr Gray. Mr Cowan gave the following evidence:

I explained the background to it. I advised Mr Gray that there was

$14 million remaining to be drawn under the Mirvac facility, and I explained to him that the facility was not a - to use words that I was familiar with, a come-and-go facility, so once it was drawn, you couldn't repay it and then redraw it and redraw, so it was not a come-and-go facility, and I said that we were due to draw down the remaining $14 million imminently if in one or two portions.[37]

42 He did not elaborate on what else was said and was not asked to do so in evidence-in-chief. In cross-examination he gave the following evidence:

You referred to the Mirvac facility, you told them about the Mirvac facility?---I told them about the funding of the Tower, of the $72 million.

You explained that under the revised Tower financing, Austexx had to make a contribution to the funding of the Tower?---Yes.

And that it was $72 million in total?---Yes.

And that 12 of that was coming from Plenary and 60 from Austexx?---Yes.

You explained that the 60 was coming from Mirvac?---Yes.

But that 14 of it wasn't coming - hadn't come through just yet?---14 was undrawn.

Undrawn, correct. You explained, didn't you, that the cost of that money was about 17 or 18 per cent?---Yes.

You suggested that an alternative way of doing it was to withdraw funds from Nominexx which had a lot of money in the bank?---Yes.

And receive 10 per cent interest on it?---Yes. The 10 per cent was an agreed figure.

From your point of view it was a lot more attractive than 18 per cent?---Yes.

But it was always only going to be a short-term thing?---Yes.

You told them, did you, about the fact that the 14 was there to be drawn down whenever you wanted to draw it down?---I told them that the facility was available, yes.

And that it could be called on whenever you wanted to?---Yes, it would be drawn down but there was a process to go through to draw those funds down.[38]

43 Mr Cowan denied that Mr Gray asked him about Mr Wieland and Mr Goldberger or that he said that they were across the loan and its terms. His evidence was that the proposal was his idea and that he had not spoken to Mr Porz, Mr Wieland or Mr Goldberger about the proposal before meeting with Mr Gray. He said that he told Mr Gray that he was not authorised to ask for the loan, that he had not spoken to Mr Porz about the proposal and that if Mr Gray had an appetite for the proposal, then Mr Gray would need to have a meeting with Mr Porz to discuss it further.

(b) The evidence about the meeting between Mr Gray and Mr Porz held between 20 and

44 It was uncontroversial on the evidence that Mr Porz and Mr Gray met in Austexx's boardroom sometime around 22, 23 or 24 October 2008 and that they had a brief discussion about the proposed loan. In controversy was whether Mr Cowan was also there and whether Mr Gray sought, and was given, confirmation that the loan was at call and that Mr Goldberger and Mr Wieland were aware of the proposal for a loan and its terms.

45 Mr Gray's evidence was that Mr Cowan was not at that meeting. Mr Gray's version of the conversation was that he asked Mr Porz whether Mr Porz was aware that he (Mr Gray) and Mr Cowan had been discussing a Nominexx loan to Austexx to which Mr Porz responded "yes". On Mr Gray's evidence, he then said:

The loan's at call, Geoff[40], Mirvac are sitting there.[41]

and Mr Porz replied "yes". According to Mr Gray, he then asked Mr Porz whether Mr Goldberger and Mr Wieland were aware of the proposal, to which Mr Porz replied "yes".[42] Mr Gray said that he told Mr Porz that he was still waiting for the proposal to be put in writing so that he could discuss it with Mr Henderson and that Mr Porz said that he would follow that up with Mr Cowan.

46 Mr Porz's evidence was that Mr Cowan was at that meeting. On Mr Porz's version of the conversation, the extent of the exchange was that Mr Gray, at the end of the meeting, said to him:

Chris [Mr Cowan] has said something to me [Mr Gray] about borrowing money, there's a problem with Mirvac. Chris and I have been talking about Nominexx making a loan to Austexx. Are you aware we are having those discussions?[43]

Mr Porz says that he replied yes, that Mr Cowan had told him he had been having discussions with Mr Gray and that Mr Cowan then interjected saying that he needed cash flows and Mr Gray said he needed something in writing.

