Porges v Adcock Private Equity Pty Ltd

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the decision] The appellant, Mr Stephen Porges, appealed from orders of a judge of the Equity Division of the Supreme Court of New South Wales requiring him to pay the respondent, Adcock Private Equity Pty Ltd, a sum $941,703.38 plus interest as a result of a finding that he had engaged in misleading or deceptive conduct. The impugned conduct consisted of a number of express written and implied representations made by the appellant during a negotiation for his appointment as a chairman of a company that was to be listed on the Australian Stock Exchange. The appellant required, as a condition of taking up the role as chair, that the respondent purchase some of his equity in an unrelated British Virgin Islands-incorporated entity named Secure One Corporation, Inc ("SecureOne"). The respondent purchased the shares. Unbeknownst to the respondent, the appellant was at the time in a disagreement with the management of SecureOne, and further, was aware that it was facing the prospect of litigation brought against it in the British Virgin Islands. Costs incurred in the litigation resulted in SecureOne's collapse and a devaluation of its share price to nil. The primary judge found that a failure to disclose these matters to the respondent rendered the appellant's conduct misleading or deceptive or likely to mislead and deceive in all the circumstances (rather than finding that any one or more of the positive representations was misleading or deceptive). On appeal, the appellant contended that the primary judge ought: (i) not to have found that some of the alleged representations as to the degree of the appellant's involvement with SecureOne were in fact made; (ii) to have found that the appellant had reasonable grounds for making some of the alleged representations and had adduced evidence of such grounds; (iii) to have found that some of the alleged representations were not misleading or deceptive or likely to mislead or deceive; and (iv) not to have found that the respondent relied on some of the alleged representations. The Court, dismissing the appeal, held (per White JA, Payne JA and Sackville AJA agreeing): (i) a representation that the appellant was closely involved with the management of SecureOne was conveyed to the respondent and the primary judge did not err in making this finding (at [104]-[106]); (ii) the appellant's grounds of appeal failed to grapple with the way in which the primary judge decided the case. Rather than the express representations being the operative misleading and deceptive conduct, the primary judge found that it was the appellant's non-disclosure of material matters that was in all the circumstances misleading or deceptive or likely to mislead or deceive (at [107]-[108]). The primary judge did not err in finding that the appellant's non-disclosure of the possibility of imminent litigation and his disenchantment with SecureOne's management was misleading or deceptive in all the circumstances (at [131]); Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, referred to. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31, referred to. Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,193, cited. (iii) the ground of appeal raising the issue of reliance did not relate to the actual misleading or deceptive conduct that was found to have occurred by the primary judge. The primary judge's finding that the misleading and deceptive conduct found was causative of the plaintiff's loss was not challenged (at [95]-[97]).

Judgment

1. PAYNE JA: I agree with White JA.
2. WHITE JA: This is an appeal from orders of the Equity Division (McDougall J) made on 7 September 2018 in which his Honour entered judgment for the respondent, Adcock Private Equity Pty Ltd ("APE"), against the first defendant and appellant, Mr Stephen Porges ("Mr Porges") in the sum of $1,111,594.23 inclusive of pre-judgment interest. A claim by APE against Mr Porges' wife, Ms Serena Porges, was abandoned and was dismissed.
3. Mr Brook Adcock is the executive chairman of APE. APE invested in developing business opportunities in the manner of a venture capital fund. Mr Adcock's approval was required before APE could make any investment. One of APE's investments was in shares in a company called DirectMoney Finance Pty Ltd ("DirectMoney") which was proposed to be listed on the Australian Stock Exchange. By late 2014 the shareholders of DirectMoney decided to seek the appointment of a well-known and experienced person to take the position of non-executive chairman in the newly-listed company. Mr Porges was identified as a candidate for that position.
4. Mr Porges agreed to take up the position of executive chairman. In discussions in early 2015 with Mr Campbell McComb, the Chief Investment Officer of APE, Mr Porges told Mr McComb that if he were to take on the role of chairman of DirectMoney he would need APE to buy 300 of his shares in a company called "SecureOne", which he was prepared to sell for US$500 per share.
5. On 13 March 2015, Mr Porges told Mr Adcock that he was very interested in the role, but if he were to take it on he would be earning less money than he would normally earn and would need to liquidate some of his assets in other investments, including his shares in SecureOne. He asked if Mr Adcock would be willing to buy the shares so that he could take on the role of chairman.
6. SecureOne Corporation, Inc ("SecureOne") was a company incorporated in the British Virgin Islands. In an Information Memorandum of May 2014 prepared for potential investors it described itself as a "pre-revenue development-stage company". It had formerly been called NFC Data Inc. Its Information Memorandum stated that its intellectual property offered a "data-centric, security-focused, cloud-based mobile payments platform that offers a robust set of recurring revenue streams". Its Information Memorandum stated that its product would provide a higher level of security than was currently available from other payment platforms whilst using payment methods (a card for transactions and an app for management) with which consumers were familiar. It said that card information was locked deep within the payment network dramatically reducing the risk of fraud.
7. APE acquired in total 1,100 shares held by Mr Porges in SecureOne. On 30 March 2015, it paid the Australian dollar equivalent of US$150,000 to purchase 300 shares in SecureOne (Judgment [42] and 82. On 3 June 2015, it agreed to purchase a further 1,000 shares at US$700 per share (Judgment [56] and [57]) in two tranches of 280 shares in June and 720 shares in July. The June tranche was paid for by a transfer of the Australian dollar equivalent of US$196,000 on 15 June 2015 (Judgment [60]). The agreement to purchase 780 shares at US$700 per share was varied to the purchase of 520 shares for US$700 per share. Payment for those shares was made on 1 September 2015 (Judgment [69] and [70]).

