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[2013] VSC 327
Supreme Court of Victoria
2013-06-20
DAVIES J
Original judgment source is linked above.
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 - Krakowski v Eurolynx Properties (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
(c) knew at all relevant times that the representations were misleading and deceptive.[20]
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
(c) by Mr Cowan at a meeting between Mr Cowan, Mr Gray and Mr Gianfriddo on 27 October 2008;[28]
(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:
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:
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:
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]
(c) The evidence about the meeting between Mr Gray, Mr Gianfriddo and Mr Cowan on
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
Nominexx Cash flow
Nominexx currently have $30m on deposit which is the result of many factors.
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
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]
the FTA. A contractual promise may nonetheless give rise to a contravention of
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]
87 It was factually correct as at 29 October 2008, when the Texxcon directors approved the loan from Nominexx, that the CIF facility with Mirvac remained at least in part available to Austexx. It was also factually correct that Austexx had the right under the facility agreement to convert the CIF into a loan principal for draw down. Austexx did make an election to convert the CIF and gave a draw down notice on
20 October 2008 for the funds required to meet the September 2008 progress payment. However, on 21 October 2008, Mr Porz and Mr Cowan learnt that the funds would not be advanced in time to make that progress payment.
On 27 October 2008, Mr Porz instructed the finance agent that Austexx would not draw any further funds on the Mirvac facility and would now capitalise the interest on the drawings that had been made. Mr Cowan was copied into that email.
On 29 October 2008, when the Funding Document was provided to the Texxcon directors for their approval of the loan, Mr Porz and Mr Cowan each knew that formal approval from the Mirvac lenders to convert the CIF to a loan facility had not yet been obtained, and they had both been told that it was uncertain as to when that approval would be forthcoming and the funds made available.
88 The representations, insofar as they were representations of present fact, were misleading and deceptive because it was factually incorrect that the whole of the
$14 million CIF would be available to repay the loan if called up as, by
27 October 2008, the decision had been made to capitalise interest in the interim whilst the Mirvac problem was sorted out. Furthermore, it was factually incorrect that Austexx then had the capacity to repay the loan amount plus accrued interest if the loan was called up because it was non- controversial that Austexx then had no existing cash reserves out of which to repay the loan, other than by the advance of funds pursuant to the draw down request.
89 Insofar as the representations were about future matters, expert evidence was led by Texxcon and by Messrs Porz and Cowan on the question of whether there was a reasonable basis as at 29 October 2008 for Austexx to consider that it had the capability to repay the Nominexx loan, either through its own resources or through the Austexx Group's resources. The experts agreed that the loan could not be repaid out of existing cash reserves but they disagreed on whether there was a reasonable basis for a person with the knowledge of the financial position of the Austexx Group as at 29 October 2008 to consider that Austexx had, or would continue to have, the ability to repay the $14 million plus interest. Mr Tilley, who was called by Messrs Porz and Cowan, expressed the opinion that there was a reasonable basis for the view, as at 29 October 2008, that Austexx had the capacity, and would continue in the foreseeable future to have the capacity, to repay the loan amount plus interest on reasonable notice either by means of additional borrowings, the refinancing of existing facilities, and/or the sale of assets or equity interests. Mr Sutton, who was called by Texxcon, gave a qualified opinion that as at the end of October 2008, it was not reasonable to believe that the loan could be repaid at call or at any time during the loan term, as the Austexx Group did not expect to generate sufficient funds from the business operations to repay the loan, nor did it have sufficient assets that could be readily realised as cash in the short-term and in the ordinary course of the Group's business. His opinion was qualified because he had not been provided with all the data that he required in order to form a concluded opinion. He expressed no view on whether it would have been possible for the Austexx Group to obtain funds from existing or new investors and was instructed to assume that the Austexx Group did not have the ability to borrow any further funds.
90 It is unnecessary to make findings on whether there was a reasonable basis to believe that Austexx had the capacity to repay the loan plus interest at the end of the term of the loan or within reasonable period of the loan being called up. Mr Tilley fixed a reasonable period of time as being not less than thirty days.[90] But the pertinent issue is not concerned with whether, as at 29 October 2008, there was a reasonable basis for Austexx to believe that it had the capacity to repay the Nominexx loan at the expiration of the fourteen month period, or over a period of time or even within a reasonable period, say, one month, of the Nominexx loan being called up.
The question is whether, as at 29 October 2008, there was a reasonable basis to believe that Austexx then had the capacity, and would continue to have the capacity, to repay the Nominexx loan plus accrued interest at call: that is, as an immediate payment obligation.
91 The evidence did not substantiate that there were reasonable grounds to believe as at the end of October 2008 that Austexx then had the capacity, or would have the capacity, to repay the Nominexx loan plus interest at call. Critically, as at
29 October 2008, both Mr Porz and Mr Cowan knew that the funding under the CIF was not forthcoming under the draw down request; knew that it was uncertain when the funding would become available; knew that the CIF in the interim was being used to capitalise the interest on the monies drawn down under the Mirvac Facility, running at around $700,000 per month, which meant that the $14 million could not be repaid in whole out of that facility; knew that Austexx had no available cash reserves; and knew that the available cash flow predictions for the Austexx Group as at the end of October 2008 projected mostly negative cash flows into late 2009. The fact that they perceived the "Mirvac problem" as no more than a timing issue does not provide an answer because the loan proposal was put on the basis that the CIF was then available for conversion, which it was not. In all the circumstances, the representation that the CIF was then available for conversion was misleading and deceptive.