47 Mr Cowan said he was at this meeting and he recalled Mr Gray asking Mr Porz at the beginning of the meeting about whether Mr Porz was aware that Mr Cowan had been discussing a loan with him. He did not go on in his evidence to detail what was said in response nor did he give any specific evidence about what else was said, save that at the end of the meeting he asked Mr Gray for cash flows, Mr Gray said he needed the proposal in writing and Mr Gray indicated that loan would be "fine" or "okay".[44]

48 Mr Gray and Mr Gianfriddo each gave evidence about a meeting they had with Mr Cowan at Contexx's offices on 27 October 2008. Mr Cowan gave no evidence about this meeting because he had no recollection of it. However, although he could not recall such a meeting, he did not deny that it was possible that they did have that meeting and there appears to be no real controversy that they did have that meeting, as the timing of the meeting is corroborated by an email that Mr Gianfriddo sent to Mr Gray on 29 October 2008.

49 Mr Gray gave evidence that at that meeting, Mr Cowan said that Austexx was now looking to firm up the proposal and that in response to Mr Gray's inquiry about the final terms of the loan, Mr Cowan said that "it's at call"[46], that the "Mirvac facility is available to draw on"[47], that the interest rate would be ten per cent and that the loan would be in two tranches, one for the September 2008 progress payment (payable in October 2008) and one for the October 2008 progress payment (payable in November 2008). Mr Gray's evidence was that he asked Mr Cowan again whether Mr Wieland and Mr Goldberger were "across this loan and this development"[48] and that Mr Cowan said "yes".[49] Mr Gray then asked Mr Cowan for the proposal in writing "again"[50] and Mr Cowan undertook to put something in writing.

50 Mr Gianfriddo recalled Mr Gray asking Mr Cowan to explain the proposal and recalled Mr Cowan saying that Austexx had a capitalisation interest facility in place to fund the progress payments due in October and November 2008 but that it came at a cost of eighteen per cent, and Austexx wanted to use the cash balances in Nominexx temporarily because the use of the Nominexx funds at ten per cent interest was a cheaper source of funds. Mr Gianfriddo's evidence was that they were told that the Mirvac facility was always there to draw upon, though he agreed in cross-examination he could not recall the exact words used. Mr Gianfriddo also recalled Mr Gray asking Mr Cowan whether Messrs Wieland, Goldberger and Porz were "across the detail"[51] to which Mr Cowan replied "yes" and Mr Gray then saying that he agreed in principle to the loan but needed a written proposal.

51 Mr Gianfriddo was cross-examined on the reliability of his evidence that Mr Gray asked about Mr Wieland and Mr Goldberger but Mr Gianfriddo maintained the evidence he had given.

(d) The Funding Document emailed 29 October 2008[52]

52 Mr Cowan did put the proposal in writing. He prepared the Funding Document which he attached to an email that he sent to Mr Gianfriddo on 29 October 2008, copied to Mr Gray and Mr Porz. The email stated:

Joe[53] as discussed.

I trust this makes sense to you. Let me know if you have any queries.

If you need further clarity on the cash flow then we can look at the 2nd $7m prior to next month's drawdown.

South Wharf Tower Funding

The Senior Debt funding entered into in Dec 2007 for the Tower was provided conditional on achieving a pre sale of the Tower prior to commencement. No pre sale was achieved & alternate funding options for the Tower cost were sought. The conditions the Syndicate put to SWR were unacceptable so the sponsors elected to contribute $72m from other sources to fund the cost of the tower.

The sponsors Plenary & Austexx have pledged to contribute the $72m as follows

Plenary will provide $12m from its own sources.
Mirvac have provided a $60m mezz facility to DFO Spencer Pty Ltd. cross secured $24m against South Wharf & $36m against Austexx assets.
- The facility includes an Interest Capitalization facility of $14m which at Austexx election may be drawn down as a capital contribution.
- $46m was drawn down in September 08 (used to repay the August Construction claim & September Claim).

$6.71m by Austexx.
$2.0m from Plenary &
Balance by the Senior lending syndicate

Nominexx will loan Austexx $14m for a maximum of 14 months to Dec 09. The loan can be repaid from Austexx Profit share in part or in full as agreed with
First installment [sic] 31 oct 2008 $7m
2nd installment [sic] 28 Nov 2008 $7m
Nominexx may call up the loan at any time during the 14 months (Austexx to draw down the undrawn on Mirvac $14m at that time)
Austexx interest rate to Nominexx 10% PA (5% to Texxcon, 5%to Austexx Con) on drawn funds calculated daily accruing monthly in arrears.
Nominexx will Advance the $14m (via Austexx Constructions No 2.) to Austexx Melbourne Retail PL (South Wharf JV entity) in the same manner that the Mirvac funds have been advances to South Wharf as a Partner Capital Contribution

Nominexx Cash flow

Nominexx currently have $30m on deposit which is the result of many factors.