APE's pleaded case

1. APE alleged that it was induced to purchase Mr Porges' shares in SecureOne by what it characterised as "Profit Representations" and "Further Profit Representations" made by Mr Porges and by representations allegedly made by him that he was a reluctant seller of the shares ("Reluctant Seller Representation" and "Further Reluctant Seller Representation"). APE alleged that by making the "Profit Representations" and "Reluctant Seller Representation" Mr Porges engaged in misleading and deceptive conduct or conduct likely to mislead or deceive ("misleading conduct") and that APE relied on the representations in entering into the first agreement to buy 300 shares in SecureOne for which payment was made on or about 30 March 2015. APE alleged that by making the Further Profit Representations and the Further Reluctant Seller Representation Mr Porges engaged in "Further Misleading Conduct" and that it relied on both the "Misleading Conduct" and the "Further Misleading Conduct" in agreeing to buy the 280 shares paid for in June 2015 and the 520 shares paid for in September 2015.
2. The "Profit Representations" alleged were: "a. The first defendant was involved in the day-to-day business of SecureOne and had reliable information about its performance; b. SecureOne was trading profitably; c. SecureOne had a viable business plan that was being effectively executed; d. SecureOne was likely to be attractive to a potential purchaser of its shares and/or to investors who may participate in a later initial public offering of its shares; e. The plaintiff was likely to make a net profit if it purchased shares in SecureOne at a price based upon the most recent issue of shares by SecureOne; f. Purchasing shares in SecureOne at US$500 per share would be a good and profitable investment for the plaintiff."
3. The Profit Representations were said to be implied from the Information Memorandum provided by Mr Porges to Mr McComb, an email from Mr Porges to Mr McComb of 29 January 2015 and two emails from Mr Porges to Mr McComb on 22 February 2015.
4. With one exception, the Further Profit Representations were pleaded in the same terms as the Profit Representations. The exception is that the last representation (lettered f) was that purchasing shares in SecureOne at US$700 per share would be a good and profitable investment for APE. The Further Profit Representations were alleged to be implied from documents provided by Mr Porges on 9 April 2015 and emails sent by him to Mr Adcock on 9 and 30 April 2015, as well as from the documents said to have given rise to the Profit Representations.
5. APE did not press the second of the Profit Representations or Further Profit Representations, namely that SecureOne was trading profitably.
6. For both the Reluctant Seller Representation and the Further Reluctant Seller Representation, APE simply alleged that Mr Porges represented that he was a reluctant seller of the shares. The Reluctant Seller Representation was alleged to be implied from emails from Mr Porges to Mr McComb of 21 February and 26 March 2015. The Further Reluctant Seller Representation was alleged to be implied from an email from Mr Porges to Mr Adcock of 9 April 2015 and Mr Porges' telling Mr Adcock on 9 April 2015 that he wanted to sell more shares to keep his wife happy.
7. APE pleaded: "35 The Profit Representations were misleading or deceptive because: a. SecureOne and its major shareholders were then the defendants in proceedings brought by Play LA Inc in the Eastern Caribbean Supreme Court, High Court of Justice (Commercial Division) claim number 103 of 2014 (Play Proceedings); b. In the Play Proceedings, it was alleged that SecureOne and its major shareholders had breached a Share Purchase Agreement signed on 12 December 2012; c. In the Play Proceedings, Play LA was seeking damages of US$10,798,500 from SecureOne and its eleven major shareholders; c.1 The Play Proceedings: i. had put a cloud over SecureOne's attempts to raise capital resulting in a situation where SecureOne did not have sufficient funds to defend the Play LA proceedings; ii. would have been catastrophic for SecureOne if successful. d. Under Part IX of the BVI Business Companies Act 2004 (Virgin Islands) once Play held 90% of SecureOne's shares, it would be possible for Play LA to forcibly acquire the remainder of the shares held by any person; e. SecureOne had entered into an agreement with Ogier that resulted in SecureOne being liable to Ogier for all of the defendants' legal costs that had been, and would in the future be, incurred in defending the Play Proceedings; f. At that time, SecureOne would not have the means available to pay those legal costs as and when they would [be] due and payable; g. The Play proceedings and the legal costs that SecureOne was and would be liable for had materially affected the ability of SecureOne to execute its business plan; h. SecureOne had already ceased, or was likely in the near future to cease, effecting its business plan; i. SecureOne was unlikely to be attractive to a potential purchaser or to investors participating in an initial public offering; j. The viability of SecureOne as a going concern was subject to material doubt; k. The plaintiff was unlikely to make a net profit if it purchased shares in SecureOne at a price based upon the most recent issue of shares by SecureOne; l. Purchasing shares in SecureOne was unlikely to be a good and profitable investment for the plaintiff; m. The first defendant believed that the ATO had reason to investigate SecureOne and its shareholders and that if the ATO did so, this would result in a 'cluster---' for SecureOne and its shareholders. n. The first defendant was of the view that there were even more serious matters affecting SecureOne than that involving the Australian Tax Office; o. In September 2014, the first defendant had demanded that SecureOne buy back $US200,00 to $US500,000 of shares in SecureOne held by Mr Porges; p. In November 2014 SecureOne agreed to buyback $US500,000 worth of shares from the first defendant purchase price of only $US125 per share but SecureOne did not then have the funds to make the purchase; q. As at November 2014, the first defendant believed that: i. The SecureOne story and team were falling apart; ii. Shareholders in SecureOne were becoming increasingly 'pissed off' with SecureOne; iii. KPMG had been misled by SecureOne; iv. SecureOne was close to collapse; v. It was in the first defendant's interests to sell his shares in SecureOne as soon as possible; vi. The morality and ethics of those involved in SecureOne's business and assets were questionable and the first defendant was disappointed by this."
8. APE's case as pleaded was one of express and implied representations rendered misleading or deceptive by reason of the existence of facts that made the representations untrue. APE did not plead that Mr Porges engaged in misleading or deceptive conduct by not disclosing to APE the matters quoted at [14] above.
9. The primary judge, however, found: "113 Ms Morgan [Senior Counsel for Mr Porges] submitted that APE had not pleaded a case of misleading or deceptive conduct by reason of silence. That may be correct, as a narrow reading of the pleadings. However, it is clear that APE did rely on silence. Its case, as pleaded, was that the positive conduct (the making of the Profit Representations and Reluctant Seller Representations) was, in all the circumstances, misleading or deceptive. The circumstances are the matters pleaded at 2FACLS, [35]. It is implicit in the pleading that part of the conduct relied upon to show that the representations were misleading or deceptive was, first, the existence, to Mr Porges' knowledge, of those matters in fact and, secondly, that none of them was disclosed to APE. 114. In any event, as I understand Ms Morgan's submissions, she did not regard this as an obstacle to APE's running the 'silence' case. On the contrary, her submissions proceeded on the basis that such a case was being run, and sought to deal with it."
10. The notice of appeal did not include a ground that the primary judge erred in finding that the case run at trial and implicitly pleaded was that Mr Porges engaged in misleading and deceptive conduct by not disclosing to APE the matters that APE alleged made the profit representations and the reluctant seller representations misleading or deceptive. Nor was any such case advanced in Mr Porges' written submissions on appeal.
11. APE pleaded that the Reluctant Seller Representation and the Further Reluctant Seller Representations were misleading or deceptive because it could be inferred from the matters set out at [14] above that Mr Porges was not reluctant to sell. APE did not plead that the reasons given by Mr Porges to APE for wanting to sell were not his true reasons, or not his only reasons. Mr Porges says that it was clear that he wanted to sell and he did not expressly or impliedly represent that he was a reluctant seller.
12. Mr Porges did not dispute that the Profit Representations lettered c, d, e and f quoted at [9] above were made. He disputed that the first alleged representation was conveyed, namely that he was involved in the day-to-day business of SecureOne and had reliable information about its performance.
13. APE also pleaded: "36 Additionally, the plaintiff relies upon section 4 of the ACL, section 769C of the Corporations Act and section 12BB of the ASIC Act in relation to the Profit Representations set out in paragraphs 32d, 32e and 32f above."
14. The effect of ss 27-32 of the Fair Trading Act 1987 (NSW) is to make the text of the Australian Consumer Law that is Schedule 2 to the Competition and Consumer Act 2010 (Cth) applicable as a law of New South Wales that applies to, and in relation to, persons ordinarily resident in New South Wales or otherwise connected with New South Wales.
15. It is unnecessary to decide whether s 18 of the Australian Consumer Law or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) applied to Mr Porges' conduct.
16. Section 1041H(1) of the Corporations Act 2001 (Cth) was applicable. It provides: "1041H Misleading or deceptive conduct (civil liability only) (1) A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. Note 1: Failure to comply with this subsection is not an offence. Note 2: Failure to comply with this subsection may lead to civil liability under section 1041I. For limits on, and relief from, liability under that section, see Division 4."
17. The shares in SecureOne were a "financial product" within the meaning of s 1041H(1) (s 764A(1)(a) and definition of "security" in s 761A and definition of "body" in s 9).
18. Section 769C of the Corporations Act relevantly provides: "769C Representations about future matters taken to be misleading if made without reasonable grounds (1) For the purposes of this Chapter, or of a proceeding under this Chapter, if: (a) a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken to be misleading. (2) Subsection (1) does not limit the circumstances in which a representation may be misleading."
19. In his Commercial List Response, Mr Porges pleaded in response to paragraph 36 of the Commercial List Statement that "... no positive matters are alleged as to the absence of reasonable grounds for the making of any representation of a future matter and the Plaintiff will be held to the [pleading]". He did not aver that he did have reasonable grounds for the making of any of the representations.
20. Curiously, in its Commercial List Reply, APE contended that the Profit Representations as well as the Reluctant Seller Representation were representations of fact and asserted that it was not required to allege or prove the absence of reasonable grounds.
21. As noted above Mr Porges accepted on appeal that the Profit Representations lettered c, d, e and f were impliedly conveyed. The representations d, e and f were statements of opinion. They would be misleading or deceptive if APE established that Mr Porges did not hold the opinions conveyed, or that there was not a basis (or perhaps a reasonable basis) for them. The representations d, e and f were also representations as to future matters and would be misleading if Mr Porges did not have reasonable grounds for making them.
22. The onus was on APE to establish the absence of reasonable grounds.
23. This issue need not be pursued any further. Notwithstanding its pleading, APE's case that was upheld by the primary judge was not that the matters pleaded in paragraph 35 of its Commercial List Statement falsified any of the Profit Representations or Further Profit Representations. APE did not file a Notice of Contention that such a finding should have been made.
24. Rather, the primary judge held that when the whole of Mr Porges' conduct was taken into account, including what was not said as well as what was said, his conduct was misleading for failing to disclose facts that he must have known would be material to APE's decision to buy the shares.
25. For the reasons which follow I have concluded that the primary judge was correct in finding that APE was induced to enter into the contracts for the purchase of shares in SecureOne from Mr Porges by Mr Porges' misleading and deceptive conduct, namely his not disclosing to APE his knowledge of a claim by Play LA and that he had become disenchanted with the management of SecureOne. The appeal should be dismissed.