92 Additionally, as Mr Porz agreed, the Austexx Group was then at the limit of its ability to provide security for any further borrowings.[91] There may have been some capability to refinance, but any refinancing would have involved the revaluation of various assets which Mr Porz did not want to undertake in the then prevailing economic circumstances, and as at the end of October 2008, the then strategy was to avoid restructuring any of the existing facilities.
93 Mr Tilley, who gave expert evidence for Mr Porz and Mr Cowan, candidly gave the following evidence in cross-examination:
Now, if I can ask the question again. If you were in the position of Austexx and you knew that you had given all material security that you had, would you agree it would be harder to borrow more, first, and especially if you were unwilling to have your properties revalued?---Let me answer the second question first, if I may. If you're unwilling to have your properties revalued and you had borrowed to 100 per cent of the amount that you were allowed to borrow against on all the existing properties, then the answer is, absolutely yes, but both those propositions are not realistic in terms of the situation that was in place at the time.
Was it part of your instructions that Austexx's position as at October 2008 was that they had given all the material security that they had to give and that they had nothing left to give?---Not that I recall.
If that had been part of your instruction, do you agree that it would have been much more difficult for anyone at Austexx standing as at 29 October 2008 to be optimistic about the prospect of borrowing $14 million plus interest in order to repay the Nominexx loan?---Please, if I may see if I have the question correct. If you're asking me if I had been instructed that no more security interests could be given away, could you not borrow any more? Then the answer is, no, with the same security interests - - -
Is that no, you could not borrow any more?---No. Yes, you could borrow more, with the same security interests; with new valuations you could borrow more. If the instruction was, you can't get any revaluations done and you can't extend any security interests, which would be nonsensical for any director to agree to, then the answer is, yes, it's difficult to imagine how you could borrow more.[92]
Furthermore, the evidence indicated that even if funds were to be borrowed to repay the loan if it was called up, that process would have taken several weeks, if not months. Similarly, any sale of assets would likely have taken several weeks.
Mr Tilley opined that the sale of an equity interest in a project like the South Wharf Development could possibly have happened quite quickly, in a matter of five to ten days but I do not find this evidence alone a secure foundation to conclude that there was a reasonable basis for believing that Austexx could, or would be able, to repay a $14 million loan at call. It assumes that there was an investor who would be prepared to invest immediately and on the state of the evidence, this was a purely theoretical consideration and conjecture.
94 The onus was on Mr Cowan and Mr Porz to adduce evidence that they had reasonable grounds for making the representations[93] and they did not discharge that onus. The matters referred to above, and the absence of reasonable grounds as at the end of October 2008 for the belief that the loan could, or would, be capable of repayment at call, compel the conclusion that the representations were misleading and deceptive.
95 Furthermore, in all of the circumstances, I find that Mr Porz also engaged in misleading and deceptive conduct by remaining silent and not disclosing the matters within his knowledge to Texxcon.[94] I am prepared to find that the failure to bring those matters to the attention of Texxcon was not simply inadvertence on his part but deliberate. Mr Porz knew that Austexx was relying on the conversion of the CIF to fund the remaining $14 million which Austexx had to contribute to the South Wharf Development and he knew that Austexx lacked the financial capacity to fund the remaining $14 million on a short term basis without the availability of the CIF as loan principal. Yet none of this was explained or disclosed to Texxcon. Having regard to all of the circumstances and the evidence as a whole, it was misleading and deceptive to create the impression that Austexx could at anytime have drawn down the funds on the Mirvac facility to repay the $14 million Nominexx loan at call.
Were the plaintiffs induced to approve the loan in reliance on the representations?
96 Mr Garratt QC argued that the evidence did not support a finding that Texxcon relied on the representations, even if made. Mr Garratt QC argued that it was open on the evidence to conclude that Texxcon made the decision to agree to the loan before the Funding Document was received. Given my finding that it had been orally represented in the course of the meetings that the loan was at call and that the
$14 million CIF was available to be drawn down at any time, it makes no difference whether the decision was made before or after the Funding Document was received. But in any event, I find on the evidence that the decision was made after the Funding Document was received.
97 Mr Gray was consistent in his evidence that he needed the proposal in writing to discuss it with Mr Henderson. Mr Gianfriddo gave consistent evidence that nothing was decided before the written proposal was received. Mr Henderson gave consistent evidence that he met with Mr Gray after the written proposal was received and they then discussed it and made the decision to approve the loan.
98 I have no doubt, on the evidence, that the representations and Mr Porz's conduct in remaining silent induced Mr Gray and Mr Henderson to agree to the loan from Nominexx. That was their direct evidence, which I found entirely credible in light of what had been conveyed to them about the availability of the Mirvac facility and the reason for seeking the loan from Nominexx. Nothing was said to Texxcon to indicate that the CIF was not then available to repay the loan at call, and, of course, the proposal for the loan had been put to them on the basis that the loan was sought simply as a cheaper form of finance, not because Austexx did not have the funds to pay the progress payment due on 28 October 2008 because Mirvac had not advanced the funds under the draw down notice.