Profit on Canberra not distributed
Retentions
Margin & savings on South Wharf
Timing difference on claimed v drawn. (this issue is sensitive as WT may look silly if Nominexx were seen to be over claiming)
Nominexx are also owed
- $3m DD contingency on Canberra - timing to be confirmed by Austexx
- $2.4m Short paid in Sept claim - timing to be confirmed by Austexx
- $2.4m (overhead & GST overpayment) - deduct from future distribution to Austexx
The variations will affect this cash flow & variations will need to be declared to lenders (not on end of job for reputational reasons). Best timing for this is early 2009 when tenant pre leasing ramps up. Lenders and Austexx will fund the variations at during constructions with a proportion (yet to be determined) to be funded on takeout to a Term loan facility.
Nominexx partners wish to consider a distribution of margin as the job is significantly progressed. Austexx would use the margin to offset overheads to minimize further cash flow required from Austexx. Current certified Margins is $5268k Texxcon & $1756k Austexx Con.
Savings will be retained by Nominexx until confirmation & quantum of funding of variations is confirmed. An interim distribution of savings will be considered when the Nominexx cash flow to complete inclusive of variations cost less funded variations is confirmed.
Note The Senior lenders retain the right to lend further Senior debt to complete the project as required.

Finance takeout on completion

Total Debt on the Tower is $60m. $36m will be refinanced against DFO Spencer & DFO Moorabbin on completion of South Wharf. $24m debt remains

$24m debt inclusive of $14m Nominexx contribution to be financed on completion by the Syndicate. Add 2.5m in Capitalised interest the total Tower Debt will be $26.5m. The Tower was valued in Sept 08 at $100m (on a conservative Mortgage valuation basis).

Takeout facility to be put in place 3 months prior to banks completion date of Nov 09.

Repayment priority is

repay Senior Debt
repay $10m Mirvac debt & release 2nd mortgage over SW assets
repay $14m Nominexx Advance
Repay Partner Capital Contributions.

Actions

Loan agreement to be drawn up by Austexx or alternatively both parties sign this document as a terms sheet. Contexx to confirm.

Summary of commercial terms prepared by C Cowan 29 Oct 2008.

54 The Funding Document never came to be signed nor was a loan agreement then drawn up by Austexx. Over the course of the following months, Mr Gianfriddo prepared various iterations of proposed loan terms but the Funding Document was not finally formalised.

55 There was no controversy on the evidence that the first pleaded representation, that the loan from Nominexx to Austexx would be for a maximum of fourteen months,[54] was made in the Funding Document.

56 Nor was there any controversy on the evidence that the second pleaded representation, that Austexx would pay interest on the loan at ten per cent which was to be paid to Nominexx by the end of the loan term,[55] was both discussed and contained in the Funding Document.

57 The third, fourth and sixth pleaded representations, that:

(i) Nominexx could call up the loan at any time during the fourteen months and it would be paid by Austexx if the call was made;[56]

(ii) funds were available to Austexx by way of the CIF which could be used to repay the loan at any time;[57] and

(iii) the loan amount could be repaid at call by Austexx drawing down on the Mirvac facility,[58]

need to be considered together to contextualise their meaning, as there was controversy about the nature of the representations as pleaded and depending on their nature, whether they were in fact made.

58 The plaintiffs put their case at trial in terms that it was represented by Mr Cowan and Mr Porz that the loan was at call and would be repaid upon the call being made. Mr Garratt QC, senior counsel for Mr Porz and Mr Cowan, submitted, however, that the plaintiffs' case, as pleaded against Mr Cowan, did not allege a representation that the loan was "at call"; rather, the representation alleged concerned the right to call up the loan for early repayment. He submitted that the case that Mr Porz and Mr Cowan had to meet on the pleadings was whether Austexx could reasonably have expected to repay the loan within a reasonable period of time if called up for early repayment, not whether Austexx could reasonably have expected that it could repay the loan "at call", that is immediately upon being called up. Mr Garratt QC supported the submission by reference to the expert evidence of Mr Tilley, who opined that the right to call up a loan early and the right to payment "at call" are quite different concepts in the finance industry.[59]