The representations made to APE

1. It is not clear when discussions began between Mr McComb and Mr Porges about Mr Porges' taking up a position of chairman of DirectMoney. As early as 16 July 2014 Mr McComb had forwarded information to Mr Porges about DirectMoney. On 31 October 2014, Mr Porges wrote to Mr McComb advising that another deal was dead and that he was starting to contemplate what to do next. He asked Mr McComb how the DirectMoney venture was going and said he had some time to look at it. Mr McComb replied on 31 October 2014 saying that the Adcock Group was planning a backdoor listing for DirectMoney and was looking to fill a non-executive director or non-executive chair role with DirectMoney that might be suited to Mr Porges.
2. Neither Mr Porges nor Mr McComb gave evidence. APE had sought to rely on an affidavit of Mr McComb, but Mr McComb, who had left APE's employment, was unavailable for cross-examination, although efforts had been made to procure his attendance. Because he could not be made available for cross-examination, APE did not seek leave to rely on his affidavit.
3. APE tendered some parts of an affidavit made by Mr Porges on 28 August 2017, including paragraphs 32 and 33 in which Mr Porges deposed to discussions with Mr McComb as follows: "32. During early 2015, I recall having a discussion with Mr McComb, during which I said words to the following effect: Porges: 'If I am to take on the role of Non-Executive Chairman with Direct Money, I will need Adcock Private Equity to buy some of my shares in S1. S1 is one of the start-up companies that I am currently involved in. I have an equity stake in that company' and later 'If Adcock Private Equity could buy some of my shares in S1, that would free me up to assist in fixing their investment and would free up some cash so I can meet personal expenses and invest those funds if an opportunity comes along.' 33. At this time, my desire was to sell 300 of my shares which I held in S1 to Adcock Private Equity at the price of USD$500 per share. I conveyed this to Mr McComb during a telephone conversation with him in early 2015, during which words to the following effect were spoken: Porges: 'If I am to take on the role of Non-Executive Chairman with Direct Money, I will need Adcock Private Equity to buy 300 of my shares in S1. I am prepared to sell these at USD$500 per share.'"
4. Mr Porges described SecureOne as a start-up company based in the United States and Australia. He said that he understood that it: "... was pioneering a patented cloud-based digital payments and commerce platform which revolves around a product called the 'SecureOne Card'. The 'SecureOne Card' acts as a 'virtual wallet' in the 'cloud' where consumers can store all their credit, debit and loyalty cards in a single bank-issued card. The consumer can then set the SecureOne Card to behave as any card they choose and can manage the card using the SecureOne App."
5. On 23 December 2014, Mr Porges sent to Mr McComb a copy of an Information Memorandum for SecureOne explaining that it was "very old but gives you some idea of where the company was six months ago". This was the document referred to at [6] above. The Information Memorandum stated that it had "been prepared for sophisticated and professional investors for the purpose of making an offer which did not need disclosure within the meaning of s 708 of the Corporations Law [sic]." It was prepared by Nectar Partners who were advisers to SecureOne. It described SecureOne's product and its plans and market potential. It stated that a two-stage funding program had been drafted. The first stage involved the raising of US$5 million of funds to provide working capital to SecureOne's "first proof of concept customers in Australia and the US". Funds would be raised by issuing shares at $500 per share. The Information Memorandum described a proposed second-stage of funding to raise up to an additional US$40 million.
6. APE alleged that the Profit Representations were implied by an email from Mr Porges to Mr McComb dated 29 January 2015 (amongst other documents). All that Mr Porges said about SecureOne in that email was that he had a lot more than a 5 per cent shareholding.
7. On 21 February 2015 Mr Porges sent an email to Mr McComb in which he said: "LJ hooker private equity team in town next week and I am likely tied up with them a few days. They have asked for a full time commitment for next month and any interest in ongoing CEO role of roll up plus bringing fin services into the mix via a mortgage acquisition. Have told them I cannot commit but can give a few days advice over the DD phase. Have concurrently raised the issue of us doing their personal loans and that [is] very much on the cards - assuming the acquisition goes ahead. All this has reinforced Serena's view that if I don't sell 500 k SecureOne she will be strongly 'suggesting' I take the amp gig which they are still harassing me over. She does [not] like the LJH role at all and is supportive of the portfolio approach but only if it is cash flow neutral. Need also to understand how you envisage the options package would work. The amount of time DM likely to take over next 6 months will limit any other roles so this increasingly impt in final decision. Do you have anything on paper yet? Want to get all this locked down so we can push ahead rapidly."
8. The primary judge said, plainly correctly, that in the second sentence of the second paragraph the word "not" was omitted, so that Mr Porges was saying that his wife did not like the LJH role at all.
9. Mr Porges replied on 22 February 2015. He said: "SecureOne currently valued around 40, next raising Series B into US at 100 but have yet to see docs as again may not be needed. Struggling to find Loop comparitive [sic] acquisition cost but told it was 'large'."
10. On 22 February 2015 Mr McComb sent an email to Mr Porges which included the following: "SecureOne - just need some more detail on the potential JV's - AMP etc. What is the total company valued at and what is next raise at?"
11. Also on 22 February 2015, in a separate and longer email, Mr Porges wrote to Mr McComb: "SecureOne. Business continues ahead of plan. In final discussions over commercials with AMP and ME [Members Equity] bank. Both see the option of going from around 300k customers to 3 mill by using card as loyalty to become main bank for all union (ME as it is owned by the industry funds) or superannuation (AMP) customers. I met with AMP last Thursday and they are 'incredibly excited' by the prospect. Stocks most recent raising at about USD 600 share, stock you are buying is at USD 500 so immediate mark to mkt profit. Internationally they are in advanced negotiations with Discover Card, the third largest card group in US trying to get an angle against VISA and MasterCard and First Data, who process the majority of mobile transactions globally. End game here probably acquisition or IPO in next 12-24 months although competition Loop was just acquired by Samsung last week so rarity value becomes interesting. I own around 20% worth at last valuation so only diluting slightly to fund Kitasi and satisfy Serena. I believe this is a billion dollar business. ... My feeling is SecureOne is a 12 months to liquidity at many multiples but likely grow more after that ..."
12. Kitasi was another start-up venture in which Mr Porges proposed to invest. He was also to receive shares or options in DirectMoney if he took up the role of chairman.
13. The primary judge found that the first Profit Representation (that Mr Porges was involved in the day-to-day performance of SecureOne and had reliable information about its performance) was conveyed by the longer email of 22 February 2015 (Judgment [92]-[93]).
14. On 25 March 2015 Mr McComb forwarded the SecureOne Information Memorandum to a Mr Richard Cansick of APE and to Mr Adcock. Mr McComb also repeated to Mr Cansick and to Mr Adcock what Mr Porges had written to him in the first paragraph of his email of 22 February 2015 (quoted at [43] above, but without attributing those statements to Mr Porges. Mr McComb added: "We are buying the shares off Stephen Porges as he took them up at an earlier date. We are buying at the price he took them at US$500. Next raise is actually likely US$750. We need to transfer US$150k tomorrow / Friday if possible to his account."
15. On 25 and 26 March 2015 Mr McComb and Mr Porges exchanged emails in relation to the remuneration for Mr Porges for his role as chairman of DirectMoney. In his email of 25 March 2015 Mr McComb proposed certain terms. In reply, Mr Porges wrote on 26 March 2015 as follows: "Getting closer. My challenge is [s]till twofold. I am happy to take risk but with Exec Chair role it has increased. Predominantly due to the amount of time involved here significantly limiting what else I can do. I am still also being pressured, both at home and by Directors, to take on the bank CEO gig. ..."
16. APE pleaded that the representation by Mr Porges that he was a reluctant seller of the shares in SecureOne was implied by reason of his email of 21 February 2015 (quoted at [39] above) and his email of 26 March 2016 quoted above. Mr Porges submits that the emails do not convey that representation. Rather, they show that Mr Porges was a willing and insistent seller of his shares if he were to take up the position of chairman of DirectMoney.
17. On 9 April 2015 Mr Porges wrote an email to Mr Adcock to which he attached a "nine-pager" document in relation to SecureOne, as well as in relation to another investment in the company called Kitasi. In relation to SecureOne Mr Porges wrote: "Most recent doc is the nine pager that was used for the recent USD750/ share raise. The larger doc was used for the 500 round a few months ago and had more info so I include that also. I have sent a message trying to get any info re the Series A round that will be a multiple rise again and will fwd if I receive. My understanding however is that it is a private corporate deal so we may not see another IM for that. Confirming it is fine to sell in a couple of tranches over the next few weeks, Richard has bank details etc. 1000 shares at 700 will keep Serena comfortable that she is not eating into other capital and make the Direct Money, Katasi [sic] etc, deals all possible. One side of me says I should not be selling as the Series A is so far up but the excitement of the other companies makes me want to grow these businesses for personal satisfaction. Once we have completed I will get the entire parcel registered so we have some time to decide what vehicle you want to register."
18. The "nine-pager" document was similar to the Information Memorandum. It stated that it was an Investor Brief prepared by SecureOne for sophisticated and professional investors for "the purpose of making an offer which does not need disclosure within the meaning of s 708 of the Corporations Law [sic]" and had been prepared by Nectar Partners. It described SecureOne's technology and product and anticipated revenue streams. It stated that it was issued in relation to SecureOne's raising of up to US$2 million as a "pre-Series A equity offer, at US$750 per share, to capitalize on available market opportunities and to cashflow the business through the near term." It made no reference to any threats of litigation.
19. On 30 April 2015, Mr Porges wrote to Mr Adcock in relation to four topics. The fourth topic was SecureOne. Mr Porges said: "SecureOne. Continues on track with local roll out to be announced shortly. They also now have two term sheets from a local group and one in US wanting to put large lumps of capital (around USD 10 mill) in the Series A round."