99 Mr Gray's evidence was that he agreed to the loan because:
The overarching issue for me was that - and the way I've been trained - was that you want to make sure there's a facility in place for a construction project. At South Wharf there was an original facility with the lenders and there was subsequently an additional lender brought in for the office tower. Having the knowledge that we had a tripartite with the main lenders and that there was agreement in place for Mirvac to fund the office tower, I was confident that the facilities and funds were there for the project. I had been told, after two meetings with Cowan and one with Porz, that the facility with Mirvac sat there as - you know, labeled for the purpose of putting the equity into the project and that it was cheaper funding by using the joint venture account as an interim measure and I thought as part of the relationship in the joint venture that if we could do things to support the partners, we would do so. I saw no risk with that and on that basis Henderson and I were concerned about making sure that from a cash perspective we weren't going to be caught in terms of having no funds in the account and having satisfied myself and having satisfied Henderson that it was at call and Mirvac was sitting there and it was a cheaper form of funding request from Austexx, we agreed to the loan.
Why do you not seek security for it?---Perhaps I can explain that answer best this way: When we contract for a project the overall facility is in place and we're secured by way of tripartite agreements and knowledge that the banks are sitting in place. We don't get security on month-to-month payments and, ultimately, we saw this, that the security was sitting there with Mirvac being there to put the money back into the account and that this was effectively a short-term loan arrangement and felt comfortable that, knowing the players involved for over two years, having worked with them and trusted them and from all accounts nowhere along that journey had anything not been delivered as committed, we thought that was just part of doing business with our partners to support them in that request.[95]
100 Mr Henderson's evidence was that Mr Gray "walked" him through the Funding Document at about 6 pm on 29 October 2008 and that Mr Gray said that "the key things that he'd asked for, which was the funds being at call and knowing where the funds were coming from had been documented in this proposal from Austexx".[96]
The significant points for me were as follows: That there was a $14 million Austexx election to be drawn down as a capital contribution from Mirvac. Mirvac's identified as the source of funds, there's $14 million identified that can be drawn down by Austexx. There is also reference in the fourth dot point under, "Nominexx loan" that Nominexx may call up the loan at any time during the 14 months. To me, they were the essential ingredients of this offer.[97]
It wasn't so much as a matter of forming a view, it was a matter of making a decision whether we were going to participate in it. It was clear from what the written proposal said that the first instalment was required within one working day of the time that we were making our consideration. So we gathered from that that there was some immediacy from Austexx's perspective, although we did understand that, if we didn't agree - that is, wearing our Texxcon hats, to participate in the transfer of these funds, then Austexx had the option to draw it down from Mirvac. They put the proposal to us, there were funds in the account, and Mr Gray and I decided there and then that we would participate.[98]
102 Mr Gianfriddo did not participate in the actual decision-making. When the Funding Document was received, Mr Gray told Mr Gianfriddo not to do anything about it as he (Mr Gray) needed to speak to Mr Henderson. Later that evening Mr Henderson and Mr Gray met and discussed the proposal and they instructed Mr Gianfriddo to action the loan, which he did.
103 Reliance, however, was put as an issue in dispute.
104 First it was put for Mr Cowan and Mr Porz that there could be no reliance because the Funding Document was ambiguous and text which is seen to be ambiguous at the time cannot found a claim in misleading or deceptive conduct. There are two responses to that submission. The first response is that it was not the evidence of Mr Gray, Mr Henderson or Mr Gianfriddo that they perceived any ambiguity in the Funding Document. The second is that it was their evidence that they each agreed to Nominexx making the loan because it had been represented to them that the Nominexx loan was at call and that Austexx had a $14 million facility with Mirvac which could be used to repay the loan if the loan was called up during the 14 month period. This was the sense in which they understood the representations and upon which they acted to approve the loan.[99]
105 Secondly, the defendants argued that the evidence supported the conclusion that other reasons prompted Mr Gray and Mr Henderson to approve the loans. It is unnecessary to dwell upon those other matters at any length. In essence, the argument was to the effect that in approving the loan, Messrs Gray and Henderson were conscious of Contexx's relationship with the Austexx Group and wanted to support its JV partner and that they agreed to advance the loan because of the commercial relationship between the parties. There was certainly evidence which showed the importance to them of the commercial relationship with the Austexx Group. So much may be accepted. Tellingly, however, neither Mr Gray, nor
Mr Henderson nor Mr Gianfriddo knew of the Austexx Group's true position. They did not know, because they had not been told, that Austexx had no means of funding the September 2008 progress payment. They did not know, because they had not been told, that Austexx could not fund the remaining $14 million contribution required to be injected into the South Wharf Development if the monies were not forthcoming under the Mirvac facility. Moreover, they had no reason to have any concerns about the ability of Austexx to repay the Nominexx loan upon those funds being required by Nominexx in the course of carrying out the JV works. There is no reason to doubt the truthfulness of the direct evidence given by Mr Gray and
Mr Henderson about their reasons for agreeing to the loan. Nor am I persuaded that their evidence was diminished by the cross-examinations.