59 I do not accept the contention that the plaintiffs' case as presented was not within the scope of the pleaded representations. The plaintiffs' pleading, read as a whole, clearly reveals that the plaintiffs' case was never merely that it was represented that the loan could be called up for early repayment within a reasonable time. Rather, the plaintiffs' case was that a representation was made that the loan was at call for payment on demand. The allegation in paragraph 21(c) is not to be construed in isolation from paragraph 21(d) which alleged a representation that funds were available to Austexx by way of the CIF which could be used to repay the loan "at any time". Read in conjunction with the alleged nature of the falsity, namely that the CIF could be not used to repay the loan, it is readily apparent that the pleaded case was always based on a misrepresentation about the availability of the Mirvac facility to meet an obligation to repay the loan upon being called up before the end of the loan term.

60 Mr Garratt QC went further and submitted that the Court should make adverse credit findings against Mr Gray and Mr Gianfriddo, and urged the Court to conclude that they had tailored their evidence to best assist the plaintiffs' claims against the defendants. Mr Garratt QC made the point that the oral representation allegedly made by Mr Porz that the loan could be repaid at call out of the Mirvac facility only became part of the plaintiffs' pleaded case when paragraph 21A was added in October 2012, and could be seen to be drawn from the defence filed on behalf of Mr Porz in the earlier Ausmezz proceedings, which described the loan as "at call".[60] Mr Garratt QC asked the Court to conclude that Mr Gray, in particular, had reconstructed his memory about what was said at the three meetings, and had pieced together a version of events that was not his independent recollection.[61]

61 Mr Garratt QC referred to, and relied on, Watson v Foxman[62] where McLelland CJ in Equity cautioned that:

Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive ... within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances ... [H]uman memory of what was said in the conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.[63]

Mr Garratt QC contended that this caution was apt regarding Mr Gray and

Mr Gianfriddo. It was put that it was "safest" to look at the Funding Document to ascertain which, if any, of the pleaded representations were in fact made.[64]

Mr Garratt QC emphasised that what was represented in the Funding Document was that not that the loan was "at call" but rather that Nominexx "may call up the loan at any time".

62 I am not persuaded that the criticisms levelled at Mr Gray and Mr Gianfriddo were justified. In the first place, I have not accepted that the plaintiffs' case presented at trial departed from their pleaded case. Secondly, I strongly disagree with the submission that it is improbable that the loan was described as being "at call".

Mr Gray gave evidence was that the expression "may call up the loan" in the Funding Document meant "at call". It was submitted that this is plainly wrong, but that submission misses the point. As Nettle JA cautioned in CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd[65]:

But the effect of misleading and deceptive conduct is not ordinarily to be measured by hermeneutic analysis. Generally speaking one is more concerned with common sense questions of fact and degree than precise semasiology. And as often as not the problem is with whether words have had or are likely to have had the purpose or effect of misleading or deceiving, despite rather than because of any supposed literal meaning. The tool of textual analysis has a role to play - logically it is the starting point of inquiry and practically it informs the range of meanings liable to be considered - but the outcome of the analysis depends as much upon the subject matter, circumstances and the personalities of the dramatis personae as upon a dictionary. Common experience, and consequent cynical appreciation of the human capacity to shape meaning as much by what is not said as by what is uttered allows for no other conclusion.[66]

What is relevant is the sense in which Mr Gray, Mr Henderson and Mr Gianfriddo understood the expression "may call up the loan" in the Funding Document and the sense in which those words would have been understood by a reasonable person in their position.[67]

63 Thirdly, consideration of the evidence of Messrs Cowan, Porz, Gray and Gianfriddo as a whole presented an essentially consistent version of events and the evidence of Messrs Gray and Gianfriddo, in the circumstances, can generally be accepted as reliable and truthful. The accounts and recollections of the witnesses were not strikingly different, albeit that there were some variances in that evidence. Notably, whilst Mr Gray was challenged on the reliability of his evidence about when the three meetings took place, there is no reason on the evidence to doubt that the three meetings about which Mr Gray gave evidence did occur: on 21 October 2008; sometime around 24 October 2008; and on 27 October 2008. Nor is there reason to doubt the reliability of Mr Gray's evidence that he was told by Mr Cowan at the first meeting that the Mirvac facility was available to be drawn down at any time, or the reliability of his evidence that Mr Cowan presented the loan proposal to him on the footing that the loan was sought as a cheaper form of finance to Austexx drawing down on that facility. Mr Cowan, after all, gave that same evidence. Nor is there reason to doubt the reliability of the evidence of Mr Gray and Mr Gianfriddo that

Mr Cowan made similar representations to them at the meeting on 27 October 2008.