Facts about SecureOne known to Mr Porges that were not disclosed

1. On 26 June 2014 Mr Porges received an email from a Mr Miles Sterrick of Nectar Partners to which was attached a letter from a firm of lawyers in the British Virgin Islands enclosing by way of service a copy of what was called a Notice of Direct Claim served in accordance with Article 9 of a Share Purchase Agreement. Also attached to the email was a copy of a letter from that firm serving the Notice of Direct Claim on 11 shareholders (not including Mr Porges) in SecureOne whom it was alleged held 91.4925 per cent of the issued share capital of SecureOne.
2. The Notice of Direct Claim asserted that those shareholders (called the "Vendors") had agreed to sell their shares in SecureOne to the claimant, Play LA Inc ("Play LA"). The Notice of Direct Claim alleged that Article 9.3 of the Sale and Purchase Agreement required a notice of claim to be given to the indemnifying party (the Vendors) and that in the case of a Direct Claim (which the claim of Play LA's was) the Indemnifying Party should have 60 days to investigate the claim and if after the expiration of that period or any mutually agreed extension thereof, the amount of the claim was unpaid, then the matter should be referred to binding arbitration or to determination by a court of competent jurisdiction.
3. Play LA alleged that the Vendors and SecureOne were in breach of and had repudiated the Share Purchase Agreement by failing to transfer shares, by misrepresentations and breach of warranties as to SecureOne's beneficial ownership of intellectual property and the absence of pending proceedings, by SecureOne's entering into an agreement without Play LA's consent and by the Vendors' or SecureOne's entering into and failing to complete certain alleged side agreements, and failing to raise alleged agreed funding.
4. The Notice of Direct Claim asserted that Play LA was entitled to damages or indemnity in a sum of US$10,798,500 being what was said to be the 91.4925 per cent of the market value of SecureOne's shares plus costs in the sum of US$89,405.82 and accruing thereafter and interest.
5. On 26 June 2014, Mr Sterrick of Nectar Partners sent to Mr Porges a draft of a proposed press release in response to Play LA's notice of claim. The proposed press release stated that: "While SecureOne™ Corporation does not believe in airing generic contract disputes in the media, we feel it is necessary to respond out of respect for our shareholders, employees and supporters. As such, SecureOne™ Corporation is investigating all of its options in order to respond to claims by Play LA Inc. While unfortunate and in our view the claims are false and frivolous, management takes this action seriously and intends to earnestly defend the matter."
6. On 3 July 2014, Mr Sterrick sent an email to Mr Porges attaching an explanatory note regarding the proceedings between Play LA and SecureOne. Mr Sterrick's email stated that the note had been cleared for distribution by SecureOne's legal team. The explanatory note was from Mr Geoff Cairns, a director and chief executive officer of SecureOne. He stated: "Late in 2012 the company entered into a Share Purchase agreement with Play LA with a view to raising seed capital. The deal was structured as a reverse merger by which NFC Data shareholders would have exchanged shares in NFC Data for shares in Play LA under a Share Purchase Agreement. There were to be a series of ancillary agreements to effect the funding of NFC Data. The transaction documents contained important commitments with regards to capital raising, board composition and operations. From the outset of the relationship commitments with respect to capital contribution were not met in due time. This put great strain on the operations of NFC Data. Play LA delayed the closing (originally scheduled for February 2013) and began to demand significant changes to the terms of the proposed agreements. In order for the company to survive, Play LA promised additional funding. However, when pressed to meet the new capital commitment, Play LA refused. The ancillary agreements, which were a condition of closing, were never finalized. The management of NFC Data considers that the deal was abandoned with the implied consent of both sides. Consistently with that view, Play LA sought repayment of its loans with interest, costs (a specific fixed amount) and mutual indemnification. The company has since paid back all monies advanced as part of the abortive deal together with interest. The board of the company believe that the facts bear out their view that the deal failed by reason of inability on both sides to agree on the final terms and that both sides have been discharged from the Share Purchase Agreement."
7. Mr Porges notes that the primary judge did not refer to this email.
8. The primary judge found that by 4 July 2014 Mr Porges had decided to sell at least some of his shares in SecureOne (Judgment [118]). On 4 July 2014 Mr Cairns sent an email to a Ms Maribel Jordan, whom the primary judge inferred was the secretary of SecureOne, asking what the bylaws said about current shareholders selling shares privately and whether they needed the company's permission. Ms Jordan responded to that request and said: "Yes, if private shareholders want to sell shares, they have to put in writing what they want to do, who they sell to etc (cover letter address to the company). If it is a company, we would need a corporate resolution and a power of attorney. If private, we would need a power of attorney."
9. The primary judge inferred that Mr Porges' inquiry about selling may have been made initially to Mr Sterrick because on 5 July 2014 Mr Cairns forwarded Ms Jordan's advice to Mr Sterrick, adding his own comment: "Here is the technical answer to Porges request. That said it is ridiculous and destructive to our efforts. He needs to be back of the boat like the rest of us rowing hard."
10. This correspondence was forwarded by Mr Sterrick to Mr Porges. He responded to Mr Sterrick on 7 July 2014 as follows: "Options over shares would easily work in this situation. I have been on board this boat for 15 years and have done nothing but assist and do not appreciate any suggestion otherwise. I have personally funded salaries, travel, accommodation etc for years. That said the recent lack of initiative or explanation to follow up e.g. Mint potential partnership/litigation, disturbs me. Let alson eth [sic] impasse between the co and Nectar as to who should pay my expenses. I have altered what I need to sell to assist the company but need 200k out of this in the next short period to get rollover relief into new deal. It is far better for NFC/Nectar to organise. The other option is I talk to shareholders, market etc direct and that just creates more confusion and concern over play LA etc."
11. Play LA commenced proceedings against the Vendors and SecureOne in the Eastern Caribbean Supreme Court in the British Virgin Islands on 26 August 2014. Mr Porges denied that he was aware of that fact (see [88] below) and there is no evidence that he was aware of it.
12. On 3 September 2014, Mr Cairns sent a letter to shareholders stating that SecureOne Corporation was continuing its march towards commercialisation. He said that the last few months since his previous update had been very exciting and that pilot initiatives with ME Bank and Discover continued to make progress. He said that the company was concurrently framing an initial launch plan, commercials and investment options for approval by ME Bank's board of directors and that in the United States SecureOne had passed an "initial deep technical screening" with Discover. He said the company was actively planning the internal trial (with Discover). He said that SecureOne was working with First Data Corporation to form a partnership agreement in which the SecureOne card system would be implemented at its main processing facility. He said that First Data processed 50 per cent of all transactions in North America. There were other positive statements made as to SecureOne's prospects. He said that the initial capital raising that Nectar Partners had been managing was all but complete and that the company was moving quickly to ready the series "A" round. In relation to Play LA, Mr Cairns said: "PlayLA: In regards to the failed reverse merger with PlayLA, the Company's counsel in the US (Duane Morris) and also the BVI (Ogier) have analyzed the history of the transaction and have responded to the commercial notice firmly stating our position that the transaction failed based on the inability of both sides to agree on terms and PlayLA's unilateral failure to close at the prescribed closing date."
13. On 8 September 2014 Mr Sterrick forwarded this document to Mr Porges and said: "All seems to be going well. With your selling, you will need to talk to Geoff. There is a bit of an issue and I think I need to keep well clear."
14. Mr Porges responded to Mr Sterrick on 8 September 2014 as follows: "I have been trying to talk to Geoff and he also has not been responding. I have been more than fair to this business over 14 years and have invested large amounts of money and reputation. Nobody has been as integral or committed to this business as I over an extended period. I have made representations to the tax office as to my investment and they have ruled on rollover based on this. I cannot go back and feel I have given you all enough warning. I either sell 200-500k of stock back to the company, or with their assistance, or I start discussing this with other shareholders/partners, with the obvious negative ramifications. I continue to want to do the right thing but cannot continue to be lied too [sic] and feel disappointed by the actions of both Geoff and yourself over this. My lack of trust concerns me as my word has been given and also my name used to investors This should be an easy and small matter or it should be a clusterf---." (Ellipsis in original.)
15. The primary judge said (Judgment [127]) that he understood the expression "clusterfuck" whether written elliptically or in full, to denote a perilous state of affairs, referring in this respect to Australian Securities and Investments Commission v Westpac Banking Corporation (No. 2) [2018] FCA 751 at [937]. Some sources suggest that the term is of military origin, indicating a chaotic situation where everything goes wrong. This is the second sense given to the word in the Oxford English Dictionary. Likewise, the Macquarie Dictionary describes the word as meaning "... an operation in which a number of things go wrong at the same time, or contributing to a disastrous situation."
16. The principal significance of this email is to demonstrate that Mr Porges was concerned to sell some of his stock in SecureOne for reasons unrelated to his taking up a position as chairman of DirectMoney. It is principally relevant to APE's pleading of the "Reluctant Seller Representation".
17. In a similar vein, Mr Porges wrote to Mr Cairns (copied to Mr Mages and Mr Sterrick) on 5 November 2014. The subject of his email was "Disgraceful". He wrote: "Geoff After I have done nothing for 14 years but support this company, personally pay wages, assist you in redefining our initial sale contract so you could continue to raise capital, pay my own way around the world to raise capital for the group (including personally paying for your meals, hotels etc), open my rolodex to all investors and defend others against Benson; to say I am disgusted by your suggestion is mild. Anything else I write now would simply be negative and abusive so achieve nothing. Simply take this to know that I will be selling as soon as possible and find myself again disappointed by the morality and ethics of people involved in these assets. Miles, I would strongly suggest you do not use me as a reference for investors."
18. On 11 November 2014, there was an exchange of emails between Mr Porges and Mr Mages (Chief Technology Officer and director of SecureOne) in relation to Mr Porges' attempt to obtain confirmation from SecureOne that it would approve a transfer of a portion of Mr Porges' shares. Mr Porges wrote: "... I am now put in a position of either placing the company and all shareholders at significant risk or putting myself and my family through extreme stress and selling my family home. Obviously as a senior business person here I cannot afford to place the investors at risk so I will have to bear the burden directly. That said, I am astonished by the decision and cannot see any value or logic that is achieved by your decision."
19. Mr Mages replied: "Again Stephen I'm unclear on the specificity of your disappointment. We want to make sure you are made whole and that goes for everyone who's a shareholder. Nothing has changed since our last correspondence. We are searching for new money and buyers. We have no spare cash. What exactly do you want and what changed?"
20. Mr Porges responded: "Very simple. Get money and cash for the company and I have again been doing all I can to assist this effort. Once that is done however, let me find a buyer of 500k of my stock and transfer to them. I obviously maintain the majority of my exposure but have a tax obligation to reduce. It should have no effect whatsoever on the company. Maybe Geoff is confused by that point."
21. Mr Mages then said that Geoff (Cairns) was "... working like a dog to buy your shares under favourable circumstances to both you and the company." Mr Porges then wrote: "I don't want him or the company to buy my shares. Someone else will i.e. a new shareholder. That is why it is not his problem. Why does he care if I or someone else owns them????? The predicament was exacerbated as I entered into the agreement only AFTER I told the co. I would be selling. Then after I get the ruling I am told you will not register a new holder. Again this makes no sense and either shows that on one was paying attention when first told or that the board wishes for some reason to penalise me??? For me to now undo the deal with the ATO, they will reanalyse but are p1ssed off and have threatened to do a complete audit of the company, its advisors and its shareholders. Thus I cannot really submit everyone to an audit. It truly should be that easy. I have absolutely no idea what is achieved by refusing to register the shares in someone else's name???"
22. Mr Mages then wrote to say he had not understood that all that Mr Porges wanted was to transfer his shares and he would vote to allow him to sell.
23. Mr Porges replied: "Bingo. I don't want the company to buy and NEVER have, I will find a buyer, indeed think I have one. It should be purely a transaction between me and the buyer as all normal share transactions are. The company only has to register the stock out of my name and into another."
24. As the primary judge found, Mr Porges' statement to Mr Mages that the Australian Taxation Office had threatened to do a complete audit of the company, its advisers and its shareholders evidently ruffled feathers. On 14 November 2014, Mr Sterrick asked Mr Porges to provide details of his assertion that the Australian Tax Office had a claim over SecureOne and its shareholders that would subject them to an audit. Mr Sterrick said that the company had had no communication from the ATO. Mr Porges did not respond to that query. His threat of an ATO audit appears to have been bluster to attempt to obtain board clearance for his wish to sell some of his shares.
25. On 14 and 17 November, Mr Cairns and a Mr James Mollison, a director of Nectar Partners, advised Mr Porges that SecureOne was willing to consider a partial sale of his holding in the company and requested that he forward his sale request and any concerns in writing to the company. SecureOne offered to buy back up to $500,000 worth of his shares at a price of $125 per share on condition that sufficient funds were raised to enable the purchase. Mr Cairns and Mr Mollison said that the board would approve a private party sale if a buyer identified by Mr Porges were not currently in dialogue with Nectar and if the buyer confirmed in writing that the sale price would be paid to Mr Porges and it was not funding company operations, or for any other purpose. They advised that the buyer would need to sign an investment disclosure document and a general release of the company.
26. On 22 November 2014, Mr Porges wrote to Mr Sterrick. The heading of the email was "Falling apart". Mr Porges said: "The secureOne story and team are falling apart. ME and Mystate both loose, shareholders increasingly pissed off, KPMG being, in my opinion, mislead and Peter Clare now also disengaged. I have been trying to tell james but he and Geoff do not appear to believe. We can either help and fix or watch it collapse. Your call Nero."
27. The obvious inference is that Mr Porges believed that SecureOne and its advisers were fiddling whilst the business burned. There was no evidence about the role of KPMG or how that firm, in Mr Porges' opinion, was being misled. There was no evidence as to the significance of disengagement of Mr Clare.
28. Mr Adcock deposed: "41. I believed that if Mr Porges was appointed to that role, it would be critical for Mr Porges to retain my full trust and confidence in order to remain in that position. For those reasons, I trusted that when Mr Porges was asking me to purchase shares in SecureOne, he would only be doing so if he believed that it was fair and reasonable for APE to purchase the shares from him and that he would disclose any knowledge he had about any issues that might affect SecureOne or its performance. 42. Based upon that trust, what Mr Porges had said to me during our conversations, the information in the email from Mr McComb referred to in paragraph 37 above, and Mr McComb's recommendation, I determined that APE would purchase 300 shares in SecureOne at $US500 per share. 43. If any of those things were absent, or if it had also been disclosed to me that SecureOne had financial difficulties, that its business was not progressing, that SecureOne and its major shareholders were then engaged in litigation as defendants in a major damages claim or that SecureOne did not have the funds to repay liabilities to Mr Porges, I would not have caused APE to purchase the shares."