106 In any event, it is not necessary for the representation to be the only inducement to agree to the loan, nor must the representation be unambiguous.[100] It is only necessary that the conduct be a material inducement.[101] The evidence supports the finding, and I so find, that Messrs Gray and Henderson were induced to agree to the loan in reliance upon the oral and written representations made to them.
107 A person will be liable accessorily if that person has aided, abetted, counselled or procured a contravention of the TPA or FTA or was knowingly concerned in, or a party to, the contravention.[102] Both the TPA and FTA impose a requirement of intentional participation in the contravention and for a person to form the requisite intention, that person must have knowledge of the essential matters that make up the contravention, whether or not the person knows that those matters constitute a contravention. In this context, that means knowledge of the representations and knowledge of their falsity.[103]
108 Claims of accessorial liability were made against Mr Porz, Mr Wieland and
Mr Goldberger. In the case of Mr Porz, I have no difficulty in concluding that he aided and abetted and/or was directly or indirectly knowingly involved in or a party to the misrepresentations. Mr Porz was the Chief Executive Officer of Austexx. Mr Cowan reported to him and in preparing and submitting the Funding Document to Texxcon, was acting with the knowledge and approval of Mr Porz. Furthermore, Mr Porz was provided with a copy of the Funding Document at the same time as
Mr Cowan provided that document to Mr Gray and Mr Gianfriddo. Mr Porz knew what was put to Texxcon and must have known that the contents of that document were misleading and deceptive because he knew that the request for conversion of the CIF to loan principal had not been complied with and knew that without the advance of funds under the CIF as loan principal, that Austexx then had no ability to repay the Nominexx loan at call.
109 Mr Wieland and Mr Goldberger were non-executive directors. They were not at any of the relevant meetings at which the loan proposal was discussed, nor were they copied into the email of 29 October 2008 from Mr Cowan forwarding the Funding Document to Mr Gray and Mr Gianfriddo.
110 It was clear on the evidence that Mr Wieland was aware that Austexx was relying on the conversion of the CIF to fund the September 2008 progress payment due at the end of October 2008. It was also clear on the evidence that Mr Wieland was aware that a conversion request had been made by Austexx but not been complied with by the Mirvac lenders and that the Mirvac lenders had not given an indication as to when the funds would be advanced. He knew this because he was kept informed by Mr Porz. It was also clear on the evidence that Mr Wieland was aware that Austexx then did not have the financial capacity to meet the progress claims without borrowing the required funds. He knew that there were no available cash reserves and he also knew that without obtaining funding elsewhere, Austexx would not meet its commitment to the senior lenders. He knew that the senior lenders were not obliged to provide any further funding to the South Wharf Development unless Austexx was able to contribute the remaining $14 million and he knew that there was urgency in finding that financial accommodation elsewhere. Mr Wieland also knew from Mr Porz that Austexx proposed to borrow the required funds from the joint venture though he denied that he had knowledge at the time of the proposed terms of the loan and denied knowledge at the time that the CIF was to be used to capitalise interest until the problem with Mirvac had been sorted out.
111 I find it difficult to accept that Mr Wieland had no knowledge at the time either of the proposed terms of the loan put to Texxcon or of the fact that the CIF was to be used to capitalise interest in the interim. Mr Wieland was a substantial shareholder in the Austexx Group and took an active interest in the financial affairs of the Group. He was actively involved in raising finance for the Austexx Group and was a guarantor of the Mirvac facility, amongst others. He spoke regularly with Mr Porz and Mr Cowan concerning the financial affairs of the Group and was kept informed of the Group's financial position and provided with the monthly figures. He was also a JV board member, representing the Austexx interests and a director of Nominexx. Moreover, the evidence bore out that Mr Porz and Mr Wieland were in regular contact over this period. It is simply not plausible that Mr Wieland was kept in the dark about the proposed loan terms, or if he was, I infer that it was a matter of wilful blindness on his part, not because anything was withheld from him. Knowledge can be inferred from wilful blindness, that is the deliberate shutting of one's eyes to what is going on.[104]
112 I have already accepted as reliable, and as a fact, that Mr Porz told Messrs Gray and Gianfriddo at the meeting on 27 October 2008 that Mr Wieland and Mr Goldberger were across the proposal and its terms. Whilst Mr Porz denied that he was asked that question at that meeting, he did not deny discussing the proposal with Mr Wieland - his evidence was simply that he could not recall what was discussed.
113 Furthermore, Mr Wieland's evidence that he did not know about the "at call" nature of the loan is not to be accepted in light of his defence in the Ausmezz proceedings.
114 In all the circumstances, I am prepared to find, and do find, that Mr Porz discussed the proposal with Mr Wieland at or around the time that it was put to Texxcon and that Mr Wieland knew that the proposal was for an at call loan from Nominexx and knew that it was represented that the Mirvac facility was available to repay the loan at any time, if called up. I also find that Mr Wieland knew that the representations were misleading and deceptive. That conclusion is compelled by the matters about which he knew and is not gainsaid by his understanding that the delay in drawing down the Mirvac facility was a timing issue, for the same reasons that the conduct of Mr Porz and Mr Cowan was found to be misleading and deceptive, notwithstanding their view that the delay in drawing down the Mirvac facility was a timing issue. Accordingly, I find Mr Wieland accessorially liable for the contraventions of s 52 of the TPA and s 9 of the FTA.