Mr Cowan could not recall the meeting but he did not deny that the meeting did take place. Furthermore, it was not the defendants' case that Mr Cowan or Mr Porz told Mr Gray, Mr Gianfriddo or Mr Henderson anything different as to why Austexx was seeking the loan.

64 Fourthly, insofar as there are differences in the evidence of the accounts of the meetings, I prefer the evidence of Mr Gray and Mr Gianfriddo. There were other matters that raised questions about the credit of Mr Porz and also of Mr Wieland, leaving me with the impression that their evidence may not safely be relied upon on critical matters. These credit issues arise out of the Ausmezz proceedings. In that proceeding, Mr Porz, Mr Wieland and Mr Goldberger were being sued by the Mirvac lenders on the guarantees that they gave for the Mirvac loan. Each of them filed defences that alleged that the Mirvac lenders were in breach of the Mirvac facility in failing to convert the CIF into a fund available for draw down and that as a result of that breach, the interests of the guarantors were materially prejudiced. The particulars stated that, by reason of the Mirvac lenders' failure to advance the funds, the Austexx interests borrowed $14 million from Nominexx and:

That loan was at call.[68] (Italics added for emphasis)

"That loan" was the Nominexx loan the subject of this proceeding. The allegation further particularised that:

The fact that [Austexx], by the [loan] had borrowed a $14 million on demand facility caused various lenders to the Group to appoint investigating accountants and solicitors to the assets of the Group over which the lenders had security....[69] (Italics added for emphasis)

65 The defences were signed off by the legal practitioners acting for Mr Porz,

Mr Wieland and Mr Goldberger respectively. It is a requirement for legal practitioners to put their names to a pleading.[70] This requirement reflects the duties imposed on barristers and solicitors to be satisfied that the pleading has a proper basis on the factual and legal material available.[71] These duties are now statutorily enshrined in the Civil Procedure Act 2010 (Vic).[72] The placing of names and signatures on the defences acted as a voucher that the defences were not mere fiction.[73]

66 In this proceeding, both Mr Porz and Mr Wieland denied knowing, or understanding, that the Nominexx loan was "at call". Both of them distanced themselves from their defences in the Ausmezz proceedings, each of them maintaining that they did not turn their minds to what was pleaded on their behalf. Mr Wieland went so far as to deny having seen his defence before. I do not accept these explanations. Of significance is that neither of them led any evidence to support their assertions that the pleading of the Nominexx loan as an "at call" loan and as an "on demand" facility was not in accordance with their instructions. In those circumstances, the Court is entitled to assume that the pleadings reflected the instructions that they gave and is entitled to rely on the integrity of the voucher given by the placing of the names of the legal practitioners on those defences. This goes adversely to the credit of Mr Porz and Mr Wieland. I do not need to decide whether those defences also constitute evidence of admissions that the Nominexx loan was at call as contended for by the plaintiffs.[74] Mr Porz and Mr Wieland are not to be believed that they neither knew, nor understood, that the Nominexx loan was at call. The plaintiffs' case in this proceeding that it was represented that the loan was at call is entirely credible.

67 Against that background I now go on to make findings on the evidence about what was said in the three meetings, as to how the Funding Document was understood by Messrs Gray, Henderson and Gianfriddo, and as to how a reasonable person in their position would have understood that document.

68 I accept the evidence of Mr Gray that he asked Mr Cowan at the first meeting whether the Mirvac facility was "at call" and that Mr Cowan told him that it was available to draw upon immediately, if needed.[75] What was put to Mr Gray was the possibility of a loan of JV funds as a cheaper form of finance to the Mirvac facility. There were surplus funds sitting in the JV account at that time or, as one witness put it "idle cash",[76] but those funds would, in due course, be disbursed in payment of outgoings and profit distributions in the ordinary course of the JV works, which at the time included other projects as well as the South Wharf Development. In those circumstances, it is entirely plausible that Mr Gray would want to know that the Mirvac facility could be drawn down immediately should Nominexx require those funds. And Mr Cowan did not give contrary evidence. Although in his evidence-in-chief he made no reference to an exchange along the lines of Mr Gray's evidence, it is apparent that the account that he gave in his evidence-in-chief was incomplete.