Collapse of SecureOne

1. SecureOne was successful in having Play LA's action dismissed. But the costs of the proceedings resulted in SecureOne's demise.
2. On 5 January 2016, Mr Porges received a shareholder update from the management of SecureOne. It stated that "there were many watershed events last year that put the company on a great footing to finally break out in 2016." These were described. The shareholder update concluded as follows: "One last note to close upon. In early November, and with little fanfare, the company was successful in having the frivolous lawsuit, brought on by Play LA earlier in the year, dismissed. It is great to have been vindicated and to be able to put that chapter behind us. We have great technology and a winning team - now we can apply all our focus on the market ahead."
3. However, by a shareholder update dated 3 March 2016, received by Mr Porges on 7 March 2016, shareholders were advised that SecureOne had attempted to settle the proceedings brought by Play LA Inc on numerous occasions, but with no success. Mr Cairns advised that on or around 13 November 2015 SecureOne and some of the shareholders entered into a deed with its law firm in the British Virgin Islands, Ogier, in order to continue to be represented by that firm. The deed was described as: "... for settlement with Ogier of some $1,739,119 for liabilities incurred to defend the claim brought by Play LA against the Company on the failed transaction. The Company was to pay $848,408 on or before January 29, 2016 and to pay $848,408 on or before March 31, 2016. At December 31, 2015, $1,157,379 was owing to Ogier. Subsequent to the year ended December 31, 2015, the Company was only able to pay $539,865 towards the $848,408. • The company was $306,000 short in the payment due at the end of January and Ogier immediately issued a 14-day notice of demand to all companies, to all parties, included. • Agreement could not be reached within that period so Ogier issued statutory demands against all parties. These expire on 9 March for the entire debt of US$1,151,000 • Ogier have stated that if they do not receive payment or an acceptable payment arrangement by then, they will move to liquidate/bankrupt all the parties. • We are actively negotiating to find an acceptable payment arrangement and confident in our ability to do so using one of a couple of facilities afforded to us under BVI Law." (Underlining in original.)
4. In the message to shareholders the Company stated that it needed an immediate infusion of $2 million in bridge financing "... to remove the Ogier deed, give it time to raise further funds, and to close a first commercial deal."
5. That funding was not forthcoming.
6. The deed that Ogier entered into with SecureOne and the other defendants to Play LA's claim included a charge given by SecureOne of all of its patent rights.
7. On 31 May 2016 Ogier assigned its debt to a company called Transworld Holdings PCC Limited together with its security for the debt. Transworld Holdings brought proceedings in the British Virgin Islands claiming judgment for the assigned debt and orders that, amongst other things, SecureOne execute a deed of assignment of the patent interests in favour of Transworld Holdings. It does not appear from the appeal books whether or not the orders sought were made. But on 20 July 2018 Mr Porges admitted that the SecureOne shares sold to APE then had no value.