115 I make the same findings as against Mr Goldberger. Whilst Mr Goldberger did not give evidence himself, it may be inferred that he had the same knowledge as
Mr Wieland because Mr Wieland's evidence was that he spoke to Mr Goldberger every day and specifically that he had reported to him that Austexx intended to borrow the $14 million from the JV. In the absence of any evidence from
Mr Goldberger that he did not have the same knowledge as Mr Wieland, it is open to make, and I make, a Jones v Dunkel[105] inference that his evidence would not have assisted his case. Mr Goldberger's knowledge necessarily involved Mr Wieland's knowledge and as I have found that Mr Wieland had knowledge of the essential elements of the representations and the falsity of those representations, I so conclude against Mr Goldberger.
116 In the event of an adverse finding, Mr Wieland and Mr Goldberger both sought to rely on Part VIA of the TPA to contend that their liability for damages should be limited to an amount reflecting their proportion of the loss or damage claimed that the Court considers just, having regard to the extent of their responsibility for the damage or loss. In light of my findings, they are to be regarded as having equal responsibility with Mr Porz and Mr Cowan for the loss and damages claimed by the plaintiffs. Furthermore, in light of my findings, I attribute no responsibility for any of the loss and damages claimed to Mr Gray, Mr Henderson or Mr Gianfriddo.
117 The plaintiffs' case, shortly stated, was that Messrs Porz, Wieland and Goldberger breached their common law and statutory duties to Nominexx because, in approving the making of the loan by Nominexx to Austexx, they failed to take all reasonable steps required of them as directors of Nominexx, failed to exercise the degree of care and diligence that the law required of them, and did not act in good faith in the best interests of Nominexx or for a proper purpose.
118 There is a threshold issue about the nature of the legal relationship between the JV parties and Nominexx. It was contended for the defendants that Nominexx acted as nominee and agent for the JV parties and was legally obliged to act in accordance with the directions of the JV board. It was also contended that it was the JV board that actually made the decision to loan the JV funds to Austexx, and not Nominexx. It was submitted that the claim for breach of directors' duties must accordingly fail.
119 Mr Hopkins SC for the plaintiffs argued that no agency existed because the agency relationship was expressly precluded by the terms of the JVA to which Nominexx was a party and also by the Management Agreement under which Nominexx was contracted to provide management services to the JV parties.
120 The starting point of the analysis must be the contractual basis of the JV. The Austexx Texxcon JV was an unincorporated joint venture. The terms of the JVA provided for the establishment of a JV board to which Austexx and Texxcon were each entitled to appoint three members.[106] The members were respectively Messrs Porz, Goldberger and Wieland nominated by Austexx, and Messrs Henderson, Gray and Gianfriddo nominated by Texxcon. Clause 6.5 set out the powers of the JV board and provided that:
Except for the duties and responsibilities delegated to the Nominee under the Management Agreement, the Board has full and complete power and authority, and the Participants empower and direct the Board to give all approvals and to make all decisions and determinations required or permitted to be given or made by the Participants under this agreement with respect to the JV Works, the Joint Venture Assets and the Nominee (subject to the Management Agreement) ...
121 Austexx and Texxcon each had equal voting rights on the JV board and each group of members nominated by the particular JV party was entitled to exercise one collective vote on behalf of that JV party.[107] Clause 6.8 provided that all decisions of the board were binding on the JV parties.
122 Clause 7 of the JVA provided for the appointment of Nominexx ("the Nominee") to conduct the JV works. It was a requirement that each JV party hold equal shares in, and have equal numbers of directors of, Nominexx.[108] The JVA recorded that the JV parties had appointed Nominexx to conduct the JV works.
123 A separate Management Agreement was entered into between Nominexx on the one part and the JV parties on the other part. Nominexx contracted under that Management Agreement to undertake the day-to-day management and implementation of the JV works on behalf of the JV parties.
124 Each contract contained no agency clauses.[109] The inclusion of no agency clauses in both agreements is a weighty factor in characterising the nature of the relationship between Nominexx and the JV parties, but the contractual provisions are not of themselves determinative of the question.[110] A relationship of agency can still be found by the Court, notwithstanding that the JV parties did not characterise their relationship with Nominexx as such in the JVA and Management Agreement.[111] Whether the no agency provisions are effective will depend on whether, given "the actual incidents and content of the relationship",[112] the parties have nonetheless consented to an agency agreement. The relevant principals were recently conveniently set out in Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd.[113]
North, Cowdroy and Katzmann JJ in a joint judgment said:
"Agency" in law connotes "an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties": International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16; (1958) 100 CLR 644 at 652. Compare Peterson v Maloney [1951] HCA 57; (1951) 84 CLR 91 at 94:
The legal conception of agency is expressed in the maxim "Qui facit per alium facit per se", and an "agent" is a person who is able, by virtue of authority conferred upon him, to create or affect legal rights and duties as between another person, who is called his principal, and third parties.