In cross-examination he agreed that he did tell Mr Gray that the Mirvac facility was available to be drawn down at any time, though he added that he also told Mr Gray that "there was a process to go through".[77] This still amounted to a representation that the funds in the Mirvac facility could be drawn down at any time to fund the repayment of the loan, and it is noteworthy that it was not any part of Mr Cowan's evidence that he told Mr Gray that there would, or may, be anything more than a minor delay in repayment.

(d) Findings on the meeting held around 22, 23 or 24 October 2008

69 I accept Mr Gray's evidence that he put to Mr Porz at their meeting sometime around 22, 23 or 24 October 2008, and that Mr Porz confirmed that the loan was at call and that the Mirvac facility was "sitting there", thereby conveying to Mr Gray that the monies could be repaid at call out of the Mirvac facility.

70 I find it difficult to accept Mr Porz's evidence that the discussion did not go beyond Mr Gray seeking confirmation from Mr Porz that he was aware that Mr Gray and

Mr Cowan had been talking about Nominexx making a loan to Austexx, Mr Gray asking for the proposal to be put in writing and Mr Cowan asking for cash flows. The meeting between Mr Porz and Mr Gray was arranged by Mr Cowan specifically for Mr Porz and Mr Gray to discuss the loan. In the circumstances, and given that Mr Cowan had earlier told Mr Gray that he would need to have a meeting with

Mr Porz to discuss the proposal, I find it difficult to accept that the conversation was as limited as Mr Porz said in his evidence. In so finding I have had regard to

Mr Cowan's evidence about what was said during this meeting. I accept that

Mr Cowan was there and that Mr Gray's recollection was inaccurate to that extent, but Mr Cowan's evidence about what was said during this meeting cannot be accepted as corroboration of Mr Porz's evidence because Mr Cowan did not, in his evidence, go into the specifics of the discussion nor provide any detailed account about what he recalled of the conversation.

71 I also do not accept Mr Porz's evidence that Mr Gray mentioned "a problem with Mirvac"[78] when asking Mr Porz whether he was aware that Mr Cowan had spoken to Mr Gray about a Nominexx loan to Austexx. It was not Mr Cowan's evidence that he had told Mr Gray about "a problem with Mirvac" nor did Mr Gray give such evidence, nor was it part of the defendants' case that Messrs Gray, Gianfriddo or Henderson were told either about the formal draw down request on the Mirvac facility for payment on 28 October 2008 or about the notification that the funds would not be available as requested and that there was uncertainty as to when the funds would be advanced. Significantly, it was not part of the defence that the proposal for the loan was put to the Texxcon directors on the basis that there was a problem with the Mirvac facility, or even on the basis that there would be a

short-term delay in obtaining funds under the Mirvac facility to meet the progress payment due on 28 October 2008.

72 Mr Garratt QC submitted that there were important discrepancies between Mr Gianfriddo's account of the meeting on 27 October 2008 and the account given by Mr Gray. In particular, the contention was put by Mr Garratt QC that the Court should not accept Mr Gray's evidence that Mr Cowan told Messrs Gray and Gianfriddo that the loan was "at call" in response to Mr Gray's enquiry about the final terms of the loan, because Mr Gianfriddo made no reference in his evidence to a discussion of the proposed loan being "at call". In my view, there was little merit in this attack. The essence of the conversation, as Mr Gianfriddo recalled it, was that they were told that the Mirvac facility was always there to draw upon.

Mr Gianfriddo could not recall the exact words used but his account was not inconsistent with, or substantially different from, Mr Gray's account. Moreover,

Mr Cowan did not give an account to the contrary. He simply could not remember such a meeting taking place.

(f) Findings on whether Mr Gray asked about Mr Wieland and Mr Goldberger at any of the meetings

73 I am unable to accept Mr Gray's evidence that Mr Cowan told him at the first meeting on 21 October 2008 that Mr Goldberger and Mr Wieland were aware of the proposal for a loan and its terms, nor do I accept his evidence that he made the same enquiry and received an affirmative response from Mr Porz in their meeting sometime around 22, 23 or 24 October 2008. Mr Cowan's unchallenged evidence was that the proposal was his initiative and that he had not spoken to Mr Porz,

Mr Wieland or Mr Goldberger about the proposal when he first met with Mr Cowan on 21 October 2008. Mr Porz corroborated that he first became aware of the loan proposal on 22 October 2008 when Mr Cowan told him about his discussion with

Mr Gray the night before. Nothing in the evidence indicated that Mr Wieland or

Mr Goldberger became aware of the loan proposal prior to late October 2008.