Mr Porges' evidence

1. Mr Porges made at least two affidavits in the proceedings. At the conclusion of the cross-examination of Mr Adcock, Mr Crutchfield QC, senior counsel for APE, said that the conclusion of Mr Adcock's evidence concluded APE's case subject to the tender of the court book or parts of it. Ms K Morgan SC, senior counsel for Mr Porges, sought an adjournment to obtain instructions as to whether or not Mr Porges would be called. She said that that was a matter that had been raised with Mr Crutchfield that morning as a possibility. She confirmed that the question of the contents of the court book that might be tendered would not influence that decision. After a short adjournment Ms Morgan indicated that she would not be calling any witnesses for the defendant, but that Mr Crutchfield had indicated he would like to tender paragraphs in Mr Porges' affidavit. She had not been given a list of those paragraphs at that time. Mr Crutchfield then indicated the paragraphs of Mr Porges' first affidavit that he tendered as admissions in the plaintiff's case. Mr Crutchfield said that there was no issue about documents that Mr Porges had exhibited to his affidavit, which were in the court book which was being tendered. Mr Crutchfield then tendered paragraphs from Mr Porges' first and second affidavits.
2. Amongst the paragraphs tendered by APE was paragraph 110 of Mr Porges' first affidavit in which he deposed as follows: "110. I refer to paragraph 35 of the Commercial List Statement: (a) At the time that I commenced my discussions with Adcock Private Equity regarding the purchase of my shares in S1, I had no knowledge of the Play LA legal proceedings or that S1 was involved in legal proceedings of any kind. (b) I first became aware that S1 was looking at doing a backdoor listing into Play LA sometime in early 2014. I then became aware sometime in mid-2014 that this was not proceeding. (c) On 26 June 2014, I received a copy of a draft press release which referred to S1 being 'surprised by Play LA Inc Actions' from Mr Sterrick, a copy of which is at paginated pages 214 to 215 of Exhibit SRP-1. Upon receiving this draft press release, I contacted Mr Sterrick to ask what the Play LA Inc Actions were about. On 3 July 2014, I received an email from Mr Sterrick which contained an explanatory note provided by Mr Cairns regarding S1 dated 2 July 2014. That note stated, amongst other things, that S1 had paid back all monies advanced (plus interest) as part of a deal with Play LA that failed. That note did not mention that any legal proceedings were on foot between Play LA and S1. At the time of reading the explanatory note, I did not believe there to be any such proceedings on foot between Play LA and S1 because there was no mention of such proceedings in that note, and no-one had told me any such thing. Upon reading the explanatory note, I understood that the proposed reverse merge deal between S1 and Play LA had been called off, with the result that S1 paid back to Play LA any monies owed to it plus interest, and hence no legal issues arose. At page 216 of Exhibit SRP-1 is a copy of the explanatory note which was forwarded to me by Mr Sterrick. In that chain of emails is a copy of an email from Mr Sterrick dated 27 June 2014 forwarding an email from Mr Cairns attaching a press release. I do not recall receiving a copy of the press release. Subsequently, S1 continued to raise capital at a higher valuation in the professional investor market as set out in the Information Memorandum. (d) In 3 September 2014, I received a shareholders' update from Mr Cairns. That update contained no mention of any proceedings on foot between S1 and Play LA. I note that the update refers to a 'commercial notice'. At the time of reading the shareholders' update, I did not understand the reference to the commercial notice as being a reference to a legal document or any originating process. From 4 September 2014 to 4 January 2016, I received no further updates regarding Play LA. At paginated pages 220 to 221 of Exhibit SRP-1 is a copy of the shareholders' update which was forwarded to me by Mr Sterrick on or around 3 September 2014. (e) The first time that I became aware that proceedings had been brought by Play LA against S1 was on 5 January 2016. This came as a surprise to me, as it was referred to in passing in a shareholders' update issued by Mr Cairns regarding S1 dated 5 January 2016, which stated that the proceedings had been dismissed. At pages 222 to 223 of Exhibit SRP-1 is a copy of the shareholders' update dated 5 January 2016, which was forwarded to me by Mr Sterrick. I cannot now recall whether the shareholders' update was provided to Mr Adcock, however I probably would have discussed it with him. (f) It was not until 7 March 2016 that I received a full update from Mr Cairns as to the background to the Play LA proceedings. At pages 224 to 229 of Exhibit SRP-1 is a copy of an email which I received from Mr Cairns in relation to this matter, which attaches a copy of a shareholder's updated [sic] dated 3 March 2016. I did not receive a copy of the shareholders' update when it was sent by Ms Jordan on 3 March 2016, because it was sent to the wrong email address, presumably my old email address which I used while at Aussie Home Loans. Mr Cairns subsequently forwarded it to me on 7 March 2016. I cannot recall whether Mr Cairns' email of 7 March 2016 or the Shareholders' update dated 3 March 2016 were forwarded to Mr Adcock, however I probably would have discussed these with him briefly as I was still gathering additional information regarding the shareholder dispute which arose from the late discovery of the Play LA proceedings."
3. It is unclear why APE tendered this paragraph, but it did. Before the primary judge Mr Crutchfield submitted that the picture presented in paragraph 110 that Mr Porges did not have any understanding there were ongoing issues concerning SecureOne on the one hand and Play LA on the other during 2014 could not possibly sit with documents that Mr Porges had in 2014. Whatever the motive behind APE's forensic decision to tender paragraph 110, it was part of the evidence that needed to be considered. The primary judge did not refer to it.

Primary judge's reasons

1. As noted above, the primary judge concluded that the following representations were conveyed: (1) that Mr Porges was involved in the day to day business of SecureOne and had reliable information about its performance; (2) that SecureOne had a viable business plan that was being effectively executed; (3) that APE was likely to make a net profit if it bought shares in SecureOne at USD 500; (4) that a purchase of shares in SecureOne at that price would be a good and profitable investment for APE; (Judgment [97]) and (5) that Mr Porges was a reluctant seller of the shares in SecureOne. (Judgment [108])
2. The primary judge held that Mr Porges engaged in conduct that was misleading or deceptive by not disclosing the matters summarised in paragraph 35 of the Commercial List Statement quoted at [14] above. His Honour said: "89 In my view, having regard to the circumstances as they existed as at 23 December 2014 when Mr Porges sent the Information Memorandum to Mr McComb, Mr McComb was entitled to think that if Mr Porges were aware of any information that would suggest the picture conveyed by the Information Memorandum was inaccurate, he would be told. Mr Porges had stressed his close involvement in SecureOne's business. He had suggested that he was desirous of retaining the bulk of his shareholding in the company. His professed reason for selling some shares was that he needed to raise funds to keep his wife in her accustomed style, given the diminished earnings he would receive as chairman of DMF. Mr Porges must have understood that he been approached to take on that role because DMF and APE trusted him and respected his experience and ability. 90 In all the circumstances, if (as has proved to be the case [14] ) Mr Porges had been aware of information that was inconsistent with the glowing picture he painted of SecureOne's prospects, the most basic considerations of commercial honesty would have dictated that he disclose those circumstances to APE. Certainly, APE, through Mr McComb, was entitled to think that it was being given all relevant information Mr Porges had concerning the purchase of shares in SecureOne. It was entitled to think that if Mr Porges had information that was inconsistent with the picture he was painting, he would, in the contemporary idiom, share it with APE. ... 150 It is impossible to accept that an intelligent and experienced businessman, as Mr Porges appears to have been, could have thought that the information summarised at [115]-[142] above was of no importance to APE, as a possible purchaser of some of Mr Porges' shares in APE. The only basis on which Mr Porges might have thought so would be that he believed, for reasons that objectively were reasonable, that APE was desirous of purchasing the shares regardless of the prospects of SecureOne's performance. Since Mr Porges did not give evidence, there is no basis on which I could conclude that he held such a belief. Nor is there any evidence on which I could conclude that such a belief, if held, was reasonably based. 151 The overwhelming impression that one gets from the events of June to December 2014, as I have summarised them above, is that Mr Porges had become disenchanted with his investment in SecureOne, had fallen out with the management of (and, perhaps, other investors in) SecureOne, and, in the vernacular, 'wanted out'. Mr Porges could not have failed to understand that if the Play Proceedings succeeded, SecureOne would be wiped out. Even if Mr Porges believed, on reasonable grounds, that the lawsuit would fail (and again, there is no evidence of belief nor of grounds), he must have understood that the cost of defending the proceedings would be a crippling burden for SecureOne to carry. The expense of defending the proceedings would have diverted SecureOne from its primary function of completing the development of its product and bringing it to market. 152 In my view, Mr Porges' conduct in making the Profit Representations but in failing to disclose the matters to which I have referred at [115]-[142] above was misleading or deceptive, or at the very least likely to mislead or deceive. It ought be so characterised because it withheld from the recipient of those representations, APE, information that any purchaser considering an investment in SecureOne shares would have thought material to its decision whether to proceed, and if so on what terms. There is no need for expert evidence on that point; the bright light of common sense illuminates a sure path to the conclusion."
3. The primary judge also found that the Reluctant Seller Representation was misleading because Mr Porges was not reluctant, but wanted to sell irrespective of his stated reason that he needed to sell to raise funds to enable his wife to be satisfied that her standard of living would not be adversely affected if he took up the position of chairman of DirectMoney, and for cashflow (Judgment [107] and [153]).
4. The primary judge found that Mr Porges' misleading or deceptive conduct in respect of the Profit and Reluctant Seller Representations was a cause of APE's decision to buy the shares in SecureOne from Mr Porges (Judgment [192]). In reaching that conclusion the primary judge rejected Mr Porges' submission that APE had failed to prove actual reliance because Mr Adcock gave no evidence of reliance on any representation, that APE would have proceeded in the same way as it did had it known the true position because its sole motivation was to secure Mr Porges as chairman of DirectMoney, that its failure to make enquiries or carry out due diligence broke the chain of causation, but it was obvious that any predictions as to the future of SecureOne were highly uncertain and it was committed to buying the first instalment of shares by 4 February 2015, well before much of the conduct relied upon to establish the representations occurred (Judgment [161] and [162]).
5. The primary judge accepted that Mr Adcock's evidence as to express reliance was scanty (Judgment [171]). This was true in respect of APE's pleaded case of reliance on the Profit Representations, but Mr Adcock's evidence of reliance on material information being disclosed was not scanty. The primary judge posited the question of what would have happened had Mr McComb or Mr Adcock been told that: "(1) SecureOne was a defendant in a lawsuit, and that if the lawsuit succeeded, SecureOne would collapse; (2) SecureOne would be crippled by the burden of paying legal costs to defend itself in that lawsuit; (3) there was a possibility that the ATO might audit, or further audit, SecureOne and its investors; (4) Mr Porges had ceased to trust the management of, and perhaps other investors in, SecureOne; or (5) at one stage towards the end of 2014, those matters in combination had led Mr Porges to the view that he should quit the whole of his holding in SecureOne." (Judgment [174])
6. The primary judge reasoned that had any of the above matters been disclosed it was unlikely that Mr McComb would have recommended the investment without further inquiry, nor concealed the information from Mr Adcock and, a fortiori, if several of those matters or all of those matters had been disclosed. The same answers would be given if those matters had been disclosed to Mr Adcock (Judgment [174]-[178]).
7. The primary judge rejected Mr Porges' submission that APE would have bought the shares regardless of what was disclosed or not disclosed to secure Mr Porges' agreement to being appointed chairman of DirectMoney (Judgment [179]-[183]). This conclusion was not challenged on appeal.