...An agency relationship can only be established by the consent of both principal and agent (whether actual or implied): South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611; [2000] FCA 1541 at [132] (South Sydney DRLFC) per Finn J; Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699; [2011] NSWCA 389 (Tonto). ...
It may be accepted that an express disclaimer cannot disguise what is in truth an agency relationship: South Sydney DRLFC at [133]-[134]; Technology Leasing Pty Ltd v Lennmar Pty Ltd [2012] FCA 709 at [159]. Whether such a provision is effective will depend on whether, given "the actual incidents and content of the relationship" (what Finn J referred to as "the factual relation"), the parties have none the less consented to an agency relationship. But unless the disclaimer is a sham, the court must give appropriate weight to it as a manifestation of the parties' intention: South Sydney DRLFC at [135].
...
The "central notion" of agency is the agent acting or having actual or apparent authority to act as representative of, or for, or on behalf of, the principal (NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270; 186 ALR 442; [2000] FCA 1558 at [522] per Lindgren J) of which there is no evidence here save in the limited respects referred to in the contract. ...
The element of control is relevant, though not decisive, in determining whether agency exists: see South Sydney DRLFC at [137]; ACN 007 528 207 Pty Ltd (in liq) v Bird Cameron (reg) (2005) 91 SASR 570; [2005] SASC 204 at [110] (Besanko J).[114] ...
Thus, whether an agency relationship existed will depend on the substance, not just the form, of the JV arrangements[115] and requires an assessment of the exact circumstances of the relationship between the JV parties and Nominexx.
125 In the present case I am inclined to the view, notwithstanding the express contractual terms denying the agency relationship, that the true nature of the relationship between the JV parties and Nominexx was that of principal and agent respectively. Whilst Nominexx was delegated the management of the JV under the Management Agreement, various provisions defining the scope of the powers and authority of Nominexx to act on behalf of the JV parties support the conclusion that there was an agency relationship:
(a) Nominexx required the approval of the JV board to sub-contract parts of the JV works to third parties;[116]
(b) Nominexx was required to prepare and submit a capital works program and budget to the JV board for its approval and once approved by the JV board, to comply with the approved works program and budget; [117]
(c) The Management Agreement imposed obligations upon Nominexx in relation to the management of the JV works to:
(i) undertake the day-to-day management and implementation of the JV works in accordance with the approved works program and budget;[118]
(ii) provide advice and recommendations to the JV board with respect to the financing of the JV works, where necessary due to the nature of the JV works;[119] and
(iii) provide regular reports and contribution statements to the JV partners in respect of the JV works and at the end of each calendar quarter during the JV works to provide the JV parties with a detailed written report on the operation of the JV works and a contribution statement in respect of the JV works;[120]
(d) Nominexx covenanted to consult regularly with the JV parties and to keep the JV parties regularly informed on all key issues concerning the JV works and to take into account any view proffered by the JV parties on those key issues;[121] and
(e) It was a term of the JVA that the parties acknowledged that the JV parties may remove Nominexx from being the nominee of the JV and appoint a replacement nominee, in which event Nominexx was required do all things reasonably requested of it by the JV parties to assist in transferring management and control of the JV works to a new nominee.[122]
126 In the present case, the contractual terms considered in their entirety, and the control exercised by the JV participants over Nominexx as a jointly owned and controlled company support the conclusion that, notwithstanding the no agency clauses, Nominexx acted as agent in managing the JV works, and I so find.
127 If I am wrong, I nonetheless accept the submission that the decision to make the loan was made by the JV board and not by Nominexx, and that Nominexx was legally obliged to act at the direction of the JV board. First, the authority to make the decision to loan the funds to Austexx was vested in the JV board which was empowered by the JV parties to make that decision.[123] Secondly, Nominexx had no authority to enter into the loan arrangements as part of the managerial tasks delegated to it under the Management Agreement. It merely held the monies sitting in the JV account as nominee for the JV parties, which beneficially owned those monies. In the circumstances, the decision to loan the funds was a decision that only the JV board could make and once made, the act of loaning the funds was at the direction of the JV board.
128 Accordingly, I conclude that the claim for breach of directors' duties must fail.
In light of that finding, it is unnecessary to consider the separate claims made by the defendants against Messrs Henderson, Gray and Gianfriddo for breaches of directors' duties. Those claims must also fail for the same reasons.
129 The plaintiffs have succeeded on their claim of misleading or deceptive conduct and they are entitled to a damages award under s 82 of the TPA and s 159 of the FTA. The amount quantified by the plaintiffs by way of damages is the actual loss of the JV funds loaned to Austexx and the interest that would have accrued to the credit of the JV account had the $14 million remained in the JV account and been distributed in accordance with the JVA.