74 However, I accept as credible that Mr Gray made this enquiry of Mr Cowan at the

27 October 2008 meeting. By then, Austexx were looking for confirmation about the proposal going ahead. Critically and significantly, Mr Porz had made the decision to use the CIF to capitalise interest that was accruing on the monies that had been drawn down under the Mirvac facility in September 2008 and Mr Wieland was aware of this. It is credible that Mr Gray would ask whether Mr Wieland and Goldberger knew about the proposed loan and its terms at the time that Texxcon were told that Austexx was looking to firm up the proposal. Mr O'Bryan SC for

Mr Goldberger and Mr Wieland submitted that it was implausible that Mr Gray and Mr Gianfriddo would have an actual memory about what was said and, in any event, implausible that Mr Gray would make that enquiry because Mr Gray dealt solely with Mr Porz on matters concerning the JV. I am not persuaded by either submission. I found the evidence of Mr Gray and Mr Gianfriddo generally reliable, and the fact that Mr Gray did not deal directly with Mr Wieland or Mr Goldberger concerning JV matters does not gainsay the plausibility of Mr Gray wanting confirmation from Mr Porz of Mr Wieland and Mr Goldberger's approval for the loan. They were, after all, two of the three Austexx representatives on the JV board and directors of Nominexx.

(g) Findings on the nature of the representations in the Funding Document

75 It was contended by Mr Garratt QC that it is clear from the Funding Document that the $14 million said to be available from Mirvac was part of an interest capitalisation facility and that accordingly, if it was not drawn down, it could be used to capitalise interest. He submitted that although the document did say that Nominexx may call up the proposed loan at any time during the fourteen month period of the loan, it then said in parentheses: "Austexx to draw down the undrawn on Mirvac $14m at that time". It was put that these words indicated clearly enough that the entire

$14 million would not necessarily be available to draw down to repay the proposed Nominexx loan. It was put that this was confirmed by the text on the second page of the document under the heading "Finance takeout on completion" which identified that capitalised interest of $2.5 million needed to be repaid at the completion of the project. It was further put that the document offered three ways to repay the proposed loan: one by drawing down the Mirvac facility; the second out of the Austexx profit share; and the third by way of a finance takeout on completion of the project, and that the document conveyed that if the loan was called up at any time during the fourteen months then the loan would be repaid only to the extent of the amount then available in the Mirvac facility and the balance would fall to be repaid from the profit share or the refinancing of the tower debt on completion of the tower. Reliance was placed on Mr Gray's evidence that when he read the document he saw that the proposed loan might be repaid out of the Austexx profit share and that a finance takeout on completion was also an option for repayment of the money.

Mr Gray also agreed that the document did not say anything about the $14 million remaining "untouched"[79].

76 It was put that on a fair reading of the document, read objectively, the document did not represent that the Mirvac funds could be used to repay the loan amount due under the loan at any time, but that it was one of three potential ways by which the proposed loan could be repaid. It was put that no representation was made that the interest would not be capitalised. It was also put that it was clear that interest would accrue on the Nominexx loan, such that from the moment that it was lent, the amount owing would be more than $14 million, and thus would exceed the amount available for draw down under the Mirvac facility on any view. It was also put that to the extent that there was a representation that Austexx had the $14 million CIF available to it, so much was true.

77 I disagree with the construction of the document contended for by Mr Garratt QC. In the first place, the Funding Document must be considered in the context of the discussions which had preceded the preparation of that document.[80] Secondly, it is relevant that it was not part of the case for Mr Porz and Mr Cowan that Texxcon was told that:

(a) the Mirvac facility would be used by Austexx to capitalise interest if Austexx did not elect to draw down the facility as a principal loan amount;

(b) on 20 October 2008, Austexx had made a formal request to draw down on the CIF in the amount of $7,241,968.00 payable on 28 October 2008;

(c) on 21 October 2008, Austexx was told by the Mirvac finance agent that the funds would not be available by 28 October 2008 and that he could not say when the funds would become available;

(d) on 27 October 2008, Austexx had instructed Mirvac that it would be using the CIF to capitalise the interest on the funds that had been advanced under the Mirvac facility in September 2008; or

(e) that interest on those loan funds was accruing at the rate of approximately $700,000 per month, with the consequence of reducing the amount available under the CIF to a converted principal by the amount of interest capitalised each month.