Grounds of appeal

1. There were 14 grounds of appeal. They can be grouped as follows. Grounds 1 and 2 challenged the primary judge's finding that Mr Porges represented to APE that he was involved in the day-to-day business of SecureOne and had reliable information about its performance. Grounds 3 and 4 challenged the primary judge's finding that Mr Porges represented to APE that he was a reluctant seller of the shares in SecureOne and that that representation continued before the second contract was negotiated and in part transacted on 3 June 2015. Grounds 5-8 asserted that the primary judge should have found that for the purposes of s 4 of the Australian Consumer Law (sic) evidence had been adduced of Mr Porges' having reasonable grounds for making the Profit Representations and Further Profit Representations and should have found that Mr Porges had reasonable grounds for making those representations. Grounds 9 and 10 asserted that the primary judge erred in finding that the Profit Representations and Further Profit Representations were misleading or deceptive or likely to mislead or deceive. Grounds 11 and 12 asserted that the primary judge erred in finding that APE relied upon a representation that Mr Porges was involved in the day-to-day business of SecureOne and had reliable information about its performance. Grounds 13 and 14 asserted that the primary judge erred in finding that APE relied upon the Reluctant Seller Representation and Further Reluctant Seller Representation.
2. As noted above, the notice of appeal did not include as a ground that the primary judge erred in finding that APE had run a case based on misleading or deceptive conduct by silence in Mr Porges' knowing of the matters pleaded in paragraph 35 of the Commercial List Statement (set out at para [14] above) and not disclosing those matters to APE. Contrary to Mr Porges' submission, that contention was not impliedly raised in grounds 5-8. No application was made to amend the grounds of appeal. Nor is there reason to doubt the correctness of the primary judge's findings at [113]-[114] of his judgment quoted at [16] above. Mr Adcock's evidence (quoted at [79] above) amply supports the primary judge's finding at [113]. The transcript of submissions supports the primary judge's finding at [114] quoted above at [16].