130 Texxcon's claim for damages is based on the allegation that Nominexx, in making the loan, acted on behalf of, and with the authority of, the JV as agent for the JV. Nominexx, on the other hand, has sued for damages quantified as the full loan amount of $14 million plus interest on the basis that it was acting as principal in making of the loan. There was some argument in closing submissions as to whether this was actually pleaded but there is little substance in that point in my view. Nominexx became a party to the proceeding only as the result of Texxcon making application under s 237 of the Corporations Act 2001 (Cth) to bring a derivative action in the name of Nominexx. Leave to bring that derivative action was granted and the judgment, which was not appealed, reflected that the proposed claims on behalf of Nominexx were predicated on Nominexx acting as principal, not as agent, with respect to the loan.[124] That said, I have found that Nominexx did not advance the funds acting as principal but rather as agent for the JV parties. Accordingly, the issue for determination is the amount of damages to which Texxcon is entitled.
131 Mr Garratt QC argued that any loss and damage to Texxcon cannot simply be equated with its half share of the $14 million lent. It was put that the plaintiffs must show what would have happened had the loan not been made. It was further submitted that, on the available evidence, there was every reason to suppose that a loan would have had to have been made in any event to enable the continuity of operations and indeed, to achieve funding from the senior lenders. Accordingly, as the argument went, Texxcon had not established that it had suffered any loss and damage. That reasoning is flawed in my view.
132 The object of an award of damages is to put Texxcon in the position it would have been but for the misleading and deceptive conduct.[125] It is thus necessary to determine what Texxcon would have done had it not relied on the representations.
If it had not relied on the representations, the simple answer is that the loan would not have been made. Texxcon does not have to go any further in proving its measure of damages. The loss of its half share of the loan funds was occasioned by, and is directly attributable to, the making of the loan and not to Austexx's funding problems. It was never part of the defendants' case that Texxcon knew the real reason why the loan was sought. Texxcon did not make the loan to bail out Austexx because of its funding difficulties, but because it was induced to do so by the misrepresentations.
133 In the circumstances, I am of the view that Texxcon is also entitled by way of damages to the interest that it would have earned on those funds at the applicable bank rate if they had remained in the JV account for the balance of the project.
The project reached practical completion in September 2009. Based on the evidence available, it appears that there was a requirement for funds to be paid out of the JV account at that time in order to meet progress payments due to sub-contractors at the end of that month and in subsequent months. I therefore find that it is reasonable to award interest at the applicable bank rate in respect of Texxcon's share of:
(a) the first payment to Austexx of $7,211,968 on 31 October 2008; and
(b) the second payment to Austexx of $6,788,032 on 27 November 2008,
for the period between the date of payment of each amount and 30 September 2009.
134 In making this finding I am conscious of the difficulty in quantifying this type of damages. However, in light of my finding that the plaintiffs did in fact suffer loss in reliance on the misrepresentations, the Court is bound to attempt to calculate the damages properly payable. As explained by the Federal Court in Enzed Holdings Ltd v Wynthea Pty Ltd[126], this is so "even if a degree of speculation and guess work is involved".[127]
135 The first plaintiff has succeeded on its claims for misleading or deceptive conduct and accessorial liability against the fourth, fifth, sixth and seventh defendants and is entitled to an order that the fourth, fifth, sixth and seventh defendants pay damages quantified in the amount of $7 million, plus interest to be calculated. I will hear the parties on the question of costs and any further orders that may be sought.
AUSTEXX CORPORATION PTY LTD ACN 100 936 632 (Deregistered)
[1] Whilst the fact that this meeting took place is not contentious, what was discussed is in controversy.
[2] In dispute is whether Mr Cowan was there also.
[3] Mr Cowan gave evidence that he could not recall that meeting.
[7] The claim is not pursued against Austexx, which is deregistered, or the Developers, which are in receivership.
[8] Third Further Amended Statement of Claim, [21].
[12] Ibid [26(c)]. In the course of final submissions, senior counsel for the plaintiffs at T1553/12-17 said that this pleading was based on the pleadings in the Ausmezz proceeding and the facility alleged in fact is the loan that is the subject of this proceeding.
[13] Third Further Amended Statement of Claim, [26(d)].
[39] Third Further Amended Statement of Claim (particulars to [21A]).
[45] Third Further Amended Statement of Claim (particulars to [20]).
[52] Third Further Amended Statement of Claim (particulars to [21]).
[54] Third Further Amended Statement of Claim, [21(a)].
[59] Report of Michael Tilley (21 September 2012), 25.
[61] Written Closing Submissions of the Sixth and Seventh Defendants at [2], [10] and [20].
[67] Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 576-7 (Brennan, Deane, Gaudron and McHugh JJ).
[68] Further Amended Defence and Counterclaim in Supreme Court of Victoria proceeding no. S CI 2010 06129 (particulars to [9C]).
[70] Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 13.01(3).
[71] Gippsreal Ltd v Kurek Investments Pty Ltd [2009] VSC 344, [5] (Pagone J); Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd [2012] VSC 490, [26] (Pagone J).
[73] Great Australian Gold Mining Co v Martin (1877) L.R. 5 Ch D 1, 10 (James LJ).
[74] Evidence Act 2008 (Vic), ss 81, 87; Australian Competition and Consumer Commission v Pratt (No 3) [2009] FCA 407; (2009) 175 FCR 558, 593-5 [70]-[74] (Ryan J). C.f. Laws v Australian Broadcasting Tribunal [1990] HCA 31; (1990) 170 CLR 70, 86 (Mason CJ and Brennan J).