78 It is also relevant to note that the Funding Document did not state in express terms that interest was being capitalised under the CIF. What was represented was that the Mirvac facility included "an Interest Capitalization facility of $14m which at Austexx election may be drawn down as a capital contribution". The significance of that representation was that it conveyed that Austexx was yet to make the election to draw down an available facility of $14 million. Considered in that way, it is consistent to understand the words "Nominexx may call up the Loan at any time ... (Austexx to draw down the undrawn on Mirvac $14m at that time)" as conveying that the loan was at call and that Austexx had $14 million available in the Mirvac facility for draw down. That representation carried the imputation that the loan would be repaid on demand. Mr Gray, Mr Henderson and Mr Gianfriddo each gave evidence that they understood those words in that sense and I accept their evidence. It is also a reasonable reading having regard to the earlier discussions and the way in which the loan proposal had been presented by Mr Cowan - that is, as a cheaper form of finance to the Mirvac facility which was available to be drawn down at any time. I find that a reasonable person in the position of Mr Gray, Mr Gianfriddo and

Mr Henderson, in all the circumstances, would have understood the words in that sense.[81]

79 Based upon the evidence considered as a whole, I find that it was represented to Texxcon by Mr Cowan and Mr Porz that the loan was at call; that Austexx had

$14 million available in the CIF for draw down at any time; that the whole

$14 million in the CIF could be used to repay the Nominexx loan being called up, at that time; and that the loan would be repaid upon demand. I therefore find that the representations pleaded in paragraphs 21(c) and (d) and 21A of the Third Further Amended Statement of Claim were also made, with the qualification that no representation was made about the availability of the Mirvac facility to pay the interest as well as the loan as pleaded in paragraph 21(d) because the facility was only ever for $14 million.

80 I turn now to consider the fifth pleaded representation, regarding Austexx's capacity to repay the loan.[82]

81 The express representations amounted to implied representations that Austexx then had the capacity, and would have the capacity at the end of the fourteen month loan term and at any time during that period, to repay the loan amount plus accrued interest. Accordingly, I find that the implied representations were also made.

82 The qualification about the availability of the Mirvac facility to pay the interest as well as the loan as pleaded in paragraph 21(d) does not gainsay the finding about capacity to pay interest as well as loan principal in light of the basis on which the proposal for the loan was put, namely that it would be a cheaper source of funds than the Mirvac facility. If Austexx could afford interest at eighteen per cent on the Mirvac facility, the imputation is that it could afford to pay interest at ten per cent on the Nominexx loan for the same loan amount.

83 The first issue that arises for consideration is the determination of the nature of the representations. Mr Garratt QC submitted that the pleaded representations, if made, were contractual promises which the evidence showed, Austexx fully intended to fulfil. Mr Garratt QC relied on the line of authority that the failure to keep a promise is not of itself misleading or deceptive conduct[83] and, citing Concrete Constructions Group Ltd v Litevale Pty Ltd[84], that there is not imported into every contractual promise an implied representation as to capacity to perform.[85]

84 As the cases illustrate, the characterisation of the representations as contractual promises does not necessarily mean that the making of the representations cannot, in law, amount to misleading conduct for the purposes of s 52 of the TPA or s 9 of

the FTA. A contractual promise may nonetheless give rise to a contravention of

s 52 of the TPA and s 9 of the FTA if the promise consists of an implied representation of present fact which is false, or if the promise relates to a future matter and the maker did not have reasonable grounds for the belief that the promise would be fulfilled.[86]

85 The representations as pleaded were partly statements of present fact and partly in the nature of representations about future matters. Insofar as the representations were alleged to constitute a statement of opinion that Austexx had, and would continue to have, the capacity to repay the loan amount, the defence of Mr Porz and Mr Cowan was that there was a reasonable basis for such a representation.[87]

86 The question of whether the representations were misleading or deceptive is to be determined objectively in light of the relevant facts and circumstances in which the representations were made.[88] The conduct must be viewed as a whole.[89]

At a glance

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Decision date

Before

Source

Judgment (345 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (30)