Disposition

1. The first representation the primary judge found had been conveyed, namely that Mr Porges was involved in the day-to-day business of SecureOne and had reliable information about its performance, was not itself causative of loss. APE did not allege that this representation was false. That is, APE did not allege that Mr Porges was not involved in the day-to-day business of SecureOne and did not have reliable information about its performance. Rather, it was Mr Porges who asserted that he did not have reliable information as to SecureOn's performance, as a partial answer to APE's contention that he had failed to disclose material matters about SecureOne's performance and risks to its business.
2. The effect of what was conveyed would be to add credibility to the Profit Representations alleged, but there was no evidence and the primary judge did not find that APE purchased the shares in SecureOne because of its reliance on this implied representation.
3. The representation, if conveyed, would also provide a basis for Mr Adcock and Mr McComb to expect that if there were some material matter that qualified the rosy prospects conveyed by the Profit Representations, that that would be known to Mr Porges and be disclosed by him.
4. The primary judge did not err in concluding that the effect of the email communications from Mr Porges to Mr McComb was that it conveyed by implication that Mr Porges had reliable information about SecureOne's performance. I do not think that the documents conveyed that Mr Porges was involved in the day-to-day business of SecureOne, but that is not the pith of the pleaded representation. As the primary judge found, the representation was conveyed by Mr Porges' email of 23 December 2014 to Mr McComb stating that the Information Memorandum was very old but gave some idea of where SecureOne was six months previously. As the primary judge found, this conveyed by inference that Mr Porges knew enough of the affairs of SecureOne that he could attest to the substantial historical accuracy of the Information Memorandum as of six months earlier (Judgment [86]).
5. The primary judge found that Mr Porges' longer email of 22 February 2015 (at [43] above) conveyed the very strong impression that Mr Porges was directly involved with SecureOne as he referred to "final discussions" with potential end-users of SecureOne's product and reported on one of those potential end-user's (AMP's) response to the SecureOne product. The primary judge found that the nature of the information conveyed suggested that Mr Porges was closely involved with the company (Judgment [92] and [93]). I agree.
6. The primary judge also found that the emails from Mr Porges of 9 and 30 April 2015 (at [49] and [51] above) confirmed the impression that Mr Porges was directly involved in the business affairs of SecureOne. By the time those emails were sent, APE had paid for the first tranche of shares. It had not paid for the second tranche. The primary judge found that the representations conveyed by the emails of 9 and 30 April 2015 effectively confirmed or corroborated the earlier representations made (Judgment [99]-[101]).
7. There was no error in that reasoning.
8. Mr Porges' grounds of appeal and submissions failed to grapple with the way in which the primary judge decided the case. He submitted that the primary judge ought to have found that he had reasonable grounds for making the Profit Representations for the reasons outlined in paragraph 110 of his affidavit quoted at [88] above and Mr Sterrick's email of 3 July 2014 (at [57] above) to which the primary judge did not refer. He also submitted that the 3 September 2014 shareholders' update did not indicate that the dispute with Play LA was likely to have any material impact on the financial viability of SecureOne, but rather reported on SecureOne's positive progress in bringing its product to the market.
9. But it was the non-disclosure of the matters summarised by the primary judge at judgment [174] (see [94] above) that in all of the circumstances of the case was found to have made Mr Porges' conduct misleading or deceptive or likely to mislead or deceive (Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 at [16]-[23]).
10. Some precision is needed in assessing the misleading and deceptive conduct found as a result of the non-disclosure. The non-disclosure of material matters did not falsify the pleaded Profit Representations. APE did not allege, nor could it have alleged, that Mr Porges had represented that he had given a complete statement of matters from which an assessment of SecureOne's prospects could be made. The Information Memorandum and the nine-page document provided did not purport to be prospectuses and they contained disclaimers, including a disclaimer that any forward-looking statement was based on numerous assumptions regarding the company's operations and present and future business and investment strategies in the markets in which it would operate and there could be no assurance that such statements or estimates or projections would be realised. Prospective investors were advised to obtain independent advice and no guarantee of any return was made.
11. In Demagogue Pty Ltd v Ramensky, Gummow J said (at 42, referring to French J's (as his Honour then was) remarks in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,193) that: "Unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist."
12. In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd, French CJ and Kiefel J observed: "20 In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. [Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 44] The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52. [cf the criticism that the "reasonable expectation" approach lacks underlying principle: De Wilde, "The Less Said - The Worse: Silence as Misleading and Deceptive Conduct", (2007) 15 Trade Practices Law Journal 7 at 10.] .. 22 However, as a general proposition, s 52 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. A fortiori it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence."
13. The primary judge found (at [90]) that: "In all the circumstances, if (as has proved to be the case) Mr Porges had been aware of information that was inconsistent with the glowing picture he painted of SecureOne's prospects, the most basic considerations of commercial honesty would have dictated that he disclose those circumstances to APE. Certainly, APE, through Mr McComb, was entitled to think that it was being given all relevant information Mr Porges had concerning the purchase of shares in SecureOne. It was entitled to think that if Mr Porges had information that was inconsistent with the picture he was painting, he would, in the contemporary idiom, share it with APE."
14. Mr Porges did not challenge that finding.
15. The matters deposed to by Mr Adcock set out at [79] above as to why he expected that Mr Porges would disclose any knowledge he had about any issues that might affect SecureOne or its performance, prima facie, provided a reasonable basis for the primary judge's finding. It is unnecessary to explore that issue further because the finding is not challenged.
16. Rather, Mr Porges submitted that the judge should have found that he was not aware of information inconsistent with the picture he painted of SecureOne.
17. However, Mr Porges was aware of Play LA's service of the Notice of Direct Claim. It plainly foreshadowed litigation if the claim were not resolved to its satisfaction. He knew that SecureOne had rejected the claim and therefore knew that litigation was on the cards.
18. Although Mr Porges had received the "explanatory note" from Mr Cairns on 3 July 2014 (see [57] above) in which Mr Cairns, with the apparent approval of SecureOne's lawyers, had said in substance that Play LA's claim had no merit, Mr Porges' email of 7 July 2014 to Mr Sterrick (at [61] above) shows that he considered that that claim was information he would need to disclose to potential purchasers of his shares if he had to sell his shares.
19. In his second affidavit of 19 April 2018 that was not read, but paragraphs of which were tendered by APE, Mr Porges deposed: "6. At no stage, did I demand from Mr Cairns that S1 buy back my shares. The discussions which I had with Mr Cairns related to finding a mutually acceptable means by which I could sell my shares in S1, whether they be sold back to S1 or to a private third party buyer. At the time that I was contemplating selling my shares in S1, I was assisting S1 in finding a number of new investors for its next round of capital raising. In or around July 2014, a conversation took place with Mr Cairns, during which words to the following effect were spoken by me: Me: Geoff, as you know - I am looking to sell $500K of my shares in S1. Given that the company is now in the process of seeking potential investors for the next round of capital raising - rather than me trying to sell stock at the same time, it would be better for the company if it raised the additional money and then underwent a selective buy-back of the shares from me, say at a discount of 10%. 7. Based on my experience, share buybacks were standard practice and was nothing out of the ordinary, particularly as S1 was again asking for my assistance for potential investors. S1 would raise capital and then undertake a selective buy back of the shares from me at a discounted price (which based on my experience, would usually be around 10%). This would prevent a situation from occurring where I would be trying to sell my shares in S1 at a different price to similar investors that the company was targeting as part of its capital raising process."
20. It can be inferred from Mr Porges' email of 7 July 2014 to Mr Sterrick (at [61] above) that Mr Porges was concerned that he would have to disclose the Play LA claim to a potential purchaser if he were to attempt to sell his shares and that he preferred to leave questions of disclosure to SecureOne. That inference can be more readily drawn because Mr Porges did not give evidence.
21. In paragraph 110(d) of Mr Porges' affidavit, that was tendered by APE, he deposed that on receiving the shareholders' update from Mr Cairns on 3 September 2014 he did not understand Mr Cairns' reference to a "commercial notice" as being a reference to a legal document or any originating process. What Mr Cairns said in relation to Play LA is set out at [63] above. The fact that APE tendered paragraph 110 of Mr Porges' affidavit, apparently because it thought that the paragraph contained admissions, does not mean that APE is taken to have acknowledged the truth of the matters to which Mr Porges deposed. Indeed, it appears that APE's counsel thought that APE's case would be advanced by tendering statements in Mr Porges' affidavit in order to discredit them.
22. Although paragraph 110(d) of Mr Porges' affidavit is part of the evidence in the case, it is not credible that he did not regard the "commercial notice" as being a legal document that foreshadowed litigation. It was not itself an originating process. But it foreshadowed an originating process. Mr Porges deposed that he was not aware until 5 January 2016 that proceedings had been brought by Play LA, and there is no contrary evidence. But the paragraphs of his affidavits that were tendered by APE provide no basis for concluding that Mr Porges believed that Play LA's claim had been resolved, and at no material cost to SecureOne.
23. The primary judge found (at judgment [151] quoted at [91] above) that there was no evidence that Mr Porges believed or, if he did so believe that he did so on reasonable grounds, that Play LA's lawsuit would fail. The evidence of Mr Porges tendered by APE was that he was unaware that a lawsuit had been filed. He had information from the company that management and the company's legal advisers considered the claim to be without merit. But at the time of his dealings with APE, so far as appears (Mr Porges' not having given evidence), Mr Porges was unaware as to whether the threatened lawsuit had been filed or not. If it had been filed and was successful, the result would be devastating to SecureOne. If it had been filed but was unsuccessful, the result might or might not be devastating to SecureOne, depending upon the costs that might have been incurred already and would be incurred in the future in defending the suit, and the recoverability of those costs.
24. Mr Porges knew that SecureOne was strapped for cash. In his email of 7 July 2014 to Mr Sterrick (quoted at [61] above) he complained that he "... personally funded salaries, travel, accommodation etc. for years." The Information Memorandum for the raising of May 2014 for the raising of funds for US$500 per share stated that the funding to be raised was to "... complete a proof of concept with two live trials with major banks. A smaller portion will be allocated to meet the expected working capital needs as the Company executes its commercialisation strategy." The later nine-page document provided to Mr Porges on 24 March 2015 simply stated that US$2 million was sought to be raised at US$750 per share "... to capitalize on available market opportunities and to cashflow the business through the near term." Mr Porges gave no evidence that he believed that no significant costs had been or would be incurred in defending Play LA's claims.
25. The fact that Play LA had made its claim, that that claim had not been resolved, and Mr Porges (assumedly) did not know what costs had been and would be incurred in defending the claim were material matters that APE could reasonably expect to be told. The primary judge did not err in concluding that Mr Porges engaged in misleading and deceptive conduct by not disclosing to APE his knowledge of Play LA's claim.
26. The primary judge also found that Mr Porges engaged in misleading and deceptive conduct in not disclosing that he "... had become disenchanted with his investment in SecureOne, had fallen out with the management of (and perhaps other investors in) SecureOne, and, in the vernacular, 'wanted out'." (Judgment [151] and [152]).
27. I do not accept that the evidence established that Mr Porges "wanted out". He had a substantial shareholding in SecureOne. He had 7,576 shares registered in his own name amounting to in excess of 14 per cent of the shareholdings. He sold only 1,100 of those shares to APE. His correspondence with Mr Cairns, Mr Sterrick and Mr Mages in 2014 related to his wish to sell an even smaller portion of those shares.
28. Nonetheless, Mr Porges' strident complaints to Mr Sterrick, Mr Cairns and Mr Mages were not wholly attributable to his frustration in not obtaining SecureOne's assistance or co-operation in his selling shares. His email of 5 November 2014 to Mr Cairns (at [68] above) shows that he was disenchanted with the morality and ethics of management of SecureOne. Mr Porges' email of 22 November 2014 (at [77] above) at least implies that he did not consider that SecureOne was likely to secure the business of ME and Mystate ("both loose"). He did not give evidence to explain the role of KPMG or how in his opinion KPMG had been misled, nor the significance of Mr Peter Clare's being disengaged. As noted at [78] above, it can be inferred that he believed that SecureOne and its advisers were fiddling whilst its business burned.
29. There was no error in the primary judge's finding that Mr Porges had become disenchanted with his investment in SecureOne and had fallen out with its management. He did not disclose that to APE. The primary judge did not err in concluding that for this reason also he engaged in conduct that was misleading or deceptive or likely to mislead or deceive APE.
30. The primary judge also found that these matters falsified the Reluctant Seller Representation. He said that Mr Porges was not reluctant, but wanted to sell.
31. It is clear that Mr Porges did want to sell. He did not say otherwise to APE. The reason he gave to APE for wanting to sell was to satisfy the need for cash to satisfy his wife's lifestyle and to take up another investment opportunity. Those were not his only reasons. But APE did not plead that Mr Porges engaged in misleading or deceptive conduct by not disclosing his full reasons for wanting to sell shares in SecureOne to APE.
32. I do not consider that Mr Porges made the Reluctant Seller Representation. Otherwise I am of the opinion that the primary judge did not err in concluding that Mr Porges engaged in misleading and deceptive conduct or conduct that was likely to mislead or deceive APE in its purchase of shares in SecureOne from Mr Porges by reason of his not disclosing to APE his knowledge of Play LA's claim and his disenchantment with the management of SecureOne.
33. There was no challenge to the primary judge's finding that that misleading and deceptive conduct was causative of APE's loss. There was no challenge to his Honour's finding that damages should not be reduced on account of contributory negligence.
34. For these reasons I would order that the appeal be dismissed with costs.
35. SACKVILLE AJA: I agree with White JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 April 2019