[80] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 199 (Gibbs CJ).
[81] Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 576-7 (Brennan, Deane, Gaudron and McHugh JJ).
[82] Third Further Amended Statement of Claim, [21(e)].
[83] Futuretronics International Pty Ltd v Gadzhis [1992] VicRp 63; [1992] 2 VR 217, 238-9 and 240-1 (Ormiston J); cited with approval in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, 649 [13] (Gleeson CJ, Mc Hugh, Gummow, Kirby and Heydon JJ).
[84] Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670; (2002) 170 FLR 290, 343 (Mason P).
[86] James v ANZ Banking Group Ltd [1986] FCA 41; (1986) 64 ALR 347, 372 (Toohey J); Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82, 88 (Bowen CJ, Lockhart and Fitzgerald JJ); Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 322 [35] (French CJ); Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, 505 (Lockhart and Gummow JJ); CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 [33]; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, 649 [13] (Gleeson CJ, Mc Hugh, Gummow, Kirby and Heydon JJ).
[87] Trade Practices Act 1974 (Cth), s 51A; Fair Trading Act 1999 (Vic), s4.
[88] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592, 625 [109] (McHugh J); Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 341-2 [102] (Gummow, Hayne, Heydon and Kiefel JJ) and 318-9 [24]-[26] (French CJ); Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 198 (Gibbs CJ); Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177, 202 (Deane and Fitzgerald JJ); Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45, 88 [107] (the Court); Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 576-7 (Brennan, Deane, Gaudron and McHugh JJ).
[89] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592, 605 [39] (Gleeson CJ, Hayne and Heydon JJ).
[90] Report of Michael Tilley (21 September 2012), 25.
[93] Trade Practices Act 1974 (Cth), s 51A(2); Fair Trading Act 1999 (Vic), s 4(2).
[94] CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232, [31]-[34] (Nettle JA); Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592, 625 [109] (McHugh J).
[99] Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 576-7 (Brennan, Deane, Gaudron and McHugh JJ).
[100] Australian Securities and Investments Commission v National Exchange Pty Ltd [2003] FCA 955; (2003) 202 ALR 24, 29 [13] (Finkelstein J); Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2005] FCA 1703, [24] (Nicholson J).
[101] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 480 [61] (Gaudron J); Gould v Vagellas (1985) 157 CLR 215, 236; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) [1988] FCA 40; (1988) 39 FCR 546, 558 (Lockhart J); Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82, 87 (Bowen CJ, Lockhart and Fitzgerald JJ).
[102] Trade Practices Act 1974 (Cth), s 75B; Fair Trading Act 1999 (Vic), s 145.
[103] Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661.
[104] Giorgianni v The Queen [1985] HCA 29; (1985) 156 CLR 473, 482-3 (Gibbs CJ) and 507-8 (Wilson, Deane and Dawson JJ); Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17, [135] (Cooper, Kiefel & Emmett JJ); Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2005] FCA 1703, [32] (Nicholson J).
[109] Ibid cl 16.11; Management Agreement, cl 2.1.
[110] Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21, 45 [58] (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ).
[111] Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465, 474 [55] (North, Cowdroy and Katzmann JJ).
[112] South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; (2000) 177 ALR 611, 645-6 [134]-[135] (Finn J).
[114] Ibid 474 [53]-[55] and 477 [73]-[74].
[115] Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130, 1137 (Lord Pearson); Commissioners of Customs and Excise v Pools Finance (1937) Ltd [1952] 1 All ER 775, 780 (Denning LJ); Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21, 45 [58] (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ); Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465, 474 [55] (North, Cowdroy and Katzmann JJ); South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; (2000) 177 ALR 611, 645-6 [134]-[135] (Finn J); Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709, [158]-[159] (Cowdroy J); GE Dal Pont, Law of Agency (Butterworths, 2001) [1.4].
[124] Texxcon Pty Ltd v Austexx Corporation Pty Ltd & Ors [2011] VSC 203 [15].
[125] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 13 (Mason, Wilson and Dawson JJ).
[127] Ibid 182 (Sheppard, Morling and Wilcox JJ).
Texxcon Pty Ltd & Anor
Austexx Corporation Pty Ltd & Ors [2013] VSC 327
(1995) 183 CLR 563
(1985) 158 CLR 661
(2013) 296 ALR 465
(1958) 100 CLR 644
(1951) 84 CLR 91
(2000) 177 ALR 611
(2000) 107 FCR 270
(2005) 91 SASR 570
(1995) 49 NSWLR 315
(2009) 175 FCR 558
(1990) 170 CLR 70
(1982) 149 CLR 191
(2004) 217 CLR 640
(2002) 170 FLR 290
(1986) 64 ALR 347
(1984) 2 FCR 82
(2009) 238 CLR 304
(1993) 42 FCR 470
(2004) 218 CLR 592
(1982) 42 ALR 177
(2000) 202 CLR 45
(2003) 202 ALR 24
(2001) 206 CLR 459
(1985) 157 CLR 215
(1988) 39 FCR 546
(1985) 156 CLR 473
(1959) 101 CLR 298
(2001) 207 CLR 21
(1986) 160 CLR 1
(1984) 57 ALR 167